Coach 2012 Annual Report Download - page 66

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COACH, INC.
Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
6. FAIR VALUE MEASUREMENTS − (continued)
The following table shows the fair value measurements of the Company’s assets and liabilities at
June 30, 2012 and July 2, 2011:
Level 2 Level 3
June 30,
2012
July 2,
2011
June 30,
2012
July 2,
2011
Assets:
Long-term investment − auction rate security
(a)
. . . $ — $ — $6,000 $6,000
Derivative assets − zero-cost collar options
(b)
.... 971 2,020 — —
Derivative assets − forward contracts and cross
currency swaps
(c)
..................... 488 — — —
Total ................................ $1,459 $2,020 $6,000 $6,000
Liabilities:
Derivative liabilities − zero-cost collar options
(b)
. . $3,538 $1,062 $ — $ —
Derivative liabilities − forward contracts and
cross-currency swaps
(c)
................. 560 — — 651
Total ................................ $4,098 $1,062 $ — $ 651
(a) The fair value of the security is determined using a valuation model that takes into consideration the
financial conditions of the issuer and the bond insurer, current market conditions and the value of the
collateral bonds.
(b) The Company enters into zero-cost collar options to manage its exposure to foreign currency exchange
rate fluctuations resulting from Coach Japan’s and Coach Canada’s U.S. dollar-denominated inventory
purchases. The fair value of these cash flow hedges is primarily based on the forward curves of the
specific indices upon which settlement is based and includes an adjustment for the counterparty’s or
Company’s credit risk.
(c) The Company is a party to forward contracts and cross-currency swap transactions to manage its
exposure to foreign currency exchange rate fluctuations resulting from fixed rate intercompany and
related party loans. The fair value of these cash flow hedges is primarily based on the forward curves of
the specific indices upon which settlement is based and includes an adjustment for the Company’s credit
risk.
See note on Derivative Instruments and Hedging Activities for more information on the Company’s
derivative contracts.
As of June 30, 2012 and July 2, 2011, the Company’s investments included an auction rate security
(‘‘ARS’’) classified as a long-term investment, as the auction for this security has been unsuccessful. The
underlying investments of the ARS are scheduled to mature in 2035. We have determined that the significant
majority of the inputs used to value this security fall within Level 3 of the fair value hierarchy as the inputs
are based on unobservable estimates. The fair value of the Company’s ARS has been $6,000 since the end of
the second quarter of fiscal 2009.
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