Coach 2008 Annual Report Download - page 34

TABLE OF CONTENTS
Revenue Recognition
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 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
based upon historical experience and current trends. 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. At June 27, 2009, a 10% change in the allowances for estimated uncollectible accounts, discounts and returns would have resulted
in an insignificant change in accounts receivable and net sales.
Share-Based Compensation
The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options,
based on the grant-date fair value of those awards. The grant-date fair value of stock option awards is determined using the Black-Scholes
option pricing model and involves several assumptions, including the expected term of the option, expected volatility and dividend yield.
The expected term of options represents the period of time that the options granted are expected to be outstanding and is based on historical
experience. Expected volatility is based on historical volatility of the Company’s stock as well as the implied volatility from publicly traded
options on Coach’s stock. Dividend yield is based on the current expected annual dividend per share and the Company’s stock price.
Changes in the assumptions used to determine the Black-Scholes value could result in significant changes in the Black-Scholes value.
However, a 10% change in the Black-Scholes value would result in an insignificant change in fiscal 2009 share-based compensation
expense.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS 157, “ Fair Value Measurements.” SFAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. The Company adopted the provisions of SFAS 157 related to financial assets and liabilities in the first
quarter of fiscal 2009. The adoption of these provisions did not have a material impact on our consolidated financial statements. The
remaining provisions of SFAS 157 are effective for the first quarter of the fiscal 2010. For further information about the fair value
measurements of our financial assets and liabilities see Note 7.
In September 2006, the FASB issued SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R). ” SFAS 158 requires an employer to recognize the funded
status of a benefit plan, measured as the difference between plan assets at fair value and the projected benefit obligation, in its statement of
financial position. SFAS 158 also requires an employer to measure defined benefit plan assets and obligations as of the date of the
employer’s fiscal year-end statement of financial position. The Company adopted the recognition provision and the related disclosures as of
the end of the fiscal year ended June 30, 2007, and the measurement provision during the first quarter of fiscal 2009. See Note 13 for further
information.
In December 2007, the FASB issued SFAS 141 (revised 2007), “Business Combinations.” Under SFAS 141(R), an acquiring entity
will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited
exceptions. SFAS 141(R) will change the accounting treatment for certain specific acquisition-related items, including expensing acquisition-
related costs as incurred, valuing noncontrolling interests (minority interests) at fair value at the acquisition date, and expensing
restructuring costs associated with an acquired business. SFAS 141(R) also includes expanded disclosure requirements. SFAS 141(R) is to
be applied prospectively to business combinations for which the acquisition date is on or after June 28, 2009. The Company does not expect
the adoption of SFAS 141(R) to have a material impact on the Company’s consolidated financial statements.
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