Coach 2011 Annual Report Download - page 44

TABLE OF CONTENTS
redemption patterns and escheatment laws, and records such amounts as breakage revenue when we can determine the portion of the liability
where redemption is remote, which is approximately two years after the gift card is issued. Revenue associated with gift card breakage is not
material to the Company’s net operating results. 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 30, 2012, 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 have resulted in an insignificant change in fiscal 2012 share-based compensation
expense.
Recent Accounting Pronouncements
In May 2011, Accounting Standards Codification 820-10 “ Fair Value Measurements and Disclosures,” was amended to clarify
certain disclosure requirements and improve consistency with international reporting standards. This amendment is to be applied
prospectively and was effective for the Company beginning January 1, 2012. The adoption of this amendment did not have a material effect
on the Company’s consolidated financial statements.
Accounting Standards Codification Topic 220, “Comprehensive Income,” was amended in June 2011 to require entities to present the
total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single
continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not change the items that
must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income under
current GAAP. This guidance is effective for the Company’s fiscal year and interim periods beginning July 1, 2012. The Company is
currently evaluating this guidance, but does not expect its adoption to have a material effect on its consolidated financial statements.
In September 2011, Accounting Standards Codification 350-20, “ Intangibles — Goodwill and Other — Goodwill ,” was amended to
allow entities to assess qualitative factors to determine if it is more-likely-than-not that goodwill might be impaired, and whether it is
necessary to perform the two-step goodwill impairment test required under current accounting standards. This guidance is effective for the
Company’s fiscal year beginning July 1, 2012. The Company does not expect its adoption to have a material effect on its consolidated
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from
adverse changes in interest rates or foreign currency exchange rates. Coach manages these exposures through operating and financing
activities and, when appropriate, through the use of derivative financial instruments with respect to Coach Japan and Coach Canada. The
use of derivative financial instruments is in accordance with Coach’s risk management policies. Coach does not enter into derivative
transactions for speculative or trading purposes.
The following quantitative disclosures are based on quoted market prices obtained through independent pricing sources for the same or
similar types of financial instruments, taking into consideration the underlying
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