Coach 2002 Annual Report Download - page 50

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Table of Contents
COACH, INC.
Notes to Consolidated Financial Statements — (Continued)
(dollars and shares in thousands, except per share data)
method, compensation expense is the excess, if any, of the quoted market price of the stock at the grant date or other measurement date over
the amount an employee must pay to acquire the stock. The Company has elected to account for its stock-based employee compensation
plans under APB Opinion No. 25 with pro forma disclosures of net earnings and earnings per share, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
The pro forma disclosure of net income and net income per share as if the fair value based method of accounting defined in the SFAS
No. 123 had been applied is as follows:
Fiscal Year Ended
June 28, June 29, June 30,
2003 2002 2001
Net income, as reported $146,628 $85,827 $64,030
Deduct:
Total stock-based employee compensation expense determined
under the fair value based method for all awards, net of related tax
effects (15,947) (10,227) (5,146)
Proforma net income $130,681 $75,600 $58,884
Earnings per share:
Basic — as reported $1.63 $0.97 $0.78
Basic — proforma $1.46 $0.86 $0.72
Diluted — as reported $1.58 $0.94 $0.76
Diluted — proforma $1.41 $0.83 $0.70
Fair Value of Financial Instruments
The fair value of the revolving credit facility at June 28, 2003 and June 29, 2002 approximated its carrying value due to its floating
interest rates. The Company has evaluated its industrial revenue bond and believes, based on the interest rate, related term and maturity,
that the fair value of such instrument approximates its carrying amount. As of June 28, 2003 and June 29, 2002, the carrying values of cash
and cash equivalents, trade accounts receivable, accounts payable, and accrued liabilities approximated their values due to the short-term
maturities of these accounts.
Coach, through Coach Japan, enters into foreign currency forward contracts that hedge certain U.S. dollar denominated inventory risk,
that have been designated for hedge accounting. The fair value of these contracts are recognized in other comprehensive income. The fair
value of the foreign currency derivative is based on its market value as determined by an independent party. However, considerable judgment
is required in developing estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts
that Coach could settle in a current market exchange. The use of different market assumptions or methodologies could affect the estimated
fair value.
Foreign Currency
The functional currency of the Company’s foreign operations is the applicable local currency. Assets and liabilities are translated into
U.S. dollars using the current exchange rates in effect at the balance sheet date, while revenues and expenses are translated at the weighted-
average exchange rates for the period. The
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