Coach 2012 Annual Report Download - page 58

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
55