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July 11, 2007
Via EDGAR and Federal Express
Mr. William Choi
Branch Chief
Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549-0404
Re: Coach, Inc.: Letter from the Commission dated June 27, 2007
Dear Mr. Choi:
Thank you for your June 27 letter to Coach, Inc. setting forth the
Commission's comments to our Form 10-K for the fiscal year ended July 1, 2006
and our Form 10-Q for the quarter ended March 31, 2007 (File 1-16153). This
letter presents Coach's responses to the Commission's comments. We agree that
the items identified in your comments will assist us in our compliance with the
applicable disclosure requirements and will enhance the overall disclosure in
our filings. To assist you in your review of our responses, we have keyed the
paragraph numbers in our responses to the numbered comments in your comment
letter.
Form 10-K for the Fiscal Year Ended July 1, 2006
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Nature of Operations and Significant Accounting Policies, Page 42
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1. Please tell us whether you have entered into any cooperative
advertising arrangements with other retailers in your Indirect
segment. If so, please describe the arrangements and provide the
amounts for each reporting period. Also indicate the line item of your
statement of income in which the amounts are reported. To the extent
material, please expand your discussion in future filings to provide
these disclosures. Refer to EITF 01-9.
Securities and Exchange Commission
July 11, 2007
The Company enters into cooperative advertising arrangements with other
retailers in our Indirect segment. The Company recorded $1.3 million, $0.9
million and $1.1 million in fiscal 2006, fiscal 2005 and fiscal 2004,
respectively, in selling, general and administrative expenses, relating to these
advertising arrangements.
Cooperative advertising represents consideration provided to customers for
the advertising and promoting of the Company's products. The cooperative
advertising arrangements specify the criteria that must be met, including the
product to be advertised and placement of the Coach product within the
advertisement. In addition, the Company approves all advertisements before they
are distributed. Paragraph 9 of EITF 01-9 in part indicates that cooperative
advertising expenses should be classified as a cost incurred if (a) the vendor
receives an identifiable benefit in exchange for the consideration that is
sufficiently separable from the recipient's purchase of the vendor's products
and (b) the vendor can reasonably estimate the fair value of the identifiable
benefit. The Company receives an identifiable benefit from participating in
customer's advertising campaigns. As the Company purchases these advertisements
in a transaction separate from the sale of the product and the fair value of the
benefit can be reasonably estimated, the Company classifies the cooperative
advertising expenses as selling, general and administrative expenses as we
concluded that the expenses incurred were less than or equal to the fair value
of the benefit received.
The Company believes cooperative advertising expenses are immaterial and
currently does not plan to expand the discussion of cooperative advertising in
future filings. The Company will monitor cooperating advertising expenses, and
include the appropriate disclosures in future filings if the amount becomes
material.
Note 15. Acquisition of Coach Japan, Inc.
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2. We note that the purchase price allocation was largely to goodwill.
Tell us the deliberative process that you went through in determining
the purchase price allocation. Specifically address why your
allocation did not result in assigned fair values for tradenames or
trademarks. Also tell us and disclose the business rationale that led
you to pay such a premium over the fair value of the net assets
acquired.
Coach Japan, Inc. ("Coach Japan") was a joint venture established between
the Company and Sumitomo Corporation, to operate and expand the Coach business
in Japan. The joint venture was formed in 2001. As noted in our Form 10-K for
the fiscal year ended July 2, 2005, the Company completed the purchase of
Sumitomo's 50% interest in Coach Japan for $228.4 million, including transaction
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Securities and Exchange Commission
July 11, 2007
costs, plus undistributed profits and paid-in-capital of $72.9 million. The
acquisition was completed on July 1, 2005. Previously, Coach Japan had been
accounted for as a consolidated subsidiary.
The Company determined the fair values of the net assets acquired, with the
assistance of a global, independent valuation specialist. Specifically, we
identified all assets acquired and liabilities assumed, estimated and evaluated
the fair values of those assets and liabilities as of the acquisition date,
including intangible assets that had not yet been recorded in the financial
statements of the entity, and obtained independent appraisals to aid in the
estimation process. This process resulted in a "step up" of certain previously
existing balance sheet account balances and an allocation of a portion of the
purchase price towards newly identified intangible assets. The excess of the
purchase price over the fair value of net assets acquired was recorded as
Goodwill. The valuation analysis utilized an appropriate application of a number
of valuation methodologies - namely, the Income Approach, the Market Approach,
and the Cost Approach. The Company has not ascribed any value to tradenames or
trademarks because Coach Japan did not own any such tradenames or trademarks.
All relevant tradenames and trademarks that were utilized in Japan were already
owned by, and are still owned by, the registrant, Coach Inc.
The purchase price included a premium over the fair value of Coach Japan's
net assets acquired. In determining to pay the premium, the Company considered
numerous factors including, but not limited to:
o the opportunities that would be available once the Company fully
controlled all aspects of the operations of the business (e.g.,
capital expenditure and expansion decisions),
o the additional synergies that would be afforded the Company
(e.g., marketing, merchandising, distribution and sales
activities), and
o the potential for future profits that the Company expected to
realize in a more aggressive and sustainable manner
post-acquisition.
In addition, the Company considered and was comfortable in the fact that
the price-earnings multiple for the 50% of the business to be acquired was
relatively modest as compared to other multiples being paid, at the time, for
similar acquisitions.
Coach Japan is aggressively expanding its market share and raising brand
awareness by opening additional stores, and developing its' Coach Japan website.
The Company firmly believes that the acquisition, and the premium paid to effect
the acquisition, were necessary in order to successfully execute its aggressive
plans in Japan. In connection with future business acquisitions, we will
disclose the business rationale for paying a premium over the fair value of net
assets acquired.
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Securities and Exchange Commission
July 11, 2007
In connection with the above comments and our responses, we would also like
to acknowledge our understanding that the Company is responsible for the
adequacy and accuracy of all disclosures in our filings; that staff comments or
changes to disclosures in response to staff comments do not foreclose the
Commission from taking any action with respect to the filings; and that the
Company may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.
We believe that these responses address your comments. If you have any
further questions, please do not hesitate to call me directly at (212) 629-2240.
Sincerely,
/s/ Michael F. Devine III
Michael F. Devine III
Senior Vice President and Chief
Financial Officer (Chief Accounting
Officer)
cc:
Ms. Regina Balderas, SEC Division of Corporation Finance
Mr. Lew Frankfort, CEO, Coach Inc.
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