CAPRI HOLDINGS LTD, 10-Q filed on 2/7/2019
Quarterly Report
v3.10.0.1
Document and Entity Information - shares
9 Months Ended
Dec. 29, 2018
Jan. 31, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Dec. 29, 2018  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Registrant Name CAPRI HOLDINGS LTD  
Entity Central Index Key 0001530721  
Current Fiscal Year End Date --03-30  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   150,708,513
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 29, 2018
Mar. 31, 2018
Current assets    
Cash and cash equivalents $ 264.5 $ 163.1
Receivables, net 291.2 290.5
Inventories 764.7 660.7
Prepaid expenses and other current assets 2,119.1 147.8
Total current assets 3,439.5 1,262.1
Property and equipment, net 543.6 583.2
Intangible assets, net 1,132.9 1,235.7
Goodwill 780.0 847.7
Deferred tax assets 47.2 56.2
Other assets 85.2 74.1
Total assets 6,028.4 4,059.0
Current liabilities    
Accounts payable 329.0 294.1
Accrued payroll and payroll related expenses 99.2 93.0
Accrued income taxes 22.5 77.6
Short-term debt 579.4 200.0
Accrued expenses and other current liabilities 357.3 295.6
Total current liabilities 1,387.4 960.3
Deferred rent 130.6 128.4
Deferred tax liabilities 181.6 186.3
Long-term debt 1,954.7 674.4
Other long-term liabilities 107.0 88.1
Total liabilities 3,761.3 2,037.5
Commitments and contingencies
Shareholders’ equity    
Ordinary shares, no par value; 650,000,000 shares authorized; 213,432,129 shares issued and 148,313,496 outstanding at December 29, 2018; 210,991,091 shares issued and 149,698,407 outstanding at March 31, 2018 0.0 0.0
Treasury shares, at cost (65,118,633 shares at December 29, 2018 and 61,292,684 shares at March 31, 2018) (3,223.1) (3,015.9)
Additional paid-in capital 892.4 831.1
Accumulated other comprehensive (loss) income (92.9) 50.5
Retained earnings 4,687.3 4,152.0
Total shareholders’ equity of Capri 2,263.7 2,017.7
Noncontrolling interest 3.4 3.8
Total shareholders’ equity 2,267.1 2,021.5
Total liabilities and shareholders’ equity $ 6,028.4 $ 4,059.0
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 29, 2018
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) 213,432,129 210,991,091
Ordinary shares, shares outstanding (in shares) 148,313,496 149,698,407
Treasury shares (in shares) 65,118,633 61,292,684
v3.10.0.1
Consolidated Statements of Operations and Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Dec. 29, 2018
Dec. 30, 2017
Dec. 29, 2018
Dec. 30, 2017
Income Statement [Abstract]        
Total revenue $ 1,438.0 $ 1,440.1 $ 3,894.3 $ 3,539.1
Cost of goods sold 564.8 556.1 1,507.2 1,389.6
Gross profit 873.2 884.0 2,387.1 2,149.5
Selling, general and administrative expenses 506.1 485.9 1,466.0 1,267.4
Depreciation and amortization 51.5 54.0 160.1 149.9
Impairment of long-lived assets 5.9 2.6 17.2 18.9
Restructuring and other charges [1] 19.7 28.0 49.2 51.3
Total operating expenses 583.2 570.5 1,692.5 1,487.5
Income from operations 290.0 313.5 694.6 662.0
Other income, net (1.4) (0.1) (3.7) (1.0)
Interest expense, net 7.7 8.3 21.1 10.2
Foreign currency loss (gain) 42.6 27.0 78.5 (14.7)
Income before provision for income taxes 241.1 278.3 598.7 667.5
Provision for income taxes 41.7 58.9 76.0 119.9
Net income 199.4 219.4 522.7 547.6
Less: Net loss attributable to noncontrolling interest (0.2) 0.0 (0.9) (0.2)
Net income attributable to Capri $ 199.6 $ 219.4 $ 523.6 $ 547.8
Weighted average ordinary shares outstanding:        
Weighted average ordinary shares outstanding, basic (in shares) 149,183,049 152,047,963 149,420,087 152,772,067
Weighted average ordinary shares outstanding, diluted (in shares) 150,268,424 154,623,339 151,457,921 155,220,984
Net income per ordinary share attributable to Capri:        
Net income per ordinary share, basic (in dollars per share) $ 1.34 $ 1.44 $ 3.50 $ 3.59
Net income per ordinary share, diluted (in dollars per share) $ 1.33 $ 1.42 $ 3.46 $ 3.53
Statements of Comprehensive Income:        
Net income $ 199.4 $ 219.4 $ 522.7 $ 547.6
Foreign currency translation adjustments (31.7) 41.6 (159.9) 78.7
Net gain (loss) on derivatives 1.7 (0.3) 16.4 (16.4)
Comprehensive income 169.4 260.7 379.2 609.9
Less: Net loss attributable to noncontrolling interest (0.2) 0.0 (0.9) (0.2)
Less: Other comprehensive income (loss) attributable to noncontrolling interest 0.0 0.1 (0.1) 0.1
Comprehensive income attributable to Capri $ 169.6 $ 260.6 $ 380.2 $ 610.0
[1] Restructuring and other charges includes store closure costs recorded in connection with the Michael Kors Retail Fleet Optimization Plan (as defined in Note 9) and other restructuring initiatives, and transaction and transition costs recorded in connection with the acquisitions of Jimmy Choo Group Limited and Gianni Versace S.r.l.
v3.10.0.1
Consolidated Statement of Shareholders' Equity - USD ($)
$ in Millions
Total
Ordinary Shares
Additional Paid-in Capital
Treasury Shares
Accumulated Other Comprehensive Income (Loss)
Retained Earnings
Total Equity of Capri
Non-controlling Interests
Beginning balance at Apr. 01, 2017         $ (80.6)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) $ 547.6              
Other comprehensive loss         62.2      
Comprehensive income 609.9              
Ending balance at Dec. 30, 2017         (18.4)      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Adoption of accounting standards 11.7         $ 11.7 $ 11.7  
Balance as of April 1, 2018 $ 2,033.2   $ 831.1 $ (3,015.9) 50.5 4,163.7 2,029.4 $ 3.8
Beginning balance (in shares) at Mar. 31, 2018 210,991,091 210,991,000            
Beginning balance (in shares) at Mar. 31, 2018 (61,292,684)     (61,293,000)        
Beginning balance at Mar. 31, 2018 $ 2,021.5 $ 0.0 831.1 $ (3,015.9) 50.5 4,152.0 2,017.7 3.8
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income (loss) 522.7         523.6 523.6 (0.9)
Other comprehensive loss (143.5)       (143.4)   (143.4) (0.1)
Comprehensive income 379.2           380.2 (1.0)
Vesting of restricted awards, net of forfeitures (in shares)   781,000            
Exercises of employee share options (in shares)   1,660,000            
Exercise of employee share options 23.0   23.0       23.0  
Equity compensation expense 38.3   38.3       38.3  
Purchase of treasury shares (in shares)       (3,826,000)        
Purchase of treasury shares (207.2)     $ (207.2)     (207.2)  
Increase in noncontrolling interest $ 0.6             0.6
Ending balance (in shares) at Dec. 29, 2018 213,432,129 213,432,000            
Ending balance (in shares) at Dec. 29, 2018 (65,118,633)     65,119,000        
Ending balance at Dec. 29, 2018 $ 2,267.1 $ 0.0 $ 892.4 $ (3,223.1) $ (92.9) $ 4,687.3 $ 2,263.7 $ 3.4
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
9 Months Ended
Dec. 29, 2018
Dec. 30, 2017
Cash flows from operating activities    
Net income $ 522.7 $ 547.6
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 160.1 149.9
Equity compensation expense 38.3 29.6
Deferred income taxes 12.1 33.1
Impairment of long-lived assets 17.2 18.9
Tax benefit on exercise of share options (24.1) (0.2)
Amortization of deferred financing costs 2.6 2.5
Foreign currency losses (gains) 78.5 (14.7)
Other non-cash charges 2.0 2.6
Change in assets and liabilities:    
Receivables, net (8.6) 17.1
Inventories (127.1) 20.8
Prepaid expenses and other current assets (51.1) 31.9
Accounts payable 52.0 (21.4)
Accrued expenses and other current liabilities 75.1 54.6
Other long-term assets and liabilities 26.0 1.0
Net cash provided by operating activities 775.7 873.3
Cash flows from investing activities    
Capital expenditures (134.7) (83.8)
Purchase of intangible assets (1.7) (3.2)
Cash paid for business acquisitions, net of cash acquired (1.8) (1,414.5)
Realized (loss) gain on hedge related to acquisitions (77.4) 4.7
Net cash used in investing activities (215.6) (1,496.8)
Cash flows from financing activities    
Debt borrowings 3,597.2 2,078.8
Debt repayments (1,926.3) (1,222.1)
Debt issuance costs (15.0) 0.0
Repurchase of treasury shares (207.2) (161.0)
Exercise of employee share options 23.0 5.5
Other financing activities 0.0 (0.2)
Net cash provided by financing activities 1,471.7 701.0
Effect of exchange rate changes on cash and cash equivalents (9.1) 10.3
Net increase in cash and cash equivalents and restricted cash 2,022.7 87.8
Beginning of period (including restricted cash of $0.3 million at March 31, 2018 and $1.9 million at April 1, 2017) 163.4 229.6
End of period (including restricted cash of $1,921.6 million and $0.3 million, respectively, at December 29, 2018 and December 30, 2017) 2,186.1 317.4
Supplemental disclosures of cash flow information    
Cash paid for interest 23.7 6.5
Cash paid for income taxes 128.0 85.0
Supplemental disclosure of non-cash investing and financing activities    
Accrued capital expenditures $ 23.1 $ 22.0
v3.10.0.1
Consolidated Statements of Cash Flows (Parenthetical) - USD ($)
$ in Millions
Dec. 29, 2018
Mar. 31, 2018
Dec. 30, 2017
Apr. 01, 2017
Statement of Cash Flows [Abstract]        
Restricted Cash $ 1,921.6 $ 0.3 $ 0.3 $ 1.9
v3.10.0.1
Business and Basis of Presentation
9 Months Ended
Dec. 29, 2018
Accounting Policies [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. The Company’s business consists of four reportable segments: Michael Kors (“MK”) Retail, MK Wholesale, MK Licensing and Jimmy Choo. See Note 18 for additional information.
On November 1, 2017, the Company completed the acquisition of Jimmy Choo Group Limited (“Jimmy Choo”) for a total transaction value of $1.447 billion. As a result, the Company has consolidated Jimmy Choo into its operations beginning on November 1, 2017, as a separate reporting segment. On December 31, 2018, the Company acquired all outstanding equity interests of Gianni Versace S.r.l. (“Versace”). See Note 4 and Note 20 for additional information.
The interim 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 interim consolidated financial statements as of December 29, 2018 and for the three and nine months ended December 29, 2018 and December 30, 2017 are unaudited. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The interim consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, necessary for a fair presentation in conformity with U.S. GAAP. The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 31, 2018, as filed with the Securities and Exchange Commission on May 30, 2018, in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods should not be considered indicative of results to be expected for the full fiscal year.
The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, the term “Fiscal Year” or “Fiscal” refers to the 52-week or 53-week period, ending on that day. The results for the three and nine months ended December 29, 2018 and December 30, 2017, are based on 13-week and 39-week periods, respectively.
v3.10.0.1
Summary of Significant Accounting Policies
9 Months Ended
Dec. 29, 2018
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.
Seasonality
The Company experiences certain effects of seasonality with respect to its business. The Company’s MK Retail segment generally experiences greater sales during its third fiscal quarter as a result of holiday season sales. The MK Wholesale segment generally experiences the lowest sales in its first fiscal quarter. The Jimmy Choo segment generally experiences greater sales during its first and third fiscal quarters, primarily driven by the product launch calendar and holiday season sales. In the aggregate, the Company’s first fiscal quarter typically experiences less sales volume relative to the other three quarters and its third fiscal quarter generally has higher sales volume relative to the other three quarters.

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, during the nine months ended December 29, 2018 and December 30, 2017, the Company classified $77.4 million of realized losses and $4.7 million of realized gains, respectively, relating to these derivative instruments within cash flows from investing activities.
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 our 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.
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 restricted shares and restricted share units (“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):
 
Three Months Ended
 
Nine Months Ended
 
December 29,
2018
 
December 30,
2017
 
December 29,
2018
 
December 30,
2017
Numerator:
 
 
 
 
 
 
 
Net income attributable to Capri
$
199.6

 
$
219.4

 
$
523.6

 
$
547.8

Denominator:
 
 
 
 
 
 
 
Basic weighted average shares
149,183,049

 
152,047,963

 
149,420,087

 
152,772,067

Weighted average dilutive share equivalents:
 
 
 
 
 
 
 
Share options and restricted shares/units, and performance restricted share units
1,085,375

 
2,575,376

 
2,037,834

 
2,448,917

Diluted weighted average shares
150,268,424

 
154,623,339

 
151,457,921

 
155,220,984

 
 
 
 
 
 
 
 
Basic net income per share
$
1.34

 
$
1.44

 
$
3.50

 
$
3.59

Diluted net income per share
$
1.33

 
$
1.42

 
$
3.46

 
$
3.53


During the three and nine months ended December 29, 2018, share equivalents of 2,022,564 shares and 1,117,277 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect. Share equivalents of 2,243,436 shares and 2,503,782 shares, respectively, have been excluded from the above calculations during the three and nine months ended December 30, 2017.
See Note 2 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 for a complete disclosure of the Company’s significant accounting policies.
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 a net increase to opening retained earnings of less than $0.1 million 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 the nine months ended December 29, 2018.
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 $6.7 million (net of a tax of $1.7 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
$
290.5

 
$
3.8

(1) 
$
294.3

Accrued expenses and other current liabilities
295.6

 
(4.6
)
(2) 
291.0

Deferred tax liabilities
186.3

 
1.7

(3) 
188.0

Retained earnings
4,152.0

 
6.7

 
4,158.7

 
 
 
 
 
(1) 
Includes a $3.5 million adjustment related to product licensing revenue, which was previously recorded on a one-month lag and $0.3 million 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 $16.2 million from receivables, net to accrued expenses and other current liabilities in its consolidated balance sheets as of December 29, 2018. Otherwise, the adoption of this standard did not have a material impact on the Company's consolidated financial statements as of and for the three and nine months ended December 29, 2018, 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 $4.9 million cumulative effect of adoption as an adjustment to the opening balance of retained earnings.
Recently Issued Accounting Pronouncements
We have 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 our 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-to-use asset for operating leases on the Company's consolidated balance sheet. Accordingly, adoption of this standard is expected to significantly increase the Company's total assets and total liabilities.
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, and ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors” issued in December 2018. 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.
v3.10.0.1
Revenue Recognition
9 Months Ended
Dec. 29, 2018
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 Michael Kors and Jimmy Choo trademarks.
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
Michael Kors generates sales through four primary retail store formats: “Collection” stores, “Lifestyle” stores, outlet stores and e-commerce. Michael Kors sells its own products and licensed products bearing the Michael Kors name, directly to the end consumer throughout the Americas (U.S., Canada and Latin America, excluding Brazil), Europe and certain parts of Asia. Jimmy Choo generates sales through directly operated stores and e-commerce throughout the Americas, EMEA (Europe, Middle East, and Africa) and certain parts of Asia. In addition to these retail formats, the Company operates concessions in a select number of department stores.
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 $11.8 million as of December 29, 2018, 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 $7.5 million as of December 29, 2018 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
Michael Kors products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia. Jimmy Choo luxury products are sold throughout North America, EMEA, and certain parts of Asia. The Company also has arrangements where Michael Kors and Jimmy Choo products are sold to our geographic licensees in certain parts of EMEA and Asia, as well as in Brazil. Products sold through the wholesale channel include accessories (which include handbags and small leather goods such as wallets), footwear and women’s and men’s apparel.
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 Michael Kors and Jimmy Choo 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. As of December 29, 2018, guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months.
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 December 29, 2018 was $42.1 million and the related asset for the right to recover returned product as of December 29, 2018 was $11.5 million.
Contract Balances
The Company’s contract liabilities, which are recorded within accrued expenses and other current liabilities in its consolidated balance sheets, primarily consist of gift card liabilities, loyalty program liabilities and advanced payments from product licensees. Total contract liabilities were $25.1 million and $23.3 million as of December 29, 2018 and March 31, 2018, respectively. Contract liabilities decreased $4.6 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). For three and nine months ended December 29, 2018, the Company recognized $2.3 million and $13.6 million, respectively, in revenue which related to contract liabilities that existed at March 31, 2018. There were no contract assets recorded as of December 29, 2018 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):
 
Three Months Ended
 
Nine Months Ended
 
December 29,
2018
 
December 30,
2017
 
December 29,
2018
 
December 30,
2017
MK Retail revenue - the Americas
$
557.1

 
$
558.0

 
$
1,354.2

 
$
1,335.6

MK Retail revenue - Europe
163.9

 
168.0

 
422.6

 
444.3

MK Retail revenue - Asia
117.0

 
120.3

 
344.6

 
331.3

 Total MK Retail
838.0

 
846.3

 
2,121.4

 
2,111.2

MK Wholesale revenue - the Americas
311.4

 
338.2

 
940.8

 
905.8

MK Wholesale revenue - EMEA (1)
66.3

 
81.2

 
215.6

 
250.7

MK Wholesale revenue - Asia
17.2

 
11.4

 
59.1

 
41.5

 Total MK Wholesale
394.9

 
430.8

 
1,215.5

 
1,198.0

MK Licensing revenue - the Americas
29.2

 
29.4

 
67.6

 
70.2

MK Licensing revenue - EMEA (1)
14.3

 
18.9

 
38.8

 
45.0

 Total MK Licensing
43.5

 
48.3

 
106.4

 
115.2

Total Michael Kors
1,276.4

 
1,325.4

 
3,443.3

 
3,424.4

 
 
 
 
 
 
 
 
Jimmy Choo revenue - the Americas
29.1

 
21.0

 
75.1

 
21.0

Jimmy Choo revenue - EMEA (1)
89.7

 
65.0

 
248.2

 
65.0

Jimmy Choo revenue - Asia
42.8

 
28.7

 
127.7

 
28.7

Total Jimmy Choo
161.6

 
114.7

 
451.0

 
114.7

 
 
 
 
 
 
 
 
Total revenue - the Americas
926.8

 
946.6

 
2,437.7

 
2,332.6

Total revenue - EMEA (1)
334.2

 
333.1

 
925.2

 
805.0

Total revenue - Asia
177.0

 
160.4

 
531.4

 
401.5

Total revenue
$
1,438.0

 
$
1,440.1

 
$
3,894.3

 
$
3,539.1

 
 
 
 
 
(1) 
EMEA is comprised of Europe, the Middle East and Africa.
v3.10.0.1
Acquisitions
9 Months Ended
Dec. 29, 2018
Business Combinations [Abstract]  
Acquisitions
Acquisitions
Acquisition of Jimmy Choo Group Limited
On November 1, 2017, the Company completed the acquisition of Jimmy Choo, whereby the Company 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 previous $1.0 billion term loan facility and the issuance of the Senior Notes, as defined in Note 10.
Jimmy Choo’s results of operations have been included in our consolidated financial statements beginning on November 1, 2017. Jimmy Choo contributed revenue of $161.6 million and $451.0 million, respectively, and net income (after amortization of non-cash purchase accounting adjustments and transition costs) of $3.6 million and $0.6 million, respectively, for the three and nine months ended December 29, 2018. For the period from the date of acquisition through December 30, 2017, Jimmy Choo contributed revenue of $114.7 million and net income (after amortization of non-cash purchase accounting adjustments and transition costs) of $8.1 million.
The following table summarizes the unaudited pro-forma consolidated results of operations for the three and nine months ended December 30, 2017 as if the acquisition had occurred on April 3, 2016, the beginning of Fiscal 2017 (in millions):
 
Three Months Ended
 
Nine Months Ended
 
December 30, 2017
 
December 30, 2017
Pro-forma total revenue
$
1,478.5

 
$
3,832.6

Pro-forma net income
242.8

 
574.2

Pro-forma net income per ordinary share attributable to Capri:
 
 
 
Basic
$
1.60

 
$
3.76

Diluted
$
1.57

 
$
3.70


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 finite-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 reflects the impact of debt repayment and borrowings made to finance the acquisition and exclude historical interest expense for Jimmy Choo. Transaction costs of $22.2 million and $39.6 million for the three and nine months ended December 30, 2017, 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.
See Note 20 for additional information related to the Company’s acquisition of Versace, as well as Note 3 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 for additional disclosures relating to the Company’s acquisitions.
v3.10.0.1
Receivables, net
9 Months Ended
Dec. 29, 2018
Receivables [Abstract]  
Receivables, net
Receivables, net
Receivables, net, consist of (in millions):
 
December 29,
2018
 
March 31,
2018
Trade receivables (1)
$
364.7

 
$
383.3

Receivables due from licensees
34.5

 
15.8

 
399.2

 
399.1

Less: allowances
(108.0
)
 
(108.6
)
 
$
291.2

 
$
290.5


 
 
 
 
 
(1) 
As of December 29, 2018 and March 31, 2018, $261.6 million and $296.2 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 $6.0 million and $5.1 million, respectively, as of December 29, 2018 and March 31, 2018. The Company had provisions for bad debt of $0.3 million and $1.3 million for the three months ended December 29, 2018 and December 30, 2017, respectively, and $1.3 million and $5.7 million for the nine months ended December 29, 2018 and December 30, 2017, respectively.
v3.10.0.1
Property and Equipment, net
9 Months Ended
Dec. 29, 2018
Property, Plant and Equipment [Abstract]  
Property and Equipment, net
Property and Equipment, net
Property and equipment, net, consists of (in millions):
 
December 29,
2018
 
March 31,
2018
Leasehold improvements
$
582.7

 
$
551.0

Furniture and fixtures
276.9

 
270.9

Computer equipment and software
275.3

 
266.3

In-store shops
269.7

 
273.9

Equipment
119.6

 
116.7

Building
43.2

 
51.6

Land
15.0

 
16.2

 
1,582.4

 
1,546.6

Less: accumulated depreciation and amortization
(1,083.0
)
 
(1,001.6
)
 
499.4

 
545.0

Construction-in-progress
44.2

 
38.2

 
$
543.6

 
$
583.2


Depreciation and amortization of property and equipment for the three months ended December 29, 2018 and December 30, 2017 was $44.1 million and $46.9 million, respectively, and was $136.1 million and $132.7 million, respectively, for the nine months ended December 29, 2018 and December 30, 2017. During the three and nine months ended December 29, 2018, the Company recorded fixed asset impairment charges of $5.9 million and $15.3 million, respectively, of which $5.4 million and $13.5 million, respectively, were related to underperforming Michael Kors retail store locations, some of which will be closed as part of the Company’s previously announced Retail Fleet Optimization Plan, as defined in Note 9. Fixed asset impairment charges recorded during the three and nine months ended December 29, 2018, also included $0.5 million and $1.8 million, respectively, related to Jimmy Choo retail store locations. During the three and nine months ended December 30, 2017, the Company recorded fixed asset impairment charges of $2.6 million and $14.5 million, respectively, which were related to underperforming Michael Kors retail store locations, some of which related to the Retail Fleet Optimization Plan.
v3.10.0.1
Intangible Assets and Goodwill
9 Months Ended
Dec. 29, 2018
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):
 
December 29,
2018
 
March 31,
2018
Definite-lived intangible assets:
 
 
 
Reacquired Rights
$
400.4

 
$
400.4

Trademarks
23.0

 
23.0

Lease Rights
71.6

 
80.1

Customer Relationships
210.2

(1) 
231.3

Total definite-lived intangible assets
705.2

 
734.8

Less: accumulated amortization
(129.4
)
 
(113.2
)
Net definite-lived intangible assets
575.8

 
621.6

 
 
 
 
Indefinite-lived intangible assets:
 
 
 
Jimmy Choo brand
557.1

(1) 
614.1

 
 
 
 
Total intangible assets, excluding goodwill
$
1,132.9

 
$
1,235.7

 
 
 
 
Goodwill
$
780.0

(1) 
$
847.7


 
 
 
 
 
(1) 
The change in the carrying values since March 31, 2018 reflects currency translation.
Amortization expense for the Company’s definite-lived intangible assets for the three months ended December 29, 2018 and December 30, 2017 was $7.4 million and $7.1 million, respectively, and was $24.0 million and $17.2 million, respectively, for the nine months ended December 29, 2018 and December 30, 2017. During the nine months ended December 29, 2018, the Company recorded impairment charges of $1.9 million relating to its intangible assets within MK Retail segment. For the nine months ended December 30, 2017, the Company recorded impairment charges of $4.4 million relating to its intangible assets (See Note 12 for further information). There were no goodwill impairment charges recorded during any of the periods presented.
v3.10.0.1
Current Assets and Current Liabilities
9 Months Ended
Dec. 29, 2018
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):    
 
December 29,
2018
 
March 31,
2018
Restricted Cash
$
1,921.6

(1) 
$
0.3

Prepaid taxes
$
114.8

 
$
78.5

Prepaid rent
23.0

 
22.7

Leasehold incentive receivable
10.9

 
9.4

Unrealized gains on forward foreign currency exchange contracts
5.3

 

Prepaid duties

 
7.0

Other
43.5

 
29.9

 
$
2,119.1

 
$
147.8


 
 
 
 
 
(1) 
Primarily consists of cash placed in escrow in connection with the acquisition of Versace, which was paid on December 31, 2018.
Accrued expenses and other current liabilities consist of the following (in millions):
 
December 29,
2018
 
March 31,
2018
Other taxes payable
$
63.2

 
$
54.3

Accrued rent
46.3

 
34.5

Return liabilities
42.1

 
12.1

Restructuring liability
38.3

 
44.8

Accrued capital expenditures
23.1

 
26.4

Professional services
21.1

 
14.1

Accrued advertising and marketing
16.3

 
22.6

Gift cards and retail store credits
11.8

 
16.0

Accrued samples
10.0

 
2.5

Deferred loyalty program liabilities
7.5

 
2.2

Accrued interest
5.8

 
8.7

Advance royalties
5.8

 
4.1

Deferred income
3.3

 
4.3

Unrealized loss on forward foreign currency exchange contracts
0.2

 
7.7

Other
62.5

 
41.3

 
$
357.3

 
$
295.6

v3.10.0.1
Restructuring and Other Charges
9 Months Ended
Dec. 29, 2018
Restructuring and Related Activities [Abstract]  
Restructuring and Other Charges
Restructuring and Other Charges
Retail Fleet Optimization Plan
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 the nine months ended December 29, 2018, the Company closed 24 of its Michael Kors retail stores under the Retail Fleet Optimization Plan, for a total of 71 stores closed since plan inception. Restructuring charges recorded in connection with the Retail Fleet Optimization Plan during the three and nine months ended December 29, 2018 were $4.1 million and $9.5 million, respectively. The below table presents a summary of charges recorded in connection with this plan for the MK Retail segment and the Company’s remaining restructuring liability (in millions):
 
Severance and benefit costs
 
Lease-related costs
 
Total
Balance at March 31, 2018
$
0.2

 
$
44.6

 
$
44.8

Additions charged to expense
0.2

 
9.3

 
9.5

Balance sheet reclassifications (1)

 
2.1

 
2.1

Payments
(0.3
)
 
(20.7
)
 
(21.0
)
Balance at December 29, 2018
$
0.1

 
$
35.3

 
$
35.4

 
 
 
 
 
(1) 
Primarily consists of reclassification of deferred rent for locations subject to closure to a restructuring liability.
    
During the three months ended December 30, 2017, the Company recorded restructuring charges of $2.4 million under the Retail Fleet Optimization Plan relating to lease-related charges. During the nine months ended December 30, 2017, the Company recorded restructuring charges of $8.3 million under the Retail Fleet Optimization Plan, which were comprised of lease-related charges of $7.7 million and severance and benefit costs of $0.6 million.

Other Restructuring Charges
In addition to the restructuring charges related to the Retail Fleet Optimization Plan, the Company incurred charges of $3.4 million and $4.4 million, respectively, relating to Jimmy Choo lease-related charges during the three and nine months ended December 29, 2018.
Transaction and Transition Costs
During the three months ended December 29, 2018, the Company recorded transaction and transition costs of $12.2 million, which included $6.3 million in connection with the Jimmy Choo acquisition and $5.9 million in connection with the acquisition of Versace. During the nine months ended December 29, 2018, the Company recorded transaction and transition costs of $35.3 million, which included $20.2 million in connection with the Jimmy Choo acquisition and $15.1 million in connection with the acquisition of Versace.
During the three and nine months ended December 30, 2017, the Company recorded transaction and transition costs of $25.6 million and $43.0 million, respectively, in connection with the Jimmy Choo acquisition.
v3.10.0.1
Debt Obligations
9 Months Ended
Dec. 29, 2018
Debt Disclosure [Abstract]  
Debt Obligations
Debt Obligations
The following table presents the Company’s debt obligations (in millions):
 
December 29,
2018
 
March 31,
2018
Term Loan (1)
$
1,600.0

 
$
229.8

Revolving Credit Facilities
500.0

 
200.0

4.000% Senior Notes due 2024
450.0

 
450.0

Other
0.9

 
0.9

Total debt
2,550.9

 
880.7

Less: Unamortized debt issuance costs
15.0

 
4.2

Less: Unamortized discount on long-term debt
1.8

 
2.1

Total carrying value of debt
2,534.1

 
874.4

Less: Short-term debt
579.4

 
200.0

Total long-term debt
$
1,954.7

 
$
674.4


 
 
 
 
 
(1) 
During the three months ended December 29, 2018, the Company repaid the remaining $59.0 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 $75.0 million and swing line loans of up to $75.0 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 $800.0 million tranche that matures on the second anniversary of the initial borrowing of the term loans and an $800.0 million tranche that matures on the fifth anniversary of the initial borrowing of the term loans. The $800.0 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 $500.0 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 December 29, 2018, 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 $350.0 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 December 29, 2018 and March 31, 2018, the Company had borrowings of $500.0 million and $200.0 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 $17.0 million were outstanding as of December 29, 2018. At December 29, 2018, the amount available for future borrowings under the 2018 Revolving Credit Facility was $483.0 million. As of December 29, 2018, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $1.588 billion, net of debt issuance costs of $11.9 million, of which $79.4 million was recorded within short-term debt and $1.509 billion was recorded within long-term debt in its consolidated balance sheets.
See Note 10 to the Company’s Fiscal 2018 Annual Report on Form 10-K for additional information regarding the Company’s credit facilities and debt obligations.
v3.10.0.1
Commitments and Contingencies
9 Months Ended
Dec. 29, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
In the ordinary course of business, the Company is party to various legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, the Company’s management does not believe that the outcome of all pending legal proceedings in the aggregate will have a material adverse effect on its cash flow, results of operations or financial position.
Please refer to the Contractual Obligations and Commercial Commitments disclosure within the Liquidity section of the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2018 for a detailed disclosure of other commitments and contractual obligations as of March 31, 2018.
v3.10.0.1
Fair Value Measurements
9 Months Ended
Dec. 29, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Financial assets and liabilities are measured at fair value using the three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.
Level 2 – Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly through corroboration with observable market data.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At December 29, 2018 and March 31, 2018, the fair values of the Company’s forward foreign currency exchange contracts and net investment hedges were determined using broker quotations, which were calculations derived from observable market information: the applicable currency rates at the balance sheet date and those forward rates particular to the contract at inception. The Company makes no adjustments to these broker obtained quotes or prices, but assesses the credit risk of the counterparty and would adjust the provided valuations for counterparty credit risk when appropriate. The fair values of the forward contracts are included in prepaid expenses and other current assets, and in accrued expenses and other current liabilities in the consolidated balance sheets, depending on whether they represent assets or liabilities to the Company. The fair values of net investment hedges are included in other assets, as detailed in Note 13.
All contracts are measured and recorded at fair value on a recurring basis and are categorized in Level 2 of the fair value hierarchy, as shown in the following table (in millions):
 
Fair value at December 29, 2018 using:
 
Fair value at March 31, 2018 using:
 
Quoted prices in
active markets for
identical assets
(Level 1)
 
Significant
other observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
Quoted prices in
active markets for
identical assets
(Level 1)
 
Significant
other observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$

 
$
5.3

 
$

 
$

 
$

 
$

Net investment hedges

 
15.4

 

 

 

 

Total derivative assets
$

 
$
20.7

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
Forward foreign currency exchange contracts
$

 
$
0.2

 
$

 
$

 
$
7.7

 
$

Net investment hedges

 

 

 

 

 

Total derivative liabilities
$

 
$
0.2

 
$

 
$

 
$
7.7

 
$


The Company’s long-term debt obligations are recorded in its consolidated balance sheets at carrying values, which may differ from the related fair values. The fair value of the Company’s long-term debt is estimated using external pricing data, including any available quoted market prices and based on other debt instruments with similar characteristics. Borrowings under revolving credit agreements, if outstanding, are recorded at carrying value, which approximates fair value due to the short-term nature of such borrowings. See Note 10 for detailed information relating to carrying values of the Company’s outstanding debt. The following table summarizes the carrying values and estimated fair values of the Company’s short- and long-term debt, based on Level 2 measurements (in millions):
 
December 29, 2018
 
March 31, 2018
 
Carrying
Value
 
Estimated Fair Value
 
Carrying
Value
 
Estimated Fair Value
4.000% Senior Notes
$
445.1

 
$
423.0

 
$
444.5

 
$
448.1

Term Loan
$
1,588.1

 
$
1,595.0

 
$
229.0

 
$
231.2

Revolving Credit Facilities
$
500.0

 
$
500.0

 
$
200.0

 
$
200.0


The Company’s cash and cash equivalents, accounts receivable and accounts payable, are recorded at carrying value, which approximates fair value.
Non-Financial Assets and Liabilities
The Company’s non-financial assets include goodwill, intangible assets and property and equipment. Such assets are reported at their carrying values and are not subject to recurring fair value measurements. The Company’s goodwill and its indefinite-lived intangible asset (Jimmy Choo brand) are assessed for impairment at least annually during the fourth quarter of each fiscal year, while its other long-lived assets, including fixed assets and definite-lived intangible assets, are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The fair values of these assets were determined based on Level 3 measurements using the Company’s best estimates of the amount and timing of future discounted cash flows, based on historical experience, market conditions, current trends and performance expectations.
The following tables detail the carrying values and fair values of the Company’s long-lived assets that have been impaired (in millions):
 
Three Months Ended
December 29, 2018
 
Nine Months Ended
December 29, 2018
 
Carrying Value Prior to Impairment
 
Fair Value
 
Impairment Charge
 
Carrying Value Prior to Impairment
 
Fair Value
 
Impairment Charge
Fixed Assets
$
6.1

 
$
0.2

 
$
5.9

 
$
20.3

 
$
5.0

 
$
15.3

Lease Rights

 

 

 
3.4

 
1.5

 
1.9

Total
$
6.1

 
$
0.2

 
$
5.9

 
$
23.7

 
$
6.5

 
$
17.2


 
Three Months Ended
December 30, 2017
 
Nine Months Ended
December 30, 2017
 
Carrying Value Prior to Impairment
 
Fair Value
 
Impairment Charge
 
Carrying Value Prior to Impairment
 
Fair Value
 
Impairment Charge
Fixed Assets
$
3.5

 
$
0.9

 
$
2.6

 
$
16.9

 
$
2.4

 
$
14.5

Lease Rights

 

 

 
3.6

 
0.2

 
3.4

Customer Relationships

 

 

 
1.0

 

 
1.0

Total
$
3.5

 
$
0.9

 
$
2.6

 
$
21.5

 
$
2.6

 
$
18.9


See Note 6 and Note 7 for additional information.
v3.10.0.1
Derivative Financial Instruments
9 Months Ended
Dec. 29, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
During the first quarter of Fiscal 2019, the Company early-adopted the new hedge accounting guidance prescribed by ASU 2017-12. The cumulative impact of adoption, which related to elimination of ineffectiveness for the Company’s designated forward foreign currency exchange contracts, was recorded within retained earnings as of the beginning of Fiscal 2019. See Note 2 for additional information.
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain of its transactions. The Company, in its normal course of business, enters into transactions with foreign suppliers and seeks to minimize risks related to certain forecasted inventory purchases by using forward foreign currency exchange contracts. The Company only enters into derivative instruments with highly credit-rated counterparties. The Company does not enter into derivative contracts for trading or speculative purposes.
On September 24, 2018, in connection with the acquisition of Versace, the Company entered into forward foreign currency exchange contracts with a total notional amount of €1.680 billion (approximately $2.001 billion) to mitigate its foreign currency exchange risk through the expected closing date of the acquisition. These derivative contracts were not designated as accounting hedges and were settled on December 21, 2018 as a result of the debt issued in connection with the acquisition of Versace (see Note 10 for further information). Changes in fair value were recorded to foreign currency (gain) loss in the Company’s consolidated statement of operations and comprehensive income for the three and nine months ended December 29, 2018.
On July 25, 2017, in connection with the acquisition of Jimmy Choo, which closed on November 1, 2017, 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 date of the acquisition. This derivative contract was not designated as an accounting hedge and was settled on October 30, 2017. Changes in fair value were recorded to foreign currency (gain) loss in the Company’s consolidated statement of operations and comprehensive income for the three and nine months ended December 30, 2017.
Net Investment Hedges
During the nine months ended December 29, 2018, the Company entered into fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $390.0 million to hedge its net investment in Euro-denominated subsidiaries and $44.0 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between U.S. Dollar and these currencies. Under the terms of these contracts, which mature in November 2024, the Company will exchange the semi-annual fixed rate payments made under its Senior Notes for fixed rate payments of 1.472% to 1.585% in Euros and 0.89% in Japanese Yen. These contracts have been designated as net investment hedges.
When a cross-currency swap is used as a hedging instrument in a net investment hedge assessed under the spot method, the cross-currency basis spread is excluded from the assessment of hedge effectiveness and is recognized as a reduction in interest expense in the Company’s consolidated statements of operations and comprehensive income. Accordingly, the Company recorded a reduction in interest expense of $2.8 million and $6.7 million, respectively, during the three and nine months ended December 29, 2018.
The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the consolidated balance sheets as of December 29, 2018 and March 31, 2018 (in millions):
 
 
 
 
 
Fair Values
 
 
Notional Amounts
 
Assets
 
Liabilities
 
 
December 29,
2018
 
March 31,
2018
 
December 29,
2018
 
March 31,
2018
 
December 29,
2018
 
March 31,
2018
 
Designated forward currency exchange contracts
$
153.6

 
$
161.7

 
$
3.5

(1) 
$

 
$
0.2

(2) 
$
7.7

(2) 
Designated net investment hedge
434.0

 

 
15.4

(3) 

 

 

 
Total designated hedges
$
587.6

 
$
161.7

 
$
18.9

 
$

 
$
0.2

 
$
7.7

 
Undesignated forward currency exchange contracts
20.5

 

 
1.8

(1) 

 

 

 
Total
$
608.1

 
$
161.7

 
$
20.7

 
$

 
$
0.2

 
$
7.7

 
____________________________________ 
(1) 
Recorded within prepaid expenses and other current assets in the Company’s consolidated balance sheets.
(2) 
Recorded within accrued expenses and other current liabilities in the Company’s consolidated balance sheets.
(3)
Recorded within other assets in the Company’s consolidated balance sheets.
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, as shown in the above table. However, if the Company were to offset and record the asset and liability balances for its derivative instruments on a net basis in accordance with the terms of its master netting arrangements, which provide for the right to setoff amounts for similar transactions denominated in the same currencies, the resulting impact as of December 29, 2018 and March 31, 2018 would be as follows (in millions):
 
Forward Currency Exchange Contracts
 
Net Investment Hedges
 
December 29,
2018
 
March 31,
2018
 
December 29,
2018
 
March 31,
2018
Assets subject to master netting arrangements
$
5.3

 
$

 
$
15.4

 
$

Liabilities subject to master netting arrangements
$
0.2

 
$
7.7

 
$

 
$

Derivative assets, net
$
5.3

 
$

 
$
15.4

 
$

Derivative liabilities, net
$
0.2

 
$
7.7

 
$

 
$


The Company’s master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties.
Changes in the fair value of the Company’s forward foreign currency exchange contracts that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income (loss), and are reclassified from accumulated other comprehensive income (loss) into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of cost of sales within the Company’s consolidated statements of operations and comprehensive income (loss). The net gain or loss on net investment hedges are 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. Upon discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated.
The following table summarizes the pre-tax impact of the gains and losses on the Company’s designated forward foreign currency exchange contracts and net investment hedges (in millions):
 
Three Months Ended
 
Nine Months Ended
 
December 29, 2018
 
December 30, 2017
 
December 29, 2018
 
December 30, 2017
 
Pre-Tax Gains Recognized in OCI
 
Pre-Tax Loss Recognized in OCI
 
Pre-Tax Gains Recognized in OCI
 
Pre-Tax Loss Recognized in OCI
Designated forward foreign currency exchange contracts
$
2.5

 
$
(2.4
)
 
$
12.2

 
$
(17.7
)
Designated net investment hedges
$
10.8

 
$

 
$
15.4

 
$

The following tables summarize the impact of the gains and losses within the consolidated statements of operations and comprehensive income related to the designated forward foreign currency exchange contracts for the three and nine months ended December 29, 2018 and December 30, 2017 (in millions):
 
Three Months Ended
 
Pre-Tax (Gain) Loss Reclassified from
Accumulated OCI
 
Location of (Gain) Loss recognized
 
Total Cost of Sales
 
December 29, 2018
 
December 30, 2017
 
 
December 29, 2018
 
December 30, 2017
Designated forward currency exchange contracts
$
(0.6
)
 
$
2.2

 
Cost of Sales
 
$
564.8

 
$
556.1

 
Nine Months Ended
 
Pre-Tax (Gain) Loss Reclassified from
Accumulated OCI
 
Location of (Gain) Loss recognized
 
Total Cost of Sales
 
December 29, 2018
 
December 30, 2017
 
 
December 29, 2018