UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
_____________________
FORM
10-Q
[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT
OF 1934
|
For
the Quarterly Period Ended January 1, 2011
or
[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT
OF 1934
|
Commission
file number: 1-16153
________________________
Coach,
Inc.
(Exact
name of registrant as specified in its charter)
Maryland
|
|
52-2242751
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
516
West 34
th
Street,
New York, NY 10001
(Address
of principal executive offices); (Zip Code)
(212)
594-1850
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. [
ü
]
Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [
ü
] No
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See definition of “large accelerated filer,” “accelerated
filer” and “small reporting company” in Rule 12b-2 of the Exchange
Act.
Large
Accelerated Filer [
ü
]
|
Accelerated
Filer [ ]
|
Non-accelerated
filer [ ] (Do not check if a smaller reporting
company)
|
Small
Reporting Company
[ ]
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ]
Yes [
ü
]
No
On
January 25, 2011, the Registrant had 295,774,252 outstanding shares of common
stock, which is the Registrant’s only class of common stock.
The document
contains 37 pages excluding exhibits.
COACH,
INC.
TABLE
OF CONTENTS
Page
Number
PART
I – FINANCIAL INFORMATION
|
|
|
|
ITEM
1.
|
Financial
Statements
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets –
|
|
|
At
January 1, 2011 and July 3, 2010
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Income –
|
|
|
For
the Quarters and Six Months Ended
|
|
|
January
1, 2011 and December 26, 2009
|
5
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows –
|
|
|
For
the Six Months Ended
|
|
|
January
1, 2011 and December 26, 2009
|
6
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
|
ITEM
2.
|
Management’s
Discussion and Analysis of Financial Condition
|
|
|
and
Results of Operations
|
21
|
|
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
33
|
|
|
|
ITEM
4.
|
Controls
and Procedures
|
34
|
|
|
|
|
|
|
PART
II – OTHER INFORMATION
|
|
|
|
ITEM
1.
|
Legal
Proceedings
|
35
|
|
|
|
ITEM
1A.
|
Risk
Factors
|
35
|
|
|
|
ITEM
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
35
|
|
|
|
ITEM
6.
|
Exhibits
|
36
|
|
|
|
|
|
|
SIGNATURE
|
37
|
SPECIAL
NOTE ON FORWARD-LOOKING INFORMATION
This Form
10-Q contains certain “forward-looking statements,” based on current
expectations, that involve risks and uncertainties that could cause our actual
results to differ materially from our management’s current
expectations. These forward-looking statements can be identified by
the use of forward-looking terminology such as “may,” “will,” “should,”
“expect,” “intend,” “estimate,” “are positioned to,” “continue,” “project,”
“guidance,” “target,” “forecast,” “anticipated,” or comparable
terms. Future results will vary from historical results and
historical growth is not indicative of future trends, which will depend upon a
number of factors, including but not limited to: (i) the successful execution of
our growth strategies; (ii) the effect of existing and new competition in the
marketplace; (iii) our exposure to international risks, including currency
fluctuations; (iv) changes in economic or political conditions in the markets
where we sell or source our products; (v) our ability to successfully anticipate
consumer preferences for accessories and fashion trends; (vi) our ability to
control costs; (vii) the effect of seasonal and quarterly fluctuations in our
sales on our operating results; (viii) our ability to protect against
infringement of our trademarks and other proprietary rights; and such other risk
factors as set forth in the Company’s Annual Report on Form 10-K for the fiscal
year ended July 3, 2010. Coach, Inc. assumes no obligation to update
or revise any such forward-looking statements, which speak only as of their
date, even if experience, future events or changes make it clear that any
projected financial or operating results will not be realized.
WHERE
YOU CAN FIND MORE INFORMATION
Coach’s
quarterly financial results and other important information are available by
calling the Investor Relations Department at (212) 629-2618.
Coach
maintains a website at
www.coach.com
where investors and other interested parties may obtain, free of charge, press
releases and other information as well as gain access to our periodic filings
with the SEC.
PART
I – FINANCIAL INFORMATION
ITEM
1. Financial Statements
COACH, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(amounts in thousands, except share
data)
(unaudited)
|
|
January 1,
|
|
|
July 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash an
d cash
equivalents
|
|
$
|
784,232
|
|
|
$
|
596,470
|
|
Short-term
investments
|
|
|
155,600
|
|
|
|
99,928
|
|
Trade accounts receivable, less
allowances of $11,500 and $6,965, respectively
|
|
|
180,583
|
|
|
|
109,068
|
|
Inventories
|
|
|
367,410
|
|
|
|
363,285
|
|
Other current
assets
|
|
|
134,799
|
|
|
|
133,890
|
|
|
|
|
|
|
|
|
|
|
Total current
assets
|
|
|
1,622,624
|
|
|
|
1,302,641
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
541,471
|
|
|
|
548,474
|
|
Goodwill
|
|
|
330,032
|
|
|
|
305,861
|
|
Other asse
ts
|
|
|
300,544
|
|
|
|
310,139
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,794,671
|
|
|
$
|
2,467,115
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
103,876
|
|
|
$
|
105,569
|
|
Accrued
liabilities
|
|
|
461,489
|
|
|
|
422,725
|
|
Revolving credit
facilities
|
|
|
27,119
|
|
|
|
-
|
|
Current por
tion of long-term
debt
|
|
|
790
|
|
|
|
742
|
|
|
|
|
|
|
|
|
|
|
Total current
liabilities
|
|
|
593,274
|
|
|
|
529,036
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
23,550
|
|
|
|
24,159
|
|
Other
liabilities
|
|
|
439,389
|
|
|
|
408,627
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,056,213
|
|
|
|
961,822
|
|
|
|
|
|
|
|
|
|
|
See note on commitments and
conting
encies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock: (authorized
25,000,000 shares; $0.01 par value) none issued
|
|
|
-
|
|
|
|
-
|
|
Common stock: (authorized
1,000,000,000 shares; $
0.01 par value)
issued
|
|
|
|
|
|
and outstanding - 295,756,490 and
296,867,247 shares, respectively
|
|
|
2,958
|
|
|
|
2,969
|
|
Additional
paid-in-capital
|
|
|
1,846,163
|
|
|
|
1,502,982
|
|
Accumula
ted deficit
|
|
|
(151,760
|
)
|
|
|
(30,053
|
)
|
Accumulated other comprehensive
income
|
|
|
41,097
|
|
|
|
29,395
|
|
|
|
|
|
|
|
|
|
|
Total stockholders'
equity
|
|
|
1,738,458
|
|
|
|
1,505,293
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
|
$
|
2,794,671
|
|
|
$
|
2,467,115
|
|
See accompanying Notes to Condensed
Consolidated Financial Statements.
COACH, INC.
CONDENSED CONSOLIDATED STATE
MENTS OF INCOME
(amounts in thousands, except per share
data)
(unaudited)
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,264,457
|
|
|
$
|
1,065,005
|
|
|
$
|
2,176,126
|
|
|
$
|
1,826,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
sales
|
|
|
349,281
|
|
|
|
294,066
|
|
|
|
584,779
|
|
|
|
505,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
915,176
|
|
|
|
770,939
|
|
|
|
1,591,347
|
|
|
|
1,321,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses
|
|
|
461,841
|
|
|
|
390,102
|
|
|
|
852,352
|
|
|
|
717,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
453,335
|
|
|
|
380,837
|
|
|
|
738,995
|
|
|
|
604,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
|
230
|
|
|
|
1,904
|
|
|
|
478
|
|
|
|
3,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
(1,124
|
)
|
|
|
-
|
|
|
|
(1,934
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income
taxes
|
|
|
452,441
|
|
|
|
382,741
|
|
|
|
737,539
|
|
|
|
607,823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
ta
xes
|
|
|
149,013
|
|
|
|
141,791
|
|
|
|
245,235
|
|
|
|
226,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
303,428
|
|
|
$
|
240,950
|
|
|
$
|
492,304
|
|
|
$
|
381,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
$
|
0.76
|
|
|
$
|
1.66
|
|
|
$
|
1.20
|
|
Diluted
|
|
$
|
1.00
|
|
|
$
|
0.75
|
|
|
$
|
1.62
|
|
|
$
|
1.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used
in computing net income per
share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
297,214
|
|
|
|
317,458
|
|
|
|
296,913
|
|
|
|
317,761
|
|
Diluted
|
|
|
304,655
|
|
|
|
321,381
|
|
|
|
303,106
|
|
|
|
321
,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Condensed
Consolidated Financial Statements.
COACH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(amounts in
thousands)
(unaudited)
|
|
Six Months
Ended
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM O
PERATING
ACTIVITIES
|
|
|
|
|
|
|
Net income
|
|
$
|
492,304
|
|
|
$
|
381,777
|
|
Adjustments to reconcile net
income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
63,479
|
|
|
|
61,433
|
|
Provision for bad
debt
|
|
|
3,243
|
|
|
|
1,454
|
|
Share-based
compensation
|
|
|
47,323
|
|
|
|
38,888
|
|
Excess tax benefit from
share-based compensation
|
|
|
(38,015
|
)
|
|
|
(18,994
|
)
|
Deferred income
taxes
|
|
|
15,260
|
|
|
|
(14,464
|
)
|
Other, net
|
|
|
(10,797
|
)
|
|
|
(7,838
|
)
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Increase in trade accounts
receivable
|
|
|
(70,02
8
|
)
|
|
|
(69,590
|
)
|
(Increase) decrease in
inventories
|
|
|
(683
|
)
|
|
|
59,544
|
|
Decrease in other
assets
|
|
|
5,681
|
|
|
|
925
|
|
(Decrease) increase in accounts
payable
|
|
|
(4,718
|
)
|
|
|
17,431
|
|
Increase in accrued
liabilities
|
|
|
36,763
|
|
|
|
129,701
|
|
Increase in other
liabilities
|
|
|
45,404
|
|
|
|
23,969
|
|
Net cash
provided by operating
activities
|
|
|
585,216
|
|
|
|
604,236
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Acquisition of interest in equity
method investment
|
|
|
(3,928
|
)
|
|
|
-
|
|
Acquisition of
distributor
|
|
|
-
|
|
|
|
(1,200
|
)
|
Purchases of property and
equipment
|
|
|
(49,198
|
)
|
|
|
(36,899
|
)
|
Purcha
ses of
investments
|
|
|
(175,575
|
)
|
|
|
-
|
|
Proceeds from maturities and sales
of investments
|
|
|
119,903
|
|
|
|
-
|
|
Net cash used in investing
activities
|
|
|
(108,798
|
)
|
|
|
(38,099
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
|
|
Dividend
payment
|
|
|
(89,057
|
)
|
|
|
(47,726
|
)
|
Repurchase of common
stoc
k
|
|
|
(524,999
|
)
|
|
|
(300,000
|
)
|
Repayment of long-term
debt
|
|
|
(562
|
)
|
|
|
(504
|
)
|
Borrowings (repayments) of
revolving credit facilities
|
|
|
27,119
|
|
|
|
(7,496
|
)
|
Proceeds from share-based awards,
net
|
|
|
257,937
|
|
|
|
67,404
|
|
Excess tax benefit from
share-based compensation
|
|
|
38,015
|
|
|
|
18,994
|
|
Net
cash used in financing
activities
|
|
|
(291,547
|
)
|
|
|
(269,328
|
)
|
|
|
|
|
|
|
|
|
|
Effect of changes in foreign
exchange rates on cash and cash equivalents
|
|
|
2,891
|
|
|
|
6,006
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
187,762
|
|
|
|
302,815
|
|
Cash and cash equivalents at
beginning of period
|
|
|
59
6,470
|
|
|
|
800,362
|
|
Cash and cash equivalents at end
of period
|
|
$
|
784,232
|
|
|
$
|
1,103,177
|
|
See accompanying Notes to Condensed
Consolidated Financial Statements.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
1.
|
Basis
of Presentation and Organization
|
The
accompanying unaudited condensed consolidated financial statements include the
accounts of Coach, Inc. (“Coach” or the “Company”) and all 100% owned
subsidiaries. These condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted from this report as is permitted by SEC rules and
regulations. However, the Company believes that the disclosures are
adequate to make the information presented not misleading. This
report should be read in conjunction with the audited consolidated financial
statements and notes thereto, included in the Company’s Annual Report on Form
10-K filed with the SEC for the year ended July 3, 2010 (“fiscal
2010”).
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all normal and recurring adjustments necessary to
present fairly the consolidated financial position, results of operations and
changes in cash flows of the Company for the interim periods
presented. The results of operations for the quarter ended January 1,
2011 are not necessarily indicative of results to be expected for the entire
fiscal year, which will end on July 2, 2011 (“fiscal 2011”).
The
Company evaluated subsequent events through the date these financial statements
were issued, and disclosure is in the Subsequent Event note.
Activity
for the quarters ended January 1, 2011 and December 26, 2009 in the accounts of
Stockholders’ Equity is summarized below:
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
Retained
|
|
|
Accumulated
|
|
|
|
|
|
|
C
ommon
|
|
|
Additional
|
|
|
Earnings/
|
|
|
Other
|
|
|
Total
|
|
|
|
Stockholders'
|
|
|
Paid-in-
|
|
|
(Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders'
|
|
|
|
Equity
|
|
|
Capital
|
|
|
Deficit)
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 27,
2009
|
|
$
|
3,180
|
|
|
$
|
1,189,060
|
|
|
$
|
499,951
|
|
|
$
|
3,851
|
|
|
$
|
1,696,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
381,777
|
|
|
|
-
|
|
|
|
381,777
|
|
Unrealized gains on cash flow
hedging derivatives, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,126
|
|
|
|
1,126
|
|
Translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,945
|
|
|
|
8,945
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
391,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for stock options
and employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
plans
|
|
|
45
|
|
|
|
67,359
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,404
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
38,888
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,888
|
|
Excess tax benefit from
sh
are-based
compensation
|
|
|
-
|
|
|
|
18,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,994
|
|
Repurchase of common
stock
|
|
|
(85
|
)
|
|
|
-
|
|
|
|
(299,915
|
)
|
|
|
-
|
|
|
|
(300,000
|
)
|
Dividend
declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,610
|
)
|
|
|
-
|
|
|
|
(47,610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 26,
2009
|
|
$
|
3,140
|
|
|
$
|
1,314,301
|
|
|
$
|
534,203
|
|
|
$
|
13,922
|
|
|
$
|
1,865,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 3,
2010
|
|
$
|
2,969
|
|
|
$
|
1,502,982
|
|
|
$
|
(30,053
|
)
|
|
$
|
29,395
|
|
|
$
|
1,505,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
492,304
|
|
|
|
-
|
|
|
|
492,304
|
|
Unrealized losse
s on cash flow hedging
derivatives, net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,458
|
)
|
|
|
(6,458
|
)
|
Translation
adjustments
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,160
|
|
|
|
18,160
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for stock options
and
employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
benefit
plans
|
|
|
94
|
|
|
|
257,843
|
|
|
|
-
|
|
|
|
-
|
|
|
|
257,937
|
|
Share-based
compensation
|
|
|
-
|
|
|
|
47,323
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47,323
|
|
Excess tax benefit from
share-based compensation
|
|
|
-
|
|
|
|
38,015
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,015
|
|
Repurchase of
common
stock
|
|
|
(105
|
)
|
|
|
-
|
|
|
|
(524,894
|
)
|
|
|
-
|
|
|
|
(524,999
|
)
|
Dividend
declared
|
|
|
-
|
|
|
|
-
|
|
|
|
(89,117
|
)
|
|
|
-
|
|
|
|
(89,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at January 1,
2011
|
|
$
|
2,958
|
|
|
$
|
1,846,163
|
|
|
$
|
(151,760
|
)
|
|
$
|
41,097
|
|
|
$
|
1,738,458
|
|
The
components of accumulated other comprehensive income, as of the dates indicated,
are as follows:
|
|
January 1,
|
|
|
July 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Cumulative translation
adjustments
|
|
$
|
53,221
|
|
|
$
|
35,061
|
|
Cumulative effect of previously
adopted accounting pronouncements a
nd minimum pension liability, net
of taxes
|
|
|
(3,574
|
)
|
|
|
(3,574
|
)
|
Net unrealized losses on cash flow
hedging derivatives, net of taxes of $5,959 and
$1,920
|
|
|
(8,550
|
)
|
|
|
(2,092
|
)
|
Accumulated other comprehensive
income
|
|
$
|
41,097
|
|
|
$
|
29,395
|
|
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
Basic net
income per share is calculated by dividing net income by the weighted-average
number of shares outstanding during the period. Diluted net income
per share is calculated similarly but includes potential dilution from the
exercise of stock options and employee benefit and share awards.
The following is a reconciliation of the
weighted-average shares outstanding and calculation of basic and diluted net
income per share:
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
303,428
|
|
|
$
|
240,950
|
|
|
$
|
492,3
04
|
|
|
$
|
381,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted-average basic
shares
|
|
|
297,214
|
|
|
|
317,458
|
|
|
|
296,913
|
|
|
|
317,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share
award plans
|
|
|
1,777
|
|
|
|
1,181
|
|
|
|
1,578
|
|
|
|
996
|
|
Stock option
programs
|
|
|
5,664
|
|
|
|
2,742
|
|
|
|
4,615
|
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted
-average diluted
shares
|
|
|
304,655
|
|
|
|
321,381
|
|
|
|
303,106
|
|
|
|
321,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
$
|
0.76
|
|
|
$
|
1.66
|
|
|
$
|
1.20
|
|
Diluted
|
|
$
|
1.00
|
|
|
$
|
0.75
|
|
|
$
|
1.62
|
|
|
$
|
1.19
|
|
At
January 1, 2011, options to purchase 52 shares of common stock were outstanding
but not included in the computation of diluted earnings per share, as these
options’ exercise prices, ranging from $53.02 to $55.91, were greater than the
average market price of the common shares.
At
December 26, 2009, options to purchase
9,164
shares of common stock
were outstanding but not included in the computation of diluted earnings per
share, as these options’ exercise prices, ranging from $34.64 to $51.56, were
greater than the average market price of the common shares.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
4.
|
Share-Based
Compensation
|
The
following table shows the total compensation cost charged against income for
share-based compensation plans and the related tax benefits recognized in the
income statement for the periods indicated:
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation
expense
|
|
$
|
24,981
|
|
|
$
|
19,920
|
|
|
$
|
47,323
|
|
|
$
|
38,888
|
|
Income tax benefit related
to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
share-based compensation
expense
|
|
|
8,754
|
|
|
|
6,957
|
|
|
|
16,582
|
|
|
|
13,622
|
|
Stock
Options
A summary
of option activity under the Coach stock option plans as of January 1, 2011 and
changes during the period then ended is as follows:
|
|
Number of
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
Outstanding at July 3,
2010
|
|
|
24,905
|
|
|
$
|
30.87
|
|
Granted
|
|
|
3,450
|
|
|
|
38.85
|
|
Exercised
|
|
|
(8,682
|
)
|
|
|
30.79
|
|
Forfeited
or expired
|
|
|
(414
|
)
|
|
|
40.15
|
|
Outstanding at January 1,
2011
|
|
|
19,259
|
|
|
|
32.13
|
|
Vested and expected to vest at
January 1, 2011
|
|
|
19,163
|
|
|
|
32.10
|
|
Exercisable at January 1,
2011
|
|
|
10,587
|
|
|
|
31.39
|
|
At
January 1, 2011, $62,308 of total unrecognized compensation cost related to
non-vested stock option awards is expected to be recognized over a
weighted-average period of 1.1 years.
The
weighted-average grant-date fair value of individual options granted during the
first six months of fiscal 2011 and fiscal 2010 was $11.28 and $10.93,
respectively. The total intrinsic value of options exercised during
the first six months of fiscal 2011 and fiscal 2010 was $168,263 and $69,244,
respectively. The total cash received from these option exercises was
$267,353 and $71,442, respectively, and the actual tax benefit realized from
these option exercises was $62,833 and $26,650, respectively.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
Share Unit
Awards
The
grant-date
fair value of each
Coach share
unit
award is equal to
the fair value of Coach stock at the grant date. The following
table summarizes information about non-vested share units as of and for the
period ended January 1, 2011:
|
|
Number of
Non-vested
Share Units
|
|
|
Weighted-
Average Grant-
Date Fair
Value
|
|
|
|
|
|
|
|
|
Non-vested at July 3,
2010
|
|
|
3,780
|
|
|
$
|
29.40
|
|
Granted
|
|
|
1,919
|
|
|
|
39.10
|
|
Vested
|
|
|
(981
|
)
|
|
|
32.30
|
|
Forfeited
|
|
|
(141
|
)
|
|
|
32.15
|
|
Non-vested at January 1,
2011
|
|
|
4,577
|
|
|
|
32.70
|
|
At
January 1, 2011, $100,177 of total unrecognized compensation cost related to
non-vested share awards is expected to be recognized over a weighted-average
period of 1.2 years.
The
weighted-average grant-date fair value of share awards granted during the first
six months of fiscal 2011 and fiscal 2010 was $39.10 and $32.61,
respectively. The total fair value of shares vested during the first
six months of fiscal 2011 and fiscal 2010 was $39,123 and $17,784,
respectively.
5.
|
Fair
Value Measurements
|
In
accordance with Accounting Standards Codification (“ASC”) 820-10, “
Fair Value Measurements and
Disclosures
,” the Company categorizes its assets and liabilities, based
on the priority of the inputs to the valuation technique, into a three-level
fair value hierarchy as set forth below. The three levels of the
hierarchy are defined as follows:
Level 1 —
Unadjusted quoted prices in active markets for identical assets or
liabilities. Coach currently does not have any Level 1 financial
assets or liabilities.
Level 2 —
Observable inputs other than quoted prices included in Level 1. Level
2 inputs include quoted prices for identical assets or liabilities in non-active
markets, quoted prices for similar assets or liabilities in active markets, and
inputs other than quoted prices that are observable for substantially the full
term of the asset or liability.
Level 3 —
Unobservable inputs reflecting management’s own assumptions about the input used
in pricing the asset or liability.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
The
following table shows the fair value measurements of the Company’s assets and
liabilities at January 1, 2011 and July 3, 2010:
|
|
Level 2
|
|
|
Level 3
|
|
|
|
January 1,
|
|
|
July 3,
|
|
|
January 1,
|
|
|
July 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investment - auction
rate security
(a)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
Derivative assets
- zero-cost collar options
(b)
|
|
|
-
|
|
|
|
2,052
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
2,052
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities - zero-cost
collar options
(b)
|
|
$
|
9,694
|
|
|
$
|
5,120
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative liabilities -
cross-currency swap
(c)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,285
|
|
|
|
2,418
|
|
Total
|
|
$
|
9,694
|
|
|
$
|
5,120
|
|
|
$
|
13,285
|
|
|
$
|
2,418
|
|
(
a
)
The fair value of the security is
determined using a model that takes into consideration the financial conditions
of the issuer and the bond insurer, current market conditions and the value of
the collateral bonds.
(
b
)
The Company enters into zero-cost
collar options to manage its exposure to foreign currency exchange rate
fluctuations
resulting
from
Coach
Japan
's
and Coach
Canada
’s
U.S. dollar-denominated inventory
purchases. The fair value of these cash flow hedges is primarily
based on the forward curves of the specific indices upon which settlement is
based
and includes an
adjustment for the counterparty’s or Company’s credit risk.
(c
)
The Company is a party to a
cross-currency swap transaction to manage its exposure to foreign currency
exchange rate fluctuations
resulting from
Coach
Japan
's U.S. dollar-denominated fixed rate
intercompany loan. The fair value of this cash flow hedge is
primarily based on the forward curves of the specific indices upon which
settlement is based and includes an adjustment for the Company's credit
risk.
As of
January 1, 2011 and July 3,
2010
,
the Company’s investments included an
auction rate
securit
y
(“ARS”)
, deemed a long-term investment
classified within other assets,
as the auction for this security has
been unsuccessful.
The underlying investments of the ARS
are scheduled to mature in 2035.
This
ARS
is currently rated A,
an
investment grade rating afforded by
credit rating agencies.
We have determined that the significant
majority of the inputs used to value
this security
fall within Level 3 of the fair value
hierarchy as the inputs are based on unobservable estimates.
The fair value of the
Company’s ARS has been $6,000 since the end of the second quarter of fiscal
2009.
As of
January 1, 2011
and
July 3, 2010
, the fair value of the Company’s
cross-currency swap derivative
s
were
included within accrued
liabilities. The Company uses a management model
to value these derivatives,
which includes a combination of
observable inputs, such as tenure of the agreement and notional
amount
,
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
and unobservable inputs, such as the
Company’s credit rating.
The table below presents the changes in
the fair value of
the
cross-currency swap
s
during
the
first six months of fiscal 2011 and
2010
:
|
|
Cross-Currency
Swaps
|
|
Balance at July 3,
2010
|
|
$
|
2,418
|
|
Unrealized loss, recorded in
accumulated other comprehensive income
|
|
|
10,867
|
|
Balance at January 1,
2011
|
|
$
|
13,285
|
|
|
|
|
|
|
Balance at June 27,
2009
|
|
$
|
36,118
|
|
Unrealized loss, recorded in
accumula
ted other
comprehensive income
|
|
|
10,362
|
|
Balance at December 26,
2009
|
|
$
|
46,480
|
|
The Company’s short-term investments of
$155,600 and $99,928 as of January 1, 2011 and July 3, 2010, respectively,
consist of
U.S.
treasury bills and commercial paper
which are classified as held-to-maturity based on our positive intent and
ability to hold the securities to maturity. They are stated at
amortized cost, which approximates fair market value due to their short
maturities.
6.
|
Commitments and
Contingencies
|
At
January 1, 2011
, the Company had letters of credit
outstanding
totaling
$
140,530. The letters of
credit, which expire at various dates through 2013, primarily collateralize the
Company’s obligation to third parties for the purchase of
inventory.
In the
ordinary course of business, Coach is a party to several pending legal
proceedings and claims. Although the outcome of such items cannot be
determined with certainty, Coach’s General Counsel and management are of the
opinion that the final outcome will not have a material effect on Coach’s
financial position, results of operations or cash flows.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
7.
|
Derivative Instruments and
Hedging
Activities
|
Substantially
all purchases and sales involving international parties are denominated in U.S.
dollars, which limits the Company’s exposure to foreign currency exchange rate
fluctuations. However, the Company is exposed to foreign currency
exchange risk related to Coach Japan’s and Coach Canada’s U.S.
dollar-denominated inventory purchases and Coach Japan’s $139,400 U.S.
dollar-denominated fixed rate intercompany loan. Coach uses
derivative financial instruments to manage these risks. These
derivative transactions are in accordance with the Company’s risk management
policies. Coach does not enter into derivative transactions for speculative or
trading purposes.
Coach
Japan and Coach Canada enter into certain foreign currency derivative contracts,
primarily zero-cost collar options, to manage the exchange rate risk related to
their inventory purchases. As of January 1, 2011 and July 3, 2010,
$123,923 and $248,555 of foreign currency forward contracts were outstanding,
respectively.
On July
1, 2005, to manage the exchange rate risk related to its $231,000 intercompany
loan, Coach Japan entered into a cross-currency swap transaction. The
terms of the cross-currency swap transaction included an exchange of a Japanese
Yen fixed interest rate for a U.S. dollar fixed interest rate and an exchange of
Japanese Yen and U.S. dollar-based notional values. On July 2, 2010,
the maturity date of the original intercompany loan, Coach Japan repaid the loan
and settled the cross-currency swap, and entered into a new $139,400
intercompany loan agreement. Concurrently, to manage the exchange
rate risk on the new loan, Coach Japan entered into a new cross-currency swap
transaction, the terms of which included an exchange of a Japanese Yen fixed
interest rate for a U.S. dollar fixed interest rate. The loan matures
on June 30, 2011, at which point the swap requires an exchange of Japanese Yen
and U.S. dollar based notional values.
The
Company’s derivative instruments are designated as cash flow hedges. The
effective portion of gains or losses on the derivative instruments are reported
as a component of other comprehensive income and reclassified into earnings in
the same periods during which the hedged transaction affects earnings. The
ineffective portion of gains or losses on the derivative instruments are
recognized in current earnings and are included within net cash provided by
operating activities.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
The
following tables provide information related to the Company’s
derivatives:
Derivatives
Designated as Hedging
|
|
Balance
Sheet
|
|
Fair Value
|
|
Instruments
|
|
Classification
|
|
At January 1, 2011
|
|
|
At July, 3, 2010
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other
Current Assets
|
|
$
|
-
|
|
|
$
|
2,052
|
|
Total
derivative assets
|
|
|
|
$
|
-
|
|
|
$
|
2,052
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Accrued
Liabilities
|
|
$
|
22,979
|
|
|
$
|
7,538
|
|
Total
derivative liabilities
|
|
|
|
$
|
22,979
|
|
|
$
|
7,538
|
|
|
|
Amo
unt of Gain or (Loss) Recognized
in OCI on Derivatives
(Effective
Portion)
|
|
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
Derivatives in Cash
Flow
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
Hedging
Relationships
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange
contracts
|
|
$
|
(3,341
|
)
|
|
$
|
279
|
|
|
$
|
(9,174
|
)
|
|
$
|
(1,079
|
)
|
Total
|
|
$
|
(3,341
|
)
|
|
$
|
279
|
|
|
$
|
(9,174
|
)
|
|
$
|
(1,079
|
)
|
For the
second quarter of fiscal 2011 and fiscal 2010, the amounts above are net of tax
of $(2,176) and $203, respectively. For the first six months of
fiscal 2011 and fiscal 2010, the amounts above are net of tax of $(6,043) and
$(781), respectively.
|
|
Amount of Loss Reclassified from
Accumulated OCI into In
come
(Effective
Portion)
|
|
Location of Loss
Reclassified
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
from Accumulated OCI
into
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
Income (Effective
Portion)
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
Sales
|
|
$
|
3,880
|
|
|
$
|
1,615
|
|
|
$
|
4,720
|
|
|
$
|
3,804
|
|
Total
|
|
$
|
3,880
|
|
|
$
|
1,615
|
|
|
$
|
4,720
|
|
|
$
|
3,804
|
|
During
the six months ended January 1, 2011 and December 26, 2009, there were no
material gains or losses recognized in income due to hedge
ineffectiveness.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
The
Company expects that $14,147 of net derivative losses included in accumulated
other comprehensive income at January 1, 2011 will be reclassified into earnings
within the next 12 months. This amount will vary due to fluctuations
in the Japanese Yen and Canadian Dollar exchange rates.
Hedging
activity affected accumulated other comprehensive (loss) income, net of tax, as
follows:
|
|
January 1,
|
|
|
July 3,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
Balance at prior year end balance
sheet date
|
|
$
|
(2,092
|
)
|
|
$
|
(335
|
)
|
Net losses transferred to
earnings
|
|
|
2,716
|
|
|
|
1,606
|
|
Change in fair value, net of
tax
|
|
|
(9,174
|
)
|
|
|
(3,363
|
)
|
Balance at end of
period
|
|
$
|
(8,550
|
)
|
|
$
|
(2,092
|
)
|
8.
|
Goodwill
and Intangible Assets
|
The
change in the carrying value of goodwill for the first six months of fiscal 2011
ended January 1, 2011, by operating segment, is as follows:
|
|
Direct-to-
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
|
Indirect
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at
July
3,
2010
|
|
$
|
304,345
|
|
|
$
|
1,516
|
|
|
$
|
305,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange
impact
|
|
|
24,171
|
|
|
|
-
|
|
|
|
24,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill balance at January 1,
2011
|
|
$
|
328,516
|
|
|
$
|
1,516
|
|
|
$
|
330,032
|
|
At
January 1, 2011
and
July 3, 2010
, intangible assets not subject to
amortization consisted of $
9,788
of trademarks.
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 and service and utilize similar
marketing strategies. Sales of Coach products through
Company-operated stores in North America, Japan, Hong Kong, Macau and mainland
China, the Internet and the Coach catalog constitute the Direct-to-Consumer
segment. The Indirect segment includes sales to wholesale customers
in over 20 countries, including the United States, and royalties earned on
licensed product. In deciding how to allocate resources and assess
performance, the Company's executive officers regularly evaluate the net sales
and operating income of these segments. Operating income is the gross
margin of the segment less direct expenses of the
segment. Unallocated corporate expenses include production variances,
general marketing, administration and information systems expenses, as well as
distribution and consumer service expenses.
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
|
|
Direct-to-
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
Consumer
|
|
|
Indirect
|
|
|
Unallocated
|
|
|
Total
|
|
Quarter Ended January 1,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,096,143
|
|
|
$
|
168,314
|
|
|
$
|
-
|
|
|
$
|
1,264,457
|
|
Operating
income
|
|
|
4
53,485
|
|
|
|
93,495
|
|
|
|
(93,645
|
)
|
|
|
453,335
|
|
Income before provision
for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
453,485
|
|
|
|
93,495
|
|
|
|
(94,539
|
)
|
|
|
452,441
|
|
Depreciation and
amortization expense
|
|
|
21,041
|
|
|
|
2,672
|
|
|
|
7,515
|
|
|
|
31,228
|
|
Additions to long-lived
assets
|
|
|
13,721
|
|
|
|
5,841
|
|
|
|
5,859
|
|
|
|
25,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
933,938
|
|
|
$
|
131,067
|
|
|
$
|
-
|
|
|
$
|
1,065,005
|
|
Operating
income
|
|
|
394,832
|
|
|
|
75,155
|
|
|
|
(89,150
|
)
|
|
|
380,837
|
|
Income before provision
for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
394,832
|
|
|
|
75,155
|
|
|
|
(87,246
|
)
|
|
|
382,741
|
|
Depreciation and
amortization expense
|
|
|
19,788
|
|
|
|
1,797
|
|
|
|
6,468
|
|
|
|
28,053
|
|
Additions to long-lived
assets
|
|
|
3,330
|
|
|
|
401
|
|
|
|
6,457
|
|
|
|
10,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Month
s Ended January 1,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,871,612
|
|
|
$
|
304,514
|
|
|
$
|
-
|
|
|
$
|
2,176,126
|
|
Operating
income
|
|
|
753,818
|
|
|
|
169,559
|
|
|
|
(184,382
|
)
|
|
|
738,995
|
|
Income before provision
for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
753,818
|
|
|
|
169,559
|
|
|
|
(185,838
|
)
|
|
|
737,539
|
|
Depreciation and
amortization expense
|
|
|
42,261
|
|
|
|
5,708
|
|
|
|
15,510
|
|
|
|
63,479
|
|
Additions to long-lived
assets
|
|
|
33,747
|
|
|
|
8,012
|
|
|
|
10,452
|
|
|
|
52,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 26,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
1,587,830
|
|
|
$
|
238,612
|
|
|
$
|
-
|
|
|
$
|
1,826,442
|
|
Operating
income
|
|
|
641,653
|
|
|
|
137,422
|
|
|
|
(174,991
|
)
|
|
|
604,084
|
|
Income before provision
for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
taxes
|
|
|
641,653
|
|
|
|
137,422
|
|
|
|
(171,252
|
)
|
|
|
607,823
|
|
Depreciation and
amortization expense
|
|
|
40,424
|
|
|
|
4,597
|
|
|
|
16,412
|
|
|
|
61,433
|
|
Additions to long-lived
assets
|
|
|
17,966
|
|
|
|
1,155
|
|
|
|
10,239
|
|
|
|
29,360
|
|
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
The following is a summary of the common
costs not allocated in the determination of segment
performance:
|
|
Quarter
Ended
|
|
|
Six Months
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
2011
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Produc
tion
variances
|
|
$
|
23,916
|
|
|
$
|
13,697
|
|
|
$
|
40,283
|
|
|
$
|
19,050
|
|
Advertising, marketing and
design
|
|
|
(42,090
|
)
|
|
|
(42,793
|
)
|
|
|
(79,496
|
)
|
|
|
(75,159
|
)
|
Administration
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
formation
systems
|
|
|
(60,091
|
)
|
|
|
(48,489
|
)
|
|
|
(117,587
|
)
|
|
|
(96,630
|
)
|
Distribution and customer
service
|
|
|
(15,380
|
)
|
|
|
(11,565
|
)
|
|
|
(27,582
|
)
|
|
|
(22,252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corpor
ate
unallocated
|
|
$
|
(93,645
|
)
|
|
$
|
(89,150
|
)
|
|
$
|
(184,382
|
)
|
|
$
|
(174,991
|
)
|
10.
|
Stock
Repurchase Program
|
Purchases
of Coach’s common stock are made from time to time, subject to market conditions
and at prevailing market prices, through the open market. Repurchased
shares of common stock become authorized but unissued shares and may be issued
in the future for general corporate and other purposes. The Company
may terminate or limit the stock repurchase program at any time.
Coach
accounts for stock repurchases and retirements by allocating the repurchase
price to common stock, additional paid-in-capital and retained
earnings. The repurchase price allocation is based upon the equity
contribution associated with historical issuances, beginning with the earliest
issuance. During the fourth quarter of fiscal 2010, cumulative stock
repurchases allocated to retained earnings have resulted in an accumulated
deficit balance. Since its initial public offering, the Company has
not experienced a net loss in any fiscal year, and the net accumulated deficit
balance in stockholders’ equity is attributable to the cumulative stock
repurchase activity.
For the
second quarter of fiscal 2011 and fiscal 2010, the Company repurchased and
retired 6,955 and 8,565 shares of common stock at an average cost of $55.72 and
$35.03 per share, respectively. For the first six months of fiscal
2011 and fiscal 2010, the Company repurchased and retired 10,540 and 8,565
shares of common stock at an average cost of $49.81 and $35.03 per share,
respectively. As of January 1, 2011, Coach had $34,628 remaining in
the stock repurchase program.
11.
|
Change
in Accounting Principle
|
Coach
adopted the FASB’s guidance for accounting for uncertainty in income taxes,
codified within ASC 740 “
Income Taxes,”
on July 1,
2007, the first day of fiscal 2008. At adoption, Coach elected to
classify interest and penalties related to uncertain tax positions as a
component of interest expense included within Interest income,
net. On July 4, 2010, the Company changed its method of accounting to
include such amounts as a component of the provision for income
taxes. The Company believes this change is preferable because: it
will improve Coach’s comparability with its industry peers; it is more
consistent with the way in
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
which the
Company manages the settlement of uncertain tax positions as one overall amount
inclusive of interest and penalties; and it will provide more meaningful
information to investors by including only interest expense related to revolving
credit facilities and long-term debt financing activities within Interest
income, net.
The
change in accounting method for presentation of interest and penalties for
uncertain tax positions was completed in accordance with ASC 250, “
Accounting Changes and Error
Corrections
.” Accordingly, the change in accounting principle
has been applied retrospectively by adjusting the financial statement amounts
for the prior periods presented. The change to current or historical
periods presented herein due to the change in accounting principle was limited
to income statement classification, with no effect on net income.
The
following tables detail the retrospective application impact on previously
reported amounts:
For the Quarter
Ended
December 26,
2009
|
|
As Previously
Reported
|
|
|
Effect of
Accounting
Principle
Change
|
|
|
Adjusted
|
|
Interest income,
net
|
|
$
|
112
|
|
|
$
|
1,792
|
|
|
$
|
1,904
|
|
Provision for income
taxes
|
|
|
139,999
|
|
|
|
1,792
|
|
|
|
141,791
|
|
For the Six Months
Ended
December 26,
2009
|
|
|
|
|
|
|
|
|
|
Interest income
(expense),
net
|
|
$
|
(484
|
)
|
|
$
|
4,223
|
|
|
$
|
3,739
|
|
Provision for income
taxes
|
|
|
221,823
|
|
|
|
4,223
|
|
|
|
226,046
|
|
The
following tables show the impact of the accounting principle change on reported
balances for the periods ended January 1, 2011:
For the Quarter
Ended
January 1,
2011
|
|
As Computed
Under Prior
Method
|
|
|
Effect of
Accounting
Principle
Change
|
|
|
As Reported
Under Current
Method
|
|
Interest income,
net
|
|
$
|
(1,838
|
)
|
|
$
|
2,068
|
|
|
$
|
230
|
|
Provision for income
taxes
|
|
|
146,945
|
|
|
|
2,068
|
|
|
|
149,013
|
|
For the Six Months
Ended
January 1,
2011
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
$
|
(3,680
|
)
|
|
$
|
4,158
|
|
|
$
|
478
|
|
Provision for income
taxes
|
|
|
241,077
|
|
|
|
4,158
|
|
|
|
245,235
|
|
COACH,
INC.
Notes
to Condensed Consolidated Financial Statements
(dollars
and shares in thousands, except per share data)
(unaudited)
In
January 2011, Coach’s Board of Directors authorized a new $1,500,000 share
repurchase program.
13.
|
Recent
Accounting Developments
|
ASC
820-10 “
Fair Value
Measurements and Disclosures
,” was amended in January 2010 to require
additional disclosures related to recurring and nonrecurring fair value
measurements. The guidance requires disclosure of transfers of assets and
liabilities between Levels 1 and 2 of the fair value hierarchy, including the
reasons and the timing of the transfers, and information on purchases, sales,
issuances, and settlements on a gross basis in the reconciliation of the assets
and liabilities measured under Level 3 of the fair value hierarchy. The guidance
was effective for the Company beginning on December 27, 2009, except for certain
disclosures about purchases, sales, issuances, and settlements related to Level
3 fair value measurements, which are effective for the Company beginning on
January 2, 2011. The disclosure guidance adopted on December 27, 2009
did not have a material impact on our consolidated financial statements and we
do not expect the additional disclosure requirements, effective for the Company
beginning on January 2, 2011, to have a material impact on our consolidated
financial statements.
ITEM 2.
|
Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
|
The
following discussion of Coach’s financial condition and results of operations
should be read together with Coach’s condensed consolidated financial statements
and notes to those statements, included elsewhere in this
document. When used herein, the terms “Coach,” “Company,” “we,” “us”
and “our” refer to Coach, Inc., including consolidated
subsidiaries. The fiscal year ending July 2, 2011 (“fiscal 2011”) is
a 52-week period. The fiscal year ended July 3, 2010 (“fiscal 2010”)
was a 53-week period.
EXECUTIVE
OVERVIEW
Coach is
a leading American marketer of fine accessories and gifts for women and
men. Our product offerings include handbags, women’s and men’s
accessories, footwear, jewelry, wearables, business cases, sunwear, travel bags,
fragrance and watches. Coach operates in two segments:
Direct-to-Consumer and Indirect. The Direct-to-Consumer segment
includes sales to consumers through Company-operated stores in North America,
Japan, Hong Kong and Macau, and mainland China, the Internet and the Coach
catalog. The Indirect segment includes sales to wholesale customers
in over 20 countries, including the United States, and royalties earned on
licensed product. As Coach’s business model is based on multi-channel
international distribution, our success does not depend solely on the
performance of a single channel or geographic area.
In order
to sustain growth within our global framework, we continue to focus on two key
growth strategies: increased global distribution, with an emphasis on North
America and China, and improved store sales productivity. To that
end, we are focused on four key initiatives:
|
·
|
Build
market share in the North American women’s accessories
market. As part of our culture of innovation and continuous
improvement, we implemented a number of initiatives to accelerate the
level of newness, elevate our product offering and enhance the in-store
and online experience. These initiatives, supported by a
comprehensive digital media strategy, will enable us to continue to
leverage our leadership position in the
market.
|
|
·
|
Continue
to grow our North American retail store base primarily by opening stores
in new markets and adding stores in under-penetrated existing
markets. We believe that North America can support about 500
retail stores in total, including up to 30 in Canada. Through
the second quarter of fiscal 2011, we opened five new retail
locations. The pace of our future retail store openings will
depend upon the economic environment and reflect opportunities in the
marketplace, with a focus on new
markets.
|
|
·
|
Build
Men’s market share globally, with a focus in North American, Japan and the
rest of Asia. The Men’s market is a global multichannel
opportunity for locations in retail stores, factory locations and through
distributor locations. We have implemented a number of
initiatives to elevate our Men’s product offering through image-enhancing
and accessible locations. During the first six months of fiscal 2011, we
opened our first five Men’s standalone factory stores. In
addition, based on our initial success with our Men’s store on Bleecker
Street, we will be opening additional Men’s retail store locations later
during fiscal 2011 in select markets in North
America.
|
|
·
|
Raise
brand awareness in emerging markets, notably in China, where our brand
awareness is increasing and the category is developing
rapidly. China represents the single largest geographic
opportunity for Coach, outside of North America, and the pace of our
future retail store openings will reflect this
opportunity.
|
We
believe the growth strategies outlined above will allow us to deliver long-term
superior returns on our investments and drive increased cash flows from
operating activities. However, the current macroeconomic environment,
while improving, continues to present a challenging retail market in which
consumers, notably in North America and Japan, remain cautious. The
Company believes long-term growth can still be achieved through a combination of
expanded distribution with an emphasis on China, along with a focus on
innovation to support productivity and disciplined expense
control. Our multi-channel distribution model is diversified and
includes substantial international and factory businesses, which complement our
full-price U.S. business. With an essentially debt-free balance sheet
and significant cash position, we believe we are well positioned to manage our
business to take advantage of profitable growth opportunities.
SECOND
QUARTER OF FISCAL 2011 HIGHLIGHTS
The key
metrics of the second quarter of fiscal 2011 were:
|
·
|
Earnings
per diluted share increased 32.8% to
$1.00.
|
|
·
|
Net
sales increased 18.7% to $1,264
million.
|
|
·
|
Direct-to-consumer
sales rose 17.4% to $1,096 million.
|
|
·
|
Comparable
store sales in North America increased 12.6%, primarily due to overall
improved conversion and traffic in our factory and full-priced
stores.
|
|
·
|
In
North America, Coach opened two new retail and one new factory store,
bringing the total number of retail and factory stores to 347 and 129,
respectively, at the end of the second quarter of fiscal
2011.
|
|
·
|
Coach
China results continued to be strong with double-digit growth in
comparable stores. Coach China opened three new locations,
bringing the total number of locations at the end of the second quarter of
fiscal 2011 to 52.
|
|
·
|
Coach
Japan opened one new location, bringing the total number of locations at
the end of the second quarter of fiscal 2010 to
164.
|
RESULTS
OF OPERATIONS
SECOND
QUARTER FISCAL 2011 COMPARED TO SECOND QUARTER FISCAL 2010
The
following table summarizes results of operations for the second quarter of
fiscal 2011 compared to the second quarter of fiscal 2010:
|
|
Quarter
Ended
|
|
|
|
January 1,
2011
|
|
|
December 26,
2009
|
|
|
Variance
|
|
|
|
(doll
ars in millions, except per share
data)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
%
|
|
Net
sales
|
|
$
|
1,264.5
|
|
|
|
100.0
|
%
|
|
$
|
1,065.0
|
|
|
|
100.0
|
%
|
|
$
|
199.5
|
|
|
|
18.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
915.2
|
|
|
|
72.4
|
|
|
|
770.9
|
|
|
|
72.4
|
|
|
|
144.2
|
|
|
|
18.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
461.8
|
|
|
|
36.5
|
|
|
|
390.1
|
|
|
|
36.6
|
|
|
|
71.7
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
453.3
|
|
|
|
35.9
|
|
|
|
380.8
|
|
|
|
35.8
|
|
|
|
72.5
|
|
|
|
19.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
|
0.2
|
|
|
|
0.0
|
|
|
|
1.9
|
|
|
|
0.2
|
|
|
|
(1.7
|
)
|
|
nm
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
(1.1
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
0.0
|
|
|
|
(1.1
|
)
|
|
nm
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
|
149.0
|
|
|
|
11.8
|
|
|
|
141.
8
|
|
|
|
13.3
|
|
|
|
7.2
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
303.4
|
|
|
|
24.0
|
|
|
|
241.0
|
|
|
|
22.6
|
|
|
|
62.5
|
|
|
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.02
|
|
|
|
|
|
|
$
|
0.76
|
|
|
|
|
|
|
$
|
0.26
|
|
|
|
34.5
|
%
|
Diluted
|
|
|
1.00
|
|
|
|
|
|
|
|
0.75
|
|
|
|
|
|
|
|
0.25
|
|
|
|
32.8
|
|
* -
Percentage change is not meaningful
Net
Sales
Net sales
by business segment in the second quarter of fiscal 2011, compared to the second
quarter of fiscal 2010, were as follows:
|
|
Quarter End
ed
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
of
|
|
|
|
Net Sales
|
|
|
Total Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
Rate of
|
|
|
January 1,
|
|
|
Decemb
er 26,
|
|
|
|
2011
|
|
|
2009
|
|
|
Change
|
|
|
2011
|
|
|
2009
|
|
|
|
(dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
|
|
$
|
1,096.2
|
|
|
$
|
933.9
|
|
|
|
17.4
|
%
|
|
|
86.7
|
%
|
|
|
87.7
|
%
|
Indirect
|
|
|
168.3
|
|
|
|
131.1
|
|
|
|
28.4
|
|
|
|
13.3
|
|
|
|
12.3
|
|
Total net
sales
|
|
$
|
1,264.5
|
|
|
$
|
1,065.0
|
|
|
|
18.7
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Direct-to-Consumer
Net sales
increased 17.4% to $1.1 billion during the second quarter of fiscal 2011 from
$933.9 million during the same period in fiscal 2010, driven by sales increases
in our Company-operated stores in North America, Japan and China.
In North
America, net sales increased 17.1% driven by a 12.6% increase in comparable
store sales and sales from new and expanded stores. Since the end of
the second quarter of fiscal 2010, Coach opened four net new retail stores and
11 new factory stores, and expanded three factory stores in North
America. In Japan, net sales increased 8.5% driven by an
approximately $17.5 million or 8.6% positive impact from foreign currency
exchange. Since the end of the second quarter of fiscal 2010, Coach
opened six net new locations and expanded two locations in
Japan. Coach China results continued to be strong with double-digit
growth in comparable store sales. Since the end of the second quarter
of fiscal 2010, Coach opened 15 net new stores in Hong Kong and mainland
China.
Indirect
Net sales
increased 28.4% to $168.3 million in the second quarter of fiscal 2011 from
$131.1 million during the same period of fiscal 2010. The increase
was driven primarily by a 27.6% increase in Coach International Wholesale and
U.S. Wholesale net shipments. Licensing revenue of approximately $7.0
million and $4.9 million in the second quarter of fiscal 2011 and fiscal 2010,
respectively, is included in Indirect sales.
Operating
Income
Operating
income increased 19.0% to $453.3 million in the second quarter of fiscal 2011 as
compared to $380.8 million in the second quarter of fiscal
2010. Operating margin increased to 35.9% as compared to 35.8% in the
same period of the prior year.
Gross
profit increased 18.7% to $915.2 million in the second quarter of fiscal 2011
from $770.9 million during the same period of fiscal 2010. Gross
margin was 72.4% in the second quarter of fiscal 2011 and fiscal
2010.
Selling,
general and administrative expenses increased 18.4% to $461.8 million in the
second quarter of fiscal 2011 as compared to $390.1 million in the second
quarter of fiscal 2010, driven primarily by increased selling
expenses. However, as a percentage of net sales, selling, general and
administrative expenses decreased to 36.5% during the second quarter of fiscal
2011 as compared to 36.6% during the second quarter of fiscal 2010 as we
leveraged our selling expense base on higher sales.
Selling
expenses were $325.7 million, or 25.7% of net sales, in the second quarter of
fiscal 2011 compared to $282.1 million, or 26.5% of net sales, in the second
quarter of fiscal 2010. The dollar increase in selling expenses was
due to higher operating expenses in North American stores, Coach China and
Japan, due to higher sales and new store openings. North American
store expenses as a percentage of sales decreased primarily due to operating
efficiencies achieved since the end of the second quarter of fiscal
2010. The decrease in Coach Japan operating expenses in constant
currency of $1.1 million was offset by the impact of foreign currency exchange
rates which increased reported expenses by approximately $6.6
million.
Advertising,
marketing, and design costs were $59.8 million, or 4.7% of net sales, in the
second quarter of fiscal 2011, compared to $47.3 million, or 4.4% of net sales,
during the same period of fiscal 2010. The
increase
was primarily due to marketing expenses related to consumer communications which
includes our digital strategy through coach.com, our global e-commerce sites,
marketing sites and social networking. The Company utilizes and
continues to explore implementing new technologies such as our web presence
globally with informational websites in 16 countries, social networking and
blogs as cost-effective consumer communication opportunities to increase on-line
and store sales and build brand awareness. Also contributing to the
increase were new design expenditures and development costs for new
merchandising initiatives.
Distribution
and consumer service expenses were $16.2 million, or 1.3% of net sales, in the
second quarter of fiscal 2011, compared to $12.2 million, or 1.1% of net sales,
in the second quarter of fiscal 2010.
To support our growth in
China and the region, during the second half of fiscal 2010 we established an
Asia distribution center in Shanghai, owned and operated by a third-party,
allowing us to better manage the logistics in this region. During the
second quarter of fiscal 2011, the Asia distribution center contributed to the
increase in distribution and consumer service expenses, however in the long run,
the Company expects the Asia distribution center to reduce costs as a percentage
of net sales.
Administrative
expenses were $60.1 million, or 4.8% of net sales, in the second quarter of
fiscal 2011 compared to $48.5 million, or 4.6% of net sales, during the same
period of fiscal 2010. The increase in administrative expenses was
primarily due to higher share-based compensation.
Interest
Income, Net
Net
interest income was $0.2 million in the second quarter of fiscal 2011 as
compared to $1.9 million in the second quarter of fiscal 2010. The
decrease is attributable to lower returns on our investments primarily due to
changes in interest rates, including interest rates on the cross-currency swaps,
and lower cash and investment balances.
Provision
for Income Taxes
The
effective tax rate was 32.9% in the second quarter of fiscal 2011 as compared to
37.0% in the second quarter of fiscal 2010. The decrease in the
effective tax rate is primarily attributable to higher profitability in lower
tax rate jurisdictions in which income is earned, due to the increased
globalization of the Company, and a lower effective state tax rate.
Net
Income
Net
income was $303.4 million in the second quarter of fiscal 2011 as compared to
$241.0 million in the second quarter of fiscal 2010. This increase
was primarily due to an improvement in operating income as well as a decrease in
the Company's effective tax rate.
FIRST
SIX MONTHS OF FISCAL 2011 COMPARED TO FIRST SIX MONTHS OF FISCAL
2010
The
following table summarizes results of operations for the first six months of
fiscal 2011 compared to the first six months of fiscal 2010:
|
|
Six Months
Ended
|
|
|
|
January 1,
2011
|
|
|
December 26,
2009
|
|
|
Variance
|
|
|
|
(dollars in millions, except per
share data)
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
net sales
|
|
|
Amount
|
|
|
%
|
|
Net
sales
|
|
$
|
2,176.1
|
|
|
|
100.0
|
%
|
|
$
|
1,826.4
|
|
|
|
100.0
|
%
|
|
$
|
349.7
|
|
|
|
19.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,591.3
|
|
|
|
73.1
|
|
|
|
1,321.1
|
|
|
|
72.3
|
|
|
|
270.2
|
|
|
|
20.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative
expenses
|
|
|
852.4
|
|
|
|
39.2
|
|
|
|
717.0
|
|
|
|
39.3
|
|
|
|
135.3
|
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
739.0
|
|
|
|
34.0
|
|
|
|
604.1
|
|
|
|
33.1
|
|
|
|
134.9
|
|
|
|
22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income,
net
|
|
|
0.5
|
|
|
|
0.0
|
|
|
|
3.7
|
|
|
|
0.2
|
|
|
|
(3.3
|
)
|
|
nm
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense
|
|
|
(1.9
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
0.0
|
|
|
|
(1.9
|
)
|
|
nm
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income
taxes
|
|
|
245.2
|
|
|
|
11.3
|
|
|
|
226.0
|
|
|
|
12.4
|
|
|
|
19.2
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
492.3
|
|
|
|
22.6
|
|
|
|
381.8
|
|
|
|
20.9
|
|
|
|
110.5
|
|
|
|
29.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.66
|
|
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
|
$
|
0.46
|
|
|
|
38.0
|
%
|
Diluted
|
|
|
1.62
|
|
|
|
|
|
|
|
1.19
|
|
|
|
|
|
|
|
0.44
|
|
|
|
36.6
|
|
* -
Percentage change is not meaningful
Net
Sales
Net sales
by business segment in the first six months of fiscal 2011, compared to the
first six months of fiscal 2010, were as follows:
|
|
Six Months
Ended
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Perce
ntage of
|
|
|
|
Net Sales
|
|
|
Total Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
|
|
|
December
26,
|
|
|
Rate of
|
|
|
January 1,
|
|
|
December
26,
|
|
|
|
2011
|
|
|
2009
|
|
|
Change
|
|
|
2011
|
|
|
2009
|
|
|
|
(dollars in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to-Consumer
|
|
$
|
1,871.6
|
|
|
$
|
1,587.8
|
|
|
|
17.9
|
%
|
|
|
86.0
|
%
|
|
|
86.9
|
%
|
Indirect
|
|
|
304.5
|
|
|
|
238.6
|
|
|
|
27.6
|
|
|
|
14.0
|
|
|
|
13.1
|
|
Total net
sales
|
|
$
|
2,176.1
|
|
|
$
|
1,826.4
|
|
|
|
19.1
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Direct-to-Consumer
Net sales
increased 17.9% to $1.9 billion during the first six months of fiscal 2011 from
$1.6 billion during the same period in fiscal 2010, driven by sales increases in
our Company-operated stores in North America, Japan and China.
In North
America, net sales increased 17.3% driven by an 11.0% increase in comparable
store sales and sales from new and expanded stores. Since the end of
the first six months of fiscal 2010, Coach opened four net new retail stores and
11 new factory stores, and expanded three factory stores in North
America. In Japan, net sales increased 10.7% driven by an
approximately $33.6 million or 9.4% positive impact from foreign currency
exchange. Since the end of the first six months of fiscal 2010, Coach
opened six net new locations and expanded two locations in
Japan. Coach China results continued to be strong with double-digit
growth in comparable store sales. Since the end of the first six
months of fiscal 2010, Coach opened 15 net new stores in Hong Kong and mainland
China.
Indirect
Net sales
increased 27.6% to $304.5 million in the first six months of fiscal 2011 from
$238.6 million during the same period of fiscal 2010. The increase
was driven primarily by a 27.8% increase in Coach International Wholesale and
U.S. Wholesale net shipments. Licensing revenue of approximately
$11.2 million and $8.4 million in the first six months of fiscal 2011 and fiscal
2010, respectively, is included in Indirect sales.
Operating
Income
Operating
income increased 22.3% to $739.0 million in the first six months of fiscal 2011
as compared to $604.1 million in the first six months of fiscal
2010. Operating margin increased to 34.0% as compared to 33.1% in the
same period of the prior year, mainly due to an improvement in gross
margin.
Gross
profit increased 20.5% to $1.6 billion in the first six months of fiscal 2011
from $1.3 billion during the same period of fiscal 2010. Gross margin
was 73.1% in the first six months of fiscal 2011 as compared to 72.3% during the
same period of fiscal 2010. The gross margin improvement was
primarily due to sourcing cost improvements, notably in the factory channel
where product mix continued to favor higher margin, made-for-factory
product.
Selling,
general and administrative expenses increased 18.9% to $852.4 million in the
first six months of fiscal 2011 as compared to $717.0 million in the first six
months of fiscal 2010, driven primarily by increased selling
expenses. However, as a percentage of net sales, selling, general and
administrative expenses decreased to 39.2% during the first six months of fiscal
2011 as compared to 39.3% during the first six months of fiscal 2010 as we
leveraged our selling expense base on higher sales.
Selling
expenses were $594.9 million, or 27.3% of net sales, in the first six months of
fiscal 2011 compared to $515.0 million, or 28.2% of net sales, in the first six
months of fiscal 2010. The dollar increase in selling expenses was
due to higher operating expenses in North American stores, Coach China and
Japan, due to higher sales and new store openings. North American
store expenses as a percentage of sales decreased primarily due to operating
efficiencies achieved since the end of the first six months of fiscal
2010. The decrease in Coach Japan operating expenses in constant
currency of $1.7 million was offset by the impact of foreign currency exchange
rates which increased reported expenses by approximately $12.8
million.
Advertising,
marketing, and design costs were $110.8 million, or 5.2% of net sales, in the
first six months of fiscal 2011, compared to $81.8 million, or 4.5% of net
sales, during the same period of fiscal 2010. The increase was
primarily due to marketing expenses related to consumer communications which
includes our digital strategy through coach.com, our global e-commerce sites,
marketing sites and social networking. The Company utilizes and
continues to explore implementing new technologies such as our web presence
globally with informational websites in 16 countries, social networking and
blogs as cost-effective consumer communication opportunities to increase on-line
and store sales and build brand awareness. Also contributing to the
increase were new design expenditures and development costs for new
merchandising initiatives.
Distribution
and consumer service expenses were $29.1 million, or 1.3% of net sales, in the
first six months of fiscal 2011, compared to $23.6 million, or 1.3% of net
sales, in the first six months of fiscal 2010. To support our growth
in China and the region, during the second half of fiscal 2010 we established an
Asia distribution center in Shanghai, owned and operated by a third-party,
allowing us to better manage the logistics in this region. During the
first six months of fiscal 2011, the Asia distribution center contributed to the
increase in distribution and consumer service expenses, however in the long run,
the Company expects the Asia distribution center to reduce costs as a percentage
of net sales.
Administrative
expenses were $117.6 million, or 5.4% of net sales, in the first six months of
fiscal 2011 compared to $96.6 million, or 5.3% of net sales, during the same
period of fiscal 2010. The increase in administrative expenses was
primarily due to higher share-based compensation.
Interest
Income, Net
Net
interest income was $0.5 million in the first six months of fiscal 2011 as
compared to $3.7 million in the first six months of fiscal 2010. The
decrease is attributable to lower returns on our investments primarily due to
changes in interest rates, including interest rates on the cross-currency swaps,
and lower cash and investment balances.
Provision
for Income Taxes
The
effective tax rate was 33.3% in the first six months of fiscal 2011 as compared
to 37.2% in the first six months of fiscal 2010. The decrease in the
effective tax rate is primarily attributable to higher profitability in lower
tax rate jurisdictions in which income is earned, due to the increased
globalization of the Company, and a lower effective state tax rate.
Net
Income
Net
income was $492.3 million in the first six months of fiscal 2011 as compared to
$381.8 million in the first six months of fiscal 2010. This increase
was primarily due to an improvement in operating income as well as a decrease in
the Company's effective tax rate.
FINANCIAL
CONDITION
Cash
Flow
Net cash
provided by operating activities was $585.2 million in the first six months of
fiscal 2011 compared to $604.2 million in the first six months of fiscal
2010. The decrease of $19.0 million was primarily the result of
working capital changes between the two periods, the most significant of which
occurred in accrued liabilities and inventories, partially offset by the
increase in net income of $110.5 million in the current
period. Changes during the period in accrued liabilities balances
provided cash of $36.8 million in the current fiscal period, compared to $129.7
million in the prior fiscal period, primarily due to higher bonus payouts in the
current year. Changes during the period in inventory balances
resulted in a use of cash of $0.7 million in the current fiscal period compared
to a source of cash of $59.5 million in the prior fiscal period, primarily due
to higher inventory levels year over year driven by the improved overall
economic conditions.
Net cash
used in investing activities was $108.8 million in the first six months of
fiscal 2011 compared to $38.1 million in the first six months of fiscal
2010. Proceeds from maturities and sales of investments, net of
purchases of investments, resulted in a cash usage of $55.7 million in the
current fiscal period. The Company had no comparable investment
activity in the prior fiscal year period. Purchases of property and
equipment were $49.2 million in the current fiscal period, which was $12.3
million higher than the prior year period, reflecting planned increased capital
investment.
Net cash
used in financing activities was $291.5 million in the first six months of
fiscal 2011 as compared to $269.3 million in the first six months of fiscal
2010. The increase of $22.2 million in net cash used was attributable
to $525.0 million in funds expended in the first six months of fiscal 2011 for
repurchases of common stock compared to $300.0 million in the first six months
of fiscal 2010, as well as $41.3 million higher dividend payments, due to the
higher dividend payment rate in the current fiscal period. The
overall increase in net cash used in financing activities was partially offset
by $190.5 million higher proceeds from exercises of share-based awards in the
current fiscal period.
Revolving
Credit Facilities
On July
26, 2007, the Company renewed its $100 million revolving credit facility with
certain lenders and Bank of America, N.A. as the primary lender and
administrative agent (the “Bank of America facility”), extending the facility
expiration to July 26, 2012. At Coach’s request and the lenders’
consent, the Bank of America facility can be expanded to $200
million. The facility can also be extended for two additional one
year periods, at Coach’s request and the lenders’ consent.
Coach’s
Bank of America facility is available for seasonal working capital requirements
or general corporate purposes and may be prepaid without penalty or
premium. During the first six months of fiscal 2011 and fiscal 2010
there were no borrowings under the Bank of America
facility. Accordingly, as of January 1, 2011 and July 3, 2010, there
were no outstanding borrowings under the Bank of America
facility. The Company’s borrowing capacity as of January 1, 2011 was
$90.0 million, due to outstanding letters of credit.
Coach
pays a commitment fee of 6 to 12.5 basis points on any unused amounts and
interest of LIBOR plus 20 to 55 basis points on any outstanding
borrowings. Both the commitment fee and the LIBOR margin are based on
the Company’s fixed charge coverage ratio. At January 1, 2011, the
commitment fee was 7 basis points and the LIBOR margin was 30 basis
points.
The Bank
of America facility contains various covenants and customary events of
default. Coach has been in compliance with all covenants since its
inception.
To
provide funding for working capital and general corporate purposes, Coach Japan
has available credit facilities with several Japanese financial
institutions. These facilities allow a maximum borrowing of 4.1
billion Japanese Yen, or approximately $50.5 million, at January 1,
2011. Interest is based on the Tokyo Interbank rate plus a margin of
30 basis points. During the first six months of fiscal 2011 peak
borrowings were $27.1 million under the Japanese credit
facilities. There were no borrowings during the first six months of
fiscal 2010. As of January 1, 2011 and July 3, 2010, there were $27.1
million and $0 borrowings under the Japanese credit facilities,
respectively. The short term borrowing outstanding as of January 1,
2011 was repaid in early January 2011.
To
provide funding for working capital and general corporate purposes, Coach
Shanghai Limited has a credit facility that allows a maximum borrowing of 67
million Chinese Renminbi, or approximately $10 million, at January 1,
2011. Interest is based on the People's Bank of China
rate. During the first six months of fiscal 2011 and fiscal 2010, the
peak borrowings under this credit facility were $0 and $7.5 million,
respectively. As of January 1, 2011 and July 3, 2010, there were no
outstanding borrowings under this facility.
Common
Stock Repurchase Program
In April 2010
, the Company completed its $1.0 billion
common stock repurchase program, which was put into place in August
2008. In April 2010, the Company’s
Board of Directors (“Board”)
approved a new common stock repurchase
program to acquire up to $1.0 billion of Coach’s outstanding common stock
through June
2012
. Purchases of Coach stock
are made from time to time, subject to market conditions and at prevailing
market prices, through open market purchases. Repurchased shares
become authorized but unissued shares and may be issued in the future for
general corporate and other uses. The Company may terminate or limit
the stock repurchase program at any time.
During
the first six months of fiscal 2011 and
fiscal 2010
, the Company
repurchased and retired
10.5
million
and 8.6 million
shares
, respectively,
or $525.0 million and $300.0 million
of common
stock
, respectively
, at an average cost of $
49.81 and $35.03,
respectively
. As
of
January 1,
2011
, $
34.6
million remained available for future
purchases under the existing
program.
In
January 2011
, the Company’s Board authorized a new
$1
.5
billion share repurchase program for
future share repurchases
through June
2013
.
Liquidity
and Capital Resources
The
Company expects total capital expenditures for the fiscal year ending July 2,
2011 to be approximately $150 million. Capital expenditures will be
primarily for new stores in North America, Japan, Hong Kong and mainland
China. We will also continue to invest in corporate infrastructure
and department store and distributor locations. These investments
will be financed primarily from on hand cash and operating cash
flows.
Coach
experiences significant seasonal variations in its working capital
requirements. During the first fiscal quarter Coach builds inventory
for the holiday selling season, opens new retail stores and generates higher
levels of trade receivables. In the second fiscal quarter, working
capital requirements are reduced substantially as Coach generates greater
consumer sales and collects wholesale accounts receivable.
During
the first six months fiscal 2011, Coach purchased approximately $589 million of
inventory, which was funded by operating cash flow.
Management
believes that cash flow from continuing operations and on hand cash will provide
adequate funds for the foreseeable working capital needs, planned capital
expenditures, dividend payments and the common stock repurchase
program. Any future acquisitions, joint ventures or other similar
transactions may require additional capital. There can be no
assurance that any such capital will be available to Coach on acceptable terms
or at all. Coach’s ability to fund its working capital needs, planned
capital expenditures, dividend payments and scheduled debt payments, as well as
to comply with all of the financial covenants under its debt agreements, depends
on its future operating performance and cash flow, which in turn are subject to
prevailing economic conditions and to financial, business and other factors,
some of which are beyond Coach’s control.
Reference
should be made to our most recent Annual Report on Form 10-K for additional
information regarding liquidity and capital resources.
Seasonality
Because
Coach products are frequently given as gifts, Coach has historically realized,
and expects to continue to realize, higher sales and operating income in the
second quarter of its fiscal year, which includes the holiday months of November
and December. In addition, fluctuations in sales and operating income
in any fiscal quarter are affected by the timing of seasonal wholesale shipments
and other events affecting retail sales. Over the past several years,
we have achieved higher levels of growth in the non-holiday quarters, which has
reduced these seasonal fluctuations.
NON-GAAP
MEASURES
Currency
Fluctuation Effects
Percentage
increase in sales and U.S. dollar increases in operating expenses in the second
quarter and first six months of fiscal 2011 for Coach Japan have been presented
both including and excluding currency fluctuation effects from translating these
amounts into U.S. dollars and compared to the same periods in the prior fiscal
year.
We
believe that presenting Coach Japan sales and operating expense increases,
including and excluding currency fluctuation effects, will help investors and
analysts to understand the effect on this valuable performance measure of
significant year-over-year currency fluctuations.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our
discussion of results of operations and financial condition relies on our
consolidated financial statements that are prepared based on certain critical
accounting policies that require management to make judgments and estimates that
are subject to varying degrees of uncertainty. We believe that
investors need to be aware of these policies and how they impact our financial
statements as a whole, as well as our related discussion and analysis presented
herein. While we believe that these accounting policies are based on
sound measurement criteria, actual future events can and often do result in
outcomes that can be materially different from these estimates or
forecasts. The accounting policies and related risks described in our
Annual Report on Form 10-K for the year ended July 3, 2010 are those that depend
most heavily on these judgments and estimates. As of January 1, 2011,
there have been no material changes to any of the critical
accounting
policies contained therein other than the Company’s change in accounting method
for interest and penalties related to uncertain tax positions. See
the footnote on Change in Accounting Principle.
Recent
Accounting Developments
Accounting
Standards Codification 820-10 “
Fair Value Measurements and
Disclosures
,” was amended in January 2010 to require additional
disclosures related to recurring and nonrecurring fair value measurements. The
guidance requires disclosure of transfers of assets and liabilities between
Levels 1 and 2 of the fair value hierarchy, including the reasons and the timing
of the transfers, and information on purchases, sales, issuances, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value hierarchy. The guidance was effective
for the Company beginning on December 27, 2009, except for certain disclosures
about purchases, sales, issuances, and settlements related to Level 3 fair value
measurements, which are effective for the Company beginning on January 2,
2011. The disclosure guidance adopted on December 27, 2009 did not
have a material impact on our consolidated financial statements and we do not
expect the additional disclosure requirements, effective for the Company
beginning on January 2, 2011, to have a material impact on our consolidated
financial statements.
ITEM 3.
|
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 terms and maturities and
theoretical pricing models. These quantitative disclosures do not
represent the maximum possible loss or any expected loss that may occur, since
actual results may differ from those estimates.
Foreign Currency
Exchange
Foreign
currency exposures arise from transactions, including firm commitments and
anticipated contracts, denominated in a currency other than the entity’s
functional currency, and from foreign-denominated revenues and expenses
translated into U.S. dollars.
Substantially
all of Coach’s fiscal 2011 non-licensed product needs are purchased from
independent manufacturers in countries other than the United
States. These countries include China, Italy, Hong Kong, India,
Thailand, Vietnam, Peru, Philippines, Turkey, Ecuador, Great Britain, Macau and
Malaysia. Additionally, sales are made through international channels
to third party distributors. Substantially all purchases and sales
involving international parties, excluding Coach Japan and Coach China, are
denominated in U.S. dollars and, therefore, are not subject to foreign currency
exchange risk.
In Japan
and Canada, Coach is exposed to market risk from foreign currency exchange rate
fluctuations resulting from Coach Japan and Coach Canada’s U.S. dollar
denominated inventory purchases. Coach Japan and Coach Canada enter
into certain foreign currency derivative contracts, primarily zero-cost collar
options, to manage these risks. As of January 1, 2011 and July 3,
2010, open foreign currency forward contracts designated as hedges with a
notional amount of $123.9 million and $248.6 million, respectively, were
outstanding.
Coach is
also exposed to market risk from foreign currency exchange rate fluctuations
with respect to Coach Japan as a result of its $139.4 million U.S.
dollar-denominated fixed rate intercompany loan from Coach. To manage
this risk, on July 2, 2010, Coach Japan entered into a cross-currency swap
transaction, the terms of which include an exchange of a Japanese Yen fixed
interest rate for a U.S. dollar fixed interest rate. The loan matures
on June 30, 2011, at which point the swap requires an exchange of Japanese Yen
and U.S. dollar based notional values.
The fair
value of open foreign currency derivatives included in current assets at January
1, 2011 and July 3, 2010 was $0 and $2.1 million, respectively. The
fair value of open foreign currency derivatives included in current liabilities
at January 1, 2011 and July 3, 2010 was $23.0 million and $7.5 million,
respectively. The fair value of these contracts is sensitive to
changes in Japanese Yen and Canadian Dollar exchange rates.
Coach
believes that exposure to adverse changes in exchange rates associated with
revenues and expenses of foreign operations, which are denominated in Japanese
Yen, Chinese Renminbi, Hong Kong
Dollar,
Macanese Pataca, Canadian Dollars, and the Euro, are not material to the
Company’s consolidated financial statements.
Coach is
exposed to interest rate risk in relation to its investments, revolving credit
facilities and long-term debt.
The
Company’s investment portfolio is maintained in accordance with the Company’s
investment policy, which identifies allowable investments, specifies credit
quality standards and limits the credit exposure of any single
issuer. The primary objective of our investment activities is the
preservation of principal while maximizing interest income and minimizing
risk. We do not hold any investments for trading
purposes. The Company’s investment portfolio consists of U.S.
government and agency securities as well as corporate debt
securities. 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, except for auction
rate securities, which are classified as available-for-sale. At
January 1, 2011 and July 3, 2010, the Company’s investments, classified as
held-to-maturity, consisted of commercial paper and treasury bills valued at
$155.6 million and $99.9 million, on those dates respectively. As the
adjusted book value of the commercial paper and treasury bills equals its fair
value, there were no unrealized gains or losses associated with these
investments. At January 1, 2011 and July 3, 2010, the Company’s
investments, classified as available-for-sale, consisted of a $6.0 million
auction rate security. At January 1, 2011, as the auction rate
security’s adjusted book value equaled its fair value, there were no unrealized
gains or losses associated with this investment.
As of
January 1, 2011, the Company had no outstanding borrowings on its Bank of
America facility, nor its revolving credit facilities maintained by Coach
Shanghai. As of January 1, 2011 there was $27.1 million of borrowings
outstanding on the Coach Japan facility which was repaid in early January
2011. The fair value of any future borrowings may be impacted by
fluctuations in interest rates.
As of
January 1, 2011, Coach’s outstanding long-term debt, including the current
portion, was $24.3 million. A hypothetical 10% change in the interest
rate applied to the fair value of debt would not have a material impact on
earnings or cash flows of Coach.
ITEM 4.
|
Controls and
Procedures
|
Based on
the evaluation of the Company's disclosure controls and procedures, as that term
is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended, each of Lew Frankfort, the Chairman and Chief Executive Officer of the
Company, and Michael F. Devine, III, Executive Vice President and Chief
Financial Officer of the Company, have concluded that the Company's disclosure
controls and procedures are effective as of January 1, 2011.
There
were no changes in the Company’s internal control over financial reporting that
occurred during the Company’s most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
Reference
should be made to our most recent Annual Report on Form 10-K for additional
information regarding discussion of the effectiveness of the Company’s controls
and procedures.
PART II – OTHER
INFORMATION
ITEM 1.
|
Legal
Proceedings
|
Coach is
involved in various routine legal proceedings as both plaintiff and defendant
incident to the ordinary course of its business, including proceedings to
protect Coach’s intellectual property rights, litigation instituted by persons
alleged to have been injured upon premises within Coach’s control and litigation
with present or former employees.
As part
of Coach’s policing program for its intellectual property rights, from time to
time, Coach files lawsuits in the U.S. and abroad alleging acts of trademark
counterfeiting, trademark infringement, patent infringement, trade dress
infringement, trademark dilution and/or state or foreign law
claims. At any given point in time, Coach may have a number of such
actions pending. These actions often result in seizure of counterfeit
merchandise and/or out of court settlements with defendants. From
time to time, defendants will raise, either as affirmative defenses or as
counterclaims, the invalidity or unenforceability of certain of Coach’s
intellectual properties.
Although
Coach’s litigation with present or former employees is routine and incidental to
the conduct of Coach’s business, as well as for any business employing
significant numbers of U.S.-based employees, such litigation can result in large
monetary awards when a civil jury is allowed to determine compensatory and/or
punitive damages for actions claiming discrimination on the basis of age,
gender, race, religion, disability or other legally protected characteristic or
for termination of employment that is wrongful or in violation of implied
contracts.
Coach
believes that the outcome of all pending legal proceedings in the aggregate will
not have a material adverse effect on Coach’s business or consolidated financial
statements.
There are
no material changes from the risk factors previously disclosed in our Annual
Report on Form 10-K for the fiscal year ended July 3, 2010.
ITEM 2.
|
Unregistered Sales of Equity
Securities
and Use of
Proceeds
|
The
Company’s share repurchases during the second quarter of fiscal 2011 were as
follows:
Period
|
|
Total
Number
of
Shares
Purchased
|
|
|
Average
Price
Paid
per
Share
|
|
|
Total
Number of
Shares
Purchased
as
Part of Publicly
Announced
Plans
or
Programs (1)
|
|
|
Approximate
Dollar
Value
of Shares that
May
Yet be
Purchased
Under the
Plans
or Programs (1)
|
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
4 (10/3/10 - 11/6/10)
|
|
|
382
|
|
|
$
|
49.90
|
|
|
|
382
|
|
|
$
|
403,049
|
|
Period
5 (11/7/10 - 12/4/10)
|
|
|
2,165
|
|
|
|
54.01
|
|
|
|
2,165
|
|
|
|
286,150
|
|
Period
6 (12/5/10 - 1/1/11)
|
|
|
4,408
|
|
|
|
57.06
|
|
|
|
4,408
|
|
|
|
34,628
|
|
Total
|
|
|
6,955
|
|
|
|
|
|
|
|
6,955
|
|
|
|
|
|
(1)
|
The
Company repurchases its common shares under repurchase programs that were
approved by the Board of Directors as
follows:
|
Date Share
Repurchase
Programs were
Publicly
Announced
|
|
Total Dollar
Amount
Approved
|
|
Expiration Date of
Plan
|
April 20,
2010
|
|
$ 1.0
billion
|
|
June
2012
|
January 25,
2011
|
|
$ 1.5
billion
|
|
June
2013
|
(a)
|
Exhibits
|
|
|
18
|
Letter
re: change in accounting principle, dated November 8, 2010, which is
incorporated herein by reference from Exhibit 18 to Coach’s Quarterly
Report on Form 10-Q for the fiscal quarter ended October 2,
2010
|
|
31.1
|
Rule
13(a) – 14(a)/15(d) – 14(a) Certifications
|
|
32.1
|
Section
1350 Certifications
|
|
101.INS
|
XBRL
Instance Document
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition
Linkbase
|
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COACH,
INC.
(Registrant)
By:
/s/ Michael F. Devine, III
Name: Michael
F. Devine, III
Title: Executive
Vice President,
Chief
Financial Officer and
Chief
Accounting Officer
Dated: February
9, 2011
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