Coach 2012 Annual Report Download - page 69

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
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