Coach 2006 Annual Report Download - page 46

Expected long term return on plan assets 6.50% 6.75% 6.75%
Rate of compensation increase(1) 3.00% 3.00% N/A
(1) Fiscal 2005 did not include the Coach Japan, Inc. plan. As the U.S. Plan provides benefits based on years of service only, the rate of
compensation increase assumption was not applicable in fiscal 2005.
To develop the expected long-term rate of return on plan assets assumption, the Company considered the current level of expected returns
on risk-free investments (primarily government bonds), the historical level of the risk premium associated with the other asset classes in
which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then
weighted based on the target asset allocation to develop the expected long-term rate of return on plan assets assumption for the portfolio. This
resulted in the selection of the 6.50% assumption for the fiscal year ended June 30, 2007.
During fiscal 2008, approximately $257 of actuarial loss will be amortized from accumulated other comprehensive income (loss) into
net periodic benefit cost.
In the Company’s U.S. Plan, funds are contributed to a trust in accordance with regulatory limits. The weighted-average asset
allocations of the U.S. Plan, by asset category, as of the measurement dates, are as follows:

  

Domestic equities 65.3% 61.3%
International equities 4.1 6.8
Fixed income 27.3 28.5
Cash equivalents 3.3 3.4
Total 100.0% 100.0%
59





The goals of the investment program are to fully fund the obligation to pay retirement benefits in accordance with the Coach, Inc.
Supplemental Pension Plan and to provide returns which, along with appropriate funding from Coach, maintain an asset/liability ratio that
is in compliance with all applicable laws and regulations and assures timely payment of retirement benefits. The target allocation range of
percentages for each major category of plan assets are as follows:
 
Equity securities 30% 70%
Fixed income 25% 55%
Cash equivalents 5% 25%
The equity securities category includes common stocks and co-mingled funds of approved securities. The target allocation of securities
is a maximum of 5% of equity assets in any one individual common or preferred stock and a maximum of 15% in any one mutual fund.
Coach expects to contribute $448 to its U.S. Plan during the year ending June 28, 2008. Coach Japan expects to contribute $123 for
benefit payments during the year ending June 28, 2008. The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:
 

2008 $ 451
2009 480
2010 548
2011 656
2012 694
2013 – 2017 3,791

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 stores in North America and Japan, the Internet and the Coach catalog constitute the Direct-to-Consumer segment. The
Indirect segment includes sales of Coach products to other retailers and royalties earned on licensed products. 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. Unallocated corporate expenses include production variances,