Coach 2002 Annual Report Download - page 32

Table of Contents
remaining $7 million was used for information systems and corporate facilities. We financed these investments from on hand cash,
internally generated cash flows and funds from our revolving credit facilities.
Coach experiences significant seasonal variations in its working capital requirements. During the first fiscal quarter Coach builds
inventory for the holiday selling season, opens new retail stores and generates higher levels of trade receivables. In the second fiscal quarter
its working capital requirements are reduced substantially as Coach generates consumer sales and collects wholesale accounts receivable. In
fiscal 2003, Coach purchased approximately $283 million of inventory, which was funded by on hand cash, operating cash flow and by
borrowings under its revolving credit facility.
Management believes that cash flow from operations and availability under the revolving credit facilities will provide adequate funds for
the foreseeable working capital needs, planned capital expenditures and the common stock repurchase program. Any future acquisitions,
joint ventures or other similar transactions may require additional capital, and there can be no assurance that any such capital will be
available to Coach on acceptable terms or at all. Coach’s ability to fund its working capital needs, planned capital expenditures and scheduled
debt payments, and to comply with all of the financial covenants under its debt agreements, depends on its future operating performance and
cash flow, which in turn are subject to prevailing economic conditions and to financial, business and other factors, some of which are beyond
Coach’s control.
Currently, Sara Lee is a guarantor or a party to many of Coach’s leases. Coach has agreed to make efforts to remove Sara Lee from all of
its existing leases, and Sara Lee is not a guarantor or a party to any new or renewed leases. Coach has obtained a letter of credit for the
benefit of Sara Lee in an amount approximately equal to the annual minimum rental payments under leases transferred to Coach by Sara
Lee, but for which Sara Lee retains contingent liability. Coach is required to maintain this letter of credit until the annual minimum rental
payments under the relevant leases are less than $2.0 million. The initial letter of credit had a face amount of $20.6 million, and we expect
this amount to decrease annually as Coach’s guaranteed obligations are reduced. As of June 28, 2003 the letter of credit was $19.8 million.
We expect that we will be required to maintain the letter of credit for at least 10 years.
The following represents the scheduled maturities of Coach’s long-term contractual obligations as of June 28, 2003.
Payments Due by Period
Less than 1-3 4-5 After 5
1 year Years Years Years Total
(amounts in millions)
Operating leases $47.0 $90.5 $79.1 $163.0 $379.6
Revolving credit facility 26.5 — — — 26.5
Long-term debt, including the current portion 0.1 0.3 0.4 2.9 3.6
Total $73.6 $90.8 $79.5 $165.9 $409.7
Coach does not have any off-balance-sheet financing or unconsolidated special purpose entities. Coach’s risk management policies
prohibit the use of derivatives for trading purposes. The valuation of financial instruments that are marked-to-market are based upon
independent third party sources.
Long-Term Debt
Coach is party to an industrial revenue bond related to its Jacksonville facility. This loan has a remaining balance of $3.6 million and
bears interest at 8.77%. Principal and interest payments are made semi-annually, with the final payment due in 2014.
Tax Rate
Coach has completed the shutdown of its Lares, Puerto Rico, manufacturing facility. The shutdown eliminated the tax benefit Coach has
received under Section 936 of the Internal Revenue Code. As a result, in fiscal year 2003 the effective tax rate increased to 37%.
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