Coach 2009 Annual Report Download - page 34

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TABLE OF CONTENTS
adjustments and the resulting foundation funding needed to be adjusted. This exclusion is consistent with the way management views its
results and is the basis on which incentive compensation was calculated and paid for fiscal 2009.
Fiscal 2008 Items
Charitable Contribution and Tax Adjustments
During the fourth quarter of fiscal 2008, the Company decreased the provision for income taxes by $50.0 million and increased interest
income by $10.7 million, primarily as a result of a favorable settlement of a tax return examination. The underlying events and
circumstances for the tax settlement were not related to the fiscal 2009 settlement. The Company used the net income favorability to create the
Coach Foundation. The Company recorded an initial contribution to the Coach Foundation in the amount of $20.0 million. The Company
believed that in order to reflect the direct results of the business operations as was done for executive management incentive compensation,
both the tax adjustments and the resulting foundation funding needed to be adjusted.
Variable Expenses
As a result of the higher interest income, net (related to the tax settlements) and lower income tax provision, the Company incurred
additional incentive compensation expense of $12.1 million, as a portion of the Company’s incentive compensation plan is based on net
income and earnings per share. Incremental incentive compensation driven by tax settlements of this magnitude is unlikely to recur in the
near future as the Company has modified its incentive compensation plans during fiscal 2009 to be measured exclusive of any unusual
accounting adjustments. The Company believes excluding these variable expenses, which were directly linked to the tax settlements, assists
investors in evaluating the Company’s direct, ongoing business operations.
Currency Fluctuation Effects
Percentage increases and decreases in sales in fiscal 2010 and fiscal 2009 for Coach Japan have been presented both including and
excluding currency fluctuation effects from translating foreign-denominated sales into U.S. dollars and compared to the same period in the
prior fiscal year.
We believe that presenting Coach Japan sales increases and decreases, including and excluding currency fluctuation effects, will help
investors and analysts to understand the effect on this valuable performance measure of significant year-over-year currency fluctuations.
FINANCIAL CONDITION
Cash Flow
Net cash provided by operating activities was $990.9 million in fiscal 2010 compared to $809.2 million in fiscal 2009. The increase of
$181.7 million was primarily due to the $111.6 million increase in net income as well as working capital changes between the two periods,
the most significant of which occurred in accrued liabilities, accounts payable and inventories. Accrued liabilities provided cash of $68.1
million in fiscal 2010 compared to a cash use of $32.1 million in fiscal 2009, primarily due to higher bonus accruals in the current year, as
well as the non-recurrence of a rent accrual reversal that occurred in fiscal 2009 in connection with the purchase of our corporate
headquarters building. Accounts payable provided cash of $1.0 million in fiscal 2010, compared to a cash use of $37.0 million in fiscal
2009, due to timing of payments. Changes in inventory balances year over year resulted in a cash use of $33.9 million for fiscal 2010
compared to a cash source of $4.1 million in fiscal 2009, primarily due to higher inventory levels at the current year end to support store
expansion domestically and internationally.
Net cash used in investing activities was $182.2 million in fiscal 2010 compared to $264.7 million in fiscal 2009. Purchases of
investments and proceeds from their maturities and sales resulted in a net cash outflow in fiscal 2010 of $99.9 million. The company did
not have similar investment activity in fiscal 2009. During fiscal 2009 the company used cash of $103.3 million in connection with the
purchase of its corporate headquarters building, with no similar transaction occurring in fiscal 2010. Additionally, purchases of property
and equipment were $55.9 million lower in the current fiscal year, driven by the timing of certain projects.
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