Coach 2011 Annual Report Download - page 60

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)
and $61,241, respectively, and are included in selling, general and administrative expenses. Advertising costs are expensed when the
advertising first appears.
Share-Based Compensation
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The grant-date fair value of the award is recognized as compensation expense over the vesting period.
Shipping and Handling
Shipping and handling costs incurred were $52,240, $31,522, and $22,661 in fiscal 2012, fiscal 2011 and fiscal 2010, respectively,
and are included in selling, general and administrative expenses.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, “ Income Taxes.” Under
ASC 740, a deferred tax liability or asset is recognized for the estimated future tax consequences of temporary differences between the
carrying amounts of assets and liabilities in the financial statements and their respective tax bases. In evaluating the unrecognized tax
benefits associated with the Company’s various tax filing positions, management records these positions using a more-likely-than-not
recognition threshold for income tax positions taken or expected to be taken in accordance with ASC 740. The Company classifies interest
and penalties, if present, on uncertain tax positions in the Provision for income taxes. See the note on Change in Accounting Principle.
Fair Value of Financial Instruments
As of June 30, 2012 and July 2, 2011, the carrying values of cash and cash equivalents, trade accounts receivable, accounts payable
and accrued liabilities approximated their values due to the short-term maturities of these accounts. The Company has evaluated its
Industrial Revenue Bond and mortgage and believes, based on the interest rates, related terms and maturities, that the fair values of such
instruments approximate their carrying amounts. See note on Fair Value Measurements for the fair values of the Company’s investments as
of June 30, 2012 and July 2, 2011.
Coach Japan and Coach Canada enter into foreign currency contracts that hedge certain U.S. dollar- denominated inventory purchases.
Additionally, the Company entered into forward exchange and cross-currency swap contracts to hedge various intercompany and related
party loans denominated in various foreign currencies. These contracts qualify for hedge accounting and have been designated as cash flow
hedges. The fair value of these contracts is recorded in other comprehensive income (loss) and recognized in earnings in the period in which
the hedged item is also recognized in earnings. The fair values of the foreign currency derivatives are based on the forward curves of the
specific indices upon which settlement is based and includes an adjustment for the Company’s credit risk. Considerable judgment is
required of management in developing estimates of fair value. The use of different market assumptions or methodologies could affect the
estimated fair value.
Foreign Currency
The functional currency of the Company's foreign operations is generally the applicable local currency. Assets and liabilities are
translated into U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at
the weighted-average exchange rates for the period. The resulting translation adjustments are recorded as a component of accumulated other
comprehensive income within stockholders’ equity.
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