Coach 2011 Annual Report Download - page 16

TABLE OF CONTENTS
which could harm our business. Our ability to compete also depends on the strength of our brand, whether we can attract and retain key
talent, and our ability to protect our trademarks and design patents. A failure to compete effectively could adversely affect our growth and
profitability.
We face risks associated with operating in international markets.
We operate on a global basis, with approximately 32% of our net sales coming from operations outside the U.S. However, sales to our
international wholesale customers are denominated in U.S. dollars. While geographic diversity helps to reduce the Company’s exposure to
risks in any one country, we are subject to risks associated with international operations, including, but not limited to:
•changes in exchange rates for foreign currencies, which may adversely affect the retail prices of our products, result in decreased
international consumer demand, or increase our supply costs in those markets, with a corresponding negative impact on our gross
margin rates,
•political or economic instability or changing macroeconomic conditions in our major markets,
•natural and other disasters in international and other markets, and
•changes in foreign or domestic legal and regulatory requirements resulting in the imposition of new or more onerous trade
restrictions, tariffs, embargoes, exchange or other government controls.
We monitor our global foreign currency exposure and in order to minimize the impact on earnings of foreign currency rate movements,
we hedge our subsidiaries’ U.S. dollar-denominated inventory purchases in Japan and Canada, as well as Coach’s cross currency
denominated intercompany loan portfolio. We cannot ensure, however, that these hedges will fully offset the impact of foreign currency rate
movements. Additionally, our international subsidiaries primarily use local currencies as the functional currency and translate their
financial results from the local currency to U.S. dollars. If the U.S. dollar strengthens against these subsidiaries’ foreign currencies, the
translation of their foreign currency denominated transactions may decrease consolidated net sales and profitability.
Failure to adequately protect our intellectual property and curb the sale of counterfeit merchandise could injure the brand and
negatively affect sales.
We believe our trademarks, copyrights, patents, and other intellectual property rights are extremely important to our success and our
competitive position. We devote significant resources to the registration and protection of our trademarks and to anti-counterfeiting efforts
worldwide. In spite of our efforts, counterfeiting still occurs and if we are unsuccessful in challenging a third-party’s rights related to
trademark, copyright, or patent this could adversely affect our future sales, financial condition, and results of operation. We are aggressive
in pursuing entities involved in the trafficking and sale of counterfeit merchandise through legal action or other appropriate measures. We
cannot guarantee that the actions we have taken to curb counterfeiting and protect our intellectual property will be adequate to prevent to
protect the brand and prevent counterfeiting in the future. Furthermore, our efforts to enforce our intellectual property rights are often met
with defenses and counterclaims attacking the validity and enforceability of our intellectual property rights. Unplanned increases in legal
fees and other costs associates with defending our intellectual property rights could result in higher operating expenses. Finally, many
countries’ laws do not protect intellectual property rights to the same degree as US laws.
Cyber security threats, including a privacy or data security breach, could damage our relationships with our customers, harm
our reputation, expose us to litigation and adversely affect our business.
We depend on digital technologies for the successful operation of our business, including corporate email communications to and from
employees and stores, the design, manufacture and distribution of our finished goods, digital marketing efforts, collection and retention of
customer data, employee information, the processing of credit card transactions, online e-commerce activities and our interaction with the
public in the social media space. The possibility of a cyber-attack on any one or all of these systems is a serious threat. As part of our
business model, we collect, retain, and transmit confidential information over public networks. In addition to our own databases, we use
third party service providers to store, process and transmit this information on our behalf. Although we contractually require these service
providers to implement and use
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