Coach 2012 Annual Report Download - page 57

COACH, INC.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
1. NATURE OF OPERATIONS
Coach, Inc. (the ‘‘Company’’) designs and markets high-quality, modern American classic accessories.
The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s
bags, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches and fragrance.
Coach’s products are sold through the Direct-to-Consumer segment, which includes Company-operated stores
in North America; Japan; Hong Kong, Macau, mainland China; Taiwan; Singapore and the Internet, and
through the Indirect segment, which includes sales to wholesale customers and distributors in over 20
countries, including the United States, and royalties earned on licensed products. Beginning with the first
quarter of fiscal 2013, the Direct-to-Consumer segment also includes Coach-operated stores in Malaysia and
Korea.
2. SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to June 30. Unless otherwise stated, references to
years in the financial statements relate to fiscal years. The fiscal years ended June 30, 2012 (‘‘fiscal 2012’’)
and July 2, 2011 (‘‘fiscal 2011’’) were each 52-week periods. The fiscal year ended July 3, 2010 (‘‘fiscal
2010’’) was a 53-week period. The fiscal year ending June 29, 2013 (‘‘fiscal 2013’’) will be a 52-week period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the reporting period. The level of
uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are
completed. Actual results could differ from estimates in amounts that may be material to the financial
statements.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all 100% owned
subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances and highly liquid investments with a maturity of three
months or less at the date of purchase.
Investments
Long-term investments primarily consist of U.S. government and agency debt securities as well as
municipal government and corporate debt securities. Long-term investments are classified as available-for-sale
and recorded at fair value, with unrealized gains and losses recorded in other comprehensive income.
Dividend and interest income are recognized when earned.
Short-term investments consist of commercial paper; the adjusted book value of the commercial paper
equals its fair value. As the Company does not have the intent to sell and will not be required to sell these
securities until maturity, investments are classified as held-to-maturity and stated at amortized cost.
In fiscal 2011, the Company participated in the organization of a joint venture. The Company has
contributed a total of $9,559 in cash to the joint venture through June 30, 2012. This investment, which
consists of a 50% equity interest, is accounted for using the equity method of accounting.
Concentration of Credit Risk
Financial instruments that potentially expose Coach to concentration of credit risk consist primarily of
cash and cash equivalents, investments and accounts receivable. The Company places its cash investments
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