Coach 2007 Annual Report Download - page 43

accordance with the Company’s risk management policies. As of June 28, 2008 and June 30, 2007, $233,873 and $111,057 of foreign
currency forward contracts were outstanding. These foreign currency contracts entered into by the Company have durations no greater than
12 months. The effective portion of unrealized gains and losses on cash flow hedges are deferred as a component of accumulated other
comprehensive income (loss) and recognized as a component of cost of sales when the related inventory is sold.
Coach is also exposed to market risk from foreign currency exchange rate fluctuations with respect to Coach Japan as a result of its
$231,000 U.S. dollar denominated fixed rate intercompany loan from Coach. To manage this risk, on July 1, 2005, Coach Japan entered
into a cross currency swap transaction, the terms of which include an exchange of a U.S. dollar fixed interest rate for a yen fixed interest
rate. The loan matures in 2010, at which point the swap requires an exchange of yen and U.S. dollar based principals.
The fair values of open foreign currency derivatives included in current assets at June 28, 2008 and June 30, 2007 were $7,906 and
$23,329, respectively. The fair value of open foreign currency derivatives included in current liabilities as June 28, 2008 and June 30, 2007
was $5,540 and $0, respectively.
Hedging activity affected accumulated other comprehensive income (loss), net of tax, as follows:

 



Balance at beginning of period $ 1,161 $ (3,547)
Net losses/(gains), transferred to earnings 2,411 (2,724)
Change in fair value, net of tax expense 3,371 7,432
Balance at end of period $ 6,943 $ 1,161
The Company expects that $5,572 of net derivative gains included in accumulated other comprehensive income at June 28, 2008 will
be reclassified into earnings within the next 12 months. This amount will vary due to fluctuations in the yen exchange rate.

The changes in the carrying amount of goodwill for the years ended June 28, 2008 and June 30, 2007 are as follows:


 
Balance at July 1, 2006 $ 226,295 $ 1,516 $ 227,811
Foreign exchange impact (14,017) — (14,017)
Balance at June 30, 2007 212,278 1,516 213,794
Foreign exchange impact 35,324 — 35,324
Balance at June 28, 2008 $ 247,602 $ 1,516 $ 249,118
At June 28, 2008 and June 30, 2007, intangible assets not subject to amortization were $9,788 and $11,865 and consisted primarily
of trademarks.
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


The provisions for income taxes computed by applying the U.S. statutory rate to income before taxes as reconciled to the actual
provisions were:

   
      
Income before provision for
income taxes and discontinued
operations:
United States $ 1,082,584 90.6 % $ 936,413 90.5 % $ 663,084 88.7 %
Foreign 112,365 9.4 98,257 9.5 84,246 11.3
Total income before provision for
income taxes and discontinued
operations:
$1,194,949 100.0 % $1,034,670 100.0% $ 747,330 100.0 %
Tax expense at U.S. statutory rate $ 418,232 35.0 % $ 362,135 35.0 % $261,565 35.0 %
State taxes, net of federal benefit 43,787 3.7 38,910 3.8 27,164 3.6
Foreign tax rate differential (7,750) (0.6) (13,892) (1.3) (11,548) (1.5)
Tax benefit, primarily due to
settlement of tax return
(49,968) (4.2) — 0.0 — 0.0