Coach 2007 Annual Report Download - page 20

fiscal year and the incremental expense associated with having a full year of expenses related to stores opened in the prior year. The increase
in Coach Japan operating expenses was primarily driven by increased variable expenses related to higher sales and new store operating
expenses. The impact of foreign currency exchange rates increased reported expenses by approximately $19.2 million. The remaining
increase in selling expenses was due to increased variable expenses to support sales growth in other channels.
The increase in advertising, marketing and design costs was primarily due to increased expenses related to direct-mail marketing
programs and increased staffing costs.
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Distribution and consumer service expenses decreased primarily due to efficiency gains, partially offset by higher sales volume.
Efficiency gains also led to an improvement in distribution and consumer service expenses as a percentage of net sales.
Administrative expenses increased primarily as a result of $32.1 million of one-time charges recorded in the fourth quarter of fiscal
2008. One-time charges consisted of a contribution to the newly created Coach Foundation of $20.0 million and $12.1 million of increased
variable compensation expenses, attributable to the increase in net income as a result of a one-time tax benefit discussed below. Excluding
these one-time charges, the increase in administrative expenses was driven by an increase in employee staffing costs, including share-based
compensation expense and an increase in consulting and depreciation expenses as a result of investments in technology systems.
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Interest income, net was $47.8 million in fiscal 2008 as compared to $41.3 million in fiscal 2007. This increase was primarily due to a
reduction of $10.7 million of interest expense, related to a one-time tax benefit discussed below. Excluding this benefit, interest income, net
decreased primarily as a result of lower returns on our investments as a result of lower interest rates.
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The effective tax rate was 34.5% in fiscal 2008 compared to 38.5% in fiscal 2007. During the fourth quarter of fiscal 2008, the
Company recorded a one-time benefit of $50.0 million, primarily related to a favorable settlement of a tax return examination. Excluding this
benefit, the effective tax rate in fiscal 2008 was essentially flat as compared to the fiscal 2007 effective rate.
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Income from continuing operations increased 23.0% to $783.0 million in fiscal 2008 compared to $636.5 million in fiscal 2007.
Excluding one-time items of $41.0 million discussed above, income from continuing operations was $742.0 million, a 16.6% increase over
prior year. The increase is primarily attributable to increased net sales as discussed above.
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In March 2007, the Company exited its corporate accounts business in order to better control the location and image of the brand where
Coach product is sold. Through the corporate accounts business, Coach sold products primarily to distributors for gift-giving and incentive
programs. The results of the corporate accounts business, previously included in the Indirect segment, have been segregated from continuing
operations and reported as discontinued operations in the Consolidated Statements of Income for all periods presented.
In fiscal 2007, net sales and net income from discontinued operations were $66.5 million and $27.1 million, respectively. In fiscal
2008, net sales and net income from discontinued operations were not significant.
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The Company’s reported results are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The
reported selling, general, and administrative expenses, operating income, interest income, net, provision for income taxes, income from
continuing operations, net income and earnings per diluted share from continuing operations reflect certain one-time items recorded in the
fourth quarter of fiscal 2008. These metrics are also reported on a non-GAAP basis to exclude the impact of these one-time items. The
Company believes these non-GAAP financial measures are useful to investors in evaluating the Company’s ongoing operating and financial
results and understanding how such results compare with the Company’s prior guidance. The non-GAAP financial measures should be
considered in addition to, and not in lieu of, U.S. GAAP financial measures.
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The following table summarizes results of operations for fiscal 2007 compared to fiscal 2006:
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   
 (dollars in millions, except per share data)