CAPRI HOLDINGS LTD, 10-K filed on 5/29/2019
Annual Report
v3.19.1
Document and Entity Information - USD ($)
12 Months Ended
Mar. 30, 2019
May 22, 2019
Sep. 29, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Mar. 30, 2019    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Trading Symbol CPRI    
Entity Registrant Name CAPRI HOLDINGS LTD    
Entity Central Index Key 0001530721    
Current Fiscal Year End Date --03-30    
Entity Well-known Seasoned Issuer Yes    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Large Accelerated Filer    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   150,939,251  
Entity Public Float     $ 9,857,994,898
v3.19.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Mar. 30, 2019
Mar. 31, 2018
Current assets    
Cash and cash equivalents $ 172 $ 163
Receivables, net 383 290
Inventories 953 661
Prepaid expenses and other current assets 221 148
Total current assets 1,729 1,262
Property and equipment, net 615 583
Intangible assets, net 2,293 1,236
Goodwill 1,659 848
Deferred tax assets 112 56
Other assets 242 74
Total assets 6,650 4,059
Current liabilities    
Accounts payable 371 294
Accrued payroll and payroll related expenses 133 93
Accrued income taxes 34 78
Short-term debt 630 200
Accrued expenses and other current liabilities 374 295
Total current liabilities 1,542 960
Deferred rent 132 128
Deferred tax liabilities 438 186
Long-term debt 1,936 675
Other long-term liabilities 166 88
Total liabilities 4,214 2,037
Commitments and contingencies
Redeemable noncontrolling interest 4 0
Shareholders’ equity    
Ordinary shares, no par value; 650,000,000 shares authorized; 216,050,939 shares issued and 150,932,306 outstanding at March 30, 2019; 210,991,091 shares issued and 149,698,407 outstanding at March 31, 2018 0 0
Treasury shares, at cost (65,118,633 shares at March 30, 2019 and 61,292,684 shares at March 31, 2018) (3,223) (3,016)
Additional paid-in capital 1,011 831
Accumulated other comprehensive (loss) income (66) 51
Retained earnings 4,707 4,152
Total shareholders’ equity of Capri 2,429 2,018
Noncontrolling interest 3 4
Total shareholders’ equity 2,432 2,022
Total liabilities and shareholders’ equity $ 6,650 $ 4,059
v3.19.1
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Mar. 30, 2019
Mar. 31, 2018
Statement of Financial Position [Abstract]    
Ordinary shares, par value (in dollars per share) $ 0 $ 0
Ordinary shares, shares authorized (in shares) 650,000,000 650,000,000
Ordinary shares, shares issued (in shares) 216,050,939 210,991,091
Ordinary shares, shares outstanding (in shares) 150,932,306 149,698,407
Treasury shares (in shares) 65,118,633 61,292,684
v3.19.1
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Apr. 01, 2017
Income Statement [Abstract]      
Total revenue $ 5,238 $ 4,719 $ 4,494
Cost of goods sold 2,058 1,860 1,833
Gross profit 3,180 2,859 2,661
Selling, general and administrative expenses 2,075 1,767 1,541
Depreciation and amortization 225 208 220
Impairment of long-lived assets 21 33 199
Restructuring and other charges [1] 124 102 11
Total operating expenses 2,445 2,110 1,971
Income from operations 735 749 690
Other income, net (4) (2) (6)
Interest expense, net 38 22 4
Foreign currency loss (gain) 80 (13) 3
Income before provision for income taxes 621 742 689
Provision for income taxes 79 150 137
Net income 542 592 552
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest (1) 0 (1)
Net income attributable to Capri $ 543 $ 592 $ 553
Weighted average ordinary shares outstanding:      
Basic (in shares) 149,765,468 152,283,586 165,986,733
Diluted (in shares) 151,614,350 155,102,885 168,123,813
Net income per ordinary share attributable to Capri:      
Basic (in dollars per share) $ 3.62 $ 3.89 $ 3.33
Diluted (in dollars per share) $ 3.58 $ 3.82 $ 3.29
Statements of Comprehensive Income:      
Net income $ 542 $ 592 $ 552
Foreign currency translation adjustments (134) 148 (9)
Net gain (loss) on derivatives 17 (16) 9
Comprehensive income 425 724 552
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest (1) 0 (1)
Comprehensive income attributable to Capri $ 426 $ 724 $ 553
[1] Restructuring and other charges includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, and transaction and transition costs recorded in connection with the acquisitions of Gianni Versace S.r.l, Jimmy Choo Group Limited and Michael Kors (HK) Limited and Subsidiaries (see Note 4 and Note 10).
v3.19.1
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Ordinary Shares
Additional Paid-in Capital
Treasury Shares
Accumulated Other Comprehensive (Loss) Income
Retained Earnings
Total Equity of Capri
Non-controlling Interests
Beginning balance at Apr. 02, 2016 $ 1,999 $ 0 $ 719 $ (1,650) $ (81) $ 3,007 $ 1,995 $ 4
Beginning balance (in shares) at Apr. 02, 2016   208,084,000            
Beginning balance (in shares) at Apr. 02, 2016       (31,642,000)        
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 552         553 553 (1)
Other comprehensive income 0       0   0 0
Comprehensive income 552           553 (1)
Vesting of restricted awards, net of forfeitures (in shares)   454,000            
Exercise of employee share options 8   8       8  
Exercise of employee share options (in shares)   794,000            
Equity compensation expense 34   34       34  
Tax benefits on exercise of share options 7   7       7  
Purchase of treasury shares (1,005)     $ (1,005)     (1,005)  
Purchase of treasury shares (in shares)       (21,857,000)        
Ending balance (in shares) at Apr. 01, 2017       (53,499,000)        
Ending balance (in shares) at Apr. 01, 2017   209,332,000            
Ending balance at Apr. 01, 2017 1,595 $ 0 768 $ (2,655) (81) 3,560 1,592 3
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 592         592 592 0
Other comprehensive income 132       132   132 0
Comprehensive income 724           724 0
Increase in noncontrolling interest 3             3
Partial repurchase of non-controlling interest (1)             (1)
Vesting of restricted awards, net of forfeitures (in shares)   542,000            
Exercise of employee share options 14   14       14  
Exercise of employee share options (in shares)   1,117,000            
Equity compensation expense 50   50       50  
Purchase of treasury shares (361)     $ (361)     (361)  
Purchase of treasury shares (in shares)       (7,794,000)        
Redemption of capital/dividends (1)             (1)
Other $ (1)   (1)       (1)  
Ending balance (in shares) at Mar. 31, 2018 (61,292,684)     (61,293,000)        
Ending balance (in shares) at Mar. 31, 2018 210,991,091 210,991,000            
Ending balance at Mar. 31, 2018 $ 2,022 $ 0 831 $ (3,016) 51 4,152 2,018 4
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Adoption of accounting standards (See Note 2) 12         12 12  
Balance as of April 1, 2018 2,034   831 (3,016) 51 4,164 2,030 4
Net income (loss) 542         543 543 (1)
Other comprehensive income (117)       (117)   (117) 0
Comprehensive income 425           426 (1)
Issuance of ordinary shares (in shares)   2,395,000            
Issuance of ordinary shares 91   91       91  
Increase in noncontrolling interest 0              
Vesting of restricted awards, net of forfeitures (in shares)   818,000            
Exercise of employee share options 29   29       29  
Exercise of employee share options (in shares)   1,847,000            
Equity compensation expense 60   60       60  
Purchase of treasury shares (207)     $ (207)     (207)  
Purchase of treasury shares (in shares)       (3,826,000)        
Other $ 0              
Ending balance (in shares) at Mar. 30, 2019 (65,118,633)     (65,119,000)        
Ending balance (in shares) at Mar. 30, 2019 216,050,939 216,051,000            
Ending balance at Mar. 30, 2019 $ 2,432 $ 0 $ 1,011 $ (3,223) $ (66) $ 4,707 $ 2,429 $ 3
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Mar. 30, 2019
Mar. 31, 2018
Apr. 01, 2017
Cash flows from operating activities      
Net income $ 542 $ 592 $ 552
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 225 208 220
Equity compensation expense 60 50 34
Impairment of long-lived assets 21 33 199
Losses on store lease exits 18 29 0
Deferred income taxes (71) 9 (60)
Amortization of deferred financing costs 4 4 1
Tax benefits on exercise of share options (24) (7) (7)
Foreign currency losses (gains) 80 (13) 3
Other non-cash charges 4 0 12
Change in assets and liabilities:      
Receivables, net (23) 19 60
Inventories (125) 46 21
Prepaid expenses and other current assets (31) 49 (1)
Accounts payable (48) (21) 37
Accrued expenses and other current liabilities 20 56 (54)
Other long-term assets and liabilities 42 8 18
Net cash provided by operating activities 694 1,062 1,035
Cash flows from investing activities      
Capital expenditures (181) (120) (165)
Purchase of intangible assets (3) (3) (5)
Cash paid for business acquisitions, net of cash acquired (1,875) (1,415) (481)
Realized (loss) gain on hedge related to acquisitions (77) 5 0
Settlement of a net investment hedge 11 0 0
Net cash used in investing activities (2,125) (1,533) (651)
Cash flows from financing activities      
Debt borrowings 4,204 2,520 1,240
Debt repayments (2,560) (1,784) (1,093)
Debt issuance costs (15) 0 0
Repurchase of treasury shares (207) (361) (1,005)
Exercise of employee share options 29 14 8
Net cash provided by (used in) financing activities 1,451 389 (850)
Effect of exchange rate changes on cash and cash equivalents (11) 15 (6)
Net increase (decrease) in cash and cash equivalents 9 (67) (472)
Beginning of period 163 230 702
End of period (including restricted cash of $2 million at April 1, 2017) 172 163 230
Supplemental disclosures of cash flow information      
Cash paid for interest 45 11 4
Cash paid for income taxes 172 104 171
Supplemental disclosure of non-cash investing and financing activities      
Accrued capital expenditures $ 25 $ 26 $ 23
v3.19.1
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical)
$ in Millions
Apr. 01, 2017
USD ($)
Statement of Cash Flows [Abstract]  
Restricted cash $ 2
v3.19.1
Business and Basis of Presentation
12 Months Ended
Mar. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business and Basis of Presentation
Business and Basis of Presentation
The Company was incorporated in the British Virgin Islands (“BVI”) on December 13, 2002 as Michael Kors Holdings Limited and changed its name to Capri Holdings Limited (“Capri,” and together with its subsidiaries, the “Company”) on December 31, 2018. The Company is a holding company that owns brands that are leading designers, marketers, distributors and retailers of branded women’s and men’s accessories, apparel and footwear bearing the Versace, Jimmy Choo and Michael Kors tradenames and related trademarks and logos. Prior to the fourth quarter of Fiscal 2019, the Company organized its business into four reportable segments: MK Retail, MK Wholesale, MK Licensing and Jimmy Choo. As a result of the acquisition of Versace, effective beginning in the fourth quarter of Fiscal 2019, the Company realigned its reportable segments according to the new structure of its business. As a result, the Company now operates in three reportable segments: Versace, Jimmy Choo and Michael Kors. See Note 20 for additional information.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned or controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company’s audited consolidated financial statements include the following operations for the periods from the respective acquisition/consolidation date through March 30, 2019:
Gianni Versace S.r.l. (“Versace”), acquired on December 31, 2018;
Jimmy Choo Group Limited (“Jimmy Choo”), acquired on November 1, 2017;
the previously licensed business in the Greater China region, Michael Kors (HK) Limited and Subsidiaries (“MKHKL”) with operations in China, Hong Kong, Macau and Taiwan, which was acquired on May 31, 2016;
See Note 4 for additional information related to the above acquisitions.
The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, the fiscal years ending on March 30, 2019, March 31, 2018, and April 1, 2017 (“Fiscal 2019”, “Fiscal 2018” and “Fiscal 2017”, respectively) contain 52 weeks.
v3.19.1
Summary of Significant Accounting Policies
12 Months Ended
Mar. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and 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. The most significant assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns, sales discounts and doubtful accounts, estimates related to the Company’s customer loyalty program for Michael Kors, estimates of gift card breakage, estimates of inventory recovery, the valuation of share-based compensation, valuation of deferred taxes and the valuation of and the estimated useful lives used for amortization and depreciation of intangible assets and property and equipment. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation, including the realignment of the Company’s segment reporting structure, as further described in Note 20.
Seasonality
The Company experiences certain effects of seasonality with respect to its business. The Company generally experiences greater sales during its third fiscal quarter, primarily driven by holiday season sales, and the lowest sales during its first fiscal quarter.
Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company's customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services. The Company recognizes retail store revenues when control of the product is transferred at the point of sale at Company owned stores, including concessions, net of estimated returns. Revenue from sales through the Company’s e-commerce sites is recognized at the time of delivery to the customer, reduced by an estimate of returns. Wholesale revenue is recognized net of estimates for sales returns, discounts, markdowns and allowances, after merchandise is shipped and control of the underlying product is transferred to the Company’s wholesale customers. To arrive at net sales for retail, gross sales are reduced by actual customer returns as well as by a provision for estimated future customer returns, which is based on management’s review of historical and current customer returns. Sales taxes collected from retail customers are presented on a net basis and, as such, are excluded from revenue. To arrive at net sales for wholesale, gross sales are reduced by provisions for estimated future returns, based on current expectations, as well as trade discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling expenses. These estimates are based on such factors as historical trends, actual and forecasted performance, and current market conditions, which are reviewed by management on a quarterly basis.
The following table details the activity and balances of the Company’s sales reserves for the fiscal years ended March 30, 2019March 31, 2018, and April 1, 2017 (in millions):
 
Balance
Beginning
of Year
 
Amounts
Charged to
Revenue
 
Write-offs
Against
Reserves
 
Balance
at
Year End
Retail
 
 
 
 
 
 
 
Return Reserves:
 
 
 
 
 
 
 
Fiscal year ended March 30, 2019
$
12

 
$
226

 
$
(223
)
 
$
15

Fiscal year ended March 31, 2018
7

 
161

 
(156
)
 
12

Fiscal year ended April 1, 2017
5

 
102

 
(100
)
 
7

 
Balance
Beginning
of Year
 
Amounts
Charged to
Revenue
 
Write-offs
Against
Reserves
 
Balance
at
Year End
Wholesale
 
 
 
 
 
 
 
Total Sales Reserves:
 
 
 
 
 
 
 
Fiscal year ended March 30, 2019
$
109

 
$
262

 
$
(259
)
 
$
112

Fiscal year ended March 31, 2018
97

 
258

 
(246
)
 
109

Fiscal year ended April 1, 2017
111

 
271

 
(285
)
 
97


Royalty revenue generated from product licenses, which includes contributions for advertising, is based on reported sales of licensed products bearing the Company’s trademarks at rates specified in the license agreements. These agreements are also subject to contractual minimum levels. Royalty revenue generated by geographic licensing agreements is recognized as it is earned under the licensing agreements based on reported sales of licensees applicable to specified periods, as outlined in the agreements. These agreements allow for the use of the Company’s tradenames to sell its branded products in specific geographic regions.
Loyalty Program
The Company has a Michael Kors customer loyalty program, which allows customers to earn points on qualifying purchases toward monetary and non-monetary rewards that may be redeemed for purchases at the Company’s retail stores and e-commerce site. The Company allocates a portion of the initial sales transaction based on the estimated relative fair value of the benefits using statistical formulas based on projected timing of future redemptions and historical activity. These amounts include estimated “breakage” for points that are not expected to be redeemed. The contract liability, net of an estimated “breakage,” is recorded as a reduction to revenue in the consolidated statements of income and comprehensive income and within accrued expenses and other current liabilities in the Company’s consolidated balance sheets. See Note 3 for additional information.
Advertising and Marketing Costs
Advertising and marketing costs are expensed over the period of benefit and are recorded in general and administrative expenses. Advertising and marketing expense was $158 million, $167 million and $119 million in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively.
Cooperative advertising expense, which represents the Company’s participation in advertising expenses of its wholesale customers, is reflected as a reduction of net sales. Expenses related to cooperative advertising for Fiscal 2019, Fiscal 2018 and Fiscal 2017, were $8 million, $6 million and $5 million, respectively.
Shipping and Handling
Freight-in expenses are recorded as part of cost of goods sold, along with product costs and other costs to acquire inventory. The costs of preparing products for sale, including warehousing expenses, are included in selling, general and administrative expenses. Selling, general and administrative expenses also include the costs of shipping products to the Company’s e-commerce customers. Shipping and handling costs included within selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income were $132 million, $129 million and $126 million for Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Shipping and handling costs charged to customers are included in total revenue.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Included in the Company’s cash and cash equivalents as of March 30, 2019 and March 31, 2018 are credit card receivables of $24 million and $21 million, respectively, which generally settle within two to three business days.
Inventories
Inventories mainly consist of finished goods with the exception of raw materials inventory of $25 million and $1 million, respectively, recorded on the Company’s consolidated balance sheets as of March 30, 2019 and March 31, 2018. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted-average cost method. Costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the Company’s warehouses, which are located in the United States, Canada, the Netherlands, Switzerland, Italy, United Kingdom, the United Arab Emirates, China, Japan, Hong Kong and South Korea, as well as shipments to stores. The Company continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully recoverable. The net realizable value of the Company’s inventory is estimated based on historical experience, current and forecasted demand, and market conditions. In addition, reserves for inventory losses are estimated based on historical experience and physical inventory counts. The Company’s inventory reserves are estimates, which could vary significantly from actual results if future economic conditions, customer demand or competition differ from expectations. Our historical estimates of these adjustments have not differed materially from actual results.
Store Pre-opening Costs
Costs associated with the opening of new retail stores and start up activities, are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization (carrying value). Depreciation is recorded on a straight-line basis over the expected remaining useful lives of the related assets. Equipment, furniture and fixtures, are depreciated over five to seven years, computer hardware and software are depreciated over three to five years. The Company’s share of the cost of constructing in-store shop displays within its wholesale customers’ floor-space (“shop-in-shops”), which is paid directly to third-party suppliers, is capitalized as property and equipment and is generally amortized over a useful life of three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated remaining useful lives of the related assets or the remaining lease term, including highly probable renewal periods. The Company includes all depreciation and amortization expense as a component of total operating expenses, as the underlying long-lived assets are not directly or indirectly related to bringing the Company’s products to their existing location and condition. Maintenance and repairs are charged to expense in the year incurred.
The Company capitalizes, in property and equipment, direct costs incurred during the application development stage and the implementation stage for developing, purchasing or otherwise acquiring software for its internal use. These costs are amortized over the estimated useful lives of the software, generally five years. All costs incurred during the preliminary project stage, including project scoping and identification and testing of alternatives, are expensed as incurred.
Definite-Lived Intangible Assets
The Company’s definite-lived intangible assets consist of trademarks, lease rights and customer relationships and are stated at cost less accumulated amortization. The Company’s customer relationships are amortized over five to eighteen years, and lease rights are amortized over the terms of the related lease agreements, including highly probable renewal periods, on a straight-line basis. Reacquired rights recorded in connection with the acquisition of MKHKL are amortized through March 31, 2041, the original expiration date of the Michael Kors license agreement in the Greater China region. The trademark for the Michael Kors brand is amortized over twenty years.
Impairment of Long-lived Assets
The Company evaluates its long-lived assets, including fixed assets and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The Company’s impairment testing is based on its best estimate of its future operating cash flows. If the sum of estimated undiscounted future cash flows associated with the asset is less than the asset’s carrying value, an impairment charge is recognized, which is measured as the amount by which the carrying value exceeds the fair value of the asset. These estimates of cash flow require significant management judgment and certain assumptions about future volume, sales and expense growth rates, devaluation and inflation. As such, these estimates may differ from actual cash flows.
Goodwill and Other Indefinite-lived Intangible Assets
The Company records intangible assets based on their fair value on the date of acquisition. Goodwill is recorded for the difference between the fair value of the purchase consideration over the fair value of the net identifiable tangible and intangible assets acquired. The brand intangible asset recorded in connection with the acquisitions of Versace and Jimmy Choo were determined to be indefinite-lived intangible assets, which are not subject to amortization. The Company performs an impairment assessment of goodwill, as well as the Versace and Jimmy Choo brand intangible assets on an annual basis, or whenever impairment indicators exist. In the absence of any impairment indicators, goodwill, the Versace brand and the Jimmy Choo brand are assessed for impairment during the fourth quarter of each fiscal year. Judgments regarding the existence of impairment indicators are based on market conditions and operational performance of the business.
The Company may assess its goodwill and its brand indefinite-lived intangible assets for impairment initially using a qualitative approach to determine whether it is more likely than not that the fair value of these assets is greater than their carrying value. When performing a qualitative test, the Company assesses various factors including industry and market conditions, macroeconomic conditions and performance of the Company’s businesses. If the results of the qualitative assessment indicate that it is more likely than not that the Company’s goodwill and other indefinite-lived intangible assets are impaired, a quantitative impairment analysis would be performed to determine if impairment is required. The Company may also elect to perform a quantitative analysis of goodwill and its indefinite-lived intangible assets initially rather than using a qualitative approach.
The impairment testing for goodwill is performed at the reporting unit level. The valuation methods used in the quantitative fair value assessment, discounted cash flow and market multiples method, require the Company’s management to make certain assumptions and estimates regarding certain industry trends and future profitability of the Company’s reporting units. If the fair value of a reporting unit exceeds the related carrying value, the reporting unit’s goodwill is considered not to be impaired and no further testing is performed. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recorded for the difference. The valuation of goodwill is affected by, among other things, the Company’s business plan for the future and estimated results of future operations. Future events could cause the Company to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.
When performing a quantitative impairment assessment of the Company’s brand indefinite-lived intangible assets, the fair value of the Versace and the Jimmy Choo brands is estimated using a discounted cash flow analysis based on the "relief from royalty" method, assuming that a third party would be willing to pay a royalty in lieu of ownership for this intangible asset. This approach is dependent on many factors, including estimates of future growth, royalty rates, and discount rates. Actual future results may differ from these estimates. Impairment loss is recognized when the estimated fair value of the indefinite-lived brand intangible assets is less than its carrying amount.
There were no impairment charges related to goodwill and other indefinite-lived intangible assets in any of the fiscal periods presented. See Note 13 for information relating to the Company’s annual impairment analysis performed during the fourth quarter of Fiscal 2019.
Insurance
The Company uses a combination of insurance and self-insurance for losses related to a number of risks, including workers’ compensation and employee-related health care benefits. The Company also maintains stop-loss coverage with third-party insurers to limit its exposure arising from claims. Self-insurance claims filed and claims incurred but not reported are accrued based upon management’s estimates of the discounted cost for self-insured claims incurred using actuarial assumptions, historical loss experience, actual payroll and other data. Although the Company believes that it can reasonably estimate losses related to these claims, actual results could differ from these estimates.
The Company also maintains other types of customary business insurance policies, including business interruption insurance. Insurance recoveries represent gain contingencies and are recorded upon actual settlement with the insurance carrier.
Share-based Compensation
The Company grants share-based awards to certain employees and directors of the Company. The grant date fair value of share options is calculated using the Black-Scholes option pricing model. Beginning in Fiscal 2018, the Company began using its own historical experience in determining the expected holding period and volatility of its time-based share option awards. In prior periods, the Company used the simplified method for determining the expected life of its options and average volatility rates of similar actively traded companies over the estimated holding period, due to insufficient historical option exercise experience as a public company. The risk-free interest rate is derived from the zero-coupon United States (“U.S.”) Treasury Strips yield curve based on the grant’s estimated holding period. Determining the grant date fair value of share-based awards requires considerable judgment, including estimating expected volatility, expected term and risk-free rate. If factors change and the Company employs different assumptions, the fair value of future awards and the resulting share-based compensation expense may differ significantly from what the Company has estimated in the past.
The closing market price of the Company’s shares on the date of grant is used to determine the grant date fair value of restricted shares, time-based restricted shares units (“RSU”s) and performance-based RSUs. These fair values are recognized as expense over the requisite service period, net of estimated forfeitures, based on expected attainment of pre-established performance goals for performance grants, or the passage of time for those grants which have only time-based vesting requirements.
Foreign Currency Translation and Transactions
The financial statements of the majority of the Company’s foreign subsidiaries are measured using the local currency as the functional currency. The Company’s functional currency is the United States Dollar (“USD”) for Capri and its United States based subsidiaries. Assets and liabilities are translated using period-end exchange rates, while revenues and expenses are translated using average exchange rates over the reporting period. The resulting translation adjustments are recorded separately in shareholders’ equity as a component of accumulated other comprehensive income (loss). Foreign currency income and losses resulting from the re-measuring of transactions denominated in a currency other than the functional currency of a particular entity are included in foreign currency (gain) loss on the Company’s consolidated statements of operations and comprehensive income.
Derivative Financial Instruments
Forward Foreign Currency Exchange Contracts
The Company uses forward currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to these transactions. The Company employs these forward currency contracts to hedge the Company’s cash flows, as they relate to foreign currency transactions. Certain of these contracts are designated as hedges for accounting purposes, while others remain undesignated. All of the Company’s derivative instruments are recorded in the Company’s consolidated balance sheets at fair value on a gross basis, regardless of their hedge designation.
In connection with the September 24, 2018 definitive agreement to acquire all of the outstanding shares of Versace, the Company entered into forward foreign currency exchange contracts with notional amounts totaling €1.680 billion (approximately $2.001 billion) to mitigate its foreign currency exchange risk through the expected closing date of the acquisition, which were settled on December 21, 2018. Likewise, in connection with the July 25, 2017 cash offer to acquire Jimmy Choo, the Company entered into a forward foreign currency exchange contract with a notional amount of £1.115 billion (approximately $1.469 billion) to mitigate its foreign currency exchange risk through the expected closing date of the acquisition, which was settled on October 30, 2017. These derivative contracts were not designated as accounting hedges. Therefore, changes in fair value are recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company’s accounting policy is to classify cash flows from derivative instruments in the same category as the cash flows from the items being hedged. Accordingly, the Company classified $77 million of realized losses and $5 million of realized gains, respectively, relating to these derivative instruments within cash flows from investing activities during Fiscal 2019 and Fiscal 2018.
The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including description of the hedged item and the hedging instrument and the risk being hedged. The changes in the fair value for contracts designated as cash flow hedges is recorded in equity as a component of accumulated other comprehensive income (loss) until the hedged item affects earnings. When the inventory related to forecasted inventory purchases that are being hedged is sold to a third party, the gains or losses deferred in accumulated other comprehensive income (loss) are recognized within cost of goods sold. The Company uses regression analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares the change in the fair value of the derivative instrument to the change in the related hedged item. If the hedge is no longer expected to be highly effective in the future, future changes in the fair value are recognized in earnings. For those contracts that are not designated as hedges, changes in the fair value are recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income. The Company classifies cash flows relating to its forward foreign currency exchange contracts related to purchase of inventory consistently with the classification of the hedged item, within cash flows from operating activities.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The aforementioned forward contracts generally have a term of no more than 12 months. The period of these contracts is directly related to the foreign transaction they are intended to hedge.
Net Investment Hedges
The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between its U.S. Dollars and these foreign currencies. The Company has elected the spot method of designating these contracts under ASU 2017-12, as defined below, and has designated these contracts as net investment hedges. The net gain or loss on net investment hedged is reported within foreign currency translation gains and losses (“CTA”), as a component of accumulated other comprehensive income (loss) on the Company’s consolidated balance sheets. Interest accruals and coupon payments are recognized directly in interest expense in the Company’s statement of operations and comprehensive income. Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the hedged net investment is sold, diluted, or liquidated.
Income Taxes
Deferred income tax assets and liabilities have been provided for temporary differences between the tax bases and financial reporting bases of the Company’s assets and liabilities using the tax rates and laws in effect for the periods in which the differences are expected to reverse. The Company periodically assesses the realizability of deferred tax assets and the adequacy of deferred tax liabilities, based on the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.
Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon generating sufficient taxable income prior to their expiration in the applicable tax jurisdiction. The Company periodically reviews the recoverability of its deferred tax assets and provides valuation allowances, as deemed necessary, to reduce deferred tax assets to amounts that more-likely-than-not will be realized. The Company’s management considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results within various taxing jurisdictions, expectations of future taxable income, the carryforward periods remaining and other factors. Changes in the required valuation allowance are recorded in income in the period such determination is made. Deferred tax assets could be reduced in the future if the Company’s estimates of taxable income during the carryforward period are significantly reduced or alternative tax strategies are no longer viable.
The Company recognizes the impact of an uncertain income tax position taken on its income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will be recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments for those positions. The Company records interest expense and penalties payable to relevant tax authorities as income tax expense.
Rent Expense, Deferred Rent and Landlord Construction Allowances
The Company leases office space, retail stores and distribution facilities under agreements that are classified as operating leases. Many of these operating leases include contingent rent provisions (percentage rent), and/or provide for certain landlord allowances related to tenant improvements and other relevant items. The recognition of rent expense for an operating lease commences on the earlier of the related lease commencement date or the date of possession of the property. Rent expense is calculated by recognizing total minimum rental payments (net of any rental abatements, construction allowances and other rental concessions) on a straight-line basis over the lease term. The difference between straight-line rent expense and rent paid is recorded as deferred rent, which is classified within short-term and long-term liabilities in the Company’s consolidated balance sheets. The Company accounts for landlord allowances and incentives as a component of deferred rent, which is amortized over the lease term as a reduction of rent expense. The Company records rent expense as a component of selling, general and administrative expenses.
Debt Issuance Costs and Unamortized Discounts
The Company defers debt issuance costs directly associated with acquiring third party financing. These debt issuance costs and any discounts on issued debt are amortized on a straight-line basis, which approximates the effective interest method, as interest expense over the term of the related indebtedness. Deferred financing fees associated with the Company’s revolving credit facilities are recorded within prepaid expenses and other current assets. Deferred financing fees and unamortized discounts associated with the Company’s other borrowings are recorded as an offset to long-term debt in the Company’s consolidated balance sheets. See Note 11 for additional information.
Net Income per Share
The Company’s basic net income per ordinary share is calculated by dividing net income by the weighted average number of ordinary shares outstanding during the period. Diluted net income per ordinary share reflects the potential dilution that would occur if share option grants or any other potentially dilutive instruments, including RSUs, were exercised or converted into ordinary shares. These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock method for the applicable periods. Performance-based RSUs are included in diluted shares if the related performance conditions are considered satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
The components of the calculation of basic net income per ordinary share and diluted net income per ordinary share are as follows (in millions, except share and per share data):
 
Fiscal Years Ended
 
March 30,
2019
 
March 31,
2018
 
April 1,
2017
Numerator:
 
 
 
 
 
Net income attributable to Capri
$
543

 
$
592

 
$
553

Denominator:
 
 
 
 
 
Basic weighted average shares
149,765,468

 
152,283,586

 
165,986,733

Weighted average dilutive share equivalents:
 
 
 
 
 
Share options and restricted shares/units, and performance restricted share units
1,848,882

 
2,819,299

 
2,137,080

Diluted weighted average shares
151,614,350

 
155,102,885

 
168,123,813

Basic net income per share (1)
$
3.62

 
$
3.89

 
$
3.33

Diluted net income per share (1)
$
3.58

 
$
3.82

 
$
3.29


________________________________
(1) 
Basic and diluted net income per share are calculated using unrounded numbers.
Share equivalents for 1,409,415 shares, 1,662,889 shares and 2,034,658 shares, for Fiscal 2019Fiscal 2018 and Fiscal 2017, respectively, have been excluded from the above calculation due to their anti-dilutive effect.
Noncontrolling Interest and Redeemable Noncontrolling Interest
The Company has an ownership interest in the Michael Kors Latin American joint venture, MK (Panama) Holdings, S.A. and subsidiaries of 75%, an ownership interest in the Jimmy Choo EMEA Joint Ventures, JC Industry S.r.L of 33% and JC Gulf Trading LLC of 49%, as well as a 50% ownership interest in J. Choo Russia J.V. Limited, and 70% ownership interest in Versace Singapore Pte. Ltd. and 70% ownership interest in Versace Korea Co. Ltd. As such, noncontrolling interest includes the portion of the equity ownership, which is not attributable to the Company.
In addition, the Company owns a 70% interest in Versace Australia PTY Limited (“Versace Australia”) and consolidates Versace Australia in its consolidated financial statements.
The shareholders agreement governing Versace Australia (the “Shareholders Agreement”) contains a put option under which the Company may be required to purchase its partner’s interest in the the joint venture, as well as call options requiring the partner to sell its interest to the Company, based on the EBITDA multiple defined in the related agreement. The contractual formula value of the redeemable non-controlling interest (“RNCI”) as of March 30, 2019 was $4 million. The carrying amount of the RNCI is adjusted to the redemption amount at the end of each reporting period, after attribution of net income or loss of the RNCI and is recognized in earnings, since it is probable that the RNCI will become redeemable in the future based on the passage of time.
Recently Adopted Accounting Pronouncements
Hedge Accounting
On August 28, 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The new standard is intended to improve and simplify rules relating to hedge accounting, including the elimination of periodic hedge ineffectiveness, recognition and presentation of components excluded from hedge effectiveness assessment, the ability to elect to perform subsequent effectiveness assessments qualitatively, and other provisions designed to provide more transparency around the economics of a company’s hedging strategy. ASU 2017-12 is effective for the Company in Fiscal 2020, with early adoption permitted. The Company adopted ASU 2017-12 during the three months ended June 30, 2018, which resulted in an immaterial net increase to opening retained earnings as of April 1, 2018, due to the elimination of ineffectiveness for cash flow hedges in effect as of the date of adoption. The Company has applied the spot method of designating its net investment hedges, which were executed during Fiscal 2019.
Revenue Recognition
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which provides new guidance for revenues recognized from contracts with customers, requiring that revenue is recognized at an amount the Company is entitled to upon transferring control of goods or services to customers, as opposed to when risks and rewards transfer to a customer. In July 2015, ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” deferred the effective date of ASU 2014-09 by one year, to interim reporting periods within the annual reporting period beginning after December 15, 2017, or the first quarter of the Company’s Fiscal 2019. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption (“modified retrospective method”).
The FASB issued several additional ASUs to provide implementation guidance on ASU 2014-09, including ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” in December 2016; ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2016; ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing in April 2016; and ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016. The Company considered this guidance in evaluating the impact of ASU 2014-09 (collectively, “ASC 606”).
On April 1, 2018, the Company adopted ASC 606 using the modified retrospective method and recognized the $7 million (net of a tax of $2 million) cumulative effect of adoption as an adjustment to the opening balance of retained earnings. The below table details the components of the cumulative adjustment recorded on April 1, 2018 (in millions):
 
March 31, 2018
As Reported under ASC 605
 
ASC 606 Adjustments
 
April 1, 2018
As Reported Under ASC 606
Receivables, net
$
290

 
$
4

(1) 
$
294

Accrued expenses and other current liabilities
296

 
(5
)
(2) 
291

Deferred tax liabilities
186

 
2

(3) 
188

Retained earnings
4,152

 
7

 
4,159

 
 
 
 
 
(1) 
Includes a $4 million adjustment related to product licensing revenue, which was previously recorded on a one-month lag and an immaterial amount of guaranteed advertising minimums recognized by product licensees on a straight-line basis over the contract year.
(2) 
Relates to recognition of breakage revenue associated with gift card liabilities not subject to escheatment.
(3) 
Relates to income tax effect of the above adjustments.
In addition, while the Company has previously recorded the right of return asset and liability on a gross basis, in connection with its adoption of ASC 606, it has reclassified the return liability of $15 million from receivables, net to accrued expenses and other current liabilities in its consolidated balance sheet as of March 30, 2019. Otherwise, the adoption of this standard did not have a material impact on the Company's consolidated financial statements for Fiscal 2019, or any individual line items therein.
See Note 3 for additional disclosures related to the Company’s revenue recognition accounting policy.
Share-Based Compensation
In May 2017, the FASB issued ASU 2017-09, “Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting”, which simplifies modification accounting for entities that change the terms or conditions of share-based awards. ASU 2017-09 was adopted during the first quarter of Fiscal 2019, as required, on a prospective basis. The adoption of this standard did not have an impact on the Company's consolidated financial statements. The Company will apply ASU 2017-09 to any future changes to the terms and conditions of its share-based compensation awards.
Income Taxes
In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory”, which requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Company adopted ASU 2016-16 in the beginning of Fiscal 2019, as required, using the modified retrospective method. On April 1, 2018, the Company recorded the $5 million cumulative effect of adoption as an adjustment to the opening balance of retained earnings.
Recently Issued Accounting Pronouncements
The Company has considered all new accounting pronouncements and, other than the recent pronouncements discussed below, have concluded that there are no new pronouncements that may have a material impact on the Company’s results of operations, financial condition or cash flows based on current information.
Lease Accounting
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a lease liability and a right-to-use asset on the balance sheet for all leases, except certain short-term leases. ASU 2016-02 is effective beginning with the Company’s Fiscal 2020, with early adoption permitted. The Company plans to apply the package of three practical expedients, allowing it to carry forward its previous lease classification and embedded lease evaluations and not to reassess initial direct costs as of the date of adoption, as well as the practical expedient allowing it to combine lease and non-lease components. The Company also plans on adopting the practical expedient from ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” allowing it to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating the comparative prior year periods. The Company's existing lease obligations, which relate to stores, corporate locations, warehouses, and equipment, will be subject to the new standard and will result in recording a lease liability and right-of-use asset for operating leases on the Company's consolidated balance sheet. While the implementation of ASU 2016-02 for the Company's Michael Kors and Jimmy Choo brands is substantially complete, due to the recent acquisition of Versace on December 31, 2018, the Company is still in the process of finalizing its analysis of Versace's lease portfolio. As such, the Company is currently unable to provide the estimated impact of ASU 2016-02 on its consolidated financial statements.
The FASB has issued several additional ASUs to provide implementation guidance relating to ASU 2016-02, including ASU 2018-01, “Land Easement Practical Expedient for Transition to Topic 842” in January 2018, ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2018-11, “Leases (Topic 842): Targeted Improvements,” both issued in July 2018, ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors” issued in December 2018, and ASU 2019-01, “Leases (Topic 842): Codification Improvements issued in March 2019. The Company will consider this guidance in evaluating the impact of ASU 2016-02.
Intangibles
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” which reduces the complexity for the accounting for costs of implementing a cloud computing service arrangement. The standard aligns the accounting for capitalizing implementation costs of hosting arrangements, regardless of whether or not the contract conveys a license to the hosted software. ASU 2018-15 is effective beginning with the Company’s Fiscal 2021, with early adoption permitted, and can either be presented prospectively or retrospectively. The Company is currently evaluating the impact of ASU 2018-15 on its consolidated financial statements.
v3.19.1
Revenue Recognition
12 Months Ended
Mar. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition
The Company accounts for contracts with its customers when there is approval and commitment from both parties, the rights of the parties and payment terms have been identified, the contract has commercial substance and collectability of consideration is probable. Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services.
The Company sells its products through three primary channels of distribution: retail, wholesale and licensing. Within the retail and wholesale channels, substantially all of the Company’s revenues consist of sales of products that represent a single performance obligation, where control transfers at a point in time to the customer. For licensing arrangements, royalty and advertising revenue is recognized over time based on access provided to the Company’s brands.
The Company has chosen to apply the practical expedient allowing it not to disclose the amount of the transaction price allocated to the remaining performance obligations that have an expected duration of 12 months or less.
Retail
The Company generates sales through directly operated stores and e-commerce throughout the Americas (U.S., Canada and Latin America, excluding Brazil), EMEA (Europe, Middle East, and Africa) and certain parts of Asia. Retail revenue is recognized when control of the product is transferred at the point of sale at Company owned stores, including concessions. For e-commerce transactions, control is transferred when products are delivered to the customer, net of estimated returns. To arrive at net sales for retail, gross sales are reduced by actual customer returns, as well as by a provision for estimated future customer returns.
Sales taxes collected from retail customers are presented on a net basis and, as such, are excluded from revenue. Shipping and handling costs that are billed to customers are included in net sales, with the related costs recorded in cost of goods sold. Shipping and handling costs that are not billed to customers are accounted for as fulfillment costs.
Gift Cards. The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability recorded upon issuance. Revenue is recognized when the gift card is redeemed or upon “breakage” for the estimated portion of gift cards that are not expected to be redeemed. “Breakage” revenue is calculated under the proportional redemption methodology, which considers the historical patterns of redemption in jurisdictions where the Company is not required to remit the value of the unredeemed gift cards as unclaimed property. The Company anticipates that substantially all of its outstanding gift cards will be redeemed within the next 12 months. The contract liability related to gift cards, net of estimated “breakage,” was $13 million as of March 30, 2019, and is included in accrued expenses and other current liabilities in the Company’s consolidated balance sheet.
Loyalty Program. The Company offers a loyalty program, which allows its Michael Kors customers to earn points on qualifying purchases toward monetary and non-monetary rewards, which may be redeemed for purchases at Michael Kors retail stores and e-commerce sites. The Company defers a portion of the initial sales transaction based on the estimated relative fair value of the benefits based on projected timing of future redemptions and historical activity. These amounts include estimated “breakage” for points that are not expected to be redeemed. The contract liability, net of an estimated “breakage,” of $3 million as of March 30, 2019 is recorded as a reduction to revenue in the consolidated statements of income and comprehensive income and within accrued expenses and other current liabilities in the Company’s consolidated balance sheet and is expected to be recognized within the next 12 months.
Wholesale
The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia. The Company also has arrangements where its products are sold to geographic licensees in certain parts of EMEA, Asia, and South America. Wholesale revenue is recognized net of estimates for sales returns, discounts, markdowns and allowances, after merchandise is shipped and control of the underlying product is transferred to the Company’s wholesale customers. To arrive at net sales for wholesale, gross sales are reduced by provisions for estimated future returns, as well as trade discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling expenses. These estimates are developed based on the most likely amount using historical trends, actual and forecasted performance and market conditions, and are reviewed by management on a quarterly basis. Unfulfilled, noncancelable purchase orders for products from wholesale customers (including the Company’s geographic licensees) are expected to be fulfilled within the next 12 months.
Licensing
The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks under product and geographic licensing arrangements. Under product licensing arrangements, the Company allows third parties to manufacture and sell luxury goods, including watches and jewelry, fragrances, sunglasses and eyewear, using the Company’s trademarks. Under geographic licensing arrangements, third party licensees receive the right to distribute and sell products bearing the Company’s trademarks in retail and/or wholesale channels within certain geographical areas, including Brazil, the Middle East, Eastern Europe, South Africa, certain parts of Asia and Australia.
The Company recognizes royalty revenue and advertising contributions based on the percentage of sales made by the licensees. Advertising contributions are received to support the Company’s branded advertising and marketing campaigns and are viewed as part of a single performance obligation with the right to access the Company’s trademarks. Royalty revenue generated from licenses, which includes contributions for advertising, may be subject to contractual minimum levels, as defined in the contract. Such minimums are generally fixed annually, based on the previous year’s sales. Licensing revenue is based on reported current period sales of licensed products at rates that are specified in the license agreements for contracts that are expected to exceed the related guaranteed minimums. If the Company expects the minimum guaranteed amounts to exceed amounts calculated based on actual sales, the guaranteed minimums are recognized ratably over the contractual year to which they relate. Generally the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months, however, some of our guaranteed minimums for Versace are multi-year based. As of March 30, 2019, contractually guaranteed minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):
 
 
Contractually Guaranteed Minimum Fees
 
 
Fiscal 2020
$
28

 
Fiscal 2021
28

 
Fiscal 2022
27

 
Fiscal 2023
21

 
Fiscal 2024
10

 
Fiscal 2025 and thereafter
36

 
 Total
$
150


Sales Returns
For the sale of goods with a right of return, the Company recognizes revenue for the consideration to which it expects to be entitled and a refund liability for the amount it expects to refund to its customers within accrued expenses and other current liabilities. The refund liability is determined based on the most likely amount and is based on management’s review of historical and current customer returns for its retail and wholesale customers, estimated future returns, adjusted for non-resalable products. The Company also considers its product strategies, as well as the financial condition of its customers, store closings by wholesale customers, changes in the retail environment and other macroeconomic factors. The Company recognizes an asset with a corresponding adjustment to cost of sales for the right to recover the products from its retail and wholesale customers, net of any costs to resell. The refund liability recorded as of March 30, 2019 was $35 million and the related asset for the right to recover returned product as of March 30, 2019 was $12 million.
Contract Balances
The Company’s contract liabilities are recorded within accrued expenses and other current liabilities and other long-term liabilities in its consolidated balance sheets depending on the short or long-term nature of the payments to be recognized. The Company’s contract liabilities primarily consist of gift card liabilities, loyalty program liabilities and advanced payments from product licensees. Total contract liabilities were $31 million and $23 million as of March 30, 2019 and March 31, 2018, respectively. In connection with the acquisition of Versace, the Company’s contract liabilities increased $9 million as of March 30, 2019. Contract liabilities decreased $5 million as a result of the adoption of ASC 606 on April 1, 2018, due to recognition of gift card breakage revenue (see Note 2). During Fiscal 2019, the Company recognized $16 million in revenue, which related to contract liabilities that existed at March 31, 2018. There were no contract assets recorded as of March 30, 2019 and April 1, 2018.
There were no changes in historical variable consideration estimates that were materially different from actual results.
Disaggregation of Revenue
The following table presents the Company’s segment revenues disaggregated by geographic location (in millions):
 
 
Fiscal Years Ended
 
 
March 30,
2019
 
March 31,
2018
 
April 1,
2017
 
 
Versace revenue - the Americas
$
22

 
$

 
$

 
Versace revenue - EMEA
66

 

 

 
Versace revenue - Asia
49

 

 

 
 Total Versace
137

 

 

 
Jimmy Choo revenue - the Americas
96

 
37

 

 
Jimmy Choo revenue - EMEA
321

 
123

 

 
Jimmy Choo revenue - Asia
173

 
63

 

 
 Total Jimmy Choo
590

 
223

 

 
Michael Kors revenue - the Americas
3,064

 
2,996

 
3,141

 
Michael Kors revenue - EMEA
892

 
970

 
944

 
Michael Kors revenue - Asia
555

 
530

 
409

 
 Total Michael Kors
4,511

 
4,496

 
4,494

 
 
 
 
 
 
 
 
Total revenue - the Americas
3,182

 
3,033

 
3,141

 
Total revenue - EMEA
1,279

 
1,093

 
944

 
Total revenue - Asia
777

 
593

 
409

 
Total revenue
$
5,238

 
$
4,719

 
$
4,494

v3.19.1
Acquisitions
12 Months Ended
Mar. 30, 2019
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Fiscal 2019 Acquisition
Acquisition of Versace
On December 31, 2018, the Company completed the acquisition of Versace for a total enterprise value of approximately €1.753 billion (or approximately $2.005 billion), giving effect to an investment made by the Versace family at acquisition of 2.4 million shares. The acquisition was funded through a combination of borrowings under the Company’s 2018 Term Loan Facility, drawings under the Company’s Revolving Credit Facility and cash on hand (see Note 11 for additional information).
The following table summarizes the aggregate purchase price consideration paid to acquire Versace in cash (in millions):
 
December 31, 2018
Cash consideration paid to Versace shareholders (1)
$
1,914

Capri share consideration (2)
91

Total purchase price
$
2,005


 
 
(1) 
The cash consideration includes €90 million (or $103 million) of cash paid on behalf of the shareholder for pre-existing debt as of the Closing Date.
(2) 
The Versace family elected to receive 2,395,170 of the Company’s ordinary shares in exchange for a portion of the cash consideration. The closing price of the Company's shares as of December 31, 2018 of $37.92 was used to compute the fair value of the share consideration as of the acquisition date.
The Company believes that this combination will further strengthen its future growth opportunities while also increasing both product and geographic diversification and will allow it to grow its international presence through the formation of a global fashion luxury group, bringing together industry-leading luxury fashion brands. The Company accounted for this acquisition as a business combination under the acquisition method of accounting. The Company estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on the currently available information. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):
 
December 31, 2018
Cash and cash equivalents
$
41

Accounts receivable
82

Inventory (1)
197

Other current assets
39

Current assets
359

Property and equipment (2)
89

Goodwill (3)
878

Brand (4)
948

Customer relationships (5)
203

Favorable lease (6)
16

Deferred tax assets (7)
24

Other assets (7)
135

Total assets acquired
$
2,652

 
 
Accounts payable
$
144

Short term debt
57

Other current liabilities
99

Current liabilities
300

Deferred tax liabilities
289

Other liabilities (6) (7)
54

Total liabilities assumed
$
643

 
 
Less: Noncontrolling interest in joint ventures
$
4

 
 
Fair value of net assets acquired
$
2,005

 
 
Fair value of acquisition consideration
$
2,005


 
 
(1) 
Includes an inventory step-up adjustment of $19 million, which will be recognized as an adjustment to the Company’s cost of goods sold in its statement of operations within twelve months.
(2) 
Includes a $11 million adjustment to reduce the fair value of Versace’s leasehold improvements, which will be recognized over the remaining lease term.
(3) 
Represents the difference between the purchase price over the net identifiable tangible and intangible assets acquired allocated to goodwill, which is not deductible for tax purposes.
(4) 
Represents the fair value of Versace’s brand, which is an indefinite-lived intangible asset due to being essential to the Company’s ability to operate the Versace business for the foreseeable future. The Versace brand was valued using the relief-from-royalty method of the income valuation approach.
(5) 
Represents customer relationships associated with Versace product licensees, wholesale customers and geographic licensees, which are being amortized over 12 years, 10 years and 9 years, respectively. These useful lives were estimated based on the time to recover the related future discounted cash flows. These intangible assets were valued using multi-period excess-earnings valuation method.
(6) 
Includes favorable leases and unfavorable leases of $16 million and $7 million, respectively, which will be amortized over the remaining lease terms.
(7) 
Represents adjustments to reduce deferred tax assets by $39 million and increase uncertain tax positions by $33 million, with an offsetting increase to other assets of $72 million relating to an indemnification.
Versace’s results of operations have been included in our consolidated financial statements beginning on December 31, 2018. Versace contributed total revenue of $137 million and net loss of $12 million, after amortization of non-cash purchase accounting adjustments and transition and transaction costs, from the date of acquisition on December 31, 2018 through February 28, 2019 (reflecting a one-month reporting lag).
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended March 30, 2019 and March 31, 2018 as if the acquisition had occurred on April 2, 2017, the beginning of Fiscal 2018 (in millions):
 
Fiscal Years Ended
 
March 30, 2019
 
March 31, 2018
Pro-forma total revenue
$
5,983

 
$
5,473

Pro-forma net income
579

 
526

Pro-forma net income per ordinary share attributable to Capri:
 
 
 
Basic
$
3.82

 
$
3.40

Diluted
$
3.78

 
$
3.34


The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Versace and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2018 and are not indicative of the future operating results of the combined company. The financial information for Versace prior to the acquisition has been included in the pro-forma results of operations on a calendar-year basis and includes certain adjustments to Versace’s historical consolidated financial statements to align with U.S. GAAP and the Company’s accounting policies. The pro-forma consolidated results of operations also include the effects of purchase accounting adjustments, including amortization charges related to the definite-lived intangible assets acquired, fair value adjustments relating to leases and fixed assets, and the related tax effects assuming that the business combination occurred on April 2, 2017. Purchase accounting amortization of the inventory step-up adjustment has been excluded from the above pro-forma amounts due to the short-term nature of this adjustment. The pro-forma consolidated financial statements also reflect the impact of debt repayment and borrowings made to finance the acquisition (see Note 11) and exclude historical interest expenses related to Versace’s €90 million pre-existing debt. Transaction costs of $41 million for Fiscal 2019, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature. The shares used to calculate the pro-forma net income per ordinary share attributable to Capri reflect the weighted average impact of a 2.4 million ordinary share investment made by the Versace family at acquisition date.
Fiscal 2018 Acquisition
Acquisition of Jimmy Choo Group Limited
On November 1, 2017, the Company completed the acquisition of Jimmy Choo, whereby the Company's wholly-owned subsidiary acquired all of Jimmy Choo’s issued and to be issued shares at a purchase price of 230 pence per share in cash, for a total transaction value of $1.447 billion, including the repayment of existing debt obligations, which was funded through a combination of borrowings under the Company’s new $1.0 billion term loan facility, the issuance of the Senior Notes and cash on hand (please refer to Note 11 for additional information).
Jimmy Choo’s results of operations have been included in our consolidated financial statements beginning on November 1, 2017. Jimmy Choo contributed revenue of $223 million and net loss of $15 million (after amortization of non-cash purchase accounting adjustments and transition and transaction costs) for the period from the date of acquisition through March 31, 2018.
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended March 31, 2018 and April 1, 2017 as if the acquisition had occurred on April 3, 2016, the beginning of Fiscal 2017 (in millions):
 
Fiscal Years Ended
 
March 31, 2018
 
April 1, 2017
Pro-forma total revenue
$
5,012

 
$
4,985

Pro-forma net income
623

 
554

Pro-forma net income per ordinary share attributable to Capri:

 

Basic
$
4.09

 
$
3.34

Diluted
$
4.02

 
$
3.29

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Jimmy Choo and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2017 and are not indicative of the future operating results of the combined company. The financial information for Jimmy Choo prior to the acquisition has been included in the pro-forma results of operations on a calendar-year basis and includes certain adjustments to Jimmy Choo’s historical consolidated financial statements to align with U.S. GAAP and the Company’s accounting policies. The pro-forma consolidated results of operations also include the effects of purchase accounting adjustments, including amortization charges related to the definite-lived intangible assets acquired, fair value adjustments relating to leases and fixed assets, and the related tax effects assuming that the business combination occurred on April 3, 2016. Purchase accounting amortization of the inventory step-up adjustment has been excluded from the above pro-forma amounts due to the short-term nature of this adjustment. The pro-forma consolidated financial statement also reflect the impact of debt repayment and borrowings made to finance the acquisition (see Note 11) and exclude historical interest expense for Jimmy Choo. Transaction costs of $41 million for Fiscal 2018, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature.
Fiscal 2017 Acquisition
Acquisition of Michael Kors (HK) Limited
On May 31, 2016, the Company acquired 100% of the stock of MKHKL, the Michael Kors licensees in the Greater China region, which includes China, Hong Kong, Macau and Taiwan. The Company believes that having direct control of this business allows it to better manage opportunities and capitalize on the growth potential in the region. This acquisition was funded by a cash payment of $500 million. The Company accounted for the acquisition as a business combination.
MKHKL’s results of operations have been included in our consolidated financial statements beginning on June 1, 2016. MKHKL contributed total revenue of $212 million and net loss of $11 million for the period from the date of acquisition through April 1, 2017 (after amortization of non-cash valuation adjustments and integration costs).
The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal year ended April 1, 2017 as if the acquisition had occurred on March 29, 2015, the beginning of Fiscal 2016 (in millions):
 
Fiscal Years Ended
 
April 1, 2017
Pro-forma total revenue
$
4,520

Pro-forma net income
549

Pro-forma net income per ordinary share attributable to Capri:
 
Basic
$
3.31

Diluted
$
3.26


The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and MKHKL and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2016 and are not indicative of the future operating results of the combined company. The pro-forma consolidated results of operations reflect the elimination of intercompany transactions and include the effects of purchase accounting adjustments, including amortization charges related to the definite-lived intangible assets acquired (reacquired rights and customer relationships), fair value adjustments relating to leases, fixed assets and inventory, and the related tax effects assuming that the business combination occurred on March 29, 2015. The pro-forma consolidated results of operations for Fiscal 2017 also reflect the elimination of transaction costs of approximately $11 million, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income for Fiscal 2017.
v3.19.1
Receivables, net
12 Months Ended
Mar. 30, 2019
Receivables [Abstract]  
Receivables, net
Receivables, net
Receivables, net consist of (in millions):
 
March 30,
2019
 
March 31,
2018
Trade receivables (1)
$
459

 
$
383

Receivables due from licensees
23

 
16

 
482

 
399

Less: allowances
(99
)
 
(109
)
 
$
383

 
$
290


 
 
 
 
 
(1) 
As of March 30, 2019 and March 31, 2018, $317 million and $296 million, respectively, of trade receivables were insured.
Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and doubtful accounts. Discounts are based on open invoices where trade discounts have been extended to customers. Allowances are based on wholesale customers’ sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are reflected in revenues.
The Company’s allowance for doubtful accounts is determined through analysis of periodic aging of receivables that are not covered by insurance and assessments of collectability based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers and the impact of general economic conditions. The past due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered. Allowance for doubtful accounts was $18 million as of March 30, 2019, including an $11 million allowance within the opening balance sheet of our newly acquired Versace business. Allowance for doubtful accounts was $5 million as of March 31, 2018, which included an allowance due to a bankruptcy of one of our wholesale customers. The Company had provisions for bad debt of $4 million, $8 million and $6 million, respectively, for Fiscal 2019, Fiscal 2018 and Fiscal 2017.
v3.19.1
Concentration of Credit Risk, Major Customers and Suppliers
12 Months Ended
Mar. 30, 2019
Risks and Uncertainties [Abstract]  
Concentration of Credit Risk, Major Customers and Suppliers
Concentration of Credit Risk, Major Customers and Suppliers
Financial instruments that subject the Company to concentration of credit risk are cash and cash equivalents and receivables. As part of its ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order to avoid any undue exposure. The Company mitigates its risk by depositing cash and cash equivalents in major financial institutions. The Company also mitigates its credit risk by obtaining insurance coverage for a substantial portion of its receivables (see Note 5). No individual customer accounted for 10% or more of the Company’s total revenues during Fiscal 2019, Fiscal 2018 or Fiscal 2017.
The Company contracts for the purchase of finished goods principally with independent third-party contractors, whereby the contractor is generally responsible for all manufacturing processes. Although the Company does not have any long-term agreements with any of its manufacturing contractors, the Company believes it has mutually satisfactory relationships with them. The Company allocates product manufacturing among agents and contractors based on their capabilities, the availability of production capacity, quality, pricing and delivery. The inability of certain contractors to provide needed services on a timely basis could adversely affect the Company’s operations and financial condition. For Fiscal 2019Fiscal 2018 and Fiscal 2017, one contractor accounted for approximately 21%, 26% and 33%, respectively, of the Company’s total finished goods purchases, based on dollar volume.
The Company also has relationships with various agents who source finished goods with numerous contractors on behalf of its Michael Kors brand. For Fiscal 2019Fiscal 2018 and Fiscal 2017, one agent sourced approximately 24%, 24% and 22%, respectively, of Michael Kors finished goods, based on unit volume.
v3.19.1
Property and Equipment, Net
12 Months Ended
Mar. 30, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net
Property and Equipment, Net
Property and equipment, net, consists of (in millions):
 
March 30,
2019
 
March 31,
2018
Leasehold improvements
$
639

 
$
551

In-store shops
270

 
274

Furniture and fixtures
292

 
271

Computer equipment and software
292

 
266

Equipment
123

 
117

Building
47

 
52

Land
15

 
16

 
1,678

 
1,547

Less: accumulated depreciation and amortization
(1,115
)
 
(1,002
)
 
563

 
545

Construction-in-progress
52

 
38

 
$
615

 
$
583


Depreciation and amortization of property and equipment for the fiscal years ended March 30, 2019March 31, 2018, and April 1, 2017, was $188 million, $182 million and $198 million, respectively. During Fiscal 2019, the Company recorded fixed asset impairment charges of $19 million, $15 million of which related to underperforming Michael Kors full-price retail store locations, some of which will be closed as part of the Company’s previously announced Retail Fleet Optimization Plan and $4 million related to Jimmy Choo retail store locations (as defined in Note 10). During Fiscal 2018 and Fiscal 2017, the Company recorded fixed asset impairment charges of $28 million and $169 million, respectively, primarily related to underperforming Michael Kors retail locations.
v3.19.1
Intangible Assets and Goodwill
12 Months Ended
Mar. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill
Intangible Assets and Goodwill
The following table details the carrying values of the Company’s intangible assets other than goodwill (in millions):
 
March 30, 2019
 
March 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization (1)
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization (1)
 
Net
Definite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Reacquired rights
$
400

 
$
45

 
$
355

 
$
400

 
$
29

 
$
371

Trademarks
23

 
19

 
4

 
23

 
17

 
6

Lease rights
96

 
56

 
40

 
80

 
58

 
22

Customer relationships
415

 
23

 
392

 
231

 
8

 
223

 
934

 
143

 
791

 
734

 
112

 
622

 
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Jimmy Choo brand (2)
572

 

 
572

 
614

 

 
614

Versace brand
930

 

 
930

 

 

 

 
1,502

 

 
1,502

 
614

 

 
614

 
 
 
 
 
 
 
 
 
 
 
 
Total intangible assets, excluding goodwill
$
2,436

 
$
143

 
$
2,293

 
$
1,348

 
$
112

 
$
1,236


________________________________
(1) 
Includes $2 million, $5 million and $30 million, respectively, of impairment charges recorded during Fiscal 2019, Fiscal 2018 and Fiscal 2017 in connection with underperforming full-price retail stores. See Note 13 for additional information.
(2) 
The change in carrying value relates to foreign currency translation.
Reacquired rights relate to the Company’s reacquisition of the rights to use the Michael Kors trademarks and to import, sell, advertise and promote certain of its products in the previously licensed territories in the Greater China region and are being amortized through March 31, 2041, the expiration date of the related license agreement. The trademarks relate to the Michael Kors brand name and are amortized over twenty years. Customer relationships are amortized over five to eighteen years. Lease rights are amortized over the respective terms of the underlying lease, including highly probable renewal periods. Amortization expense for the Company’s definite-lived intangibles was $37 million, $26 million and $22 million, respectively, for each of the fiscal years ended March 30, 2019March 31, 2018 and April 1, 2017.
Indefinite-lived intangible assets other than goodwill included the Versace and Jimmy Choo brands, which were recorded in connection with the acquisitions of Versace and Jimmy Choo, and have an indefinite life due to being essential to the Company’s ability to operate the Versace and Jimmy Choo businesses for the foreseeable future.
Estimated amortization expense for each of the next five years is as follows (in millions):
Fiscal 2020
$
56

Fiscal 2021
55

Fiscal 2022
52

Fiscal 2023
50

Fiscal 2024
49

Fiscal 2025 and thereafter
529

 
$
791


The future amortization expense above reflects weighted-average estimated remaining useful lives of 22 years for reacquired rights, 4 years for trademarks, 14 years for customer relationships and 6 years for lease rights.
The following table details the changes in goodwill for each of the Company’s reportable segments (in millions):
 
Versace
 
Jimmy Choo
 
Michael
    Kors (1)
 
Total
Balance at April 1, 2017
$

 
$

 
$
120

 
$
120

Acquisition of Jimmy Choo

 
685

 

 
685

Foreign currency translation

 
43

 

 
43

Balance at March 31, 2018

 
728

 
120

 
848

Acquisition of Versace (2)
878

 

 

 
878

Foreign currency translation
(17
)
 
(50
)
 

 
(67
)
Balance at March 30, 2019
$
861

 
$
678

 
$
120

 
$
1,659


 
 
(1) 
In connection with the realignment of the Company’s reportable segment structure, the Company presented the carrying amount of goodwill of MK Retail, MK Wholesale and MK Licensing reporting units within the Michael Kors reportable segment, effective beginning in the fourth quarter of Fiscal 2019.
(2) 
See Note 4 for additional information.
The Company’s goodwill and the Versace and Jimmy Choo brands are not subject to amortization but are evaluated for impairment annually in the last quarter of each fiscal year, or whenever impairment indicators exist. During the fourth quarter of Fiscal 2019, the Company performed its annual goodwill and indefinite-lived intangible assets impairment analysis for its three brands. The impairment analysis relating to the Versace goodwill and brand were performed using a qualitative approach due to the proximity to the acquisition date and it was concluded that it is more likely than not that the fair value of goodwill and brand exceeded their respective carrying values and, therefore, did not result in impairment. The Company also performed its goodwill impairment assessment for the Michael Kors brand using a qualitative approach. As a result of realigning its segment reporting structure during the fourth quarter of Fiscal 2019, the Company presented the carrying amount of goodwill of MK Retail, MK Wholesale and MK Licensing within the Michael Kors reportable segment. Based on the results of the Company’s qualitative impairment assessment, the Company concluded that it is more likely than not that the fair value of the Michael Kors’ reporting units exceeded their carrying value and, therefore, was not impaired. The Company elected to perform its annual goodwill and brand impairment analysis for Jimmy Choo brand using a quantitative approach, using discounted cash flow and market multiples analysis to estimate the fair values of the Jimmy Choo reporting units, as described above. Based on the results of these assessments, the Company concluded that the fair values of the Jimmy Choo reporting units and the brand indefinite-lived intangible asset exceeded the related carrying amounts and there were no reporting units at risk of impairment. See Note 13 to the accompanying audited financial statements for information relating to its annual impairment analysis performed during the fourth quarter of Fiscal 2019. There were no impairment charges related to goodwill or indefinite-lived intangible assets in any of the fiscal periods presented.
v3.19.1
Current Assets and Current Liabilities
12 Months Ended
Mar. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Current Assets and Current Liabilities
Current Assets and Current Liabilities
Prepaid expenses and other current assets consist of the following (in millions):
 
March 30,
2019
 
March 31,
2018
Prepaid taxes
$
125

 
$
79

Prepaid rent
24

 
23

Interest receivable related to net investment hedges
11

 

Leasehold incentive receivable
9

 
9

Other
52

 
37

 
$
221

 
$
148


Accrued expenses and other current liabilities consist of the following (in millions):
 
March 30,
2019
 
March 31,
2018
Restructuring liability
$
64

 
$
45

Other taxes payable
47

 
54

Return liabilities
35

 
12

Accrued rent
34

 
34

Accrued purchases and samples
29

 
3

Accrued capital expenditures
25

 
26

Gift cards and retail store credits
13

 
16

Professional services
12

 
14

Accrued litigation
11

 

Accrued advertising and marketing
10

 
23

Accrued interest
10

 
9

Other
84

 
59

 
$
374

 
$
295

v3.19.1
Restructuring and Other Charges
12 Months Ended
Mar. 30, 2019
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges
Restructuring and Other Charges
On May 31, 2017, the Company announced that it plans to close between 100 and 125 of its Michael Kors retail stores in order to improve the profitability of its retail store fleet (“Retail Fleet Optimization Plan”). The Company anticipates finalizing the remainder of the planned store closures under the Retail Fleet Optimization Plan by the end of Fiscal 2020. The Company expects to incur approximately $100 - $125 million of one-time costs associated with these store closures. Collectively, the Company anticipates ongoing annual savings of approximately $60 million as a result of store closures and lower depreciation and amortization expense as a result of the impairment charges recorded once these initiatives are completed.
During Fiscal 2019, the Company closed 53 of its Michael Kors retail stores under the Retail Fleet Optimization Plan, for a total of 100 stores closed since plan inception. Restructuring charges recorded in connection with the Retail Fleet Optimization Plan during Fiscal 2019 and Fiscal 2018 were $41 million and $53 million, respectively. The below table presents a rollforward of the Company’s remaining restructuring liability related to this plan (in millions):
 
Severance and benefit costs
 
Lease-related costs
 
Total
Balance at March 31, 2018
$

 
$
45

 
$
45

Additions charged to expense
3

 
38

 
41

Balance sheet reclassifications (1)

 
6

 
6

Payments
(1
)
 
(36
)
 
(37
)
Balance at March 30, 2019
$
2

 
$
53

 
$
55

 
 
 
 
 
(1) 
Primarily consists of reclassification of deferred rent for locations subject to closure to a restructuring liability.
During Fiscal 2018, the Company recorded restructuring charges of $53 million under the Retail Fleet Optimization Plan, which were comprised of lease-related charges of $52 million and severance and benefit costs of $1 million.

Other Restructuring Charges
In addition to the restructuring charges related to the Retail Fleet Optimization Plan, the Company incurred charges of $4 million relating to Jimmy Choo lease-related charges during Fiscal 2019.
Transaction and Transition Costs
During Fiscal 2019, the Company recorded transaction and transition costs of $79 million, which included $52 million in connection with the Versace acquisition and $27 million in connection with the acquisition of Jimmy Choo.
During Fiscal 2018, the Company recorded transaction and transition costs of $49 million in connection with the Jimmy Choo acquisition. During Fiscal 2017, the Company recorded transaction costs of $11 million related to the acquisition of the Greater China business. See Note 4 for additional information relating to these acquisitions.
v3.19.1
Debt Obligations
12 Months Ended
Mar. 30, 2019
Debt Disclosure [Abstract]  
Debt Obligations
Debt Obligations
The following table presents the Company’s debt obligations (in millions):
 
March 30,
2019
 
March 31,
2018
Term Loan(1)
$
1,580

 
$
230

4.000% Senior Notes due 2024
450

 
450

Revolving Credit Facilities
550

 
200

Other
1

 
1

Total debt
2,581

 
881

Less: Unamortized debt issuance costs
13

 
4

Less: Unamortized discount on long-term debt
2

 
2

Total carrying value of debt
2,566

 
875

Less: Short-term debt
630

 
200

Total long-term debt
$
1,936

 
$
675


 
 
 
 
 
(1) 
During Fiscal 2019, the Company repaid the remaining $59 million of borrowings outstanding under the previous Term Loan Facility entered into in connection with the Jimmy Choo acquisition.
Senior Unsecured Revolving Credit Facility
On November 15, 2018, the Company entered into a third amended and restated senior unsecured credit facility (the “2018 Credit Facility”) with, among others, JPMorgan Chase Bank, N.A., as administrative agent, which replaced its prior 2017 senior unsecured revolving credit facility (the “2017 Credit Facility”). The Company and its U.S., Canadian, Dutch and Swiss subsidiaries are the borrowers under the 2018 Credit Facility. The borrowers and certain material subsidiaries of the Company provide unsecured guarantees of the 2018 Credit Facility. The 2018 Credit Facility provides for a $1.0 billion revolving credit facility (the “Revolving Credit Facility”), which may be denominated in U.S. Dollars and other currencies, including Euros, Canadian Dollars, Pounds Sterling, Japanese Yen and Swiss Francs. The Revolving Credit Facility also provides sub-facilities for the issuance of letters of credit of up to $75 million and swing line loans of up to $75 million. The 2018 Credit Facility also provides for a $1.6 billion term loan facility (the “2018 Term Loan Facility”) to finance a portion of the purchase price of the Company’s acquisition of Versace. The 2018 Term Loan Facility is divided into two tranches, an $800 million tranche that matures on the second anniversary of the initial borrowing of the term loans and an $800 million tranche that matures on the fifth anniversary of the initial borrowing of the term loans. The $800 million tranche that matures on the fifth anniversary is required to be repaid on the last business day of March, June, September and December of each year, commencing after the last business day of the first full fiscal quarter after the initial borrowing, in installments equal to 2.50% of the aggregate original principal amount of the term loans. The Company has the right to prepay its borrowings under the 2018 Term Loan Facility at any time in whole or in part. The Revolving Credit Facility expires on November 15, 2023. The Company has the ability to expand its borrowing availability under the 2018 Credit Facility in the form of revolving commitments or term loans by up to an additional $500 million, subject to the agreement of the participating lenders and certain other customary conditions.
Borrowings under the Revolving Credit Facility bear interest, at the Company’s option, at the following rates:
for any loans (except loans denominated in Canadian Dollars), the greater of Adjusted LIBOR for the applicable interest period and zero, plus an applicable margin based on the Company’s public debt rating;
for loans denominated in U.S. Dollars, an alternate base rate, which is the greatest of: (a) the prime rate publicly announced from time to time by JPMorgan Chase, (b) the greater of the federal funds effective rate and the Federal Reserve Bank of New York overnight bank funding rate and zero, plus 50 basis points, and (c) the greater of the one-month London Interbank Offered Rate adjusted for statutory reserve requirements for Eurocurrency liabilities (“Adjusted LIBOR”) and zero, plus 100 basis points, in each case, plus an applicable margin based on the Company’s public debt ratings;
for loans denominated in Canadian Dollars, the Canadian prime rate, which is the greater of the PRIMCAN Index rate and the rate applicable to one-month Canadian Dollar banker’s acceptances quoted on Reuters (“CDOR”), plus 100 basis points, plus an applicable margin based on the Company’s public debt ratings; or
for loans denominated in Canadian Dollars, the average CDOR rate for the applicable interest period, plus 10 basis points per annum, plus an applicable margin based on the Company’s public debt ratings.
Borrowings under the 2018 Term Loan Facility bear interest, at the Company’s option, at (a) the alternate base rate plus an applicable margin based on the Company’s public debt ratings; or (b) the greater of Adjusted LIBOR for the applicable interest period and zero, plus an applicable margin based on the Company’s public debt ratings.
The Revolving Credit Facility also provides for an annual administration fee and a commitment fee equal to 0.10% to 0.25% per annum, based on the Company’s public debt ratings, applied to the average daily unused amount of the Revolving Credit Facility. The 2018 Term Loan Facility provides for a commitment fee equal to 0.10% to 0.25% per annum, based on the Company’s public debt ratings, applied to the undrawn amount of the 2018 Term Loan Facility, from January 6, 2019 until the term loans are fully drawn or the commitments under the 2018 Term Loan Facility terminate or expire. Loans under the 2018 Credit Facility may be repaid and commitments may be terminated or reduced by the borrowers without premium or penalty other than the customary breakage costs with respect to loans bearing interest based on Adjusted LIBOR or the CDOR rate.
The 2018 Credit Facility requires the Company to maintain a leverage ratio as of the end of each fiscal quarter of no greater than 3.75 to 1. Such leverage ratio is calculated as the ratio of the sum of total indebtedness as of the date of the measurement plus six times the consolidated rent expense for the last four consecutive fiscal quarters, to Consolidated EBITDAR (as defined below) for the last four consecutive fiscal quarters. Consolidated EBITDAR is defined as consolidated net income plus income tax expense, net interest expense, depreciation and amortization expense, consolidated rent expense and other non-cash charges, subject to certain additions and deductions. The 2018 Credit Facility also includes covenants that limit additional indebtedness, guarantees, liens, acquisitions and other investments and cash dividends that are customary for financings of this type. As of March 30, 2019, the Company was in compliance with all covenants related to this agreement.
The 2018 Credit Facility contains events of default customary for financings of this type, including, but not limited to, payment of defaults, material inaccuracy of representations and warranties, covenant defaults, cross-defaults to certain indebtedness, certain events of bankruptcy or insolvency, certain events under The Employee Retirement Income Security Act, material judgments, actual or asserted failure of any guaranty supporting the 2018 Credit Facility to be in full force and effect, and changes of control. If such an event of default occurs, the lenders under the 2018 Credit Facility would be entitled to take various actions, including, but not limited to, terminating the commitments and accelerating amounts outstanding under the 2018 Credit Facility, subject to “certain funds” limitations in connection with the transaction governing the 2018 Term Loan Facility.
In connection with the acquisition of Versace, on December 21, 2018 the Company borrowed $1.6 billion in term loans under the 2018 Term Loan Facility and $350 million under its $1.0 billion Revolving Credit Facility provided for under the 2018 Credit Facility, to pay a portion of the acquisition consideration and other related fees and expenses. As of March 30, 2019 and March 31, 2018, the Company had borrowings of $539 million and $200 million outstanding under the 2018 Revolving Credit Facility and its prior 2017 Revolving Credit Facility, respectively, which were recorded within short-term debt in its consolidated balance sheets. In addition, stand-by letters of credit of $17 million were outstanding as of March 30, 2019. At March 30, 2019, the amount available for future borrowings under the 2018 Revolving Credit Facility was $444 million. As of March 30, 2019, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $1.570 billion, net of debt issuance costs of $10 million, of which $80 million was recorded within short-term debt and $1.490 billion was recorded within long-term debt in its consolidated balance sheets.
Senior Notes
On October 20, 2017, Michael Kors (USA), Inc. (the “Issuer”), the Company’s wholly owned subsidiary, completed its offering of $450 million aggregate principal amount of 4.000% senior notes due 2024 (the “Senior Notes”) at an issue price of 99.508% of aggregate principal amount, pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Senior Notes were issued under an indenture dated October 20, 2017, among the Issuer, the Company, the subsidiary guarantors party thereto and U.S. Bank National Association, as trustee (the “Indenture”). The Senior Notes were issued to finance a portion of the Company’s acquisition of Jimmy Choo and certain related refinancing transactions.
The Senior Notes bear interest at a rate of 4.000% per year, subject to adjustments from time to time if either Moody’s or S&P (or a substitute rating agency therefore) downgrades (or downgrades and subsequently upgrades) the credit rating assigned to the Senior Notes. Interest on the Senior Notes is payable semi-annually on May 1 and November 1 of each year, beginning on May 1, 2018.

The Senior Notes are unsecured and are guaranteed by the Company and its existing and future subsidiaries that guarantee or are borrowers under the 2018 Credit Facility (subject to certain exceptions, including subsidiaries organized in China).

The Senior Notes may be redeemed at the Company’s option at any time in whole or in part at a price equal to 100% of the principal amount, plus accrued and unpaid interest, plus a “make-whole” amount calculated at the applicable Treasury Rate plus 30 basis points.
The Senior Notes rank equally in right of payment with all of the Issuer’s and guarantors’ existing and future senior unsecured indebtedness, senior in right of payment to any future subordinated indebtedness, effectively subordinated in right of payment to any of the Company’s subsidiaries’ obligations (including secured and unsecured obligations) and any of the Company’s secured obligations, to the extent of the assets securing such obligations.
The Indenture contains covenants, including those that limit the Company’s ability to create certain liens and enter into certain sale and leaseback transactions. In the event of a “Change of Control Triggering Event,” as defined in the Indenture, the Issuer will be required to make an offer to repurchase the Senior Notes at a repurchase price in cash equal to 101% of the aggregate principal amount of the Senior Notes being repurchased plus any unpaid interest. These covenants are subject to important limitations and exceptions, as per the Indenture.
As of March 30, 2019, the carrying value of the Senior Notes was $445 million, net of issuance costs and unamortized discount.
Japan Credit Facility
In November 2017, the Company’s subsidiary in Japan entered into a short term credit facility (“Japan Credit Facility”) with Mitsubishi UFJ Financial Group (“MUFJ”), which may be used to fund general working capital needs of Michael Kors Japan K.K., subject to the bank’s discretion. The Japan Credit Facility is in effect through November 29, 2019. The Japan Credit Facility provides Michael Kors Japan K.K. with a revolving credit line of up to ¥1.0 billion (approximately $9 million). The Japan Credit Facility bears interest at a rate posted by the Bank plus 0.300% two business days prior to the date of borrowing or the date of interest renewal. As of March 30, 2019 and March 31, 2018, the Company had no borrowings outstanding under the Japan Credit Facility.

Hong Kong Credit Facility
In March 2019, the Company’s Hong Kong subsidiary, MKHKL, renewed its uncommitted credit facility (“HK Credit Facility”) with HSBC, which may be used to fund general working capital needs of MKHKL through November 30, 2019 subject to the bank’s discretion. The HK Credit Facility provides MKHKL with a revolving line of credit of up to 100 million Hong Kong Dollars (approximately $13 million), and may be used to support bank guarantees. Borrowings under the HK Credit Facility must be made in increments of at least 5 million Hong Kong Dollars and bear interest at the Hong Kong Interbank Offered Rate (“HIBOR”) plus 150 basis points. As of March 30, 2019 and March 31, 2018, there were no borrowings outstanding under the HK Credit Facility. As of March 30, 2019, bank guarantees supported by this facility were 12 million Hong Kong Dollars (approximately $2 million). At March 30, 2019, the amount available for future borrowings under the HK Credit Facility was 88 million Hong Kong Dollars (approximately $11 million).

China Credit Facility
In January 2019, the Company’s subsidiary in China, MKTSCL, entered into a short-term credit facility (“China Credit Facility”) with HSBC, which may be used to fund general working capital needs, not to exceed 12 months. The China Credit Facility provides MKTSCL with a Revolving Loan Facility of up to RMB 70 million (approximately $10 million); an overdraft facility with a credit line of RMB 10 million (approximately $1 million), and a non-financial bank guarantee facility of RMB 20 million (approximately $3 million) or its equivalent in another currency, at lender’s discretion. Borrowings under the China Credit Facility bear interest at 105% of the applicable People’s Bank of China’s Benchmark lending rate at the time of borrowing. As of March 30, 2019, the Company had no borrowings outstanding under the China Credit Facility.
Versace Credit Facility
In January 2018, the Company’s subsidiary, Versace, entered into an uncommitted short-term credit facility with BNL (“Versace Credit Facility”), which may be used for general working capital needs of Versace. The Versace Credit Facility provides Versace with a swing line of credit of up to €20 million (approximately $22 million), with interest set by the bank on the date of borrowing. As of March 30, 2019, there were borrowings outstanding of €10 million (approximately $11 million, which were recorded within short-term debt in the Company’s consolidated balance sheet.
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Commitments and Contingencies
12 Months Ended
Mar. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Leases
The Company leases office space, retail stores and warehouse space under operating lease agreements that expire at various dates through September 2043. In addition to minimum rental payments, the leases require payment of increases in real estate taxes and other expenses incidental to the use of the property.
Rent expense for the Company’s operating leases consists of the following (in millions):