Coach 2007 Annual Report Download - page 36

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Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the
estimated useful lives of the assets. Machinery and equipment are depreciated over lives of five to seven years and furniture and fixtures are
depreciated over lives of three to five years. Leasehold improvements are amortized over the shorter of their estimated useful lives or the
related lease terms. Maintenance and repair costs are charged to earnings as incurred while expenditures for major renewals and
improvements are capitalized. Upon the disposition of property and equipment, the cost and related accumulated depreciation are removed
from the accounts.
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The Company’s leases for office space, retail stores and the distribution facility are accounted for as operating leases. The majority of
the Company’s lease agreements provide for tenant improvement allowances, rent escalation clauses and/or contingent rent provisions.
Tenant improvement allowances are recorded as a deferred lease credit on the balance sheet and amortized over the lease term, which is
consistent with the amortization period for the constructed assets. Rent expense is recorded when the Company takes possession of a store to
begin its buildout, which generally occurs before the stated commencement of the lease term and is approximately 60 to 90 days prior to the
opening of the store.
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Goodwill and indefinite life intangible assets are evaluated for impairment annually or more frequently if events or changes in
circumstances indicate that the asset might be impaired. The Company performed an impairment evaluation in fiscal 2008, fiscal 2007 and
fiscal 2006 and concluded that there was no impairment of its goodwill or indefinite life intangible assets.
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Long-lived assets, such as property and equipment, are evaluated for impairment annually to determine if the carrying value of the
assets is recoverable. The evaluation is based on a review of forecasted operating cash flows and the profitability of the related business. An
impairment loss is recognized if the forecasted cash flows are less than the carrying amount of the asset. The Company performed an
impairment evaluation in fiscal 2008, fiscal 2007 and fiscal 2006 and concluded that there was no impairment of its long-lived assets.
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The Company accounts for stock repurchases and retirements by allocating the repurchase price to common stock, additional paid-in-
capital and retained earnings. The repurchase price allocation is based upon the equity contribution associated with historical issuances,
beginning with the earliest issuance.
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Sales are recognized at the point of sale, which occurs when merchandise is sold in an over-the-counter consumer transaction or, for the
wholesale, Internet and catalog channels, upon shipment of merchandise, when title passes to the customer. Revenue associated with gift
cards is recognized upon redemption. The Company estimates the amount of gift cards that will not be redeemed and records such amounts
as revenue over the period of the performance obligation. Allowances for estimated uncollectible accounts, discounts and returns are
provided when sales are recorded. Royalty revenues are earned through license agreements with manufacturers of other consumer products
that incorporate the Coach brand. Revenue earned under these contracts is recognized based upon reported sales from the licensee. Taxes
collected from customers and remitted to governmental authorities are recorded on a net basis and therefore are excluded from revenue.
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Costs associated with the opening of new stores are expensed in the period incurred.
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Advertising costs include expenses related to direct marketing activities, such as catalogs, as well as media and production costs. In
fiscal 2008, fiscal 2007 and fiscal 2006, advertising expenses totaled $57,380, $47,287 and $35,887, respectively, and are included in
selling, general and administrative expenses. Advertising costs are expensed when the advertising first appears.
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The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date
fair value of the award. The grant-date fair value of the award is recognized as compensation expense over the vesting period.