UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 1, 2005
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-16153
COACH, INC.
| Maryland | 52-2242751 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
516 West
34th
Street, New York, NY 10001
(Address of principal executive offices); (Zip Code)
(212) 594-1850
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
On February 4, 2005, the Registrant had 191,192,535 outstanding shares of common stock, which is the Registrant’s only class of common stock.
The document contains 33 pages excluding exhibits.
1
COACH, INC.
TABLE OF CONTENTS FORM 10-Q
| Page Number | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 8 | ||||||||
| 19 | ||||||||
| 29 | ||||||||
| 30 | ||||||||
| 31 | ||||||||
| 31 | ||||||||
| 32 | ||||||||
| 33 | ||||||||
| EX-31.1 CERTIFICATIONS | ||||||||
| EX-32.1 CERTIFICATIONS | ||||||||
2
SPECIAL NOTE ON FORWARD-LOOKING INFORMATION
This Form 10-Q contains certain “forward-looking statements”, based on current expectations, that involve risks and uncertainties that could cause our actual results to differ materially from management’s current expectations. These forward-looking statements can be identified by the use of forward-looking terminology such as “may,” “will”, “should,” “expect,” “intend”, “estimate”, “are positioned to”, “continue”, “project”, “guidance”, “forecast”, “anticipated”, or comparable terms. Future results will vary from historical results and historical growth is not indicative of future trends, which will depend upon a number of factors, including but not limited to: (i) the successful implementation of our growth strategies; (ii) the effect of existing and new competition in the marketplace; (iii) our ability to successfully anticipate consumer preferences for accessories and fashion trends; (iv) our ability to control costs; (v) the effect of seasonal and quarterly fluctuations in our sales on our operating results; (vi) our exposure to international risks, including currency fluctuations; (vii) changes in economic or political conditions in the markets where we sell or source our products; (viii) our ability to protect against infringement of our trademarks and other proprietary rights; and such other risk factors as set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended July 3, 2004. Coach, Inc. assumes no obligation to update or revise any such forward-looking statements, which speak only as of their date, even if experience, future events or changes make it clear that any projected financial or operating results will not be realized.
WHERE YOU CAN FIND MORE INFORMATION
Coach’s quarterly financial results and other important information are available by calling the Investor Relations Department at (212) 629-2618.
Coach maintains a website at www.coach.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the SEC.
3
PART I
ITEM 1. Financial Statements
COACH, INC.
| January 1, | July 3, | |||||||
| 2005 | 2004 | |||||||
| (unaudited) | ||||||||
| (amounts in thousands) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 296,728 | $ | 262,720 | ||||
Short-term investments |
229,901 | 171,723 | ||||||
Trade accounts receivable, less allowances of $6,838 and $5,456, respectively |
121,749 | 55,724 | ||||||
Inventories |
190,856 | 161,913 | ||||||
Other current assets |
71,644 | 53,536 | ||||||
Total current assets |
910,878 | 705,616 | ||||||
Property and equipment, net |
171,959 | 148,524 | ||||||
Long-term investments |
275,039 | 130,000 | ||||||
Goodwill |
13,928 | 13,605 | ||||||
Indefinite life intangibles |
9,788 | 9,788 | ||||||
Other noncurrent assets |
25,544 | 21,125 | ||||||
Total assets |
$ | 1,407,136 | $ | 1,028,658 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Accounts payable |
$ | 68,489 | $ | 44,771 | ||||
Accrued liabilities |
218,883 | 135,353 | ||||||
Revolving credit facility |
50,461 | 1,699 | ||||||
Current portion of long-term debt |
150 | 115 | ||||||
Total current liabilities |
337,983 | 181,938 | ||||||
Long-term debt |
3,270 | 3,420 | ||||||
Other liabilities |
28,930 | 20,816 | ||||||
Minority interest, net of tax |
49,491 | 40,198 | ||||||
Total liabilities |
419,674 | 246,372 | ||||||
Commitments and contingencies (Note 8) |
||||||||
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 - 190,992,829 and 189,618,201 shares, respectively |
1,910 | 1,896 | ||||||
Capital in excess of par value |
446,469 | 357,026 | ||||||
Retained earnings |
547,103 | 430,461 | ||||||
Accumulated other comprehensive income |
5,344 | 2,195 | ||||||
Unearned compensation |
(13,364 | ) | (9,292 | ) | ||||
Total stockholders’ equity |
987,462 | 782,286 | ||||||
Total liabilities and stockholders’ equity |
$ | 1,407,136 | $ | 1,028,658 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements
4
COACH, INC.
| Quarter Ended | Six Months Ended | ||||||||||||||||
| January 1, | December 27, | January 1, | December 27, | ||||||||||||||
| 2005 | 2003 | 2005 | 2003 | ||||||||||||||
| (amounts in thousands, except per share data) | |||||||||||||||||
Net sales |
$ | 531,759 | $ | 411,513 | $ | 875,824 | $ | 669,888 | |||||||||
Cost of sales |
128,791 | 106,370 | 214,682 | 176,836 | |||||||||||||
Gross profit |
402,968 | 305,143 | 661,142 | 493,052 | |||||||||||||
Selling, general and
administrative expenses |
179,833 | 144,439 | 326,572 | 260,723 | |||||||||||||
Operating income |
223,135 | 160,704 | 334,570 | 232,329 | |||||||||||||
Interest income, net |
3,469 | 466 | 5,979 | 871 | |||||||||||||
Income before provision for income
taxes and minority interest |
226,604 | 161,170 | 340,549 | 233,200 | |||||||||||||
Provision for income taxes |
86,109 | 60,445 | 129,408 | 87,453 | |||||||||||||
Minority interest, net of tax |
6,372 | 5,287 | 9,293 | 7,980 | |||||||||||||
Net income |
$ | 134,123 | $ | 95,438 | $ | 201,848 | $ | 137,767 | |||||||||
Net income per share |
|||||||||||||||||
Basic |
$ | 0.71 | $ | 0.52 | $ | 1.07 | $ | 0.75 | |||||||||
Diluted |
$ | 0.69 | $ | 0.50 | $ | 1.03 | $ | 0.72 | |||||||||
Shares used in computing net
income per share |
|||||||||||||||||
Basic |
189,677 | 185,231 | 189,433 | 184,418 | |||||||||||||
Diluted |
195,257 | 191,985 | 195,100 | 191,480 | |||||||||||||
Proforma disclosure for the impact of
the two-for-one stock split (See Subsequent
Event, Note 14) |
|||||||||||||||||
Proforma net income per share |
|||||||||||||||||
Basic |
$ | 0.35 | $ | 0.26 | $ | 0.53 | $ | 0.37 | |||||||||
Diluted |
$ | 0.34 | $ | 0.25 | $ | 0.52 | $ | 0.36 | |||||||||
| Proforma shares used in computing net income per share | |||||||||||||||||
Basic |
379,354 | 370,463 | 378,866 | 368,835 | |||||||||||||
Diluted |
390,513 | 383,971 | 390,201 | 382,960 | |||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
5
COACH, INC.
| Accumulated | Shares | ||||||||||||||||||||||||||||||||||||
| Total | Capital in | Other | of | ||||||||||||||||||||||||||||||||||
| Stockholders’ | Preferred | Common | Excess | Retained | Comprehensive | Unearned | Comprehensive | Common | |||||||||||||||||||||||||||||
| Equity | Stock | Stock | of Par | Earnings | Income (loss) | Compensation | Income (loss) | Stock | |||||||||||||||||||||||||||||
Balances at June 28, 2003 |
$ | 426,929 | $ | — | $ | 1,830 | $ | 214,484 | $ | 217,622 | $ | (1,359 | ) | $ | (5,648 | ) | 183,009 | ||||||||||||||||||||
Net income |
261,748 | — | — | — | 261,748 | — | — | 261,748 | |||||||||||||||||||||||||||||
Shares issued for stock options and employee
benefit plans |
34,141 | — | 81 | 34,060 | — | — | — | 8,120 | |||||||||||||||||||||||||||||
Tax benefit from exercise of stock options |
106,458 | — | — | 106,458 | — | — | — | ||||||||||||||||||||||||||||||
Repurchase of common stock |
(54,954 | ) | — | (15 | ) | (6,030 | ) | (48,909 | ) | — | — | (1,511 | ) | ||||||||||||||||||||||||
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 (Unaudited:) |
$ | 782,286 | $ | — | $ | 1,896 | $ | 357,026 | $ | 430,461 | $ | 2,195 | $ | (9,292 | ) | 189,618 | |||||||||||||||||||||
Net income |
201,848 | — | — | — | 201,848 | — | — | 201,848 | |||||||||||||||||||||||||||||
Shares issued for stock options and employee
benefit plans |
37,427 | — | 38 | 37,389 | — | — | — | 3,805 | |||||||||||||||||||||||||||||
Tax benefit from exercise of stock options |
54,793 | — | — | 54,793 | — | — | — | ||||||||||||||||||||||||||||||
Repurchase of common stock |
(94,927 | ) | — | (24 | ) | (9,697 | ) | (85,206 | ) | — | — | (2,430 | ) | ||||||||||||||||||||||||
Grant of restricted stock awards |
— | — | — | 6,958 | — | — | (6,958 | ) | — | ||||||||||||||||||||||||||||
Amortization of restricted stock awards |
2,886 | — | — | — | — | — | 2,886 | — | |||||||||||||||||||||||||||||
Unrealized loss on cash flow hedging
derivatives, net |
(703 | ) | — | — | — | — | (703 | ) | — | (703 | ) | ||||||||||||||||||||||||||
Translation adjustments |
3,852 | — | — | — | — | 3,852 | — | 3,852 | |||||||||||||||||||||||||||||
Comprehensive income |
$ | 204,997 | |||||||||||||||||||||||||||||||||||
Balances at January 1, 2005 (unaudited) |
$ | 987,462 | $ | — | $ | 1,910 | $ | 446,469 | $ | 547,103 | $ | 5,344 | $ | (13,364 | ) | 190,993 | |||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
6
COACH, INC.
| Six Months Ended | ||||||||
| January 1, | December 27, | |||||||
| 2005 | 2003 | |||||||
| (amounts in thousands) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 201,848 | $ | 137,767 | ||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||
Depreciation and amortization |
27,716 | 18,523 | ||||||
Minority Interest |
9,293 | 7,980 | ||||||
Tax benefit from exercise of stock options |
54,793 | 54,852 | ||||||
Increase in deferred tax assets |
(4,465 | ) | (155 | ) | ||||
Increase in deferred tax liability |
6,673 | — | ||||||
Other non cash credits, net |
1,747 | 4,485 | ||||||
Changes in operating assets and liabilities: |
||||||||
Increase in trade accounts receivable |
(66,025 | ) | (58,982 | ) | ||||
Increase in inventories |
(28,943 | ) | (13,419 | ) | ||||
Increase in other assets |
(18,809 | ) | (13,481 | ) | ||||
Increase in other liabilities |
1,441 | 1,702 | ||||||
Increase in accounts payable |
23,718 | 28,539 | ||||||
Increase in accrued liabilities |
83,530 | 34,788 | ||||||
Net cash provided by operating activities |
292,517 | 202,599 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchases of property and equipment |
(46,457 | ) | (30,043 | ) | ||||
Proceeds from dispositions of property and equipment |
18 | 56 | ||||||
Purchases of investments |
(333,217 | ) | — | |||||
Maturity of investments |
130,000 | — | ||||||
Net cash used in investing activities |
(249,656 | ) | (29,987 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Repurchase of common stock |
(94,927 | ) | (54,954 | ) | ||||
Repayment of long-term debt |
(115 | ) | (80 | ) | ||||
Borrowings on revolving credit facility |
344,696 | 133,321 | ||||||
Repayments of revolving credit facility |
(295,934 | ) | (125,360 | ) | ||||
Proceeds from exercise of stock options |
37,427 | 18,060 | ||||||
Net cash used in financing activities |
(8,853 | ) | (29,013 | ) | ||||
Increase in cash and cash equivalents |
34,008 | 143,599 | ||||||
Cash and cash equivalents at beginning of period |
262,720 | 229,176 | ||||||
Cash and cash equivalents at end of period |
$ | 296,728 | $ | 372,775 | ||||
Cash paid for income taxes |
$ | 25,833 | $ | 21,780 | ||||
Cash paid for interest |
$ | 116 | $ | 170 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements
7
COACH, INC.
Notes to Condensed Consolidated Financial Statements
Quarters and Six Months Ended January 1, 2005 and December 27, 2003
(dollars and shares in thousands, except per share data)
(unaudited)
1. Basis of Presentation and Organization
The accompanying unaudited condensed consolidated financial statements include the accounts of Coach, Inc. (“Coach” or the “Company”), all 100% owned subsidiaries and Coach Japan, Inc. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted from this report as is permitted by SEC rules and regulations. However, the Company believes that the disclosures are adequate to make the information pres