Coach 2011 Annual Report Download - page 69

TABLE OF CONTENTS
COACH, INC.
Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
8. COMMITMENTS AND CONTINGENCIES – (continued)
Coach is a party to employment agreements with certain key executives which provide for compensation and other benefits. The
agreements also provide for severance payments under certain circumstances. The Company’s employment agreements and the respective
end of initial term dates are as follows:
Executive Title End of Initial Term(1)
Lew Frankfort Chairman and Chief Executive Officer August 2012
Reed Krakoff President and Executive Creative Director June 2014
Michael Tucci President, North America Retail Division June 2013
(1) Once the initial term expires, these agreements automatically renew for successive one year terms unless either the employee or Board
provides notice
In addition to the employment agreements described above, other contractual cash obligations as of June 30, 2012 and July 2, 2011
included $212,084 and $195,382, respectively, related to inventory purchase obligations and $1,272 and $1,087, respectively, related to
capital expenditure purchase obligations. In addition, as of June 30, 2012, the Company had an irrevocable commitment to fund the Coach
Foundation in the amount of $18,900 in fiscal 2013, and made a total of $20,270 in cash contributions to the Coach Foundation during
fiscal 2012.
In the ordinary course of business, Coach is a party to several pending legal proceedings and claims. Although the outcome of such
items cannot be determined with certainty, Coach's general counsel and management are of the opinion that the final outcome will not have a
material effect on Coach's cash flow, results of operations or financial position.
9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Substantially all purchases and sales involving international parties, excluding consumer sales at Coach Japan, Coach Canada, Coach
China, Coach Singapore, and Coach Taiwan, are denominated in U.S. dollars, which limits the Company’s exposure to foreign currency
exchange rate fluctuations. However, the Company is exposed to market risk from foreign currency exchange risk related to Coach Japan’s
and Coach Canada’s U.S. dollar-denominated inventory purchases and various cross-currency intercompany and related party loans.
Coach uses derivative financial instruments to manage these risks. These derivative transactions are in accordance with the Company’s
risk management policies. Coach does not enter into derivative transactions for speculative or trading purposes.
Coach Japan and Coach Canada enter into certain foreign currency derivative contracts, primarily zero-cost collar options, to manage
the exchange rate risk related to their inventory purchases. As of June 30, 2012 and July 2, 2011, $310,891 and $171,030 of foreign
currency forward contracts were outstanding, respectively.
On June 30, 2011, to manage the exchange rate risk related to a $109,110 intercompany loan, Coach Japan entered into a cross-currency
swap transaction, the terms of which included an exchange of Japanese yen fixed interest for U.S. dollar fixed interest and an exchange of
yen and U.S. dollar based notional values at maturity on December 29, 2011. On December 29, 2011, Coach Japan repaid the loan and
settled the cross-currency swap. Concurrently, Coach Japan entered into a new $65,000 intercompany loan agreement and a cross currency
swap transaction, the terms of which included an exchange of a Japanese yen fixed interest for a U.S. dollar fixed interest and an exchange
of yen and U.S. dollar based notional values at maturity. The loan and swap were settled at maturity in June 2012.
During fiscal 2012, the Company entered into various intercompany and related party loans denominated in various foreign currencies.
These loans have a total notional value of approximately $206,648 as of June 30, 2012 and maturity dates ranging from July 2012 to June
2013. To manage the exchange rate risk
66