Coach 2011 Annual Report Download - page 43

TABLE OF CONTENTS
inherently an imprecise activity and, as such, requires the use of judgment. Actual results may vary from estimates in amounts that may be
material to the financial statements. The development and selection of the Company’s critical accounting policies and estimates are
periodically reviewed with the Audit Committee of the Board.
The accounting policies discussed below are considered critical because changes to certain judgments and assumptions inherent in these
policies could affect the financial statements. For more information on Coach’s accounting policies, please refer to the Notes to Consolidated
Financial Statements.
Income Taxes
The Company’s effective tax rate is based on pre-tax income, statutory tax rates, tax laws and regulations, and tax planning strategies
available in the various jurisdictions in which Coach operates. Deferred tax assets are reported at net realizable value, as determined by
management. Significant management judgment is required in determining the effective tax rate, in evaluating our tax positions and in
determining the net realizable value of deferred tax assets. In accordance with ASC 740-10, the Company recognizes the impact of tax
positions in the financial statements if those positions will more likely than not be sustained on audit, based on the technical merits of the
position. Tax authorities periodically audit the Company’s income tax returns. Management believes that our tax filing positions are
reasonable and legally supportable. However, in specific cases, various tax authorities may take a contrary position. A change in our tax
positions or audit settlements could have a significant impact on our results of operations. For further information about income taxes, see
the Income Taxes note presented in the Notes to the Consolidated Financial Statements.
Inventories
The Company’s inventories are reported at the lower of cost or market. Inventory costs include material, conversion costs, freight and
duties and are determined by the first-in, first-out method. The Company reserves for slow-moving and aged inventory based on historical
experience, current product demand and expected future demand. A decrease in product demand due to changing customer tastes, buying
patterns or increased competition could impact Coach’s evaluation of its slow-moving and aged inventory and additional reserves might be
required. At June 30, 2012, a 10% change in the reserve for slow-moving and aged inventory would have resulted in an insignificant change
in inventory and cost of goods sold.
Goodwill and Other Intangible Assets
The Company evaluates goodwill and other indefinite life intangible assets annually for impairment. In order to complete our impairment
analysis, we must perform a valuation analysis which includes determining the fair value of the Company’s reporting units based on
discounted cash flows. This analysis contains uncertainties as it requires management to make assumptions and estimate the profitability
of future growth strategies. The Company determined that there was no impairment in fiscal 2012, fiscal 2011 or fiscal 2010.
Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for impairment whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable. The evaluation is based on a review of forecasted operating cash flows and the
profitability of the related asset group. An impairment loss is recognized if the forecasted cash flows are less than the carrying amount of the
asset. The Company recorded an impairment loss in fiscal 2009 of $1.5 million related to the closure of three underperforming stores. The
Company did not record any impairment losses in fiscal 2012, fiscal 2011 or fiscal 2010. However, as the determination of future cash
flows is based on expected future performance, impairment could result in the future if expectations are not met.
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 or remitted as escheatable property, based on
historical
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