Coach 2011 Annual Report Download - page 59

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)
retired when acquired. During the second quarter of fiscal 2008, the Company’s total cumulative stock repurchases exceeded the total shares
issued in connection with the Company’s October 2000 initial public offering, and stock repurchases in excess of this amount are assumed
to be made from the Company’s April 2001 Sara Lee exchange offer. Shares issued in connection with this exchange offer were accounted for
as a contribution to common stock and retained earnings. Therefore, stock repurchases and retirements associated with the exchange offer
are accounted for by allocation of the repurchase price to common stock and retained earnings. During the fourth quarter of fiscal 2010,
cumulative stock repurchases allocated to retained earnings have resulted in an accumulated deficit balance. Since its initial public offering,
the Company has not experienced a net loss in any fiscal year, and the net accumulated deficit balance in stockholders’ equity is
attributable to the cumulative stock repurchase activity. The total cumulative amount of common stock repurchase price allocated to retained
earnings as of June 30, 2012 was approximately $5,800,000.
Revenue Recognition
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 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 or remitted as escheatable property, based on
historical redemption patterns and escheatment laws, and records such amounts as breakage revenue when we can determine the portion of
the liability where redemption is remote, which is approximately two years after the gift card is issued. Revenue associated with gift card
breakage is not material to the Company’s net operating results. Allowances for estimated uncollectible accounts, discounts and returns are
provided when sales are recorded. Royalty revenues are earned through license agreements with manufacturers of other consumer products
that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee. Taxes
collected from customers and remitted to governmental authorities are recorded on a net basis and therefore are excluded from revenue.
Cost of Sales
Cost of sales consists of cost of merchandise, inbound freight and duty expenses, and other inventory-related costs such as shrinkage,
damages, replacements and production overhead.
Selling, General and Administrative Expenses
Selling, general and administrative expenses are comprised of four categories: (1) selling; (2) advertising, marketing and design; (3)
distribution and consumer service; and (4) administrative. Selling expenses include store employee compensation, store occupancy costs,
store supply costs, wholesale account administration compensation and all Coach Japan, Coach China, Coach Singapore, and Coach
Taiwan operating expenses. Advertising, marketing and design expenses include employee compensation, media space and production,
advertising agency fees, new product design costs, public relations, market research expenses and mail order costs. Distribution and
consumer service expenses include warehousing, order fulfillment, shipping and handling, customer service and bag repair costs.
Administrative expenses include compensation costs for the executive, finance, human resources, legal and information systems
departments, corporate headquarters occupancy costs, and consulting and software expenses.
Preopening Costs
Costs associated with the opening of new stores are expensed in the period incurred.
Advertising
Advertising costs include expenses related to direct marketing activities, such as catalogs, media and production costs. In fiscal 2012,
fiscal 2011 and fiscal 2010, advertising expenses totaled $89,159, $74,988,
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