Coach 2012 Annual Report Download - page 67

COACH, INC.
Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
6. FAIR VALUE MEASUREMENTS − (continued)
As of July 2, 2011, the fair value of the Company’s cross-currency swap derivatives, classified as Level 3
derivatives, were included within accrued liabilities. There were no derivatives classified as Level 3 as of
June 30, 2012. The Company used a valuation model to value the Level 3 derivatives, which included a
combination of observable inputs, such as tenure of the agreement and notional amount, and unobservable
inputs, such as the Company’s credit rating. The table below presents the changes in the fair value of these
derivatives during fiscal 2012 and fiscal 2011, through the settlement on December 29, 2011:
Cross-Currency
Swaps
Balance at July 2, 2011 ........................................ $ 651
Settlement on December 29, 2011 ............................... (651)
Balance at December 31, 2011 ................................... $ —
Balance at July 3, 2010 ........................................ $2,418
Settlement on June 30, 2011 ................................... (2,418)
Unrealized loss on cross-currency swap maturing on December 29, 2011,
recorded in accumulated other comprehensive income ................ 651
Balance at July 2, 2011 ........................................ $ 651
The above settlement amounts for the cross-currency swaps on June 30, 2012 and December 29, 2011 are
net of a previously unrecognized gain recognized through accumulated other comprehensive income of $615
in fiscal 2012 and a loss of $10,807 in fiscal 2011 prior to the respective settlement dates.
During fiscal 2011, the Company purchased $224,007 of short-term investments consisting of U.S.
treasury bills and commercial paper. These investments, net of proceeds from sales and maturities, totaled
$2,256 as of July 2, 2011 and were classified as held-to-maturity based on our positive intent and ability to
hold the securities to maturity. They were stated at amortized cost, which approximated fair market value due
to their short maturities. There were no purchases of short-term investments during fiscal 2012, and there were
no short-term investments held by the Company as of June 30, 2012.
7. DEBT
Revolving Credit Facilities
The Company maintains a $400,000 revolving credit facility with certain lenders and JP Morgan Chase
Bank, N.A. as the primary lender and administrative agent (the ‘‘JP Morgan facility’’). The JP Morgan facility,
which expires in June 2017, replaced the Company’s previous $100,000 revolving credit facility with certain
lenders, and Bank of America, N.A. as the primary lender and administrative agent, which was terminated on
June 18, 2012 (the ‘‘Bank of America facility’’). At Coach’s request and lenders’ consent, the JP Morgan
facility can be expanded to $650,000. Borrowings under the JP Morgan facility bear interest at a rate per
annum equal to, at Coach’s option, either (a) an alternate base rate or (b) a rate based on the rates applicable
for deposits in the interbank market for U.S. dollars or the applicable currency in which the loans are made
(the ‘‘Adjusted LIBO Rate’’) plus an applicable margin. The applicable margin for Adjusted LIBO Rate loans
will be adjusted by reference to a grid (the ‘‘Pricing Grid’’) based on the ratio of (a) consolidated debt plus
800% of consolidated lease expense to (b) consolidated EBITDAR (‘‘Leverage Ratio’’). Additionally, Coach
will pay a commitment fee, calculated at a rate per annum determined in accordance with the Pricing Grid, on
the average daily unused amount of the Facility, and certain fees with respect to letters of credit that are
issued. At June 30, 2012, the commitment fee was nine basis points.
The JP Morgan facility may also be used to finance the working capital needs, capital expenditures,
certain investments, share repurchases, dividends, and other general corporate purposes of the Company and
its subsidiaries (which may include commercial paper back-up). During fiscal 2012 and fiscal 2011 there were
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