Coach 2011 Annual Report Download - page 58

TABLE OF CONTENTS
COACH, INC.
Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
2. SIGNIFICANT ACCOUNTING POLICIES – (continued)
with high-credit quality financial institutions and currently invests primarily in U.S. government and agency debt securities, municipal
government and corporate debt securities, and money market instruments placed with 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.
Inventories
Inventories consist primarily of finished goods and are valued at the lower of cost (determined by the first-in, first-out method) or
market. Inventory costs include material, conversion costs, freight and duties.
Property and Equipment
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. Buildings are depreciated over 40 years. 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.
Operating Leases
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.
Goodwill and Other Intangible Assets
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 2012, fiscal 2011 and
fiscal 2010 and concluded that there was no impairment of its goodwill or indefinite life intangible assets.
Valuation of Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable. The evaluation is based on a review of forecasted operating cash flows and the
profitability of the related asset group. 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 2012, fiscal 2011 and fiscal 2010 and concluded that there was no
impairment of its long-lived assets for stores expected to remain open.
Stock Repurchase and Retirement
Coach accounts for stock repurchases and retirements by allocating the repurchase price to common stock, additional paid-in-capital
and retained earnings. The repurchase price allocation is based upon the equity contribution associated with historical issuances, beginning
with the earliest issuance. Under Maryland law, Coach’s state of incorporation, treasury shares are not allowed. As a result, all repurchased
shares are
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