FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Fiscal Year Ended July 2, 2005 |
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or |
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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)
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Maryland
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52-2242751 |
(State or other jurisdiction of
incorporation or organization) |
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(I.R.S. Employer
Identification No.) |
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516 West 34th Street, New York, NY |
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10001 |
(Address of principal executive offices)
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(Zip Code) |
(212) 594-1850
(Registrants telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the
Act:
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Title of Each Class: |
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Name of Each Exchange on which Registered |
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Common Stock, par value $.01 per share
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act: None
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. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange
Act). Yes o No þ
The approximate aggregate market value of the voting and
non-voting stock held by non-affiliates of the registrant was
approximately $11,881,719,882 as of September 2, 2005. For
purposes of determining this amount only, the registrant has
excluded shares of common stock held by directors and officers.
Exclusion of shares held by any person should not be construed
to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or
policies of the registrant, or that such person is controlled by
or under common control with the registrant.
On September 2, 2005, the Registrant had 380,115,103
outstanding shares of common stock, which is the
Registrants only class of capital stock.
COACH, INC.
TABLE OF CONTENTS FORM 10-K
1
Founded in 1941, Coach has grown from a family-run workshop in a
Manhattan loft to a leading American designer and marketer of
high-quality, modern American classic accessories. Coach
developed its initial expertise in the small-scale production of
classic, high-quality leather goods constructed from
glove-tanned leather with close attention to detail.
Coach sells its products worldwide through its own retail
stores, select department stores, its online store and its
catalogs. Coach has built upon its brand awareness in the United
States by expanding into international markets, particularly in
Japan and East Asia, diversifying its product offerings beyond
leather handbags, further developing its multi-channel
distribution strategy and licensing products with the Coach
brand name.
SPECIAL NOTE ON FORWARD-LOOKING INFORMATION
This document and the documents incorporated by reference in
this document contain certain forward-looking statements based
on managements current expectations. These 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, forecast,
anticipated, or comparable terms.
Coachs actual results could differ materially from the
results contemplated by these forward-looking statements due to
a number of factors, including those discussed in the sections
of this Form 10-K filing entitled Risk Factors
and Managements Discussion and Analysis of Financial
Condition and Results of Operations. These factors are not
necessarily all of the important factors that could cause actual
results to differ materially from those expressed in any of the
forward-looking statements contained in this Form 10-K.
2
PART I
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Item 1. |
Business of Coach, Inc. |
OVERVIEW
Coach is a designer and marketer of high-quality, modern
American classic accessories. Coach believes that it is one of
the most recognized fine accessories brands in the U.S. and in
targeted international markets. Coachs primary product
offerings include handbags, accessories, business cases,
outerwear and related accessories and weekend and travel
accessories. Together with its licensing partners, Coach also
offers watches, footwear, eyewear and office furniture with the
Coach brand name. Net sales were $1,710.4 million in the
year ended July 2, 2005 (fiscal 2005),
$1,321.1 million in the year ended July 3, 2004
(fiscal 2004) and $953.2 million in the year
ended June 28, 2003 (fiscal 2003). Operating
income was $621.8 million in fiscal 2005,
$444.5 million in fiscal 2004 and $243.8 million in
fiscal 2003.
Coachs products are sold through a number of
direct-to-consumer channels, which at the end of fiscal 2005
included:
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193 North American retail stores; |
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82 North American factory stores; |
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the Internet; and |
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the Coach catalog. |
Coachs direct-to-consumer business represented
approximately 55% of its total sales in fiscal 2005.
Coachs remaining sales were generated from products sold
through a number of indirect channels, which at the end of
fiscal 2005 included:
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approximately 1,000 department store locations in the U.S.; |
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94 international department store, retail store and travel
shopping locations in 19 countries; |
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103 department store shop-in-shops, and retail and factory store
locations operated by Coach Japan, Inc.; and |
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Business to business. |
Over the last several years, Coach has successfully transformed
itself from a manufacturer of traditionally styled classic
leather products to a marketer of modern, fashionable handbags
and accessories using a broader range of fabrics and materials.
Today, Coachs updated styles and multiple product
categories address an increasing portion of its consumers
accessory wardrobe by responding to its customers demands
for both fashion and function. Along with the rejuvenation of
the product line, Coach has created a similarly modern
environment to showcase its product assortment and reinforce a
consistent brand position. Finally, Coach has established a
flexible, cost-effective sourcing model in which independent
manufacturers supply virtually all of its products, allowing
Coach to bring its broader range of products to market more
rapidly and efficiently.
Coach has developed a number of key differentiating elements
that set it apart from the competitive landscape including:
A Distinctive Brand Coach is one of
Americas leading accessible luxury accessories brands,
offering an aspirational product that is relevant, extremely
well-made and provides exceptional value.
A Market Leadership Position with Growing
Share Coach is one of Americas leading
accessories brand and each year, as its market share increases,
our leadership position strengthens.
Coachs Loyal and Involved
Consumer Coach consumers have a specific
emotional connection with the brand. Part of the Companys
everyday mission is to cultivate consumer relationships by
strengthening this emotional connection.
3
Multi-Channel International
Distribution This allows Coach to maintain a
critical balance as results do not depend solely on the
performance of a single channel or geographic area.
Coach is Innovative and
Consumer-Centric Coach listens to its
consumer through rigorous consumer research and strong customer
orientation. Coach works to anticipate the consumers
changing needs by keeping the product assortment fresh and
relevant.
Coach believes that these differentiating elements have enabled
the Company to offer a unique proposition in the market place.
In fiscal 2005, net sales increased 29.5%, operating income
increased 39.9% and net income increased 48.5% compared to
fiscal 2004. In fiscal 2004, net sales increased 38.6%,
operating income increased 82.3% and net income increased 78.5%
compared to fiscal 2003. Fiscal 2005 was a 52-week year, while
fiscal 2004 was 53 weeks.
Growth Strategies
Based on its established strengths, Coach is pursuing the
following strategies for future growth:
Expand Market Share. Coach is driving market share
by leveraging its leadership position as an accessible luxury
lifestyle brand and gaining a greater share of its
consumers accessories wardrobe. Coach is intensifying
awareness as an everyday accessory resource by offering
aspirational, stylish, well-made product. As part of this
strategy, Coach is emphasizing new usage occasions, such as
weekend and evening, and offering items at a broader range of
prices.
Grow North American Retail Store Base. Coach
believes that it has a successful retail store format that
reinforces its brand image, generates strong sales per square
foot and can be readily adapted to different location
requirements. The modernized store environment has an open,
loft-like feeling, with crisp white brick walls and a timeless,
uncluttered look. Over the next four to five years, Coach plans
to open approximately 20 to 25 retail stores per year in North
America. In both fiscal 2005 and fiscal 2004, Coach opened 19
new retail stores. It generally takes 60-90 days from the
time Coach takes possession of a store to open it. In addition,
Coach is also expanding select highly productive locations. In
fiscal 2005, seven stores were expanded. We expect to expand
approximately seven stores in the fiscal year ending
July 1, 2006 (fiscal 2006). We also expect to
drive comparable store sales gains through improved conversion,
as a result of Coach service initiatives and continued
introduction of relevant new product offerings, generating
higher average tickets and increasing units per transaction. In
addition, we have evolved our in-store marketing programs to
create a more satisfying, service-oriented shopping experience.
Expand Business with the Japanese Consumer
Worldwide. Coach is aggressively raising brand awareness
with the Japanese consumer. Japanese women spend four times more
per capita globally on luxury accessories than her American
counterpart, with approximately half of her worldwide spending
on these items occurring outside of Japan.
In June 2001, we established Coach Japan, Inc., a joint venture
with Sumitomo Corporation. We then acquired the existing
distributors and expanded the number of locations and retail
square footage. We have continued to grow market share and now
hold the number two position within the imported luxury
accessories market. On July 1, 2005, we completed the
purchase of Sumitomos 50% interest in Coach Japan, Inc.
Japanese consumers also seek to purchase luxury accessories when
traveling internationally. In order to capitalize on this
opportunity, we will continue to open image-enhancing locations
wherever the Japanese consumer chooses to shop. Important
U.S. travel destinations include Hawaii, California, New
York and Florida. In these key locations, we strive to provide
the Japanese consumer with a superior level of customer service
tailored specifically to her needs, such as bilingual staff. In
addition, a significant number of the International stores,
which are operated by our distributors, are located in key
Japanese travel destinations such as South Korea and Hong Kong.
Improve Operational Efficiencies. Coach has
upgraded and reorganized its manufacturing, distribution and
information systems over the past several years to allow it to
bring new and existing products to market more efficiently.
While enhancing its quality control standards, Coach has shifted
its manufacturing processes
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from proprietary domestic factories to independent manufacturers
in lower cost markets. As a result, Coach has increased its
flexibility, improved its quality and lowered its costs. In
fiscal 2005, Coachs gross margin increased to 76.6% from
74.9% in fiscal 2004. This improvement was driven by a shift in
channel mix, as our highest gross margin channels grew faster
than the business as a whole; a shift in product mix, reflecting
increased penetration of higher margin mixed material product
and accessories; and sourcing cost initiatives. Coach expects
these factors to continue to drive gross margin rate improvement.
Coachs Products
Handbags. Coachs original business, the
design, manufacture and distribution of fine handbags, accounted
for approximately 64% of net sales in fiscal 2005. Coach makes
monthly offerings of its handbag collections, featuring
classically inspired designs as well as fashion trend designs.
Typically, there are three to four collections per quarter and
four to seven styles per collection, depending on the concept
and opportunity.
Accessories. Womens accessories, consisting
of wallets, wristlets, cosmetic cases, key fobs and belts,
represented approximately 20% of Coachs net sales in
fiscal 2005. Coachs small leather goods collections are
coordinated with our handbags. Mens accessories,
consisting of belts, wallets and other small leather goods,
represented approximately 3% of Coachs net sales in fiscal
2005.
Business Cases. Business cases represented
approximately 4% of Coachs net sales in fiscal 2005. This
category includes computer bags and messenger-style bags, as
well as mens and womens totes.
Outerwear, Gloves, Hats and Scarves. This category
represented approximately 3% of Coachs net sales in fiscal
2005. The assortment is approximately 88% womens and
contains a fashion assortment in all four components of this
category.
Weekend and Travel Accessories. The Coach weekend
and travel collections are comprised of cabin bags, duffels,
suitcases, garment bags and a comprehensive collection of travel
accessories. Weekend and travel accessories represented
approximately 1% of Coachs net sales in fiscal 2005.
Watches. Movado Group, Inc. (Movado)
has been Coachs watch licensee since 1998 and has
developed a distinctive collection of watches inspired by both
the womens and mens collections. These watches are
primarily manufactured in Switzerland and are branded with the
Coach name and logo.
Footwear. Jimlar Corporation (Jimlar)
has been Coachs footwear licensee since 1999. The footwear
is developed and manufactured primarily in Italy and is
distributed through more than 450 locations in the U.S.,
including leading Coach retail stores and U.S. department
stores. Approximately 98% of this business is in womens
footwear, which coordinates with Coach handbags and employs fine
materials, including calf and suede.
Eyewear. In the fall of 2003, Coach eyewear was
launched with Marchon Eyewear (Marchon) as the
licensee. The eyewear collection is a collaborative effort from
Marchon and Coach that combines the Coach aesthetic for fashion
accessories with the latest fashion directions in eyewear and
sunglasses. Coach sunglasses are sold in Coach retail stores,
department stores, select sunglass retailers and optical
retailers in major markets. The ophthalmic collection is
available through Marchons extensive network of optical
retailers.
Office/ Home Office. Coach office furniture
launched in the Fall of 2001 with Steelcase Inc.
(Steelecase) as the licensee. Steelcase and Coach
offer consumers high-end furniture products to outfit the home
office and executive workplace.
Design and Merchandising
Coachs New York-based design team, led by its Executive
Creative Director, is responsible for conceptualizing and
directing the design of all Coach products. Designers have
access to Coachs extensive archives of product designs
created over the past 60 years, which are a valuable
resource for new product concepts. Coach designers are also
supported by a strong merchandising team that analyzes sales,
market trends and consumer preferences to identify business
opportunities that help guide each seasons design process.
Merchandisers also analyze products to edit, add and delete
styles to achieve profitable sales across all
5
channels. Three product category teams, each comprised of
design, merchandising/product development and sourcing
specialists, help Coach execute design concepts that are
consistent with the brands strategic direction.
Coachs merchandising team works in close collaboration
with our licensing partners to ensure that the licensed
products, watches, footwear, eyewear and office furniture, are
conceptualized and designed to address the intended market
opportunity and convey the distinctive perspective and lifestyle
associated with the Coach brand. While Coachs licensing
partners may employ their own designers, Coach oversees the
development of their collection concepts and the design of
licensed products. Licensed products are also subject to
Coachs quality control standards and the Company exercises
final approval for all new products prior to their sale.
Marketing
Coachs marketing strategy is to deliver a consistent
message every time the consumer comes in contact with the Coach
brand, through all of its communications and visual
merchandising. The Coach image is created internally and
executed by the creative marketing, visual merchandising and
public relations teams.
In conjunction with promoting a consistent global image, Coach
uses its extensive customer database and consumer knowledge to
target specific products and communications to specific
consumers to efficiently stimulate sales across all distribution
channels.
Coach engages in a wide range of direct marketing activities,
including catalogs, brochures and email contacts, targeted to
promote sales to consumers in their preferred shopping venue. As
part of Coachs direct marketing strategy, it uses its
database consisting of approximately 8.2 million active
U.S. households. Catalogs and email contacts are
Coachs principal means of communication and are sent to
selected households to stimulate consumer purchases and build
brand awareness. The growing number of visitors to the
www.coach.com online store provides an opportunity to increase
the size of this database. Coachs online store, like its
catalogs and brochures, provides a showcase environment where
consumers can browse through a strategic offering of the latest
styles and colors in order to increase both online and store
sales as well as build brand awareness.
In the U.S. and Japan, Coach spent $28.1 million, or 2% of
net sales in fiscal 2005, for national, regional and local
advertising, primarily print and outdoor advertising, in support
of its major selling seasons. Coach catalogs and www.coach.com
also serve as effective brand communications vehicles, driving
store traffic as well as direct-to-consumer sales.
Coach also has a sophisticated consumer and market research
capability, which helps us assess consumer attitudes and trends
and gauge the likelihood of a products success in the
marketplace prior to its introduction.
Channels of Distribution
Coach has four different direct channels that provide it with
immediate, controlled access to consumers: retail stores,
factory stores, the Internet and catalogs. The
direct-to-consumer channels represented approximately 55% of
Coachs total net sales in fiscal year 2005.
6
North American Retail Stores. Coachs retail
stores establish, reinforce and capitalize on the image of the
Coach brand. Coach operates 193 retail stores in North America
that are located in upscale regional shopping centers and
metropolitan areas. It operates flagship stores, which offer the
broadest assortment of Coach products, in high-visibility
locations such as New York, Chicago and San Francisco. The
following table shows the number of Coach retail stores and
their total and average square footage:
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Fiscal Year Ended | |
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July 2, | |
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July 3, | |
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June 28, | |
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2005 | |
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2004 | |
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2003 | |
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Retail stores
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193 |
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174 |
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156 |
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Net increase vs. prior year
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19 |
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18 |
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18 |
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Percentage increase vs. prior year
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10.9 |
% |
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11.5 |
% |
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13.0 |
% |
Retail square footage
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490,925 |
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431,617 |
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363,310 |
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Net increase vs. prior year
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59,308 |
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68,307 |
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61,809 |
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Percentage increase vs. prior year
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13.7 |
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18.8 |
% |
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20.5 |
% |
Average square footage
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2,544 |
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2,481 |
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2,329 |
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Depending on their size and location, the retail stores present
product lines that include handbags, business cases, wallets,
footwear, watches, weekend and travel related accessories. The
modern store design creates a distinctive environment that
showcases these various products. Store associates are trained
to maintain high standards of visual presentation, merchandising
and customer service. The result is a complete statement of the
Coach modern American style at the retail level.
North American Factory Stores. Coachs 82
factory stores serve as an efficient means to sell
manufactured-for-factory-store product, as well as discontinued
and irregular inventory, outside the retail channel. These
stores operate under the Coach Factory name and are
geographically positioned primarily in established centers that
are usually between 50 to 100 miles from major markets. The
following table shows the number of Coach factory stores and
their total and average square footage:
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Fiscal Year Ended | |
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July 2, | |
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July 3, | |
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June 28, | |
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2005 | |
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2004 | |
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2003 | |
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Factory stores
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82 |
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76 |
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76 |
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Net increase vs. prior year
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6 |
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0 |
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2 |
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Percentage increase vs. prior year
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7.9 |
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0 |
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2.7 |
% |
Factory square footage
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252,279 |
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231,355 |
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232,898 |
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Net increase vs. prior year
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20,924 |
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(1,543 |
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13,391 |
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Percentage increase vs. prior year
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9.0 |
% |
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(0.7 |
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6.1 |
% |
Average square footage
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3,077 |
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3,044 |
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3,064 |
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Coachs factory store design, visual presentations and
customer service levels support and reinforce the brands
image. Prices are generally discounted from 10% to 50% below
full retail prices. Through these factory stores, Coach targets
both value-oriented customers who would not otherwise buy the
Coach brand and dual channel shoppers.
Internet. Coach views its website as a key
communications vehicle for the brand to promote traffic in Coach
retail stores and department store locations and build brand
awareness. However, our internet business has grown to be
significant, generating net sales of $41.7 million in
fiscal 2005. Like Coach catalogs and brochures, the online store
provides a showcase environment where consumers can browse
through a selected offering of the latest styles and colors.
Revenue from internet sales is recognized upon shipment of the
product.
Catalog. In fiscal 2005, the Company distributed
approximately 5.5 million catalogs in Coach stores and
mailed Coach catalogs to about 2.4 million strategically
selected U.S. households from its database of customers.
While direct mail sales comprise a small portion of Coachs
net sales, Coach views its catalog as a
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key communications vehicle for the brand because it promotes
store traffic and facilitates the shopping experience in Coach
retail stores and builds brand awareness. As an integral
component of our communications strategy, the graphics, models
and photography are upscale and modern and present the product
in an environment consistent with the Coach brand position. The
catalogs highlight selected products and serve as a reference
for customers, whether ordering through the catalog, making
in-store purchases or purchasing over the Internet.
Coach began as a wholesaler to department stores and this
channel remains very important to its overall consumer reach.
Coach has grown its indirect business by the formation of Coach
Japan and working closely with its partners, both domestic and
international, to ensure a clear and consistent product
presentation. The indirect channel represented approximately 45%
of total net sales in fiscal 2005.
Coach Japan, Inc. Coach is aggressively expanding
market share and raising brand awareness with the Japanese
consumer, primarily by opening flagship and freestanding stores.
As of July 2, 2005, there were 103 Coach-operated
locations in Japan, including 76 department store shop-in-shops,
seven flagship locations, and nine retail and 11 factory stores.
The seven flagship stores, which offer the broadest assortment
of Coach products, are located in select shopping districts of
Japan. Coach Japan plans to open at least one additional
flagship location and more than ten other locations in fiscal
2006. In addition, to strengthen Coachs presence in
premier department stores, Coach Japan is expanding select
highly productive shop-in-shops in these department stores.
Coach Japan expanded 14 locations during fiscal 2005 and plans
to expand an additional eight locations during fiscal 2006.
Lastly, Coach Japan is driving sales through improved store
productivity by providing distinctive newness to the Japanese
marketplace, where innovation is key. This channel represented
approximately 22% of total net sales in fiscal 2005. The
following table shows the number of Coach Japan locations and
their total and average square footage:
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Fiscal Year Ended | |
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July 2, | |
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July 3, | |
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June 28, | |
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2005 | |
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2004 | |
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2003 | |
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Total locations
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103 |
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100 |
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93 |
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Net increase vs. prior year
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3 |
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7 |
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10 |
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Percentage increase vs. prior year
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3.0 |
% |
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7.5 |
% |
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12.0 |
% |
Total square footage
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161,632 |
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119,291 |
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102,242 |
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Net increase vs. prior year
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42,341 |
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17,049 |
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25,267 |
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Percentage increase vs. prior year
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35.5 |
% |
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16.7 |
% |
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32.8 |
% |
Average square footage
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1,569 |
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1,193 |
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1,099 |
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In June 2001, Coach and Sumitomo Corporation
(Sumitomo) commenced a joint venture to
form Coach Japan, Inc., in order to operate the Coach
business in Japan. During fiscal 2002, Coach Japan acquired the
prior distributors of Coach products in Japan in order to expand
its presence in the Japanese market and to exercise greater
control over its brand in that country. On July 1, 2005,
Coach completed the purchase of Sumitomos 50% interest in
Coach Japan, Inc.
U.S. Wholesale. Coachs products are
sold to approximately 1,000 U.S. wholesale locations. This
channel represented approximately 11% of total net sales in
fiscal 2005. Coachs net sales to U.S. wholesale
customers grew 33.1% in fiscal 2005 from fiscal 2004. This
channel offers access to Coach products to consumers who prefer
shopping at department stores or who live in geographic areas
that are not large enough to support a Coach retail store.
Recognizing the continued importance of U.S. department
stores as a distribution channel for premier accessories, Coach
continues to fine-tune its strategy to increase productivity and
drive volume by enhancing presentation, primarily though the
creation of more shop-in-shops and the introduction of caseline
enhancements with proprietary Coach fixtures. Coach has also
improved the wholesale product planning and allocation processes
and custom tailors assortments to better match the attributes of
our department store consumers in each local market.
Coachs most significant U.S. wholesale
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customers are Federated Department Stores (including Macys
and Bloomingdales), May Co. (including Lord and Taylor,
Marshall Fields and Filenes), Dillards, Nordstrom
and Saks, Inc. (including Saks Fifth Avenue and Parisian). Store
closures resulting from the Federated Department Stores and May
Co. merger are not expected to have a significant impact on
Coachs U.S. wholesale business.
International Wholesale. Coachs
international business, which represents approximately 6% of
total net sales in fiscal 2005, is generated through sales to
wholesale distributors and authorized retailers. Coach has
developed relationships with a select group of distributors who
market Coach products through department stores, freestanding
retail locations and specialty retailers in 19 countries.
Coachs current network of international distributors
serves markets such as the U.S., South Korea, Hong Kong, Guam,
Taiwan, Singapore, Australia, Japan, Mexico, Saudi Arabia,
China, the Caribbean, Thailand, New Zealand and Malaysia. For
locations not in freestanding stores, Coach has created
shop-in-shops and other image- enhancing environments to
increase brand appeal and stimulate growth. Within the
international arena, the primary focus is the traveling Japanese
consumer and the local market domestic consumer. Coach targets
the Japanese consumer in areas with significant levels of
Japanese tourism as per capita spending on luxury accessories by
Japanese consumers is substantially greater than that in the
U.S. Coach continues to improve productivity in this
channel by opening larger image-enhancing locations, expanding
existing stores and closing smaller, less productive stores.
Coachs most significant international wholesale customers
are the DFS Group, the Shilla Group, Lotte Group and Tasa Meng
Corp.
The following table shows the number of international retail
stores, international department store locations and other
international locations at which Coach products are sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
International freestanding stores
|
|
|
14 |
|
|
|
18 |
|
|
|
18 |
|
International department store locations
|
|
|
58 |
|
|
|
70 |
|
|
|
49 |
|
Other international locations
|
|
|
22 |
|
|
|
27 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
Total international wholesale locations
|
|
|
94 |
|
|
|
115 |
|
|
|
107 |
|
|
|
|
|
|
|
|
|
|
|
Business to Business. As part of the indirect
channel of distribution, Coach sells products to corporations
and distributors for incentive and gift-giving programs.
Licensing. In our licensing relationships, Coach
takes an active role in the design process and controls the
marketing and distribution of products under the Coach brand.
The current licensing relationships as of July 2, 2005 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License | |
|
|
Licensing | |
|
Introduction | |
|
|
|
Expiration | |
Category |
|
Partner | |
|
Date | |
|
Territory | |
|
Date | |
|
|
| |
|
| |
|
| |
|
| |
Watches
|
|
|
Movado |
|
|
|
Spring 98 |
|
|
|
U.S. and Japan |
|
|
|
2008 |
|
Footwear
|
|
|
Jimlar |
|
|
|
Spring 99 |
|
|
|
U.S. |
|
|
|
2008 |
|
Eyewear
|
|
|
Marchon |
|
|
|
Fall 03 |
|
|
|
Worldwide |
|
|
|
2011 |
|
Office furniture
|
|
|
Steelcase |
|
|
|
Fall 01 |
|
|
|
U.S. |
|
|
|
2006 |
|
Products made under license are, in most cases, sold through all
of the channels discussed above and, with Coachs approval,
these licensees have the right to distribute Coach brand
products selectively through several other channels: shoes in
department store shoe salons, watches in selected jewelry stores
and eyewear in selected optical retailers. These venues provide
additional, yet controlled, exposure of the Coach brand.
Coachs licensing partners pay royalties to Coach on their
net sales of Coach branded products. However, such royalties are
not material to the Coach business as they currently comprise
less than 1% of Coachs total revenues. The licensing
agreements generally give Coach the right to terminate the
license if specified sales targets are not achieved.
9
Manufacturing
During the past several years, in coordination with the
repositioning of its brand, Coach has refined its production
capabilities by shifting its production from owned domestic
facilities to independent manufacturers in lower cost markets.
These independent manufacturers can support a broader mix of
product types, materials and a seasonal influx of new, more
fashion oriented styles. During fiscal year 2005, approximately
65% of Coachs total net sales were generated from products
introduced within the fiscal year. At the same time, by
designating a significant number of the new styles as
limited editions that are planned to be offered for
a brief time and then replaced with fresh new products, we help
manage total inventory and limit our exposure to excess and
obsolete inventory.
Coach developed a flexible manufacturing model that meets shifts
in marketplace demand and changes in consumer preferences. It
uses two main sources to make Coach products: outsourcing with
skilled partners and production by its licensing partners. All
product sources must achieve and maintain Coachs high
quality standards, which are an integral part of the Coach
identity. One of Coachs keys to success lies in the
rigorous selection of raw materials. Coach has longstanding
relationships with purveyors of fine leathers and hardware. As
Coach moved its production to external sources, it has
maintained control of the raw materials that are used in all of
its products, wherever they are made. Compliance is monitored
with the quality control standards through on-site quality
inspections at all independent manufacturing facilities.
All of Coachs fiscal year 2005 product requirements were
supplied by independent manufacturers. Coach buys independently
manufactured products from many countries, including China, Hong
Kong, Italy, India, Singapore, South Korea, Spain, Turkey, Costa
Rica, Hungary, Indonesia, Thailand, Taiwan and Philippines.
Coach operates sourcing offices in Hong Kong, China and South
Korea that work closely with our sourced vendors. Coach also
operates a European sourcing and product development
organization based in Florence, Italy that works closely with
the New York design team. This broad-based, multi-country
manufacturing strategy is designed to optimize the mix of cost,
lead times and construction capabilities. Coach carefully
balances its commitments to a limited number of better
brand partners with demonstrated integrity, quality and
reliable delivery. No one vendor provides more than 16% of
Coachs total units. Before partnering with a vendor, Coach
evaluates each facility by conducting a quality and business
practice standards audit. Periodic evaluations of existing,
previously approved facilities are conducted on a random basis.
We believe that all of our manufacturing partners are in
compliance with Coachs integrity standards.
Distribution
Coach operates a warehousing, distribution and repair facility
in Jacksonville, Florida. This computerized, 560,000 square
foot facility uses a bar code scanning warehouse management
system. Coachs distribution center employees use handheld
optical scanners to read product bar codes, which allow them to
more accurately process and pack orders, track shipments, manage
inventory and generally provide better service to our customers.
Coachs products are primarily shipped via Federal Express
and common carrier to Coach retail stores and wholesale
customers and via Federal Express direct to consumers.
Management Information Systems
The foundation of Coachs information systems is its
Enterprise Resource Planning system. This fully integrated
system supports all aspects of finance and accounting,
procurement, inventory control, sales and store replenishment.
The system functions as a central repository for all of
Coachs transactional information, resulting in increased
efficiencies, improved inventory control and a better
understanding of consumer demand. This system is fully scalable
to accommodate rapid growth.
Complementing its Enterprise Resource Planning system are
several other system solutions, each of which Coach believes is
well suited for its needs. The data warehouse system summarizes
the transaction information and provides a single platform for
all management reporting. The supply chain management system
supports corporate sales and inventory functions, creating a
monthly demand plan and reconciling production/procurement with
financial plans. Product fulfillment is facilitated by
Coachs highly automated warehouse management system and
electronic data interchange system, while the unique
requirements of
10
Coachs Internet and catalog businesses are supported by
Coachs order management system. Finally, the point-of-sale
system supports all in-store transactions, distributes
management reporting to each store, and collects sales and
payroll information on a daily basis. This daily collection of
store sales and inventory information results in early
identification of business trends and provides a detailed
baseline for store inventory replenishment. Updates and upgrades
of these systems are made on a periodic basis in order to ensure
that we constantly improve our functionality. All complementary
systems are integrated with the central Enterprise Resource
Planning system.
Trademarks and Patents
Coach owns all of the material trademark rights used in
connection with the production, marketing and distribution of
all of its products, both in the U.S. and in other countries in
which the products are principally sold. Coach also owns and
maintains worldwide registrations for trademarks in all relevant
classes of products in each of the countries in which Coach
products are sold. Major trademarks include Coach, Coach and
lozenge design and Coach and tag design and it has
applications pending for a proprietary C
signature fabric design. Coach is not dependent on any one
particular trademark or design patent although Coach believes
that the Coach name is important for its business. In addition,
several of Coachs products are covered by design patents
or patent applications. Coach aggressively polices its
trademarks and trade dress, and pursues infringers both
domestically and internationally. It also pursues counterfeiters
domestically and internationally through leads generated
internally, as well as through its network of investigators, the
Coach hotline and business partners around the world.
Coachs trademarks in the United States will remain in
existence for as long as Coach continues to use and renew them
on their expiration date. Coach has no material patents.
Employees
As of July 2, 2005, Coach employed approximately 5,700
people, about 50 of which were covered by collective bargaining
agreements. Of the total, 3,600 are engaged in retail selling
and administration positions, 400 are engaged in sourcing or
distribution functions and 1,000 are employed through Coach
Japan. The remaining employees are engaged in other aspects of
the Coach business. Coach believes that its relations with its
employees are good, and it has never encountered a strike or
significant work stoppage.
Government Regulation
Most of Coachs imported products are subject to existing
or potential duties, tariffs or quotas that may limit the
quantity of products that Coach may import into the U.S. and
other countries or may impact the cost of such products. Coach
has not been restricted by quotas in the operation of its
business and customs duties have not comprised a material
portion of the total cost of its products. In addition, Coach is
subject to foreign governmental regulation and trade
restrictions, including U.S. retaliation against certain
prohibited foreign practices, with respect to its product
sourcing and international sales operations.
Available Information
Our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and all
amendments to these reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, are available free of charge on our website, located at
www.coach.com, as soon as reasonably practicable after
they are filed with or furnished to the Securities and Exchange
Commission. These reports are also available on the Securities
and Exchange Commissions website at www.sec.gov. No
information contained on any of our websites is intended to be
included as part of or incorporated by reference into this
Annual Report on Form 10-K.
11
RISK FACTORS
You should consider carefully all of the information set
forth or incorporated by reference in this document and, in
particular, the following risk factors associated with the
Business of Coach and forward-looking information in this
document. Please also see Special Note on Forward-Looking
Information on page 2.
If Coach is unable to successfully implement its growth
strategies or manage its growing business, its future operating
results could suffer.
Successful implementation of Coachs strategies and
initiatives will require it to manage its growth. To manage
growth effectively, Coach will need to continue to increase its
outsourced manufacturing while maintaining strict quality
control. Coach will also need to continue to improve its
operating systems to respond to any increased demand. It could
suffer a loss of consumer goodwill and a decline in sales if its
products do not continue to meet its quality control standards
or if it is unable to adequately respond to increases in
consumer demand for its products.
Coachs inability to respond to changes in consumer
demands and fashion trends in a timely manner could adversely
affect its sales.
Coachs success depends on its ability to identify,
originate and define product and fashion trends as well as to
anticipate, gauge and react to changing consumer demands in a
timely manner. Its products must appeal to a broad range of
consumers whose preferences cannot be predicted with certainty
and are subject to rapid change. Coach cannot assure that it
will be able to continue to develop appealing styles or meet
changing consumer demands in the future.
If Coach misjudges the demand for its products it may
incur increased costs due to excess inventories.
If Coach misjudges the market for its products it may be faced
with significant excess inventories for some products and missed
opportunities for other products. In addition, because Coach
places orders for products with its manufacturers before it
receives wholesale customers orders, it could experience
higher excess inventories if wholesale customers order fewer
products than anticipated.
Competition in the markets in which Coach operates is
intense, and our competitors may develop products that are more
popular with consumers.
Coach faces intense competition in the product lines and markets
in which it operates. Coachs products compete with other
brands of products within their product category and with
private label products sold by retailers, including some of
Coachs wholesale customers. In its wholesale business,
Coach competes with numerous manufacturers, importers and
distributors of handbags, accessories and other products for the
limited space available for the display of these products to the
consumer. Moreover, the general availability of contract
manufacturing allows new entrants easy access to the markets in
which Coach operates, which may increase the number of
competitors and adversely affect its competitive position and
business. Finally, some of Coachs competitors have
achieved significant recognition for their brand names.
A downturn in the economy may affect consumer purchases of
discretionary luxury items, which could adversely affect
Coachs sales.
Many factors affect the level of consumer spending in the
handbag and luxury accessories industry, including, among
others, general business conditions, interest rates, the
availability of consumer credit, taxation and consumer
confidence in future economic conditions. Consumer purchases of
discretionary luxury items, such as Coach products, tend to
decline during recessionary periods, when disposable income is
lower. A downturn in the economies in which Coach sells its
products may adversely affect Coachs sales.
12
Coachs gross profit may decrease if it becomes
unable to obtain its products from, or sell its products in,
other countries due to adverse international events that are
beyond its control.
In order to lower its sourcing costs and increase its gross
profit, Coach has shifted its production to independent
non-U.S. manufacturers in lower-cost markets. Coachs
international manufacturers are subject to many risks, including
foreign governmental regulations, political unrest, disruptions
or delays in shipments, limits on production capacity, changes
in local economic conditions and trade issues. These factors,
among others, could influence the ability of these independent
manufacturers to make or export Coach products cost-effectively
or at all or to procure some of the materials used in these
products. The violation of labor or other laws by any of
Coachs independent manufacturers, or the divergence of an
independent manufacturers labor practices from those
generally accepted as ethical by Coach or others in the U.S.,
could damage Coachs reputation and force it to locate
alternative manufacturing sources. Currency exchange rate
fluctuations could increase the cost of raw materials or labor
for these independent manufacturers, which they could pass along
to Coach, resulting in higher costs and decreased margins for
its products. If any of these factors were to render a
particular country undesirable or impractical as a source of
supply, there could be an adverse effect on Coachs
business, including its gross profit.
Coachs failure to continue to increase sales of its
products in international markets could adversely affect its
gross profit. International sales are subject to many risks,
including foreign governmental regulations, foreign consumer
preferences, political unrest, disruptions or delays in
shipments to other nations, tourism and changes in local
economic conditions. These factors, among others, could
influence Coachs ability to sell products successfully in
international markets. Coach generally purchases products from
international manufacturers in U.S. dollars and sells these
products in the U.S. and to its international wholesale
customers in U.S. dollars. However, Coachs
international wholesale customers sell Coach products in the
relevant local currencies, and currency exchange rate
fluctuations could adversely affect the retail prices of the
products and result in decreased international consumer demand.
Coachs business is subject to foreign exchange
risk.
Coach sells products to its international wholesale customers in
U.S. dollars. However, those distributors sell Coach
product in the relevant local currency. Currency exchange rate
fluctuations could adversely affect the retail prices of the
products and result in decreased international demand.
The Company is exposed to market risk from foreign currency
exchange rate fluctuations with respect to Coach Japan as a
result of its U.S. dollar denominated inventory purchases.
In order to manage this risk, Coach Japan enters into forward
exchange contracts that allow them to obtain dollars at a rate
that is set concurrent with the requisition of inventory. These
contracts meet the definition of a derivative under Statement of
Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities. As
these contracts are entered into before the receipt of
inventory, the contract rate may be higher or lower than market
rates when the goods are received and the payment is completed.
All contracts are fair valued at the end of each reporting
period. If the derivative is designated as a cash flow hedge,
effective subsequent changes in the fair value of the derivative
are recorded in other comprehensive income and are recognized in
the statement of operations when the hedged items affect
earnings. Ineffective portions of changes in the fair value of
cash flow hedges are recognized in earnings immediately. This
non-cash charge or credit can result in fluctuations in the
reported financial results.
Coach consolidates the financial results of Coach Japan into its
financial statements. The functional currency of Coach Japan is
the Japanese yen. Operating results are converted to
U.S. dollars based on the average exchange rate during the
period and the balance sheet is converted to U.S. dollars
based on the exchange rate at the end of the reporting period.
If Coach loses key management or design personnel or is
unable to attract and retain the talent required for its
business, its operating results could suffer.
Coachs performance depends largely on the efforts and
abilities of its senior management and design teams. These
executives and employees have substantial experience and
expertise in Coachs business and
13
have made significant contributions to its growth and success.
Coach is a party to employment agreements with certain
executives which provide for compensation and other benefits.
The agreements also provide for severance payments under certain
circumstances. The unexpected loss of services of one or more of
these individuals could have an adverse effect on Coachs
business. As the business grows, Coach will need to attract and
retain additional qualified personnel and develop, train and
manage an increasing number of management level, sales and other
employees. Coach cannot guarantee that it will be able to
attract and retain personnel as needed in the future.
Coachs operating results are subject to seasonal and
quarterly fluctuations, which could adversely affect the market
price of its common stock.
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. However, over the past several years, we have achieved
higher levels of growth in the non holiday quarters, which has
reduced these seasonal fluctuations. We expect that these trends
will continue and that we will continue to balance our year
round business.
Coachs trademark and other proprietary rights could
potentially conflict with the rights of others and it may be
inhibited from selling some of its products. If Coach is unable
to protect its trademarks and other proprietary rights, others
may sell imitation brand products.
Coach believes that its registered and common law trademarks and
design patents are important to its ability to create and
sustain demand for Coach products. Coach cannot assure that it
will not encounter trademark, patent or trade dress disputes in
the future as it expands its product line and the geographic
scope of its marketing. Coach also cannot assure that the
actions taken by it to establish and protect its trademarks and
other proprietary rights will be adequate to prevent imitation
of its products or infringement of its trademarks and
proprietary rights by others. The laws of some foreign countries
may not protect proprietary rights to the same extent as do the
laws of the U.S. and it may be more difficult for Coach to
successfully challenge the use of its proprietary rights by
other parties in these countries.
Provisions in Coachs charter and bylaws, Maryland
law or its poison pill may delay or prevent an
acquisition of Coach by a third party.
Coachs charter and bylaws and Maryland law contain
provisions that could make it harder for a third party to
acquire Coach without the consent of Coachs Board of
Directors. Coachs charter permits its Board of Directors,
without stockholder approval, to amend the charter to increase
or decrease the aggregate number of shares of stock or the
number of shares of stock of any class or series that Coach has
the authority to issue. In addition, Coachs Board of
Directors may classify or reclassify any unissued shares of
common stock or preferred stock and may set the preferences,
rights and other terms of the classified or reclassified shares.
Although Coachs Board of Directors has no intention to do
so at the present time, it could establish a series of preferred
stock that could have the effect of delaying, deferring or
preventing a transaction or a change in control that might
involve a premium price for Coachs common stock or
otherwise be in the best interest of Coachs stockholders.
On May 3, 2001 Coach declared a poison pill
dividend distribution of rights to buy additional common stock
to the holder of each outstanding share of Coachs common
stock. Subject to limited exceptions, these rights may be
exercised if a person or group intentionally acquires 10% or
more of Coachs common stock or announces a tender offer
for 10% or more of the common stock on terms not approved by the
Coach Board of Directors. In this event, each right would
entitle the holder of each share of Coachs common stock to
buy one additional common share of Coach stock at an exercise
price far below the then-current market price. Subject to
certain exceptions, Coachs Board of Directors will be
entitled to redeem the rights at $0.001 per right at any
time before the close of business on the tenth day following
either the public announcement that, or the date on which a
majority of Coachs Board of Directors becomes aware that,
a person has acquired 10% or
14
more of the outstanding common stock. As of the end of fiscal
2005, there were no shareholders whose common stock holdings
exceeded the 10% threshold established by the rights plan.
Coachs bylaws can only be amended by Coachs Board of
Directors. Coachs bylaws also provide that nominations of
persons for election to Coachs Board of Directors and the
proposal of business to be considered at a stockholders meeting
may be made only in the notice of the meeting, by Coachs
Board of Directors or by a stockholder who is entitled to vote
at the meeting and has complied with the advance notice
procedures of Coachs bylaws. Also, under Maryland law,
business combinations, including issuances of equity securities,
between Coach and any person who beneficially owns 10% or more
of Coachs common stock or an affiliate of such person are
prohibited for a five-year period unless exempted in accordance
with the statute. After this period, a combination of this type
must be approved by two super-majority stockholder votes, unless
some conditions are met or the business combination is exempted
by Coachs Board of Directors. Coachs Board has
exempted any business combination with us or any of our
affiliates from the five-year prohibition and the super-majority
vote requirements.
These and other provisions of Maryland law or Coachs
charter and bylaws could have the effect of delaying, deferring
or preventing a transaction or a change in control that might
involve a premium price for Coachs common stock or
otherwise be in the best interest of Coachs stockholders.
The following table sets forth the location, use and size of
Coachs distribution, corporate and product development
facilities as of July 2, 2005, all of which are leased. The
leases expire at various times through 2016, subject to renewal
options.
|
|
|
|
|
|
|
|
|
|
|
Approximate | |
Location |
|
Use |
|
Square Footage | |
|
|
|
|
| |
Jacksonville, Florida
|
|
Distribution and customer service |
|
|
560,000 |
|
New York, New York
|
|
Corporate and product development |
|
|
225,000 |
|
Carlstadt, New Jersey
|
|
Corporate and product development |
|
|
55,000 |
|
Tokyo, Japan
|
|
Coach Japan, corporate |
|
|
20,000 |
|
Shenzhen, Peoples Republic of China
|
|
Quality control |
|
|
18,000 |
|
Florence, Italy
|
|
Sourcing and product development |
|
|
16,000 |
|
Kowloon, Hong Kong
|
|
Sourcing and quality control |
|
|
5,000 |
|
Seoul, South Korea
|
|
Sourcing |
|
|
3,000 |
|
As of July 2, 2005, Coach also occupies 193 retail and 82
factory leased stores located in North America. Indirectly,
through Coach Japan, Coach operates 103 department store
shop-in-shops, and retail and factory store locations in Japan.
Coach considers these properties to be in generally good
condition and believes that its facilities are adequate for its
operations and provide sufficient capacity to meet its
anticipated requirements.
|
|
Item 3. |
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 Coachs
intellectual property rights, litigation instituted by persons
alleged to have been injured upon premises within Coachs
control and litigation with present or former employees.
Although Coachs litigation with present or former
employees is routine and incidental to the conduct of
Coachs 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. As part of its 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
one or more of such actions
15
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 as affirmative defenses
or as counterclaims the invalidity or unenforceability of
certain of Coachs intellectual properties. Coach believes
that the outcome of all pending legal proceedings in the
aggregate will not have a material adverse effect on
Coachs business or consolidated financial statements.
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
None
Executive Officers and Directors
The following table sets forth information regarding each of
Coachs executive officers and directors serving as of
July 2, 2005:
|
|
|
|
|
|
|
Name |
|
Age | |
|
Position(s)(1) |
|
|
| |
|
|
Lew Frankfort
|
|
|
59 |
|
|
Chairman, Chief Executive Officer and Director |
Keith Monda
|
|
|
59 |
|
|
President, Chief Operating Officer and Director |
Reed Krakoff
|
|
|
41 |
|
|
President, Executive Creative Director |
Michael Tucci
|
|
|
44 |
|
|
President, North American Retail Division |
Mike Devine
|
|
|
46 |
|
|
Senior Vice President, Chief Financial Officer and Chief
Accounting Officer |
Carole Sadler
|
|
|
46 |
|
|
Senior Vice President, General Counsel and Secretary |
Felice Schulaner
|
|
|
45 |
|
|
Senior Vice President, Human Resources |
Joseph Ellis(3)
|
|
|
63 |
|
|
Director |
Sally Frame Kasaks(2)(3)
|
|
|
61 |
|
|
Director |
Gary Loveman(2)(3)
|
|
|
45 |
|
|
Director |
Ivan Menezes(2)(3)
|
|
|
46 |
|
|
Director |
Irene Miller(2)(3)
|
|
|
53 |
|
|
Director |
Michael Murphy(2)(3)
|
|
|
68 |
|
|
Director |
|
|
(1) |
Coachs executive officers serve indefinite terms and may
be appointed and removed by Coachs board of directors at
any time. Coachs directors are elected at the annual
stockholders meeting and serve terms of one year. |
|
(2) |
Member of the audit committee. |
|
(3) |
Member of the human resources and governance committee. |
Lew Frankfort has been involved with the Coach
business for more than 25 years. He has served as Chairman
and Chief Executive Officer of Coach since November 1995. He has
also served as a member of Coachs Board of Directors since
June 1, 2000, the date of incorporation. Mr. Frankfort
served as Senior Vice President of Sara Lee Corporation from
January 1994 to October 2000. Mr. Frankfort was appointed
President and Chief Executive Officer of the Sara Lee Champion,
Intimates & Accessories group in January 1994, and held
this position through November 1995. From September 1991 through
January 1994, Mr. Frankfort held the positions of Executive
Vice President, Sara Lee Personal Products and Chief Executive
Officer of Sara Lee Accessories. Mr. Frankfort was
appointed President of Coach in July 1985, after Sara Lee
acquired Coach, and held this position through September 1991.
Mr. Frankfort joined Coach in 1979 as Vice President of New
Business Development. Prior to joining Coach, Mr. Frankfort
held various New York City government management positions
and served as Commissioner, New York City Agency for Child
Development. Mr. Frankfort holds a Bachelor of Arts degree
from Hunter College and an MBA in Marketing from Columbia
University.
16
Keith Monda was appointed Executive Vice President
and Chief Operating Officer of Coach in June 1998 and President
of Coach in February 2002. He has served as a member of
Coachs Board of Directors since June 1, 2000, the
date of incorporation. Prior to joining Coach, Mr. Monda
served as Senior Vice President, Finance &
Administration and Chief Financial Officer of Timberland Company
from December 1993 until May 1996, and was promoted to, and held
the position of, Senior Vice President, Operations from May 1996
until January 1998. From May 1990 to December 1993,
Mr. Monda served as Executive Vice President, Finance and
Administration of J. Crew, Inc. Mr. Monda holds Bachelor of
Science and Master of Arts degrees from Ohio State University.
Reed Krakoff was appointed President, Executive
Creative Director in September 1999 after joining Coach as
Senior Vice President and Executive Creative Director in
December 1996. Prior to joining Coach, Mr. Krakoff served
as Senior Vice President, Marketing, Design &
Communications from January 1993 until December 1996, and as
Head Designer, Sportswear from April 1992 until January 1993 at
Tommy Hilfiger USA, Inc. From July 1988 through April 1992,
Mr. Krakoff served as a Senior Designer in Design and
Merchandising for Polo/ Ralph Lauren. Mr. Krakoff holds an
A.A.S. degree in Fashion Design from Parsons School of Design
and a Bachelor of Arts degree in Economics and Art History from
Tufts University.
Michael Tucci joined Coach as President, North
American Retail Division, in January 2003. Mr. Tucci joined
Coach from Gap, Inc., where he held the position of Executive
Vice President, Gap, Inc. Direct from May 2002 until January
2003. He held the position of Executive Vice President of Gap
Body from April 2000 until May 2002. From April 1999 to May
2000, Mr. Tucci served as Executive Vice President,
Customer Store Experience, Gap Brand. Between May 1996 and April
1999, Mr. Tucci served as Executive Vice President for GAP
Kids and Baby Gap. He had joined Gap in December 1994 as Vice
President of Merchandising for Old Navy. Prior to joining Gap,
he served as President of Aeropostale, a specialty store
division of Macys, which culminated his twelve-year career
with the company that included senior buying and merchandising
roles. He joined Macys Executive Training Program from
Trinity College, where he earned a Bachelor of Arts degree in
English.
Mike Devine has served as Senior Vice President
and Chief Financial Officer and Chief Accounting Officer of
Coach since December 2001. Prior to Joining Coach,
Mr. Devine served as Chief Financial Officer and Vice
President-Finance of Mothers Work, Inc. from February 2000 until
November 2001. From 1997 to 2000, Mr. Devine was Chief
Financial Officer of Strategic Distribution, Inc., a
Nasdaq-listed industrial store operator. Previously,
Mr. Devine was Chief Financial Officer at Industrial System
Associates, Inc. from 1995 to 1997, and for the prior six years
he was the Director of Finance and Distribution for
McMaster-Carr Supply Co. Mr. Devine holds a
Bachelor of Science degree in Finance and Marketing from Boston
College and an MBA degree in Finance from the Wharton School of
the University of Pennsylvania.
Carole Sadler has served as Senior Vice President,
General Counsel and Secretary since May 2000. She joined Coach
as Vice President, Chief Counsel in March 1997. From April 1991
until February 1997, Ms. Sadler was Vice President and
Associate General Counsel of Saks Fifth Avenue. From September
1984 until March 1991, Ms. Sadler practiced law as a
litigation associate in New York City, most recently at the firm
of White & Case, and prior to that at Paskus
Gordon & Mandel and Mound Cotton & Wollan.
Ms. Sadler holds a Juris Doctor degree from American
University, Washington College of Law, and a Bachelor of Arts
degree, cum laude, in American Studies from Smith College.
Felice Schulaner joined Coach as Senior Vice
President, Human Resources in January 2000. Prior to joining
Coach, Ms. Schulaner served as Senior Vice President, Human
Resources of Optimark Technologies from February 1999 through
December 1999 and as Senior Vice President, Human Resources of
Salant Corporation from July 1997 through February 1999.
Ms. Schulaner was Vice President, Worldwide
Recruitment & Selection at American Express from July
1996 until June 1997. From 1990 through 1996, she served in
various other human resources positions at American Express,
including Vice President, Human Resources Reengineering, and,
from 1986 until 1990, Ms. Schulaner held human resources
positions at Macys Northeast in New York City.
Ms. Schulaner holds a Bachelor of Arts degree from New
College of the University of South Florida. In December 1998,
Salant Corporation commenced bankruptcy proceedings, which
concluded in April 1999.
17
Joseph Ellis was elected to Coachs Board of
Directors in September 2000. Mr. Ellis has served as an
Advisory Director of Goldman, Sachs & Co. since May
1999, and served as a Limited Partner of Goldman, Sachs from
1994 to May 1999 and a General Partner from 1986 to 1994.
Mr. Ellis is also a founder, and has served as Chairman
since December 2001, of Blue Tulip LLC, a specialty store
offering cards, paper products, invitations and gifts.
Mr. Ellis served as senior retail-industry analyst from
1970 through 1994. Before joining Goldman, Sachs in 1970,
Mr. Ellis was Vice President and Investment Analyst with
The Bank of New York. Mr. Ellis also serves as a Director
of Waterworks, Inc. and as a trustee of the RARE Center for
Tropical Conservation. Mr. Ellis holds a Bachelor of Arts
degree from Columbia University.
Sally Frame Kasaks was elected to Coachs
Board of Directors in November 2001. Ms. Kasaks has served
as a marketing and retail consultant for ISTA Incorporated since
January 1997. Prior to this, she served as Chairman and Chief
Executive Officer of Ann Taylor Stores, Inc. from February 1992
until August 1996. Ms. Kasaks was the President and Chief
Executive Officer of Abercrombie & Fitch, a division of
The Limited, Inc., from February 1989 through February
1992 and the Chairman and Chief Executive Officer of The
Talbots, Inc., which was a specialty apparel retailing division
of General Mills Co., from November 1985 through September 1988.
Ms. Kasaks also serves as a Director of Pacific Sunwear of
California, Inc., Cortefiel, S.A., The Childrens Place,
Inc. and Crane & Co. She holds a Bachelor of Arts
degree from American University.
Gary Loveman was elected to Coachs Board of
Directors in January 2002. Mr. Loveman has served as
Chairman of Harrahs Entertainment, Inc. since January 2005
and as its Chief Executive Officer and President since January
2003; he had served as President of Harrahs since April
2001 and as Chief Operating Officer of Harrahs since May
1998. He was a member of the three-executive Office of the
President of Harrahs from May 1999 to April 2001 and was
Executive Vice President from May 1998 to May 1999. From 1989 to
1998, Mr. Loveman was Associate Professor of Business
Administration, Harvard University Graduate School of Business
Administration, where his responsibilities included teaching MBA
and executive education students, research and publishing in the
field of service management, and consulting and advising large
service companies. Mr. Loveman also serves as a Director of
Harrahs. He holds a Bachelor of Arts degree in Economics
from Wesleyan University and a Ph.D. in Economics from the
Massachusetts Institute of Technology.
Ivan Menezes was elected to Coachs Board of
Directors in February 2005. Mr. Menezes has served as
President and Chief Executive Officer of Diageo North America,
the worlds leading premium drinks company, since January
2004, after having served as its President and Chief Operation
Officer from July 2002, and as President of Diageo, Venture
Markets since July 2000. Since joining Diageo in 1997 he has
held various progressively senior management positions,
including the position of President and Chief Operating Officer.
Before joining Diageo, he held senior marketing positions with
Whirlpool Europe in Milan and was a principal with Booz Allen
Hamilton, Inc., both in Chicago and in London. Mr. Menezes
holds an MBA from Northwestern Universitys Kellogg School
of Management.
Irene Miller was elected to Coachs Board of
Directors in May 2001. Ms. Miller is Chief Executive
Officer of Akim, Inc., an investment management and consulting
firm, and until June 1997 was Vice Chairman and Chief Financial
Officer of Barnes & Noble, Inc., the worlds
largest bookseller. She joined Barnes & Noble in 1991,
became Chief Financial Officer in 1993 and Vice Chairman in
1995. From 1986 to 1990, Ms. Miller was an investment
banker at Morgan Stanley & Co. Incorporated.
Ms. Miller also serves as a Director of Barnes &
Noble, Inc., Inditex, S.A. and The Body Shop International PLC.
Ms. Miller holds a Bachelor of Science degree from the
University of Toronto and a Master of Science degree from
Cornell University.
Michael Murphy was elected to Coachs Board
of Directors in September 2000. From 1994 to 1997,
Mr. Murphy served as Vice Chairman and Chief Administrative
Officer of Sara Lee Corporation. Mr. Murphy also served as
a Director of Sara Lee from 1979 through October 1997.
Mr. Murphy joined Sara Lee in 1979 as Executive Vice
President and Chief Financial and Administrative Officer and,
from 1993 until 1994, also served as Vice Chairman.
Mr. Murphy is also a Director of Civic Federation, Big
Shoulders Fund, Metropolitan Pier and Exposition Authority,
Chicago Cultural Center Foundation, GATX Corporation,
18
Payless ShoeSource, Inc. and CNH Global N.V. He is also a member
of the Board of Trustees of Northern Funds (a family of mutual
funds). Mr. Murphy holds a Bachelor of Science degree in
Business Administration from Boston College and an MBA degree in
finance from the Harvard Business School.
PART II
|
|
Item 5. |
Market for Registrants Common Equity and Related
Stockholder Matters |
Refer to the information regarding the market for Coachs
Common Stock and the quarterly market price information
appearing under the caption Market and Dividend
Information included herein.
19
|
|
Item 6. |
Selected Financial Data (dollars and shares in thousands,
except per share data) |
The selected historical financial data presented below as of and
for each of the fiscal years in the five-year period ended
July 2, 2005 have been derived from Coachs audited
Consolidated Financial Statements. The financial data should be
read in conjunction with Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, the Consolidated Financial Statements and
Notes thereto and other financial data included elsewhere herein.
|
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|
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|
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|
|
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|
|
Fiscal Year Ended(1) | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
June 29, | |
|
June 30, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
2002 | |
|
2001 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Consolidated Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,710,423 |
|
|
$ |
1,321,106 |
|
|
$ |
953,226 |
|
|
$ |
719,403 |
|
|
$ |
600,491 |
|
|
Cost of sales
|
|
|
399,652 |
|
|
|
331,024 |
|
|
|
275,797 |
|
|
|
236,041 |
|
|
|
218,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,310,771 |
|
|
|
990,082 |
|
|
|
677,429 |
|
|
|
483,362 |
|
|
|
381,984 |
|
|
Selling, general and administrative expenses
|
|
|
688,961 |
|
|
|
545,617 |
|
|
|
433,667 |
|
|
|
346,354 |
|
|
|
275,727 |
|
|
Reorganization costs(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,373 |
|
|
|
4,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
621,810 |
|
|
|
444,465 |
|
|
|
243,762 |
|
|
|
133,635 |
|
|
|
101,688 |
|
|
Interest income (expense), net
|
|
|
15,760 |
|
|
|
3,192 |
|
|
|
1,059 |
|
|
|
(299 |
) |
|
|
(2,258 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
637,570 |
|
|
|
447,657 |
|
|
|
244,821 |
|
|
|
133,336 |
|
|
|
99,430 |
|
|
Provision for income taxes
|
|
|
235,277 |
|
|
|
167,866 |
|
|
|
90,585 |
|
|
|
47,325 |
|
|
|
35,400 |
|
|
Minority interest, net of tax
|
|
|
13,641 |
|
|
|
18,043 |
|
|
|
7,608 |
|
|
|
184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Net income
|
|
$ |
388,652 |
|
|
$ |
261,748 |
|
|
$ |
146,628 |
|
|
$ |
85,827 |
|
|
$ |
64,030 |
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Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$ |
1.03 |
|
|
$ |
0.70 |
|
|
$ |
0.41 |
|
|
$ |
0.24 |
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|
$ |
0.20 |
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|
|
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Diluted
|
|
$ |
1.00 |
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|
$ |
0.68 |
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$ |
0.39 |
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$ |
0.24 |
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|
$ |
0.19 |
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|
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Shares used in computing net income per share:(3)
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Basic
|
|
|
378,670 |
|
|
|
372,120 |
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|
|
359,116 |
|
|
|
352,192 |
|
|
|
327,440 |
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|
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|
|
|
|
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|
|
|
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|
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Diluted
|
|
|
390,191 |
|
|
|
385,558 |
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|
|
371,684 |
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|
|
363,808 |
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|
|
337,248 |
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|
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|
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|
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Consolidated Percentage of Net Sales Data:
|
|
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|
|
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|
|
|
|
|
|
|
|
|
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|
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Gross margin
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|
|
76.6 |
% |
|
|
74.9 |
% |
|
|
71.1 |
% |
|
|
67.2 |
% |
|
|
63.6 |
% |
|
Selling, general and administrative expenses
|
|
|
40.3 |
% |
|
|
41.3 |
% |
|
|
45.5 |
% |
|
|
48.1 |
% |
|
|
45.9 |
% |
|
Operating income
|
|
|
36.3 |
% |
|
|
33.6 |
% |
|
|
25.6 |
% |
|
|
18.6 |
% |
|
|
16.9 |
% |
|
Net income
|
|
|
22.7 |
% |
|
|
19.8 |
% |
|
|
15.4 |
% |
|
|
11.9 |
% |
|
|
10.7 |
% |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$ |
443,580 |
|
|
$ |
535,384 |
|
|
$ |
297,488 |
|
|
$ |
136,902 |
|
|
$ |
53,991 |
|
|
Total assets
|
|
|
1,347,132 |
|
|
|
1,044,425 |
|
|
|
629,109 |
|
|
|
448,402 |
|
|
|
262,506 |
|
|
Inventory
|
|
|
184,419 |
|
|
|
161,913 |
|
|
|
143,807 |
|
|
|
136,404 |
|
|
|
105,162 |
|
|
Revolving credit facility
|
|
|
12,292 |
|
|
|
1,699 |
|
|
|
26,471 |
|
|
|
34,169 |
|
|
|
7,700 |
|
|
Long-term debt
|
|
|
3,270 |
|
|
|
3,420 |
|
|
|
3,535 |
|
|
|
3,615 |
|
|
|
3,690 |
|
|
Stockholders equity
|
|
$ |
1,032,776 |
|
|
$ |
782,286 |
|
|
$ |
426,929 |
|
|
$ |
260,356 |
|
|
$ |
148,314 |
|
|
|
(1) |
Coachs fiscal year ends on the Saturday closest to
June 30. Fiscal years 2005, 2003, 2002 and 2001 were
52-week years, while fiscal year 2004 was a 53-week year. |
|
(2) |
During fiscal 2001, Coach committed to and completed a
reorganization plan involving the complete closure of its
Medley, Florida, manufacturing operation. These actions,
intended to reduce costs, resulted in the transfer of production
to lower cost third-party manufacturers and the consolidation of
all of its |
20
|
|
|
distribution functions at the Jacksonville, Florida,
distribution center. During fiscal 2002, Coach committed to and
completed a reorganization plan involving the complete closure
of its Lares, Puerto Rico, manufacturing operation. These
actions, also intended to reduce costs, resulted in the transfer
of production to lower cost third-party manufacturers. |
|
(3) |
The two-for-one stock splits in April 2005, October 2003 and
July 2002 have been retroactively applied to all prior periods. |
|
|
Item 7. |
Managements Discussion and Analysis of Financial
Condition and Results of Operations |
The following discussion of Coachs financial condition
and results of operations should be read together with
Coachs financial statements and notes to those statements
included elsewhere in this document.
Executive Overview
Founded in 1941, Coach (the Company) is a designer
and marketer of high-quality, modern American classic
accessories. Coachs primary product offerings include
handbags, accessories, business cases, outerwear and related
accessories and weekend and travel accessories.
Coach generates revenue by selling its products directly to
consumers, indirectly through wholesale customers and Coach
Japan, and by licensing its brand name to select manufacturers.
Direct-to-consumer sales consist of sales of Coach products
through its 193 Company-operated North American retail stores,
its 82 Company-operated North American factory stores, its
online store and its catalogs. Indirect sales consist of sales
of Coach products to approximately 1,000 department store
locations in the United States, through 94 international
department stores, freestanding retail locations and specialty
retailers in 19 countries and through 103 department store
shop-in-shops, and retail and factory store locations operated
by Coach Japan, Inc. Coach generates additional wholesale sales
through business-to-business programs, in which companies
purchase Coach products to use as gifts or incentive rewards.
Licensing revenues consist of royalties paid to Coach under
licensing arrangements with select partners for the sale of
Coach branded watches, footwear, eyewear and office furniture.
Net sales were $1,710.4 million, $1,321.1 million and
$953.2 million in fiscal 2005, 2004 and 2003, respectively,
representing a 29.5% increase in fiscal 2005 as compared to
fiscal 2004 and a 38.6% increase in fiscal 2004 as compared to
fiscal 2003. These net sales increases were driven by growth
across all distribution channels.
Coachs cost of sales consists of the costs associated with
the sourcing of its products. Coachs gross profit is
dependent upon a variety of factors, including changes in the
relative sales mix among distribution channels, changes in the
mix of products sold, foreign currency exchange rates, and
fluctuations in material costs. These factors, among others, may
cause gross profit to fluctuate from quarter to quarter. Gross
profit increased to $1,310.8 million in fiscal 2005 from
$990.1 million in fiscal 2004 and $677.4 million in
fiscal 2003. Gross margin increased to 76.6% in fiscal 2005 as
compared to 74.9% in fiscal 2004 and 71.1% in fiscal 2003,
representing an increase of 170 basis points in fiscal 2005
as compared to fiscal 2004 and 380 basis points in fiscal
2004 as compared to fiscal 2003. These increases were primarily
driven by the factors discussed above.
Selling, general and administrative expenses comprise four
categories: selling; advertising, marketing and design;
distribution and customer service; and administration and
information services. Selling expenses include store employee
compensation, store occupancy costs, store supply costs,
wholesale account administration compensation and all Coach
Japan operating expenses. These expenses are affected by the
number of Coach and Coach Japan operated stores open during any
fiscal period and the related proportion of retail and wholesale
sales. Advertising, marketing and design expenses include
employee compensation, media space and production, advertising
agency fees, new product design costs, public relations, market
research expenses and mail order costs. Distribution and
customer services expenses include warehousing, order
fulfillment, shipping and handling, customer service and bag
repair costs. Administration and information services expenses
include compensation costs for the executive, finance, human
resources, legal and information systems departments, as well as
consulting and software expenses. Selling, general and
administrative expenses increase as Coach and Coach Japan
operate more stores, although an increase in the number of
stores generally results in the fixed portion of selling,
general and administrative expenses being spread over a larger
sales base.
21
Operating income was $621.8 million, $444.5 million
and $243.8 million in fiscal 2005, 2004 and 2003,
respectively. The 39.9% increase in fiscal 2005 from fiscal 2004
and 82.3% increase in fiscal 2004 from fiscal 2003 were both
driven by the increases in net sales and gross profit discussed
previously, partially offset by increases in selling, general
and administrative expenses.
Net income was $388.7 million, $261.7 million and
$146.6 million in fiscal 2005, 2004 and 2003, respectively.
In all fiscal years, the increases in net income were primarily
attributable to the increases in operating income, discussed
above.
Coachs fiscal year ends on the Saturday closest to
June 30. Fiscal 2005 and fiscal 2003 were each 52-week
periods, whereas fiscal 2004 was a 53-week period. The
fifty-third week in fiscal 2004 contributed approximately
$19.5 million of additional net sales.
Acquisition of Coach Japan, Inc.
On July 1, 2005, Coach completed the purchase of
Sumitomos 50% interest in Coach Japan, Inc. for
$228.4 million, including transaction costs, plus
undistributed profits and paid-in capital of $72.9 million.
Coach Japan was a joint venture established between Coach and
Sumitomo Corporation, to operate and expand the Coach business
in Japan. Coach Japan is accounted for as a consolidated
subsidiary. Coach recorded the 50% interest in the assets and
liabilities of Coach Japan acquired through this acquisition, at
their fair values as follows: trade accounts receivable of
$15.4 million, inventory of $43.1 million, property
and equipment of $21.8 million, customer list of
$0.3 million, goodwill of $225.3 million, other assets
of $25.0 million, and liabilities of $30.7 million.
The results of operations for Coach Japan, Inc. from
July 1, 2005 are included in our consolidated results of
operations for the fiscal year ended July 2, 2005.
The following unaudited pro forma information assumes the Coach
Japan, Inc. acquisition had occurred on July 4, 2004. The
pro forma information, as presented below, is not indicative of
the results that would have been obtained had the transaction
occurred July 4, 2004, nor is it indicative of our future
results. The final purchase price allocation and the resulting
effect on net income may differ significantly from the unaudited
pro forma amounts included herein.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
Net revenue
|
|
$ |
1,710.4 |
|
|
$ |
1,321.1 |
|
Net income
|
|
|
402.3 |
|
|
|
279.8 |
|
Net income per share Basic
|
|
|
1.06 |
|
|
|
0.75 |
|
Net income per share Diluted
|
|
|
1.03 |
|
|
|
0.73 |
|
22
The following is a discussion of the results of operations for
fiscal 2005 compared to fiscal 2004 and fiscal 2004 compared to
fiscal 2003 as well as a discussion of the changes in financial
condition during fiscal 2005.
Results Of Operations
Consolidated statements of income for fiscal 2005, 2004 and 2003
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, 2005 | |
|
July 3, 2004(1) | |
|
June 28, 2003 | |
|
|
| |
|
| |
|
| |
|
|
$ | |
|
% of net sales | |
|
$ | |
|
% of net sales | |
|
$ | |
|
% of net sales | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(dollars and shares in millions, except per share data) | |
Net sales
|
|
$ |
1,704.1 |
|
|
|
99.6 |
% |
|
$ |
1,316.3 |
|
|
|
99.6 |
% |
|
$ |
949.4 |
|
|
|
99.6 |
% |
Licensing revenue
|
|
|
6.3 |
|
|
|
0.4 |
|
|
|
4.8 |
|
|
|
0.4 |
|
|
|
3.8 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
|
1,710.4 |
|
|
|
100.0 |
|
|
|
1,321.1 |
|
|
|
100.0 |
|
|
|
953.2 |
|
|
|
100.0 |
|
Cost of sales
|
|
|
399.6 |
|
|
|
23.4 |
|
|
|
331.0 |
|
|
|
25.1 |
|
|
|
275.8 |
|
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,310.8 |
|
|
|
76.6 |
|
|
|
990.1 |
|
|
|
74.9 |
|
|
|
677.4 |
|
|
|
71.1 |
|
Selling, general and administrative expenses
|
|
|
689.0 |
|
|
|
40.3 |
|
|
|
545.6 |
|
|
|
41.3 |
|
|
|
433.7 |
|
|
|
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
621.8 |
|
|
|
36.3 |
|
|
|
444.5 |
|
|
|
33.6 |
|
|
|
243.7 |
|
|
|
25.6 |
|
Interest income, net
|
|
|
15.8 |
|
|
|
0.9 |
|
|
|
3.2 |
|
|
|
0.2 |
|
|
|
1.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
637.6 |
|
|
|
37.3 |
|
|
|
447.7 |
|
|
|
33.9 |
|
|
|
244.8 |
|
|
|
25.7 |
|
Provision for income taxes
|
|
|
235.3 |
|
|
|
13.8 |
|
|
|
168.0 |
|
|
|
12.7 |
|
|
|
90.6 |
|
|
|
9.5 |
|
Minority interest, net of tax
|
|
|
13.6 |
|
|
|
0.8 |
|
|
|
18.0 |
|
|
|
1.4 |
|
|
|
7.6 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
388.7 |
|
|
|
22.7 |
% |
|
$ |
261.7 |
|
|
|
19.8 |
% |
|
$ |
146.6 |
|
|
|
15.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.03 |
|
|
|
|
|
|
$ |
0.70 |
|
|
|
|
|
|
$ |
0.41 |
|
|
|
|
|
|
Diluted
|
|
$ |
1.00 |
|
|
|
|
|
|
$ |
0.68 |
|
|
|
|
|
|
$ |
0.39 |
|
|
|
|
|
Weighted-average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
378.7 |
|
|
|
|
|
|
|
372.1 |
|
|
|
|
|
|
|
359.1 |
|
|
|
|
|
|
Diluted
|
|
|
390.2 |
|
|
|
|
|
|
|
385.6 |
|
|
|
|
|
|
|
371.7 |
|
|
|
|
|
Net sales by business segment for fiscal 2005 compared to fiscal
2004 and fiscal 2003 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
Percentage of Total Net Sales | |
|
|
| |
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004(1) | |
|
2003 | |
|
Rate of Increase | |
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(dollars in millions) | |
|
(05 v. 04) | |
|
(04 v. 03) | |
|
|
|
|
|
|
Direct
|
|
$ |
935.5 |
|
|
$ |
726.5 |
|
|
$ |
559.5 |
|
|
|
28.8 |
% |
|
|
29.8 |
% |
|
|
54.7 |
% |
|
|
55.0 |
% |
|
|
58.7 |
% |
Indirect
|
|
|
774.9 |
|
|
|
594.6 |
|
|
|
393.7 |
|
|
|
30.3 |
|
|
|
51.0 |
|
|
|
45.3 |
|
|
|
45.0 |
|
|
|
41.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$ |
1,710.4 |
|
|
$ |
1,321.1 |
|
|
$ |
953.2 |
|
|
|
29.5 |
% |
|
|
38.6 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2005 Compared to Fiscal 2004 |
Coach excludes new locations from the comparable store base for
the first year of operation. Similarly, stores that are expanded
by more than 15% are also excluded from the comparable store
base until the first anniversary of their reopening. Stores that
are closed for renovations are removed from the comparable store
23
base. In fiscal 2005, 52 weeks of sales were reported and
compared to the equivalent 52-week period during fiscal 2004.
Direct. Net sales increased 28.8% to
$935.5 million during fiscal 2005 from $726.5 million
during fiscal 2004, driven by increased comparable store sales,
new store sales and expanded store sales in our North American
retail and factory stores divisions. Sales growth in comparable
stores was 14.1% for retail stores and 23.9% for factory stores.
Comparable store sales growth for the entire North American
store chain was 18.2%, which accounted for $112.0 million
of the net sales increase. Since the end of fiscal 2004, Coach
has opened 19 retail stores and seven factory stores. Sales from
these new stores, as well as the noncomparable portion of sales
from stores opened during fiscal 2004, accounted for
$84.8 million of the net sales increase. Since the end of
fiscal 2004, Coach also expanded seven retail stores and two
factory stores. Sales from these expanded stores, as well as the
noncomparable portion of sales from stores expanded during
fiscal 2004, accounted for $11.0 million of the net sales
increase. Sales growth in the Internet business accounted for
the remaining sales increase. The net sales increase was offset
by an additional week of sales during fiscal 2004, which
represented approximately $11.6 million. Also, these
increases were slightly offset by a decline in the direct
marketing channel and store closures. Since the end of fiscal
2004, Coach has closed one factory store.
Indirect. Net sales increased 30.3% to
$774.9 million in fiscal 2005 from $594.6 million
during fiscal 2004. The increase was primarily driven by growth
at Coach Japan, Inc. in which net sales increased
$95.7 million over the comparable period of the prior year.
Since the end of fiscal 2004, we have opened 12 locations in
Japan. Sales from these new stores, as well as the noncomparable
portion of sales from other new stores, accounted for
$40.3 million of the net sales increase. In addition,
comparable store net sales gains accounted for an increase of
$30.3 million over the prior year. Since the end of fiscal
2004, we have also expanded 14 locations in Japan. Sales from
these expanded stores, as well as the non-comparable portion of
sales from other expanded stores, accounted for
$20.2 million of the net sales increase. Finally, the
impact of foreign currency exchange rates resulted in an
increase in reported net sales of $12.9 million. The net
sales increase was slightly offset by $4.1 million of sales
from Coach Japan during the additional week of fiscal 2004. The
net sales increase was further offset by Coach Japan store
closures. Since the end of fiscal 2004, Coach Japan has closed
eight locations.
The increase in indirect net sales was also driven by growth in
the U.S. wholesale, international wholesale and
business-to-business divisions, which contributed increased
sales of $47.8 million, $19.0 million and
$9.9 million, respectively, as compared to the prior year.
The remaining net sales increase is attributable to increases in
other indirect channels. The net sales increase was slightly
offset by $3.8 million of sales from other indirect
channels during the additional week of fiscal 2004.
Gross profit increased 32.4% to $1,310.8 million in fiscal
2005 from $990.1 million in fiscal 2004. Gross margin
increased 170 basis points to 76.6% in fiscal 2005 from
74.9% in fiscal 2004. This improvement was driven by: a shift in
channel mix, as our higher gross margin channels grew faster
than the business as a whole, which contributed approximately 80
additional basis points; a shift in product mix, reflecting
increased penetration of higher margin mixed material product
and accessories, which contributed approximately 60 additional
basis points; and the continuing impact of sourcing cost
initiatives, which contributed approximately 30 additional basis
points.
The following chart illustrates the gross margin performance we
have experienced over the last 12 quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
First | |
|
Third | |
|
Fourth | |
|
Second | |
|
Total | |
|
|
Quarter | |
|
Quarter | |
|
Half | |
|
Quarter | |
|
Quarter | |
|
Half | |
|
Year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2005
|
|
|
75.0 |
% |
|
|
75.8 |
% |
|
|
75.5 |
% |
|
|
78.1 |
% |
|
|
77.6 |
% |
|
|
77.8 |
% |
|
|
76.6 |
% |
Fiscal 2004
|
|
|
72.7 |
% |
|
|
74.2 |
% |
|
|
73.6 |
% |
|
|
75.9 |
% |
|
|
76.7 |
% |
|
|
76.3 |
% |
|
|
74.9 |
% |
Fiscal 2003
|
|
|
68.1 |
% |
|
|
70.3 |
% |
|
|
69.4 |
% |
|
|
72.5 |
% |
|
|
73.2 |
% |
|
|
72.9 |
% |
|
|
71.1 |
% |
24
|
|
|
Selling, General and Administrative Expenses |
Selling, general and administrative expenses increased 26.3% to
$689.0 million in fiscal 2005 from $545.6 million in
fiscal 2004. The dollar increase was caused primarily by
increased store operating expenses attributable to new stores
opened both domestically and in Japan and increased variable
expenses to support increased net sales. As a percentage of net
sales, selling, general and administrative expenses during
fiscal 2005 were 40.3% compared to 41.3% during fiscal 2004.
This improvement was due to leveraging our expense base on
higher sales.
Selling expenses increased 28.8% to $497.3 million, or
29.1% of net sales, in fiscal 2005 from $386.2 million, or
29.2% of net sales, in fiscal 2004. The dollar increase in these
expenses was primarily due to an increase in operating expenses
associated with Coach Japan and operating expenses associated
with North American stores that were opened during and after the
end of fiscal 2004. The increase in Coach Japan expenses was
$51.4 million, driven by new store operating expenses,
investment in corporate infrastructure, increased variable
expenses related to higher sales and increased advertising
expense to support the brand in Japan. In addition, the impact
of foreign currency exchange rates increased reported expenses
by $5.8 million. Domestically, Coach has opened 19 new
retail stores and seven new factory stores since the end of
fiscal 2004. Expenses from these new stores, as well as the
noncomparable portion of expenses from stores opened in fiscal
2004, increased total expenses by $23.1 million. The
remaining increase in selling expenses was due to increased
variable expenses to support sales growth.
Advertising, marketing, and design costs increased by 24.1% to
$78.8 million, or 4.6% of net sales, in fiscal 2005 from
$63.5 million, or 4.8% of net sales, in fiscal 2004. This
dollar increase was primarily due to increased staffing costs
and increased design expenditures.
Distribution and customer service expenses increased to
$36.9 million in fiscal 2005 from $32.4 million in
fiscal 2004. The dollar increase in these expenses was primarily
due to higher sales volumes. However, efficiency gains at the
distribution and customer service facility resulted in an
improvement in the ratio of these expenses to net sales from
2.5% in fiscal 2004 to 2.2% in fiscal 2005.
Administrative expenses increased 19.7% to $76.0 million,
or 4.4% of net sales, in fiscal 2005 from $63.5 million, or
4.8% of net sales, in fiscal 2004. The dollar increase in these
expenses was primarily due to increased compensation costs as
well as increased professional and consulting fees. Included in
administrative expenses are business interruption proceeds of
$2.6 million, related to our World Trade Center location.
Net interest income was $15.8 million in fiscal 2005, as
compared to $3.2 million in fiscal 2004. This dollar change
was due to increased positive cash balances during fiscal 2005
as well as higher returns on investments. During fiscal 2004,
Coach began investing in marketable securities with maturities
greater than 90 days, which yielded greater rates of return.
|
|
|
Provision for Income Taxes |
The effective tax rate decreased to 36.9% in fiscal 2005
compared with the 37.5% recorded in fiscal 2004. As a result of
the buyout of our joint venture partner in Coach Japan and a
continued need to grow the Coach Japan business, we have
determined that the earnings of Coach Japan will be permanently
reinvested and the tax provision previously recorded relating to
the expatriation of those earnings was reversed. The reversal
was recorded in the fourth quarter and brought the full year to
the lower effective appropriate annual rate.
Minority interest expense, net of tax, decreased to
$13.6 million, or 0.8% of net sales, in fiscal 2005 from
$18.0 million, or 1.4% of net sales, in fiscal 2004. The
decrease was primarily due to transfer price increases to Coach
Japan, Inc., increased marketing expenses and additional
infrastructure investments.
25
|
|
|
Fiscal 2004 Compared to Fiscal 2003 |
Coach excludes new locations from the comparable store base for
the first year of operation. Similarly, stores that are expanded
by more than 15% are also excluded from the comparable store
base until the first anniversary of their reopening. Stores that
are closed for renovations are removed from the comparable store
base. In fiscal 2004, 53 weeks of sales were reported and
compared to the equivalent 53-week period.
Direct. Net sales increased 29.8% to
$726.5 million during fiscal 2004 from $559.5 million
in fiscal 2003, driven by increased comparable store sales, new
store sales and expanded store sales in our North American
retail and factory stores divisions. This net sales increase was
also driven by an additional week of sales, which represented
approximately $11.6 million of the total. Sales growth in
comparable stores was 21.9% for retail stores and 10.3% for
factory stores. Comparable store sales growth for the entire
North American store chain was 16.9%, which accounted for
$95.7 million of the net sales increase. Since the end of
fiscal 2003, Coach has opened 19 retail stores and two factory
stores. Sales from these new stores, as well as the
noncomparable portion of sales from stores opened during fiscal
2003, accounted for $53.0 million of the net sales
increase. Since the end of fiscal 2003, Coach also expanded nine
retail stores. Sales from these expanded stores, as well as the
noncomparable portion of sales from stores expanded during
fiscal 2003, accounted for $15.3 million of the net sales
increase. Sales growth in the Internet business accounted for
the remaining sales increase. These increases were slightly
offset by a decline in the direct marketing channel and store
closures. Since the end of fiscal 2003, Coach has closed one
retail store and two factory stores.
Indirect. Net sales increased 51.0% to
$594.6 million in fiscal 2004 from $393.7 million
during fiscal 2003. The increase was primarily driven by growth
at our Japanese joint venture, Coach Japan, Inc. in which net
sales increased $100.4 million over the comparable period
of the prior year, including $4.1 million of sales during
the additional week of the fiscal year. Since the end of fiscal
2003, we have opened eight locations in Japan. Sales from these
new stores, as well as the noncomparable portion of sales from
stores opened during fiscal 2003, accounted for
$44.0 million of the net sales increase. Our Japan
locations experienced double-digit comparable net sales gains
from the prior year, which represented $33.3 million of the
net sales increase. Since the end of fiscal 2003, we have also
expanded 16 locations in Japan, which accounted for
$7.3 million of the net sales increase. Finally, the impact
of foreign currency exchange rates resulted in an increase in
reported net sales of $21.7 million. These net sales
increases were slightly offset by store closures. Since the end
of fiscal 2003, Coach Japan has closed one location. The
increase in indirect net sales was also driven by growth in the
U.S. wholesale, international wholesale and
business-to-business divisions, which contributed increased
sales of $37.5 million, $33.5 million and
$22.0 million, respectively, as compared to the same period
in the prior year. The remaining net sales increase is
attributable to increases in other indirect channels.
Gross profit increased 46.2% to $990.1 million in fiscal
2004 from $677.4 million in fiscal 2003. Gross margin
increased 380 basis points to 74.9% in fiscal 2004 from
71.1% in fiscal 2003. This improvement was driven by: a shift in
channel mix, as our higher gross margin channels grew faster
than the business as a whole, which contributed approximately
140 additional basis points; a shift in product mix, reflecting
increased penetration of higher margin mixed material product
and accessories, which contributed approximately
120 additional basis points; and the continuing impact of
sourcing cost initiatives, which contributed approximately 120
additional basis points.
|
|
|
Selling, General and Administrative Expenses |
Selling, general and administrative expenses increased 25.8% to
$545.6 million in fiscal 2004 from $433.7 million in
fiscal 2003. The dollar increase was caused primarily by
increased variable expenses related to Coach Japan, increased
variable expenses to support increased net sales, and increased
store operating expenses attributable to new stores opened both
domestically and in Japan, as compared to the prior year. As a
percentage of net sales, selling, general and administrative
expenses during fiscal 2004 were 41.3% compared to 45.5% during
fiscal 2003. This improvement was due to leveraging our expense
base on higher sales.
26
Selling expenses increased 31.0% to $386.2 million, or
29.2% of net sales, in fiscal 2004 from $294.9 million, or
30.9% of net sales, in fiscal 2003. The dollar increase in these
expenses was primarily due to an increase in operating expenses
associated with Coach Japan and operating expenses associated
with North American stores that were opened during and after the
end of fiscal 2003. The increase in Coach Japan expenses was
$42.8 million, driven by new stores operating expenses,
increased variable expenses related to higher sales, and the
nonrecurrence of a $3.4 million favorable fair value
adjustment for open foreign currency forward contracts. In
addition, the impact of foreign currency exchange rates
increased reported expenses by $10.0 million. Domestically,
Coach has opened 19 new retail stores and two new factory stores
since the end of fiscal 2003. Expenses from these new stores, as
well as the noncomparable portion of expenses from stores opened
in fiscal 2003, increased total expenses by $16.2 million.
The remaining increase in selling expenses was due to increased
variable expenses to support sales growth.
Advertising, marketing, and design costs increased by 10.8% to
$63.5 million, or 4.8% of net sales, in fiscal 2004, from
$57.3 million, or 6.0% of net sales, in fiscal 2003. This
dollar increase was primarily due to increased staffing costs
and increased design expenditures.
Distribution and customer service expenses increased to
$32.4 million in fiscal 2004 from $29.7 million in
fiscal 2003. The dollar increase in these expenses was primarily
due to higher sales volumes. However, efficiency gains at the
distribution and customer service facility resulted in an
improvement in the ratio of these expenses to net sales from
3.1% in fiscal 2003 to 2.5% in fiscal 2004.
Administrative expenses increased 22.6% to $63.5 million,
or 4.8% of net sales, in fiscal 2004 from $51.8 million, or
5.5% of net sales, in fiscal 2003. The dollar increase in these
expenses was primarily due to increased compensation costs as
well as increased professional and consulting fees. These
increases were offset by an increase in business interruption
proceeds of $1.2 million, related to our World Trade Center
location.
Net interest income was $3.2 million in fiscal 2004, as
compared to $1.1 million in fiscal 2003. This dollar change
was due to increased positive cash balances during fiscal 2004
as well as higher returns on investments. During fiscal 2004,
Coach began investing in marketable securities with maturities
greater than 90 days, which yielded greater rates of return.
|
|
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Provision for Income Taxes |
The effective tax rate increased to 37.5% in fiscal 2004
compared with the 37.0% recorded in fiscal 2003.
Minority interest expense, net of tax, increased to
$18.0 million, or 1.4% of net sales, in fiscal 2004 from
$7.6 million, or 0.8% of net sales, in fiscal 2003. This
increase was due to increased profits from the operations of
Coach Japan and the impact of a stronger yen.
FINANCIAL CONDITION
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Liquidity and Capital Resources |
Net cash provided from operating activities was
$544.3 million in fiscal 2005 compared to
$454.5 million in fiscal 2004. The $89.8 million
increase was due primarily to increased earnings of
$126.9 million as well as an increase in accrued
liabilities of $36.1 million, primarily attributable to a
higher provision for income taxes. There was a decrease in the
change in accounts receivable of $10.6 million due to
improved collection rates. The increase was offset by increased
deferred taxes of $67.9 million. Finally, there was a
decrease in the tax benefit from the exercise of stock options
of $28.0 million.
Net cash used in investment activities was $371.8 million
in fiscal 2005 compared to $375.3 million in fiscal 2004.
The decrease in net cash used in investment activities is
attributable to investment maturities during the year of
$330.7 million. This decrease was partially offset by the
buyout of our joint venture partners
27
interest in Coach Japan of $228.4 million, increased
investment purchases of $77.8 million and increased capital
expenditures of $20.9 million, which related primarily to
new and renovated retail stores in the United States and Japan,
as well as technology enhancements.
Net cash used in financing activities was $280.6 million in
fiscal 2005 compared to $45.7 million in fiscal 2004. The
$234.9 million increase in cash used resulted from an
additional $210.0 million of funds expended to repurchase
common stock. In connection with the buyout of Coach Japan, we
distributed accumulated earnings of $57.4 million and
repaid our initial investment of $15.5 million to our joint
venture partner. The increase in cash used was offset by
additional net borrowings on the revolving credit facility of
$35.4 million and increased proceeds of $12.7 million
received from the exercise of stock options.
On October 16, 2003, Coach, certain lenders and Bank of
America, N.A. (Bank of America), as primary lender
and administrative agent, renewed the $100 million senior
unsecured revolving credit facility (the Bank of America
facility), extending the facility expiration to
October 16, 2006. At Coachs request, the Bank of
America facility can be expanded to $125 million. On
June 23, 2005, this facility was expanded for one
additional year, to October 16, 2007. This facility is
available for seasonal working capital requirements or general
corporate purposes and may be prepaid without penalty or premium.
During fiscal 2005 and fiscal 2004 there were no borrowings
under the Bank of America facility. As of July 2, 2005,
there were no outstanding borrowings under the Bank of America
facility.
Under this revolving credit facility, Coach pays a commitment
fee of 10 to 25 basis points, based on the Companys
fixed charge coverage ratio, on any unused amounts of the
revolving credit facility. The initial commitment fee was
15 basis points. At July 2, 2005, the commitment fee
was 12.5 basis points. The initial LIBOR margin under the
facility was 62.5 basis points. At July 2, 2005, the
LIBOR margin was 55 basis points, reflecting an improvement
in our fixed-charge coverage ratio.
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 entered into credit facilities with
several Japanese financial institutions. These facilities allow
a maximum borrowing of 8.6 billion yen, or approximately
$77 million, at July 2, 2005. Interest is based on the
Tokyo Interbank rate plus a margin of up to 50 basis points.
During fiscal 2005 and fiscal 2004, the peak borrowings under
the Japanese credit facilities were $50.5 million and
$36.1 million, respectively. At July 2, 2005 and
July 3, 2004, outstanding borrowings under the Japanese
facilities were $12.3 million and $1.7 million,
respectively.
These Japanese facilities contain various covenants and
customary events of default. Coach Japan has been in compliance
with all covenants since their inception. These facilities
include automatic renewals based on compliance with the
covenants. Coach, Inc. is not a guarantor on these facilities.
On August 12, 2004, the Coach Board of Directors approved a
$200 million increase to the Companys existing common
stock repurchase program and extended the duration of this
program through August 2006. As of April 2, 2005, Coach had
completed this authorization of the stock repurchase program.
On May 11, 2005, the Coach Board of Directors approved a
common stock repurchase program to acquire up to
$250 million of Coachs outstanding common stock.
Purchases of Coach stock may be made from time to time, subject
to market conditions and at prevailing market prices, through
open market purchases. Repurchased shares of common stock will
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.
During fiscal 2005 and fiscal 2004, Coach repurchased
11.0 million and 3.0 million shares, respectively, of
common stock, at an average cost of $24.09 and $18.18 per
share, respectively.
In fiscal 2005, total capital expenditures were
$94.6 million. Coach opened 19 new retail and seven new
factory stores in North America, which represented
$20.0 million of capital expenditures. We also expanded
28
seven retail stores and two factory stores, which represented
$19.9 million of capital expenditures. Spending on
department store renovations and distributor locations was
$4.7 million. In addition, $14.0 million was used for
information systems and corporate facilities. These investments
were financed from internally generated cash flows and on hand
cash. In Japan, we invested $22.9 million, primarily for
the opening of 12 new locations, store expansions and
information systems. These investments were financed by using
funds from our Japanese revolving credit facilities and
operating cash flow.
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 its working capital requirements
are reduced substantially as Coach generates consumer sales and
collects wholesale accounts receivable. In fiscal 2005, Coach
purchased approximately $377 million of inventory, which
was funded by on hand cash, operating cash flow and by
borrowings under the Japanese revolving credit facilities.
Management believes that cash flow from operations and on hand
cash will provide adequate funds for the foreseeable working
capital needs, planned capital expenditures 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. Coachs ability to
fund its working capital needs, planned capital expenditures 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
Coachs control.
Currently, Sara Lee is a guarantor or a party to many of
Coachs leases. Coach has agreed to make efforts to remove
Sara Lee from all of its existing leases, and Sara Lee is not a
guarantor or a party to any new or renewed leases. Coach has
obtained a letter of credit for the benefit of Sara Lee in an
amount approximately equal to the annual minimum rental payments
under leases transferred to Coach by Sara Lee, but for which
Sara Lee retains contingent liability. Coach is required to
maintain this letter of credit until the annual minimum rental
payments under the relevant leases are less than
$2.0 million. The initial letter of credit had a face
amount of $20.6 million, and we expect this amount to
decrease annually as Coachs guaranteed obligations are
reduced. As of July 2, 2005, the letter of credit was
$15.4 million. We expect that we will be required to
maintain the letter of credit for at least 10 years.
As of July 2, 2005, the scheduled maturities of
Coachs long-term contractual obligations are as follows:
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Payments Due by Period | |
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Less than | |
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1-3 | |
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4-5 | |
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After 5 | |
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1 Year | |
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Years | |
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Years | |
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Years | |
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Total | |
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| |
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| |
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| |
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| |
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(amounts in millions) | |
Operating leases
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$ |
62.6 |
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|
$ |
115.1 |
|
|
$ |
102.4 |
|
|
$ |
175.0 |
|
|
$ |
455.1 |
|
Revolving credit facility
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|
12.3 |
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12.3 |
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Long-term debt, including the current portion
|
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0.2 |
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|
0.4 |
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|
0.6 |
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2.2 |
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3.4 |
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Total
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|
$ |
75.1 |
|
|
$ |
115.5 |
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|
$ |
103.0 |
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$ |
177.2 |
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$ |
470.8 |
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Coach does not have any off-balance-sheet financing or
unconsolidated special purpose entities. Coachs risk
management policies prohibit the use of derivatives for trading
purposes. The valuation of financial instruments that are marked
to market are based upon independent third-party sources.
Coach is party to an Industrial Revenue Bond related to its
Jacksonville, Florida, facility. This loan has a remaining
balance of $3.4 million and bears interest at 8.77%.
Principal and interest payments are made semiannually, with the
final payment due in 2014.
29
Because its 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. However, over the past several years, we have achieved
higher levels of growth in the nonholiday quarters, which has
reduced these seasonal fluctuations. We expect that these trends
will continue, and we will further balance our year round
business.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions.
Predicting future events is inherently an imprecise activity
and, as such, requires the use of judgment. Actual results may
vary from estimates in amounts that may be material to the
financial statements. The accounting policies discussed below
are considered critical because changes to certain judgments and
assumptions inherent in these policies could affect the
financial statements.
In certain instances, accounting principles generally accepted
in the United States of America allow for the selection of
alternative accounting methods. The Companys significant
policies that involve the selection of alternative methods are
accounting for stock options and inventories.
The Company leases retail stores and office space under
operating leases. The majority of the Companys lease
agreements provide for tenant improvement allowances, rent
escalation clauses and/or contingent rent provisions. In fiscal
2005, the Company conformed its accounting for operating leases
and leasehold improvements to Statement of Financial Accounting
Standards (SFAS) No. 13 and its related
interpretations as clarified by the Office of the Chief
Accountant of the Securities and Exchange Commission to the
American Institute of Certified Public Accountants on
February 7, 2005.
Tenant improvement allowances are recorded as a deferred lease
credit on the balance sheet and amortized over the lease term,
which is consistent with the amortization period for the
constructed assets. Historically, the consolidated balance
sheets reflected these allowances as a reduction of capital
expenditures and the carrying value of fixed assets and the
consolidated statements of cash flows reflected tenant
improvement allowances as a reduction of capital expenditures
within investing activities. Since the impact of this change in
accounting was not material to any previously reported fiscal
year, the cumulative effect was recorded in the third quarter of
fiscal 2005.
In addition to the above, the Company recorded a cumulative,
noncash charge in the third quarter of fiscal 2005 to reflect
the impact of recording rent expense prior to the store opening
(during the construction buildout period). Previously, the
Company recognized the straight-line rent expense for leases
beginning on the earlier of the store opening date or lease
commencement date, which generally had the effect of excluding
the buildout period of its stores from the calculation of the
period over which it expensed rent. The Company now records rent
expense when it takes possession of a store to begin its
buildout, which generally occurs before the stated commencement
of the lease term and is approximately 60 to 90 days prior
to the opening of the store. The adjustment resulted in a
cumulative, noncash charge to rent expense of approximately
$4.8 million during fiscal 2005, of which approximately
$4.3 million related to prior periods.
Two alternative methods for accounting for stock options are
available: the intrinsic value method and the fair value method.
The Company uses the intrinsic value method of accounting for
stock options and, accordingly, no compensation expense has been
recognized. Under either method, the determination of the
30
pro forma amounts involves several assumptions including option
life and future volatility. See Note 1 and Note 8 to
the Consolidated Financial Statements for expanded disclosures.
U.S. inventories are valued at the lower of cost
(determined by the first-in, first-out method) or market.
Inventories in Japan are valued at the lower of cost (determined
by the last-in, first-out method) or market. Inventory costs
include material, conversion costs, freight and duties. Reserves
for slow-moving and aged merchandise are provided based on
historical experience and current product demand. We evaluate
the adequacy of reserves quarterly. A decrease in product demand
due to changing customer tastes, buying patterns or increased
competition could impact Coachs evaluation of its
slow-moving and aged merchandise.
For more information on Coachs accounting policies, please
refer to the Notes to Consolidated Financial Statements. Other
critical accounting policies are as follows:
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Valuation of Long-Lived Assets |
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which the
Company adopted effective with the beginning of fiscal 2002, the
Company assesses the carrying value of its long-lived assets for
possible impairment based on a review of forecasted operating
cash flows and the profitability of the related business. The
Company did not record any impairment losses in fiscal 2005,
fiscal 2004 or fiscal 2003.
Sales are recognized at the point of sale, which occurs when
merchandise is sold in an over-the-counter consumer transaction
or, for the wholesale, Internet and catalog channels, upon
shipment of merchandise, when title passes to the customer.
Allowances for estimated uncollectible accounts, discounts,
returns and allowances are provided when sales are recorded
based upon historical experience and current trends. Royalty
revenues are earned through license agreements with
manufacturers of other consumer products that incorporate the
Coach brand. Revenue earned under these contracts is recognized
based upon reported net sales from the licensee.
In October 2004, the Emerging Issues Task Force
(EITF) issued its abstract No. 04-1
Accounting for Pre-existing Relationships between the
Parties to a Business Combination. EITF 04-1
addresses the appropriate accounting treatment for portions of
the acquisition costs of an entity that may be deemed to apply
to elements of a pre-existing business relationship between the
acquiring company and the target company. EITF 04-1 is
effective for combinations consummated after October 2004. The
adoption of EITF 04-1 had no effect on historical financial
statements.
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 151,
Inventory Costs an amendment of ARB.
No. 43, Chapter 4. SFAS 151 is an amendment
of Accounting Research Board Opinion No. 43 and sets
standards for the treatment of abnormal amounts of idle facility
expense, freight, handling costs and spoilage. SFAS 151 is
effective for fiscal years beginning after June 15, 2005.
We are currently evaluating the impact of SFAS 151 on our
financial statements.
In December 2004, the FASB issued Staff Position No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004
(FSP No. 109-2). FSP No. 109-2
provides guidance under SFAS No. 109, Accounting
for Income Taxes, with respect to recording the potential
impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (the Jobs Act) on
enterprises income tax expense and deferred tax liability.
FSP 109-2 states that an enterprise is allowed time beyond
the financial reporting period of enactment to evaluate the
effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of
31
applying SFAS 109. We do not plan to make any dividends
under this provision but we are still evaluating the impact of
FSP 109-2 on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29, which eliminates certain
narrow differences between Accounting Principles Board
(APB) 29 and international accounting
standards. SFAS 153 is effective for fiscal periods
beginning on or after June 15, 2005. The adoption of
SFAS 153 is not expected to have a material impact on our
financial statements.
On December 16, 2004, the FASB issued
SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS 123,
Accounting for Stock-Based Compensation.
SFAS 123R supersedes Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees. The pronouncement requires an entity to measure
the cost of employee services received in exchange for an award
of equity instruments based on the grant-date fair value of the
award. That cost will be recognized over the period during which
an employee is required to provide service in exchange for the
award the requisite service period (typically the
vesting period). SFAS 123R is effective as of the beginning
of the first interim or annual reporting period that begins
after June 15, 2005. We are currently evaluating the effect
of SFAS 123R on our financial statements with the intent of
implementing this standard in fiscal 2006.
In March 2005, the SEC issued Staff Accounting Bulletin
(SAB) No. 107, Share-Based Payment.
SAB 107 expresses views of the SEC staff regarding the
interaction between SFAS 123R and certain SEC rules and
regulations and provides the staffs views regarding the
valuation of share-based payments arrangements. Subsequently,
the SEC decided to delay the required implementation of
SFAS 123R to fiscal years beginning after June 15,
2005. We are currently evaluating the effect of SFAS 123R
and SAB 107 on our financial statements with the intent of
implementing this standard in fiscal 2006.
In March 2005, the FASB issued Statement of Financial Accounting
Standards Interpretation No. 47 (FIN 47),
Accounting for Conditional Asset Retirement
Obligations. FIN 47 provides clarification regarding
the meaning of the term conditional asset retirement
obligation as used in FASB 143, Accounting for Asset
Retirement Obligations. We are currently evaluating the
impact of FIN 47 on our financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005. Early adoption is permitted. The Company
will adopt SFAS 154 in the required period.
In June 2005, the EITF reached consensus on EITF 05-6,
Determining the Amortization Period for Leasehold
Improvements. Under EITF 05-6, leasehold improvements
placed in service significantly after and not contemplated at,
or near, the beginning of the lease term, should be amortized
over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the
leasehold improvements are purchased. EITF 05-6 is
effective for periods beginning after June 29, 2005 and is
not expected to have a material impact on our consolidated
financial statements.
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Item 7A. |
Quantitative and Qualitative Disclosures about Market
Risk |
The market risk inherent in our financial instruments represents
the potential loss in fair value, earnings or cash flows arising
from adverse changes in interest rates or foreign currency
exchange rates. Coach manages these exposures through operating
and financing activities and, when appropriate, through the use
of derivative financial instruments with respect to Coach Japan.
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.
32
Foreign currency exposures arise from transactions, including
firm commitments and anticipated contracts, denominated in a
currency other than the entitys functional currency, and
from foreign-denominated revenues translated into
U.S. dollars.
Approximately 98% of Coachs fiscal 2005 non-licensed
product needs were purchased from independent manufacturers in
countries other than the United States. These countries include
China, Hong Kong, Italy, India, Singapore, South Korea, Spain,
Turkey, Costa Rica, Hungary, Indonesia, Thailand, Taiwan and
Philippines. Additionally, sales are made through international
channels to third party distributors. Substantially all
purchases and sales involving international parties, excluding
Coach Japan, are denominated in U.S. dollars and,
therefore, are not hedged by Coach using any derivative
instruments.
Coach is exposed to market risk from foreign currency exchange
rate fluctuations with respect to Coach Japan as a result of its
U.S. dollar denominated inventory purchases. The Company,
through Coach Japan, enters into certain foreign currency
derivative contracts, primarily foreign exchange forward
contracts, to manage these risks. These transactions are in
accordance with Coachs risk management policies. Coach
does not enter into derivative transactions for speculative or
trading purposes. The Company is also exposed to foreign
currency exchange rate fluctuations related to the
euro-denominated expenses of its Italian sourcing office. During
fiscal 2003, Coach began a program to enter into certain foreign
currency derivative contracts, primarily foreign exchange
forward contracts, in order to manage these fluctuations.
However, during fiscal 2004, we reassessed this program and
determined, based on current business conditions that we would
discontinue hedging against the euro.
The foreign currency contracts entered into by the Company have
durations no greater than 12 months. The fair values of
open foreign currency derivatives included in accrued
liabilities at July 2, 2005 and July 3, 2004 were $0
and $0.5 million, respectively. The fair value of open
foreign currency derivatives included in current assets at
July 2, 2005 and July 3, 2004 was $1.5 million
and $0, respectively. As of July 2, 2005, open foreign
currency forward contracts designated as hedges, with a notional
amount of $46.9 million were fair valued resulting in an
increase to equity as a benefit to other comprehensive income of
$1.2 million, net of taxes. As of July 3, 2004, open
foreign currency forward contracts designated as hedges, with a
notional amount of $63.6 million were fair valued resulting
in a reduction to equity as a charge to other comprehensive
income of $0.5 million, net of taxes.
Coach faces minimal interest rate risk exposure in relation to
its outstanding debt of $15.7 million at July 2, 2005.
Of this amount, $12.3 million, under revolving credit
facilities, is subject to interest rate fluctuations. A
hypothetical 1% 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.
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Item 8. |
Financial Statement and Supplementary Data |
See the Index to Financial Statements, which is
located on page 36 of this report.
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Item 9. |
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure |
None
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Item 9A. |
Controls and Procedures |
The Companys management is responsible for establishing
and maintaining adequate internal controls over financial
reporting. The Companys internal control system was
designed to provide reasonable assurance to the Companys
management and board of directors regarding the preparation and
fair presentation of published financial statements. All
internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
33
The Companys management assessed the effectiveness of the
Companys internal control over financial reporting as of
July 2, 2005. In making this assessment, it used the
criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based upon our assessment, we
believe that, as of July 2, 2005, the Companys
internal control over financial reporting is effective based on
those criteria.
The Companys independent auditors have issued an audit
report of the Companys internal control over financial
reporting. This report appears on page 38.
PART III
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Item 10. |
Directors and Executive Officers of the Registrant |
The information set forth in the Proxy Statement for the 2005
annual meeting of stockholders is incorporated herein by
reference. The Proxy Statement will be filed with the Commission
within 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
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Item 11. |
Executive Compensation |
The information set forth in the Proxy Statement for the 2005
annual meeting of stockholders is incorporated herein by
reference. The Proxy Statement will be filed with the Commission
within 120 days after the end of the fiscal year covered by
the Form 10-K pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
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Item 12. |
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters |
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(a) Security ownership of management set forth in the Proxy
Statement for the 2005 annual meeting of stockholders is
incorporated herein by reference. |
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(b) There are no arrangements known to the registrant that
may at a subsequent date result in a change in control of the
registrant. |
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Item 13. |
Certain Relationships and Related Transactions |
The information set forth in the Proxy Statement for the 2005
annual meeting of stockholders is incorporated herein by
reference. The Proxy Statement will be filed with the Commission
within 120 days after the end of the fiscal year covered by
this Form 10-K pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.
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Item 14. |
Principal Accountant Fees and Services |
The information required by this item is incorporated herein by
reference to the section entitled Matters Relating to
Coachs Independent Auditors in the Proxy Statement
for the 2005 annual meeting of stockholders.
PART IV
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Item 15. |
Exhibits, Financial Statement Schedules and Reports on
Form 8-K |
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(a) Financial Statements and Financial Statement Schedule
See the Index to Financial Statements which is
located on page 36 of this report. |
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(b) Exhibits. See the exhibit index which is included
herein. |
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(c) Reports on Form 8-K. See the exhibit index which
is included herein. |
34
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of
the Securities Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Name: Lew Frankfort |
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Title: Chairman and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated below on
September 9, 2005.
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Signature |
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Title |
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/s/ Lew Frankfort
Lew
Frankfort |
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Chairman, Chief Executive Officer and Director |
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/s/ Keith Monda
Keith
Monda |
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President, Chief Operating Officer and Director |
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/s/ Michael F.
Devine, III
Michael
F. Devine, III |
|
Senior Vice President and Chief Financial Officer
(as principal financial officer and principal
accounting officer of Coach) |
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/s/ Joseph Ellis
Joseph
Ellis |
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Director |
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/s/ Sally Frame Kasaks
Sally
Frame Kasaks |
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Director |
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/s/ Gary Loveman
Gary
Loveman |
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Director |
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/s/ Ivan Menezes
Ivan
Menezes |
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Director |
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/s/ Irene Miller
Irene
Miller |
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Director |
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/s/ Michael Murphy
Michael
Murphy |
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Director |
35
UNITED STATES
SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FINANCIAL STATEMENTS
For the Fiscal Year Ended July 2, 2005
COACH, INC.
New York, New York 10001
INDEX TO FINANCIAL STATEMENTS
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Page | |
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Number | |
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Financial Statements
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37 |
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39 |
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40 |
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41 |
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42 |
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43 |
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67 |
|
Financial Statement Schedules for the years ended July 2,
2005, July 3, 2004 and June 28, 2003:
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|
68 |
|
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Coach, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of
Coach, Inc. and subsidiaries (the Company) as of
July 2, 2005 and July 3, 2004, and the related
consolidated statements of income, stockholders equity and
cash flows for each of the three years in the period ended
July 2, 2005. Our audits also included the consolidated
financial statement schedule listed at Item 15. These
consolidated financial statements and the consolidated financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and the consolidated financial
statement schedule based on our audits.
We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Company at July 2, 2005 and July 3,
2004, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended
July 2, 2005 in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of July 2, 2005, based on the
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission and our report dated September 9,
2005 expressed an unqualified opinion on managements
assessment of the effectiveness of the Companys internal
control over financial reporting and an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
/s/ Deloitte & Touche LLP
New York, New York
September 9, 2005
37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Coach, Inc.
New York, New York
We have audited managements assessment, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting, that Coach, Inc. and subsidiaries (the
Company) maintained effective internal control over
financial reporting as of July 2, 2005, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our
responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design
and operating effectiveness of internal control, and performing
such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable
basis for our opinions.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, managements assessment that the Company
maintained effective internal control over financial reporting
as of July 2, 2005, is fairly stated, in all material
respects, based on the criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Also, in our opinion, the Company maintained, in all
material respects, effective internal control over financial
reporting as of July 2, 2005, based on the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and consolidated financial
statement schedule as of and for the year ended July 2,
2005 of the Company and our report dated September 9, 2005
expressed an unqualified opinion on those consolidated financial
statements and consolidated financial statement schedule.
/s/ Deloitte & Touche LLP
New York, New York
September 9, 2005
38
COACH, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(amounts in thousands, | |
|
|
except share data) | |
ASSETS |
Cash and cash equivalents
|
|
$ |
154,566 |
|
|
$ |
262,720 |
|
Short-term investments
|
|
|
228,485 |
|
|
|
171,723 |
|
Trade accounts receivable, less allowances of $4,124 and $5,456,
respectively
|
|
|
65,399 |
|
|
|
55,724 |
|
Inventories
|
|
|
184,419 |
|
|
|
161,913 |
|
Deferred income taxes
|
|
|
50,820 |
|
|
|
34,521 |
|
Prepaid expenses and other current assets
|
|
|
25,671 |
|
|
|
19,015 |
|
|
|
|
|
|
|
|
Total current assets
|
|
|
709,360 |
|
|
|
705,616 |
|
|
Property and equipment, net
|
|
|
203,862 |
|
|
|
164,291 |
|
Long-term investments
|
|
|
122,065 |
|
|
|
130,000 |
|
Deferred income taxes
|
|
|
31,520 |
|
|
|
|
|
Goodwill
|
|
|
238,711 |
|
|
|
13,605 |
|
Indefinite life intangibles
|
|
|
9,788 |
|
|
|
9,788 |
|
Other noncurrent assets
|
|
|
31,826 |
|
|
|
21,125 |
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
1,347,132 |
|
|
$ |
1,044,425 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
Accounts payable
|
|
$ |
64,985 |
|
|
$ |
44,771 |
|
Accrued liabilities
|
|
|
185,502 |
|
|
|
123,647 |
|
Deferred income taxes
|
|
|
2,851 |
|
|
|
|
|
Revolving credit facility
|
|
|
12,292 |
|
|
|
1,699 |
|
Current portion of long-term debt
|
|
|
150 |
|
|
|
115 |
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
265,780 |
|
|
|
170,232 |
|
|
Deferred income taxes
|
|
|
4,512 |
|
|
|
15,791 |
|
Long-term debt
|
|
|
3,270 |
|
|
|
3,420 |
|
Other liabilities
|
|
|
40,794 |
|
|
|
32,498 |
|
Minority interest, net of tax
|
|
|
|
|
|
|
40,198 |
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
314,356 |
|
|
|
262,139 |
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
Preferred stock: (authorized 25,000,000 shares;
$0.01 par value) none issued
|
|
|
|
|
|
|
|
|
|
Common stock: (authorized 500,000,000 shares;
$0.01 par value) issued and outstanding
378,429,710 and 379,236,402 shares, respectively
|
|
|
3,784 |
|
|
|
3,792 |
|
|
Capital in excess of par value
|
|
|
465,015 |
|
|
|
355,130 |
|
|
Retained earnings
|
|
|
576,141 |
|
|
|
430,461 |
|
|
Accumulated other comprehensive income
|
|
|
903 |
|
|
|
2,195 |
|
|
Unearned compensation
|
|
|
(13,067 |
) |
|
|
(9,292 |
) |
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,032,776 |
|
|
|
782,286 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$ |
1,347,132 |
|
|
$ |
1,044,425 |
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
39
COACH, INC.
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004(1) | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(amounts in thousands, except per share data) | |
Net sales
|
|
$ |
1,710,423 |
|
|
$ |
1,321,106 |
|
|
$ |
953,226 |
|
Cost of sales
|
|
|
399,652 |
|
|
|
331,024 |
|
|
|
275,797 |
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,310,771 |
|
|
|
990,082 |
|
|
|
677,429 |
|
Selling, general and administrative expenses
|
|
|
688,961 |
|
|
|
545,617 |
|
|
|
433,667 |
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
621,810 |
|
|
|
444,465 |
|
|
|
243,762 |
|
Interest income, net
|
|
|
15,760 |
|
|
|
3,192 |
|
|
|
1,059 |
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
637,570 |
|
|
|
447,657 |
|
|
|
244,821 |
|
Provision for income taxes
|
|
|
235,277 |
|
|
|
167,866 |
|
|
|
90,585 |
|
Minority interest, net of tax
|
|
|
13,641 |
|
|
|
18,043 |
|
|
|
7,608 |
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
388,652 |
|
|
$ |
261,748 |
|
|
$ |
146,628 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.03 |
|
|
$ |
0.70 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
1.00 |
|
|
$ |
0.68 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
378,670 |
|
|
|
372,120 |
|
|
|
359,116 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
390,191 |
|
|
|
385,558 |
|
|
|
371,684 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
40
COACH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
Total | |
|
Preferred |
|
Common | |
|
Capital in | |
|
|
|
Other | |
|
|
|
|
|
Shares of | |
|
|
Stockholders | |
|
Stockholders |
|
Stockholders | |
|
Excess of | |
|
Retained | |
|
Comprehensive | |
|
Unearned | |
|
Comprehensive | |
|
Common | |
|
|
Equity | |
|
Equity |
|
Equity | |
|
Par | |
|
Earnings | |
|
Income (loss) | |
|
Compensation | |
|
Income (loss) | |
|
Stock | |
|
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(amounts in thousands) | |
Balances at June 29, 2002
|
|
$ |
260,356 |
|
|
$ |
|
|
|
$ |
3,580 |
|
|
$ |
152,718 |
|
|
$ |
105,509 |
|
|
$ |
215 |
|
|
$ |
(1,666 |
) |
|
|
|
|
|
|
357,816 |
|
|
Net income
|
|
|
146,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
146,628 |
|
|
|
|
|
|
|
|
|
|
$ |
146,628 |
|
|
|
|
|
|
Shares issued for stock options and employee benefit plans
|
|
|
28,395 |
|
|
|
|
|
|
|
156 |
|
|
|
28,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,800 |
|
|
Tax benefit from exercise of stock options
|
|
|
41,503 |
|
|
|
|
|
|
|
|
|
|
|
41,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(49,947 |
) |
|
|
|
|
|
|
(76 |
) |
|
|
(15,356 |
) |
|
|
(34,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,716 |
) |
|
Grant of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,550 |
|
|
|
|
|
|
|
|
|
|
|
(5,550 |
) |
|
|
|
|
|
|
|
|
|
Amortization of restricted stock awards
|
|
|
1,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,568 |
|
|
|
|
|
|
|
118 |
|
|
Unrealized gain on cash flow hedging derivatives, net
|
|
|
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
|
168 |
|
|
|
|
|
|
Translation adjustments
|
|
|
(348 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(348 |
) |
|
|
|
|
|
|
(348 |
) |
|
|
|
|
|
Minimum pension liability
|
|
|
(1,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,394 |
) |
|
|
|
|
|
|
(1,394 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
145,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 28, 2003
|
|
|
426,929 |
|
|
|
|
|
|
|
3,660 |
|
|
|
212,654 |
|
|
|
217,622 |
|
|
|
(1,359 |
) |
|
|
(5,648 |
) |
|
|
|
|
|
|
366,018 |
|
|
Net income
|
|
|
261,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,748 |
|
|
|
|
|
|
|
|
|
|
$ |
261,748 |
|
|
|
|
|
|
Shares issued for stock options and employee benefit plans
|
|
|
34,141 |
|
|
|
|
|
|
|
162 |
|
|
|
33,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,240 |
|
|
Tax benefit from exercise of stock options
|
|
|
106,458 |
|
|
|
|
|
|
|
|
|
|
|
106,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(54,954 |
) |
|
|
|
|
|
|
(30 |
) |
|
|
(6,015 |
) |
|
|
(48,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,022 |
) |
|
Grant of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,054 |
|
|
|
|
|
|
|
|
|
|
|
(8,054 |
) |
|
|
|
|
|
|
|
|
|
Amortization of restricted stock awards
|
|
|
4,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,410 |
|
|
|
|
|
|
|
|
|
|
Unrealized loss on cash flow hedging derivatives, net
|
|
|
(460 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460 |
) |
|
|
|
|
|
|
(460 |
) |
|
|
|
|
|
Translation adjustments
|
|
|
2,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,892 |
|
|
|
|
|
|
|
2,892 |
|
|
|
|
|
|
Minimum pension liability
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,122 |
|
|
|
|
|
|
|
1,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
265,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 3, 2004
|
|
|
782,286 |
|
|
|
|
|
|
|
3,792 |
|
|
|
355,130 |
|
|
|
430,461 |
|
|
|
2,195 |
|
|
|
(9,292 |
) |
|
|
|
|
|
|
379,236 |
|
|
Net income
|
|
|
388,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
388,652 |
|
|
|
|
|
|
|
|
|
|
$ |
388,652 |
|
|
|
|
|
|
Shares issued for stock options and employee benefit plans
|
|
|
42,988 |
|
|
|
|
|
|
|
102 |
|
|
|
42,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,194 |
|
|
Tax benefit from exercise of stock options
|
|
|
78,480 |
|
|
|
|
|
|
|
|
|
|
|
78,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(264,971 |
) |
|
|
|
|
|
|
(110 |
) |
|
|
(21,889 |
) |
|
|
(242,972 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,000 |
) |
|
Grant of restricted stock awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,408 |
|
|
|
|
|
|
|
|
|
|
|
(10,408 |
) |
|
|
|
|
|
|
|
|
|
Amortization of restricted stock awards
|
|
|
6,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,633 |
|
|
|
|
|
|
|
|
|
|
Unrealized gain on cash flow hedging derivatives, net
|
|
|
1,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,229 |
|
|
|
|
|
|
|
1,229 |
|
|
|
|
|
|
Translation adjustments
|
|
|
(2,331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,331 |
) |
|
|
|
|
|
|
(2,331 |
) |
|
|
|
|
|
Minimum pension liability
|
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(190 |
) |
|
|
|
|
|
|
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
387,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at July 2, 2005
|
|
$ |
1,032,776 |
|
|
$ |
|
|
|
$ |
3,784 |
|
|
$ |
465,015 |
|
|
$ |
576,141 |
|
|
$ |
903 |
|
|
$ |
(13,067 |
) |
|
|
|
|
|
|
378,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
41
COACH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004(1) | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
|
(amounts in thousands) | |
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
388,652 |
|
|
$ |
261,748 |
|
|
$ |
146,628 |
|
|
Adjustments to reconcile net income to net cash from operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
57,033 |
|
|
|
44,510 |
|
|
|
31,350 |
|
|
Minority interest
|
|
|
13,641 |
|
|
|
18,043 |
|
|
|
7,608 |
|
|
Tax benefit from exercise of stock options
|
|
|
78,480 |
|
|
|
106,458 |
|
|
|
41,503 |
|
|
(Increase) decrease in deferred taxes
|
|
|
(56,247 |
) |
|
|
11,646 |
|
|
|
8,778 |
|
|
Other non cash credits, net
|
|
|
3,881 |
|
|
|
3,372 |
|
|
|
(969 |
) |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in trade accounts receivable
|
|
|
(9,675 |
) |
|
|
(20,254 |
) |
|
|
(4,545 |
) |
|
|
Increase in inventories
|
|
|
(22,506 |
) |
|
|
(18,106 |
) |
|
|
(7,403 |
) |
|
|
Increase in other assets
|
|
|
(14,885 |
) |
|
|
(3,861 |
) |
|
|
(10,880 |
) |
|
|
Increase in other liabilities
|
|
|
23,820 |
|
|
|
7,058 |
|
|
|
6,242 |
|
|
|
Increase in accounts payable
|
|
|
20,214 |
|
|
|
18,134 |
|
|
|
818 |
|
|
|
Increase in accrued liabilities
|
|
|
61,855 |
|
|
|
25,785 |
|
|
|
7,239 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
544,263 |
|
|
|
454,533 |
|
|
|
226,369 |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(94,592 |
) |
|
|
(73,659 |
) |
|
|
(61,857 |
) |
|
Acquisition of joint venture
|
|
|
(228,431 |
) |
|
|
|
|
|
|
|
|
|
Proceeds from dispositions of property and equipment
|
|
|
18 |
|
|
|
58 |
|
|
|
27 |
|
|
Purchases of investments
|
|
|
(379,530 |
) |
|
|
(301,723 |
) |
|
|
|
|
|
Maturities of investments
|
|
|
330,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(371,832 |
) |
|
|
(375,324 |
) |
|
|
(61,830 |
) |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(264,971 |
) |
|
|
(54,954 |
) |
|
|
(49,947 |
) |
|
Distribution of earnings to joint venture shareholders
|
|
|
(57,403 |
) |
|
|
|
|
|
|
|
|
|
Repayment of joint venture partner contribution
|
|
|
(15,524 |
) |
|
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(115 |
) |
|
|
(80 |
) |
|
|
(75 |
) |
|
Borrowings on revolving credit facility
|
|
|
359,503 |
|
|
|
168,865 |
|
|
|
63,164 |
|
|
Repayments of revolving credit facility
|
|
|
(348,910 |
) |
|
|
(193,637 |
) |
|
|
(70,862 |
) |
|
Proceeds from exercise of stock options
|
|
|
46,835 |
|
|
|
34,141 |
|
|
|
28,395 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(280,585 |
) |
|
|
(45,665 |
) |
|
|
(29,325 |
) |
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
|
(108,154 |
) |
|
|
33,544 |
|
|
|
135,214 |
|
Cash and cash equivalents at beginning of period
|
|
|
262,720 |
|
|
|
229,176 |
|
|
|
93,962 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
154,566 |
|
|
$ |
262,720 |
|
|
$ |
229,176 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$ |
162,702 |
|
|
$ |
33,136 |
|
|
$ |
56,083 |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
238 |
|
|
$ |
330 |
|
|
$ |
679 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
42
COACH, INC.
Notes to Consolidated Financial Statements
(dollars and shares in thousands, except per share data)
|
|
1. |
Nature of Operations and Significant Accounting Policies |
Nature of Operations
Coach, Inc. (the Company) designs, produces and
markets high-quality, modern American classic accessories. The
Companys primary product offerings, manufactured by
third-party suppliers, include handbags, accessories, business
cases, outerwear and related accessories and weekend and travel
accessories,. Coachs products are sold through
direct-to-consumer channels, including Company-operated retail
and factory stores, its online store and its catalogs, as well
as through indirect channels, including department store
locations in the United States, international department stores,
freestanding retail locations and specialty retailers and retail
and factory store locations operated by Coach Japan, Inc.
Significant Accounting Policies
The Companys fiscal year ends on the Saturday closest to
June 30. Unless otherwise stated, references to years in
the financial statements relate to fiscal years. The fiscal
years ended July 2, 2005 (fiscal 2005) and
June 28, 2003 (fiscal 2003) were each 52-week
periods, whereas the fiscal year ended July 3, 2004
(fiscal 2004) was a 53-week period.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of
revenues and expenses during the reporting period. The level of
uncertainty in estimates and assumptions increases with the
length of time until the underlying transactions are completed.
Actual results could differ from estimates in amounts that may
be material to the financial statements.
|
|
|
Principles of Consolidation |
The consolidated financial statements include the accounts of
the Company and all subsidiaries under the control of the
Company, including Coach Japan, Inc. All significant
intercompany transactions and balances are eliminated in
consolidation.
|
|
|
Cash and Cash Equivalents |
Cash and cash equivalents consist of cash balances and highly
liquid investments with a maturity of less than 90 days.
Investments consist of U.S. government and agency debt
securities as well as municipal government and corporate debt
securities. These securities are classified as held to maturity,
as the Company has both the ability and the intent to hold these
securities until maturity. Investments are recorded at amortized
cost. Premiums are amortized and discounts are accreted over the
lives of the related securities as adjustments to interest
income, using the effective interest method. Dividend and
interest income are recognized when earned.
43
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
|
|
|
Concentration of Credit Risk |
Financial instruments that potentially expose Coach to
concentration of credit risk consist primarily of cash
investments and accounts receivable. The Company places its cash
investments with high-credit quality financial institutions and
currently invests primarily in U.S. government and agency
debt securities, municipal government and corporate debt
securities, and bank money market funds placed with major banks
and financial institutions. Accounts receivable is generally
diversified due to the number of entities comprising
Coachs customer base and their dispersion across many
geographical regions. The Companys allowance for bad
debts, returns and allowances was $4,124 at July 2, 2005
and $5,456 at July 3, 2004. The Company believes no
significant concentration of credit risk exists with respect to
these cash investments and accounts receivable.
Inventories consist primarily of finished goods.
U.S. inventories are valued at the lower of cost
(determined by the first-in, first-out method
(FIFO)) or market. Inventories in Japan are valued
at the lower of cost (determined by the last-in, first-out
method (LIFO)) or market. At the end of fiscal 2005
and fiscal 2004, inventories recorded at LIFO were $17 lower and
$2,409 higher, respectively, than if they were valued at FIFO.
Inventories valued under LIFO amounted to $40,861 and $34,508 in
fiscal 2005 and 2004, respectively. Inventory costs include
material, conversion costs, freight and duties.
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line
basis over the estimated useful lives of the assets. Machinery
and equipment are depreciated over lives of five to seven years
and furniture and fixtures are depreciated over lives of three
to five years. Leasehold improvements are amortized over the
shorter of their estimated useful lives or the related lease
terms. Maintenance and repair costs are charged to earnings as
incurred while expenditures for major renewals and improvements
are capitalized. Upon the disposition of property and equipment,
the cost and related accumulated depreciation are removed from
the accounts.
The Company leases retail stores and office space under
operating leases. The majority of the Companys lease
agreements provide for tenant improvement allowances, rent
escalation clauses and/or contingent rent provisions. In fiscal
2005, the Company conformed its accounting for operating leases
and leasehold improvements to Statement of Financial Accounting
Standards (SFAS) No. 13 and its related
interpretations as clarified by the Office of the Chief
Accountant of the Securities and Exchange Commission to the
American Institute of Certified Public Accountants on
February 7, 2005.
Tenant improvement allowances are recorded as a deferred lease
credit on the balance sheet and amortized over the lease term,
which is consistent with the amortization period for the
constructed assets. Historically, the consolidated balance
sheets reflected these allowances as a reduction of capital
expenditures and the carrying value of fixed assets and the
consolidated statements of cash flows reflected tenant
improvement allowances as a reduction of capital expenditures
within investing activities. Since the impact of this change in
accounting was not material to any previously reported fiscal
year, the cumulative effect was recorded in the third quarter of
fiscal 2005.
In addition to the above, the Company recorded a cumulative,
noncash charge in the third quarter of fiscal 2005 to reflect
the impact of recording rent expense prior to the store opening
(during the construction buildout period). Previously, the
Company recognized the straight-line rent expense for leases
beginning on
44
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
the earlier of the store opening date or lease commencement
date, which generally had the effect of excluding the buildout
period of its stores from the calculation of the period over
which it expensed rent. The Company now records rent expense
when it takes possession of a store to begin its buildout, which
generally occurs before the stated commencement of the lease
term and is approximately 60 to 90 days prior to the
opening of the store. The adjustment resulted in a cumulative,
noncash charge to rent expense of approximately $4,800 during
fiscal 2005, of which approximately $4,300 related to prior
periods.
|
|
|
Goodwill and Other Intangible Assets |
The Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, effective with the beginning of
fiscal 2002. In accordance with SFAS No. 142, the
Companys goodwill account is no longer amortized but
rather is evaluated for impairment annually or more frequently
if events or changes in circumstances indicate that the asset
might be impaired. Based on this annual evaluation, the Company
has concluded that there is no impairment of its goodwill or
indefinite life intangible assets.
|
|
|
Valuation of Long-Lived Assets |
In accordance with SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which the
Company adopted effective with the beginning of fiscal 2002, the
Company assesses the carrying value of its long-lived assets for
possible impairment based on a review of forecasted operating
cash flows and the profitability of the related business. The
Company did not record any impairment losses in fiscal 2005,
fiscal 2004 or fiscal 2003.
|
|
|
Minority Interest in Subsidiary |
Minority interest in the statements of income represents
Sumitomo Corporations share of the earnings in Coach
Japan. The minority interest in the consolidated balance sheets
as of July 3, 2004 reflects the original investment by
Sumitomo in that consolidated subsidiary, along with its
proportional share of the cumulative income, net of tax. The
Company acquired Sumitomos share of the equity in Coach
Japan, Inc. on July 1, 2005.
Sales are recognized at the point of sale, which occurs when
merchandise is sold in an over-the-counter consumer transaction
or, for the wholesale, Internet and catalog channels, upon
shipment of merchandise, when title passes to the customer.
Allowances for estimated uncollectible accounts, discounts and
returns are provided when sales are recorded. Royalty revenues
are earned through license agreements with manufacturers of
other consumer products that incorporate the Coach brand.
Revenue earned under these contracts is recognized based upon
reported sales from the licensee.
Advertising costs, which include media and production, totaled
$28,112, $21,574 and $19,885 in fiscal years 2005, 2004 and
2003, respectively, and are included in selling, general and
administrative expenses. Advertising costs are expensed when the
advertising first appears.
Shipping and handling costs incurred were $16,188, $13,080 and
$11,290 in fiscal years 2005, 2004 and 2003, respectively, and
are included in selling, general and administrative expenses.
45
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Under SFAS No. 109, a deferred tax liability or asset
is recognized for the estimated future tax consequences of
temporary differences between the carrying amounts of assets and
liabilities in the financial statements and their respective tax
bases. As of the fourth quarter of fiscal 2005, the Company
intends to permanently reinvest the controlled foreign
corporations undistributed earnings outside the United
States. As permitted in the Accounting Principles Board
(APB) Opinion No. 23, Accounting for
Income Taxes Special Areas, the Company does
not provide U.S. income taxes on these earnings.
The Companys stock-based compensation plans and the
employee stock purchase plan, as more fully described in
Note 8, Stock-Based Compensation, are accounted
for in accordance with APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related
Interpretations. Accordingly, no compensation cost is recognized
for stock options and replacement stock options issued under
stock-based compensation plans or for shares purchased under the
employee stock purchase plan. The compensation cost that has
been charged against income, reflecting amortization of
restricted stock units, was $6,633, $4,410 and $1,568 in fiscal
2005, 2004 and 2003, respectively. The following illustrates the
effect on net income and earnings per share as if the fair value
based method of accounting, defined in SFAS No. 123,
Accounting for Stock-Based Compensation, had been
applied:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net income, as reported
|
|
$ |
388,652 |
|
|
$ |
261,748 |
|
|
$ |
146,628 |
|
Deduct:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax
effects
|
|
|
(30,040 |
) |
|
|
(23,799 |
) |
|
|
(15,947 |
) |
|
|
|
|
|
|
|
|
|
|
Proforma net income
|
|
$ |
358,612 |
|
|
$ |
237,949 |
|
|
$ |
130,681 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$ |
1.03 |
|
|
$ |
0.70 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
Basic proforma
|
|
$ |
0.95 |
|
|
$ |
0.64 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted as reported
|
|
$ |
1.00 |
|
|
$ |
0.68 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted proforma
|
|
$ |
0.92 |
|
|
$ |
0.62 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Financial Instruments |
The fair value of the revolving credit facility at July 2,
2005 and July 3, 2004 approximated its carrying value due
to its floating interest rates. The Company has evaluated its
Industrial Revenue Bond and believes, based on the interest
rate, related term and maturity, that the fair value of such
instrument approximates its carrying amount. As of July 2,
2005 and July 3, 2004, the carrying values of cash and cash
equivalents, investments, trade accounts receivable, accounts
payable and accrued liabilities approximated their values due to
the short-term maturities of these accounts. See Note 7,
Investments, for the fair values of the
Companys investments as of July 2, 2005.
46
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
Coach, through Coach Japan, enters into foreign currency forward
contracts that hedge certain U.S. dollar denominated
inventory risk, that have been designated for hedge accounting.
The fair value of these contracts is recognized in other
comprehensive income. The fair value of the foreign currency
derivative is based on its market value as determined by an
independent party. However, considerable judgment is required in
developing estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts
that Coach could settle in a current market exchange. The use of
different market assumptions or methodologies could affect the
estimated fair value.
The functional currency of the Companys foreign operations
is the applicable local currency. Assets and liabilities are
translated into U.S. dollars using the current exchange
rates in effect at the balance sheet date, while revenues and
expenses are translated at the weighted-average exchange rates
for the period. The resulting translation adjustments are
recorded as a component of accumulated other comprehensive
income (loss) within stockholders equity. Translation
adjustment losses in fiscal 2005 were $2,331 compared to
translation adjustment gains in fiscal 2004 of $2,892.
Translation adjustment losses in fiscal 2003 were $348.
Basic net income per share was calculated by dividing net income
by the weighted-average number of shares outstanding during the
period. Diluted net income per share was calculated similarly
but includes potential dilution from the exercise of stock
options and stock awards.
In May 2002, Coachs Board of Directors authorized a
two-for-one split of the Companys stock, to be effected in
the form of a special dividend of one share of the
Companys common stock for each share outstanding. The
additional shares issued as a result of the stock split were
distributed on July 3, 2002 to stockholders of record on
June 19, 2002.
In August 2003, Coachs Board of Directors authorized a
two-for-one split of the Companys common stock, to be
effected in the form of a special dividend of one share of the
Companys common stock for each share outstanding. The
additional shares issued as a result of the stock split were
distributed on October 1, 2003 to stockholders of record on
September 17, 2003.
In January 2005, Coachs Board of Directors authorized a
two-for-one stock split of the Companys common stock, to
be effected in the form of a special dividend of one share of
the Companys common stock for each share outstanding. The
additional shares issued as a result of the stock split were
distributed on April 4, 2005 to stockholders of record on
March 21, 2005.
The effect of these stock splits on the number of shares and
earnings per share was retroactively applied to all periods
presented.
|
|
|
Recent Accounting Pronouncements |
In October 2004, the Emerging Issues Task Force
(EITF) issued its abstract No. 04-1
Accounting for Preexisting Relationships between the
Parties to a Business Combination. EITF 04-1
addresses the appropriate accounting treatment for portions of
the acquisition costs of an entity that may be deemed to apply
to elements of a preexisting business relationship between the
acquiring company and the target company. EITF 04-1 is
effective for combinations consummated after October 2004. The
adoption of EITF 04-1 had no effect on historical financial
statements.
47
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
In November 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 151,
Inventory Costs an amendment of ARB
No. 43, Chapter 4. SFAS 151 is an amendment
of Accounting Research Board Opinion No. 43 and sets
standards for the treatment of abnormal amounts of idle facility
expense, freight, handling costs and spoilage. SFAS 151 is
effective for fiscal years beginning after June 15, 2005.
The Company is currently evaluating the impact of SFAS 151
on the financial statements.
In December 2004, the FASB issued Staff Position No. 109-2,
Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs
Creation Act of 2004
(FSP No. 109-2). FSP No. 109-2
provides guidance under SFAS No. 109, Accounting
for Income Taxes, with respect to recording the potential
impact of the repatriation provisions of the American Jobs
Creation Act of 2004 (the Jobs Act) on
enterprises income tax expense and deferred tax liability.
FSP 109-2 states that an enterprise is allowed time beyond
the financial reporting period of enactment to evaluate the
effect of the Jobs Act on its plan for reinvestment or
repatriation of foreign earnings for purposes of applying
SFAS 109. The Company does not plan to make any dividends
under this provision but is still evaluating the impact of FSP
109-2 on its consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets an amendment
of APB Opinion No. 29, which eliminates certain
narrow differences between APB 29 and international
accounting standards. SFAS 153 is effective for fiscal
periods beginning on or after June 15, 2005. The adoption
of SFAS 153 is not expected to have a material impact on
the Companys consolidated financial statements.
On December 16, 2004, the FASB issued
SFAS No. 123 (revised 2004), Share-Based
Payment, which is a revision of SFAS 123,
Accounting for Stock-Based Compensation.
SFAS 123R supersedes APB 25, Accounting for
Stock Issued to Employees. The pronouncement requires an
entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost will be recognized
over the period during which an employee is required to provide
service in exchange for the award the requisite
service period (typically the vesting period). SFAS 123R is
effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. The
Company is currently evaluating the effect of SFAS 123R on
its financial statements with the intent of implementing this
standard in fiscal 2006.
In March 2005, the SEC issued Staff Accounting Bulletin
(SAB) No. 107 Share-Based Payment.
SAB 107 expresses views of the SEC staff regarding the
interaction between SFAS 123R and certain SEC rules and
regulations and provides the staffs views regarding the
valuation of share-based payments arrangements. Subsequently,
the SEC decided to delay the required implementation of
SFAS 123R to fiscal years beginning after June 15,
2005. The Company is currently evaluating the effect of
SFAS 123R and SAB 107 on its financial statements with
the intent of implementing this standard in fiscal 2006.
In March 2005, the FASB issued Statement of Financial Accounting
Standards Interpretation Number 47 (FIN 47),
Accounting for Conditional Asset Retirement
Obligations. FIN 47 provides clarification regarding
the meaning of the term conditional asset retirement
obligation as used in FASB 143, Accounting for Asset
Retirement Obligations. The Company is currently
evaluating the impact of FIN 47 on the financial statements.
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of APB Opinion No. 20 and FASB Statement
No. 3. SFAS 154 provides guidance on the
accounting for and reporting of accounting changes and error
corrections. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after
December 15, 2005. Early adoption is permitted. The Company
will adopt SFAS 154 in the required period.
48
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
In June 2005, the EITF reached consensus on EITF 05-6,
Determining the Amortization Period for Leasehold
Improvements. Under EITF 05-6, leasehold improvements
placed in service significantly after and not contemplated at,
or near, the beginning of the lease term, should be amortized
over the lesser of the useful life of the assets or a term that
includes renewals that are reasonably assured at the date the
leasehold improvements are purchased. EITF 05-6 is
effective for periods beginning after June 29, 2005 and is
not expected to have a material impact on the consolidated
financial statements.
Certain prior year amounts have been reclassified to conform
with the current year presentation.
|
|
2. |
Balance Sheet Components |
The components of certain balance sheet accounts are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
July 2, 2005 | |
|
July 3, 2004 | |
|
|
| |
|
| |
Property and Equipment
|
|
|
|
|
|
|
|
|
|
Machinery and equipment
|
|
$ |
7,618 |
|
|
$ |
8,346 |
|
|
Furniture and fixtures
|
|
|
148,252 |
|
|
|
140,005 |
|
|
Leasehold improvements
|
|
|
243,784 |
|
|
|
212,000 |
|
|
Construction in progress
|
|
|
21,428 |
|
|
|
11,522 |
|
|
Less: accumulated depreciation
|
|
|
(217,220 |
) |
|
|
(207,582 |
) |
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$ |
203,862 |
|
|
$ |
164,291 |
|
|
|
|
|
|
|
|
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
Income and other taxes
|
|
$ |
49,180 |
|
|
$ |
16,699 |
|
|
Payroll and employee benefits
|
|
|
65,653 |
|
|
|
54,291 |
|
|
Operating expenses
|
|
|
70,669 |
|
|
|
52,657 |
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$ |
185,502 |
|
|
$ |
123,647 |
|
|
|
|
|
|
|
|
49
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The provisions for income taxes computed by applying the
U.S. statutory rate to income before taxes as reconciled to
the actual provisions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, 2005 | |
|
July 3, 2004 | |
|
June 28, 2003 | |
|
|
| |
|
| |
|
| |
|
|
Amount | |
|
Percentage | |
|
Amount | |
|
Percentage | |
|
Amount | |
|
Percentage | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Income (loss) before provision for income taxes and minority
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$ |
584,695 |
|
|
|
91.7 |
% |
|
$ |
388,862 |
|
|
|
86.9 |
% |
|
$ |
224,380 |
|
|
|
91.7 |
% |
|
Foreign
|
|
|
52,875 |
|
|
|
8.3 |
|
|
|
58,795 |
|
|
|
13.1 |
|
|
|
20,441 |
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income before provision for income taxes and minority
interest
|
|
$ |
637,570 |
|
|
|
100.0 |
% |
|
$ |
447,657 |
|
|
|
100.0 |
% |
|
$ |
244,821 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense at U.S. statutory rate
|
|
$ |
223,150 |
|
|
|
35.0 |
% |
|
$ |
156,680 |
|
|
|
35.0 |
% |
|
$ |
85,687 |
|
|
|
35.0 |
% |
State taxes, net of federal benefit
|
|
|
33,279 |
|
|
|
5.2 |
|
|
|
16,179 |
|
|
|
3.6 |
|
|
|
10,358 |
|
|
|
4.2 |
|
Reversal of deferred U.S. taxes on foreign earnings
|
|
|
(16,247 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nontaxable foreign sourced income
|
|
|
(4,458 |
) |
|
|
(0.7 |
) |
|
|
(5,182 |
) |
|
|
(1.2 |
) |
|
|
(2,069 |
) |
|
|
(0.8 |
) |
Other, net
|
|
|
(447 |
) |
|
|
(0.1 |
) |
|
|
189 |
|
|
|
0.0 |
|
|
|
(3,391 |
) |
|
|
(1.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes at effective worldwide rates
|
|
$ |
235,277 |
|
|
|
36.9 |
% |
|
$ |
167,866 |
|
|
|
37.5 |
% |
|
$ |
90,585 |
|
|
|
37.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current and deferred tax provisions (benefits) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, 2005 | |
|
July 3, 2004 | |
|
June 28, 2003 | |
|
|
| |
|
| |
|
| |
|
|
Current | |
|
Deferred | |
|
Current | |
|
Deferred | |
|
Current | |
|
Deferred | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Federal
|
|
$ |
184,318 |
|
|
$ |
(29,744 |
) |
|
$ |
128,449 |
|
|
$ |
(7,314 |
) |
|
$ |
67,432 |
|
|
$ |
1,728 |
|
Puerto Rico
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 |
|
|
|
(1,182 |
) |
Foreign
|
|
|
28,228 |
|
|
|
1,276 |
|
|
|
2,302 |
|
|
|
19,538 |
|
|
|
402 |
|
|
|
6,239 |
|
State
|
|
|
60,849 |
|
|
|
(9,650 |
) |
|
|
25,468 |
|
|
|
(577 |
) |
|
|
13,942 |
|
|
|
1,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current and deferred tax provisions (benefits)
|
|
$ |
273,395 |
|
|
$ |
(38,118 |
) |
|
$ |
156,219 |
|
|
$ |
11,647 |
|
|
$ |
81,807 |
|
|
$ |
8,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The following are the components of the deferred tax provisions
(benefits) occurring as a result of transactions being
reported in different years for financial and tax reporting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Deferred tax provisions (benefits)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$ |
(9,546 |
) |
|
$ |
(3 |
) |
|
$ |
2,269 |
|
|
Employee benefits
|
|
|
(2,945 |
) |
|
|
(3,267 |
) |
|
|
1,048 |
|
|
Advertising accruals
|
|
|
2 |
|
|
|
(280 |
) |
|
|
348 |
|
|
Nondeductible reserves
|
|
|
(6,681 |
) |
|
|
(5,228 |
) |
|
|
(2,025 |
) |
|
Earnings of foreign subsidiaries
|
|
|
(9,226 |
) |
|
|
23,920 |
|
|
|
9,296 |
|
|
Other, net
|
|
|
(9,722 |
) |
|
|
(3,495 |
) |
|
|
(2,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax provisions (benefits)
|
|
$ |
(38,118 |
) |
|
$ |
11,647 |
|
|
$ |
8,778 |
|
|
|
|
|
|
|
|
|
|
|
The deferred tax assets and liabilities at the respective
year-ends were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
Reserves not deductible until paid
|
|
$ |
45,978 |
|
|
$ |
31,060 |
|
|
Pension and other employee benefits
|
|
|
11,289 |
|
|
|
7,041 |
|
|
Property, plant and equipment
|
|
|
21,456 |
|
|
|
11,499 |
|
|
Other
|
|
|
3,617 |
|
|
|
5,212 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$ |
82,340 |
|
|
$ |
54,812 |
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
Earnings of foreign subsidiaries
|
|
$ |
|
|
|
$ |
29,578 |
|
|
Equity adjustments
|
|
|
2,644 |
|
|
|
|
|
|
Other
|
|
|
4,719 |
|
|
|
6,504 |
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
$ |
7,363 |
|
|
$ |
36,082 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$ |
74,977 |
|
|
$ |
18,730 |
|
|
|
|
|
|
|
|
The Company has received tax benefit from the exercise of stock
options. This benefit is reflected as a credit to
stockholders equity and not reflected in the provision for
income taxes. The amount of this benefit was $78,480, $106,458
and $41,503 in fiscal 2005, 2004 and 2003, respectively.
On July 1, 2005, the Company acquired the minority interest
that it had not previously owned in Coach Japan, Inc., becoming
the 100% owner of the Japanese operation. The Company currently
does not intend to distribute to the U.S. the earnings of
the Japanese company, but will reinvest such earnings offshore.
As a result, the excess provision for the tax that would have
been due upon the distribution of the Japanese companys
earnings accumulated through July 2, 2005 was reversed. The
impact of this reversal on the current year provision for income
taxes was a reduction of $16,247.
The American Jobs Creation Act of 2004 was signed into law on
October 22, 2004. The Act included a special one-time 85%
dividends received deduction (the Repatriation
Provision) on the repatriation of
51
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
certain foreign earnings to a U.S. taxpayer provided that
specified conditions and restrictions are satisfied. As Coach
does not intend to repatriate the foreign earnings, the Company
expects that the Repatriation Provision will have no effect on
its financial statements.
Significant judgment is required in determining the worldwide
provision for income taxes, and there are many transactions for
which the ultimate tax outcome is uncertain. It is the
Companys policy to establish provisions for taxes that may
become payable in future years as a result of an examination by
tax authorities. The Company establishes the provisions based
upon managements assessment of exposure associated with
permanent tax differences and tax credits. The provisions are
analyzed periodically and adjustments are made as events occur
that warrant adjustments to those provisions.
|
|
|
Revolving Credit Facilities |
On October 16, 2003, Coach, certain lenders and the Bank of
America, N.A. (Bank of America), as primary lender
and administrative agent, renewed the $100,000 senior unsecured
revolving credit facility (the Bank of America
facility), extending the facility expiration to
October 16, 2006. At Coachs request, the Bank of
America facility can be expanded to $125,000. On June 23,
2005, this facility was extended for one additional year, to
October 16, 2007. This facility is available for seasonal
working capital requirements or general corporate purposes and
may be prepaid without penalty or premium.
During fiscal 2005 and 2004, there were no borrowings under the
Bank of America facility. As of July 2, 2005, there were no
outstanding borrowings under the Bank of America facility.
Coach pays a commitment fee of 10 to 25 basis points based
on any unused amounts of the Bank of America facility. The
initial commitment fee was 15 basis points. At July 2,
2005, the commitment fee was 12.5 basis points. The initial
LIBOR margin under the Bank of America facility was
62.5 basis points. At July 2, 2005, the LIBOR margin
was 55 basis points, reflecting an improvement in our
fixed-charge coverage ratio.
The Bank of America facility prohibits Coach from paying
dividends while the credit facility is in place, with certain
exceptions. Any future determination to pay cash dividends will
be at the discretion of Coachs Board of Directors and will
be dependent upon Coachs financial condition, operating
results, capital requirements and such other factors as the
Board of Directors deems relevant.
The Bank of America facility contains various covenants and
customary events of default. The Company has been in compliance
with all covenants since its inception.
To provide funding for working capital and general corporate
purposes, Coach Japan entered into credit facilities with
several Japanese financial institutions. These facilities allow
a maximum borrowing of 8.6 billion yen, or approximately
$77,000, at July 2, 2005. Interest is based on the Tokyo
Interbank rate plus a margin of up to 50 basis points.
These facilities contain various covenants and customary events
of default. Coach Japan has been in compliance with all
covenants since their inception. These facilities include
automatic renewals based on compliance with the covenants.
Coach, Inc. is not a guarantor on any of these facilities.
During fiscal 2005 and 2004, the peak borrowings under the
Japanese credit facilities were $50,461 and $36,084,
respectively. As of July 2, 2005 and July 3, 2004,
outstanding borrowings under the Japanese credit facilities were
$12,292 and $1,699, respectively.
52
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
Coach is party to an Industrial Revenue Bond related to its
Jacksonville, Florida facility. This loan bears interest at
8.77%. Principal and interest payments are made semi annually,
with the final payment due in 2014. As of July 2, 2005 and
July 3, 2004, the remaining balance on the loan was $3,420
and $3,535, respectively. Future principal payments under the
Industrial Revenue Bond are as follows:
|
|
|
|
|
Fiscal Year |
|
Amount | |
|
|
| |
2006
|
|
$ |
150 |
|
2007
|
|
|
170 |
|
2008
|
|
|
235 |
|
2009
|
|
|
285 |
|
2010
|
|
|
335 |
|
Subsequent to 2010
|
|
|
2,245 |
|
|
|
|
|
Total
|
|
$ |
3,420 |
|
|
|
|
|
Coach leases certain office, distribution and retail facilities.
The lease agreements, which expire at various dates through
2019, are subject, in some cases, to renewal options and provide
for the payment of taxes, insurance and maintenance. Certain
leases contain escalation clauses resulting from the
pass-through of increases in operating costs, property taxes and
the effect on costs from changes in consumer price indices.
Certain rentals are also contingent upon factors such as sales.
Rent-free periods and scheduled rent increases are recorded as
components of rent expense on a straight-line basis over the
related terms of such leases. Contingent rentals are recognized
when the achievement of the target (i.e., sales levels), which
triggers the related payment, is considered probable. Rent
expense for the Companys operating leases consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Minimum rentals
|
|
$ |
73,283 |
|
|
$ |
55,352 |
|
|
$ |
47,098 |
|
Contingent rentals
|
|
|
12,101 |
|
|
|
7,555 |
|
|
|
4,885 |
|
|
|
|
|
|
|
|
|
|
|
Total rent expense
|
|
$ |
85,384 |
|
|
$ |
62,907 |
|
|
$ |
51,983 |
|
|
|
|
|
|
|
|
|
|
|
Future minimum rental payments under noncancelable operating
leases are as follows:
|
|
|
|
|
Fiscal Year |
|
Amount | |
|
|
| |
2006
|
|
$ |
62,597 |
|
2007
|
|
|
57,900 |
|
2008
|
|
|
57,173 |
|
2009
|
|
|
53,846 |
|
2010
|
|
|
48,538 |
|
Subsequent to 2010
|
|
|
175,000 |
|
|
|
|
|
Total minimum future rental payments
|
|
$ |
455,054 |
|
|
|
|
|
53
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
Certain operating leases provide for renewal for periods of
three to five years at their fair rental value at the time of
renewal. In the normal course of business, operating leases are
generally renewed or replaced by new leases.
|
|
6. |
Commitments and Contingencies |
At July 2, 2005 and July 3, 2004, the Company had
letters of credit outstanding totaling $68,849 and $50,473,
respectively. Of these amounts, $15,425 and $16,764,
respectively, related to the letter of credit obtained in
connection with leases transferred to the Company by the Sara
Lee Corporation, for which Sara Lee retains contingent
liability. Coach expects that it will be required to maintain
the letter of credit for at least 10 years. The remaining
letters of credit, which expire at various dates through 2008,
primarily collateralize the Companys obligation to third
parties for the purchase of inventory and lease guarantees.
Coach is a party to employment agreements with certain
executives, which provide for compensation and other benefits.
The agreements also provide for severance payments under certain
circumstances.
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, Coachs
general counsel and management are of the opinion that the final
outcome will not have a material effect on Coachs cash
flow, results of operations or financial position.
The Companys investments consist of U.S. government
and agency debt securities as well as municipal government and
corporate debt securities. As the Company has both the ability
and the intent to hold these securities until maturity, all
investments are classified as held to maturity and stated at
amortized cost. The following table shows the amortized cost,
fair value, and gross unrealized gains and losses of the
Companys investments at July 2, 2005 and July 3,
2004.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
|
|
July 2, | |
|
|
|
July 3, | |
|
|
|
|
Amortized | |
|
2005 | |
|
Unrealized | |
|
Amortized | |
|
2004 | |
|
Unrealized | |
|
|
Cost | |
|
Fair Value | |
|
Loss | |
|
Cost | |
|
Fair Value | |
|
Loss | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$ |
55,000 |
|
|
$ |
54,861 |
|
|
$ |
(139 |
) |
|
$ |
50,000 |
|
|
$ |
49,930 |
|
|
$ |
(70 |
) |
|
Commercial paper
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,260 |
|
|
|
74,187 |
|
|
$ |
(73 |
) |
|
Corporate debt securities
|
|
|
173,485 |
|
|
|
172,467 |
|
|
|
(1,018 |
) |
|
|
22,500 |
|
|
|
22,500 |
|
|
$ |
|
|
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,963 |
|
|
|
24,860 |
|
|
|
(103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
$ |
228,485 |
|
|
$ |
227,328 |
|
|
$ |
(1,157 |
) |
|
$ |
171,723 |
|
|
$ |
171,477 |
|
|
$ |
(246 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
|
$ |
49,945 |
|
|
$ |
49,405 |
|
|
$ |
(540 |
) |
|
$ |
130,000 |
|
|
$ |
129,975 |
|
|
$ |
(25 |
) |
|
Corporate debt securities
|
|
|
72,120 |
|
|
|
71,216 |
|
|
|
(904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
$ |
122,065 |
|
|
$ |
120,621 |
|
|
$ |
(1,444 |
) |
|
$ |
130,000 |
|
|
$ |
129,975 |
|
|
$ |
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities with maturity dates within one year are classified as
short-term investments. Securities with maturity dates greater
than one year are classified as long-term investments. At
July 2, 2005, the maturity dates of long-term investments,
based on current contractual maturities, extend to February
2007. Actual
54
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
maturities could differ from contractual maturities, as some
borrowers have the right to call certain obligations.
The difference between amortized cost and fair value is the
result of unrealized gains and losses, caused primarily by
interest rate fluctuations. The securities to which the
unrealized losses relate have been in a continuous loss position
for less than twelve months. The Company does not consider these
investments to be other-than-temporarily impaired at
July 2, 2005, as the Company has both the ability and the
intent to hold these investments until a recovery of fair value,
which may be at maturity.
|
|
8. |
Stock-Based Compensation |
Coach Stock-Based Plans. Coach maintains the 2000
Stock Incentive Plan, the 2000 Non-Employee Director Stock Plan
and the 2004 Stock Incentive Plan to award stock options and
other forms of equity compensation to certain members of Coach
management and the outside members of its Board of Directors.
The 2000 Stock Incentive Plan and the 2000 Non-Employee Director
Stock Plan were approved by Coachs stockholders during
fiscal 2002. The 2004 Stock Incentive Plan was approved by
Coachs stockholders during fiscal 2005. The exercise price
of each stock option equals 100% of the market price of
Coachs stock on the date of grant and generally has a
maximum term of 10 years. Options generally vest ratably
over three years.
For options granted under Coachs stock option plans prior
to July 1, 2003, an active employee can receive a
replacement stock option equal to the number of shares
surrendered upon a stock-for-stock exercise. The exercise price
of the replacement option is 100% of the market value at the
date of exercise of the original option and will remain
exercisable for the remaining term of the original option.
Replacement stock options generally vest six months from the
grant date. Replacement stock options of 7,029, 11,264, and
7,360 were granted in fiscal 2005, 2004 and 2003, respectively.
A summary of options held by Coach employees under the Coach
option plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
Coach | |
|
Average | |
|
|
|
Average | |
|
|
Outstanding | |
|
Exercise | |
|
Exercisable | |
|
Exercise | |
|
|
Options | |
|
Price | |
|
Shares | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
Outstanding at June 29, 2002
|
|
|
40,040 |
|
|
$ |
3.49 |
|
|
|
6,368 |
|
|
$ |
3.41 |
|
|
Granted
|
|
|
19,040 |
|
|
|
7.67 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,352 |
) |
|
|
3.76 |
|
|
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(3,668 |
) |
|
|
3.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 28, 2003
|
|
|
35,060 |
|
|
$ |
5.56 |
|
|
|
5,748 |
|
|
$ |
5.43 |
|
|
Granted
|
|
|
22,748 |
|
|
|
16.55 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(24,120 |
) |
|
|
8.12 |
|
|
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(1,004 |
) |
|
|
6.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 3, 2004
|
|
|
32,684 |
|
|
$ |
11.28 |
|
|
|
5,278 |
|
|
$ |
6.52 |
|
|
Granted
|
|
|
14,927 |
|
|
|
23.20 |
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(15,184 |
) |
|
|
12.74 |
|
|
|
|
|
|
|
|
|
|
Canceled/expired
|
|
|
(873 |
) |
|
|
12.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 2, 2005
|
|
|
31,554 |
|
|
$ |
16.17 |
|
|
|
11,178 |
|
|
$ |
16.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The following table summarizes information about stock options
under the Coach option plans at July 2, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding | |
|
Options Exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
Average | |
|
Weighted- | |
|
|
|
Weighted- | |
Range of |
|
Number | |
|
Remaining | |
|
Average | |
|
Number | |
|
Average | |
Exercise |
|
Outstanding at | |
|
Contractual | |
|
Exercise | |
|
Exercisable at | |
|
Exercise | |
Prices |
|
July 2, 2005 | |
|
Life (Years) | |
|
Price | |
|
July 2, 2005 | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
$ 2.00 5.00
|
|
|
2,418 |
|
|
|
5.12 |
|
|
$ |
3.66 |
|
|
|
2,418 |
|
|
$ |
3.66 |
|
$ 5.01 10.00
|
|
|
4,756 |
|
|
|
6.98 |
|
|
|
6.38 |
|
|
|
1,685 |
|
|
|
6.82 |
|
$10.01 20.00
|
|
|
16,108 |
|
|
|
8.47 |
|
|
|
15.52 |
|
|
|
1,727 |
|
|
|
13.72 |
|
$20.01 35.00
|
|
|
8,272 |
|
|
|
5.63 |
|
|
|
26.74 |
|
|
|
5,348 |
|
|
|
26.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,554 |
|
|
|
7.24 |
|
|
$ |
16.17 |
|
|
|
11,178 |
|
|
$ |
16.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each Coach option grant is estimated on the
date of grant using the Black-Scholes option pricing model and
the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected lives (years)
|
|
|
1.4 |
|
|
|
1.6 |
|
|
|
1.5 |
|
Risk-free interest rate
|
|
|
2.6 |
% |
|
|
1.6 |
% |
|
|
1.7 |
% |
Expected volatility
|
|
|
29.2 |
% |
|
|
32.4 |
% |
|
|
35.2 |
% |
Dividend yield
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
The weighted-average fair values of individual options granted
during fiscal 2005, 2004 and 2003 were $3.10, $2.45 and $1.23,
respectively.
Employee Stock Purchase Plan. Under the Employee
Stock Purchase Plan, full-time Coach employees are permitted to
purchase a limited number of Coach common shares at 85% of
market value. Under this plan, Coach sold 159, 200 and
268 shares to employees in fiscal 2005, 2004 and 2003,
respectively. Pro forma compensation expense is calculated for
the fair value of employees purchase rights using the
Black-Scholes model and the following weighted-average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Expected lives (years)
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
Risk-free interest rate
|
|
|
2.8 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
Expected volatility
|
|
|
27.6 |
% |
|
|
28.8 |
% |
|
|
38.3 |
% |
Dividend yield
|
|
|
|
% |
|
|
|
% |
|
|
|
% |
The weighted-average fair value of the purchase rights granted
during fiscal 2005, 2004 and 2003 was $6.24, $4.85 and $2.60,
respectively.
Stock Unit Awards. Restricted stock unit awards of
Coach common stock have been granted to employees as retention
awards. The value of retention awards is determined based upon
the fair value of Coach stock at the grant date. Stock awards
are restricted and subject to forfeiture until the retention
period is completed. The retention period is generally three
years. As of July 2, 2005, retention awards of
1,861 shares were outstanding. This value is initially
recorded as unearned compensation and is charged to earnings over
56
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
the retention period. The amortization expense related to these
awards was $6,633, $4,410 and $1,568 for fiscal 2005, 2004 and
2003, respectively.
Deferred Compensation. Under the Coach, Inc.
Executive Deferred Compensation Plan, executive officers and
certain employees at or above the senior director level may
elect to defer all or a portion of their annual bonus or annual
base salary into the plan. Under the Coach, Inc. Deferred
Compensation Plan for Non-Employee Directors, Coachs
outside directors may similarly defer their directors
fees. Amounts deferred under these plans may, at the
participants election, be either represented by deferred
stock units, which represent the right to receive shares of
Coach common stock on the distribution date elected by the
participant, or placed in an interest-bearing account to be paid
on such distribution date. The amounts accrued under these plans
at July 2, 2005 and July 3, 2004 were $4,777 and
$4,263, respectively, and are included in other noncurrent
liabilities in the consolidated balance sheets.
The following table summarizes share and exercise price
information about Coachs equity compensation plans as of
July 2, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
Number of | |
|
Weighted- | |
|
Securities | |
|
|
Securities to be | |
|
Average Exercise | |
|
Remaining | |
|
|
Issued Upon | |
|
Price of | |
|
Available for | |
|
|
Exercise of | |
|
Outstanding | |
|
Future Issuance | |
|
|
Outstanding | |
|
Options, | |
|
Under Equity | |
|
|
Options, Warrants | |
|
Warrants | |
|
Compensation | |
Plan Category |
|
or Rights | |
|
and Rights | |
|
Plans | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by security holders
|
|
|
33,415 |
|
|
$ |
15.27 |
|
|
|
30,384 |
|
Equity compensation plans not approved by security holders
|
|
|
768 |
|
|
$ |
4.52 |
|
|
|
3,073 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,183 |
|
|
|
|
|
|
|
33,457 |
|
|
|
|
|
|
|
|
|
|
|
Coach maintains the Coach, Inc. Savings and Profit Sharing Plan,
which is a defined contribution plan. Employees who meet certain
eligibility requirements and are not part of a collective
bargaining agreement may participate in this program. The annual
expense incurred by Coach for this defined contribution plan was
$8,621, $7,620 and $5,308 in fiscal 2005, 2004 and 2003,
respectively.
Coach also sponsors a noncontributory defined benefit plan, The
Coach, Inc. Supplemental Pension Plan, for individuals who are
part of collective bargaining arrangements. The plan provides
benefits based on years of service.
57
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The Company uses a March 31 measurement date for its
defined benefit retirement plan. Obligation and funded status
information for the Companys defined benefit retirement
plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$ |
5,260 |
|
|
$ |
5,983 |
|
|
Service cost
|
|
|
14 |
|
|
|
13 |
|
|
Interest cost
|
|
|
308 |
|
|
|
381 |
|
|
Benefits paid
|
|
|
(178 |
) |
|
|
(249 |
) |
|
Actuarial loss
|
|
|
394 |
|
|
|
797 |
|
|
Plan settlements(1)
|
|
|
|
|
|
|
(1,665 |
) |
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$ |
5,798 |
|
|
$ |
5,260 |
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$ |
2,706 |
|
|
$ |
3,863 |
|
|
Actual return on plan assets
|
|
|
34 |
|
|
|
757 |
|
|
Employer contributions
|
|
|
1,290 |
|
|
|
|
|
|
Benefits paid
|
|
|
(178 |
) |
|
|
(249 |
) |
|
Plan settlements(1)
|
|
|
|
|
|
|
(1,665 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$ |
3,852 |
|
|
$ |
2,706 |
|
|
|
|
|
|
|
|
|
|
(1) |
Reflects additional lump sum payments made after the measurement
date and before fiscal year end. |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Funded status
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
$ |
(1,946 |
) |
|
$ |
(2,554 |
) |
|
Unrecognized prior service cost
|
|
|
|
|
|
|
|
|
|
Unrecognized net actuarial loss
|
|
|
2,117 |
|
|
|
1,766 |
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
171 |
|
|
$ |
(788 |
) |
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
$ |
|
|
|
$ |
|
|
|
Accrued benefit liability
|
|
|
(1,946 |
) |
|
|
(2,554 |
) |
|
Accumulated other comprehensive income
|
|
|
2,117 |
|
|
|
1,766 |
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$ |
171 |
|
|
$ |
(788 |
) |
|
|
|
|
|
|
|
58
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The accumulated benefit obligation for the defined benefit
pension plan was $5,798 and $5,260 at July 2, 2005 and
July 3, 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Information for pension plans with an accumulated benefit
obligation in excess of plan assets
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$ |
5,798 |
|
|
$ |
5,260 |
|
|
Accumulated benefit obligation
|
|
|
5,798 |
|
|
|
5,260 |
|
|
Fair value of plan assets
|
|
|
3,852 |
|
|
|
2,706 |
|
Additional Information
|
|
|
|
|
|
|
|
|
|
Increase in minimum liability included in other comprehensive
income
|
|
$ |
350 |
|
|
$ |
(479 |
) |
Weighted-average assumptions used to determine benefit
obligations
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75 |
% |
|
|
6.00 |
% |
|
Rate of compensation increase
|
|
|
N/A |
|
|
|
N/A |
|
Weighted-average assumptions used to determine net periodic
benefit cost
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.00 |
% |
|
|
6.50 |
% |
|
Expected long term return on plan assets
|
|
|
6.75 |
% |
|
|
7.50 |
% |
|
Rate of compensation increase
|
|
|
N/A |
|
|
|
N/A |
|
To develop the expected long-term rate of return on plan assets
assumption, the Company considered the current level of expected
returns on risk-free investments (primarily government bonds),
the historical level of the risk premium associated with the
other asset classes in which the portfolio is invested and the
expectations for future returns of each asset class. The
expected return for each asset class was then weighted based on
the target asset allocation to develop the expected long-term
rate of return on plan assets assumption for the portfolio. This
resulted in the selection of the 6.75% assumption for fiscal
2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
14 |
|
|
$ |
13 |
|
|
$ |
15 |
|
|
Interest cost
|
|
|
308 |
|
|
|
381 |
|
|
|
370 |
|
|
Expected return on plan assets
|
|
|
(181 |
) |
|
|
(281 |
) |
|
|
(381 |
) |
|
Amortization of prior service cost
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
Amortization of net actuarial loss
|
|
|
190 |
|
|
|
246 |
|
|
|
46 |
|
|
Settlement loss
|
|
|
|
|
|
|
559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$ |
331 |
|
|
$ |
918 |
|
|
$ |
51 |
|
|
|
|
|
|
|
|
|
|
|
59
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The Companys pension plan weighted-average asset
allocations, by asset category, as of the measurement dates, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets | |
|
|
| |
|
|
Fiscal 2005 | |
|
Fiscal 2004 | |
|
|
| |
|
| |
Asset Category
|
|
|
|
|
|
|
|
|
Domestic equities
|
|
|
62.4 |
% |
|
|
69.0 |
% |
International equities
|
|
|
4.5 |
|
|
|
4.1 |
|
Fixed income
|
|
|
20.9 |
|
|
|
25.1 |
|
Cash equivalents
|
|
|
12.2 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
The goals of the investment program are to fully fund the
obligation to pay retirement benefits in accordance with the
Coach, Inc. Supplemental Pension Plan and to provide returns
that, along with appropriate funding from Coach, maintain an
asset/liability ratio that is in compliance with all applicable
laws and regulations and assures timely payment of retirement
benefits. The target allocation range of percentages for each
major category of plan assets, on a weighted-average basis, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Low | |
|
Target | |
|
High | |
|
|
| |
|
| |
|
| |
Equity securities
|
|
|
30 |
% |
|
|
45 |
% |
|
|
60 |
% |
Fixed income
|
|
|
25 |
% |
|
|
40 |
% |
|
|
55 |
% |
Cash equivalents
|
|
|
5 |
% |
|
|
15 |
% |
|
|
25 |
% |
The equity securities category includes common stocks, preferred
stocks, and commingled funds of approved securities. The target
allocation of securities is a maximum of 5% of equity assets in
any one individual common or preferred stock and a maximum of
15% in any one mutual fund.
The Company expects to contribute $442 to its defined benefit
pension plan during the year ending July 1, 2006.
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
|
|
|
|
|
Fiscal Year |
|
Pension Benefits | |
|
|
| |
2006
|
|
|
274 |
|
2007
|
|
|
293 |
|
2008
|
|
|
307 |
|
2009
|
|
|
319 |
|
2010
|
|
|
338 |
|
2011 2015
|
|
|
1,956 |
|
The Company operates its business in two reportable segments:
direct-to-consumer and indirect. The Companys reportable
segments represent channels of distribution that offer similar
merchandise, service and marketing strategies. Sales of Coach
products through Company-operated retail and factory stores, the
Internet and the Coach catalog constitute the direct-to-consumer
segment. Indirect refers to sales of Coach products to other
retailers and includes sales through Coach Japan. In deciding
how to allocate resources and assess performance, Coachs
executive officers regularly evaluate the sales and operating
income of these
60
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
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, as well as distribution
and customer service expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to- | |
|
|
|
Corporate | |
|
|
Fiscal 2005 |
|
Consumer | |
|
Indirect | |
|
Unallocated | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
935,461 |
|
|
$ |
774,962 |
|
|
$ |
|
|
|
$ |
1,710,423 |
|
Operating income (loss)
|
|
|
406,122 |
|
|
|
385,674 |
|
|
|
(169,986 |
) |
|
|
621,810 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
16,980 |
|
|
|
16,980 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
1,220 |
|
|
|
1,220 |
|
Income (loss) before provision for income taxes and minority
interest
|
|
|
406,122 |
|
|
|
385,674 |
|
|
|
(154,226 |
) |
|
|
637,570 |
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
235,277 |
|
|
|
235,277 |
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
13,641 |
|
|
|
13,641 |
|
Depreciation and amortization
|
|
|
29,510 |
|
|
|
12,126 |
|
|
|
15,397 |
|
|
|
57,033 |
|
Total assets
|
|
|
242,604 |
|
|
|
273,548 |
|
|
|
830,980 |
|
|
|
1,347,132 |
|
Additions to long-lived assets
|
|
|
47,906 |
|
|
|
27,673 |
|
|
|
19,013 |
|
|
|
94,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to- | |
|
|
|
Corporate | |
|
|
Fiscal 2004 |
|
Consumer | |
|
Indirect | |
|
Unallocated | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
726,457 |
|
|
$ |
594,649 |
|
|
$ |
|
|
|
$ |
1,321,106 |
|
Operating income (loss)
|
|
|
293,626 |
|
|
|
288,648 |
|
|
|
(137,809 |
) |
|
|
444,465 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
4,000 |
|
|
|
4,000 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
808 |
|
|
|
808 |
|
Income (loss) before provision for income taxes and minority
interest
|
|
|
293,626 |
|
|
|
288,648 |
|
|
|
(134,617 |
) |
|
|
447,657 |
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
167,866 |
|
|
|
167,866 |
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
18,043 |
|
|
|
18,043 |
|
Depreciation and amortization
|
|
|
26,621 |
|
|
|
6,940 |
|
|
|
10,949 |
|
|
|
44,510 |
|
Total assets
|
|
|
227,657 |
|
|
|
176,568 |
|
|
|
640,200 |
|
|
|
1,044,425 |
|
Additions to long-lived assets
|
|
|
41,554 |
|
|
|
19,919 |
|
|
|
12,186 |
|
|
|
73,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to- | |
|
|
|
Corporate | |
|
|
Fiscal 2003 |
|
Consumer | |
|
Indirect | |
|
Unallocated | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Net sales
|
|
$ |
559,553 |
|
|
$ |
393,673 |
|
|
$ |
|
|
|
$ |
953,226 |
|
Operating income (loss)
|
|
|
198,247 |
|
|
|
166,604 |
|
|
|
(121,089 |
) |
|
|
243,762 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
1,754 |
|
|
|
1,754 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
695 |
|
|
|
695 |
|
Income (loss) before provision for income taxes and minority
interest
|
|
|
198,247 |
|
|
|
166,604 |
|
|
|
(120,030 |
) |
|
|
244,821 |
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
90,585 |
|
|
|
90,585 |
|
Minority interest, net of tax
|
|
|
|
|
|
|
|
|
|
|
7,608 |
|
|
|
7,608 |
|
Depreciation and amortization
|
|
|
18,603 |
|
|
|
5,327 |
|
|
|
7,420 |
|
|
|
31,350 |
|
Total assets
|
|
|
205,614 |
|
|
|
137,587 |
|
|
|
285,908 |
|
|
|
629,109 |
|
Additions to long-lived assets
|
|
|
37,265 |
|
|
|
16,602 |
|
|
|
7,990 |
|
|
|
61,857 |
|
61
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The following is a summary of the common costs not allocated in
the determination of segment performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, 2005 | |
|
July 3, 2004 | |
|
June 28, 2003 | |
|
|
| |
|
| |
|
| |
Production variances
|
|
$ |
11,028 |
|
|
$ |
12,581 |
|
|
$ |
6,755 |
|
Advertising, marketing and design
|
|
|
(70,234 |
) |
|
|
(56,714 |
) |
|
|
(48,491 |
) |
Administration and information systems
|
|
|
(75,970 |
) |
|
|
(63,521 |
) |
|
|
(51,843 |
) |
Distribution and customer service
|
|
|
(34,810 |
) |
|
|
(30,155 |
) |
|
|
(27,510 |
) |
|
|
|
|
|
|
|
|
|
|
Total corporate unallocated
|
|
$ |
(169,986 |
) |
|
$ |
(137,809 |
) |
|
$ |
(121,089 |
) |
|
|
|
|
|
|
|
|
|
|
Geographic Area Information
Geographic revenue information is based on the location of our
customer. Geographic long-lived asset information is based on
the physical location of the assets at the end of each period.
As of July 2, 2005, Coach operated 193 retail stores and 82
factory stores in North America. Indirectly, through Coach
Japan, Coach operates 103 department store shop-in-shops and
retail and factory store locations in Japan. Coach operates
distribution, product development and quality control locations
in the United States, Italy, Hong Kong, China and South Korea.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other | |
|
|
|
|
United States | |
|
Japan | |
|
International(1) | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
1,242,004 |
|
|
$ |
372,326 |
|
|
$ |
96,093 |
|
|
$ |
1,710,423 |
|
|
Long-lived assets
|
|
|
314,919 |
|
|
|
288,338 |
|
|
|
2,995 |
|
|
|
606,252 |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
982,668 |
|
|
$ |
278,011 |
|
|
$ |
60,427 |
|
|
$ |
1,321,106 |
|
|
Long-lived assets
|
|
|
280,938 |
|
|
|
55,487 |
|
|
|
2,384 |
|
|
|
338,809 |
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
735,890 |
|
|
$ |
177,821 |
|
|
$ |
39,515 |
|
|
$ |
953,226 |
|
|
Long-lived assets
|
|
|
138,708 |
|
|
|
31,966 |
|
|
|
785 |
|
|
|
171,459 |
|
|
|
(1) |
Other International sales reflect shipments to third-party
distributors primarily in East Asia. |
|
|
11. |
Derivative Instruments and Hedging Activities |
Substantially all purchases and sales involving international
parties are denominated in U.S. dollars, the majority of
which are not hedged using any derivative instruments. However,
the Company is exposed to market risk from foreign currency
exchange rate fluctuations with respect to Coach Japan as a
result of its U.S. dollar-denominated inventory purchases.
Coach Japan enters into certain foreign currency derivative
contracts, primarily foreign exchange forward contracts, to
manage these risks. In addition, the Company is exposed to
foreign currency exchange rate fluctuations related to the
euro-denominated expenses of its Italian sourcing office. During
the third quarter of fiscal 2003, the Company began a program to
enter into certain foreign currency derivative contracts,
primarily foreign exchange forward contracts, in order to manage
these fluctuations. However, during the second quarter of fiscal
2004, the Company reassessed this program and determined, based
on current business conditions, that the Company would
discontinue hedging against the euro.
62
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The foreign currency contracts entered into by the Company have
durations no greater than 12 months. The fair values of
open foreign currency derivatives included in accrued
liabilities at July 2, 2005 and July 3, 2004 were $0
and $486, respectively. The fair values of open foreign currency
derivatives included in current assets at July 2, 2005 and
July 3, 2004 were $1,535 and $0, respectively. As of
July 2, 2005, open foreign currency forward contracts
designated as hedges with a notional amount of $46,900 were fair
valued, resulting in an increase to equity as a benefit to other
comprehensive income of $1,229, net of taxes. As of July 3,
2004, open foreign currency forward contracts designated as
hedges with a notional amount of $63,600 were fair valued,
resulting in a reduction to equity as a charge to other
comprehensive income of $460, net of taxes.
Changes in the carrying amounts of net goodwill for the years
ended July 2, 2005 and July 3, 2004 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct-to- | |
|
|
|
|
|
|
Consumer | |
|
Indirect | |
|
Total | |
|
|
| |
|
| |
|
| |
Balance at June 28, 2003
|
|
$ |
3,408 |
|
|
$ |
9,601 |
|
|
$ |
13,009 |
|
Foreign exchange impact
|
|
|
|
|
|
|
596 |
|
|
|
596 |
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2004
|
|
$ |
3,408 |
|
|
$ |
10,197 |
|
|
$ |
13,605 |
|
Acquisition of Coach Japan
|
|
|
|
|
|
|
225,263 |
|
|
|
225,263 |
|
Foreign exchange impact
|
|
|
|
|
|
|
(157 |
) |
|
|
(157 |
) |
|
|
|
|
|
|
|
|
|
|
Balance at July 2, 2005
|
|
$ |
3,408 |
|
|
$ |
235,303 |
|
|
$ |
238,711 |
|
|
|
|
|
|
|
|
|
|
|
On July 1, 2005, Coach completed the purchase of
Sumitomos 50% interest in Coach Japan. See Note 17,
Acquisition of Coach Japan, Inc. for more
information on the acquisition.
|
|
13. |
Business Interruption Insurance |
As a result of the September 11, 2001 attack, the World
Trade Center store was completely destroyed. Losses relating to
the Companys business interruption coverage were filed
with the insurers. Coach has held discussions with its insurance
carriers and expects to fully recover these losses.
During fiscal 2005, 2004 and 2003, Coach received payments of
$2,644, $2,657 and $1,484, respectively, under its business
interruption coverage. These amounts are included as a reduction
to selling, general and administrative expenses.
63
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
The following is a reconciliation of the weighted-average shares
outstanding and calculation of basic and diluted earnings per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
June 28, | |
|
|
2005 | |
|
2004 | |
|
2003 | |
|
|
| |
|
| |
|
| |
Net earnings
|
|
$ |
388,652 |
|
|
$ |
261,748 |
|
|
$ |
146,628 |
|
|
|
|
|
|
|
|
|
|
|
Total basic shares
|
|
|
378,670 |
|
|
|
372,120 |
|
|
|
359,116 |
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee benefit and stock award plans
|
|
|
2,784 |
|
|
|
2,578 |
|
|
|
1,840 |
|
Stock option programs
|
|
|
8,737 |
|
|
|
10,860 |
|
|
|
10,728 |
|
|
|
|
|
|
|
|
|
|
|
Total diluted shares
|
|
|
390,191 |
|
|
|
385,558 |
|
|
|
371,684 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.03 |
|
|
$ |
0.70 |
|
|
$ |
0.41 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
1.00 |
|
|
$ |
0.68 |
|
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15. |
Stock Repurchase Program |
On September 17, 2001, the Coach Board of Directors
authorized the establishment of a common stock repurchase
program. Under this program, up to $80,000 may be utilized to
repurchase common stock through September 2004. On
January 30, 2003, the Coach Board of Directors approved an
additional common stock repurchase program to acquire up to
$100,000 of Coachs outstanding common stock through
January 2006 and extended the duration of Coachs existing
repurchase program through January 2006. On May 11, 2005,
the Coach Board of Directors approved a common stock repurchase
program to acquire up to $250,000 of Coachs outstanding
common stock. Purchases of Coach stock may be made from time to
time, subject to market conditions and at prevailing market
prices, through open market purchases. Repurchased shares will
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 fiscal 2005, 2004 and 2003, the Company repurchased and
retired 11,000, 3,022 and 7,716 shares of common stock at
an average cost of $24.09, $18.18 and $6.48 per share,
respectively. As of July 2, 2005, Coach had approximately
$250,000 remaining in the stock repurchase program.
|
|
16. |
Related-Party Transaction |
On July 26, 2001, Coach made a loan to Reed Krakoff, its
President, Executive Creative Director, in the principal amount
of $2,000. The loan bore interest at a rate of 5.12% per
annum, compounded annually. The loan amount and applicable
accrued interest, less payments received, was recorded as a
component of other noncurrent assets in the accompanying balance
sheets. Included in the loan agreement was a repayment schedule
requiring full repayment on or before July 26, 2006.
On November 7, 2002, Mr. Krakoff paid Coach the first
principal payment of $400 under the loan agreement. On
March 11, 2004, Mr. Krakoff made an accelerated
payment to retire the full outstanding principal and interest
under the loan agreement.
64
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
|
|
17. |
Acquisition of Coach Japan, Inc. |
On July 1, 2005, Coach completed the purchase of
Sumitomos 50% interest in Coach Japan, Inc. for $228,431,
including transaction costs, plus undistributed profits and
paid-in capital of $72,927. Coach Japan was a joint venture
established between Coach and Sumitomo Corporation, to operate
and expand the Coach business in Japan. Coach Japan is accounted
for as a consolidated subsidiary. Coach recorded the 50%
interest in the assets and liabilities of Coach Japan acquired
through this acquisition at their fair values as follows: trade
accounts receivable of $15,369, inventory of $43,089, property
and equipment of $21,848, customer list of $250, goodwill of
$225,263, other assets of $24,969 and liabilities of $30,672.
The results of operations for Coach Japan, Inc. from
July 1, 2005 are included in our consolidated results of
operations for the fiscal year ended July 2, 2005.
The following unaudited pro forma information assumes the Coach
Japan, Inc. acquisition had occurred on July 4, 2004. The
pro forma information, as presented below, is not indicative of
the results that would have been obtained had the transaction
occurred July 4, 2004, nor is it indicative of our future
results. The final purchase price allocation and the resulting
effect on net income may differ significantly from the unaudited
pro forma amounts included herein.
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended | |
|
|
| |
|
|
July 2, | |
|
July 3, | |
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
|
|
(Unaudited) | |
|
(Unaudited) | |
Net revenue
|
|
$ |
1,710,423 |
|
|
$ |
1,321,106 |
|
Net income
|
|
|
402,293 |
|
|
|
279,791 |
|
Net income per share Basic
|
|
|
1.06 |
|
|
|
0.75 |
|
Net income per share Diluted
|
|
|
1.03 |
|
|
|
0.73 |
|
|
|
18. |
Shareholder Rights Plan |
On May 3, 2001, Coach declared a poison pill
dividend distribution of rights to buy additional common stock,
to the holder of each outstanding share of Coachs common
stock.
Subject to limited exceptions, these rights may be exercised if
a person or group intentionally acquires 10% or more of the
Companys common stock or announces a tender offer for 10%
or more of the common stock on terms not approved by the Coach
Board of Directors. In this event, each right would entitle the
holder of each share of Coachs common stock to buy one
additional common share of the Company at an exercise price far
below the then-current market price. Subject to certain
exceptions, Coachs Board of Directors will be entitled to
redeem the rights at $0.001 per right at any time before
the close of business on the tenth day following either the
public announcement that, or the date on which a majority of
Coachs Board of Directors becomes aware that, a person has
acquired 10% or more of the outstanding common stock. As of the
end of fiscal 2005, there were no shareholders whose common
stock holdings exceeded the 10% threshold established by the
rights plan.
On August 22, 2005, Coach, Inc. entered into three-year
extensions to the employment agreements of three key executives:
Lew Frankfort, Chairman and Chief Executive Officer; Reed
Krakoff, President and Executive Creative Director; and Keith
Monda, President and Chief Operating Officer. These amendments
extend the terms of the executives employment agreements
from July 2008 through August 2011.
65
COACH, INC.
Notes to Consolidated Financial
Statements (Continued)
(dollars and shares in thousands, except per share data)
|
|
20. |
Quarterly Financial Data (Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First | |
|
Second | |
|
Third | |
|
Fourth | |
|
Total | |
|
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Quarter | |
|
Fiscal Year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
344,065 |
|
|
$ |
531,759 |
|
|
$ |
415,939 |
|
|
$ |
418,660 |
|
|
$ |
1,710,423 |
|
Gross profit
|
|
|
258,174 |
|
|
|
402,968 |
|
|
|
324,673 |
|
|
|
324,956 |
|
|
|
1,310,771 |
|
Net income
|
|
|
67,725 |
|
|
|
134,123 |
|
|
|
89,239 |
|
|
|
97,565 |
|
|
|
388,652 |
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.18 |
|
|
$ |
0.35 |
|
|
$ |
0.24 |
|
|
$ |
0.26 |
|
|
$ |
1.03 |
|
|
Diluted
|
|
$ |
0.17 |
|
|
$ |
0.34 |
|
|
$ |
0.23 |
|
|
$ |
0.25 |
|
|
$ |
1.00 |
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales(1)
|
|
$ |
258,375 |
|
|
$ |
411,513 |
|
|
$ |
313,073 |
|
|
$ |
338,145 |
|
|
$ |
1,321,106 |
|
Gross profit
|
|
|
187,909 |
|
|
|
305,143 |
|
|
|
237,517 |
|
|
|
259,513 |
|
|
|
990,082 |
|
Net income
|
|
|
42,329 |
|
|
|
95,438 |
|
|
|
58,311 |
|
|
|
65,670 |
|
|
|
261,748 |
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.12 |
|
|
$ |
0.26 |
|
|
$ |
0.16 |
|
|
$ |
0.17 |
|
|
$ |
0.70 |
|
|
Diluted
|
|
$ |
0.11 |
|
|
$ |
0.25 |
|
|
$ |
0.15 |
|
|
$ |
0.17 |
|
|
$ |
0.68 |
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$ |
192,791 |
|
|
$ |
308,523 |
|
|
$ |
220,396 |
|
|
$ |
231,516 |
|
|
$ |
953,226 |
|
Gross profit
|
|
|
131,224 |
|
|
|
216,842 |
|
|
|
159,807 |
|
|
|
169,556 |
|
|
|
677,429 |
|
Net income
|
|
|
22,480 |
|
|
|
62,431 |
|
|
|
31,853 |
|
|
|
29,864 |
|
|
|
146,628 |
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.06 |
|
|
$ |
0.18 |
|
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.41 |
|
|
Diluted
|
|
$ |
0.06 |
|
|
$ |
0.17 |
|
|
$ |
0.09 |
|
|
$ |
0.08 |
|
|
$ |
0.39 |
|
|
|
(1) |
Fiscal 2004 fourth quarter and total fiscal year net sales
include week 53 sales of $19,500 |
The sum of the quarterly earnings per common share may not equal
the full-year amount, since the computations of the
weighted-average number of common-equivalent shares outstanding
for each quarter and the full year are made independently.
66
COACH, INC.
Market and Dividend Information
Coachs common stock is listed on the New York Stock
Exchange and is traded under the symbol COH. The
following table sets forth, for the fiscal periods indicated,
the high and low closing prices per share of Coachs common
stock as reported on the New York Stock Exchange Composite Tape.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended 2005 | |
|
|
| |
|
|
High | |
|
|
|
Low | |
|
|
| |
|
|
|
| |
Quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2004
|
|
$ |
23.03 |
|
|
|
|
|
|
$ |
18.06 |
|
January 1, 2005
|
|
|
28.53 |
|
|
|
|
|
|
|
19.83 |
|
April 2, 2005
|
|
|
29.75 |
|
|
|
|
|
|
|
26.41 |
|
July 2, 2005
|
|
|
33.92 |
|
|
|
|
|
|
|
25.22 |
|
Closing price at July 1, 2005
|
|
|
|
|
|
$ |
33.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended 2004 | |
|
|
| |
|
|
High | |
|
|
|
Low | |
|
|
| |
|
|
|
| |
Quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2003
|
|
$ |
14.82 |
|
|
|
|
|
|
$ |
12.44 |
|
December 27, 2003
|
|
|
19.96 |
|
|
|
|
|
|
|
13.54 |
|
March 27, 2004
|
|
|
21.84 |
|
|
|
|
|
|
|
17.08 |
|
July 3, 2004
|
|
|
23.10 |
|
|
|
|
|
|
|
19.75 |
|
Closing price at July 2, 2004
|
|
|
|
|
|
$ |
23.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended 2003 | |
|
|
| |
|
|
High | |
|
|
|
Low | |
|
|
| |
|
|
|
| |
Quarter ended
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28, 2002
|
|
$ |
7.34 |
|
|
|
|
|
|
$ |
4.53 |
|
December 28, 2002
|
|
|
8.62 |
|
|
|
|
|
|
|
5.90 |
|
March 29, 2003
|
|
|
9.98 |
|
|
|
|
|
|
|
7.29 |
|
June 28, 2003
|
|
|
13.22 |
|
|
|
|
|
|
|
9.27 |
|
Closing price at June 27, 2003
|
|
|
|
|
|
$ |
12.49 |
|
|
|
|
|
Coach has never declared or paid any cash dividends on its
common stock. Coach currently intends to retain future earnings,
if any, for use in its business and is presently not planning to
pay regular cash dividends in its common stock. The Bank of
America facility prohibits Coach from paying dividends while the
credit facility is in place, with certain exceptions. Any future
determination to pay cash dividends will be at the discretion of
Coachs Board of Directors and will be dependent upon
Coachs financial condition, operating results, capital
requirements and such other factors as the Board of Directors
deems relevant.
67
COACH, INC.
Schedule II Valuation and Qualifying
Accounts
For the Fiscal Years Ended July 2, 2005, July 3,
2004 and June 28, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision | |
|
|
|
|
|
|
|
|
Charged | |
|
|
|
|
|
|
Balance at | |
|
to Costs | |
|
Write-offs/ | |
|
Balance | |
|
|
Beginning | |
|
and | |
|
Allowances | |
|
at End of | |
|
|
of Year | |
|
Expenses | |
|
Taken | |
|
Year | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(amounts in thousands) | |
Fiscal 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts
|
|
$ |
1,804 |
|
|
$ |
100 |
|
|
$ |
(239 |
) |
|
$ |
1,665 |
|
Allowance for returns
|
|
|
3,652 |
|
|
|
4,303 |
|
|
|
(5,496 |
) |
|
|
2,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
5,456 |
|
|
$ |
4,403 |
|
|
$ |
(5,735 |
) |
|
$ |
4,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts
|
|
$ |
1,312 |
|
|
$ |
610 |
|
|
$ |
(118 |
) |
|
$ |
1,804 |
|
Allowance for returns
|
|
|
4,783 |
|
|
|
3,292 |
|
|
|
(4,423 |
) |
|
|
3,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
6,095 |
|
|
$ |
3,902 |
|
|
$ |
(4,541 |
) |
|
$ |
5,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for bad debts
|
|
$ |
1,335 |
|
|
$ |
97 |
|
|
$ |
(120 |
) |
|
$ |
1,312 |
|
Allowance for returns
|
|
|
2,841 |
|
|
|
3,561 |
|
|
|
(1,619 |
) |
|
|
4,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
4,176 |
|
|
$ |
3,658 |
|
|
$ |
(1,739 |
) |
|
$ |
6,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
COACH, INC.
EXHIBITS TO FORM 10-K
For the Fiscal Year Ended July 2, 2005
Commission File No. 1-16153
(a) Exhibits (numbered in accordance with
Item 601 of Regulation S-K)
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
3.1 |
|
|
Amended and Restated Bylaws of Coach, Inc., dated May 3,
2001, which is incorporated herein by reference from
Exhibit 3.1 to Coachs Current Report on Form 8-K
filed on May 9, 2001 |
|
|
3.2 |
|
|
Articles Supplementary of Coach, Inc., dated May 3, 2001,
which is incorporated herein by reference from Exhibit 3.2
to Coachs Current Report on Form 8-K filed on
May 9, 2001 |
|
|
3.3 |
|
|
Articles of Amendment of Coach, Inc., dated May 3, 2001,
which is incorporated herein by reference from Exhibit 3.3
to Coachs Current Report on Form 8-K filed on
May 9, 2001 |
|
|
3.4 |
|
|
Articles of Amendment of Coach, Inc., dated May 3, 2002,
which is incorporated by reference from Exhibit 3.4 to
Coachs Annual Report on Form 10-K for the fiscal year
ended June 29, 2002 |
|
|
3.5 |
|
|
Articles of Amendment of Coach, Inc., dated February 1,
2005, which is incorporated by reference from Exhibit 99.1
to Coachs Current Report on Form 8-K filed on
February 2, 2005 |
|
|
4.1 |
|
|
Amended and Restated Rights Agreement, dated as of May 3,
2001, between Coach, Inc. and Mellon Investor Services LLC |
|
|
4.2 |
|
|
Specimen Certificate for Common Stock of Coach, which is
incorporated herein by reference from Exhibit 4.1 to
Coachs Registration Statement on Form S-1
(Registration No. 333-39502) |
|
|
10.1 |
|
|
Revolving Credit Agreement by and between Coach, certain lenders
and Fleet National Bank, which is incorporated by reference from
Exhibit 10.1 to Coachs Annual Report on
Form 10-K for the fiscal year ended July 3, 2004 |
|
|
10.2 |
|
|
Master Separation Agreement between Coach and Sara Lee, which is
incorporated herein by reference from Exhibit 2.1 to
Coachs Registration Statement on Form S-1
(Registration No. 333-39502) |
|
|
10.3 |
|
|
Tax Sharing Agreement between Coach and Sara Lee, which is
incorporated herein by reference from Exhibit 2.2 to
Coachs Registration Statement on Form S-1
(Registration No. 333-39502) |
|
|
10.4 |
|
|
General Assignment and Assumption Agreement between Coach and
Sara Lee, which is incorporated herein by reference from
Exhibit 2.3 to Coachs Registration Statement on
Form S-1 (Registration No. 333-39502) |
|
|
10.5 |
|
|
Employee Matters Agreement between Coach and Sara Lee, which is
incorporated by reference herein from Exhibit 2.4 to
Coachs Form 10-Q for the quarterly period ended
September 30, 2000, filed with the Commission on
November 14, 2000 |
|
|
10.6 |
|
|
Real Estate Matters Agreement between Coach and Sara Lee, which
is incorporated herein by reference from Exhibit 2.5 to
Coachs Registration Statement on Form S-1
(Registration No. 333-39502) |
|
|
10.7 |
|
|
Master Transitional Services Agreement between Coach and Sara
Lee, which is incorporated herein by reference from
Exhibit 2.6 to Coachs Registration Statement on
Form S-1 (Registration No. 333-39502) |
|
|
10.8 |
|
|
Indemnification and Insurance Matters Agreement between Coach
and Sara Lee, which is incorporated herein by reference from
Exhibit 2.7 to Coachs Registration Statement on
Form S-1 (Registration No. 333-39502) |
|
|
10.9 |
|
|
Lease Indemnification and Reimbursement Agreement between Sara
Lee and Coach, which is incorporated herein by reference from
Exhibit 2.10 to Coachs Registration Statement on
Form S-1 (Registration No. 333-39502) |
|
|
10.10 |
|
|
Coach, Inc. 2000 Stock Incentive Plan, which is incorporated by
reference from Exhibit 10.10 to Coachs Annual Report
on Form 10-K for the fiscal year ended June 28, 2003 |
|
|
10.11 |
|
|
Coach, Inc. Executive Deferred Compensation Plan, which is
incorporated by reference from Exhibit 10.11 to
Coachs Annual Report on Form 10-K for the fiscal year
ended June 28, 2003 |
|
|
|
|
|
Exhibit |
|
|
No. |
|
Description |
|
|
|
|
10.12 |
|
|
Coach, Inc. Performance-Based Annual Incentive Plan, which is
incorporated by reference from Appendix C to the
Registrants Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders, filed on October 4, 2001 |
|
|
10.13 |
|
|
Coach, Inc. 2000 Non-Employee Director Stock Plan, which is
incorporated by reference from Exhibit 10.13 to
Coachs Annual Report on Form 10-K for the fiscal year
ended June 28, 2003 |
|
|
10.14 |
|
|
Coach, Inc. Non-Qualified Deferred Compensation Plan for Outside
Directors, which is incorporated by reference from
Exhibit 10.14 to Coachs Annual Report on
Form 10-K for the fiscal year ended June 28, 2003 |
|
|
10.15 |
|
|
Coach, Inc. 2001 Employee Stock Purchase Plan, which is
incorporated by reference from Exhibit 10.15 to
Coachs Annual Report on Form 10-K for the fiscal year
ended June 29, 2002 |
|
|
10.16 |
|
|
Jacksonville, FL Lease Agreement, which is incorporated herein
by reference from Exhibit 10.6 to Coachs Registration
Statement on Form S-1 (Registration No. 333-39502) |
|
|
10.17 |
|
|
New York, NY Lease Agreement, which is incorporated herein by
reference from Exhibit 10.7 to Coachs Registration
Statement on Form S-1 (Registration No. 333-39502) |
|
|
10.18 |
|
|
Coach, Inc. 2004 Stock Incentive Plan, which is incorporated by
reference from Appendix A to the Registrants Definitive
Proxy Statement for the 2004 Annual Meeting of Stockholders,
filed on September 29, 2004 |
|
|
10.19 |
|
|
Stock Purchase Agreement, dated April 25, 2005, among
Coach, Coach Japan Holdings, Inc., Coach Japan, Inc., Coach
Japan Investments, Inc. and Sumitomo Corporation, which is
incorporated by reference from Exhibit 10.1 to Coachs
Quarterly Report on Form 10-Q for the Period Ended
April 2, 2005 |
|
|
10.20 |
|
|
Employment Agreement dated June 1, 2003 between Coach and
Lew Frankfort, which is incorporated by reference from
Exhibit 10.20 to Coachs Annual Report on
Form 10-K for the fiscal year ended June 28, 2003 |
|
|
10.21 |
|
|
Employment Agreement dated June 1, 2003 between Coach and
Reed Krakoff, which is incorporated by reference from
Exhibit 10.21 to Coachs Annual Report on
Form 10-K for the fiscal year ended June 28, 2003 |
|
|
10.22 |
|
|
Employment Agreement dated June 1, 2003 between Coach and
Keith Monda, which is incorporated by reference from
Exhibit 10.22 to Coachs Annual Report on
Form 10-K for the fiscal year ended June 28, 2003 |
|
|
10.23 |
|
|
Amendment to Employment Agreement, dated August 22, 2005,
between Coach and Lew Frankfort |
|
|
10.24 |
|
|
Amendment to Employment Agreement, dated August 22, 2005,
between Coach and Reed Krakoff |
|
|
10.25 |
|
|
Amendment to Employment Agreement, dated August 22, 2005,
between Coach and Keith Monda |
|
|
21.1 |
|
|
List of Subsidiaries of Coach |
|
|
23.1 |
|
|
Consent of Deloitte & Touche LLP |
|
|
31.1 |
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certifications |
|
|
32.1 |
|
|
Section 1350 Certifications |
(b) Reports on Form 8-K
Current Report on Form 8-K, filed with the Commission on
August 4, 2004. This report contained the Companys
preliminary earnings result for the fourth quarter of, and full
year for, fiscal year 2004.
Current Report on Form 8-K, filed with the Commission on
October 13, 2004. This report contained a description of
actions taken by the Company to amend and restate the Rights
Agreement dated as of May 3, 2001 between Coach and Mellon
Investor Services LLC.
Current Report on Form 8-K, filed with the Commission on
October 26, 2004. This report contained the Companys
preliminary earnings result for the first quarter of fiscal year
2005.
Current Report on Form 8-K, filed with the Commission on
January 12, 2005. This report contained the Companys
preliminary sales results for the second quarter and first half
of fiscal year 2005.
Current Report on Form 8-K, filed with the Commission on
January 25, 2005. This report contained the Companys
preliminary earnings results for the second quarter and first
half of fiscal year 2005.
Current Report on Form 8-K, filed with the Commission on
February 25, 2005. This report announced the appointment of
a new member of the Companys board of directors.
Current Report on Form 8-K, filed with the Commission on
April 26, 2005. This report contained the Companys
preliminary earnings results for the third quarter and first
nine months of fiscal year 2005.
Current Report on Form 8-K/ A, filed with the Commission on
May 17, 2005. This report announced the appointment of
Mr. Menezes to the Audit Committee and the Human Resources
and Governance Committee of the Board.
Current Report on Form 8-K, filed with the Commission on
July 7, 2005. This report announced the completion of the
Companys purchase of Sumitomos 50% ownership
interest in Coach Japan, Inc.