Coach 2012 Annual Report Download - page 73

COACH, INC.
Notes to Consolidated Financial Statements (Continued)
(dollars and shares in thousands, except per share data)
11. INCOME TAXES − (continued)
A reconciliation of the beginning and ending gross amount of unrecognized tax benefits is as follows:
Fiscal
2012
Fiscal
2011
Fiscal
2010
Balance at beginning of fiscal year ................. $162,060 $165,676 $137,807
Gross increase due to tax positions related to prior periods . . 1,271 5,225 3,903
Gross decrease due to tax positions related to prior periods . . (7,264) (1,218) (971)
Gross increase due to tax positions related to current period. . 28,151 29,342 27,034
Decrease due to lapse of statutes of limitations .......... (15,187) (6,519) (1,692)
Decrease due to settlements with taxing authorities ....... (13,432) (30,446) (405)
Balance at end of fiscal year ..................... $155,599 $162,060 $165,676
Of the $155,599 ending gross unrecognized tax benefit balance, $77,366 relates to items which, if
recognized, would impact the effective tax rate. As of June 30, 2012 and July 2, 2011, gross interest and
penalties payable was $24,338 and $35,258, which are included in other liabilities. During fiscal 2012, fiscal
2011 and fiscal 2010, the Company recognized interest and penalty (income) expense of $(11,334), $(3,195),
and $6,204, respectively, in the Consolidated Statements of Income.
The Company files income tax returns in the U.S. federal jurisdiction as well as various state and foreign
jurisdictions. Fiscal years 2009 to present are open to examination in the federal jurisdiction, fiscal 2004 to
present in significant state jurisdictions and from fiscal 2004 to present in foreign jurisdictions. During fiscal
2012 and fiscal 2011, the Company recorded tax benefits related to multi-year agreements with tax authorities.
Based on the number of tax years currently under audit by the relevant tax authorities, the Company
anticipates that one or more of these audits may be finalized in the foreseeable future. However, based on the
status of these examinations, and the protocol of finalizing audits by the relevant tax authorities, we cannot
reasonably estimate the impact of any amount of such changes in the next 12 months, if any, to previously
recorded uncertain tax positions.
At June 30, 2012, the Company had net operating loss carryforwards in foreign tax jurisdictions of
$88,967, which will expire beginning in fiscal years 2013 through fiscal year 2017. The deferred tax assets
related to the carryforwards have been reflected net of a $3,156 valuation allowance.
The total amount of undistributed earnings of foreign subsidiaries as of June 30, 2012 was $1,203,949. It
is the Company’s intention to permanently reinvest undistributed earnings of its foreign subsidiaries and
thereby indefinitely postpone their remittance. Accordingly, no provision has been made for foreign
withholding taxes or United States income taxes which may become payable if undistributed earnings of
foreign subsidiaries are paid as dividends. Determination of the amount of unrecognized deferred income tax
liabilities on these earnings is not practicable because such liability, if any, is subject to many variables and is
dependent on circumstances existing if and when remittance occurs.
12. DEFINED CONTRIBUTION PLAN
Coach maintains the Coach, Inc. Savings and Profit Sharing Plan, which is a defined contribution plan.
Employees who meet certain eligibility requirements and are not part of a collective bargaining agreement
may participate in this program. The annual expense incurred by Coach for this defined contribution plan was
$18,641, $16,029, and $13,285 in fiscal 2012, fiscal 2011 and fiscal 2010, respectively.
13. SEGMENT INFORMATION
The Company operates its business in two reportable segments: Direct-to-Consumer and Indirect. The
Company’s reportable segments represent channels of distribution that offer similar merchandise, service and
marketing strategies. Sales of Coach products through Company-operated stores in North America; Japan;
70