Coach 2010 Annual Report Download - page 60

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TABLE OF CONTENTS
COACH, INC.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
5. FAIR VALUE MEASUREMENTS – (continued)
The following table shows the fair value measurements of the Company’s assets and liabilities at July 2, 2011 and July 3, 2010:
Level 2 Level 3
July 2,
2011
July 3,
2010
July 2,
2011
July 3,
2010
Assets:
Long-term investment – auction rate security (a) $ — $ — $ 6,000 $ 6,000
Derivative assets – zero-cost collar options (b) 2,020 2,052 — —
Total $ 2,020 $ 2,052 $ 6,000 $ 6,000
Liabilities:
Derivative liabilities – zero-cost collar options (b) $ 1,062 $ 5,120 $ — $ —
Derivative liabilities – cross-currency swap (c) — — 651 2,418
Total $ 1,062 $ 5,120 $ 651 $ 2,418
(a) The fair value of the security is determined using a model that takes into consideration the financial conditions of the issuer and the
bond insurer, current market conditions and the value of the collateral bonds.
(b) The Company enters into zero-cost collar options to manage its exposure to foreign currency exchange rate fluctuations resulting from
Coach Japan’s and Coach Canada’s U.S. dollar-denominated inventory purchases. The fair value of these cash flow hedges is primarily
based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or
Company’s credit risk.
(c) The Company is a party to a cross-currency swap transaction in order to manage its exposure to foreign currency exchange rate
fluctuations resulting from Coach Japan’s U.S. dollar-denominated fixed rate intercompany loan. The fair value of this cash flow hedge
is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the
Company’s credit risk.
See note on Derivative Instruments and Hedging Activities for more information on the Company’s derivative contracts.
As of July 2, 2011 and July 3, 2010, the Company’s investments included an auction rate security (“ARS”) classified as a long-term
investment, as the auction for this security has been unsuccessful. The underlying investments of the ARS are scheduled to mature in 2035.
We have determined that the significant majority of the inputs used to value this security fall within Level 3 of the fair value hierarchy as the
inputs are based on unobservable estimates. At both July 2, 2011 and July 3, 2010, the fair value of the Company’s ARS was $6,000.
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