What changed in this filing

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Item 1. Financial Statements

2020-08-05 compared with 2020-02-05 · 283 added, 471 removed, 481 unchanged (61% of the section changed)

17 unchanged sentences

Total assets $ 7,533 $ 7,946

Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity

Liabilities and Shareholders’ Equity

Current liabilities

7 unchanged sentences

Long-term operating lease liabilities 1,751 1,758

Deferred rent — 132

Deferred tax liabilities 465 465

3 unchanged sentences

Commitments and contingencies

Redeemable noncontrolling interest — 4

Shareholders’ equity

1 unchanged sentence

650,000,000 shares authorized;

216,906,643 shares issued and 149,012,245 outstanding at December 28, 2019;

218,272,709 shares issued and 150,340,192 outstanding at June 27, 2020;

217,320,010 shares issued and 149,425,612 outstanding at March 28, 2020

Treasury shares, at cost ( 67,894,398 shares at December 28, 2019 and 65,118,633 shares at March 30, 2019)

Treasury shares, at cost ( 67,932,517 shares at June 27, 2020 and 67,894,398 shares at March 28, 2020)

( 3,326 ) ( 3,325 )

Additional paid-in capital 1,109 1,085

Accumulated other comprehensive loss ( 29 ) ( 66 )

Accumulated other comprehensive income 71 75

Retained earnings 4,152 4,332

5 unchanged sentences

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(In millions, except share and per share data)

Three Months Ended Nine Months Ended

2019 December 29,

2018 December 28,

2019 December 29,

Three Months Ended

2020 June 29,

Total revenue $ 451 $ 1,346

Cost of goods sold 149 512

932 873 2,640 2,387

Selling, general and administrative expenses 402 598

Depreciation and amortization 54 60

Impairment of long-lived assets 19 6 220 17

Impairment of assets — 97

Restructuring and other charges 8 15

Total operating expenses 464 770

Income from operations

205 290 344 695

(Loss) income from operations

Other income, net ( 1 ) ( 2 )

1 unchanged sentence

Foreign currency (gain) loss ( 3 ) 2

Income before provision for income taxes

205 242 325 599

(Benefit from) provision for income taxes ( 4 ) 42 ( 2 ) 76

Net income 209 200 327 523

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest

( 1 ) — ( 1 ) ( 1 )

Net income attributable to Capri $ 210 $ 200 $ 328 $ 524

(Loss) income before provision for income taxes

Provision for income taxes 5 6

Net (loss) income attributable to Capri $ ( 180 ) $ 45

Weighted average ordinary shares outstanding:

1 unchanged sentence

Diluted 149,556,310 152,334,153

Net income per ordinary share attributable to Capri:

Net (loss) income per ordinary share attributable to Capri:

Basic $ ( 1.21 ) $ 0.30

Diluted $ ( 1.21 ) $ 0.30

Statements of Comprehensive Income:

Net income $ 209 $ 200 $ 327 $ 523

Statements of Comprehensive (Loss) Income:

Net (loss) income $ ( 180 ) $ 45

Foreign currency translation adjustments ( 3 ) ( 25 )

Net (loss) gain on derivatives ( 4 ) 1 ( 3 ) 16

Comprehensive income 283 169 364 379

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest

( 1 ) — ( 1 ) ( 1 )

Comprehensive income attributable to Capri $ 284 $ 169 $ 365 $ 380

(1) Restructuring and other charges includes store closure costs recorded in connection with the Retail Fleet Optimization Plan (as defined in Note 10) and other restructuring initiatives, and costs recorded in connection with the acquisitions of Gianni Versace S.r.l and Jimmy Choo Group Limited.

Net loss on derivatives ( 1 ) ( 2 )

Comprehensive (loss) income attributable to Capri $ ( 184 ) $ 18

See accompanying notes to consolidated financial statements.

5 unchanged sentences

Comprehensive

Loss (Income) Retained

Income (Loss) Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Shares Amounts Shares Amounts

Balance at September 28, 2019 216,815 $ — $ 1,060 ( 65,182 ) $ ( 3,225 ) $ ( 103 ) $ 4,673 $ 2,405 $ 3 $ 2,408

Net income (loss) — — — — — — 210 210 ( 1 ) 209

Other comprehensive income

Balance at March 28, 2020 217,320 $ — $ 1,085 ( 67,894 ) $ ( 3,325 ) $ 75 $ 4,332 $ 2,167 $ 1 $ 2,168

Net loss — — — — — — ( 180 ) ( 180 ) — ( 180 )

Other comprehensive loss

— — — — — ( 4 ) — ( 4 ) — ( 4 )

Total comprehensive income (loss)

Total comprehensive loss

— — — — — — — ( 184 ) — ( 184 )

1 unchanged sentence

953 — — — — — — — — —

Exercise of employee share options

5 — — — — — — — — —

Equity compensation expense — — 24 — — — — 24 — 24

Purchase of treasury shares — — — ( 38 ) ( 1 ) — — ( 1 ) — ( 1 )

Adjustment of redeemable non-controlling interests to redemption value — — 4 — — — — 4 — 4

Balance at December 28, 2019 216,907 $ — $ 1,080 ( 67,894 ) $ ( 3,325 ) $ ( 29 ) $ 4,883 $ 2,609 $ 2 $ 2,611

Balance at June 27, 2020 218,273 $ — $ 1,109 ( 67,932 ) $ ( 3,326 ) $ 71 $ 4,152 $ 2,006 $ 1 $ 2,007

Ordinary Shares Additional

1 unchanged sentence

Comprehensive

Loss (Income) Retained

Income (Loss) Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

2 unchanged sentences

216,051 $ — $ 1,011 ( 65,119 ) $ ( 3,223 ) $ ( 66 ) $ 4,707 $ 2,429 $ 3 $ 2,432

Adoption of accounting standards (See Note 2)

Adoption of accounting standards ( ASC 842 )

— — — — — — ( 152 ) ( 152 ) — ( 152 )

1 unchanged sentence

216,051 — 1,011 ( 65,119 ) ( 3,223 ) ( 66 ) 4,555 2,277 3 2,280

Net income (loss) — — — — — — 328 328 ( 1 ) 327

Other comprehensive income

— — — — — 37 — 37 — 37

Total comprehensive income (loss)

— — — — — — — 365 ( 1 ) 364

Vesting of restricted awards, net of forfeitures

851 — — — — — — — — —

Exercise of employee share options

5 — — — — — — — — —

Equity compensation expense — — 65 — — — — 65 — 65

Purchase of treasury shares — — — ( 2,775 ) ( 102 ) — — ( 102 ) — ( 102 )

Adjustment of redeemable non-controlling interests to redemption value — — 4 — — — — 4 — 4

Balance at December 28, 2019 216,907 $ — $ 1,080 ( 67,894 ) $ ( 3,325 ) $ ( 29 ) $ 4,883 $ 2,609 $ 2 $ 2,611

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(In millions, except share data which is in thousands)

Ordinary Shares Additional

Capital Treasury Shares Accumulated

Comprehensive Loss Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Shares Amounts Shares Amounts

Balance at September 29, 2018 213,209 $ — $ 877 ( 63,059 ) $ ( 3,123 ) $ ( 62 ) $ 4,488 $ 2,180 $ 4 $ 2,184

Net income — — — — — — 45 45 — 45

5 unchanged sentences

691 — — — — — — — — —

Exercise of employee share options

139 — 3 — — — — 3 — 3

Equity compensation expense — — 28 — — — — 28 — 28

Purchase of treasury shares — — — ( 58 ) ( 2 ) — — ( 2 ) — ( 2 )

Increase in noncontrolling interest — — — — — — — — ( 1 ) ( 1 )

Balance at December 29, 2018 213,432 $ — $ 892 ( 65,119 ) $ ( 3,223 ) $ ( 93 ) $ 4,688 $ 2,264 $ 3 $ 2,267

Ordinary Shares Additional

Capital Treasury Shares Accumulated

Comprehensive

Income (Loss) Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Shares Amounts Shares Amounts

Balance at March 31, 2018, as previously reported

210,991 $ — $ 831 ( 61,293 ) $ ( 3,016 ) $ 51 $ 4,152 $ 2,018 $ 4 $ 2,022

Adoption of accounting standard (ASC 606)

— — — — — — 12 12 — 12

Balance as of April 1, 2018

210,991 — 831 ( 61,293 ) ( 3,016 ) 51 4,164 2,030 4 2,034

Net income (loss) — — — — — — 524 524 ( 1 ) 523

Other comprehensive loss

— — — — — ( 144 ) — ( 144 ) — ( 144 )

Total comprehensive income (loss)

— — — — — — — 380 ( 1 ) 379

Vesting of restricted awards, net of forfeitures

781 — — — — — — — — —

Exercise of employee share options

1,660 — 23 — — — — 23 — 23

Equity compensation expense — — 38 — — — — 38 — 38

Purchase of treasury shares — — — ( 3,826 ) ( 207 ) — — ( 207 ) — ( 207 )

Balance at December 29, 2018 213,432 $ — $ 892 ( 65,119 ) $ ( 3,223 ) $ ( 93 ) $ 4,688 $ 2,264 $ 3 $ 2,267

Balance at June 29, 2019 216,742 $ — $ 1,039 ( 65,177 ) $ ( 3,225 ) $ ( 93 ) $ 4,600 $ 2,321 $ 3 $ 2,324

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In millions)

Nine Months Ended

2019 December 29,

Three Months Ended

2020 June 29,

Cash flows from operating activities

Net income $ 327 $ 523

Net (loss) income $ ( 180 ) $ 45

Adjustments to reconcile net income to net cash provided by operating activities:

2 unchanged sentences

Deferred income taxes — 2

Impairment of long-lived assets 220 17

Impairment of assets — 97

Changes to lease related balances, net ( 24 ) ( 16 )

1 unchanged sentence

Amortization of deferred financing costs 1 1

Foreign currency losses 4 79

Foreign currency (gains) losses ( 3 ) 2

Other non-cash charges ( 6 ) —

9 unchanged sentences

Capital expenditures ( 32 ) ( 54 )

Purchase of intangible assets — ( 2 )

Cash paid for business acquisitions, net of cash acquired — ( 1 )

Realized loss on hedge related to Versace acquisition — ( 77 )

Settlement of a net investment hedges 32 —

Settlement of a net investment hedge — 23

Net cash used in investing activities ( 32 ) ( 32 )

4 unchanged sentences

Purchase of treasury shares ( 1 ) ( 2 )

Exercise of employee share options — 23

Net cash (used in) provided by financing activities ( 554 ) 1,472

Net cash used in financing activities ( 420 ) ( 138 )

Effect of exchange rate changes on cash and cash equivalents — —

Net increase in cash and cash equivalents 65 2,023

Net decrease in cash and cash equivalents ( 385 ) ( 12 )

Beginning of period 592 172

End of period (including restricted cash of $ 1.922 billion at December 29, 2018)

$ 237 $ 2,186

End of period $ 207 $ 160

Supplemental disclosures of cash flow information

Cash paid for interest $ 20 $ 30

Cash paid for income taxes $ 75 $ 128

Cash received, net of cash paid, for income taxes $ ( 6 ) $ 12

Supplemental disclosure of non-cash investing and financing activities

6 unchanged sentences

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 completed the acquisition of Gianni Versace S.r.l.

(“Versace”) on December 31, 2018.

As a result, the Company operates in three reportable segments:

The Company operates in three reportable segments:

Versace, Jimmy Choo and Michael Kors.

3 unchanged sentences

All significant intercompany balances and transactions have been eliminated in consolidation.

The interim consolidated financial statements as of December 28, 2019 and for the three and nine months ended December 28, 2019 and December 29, 2018 are unaudited.

The interim consolidated financial statements as of June 27, 2020 and for the three months ended June 27, 2020 and June 29, 2019 are unaudited.

In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

1 unchanged sentence

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.

The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 30, 2019, as filed with the Securities and Exchange Commission on May 29, 2019, in the Company’s Annual Report on Form 10-K.

The interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended March 28, 2020, as filed with the Securities and Exchange Commission on July 8, 2020, 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.

1 unchanged sentence

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 28, 2019 and December 29, 2018, are based on 13-week and 39-week periods, respectively.

The results for the three months ended June 27, 2020 and June 29, 2019, are based on 13-week periods.

Summary of Significant Accounting Policies

3 unchanged sentences

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 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.

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 of inventory net realizable value, the valuation of share-based compensation, the valuation of deferred taxes and the valuation of goodwill, intangible assets and property and equipment, along with the estimated useful lives assigned to these assets.

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 in the fourth quarter of Fiscal 2019, as further described in Note 18.

Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s presentation.

The Company experiences certain effects of seasonality with respect to its business.

1 unchanged sentence

Inventories, net

Inventories mainly consist of finished goods with the exception of raw materials of $ 20 million and $ 25 million, respectively, recorded on the Company’s consolidated balance sheets as of December 28, 2019 and March 30, 2019.

Inventories mainly consist of finished goods with the exception of raw materials and work in process inventory.

The combined total of raw materials and work in process inventory recorded on the Company's consolidated balance sheets was $ 27 million as of both June 27, 2020 and March 28, 2020.

The net realizable value of the Company's inventory as of June 27, 2020 and March 28, 2020 includes the expected adverse impacts of the COVID-19 pandemic.

This includes the impact from temporary retail store closures, wholesale customer store closures, reductions in retail store traffic, a decline in international tourism and a decrease in consumer consumption.

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 uses forward foreign 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.

The Company employs these 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 in September 2018 with notional amounts totaling € 1.680 billion (approximately $ 2.001 billion) to mitigate its foreign currency exchange risk through the closing date of the acquisition, which were settled on December 21, 2018.

These derivative contracts were not designated as accounting hedges.

Therefore, changes in fair value were 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 that are accounted for as cash flow hedges in the same category as the cash flows from the items being hedged.

Accordingly, the Company classified the unrealized gains and losses 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 a 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 changes in the fair value for contracts designated as cash flow hedges is recorded in equity as a component of accumulated other comprehensive (loss) income 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 (loss) income 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, 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.

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 loss (gain) in the Company’s consolidated statements of operations and comprehensive (loss) income.

The Company classifies cash flows relating to its forward foreign currency exchange contracts related to the 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.

6 unchanged sentences

The Company has elected the spot method of designating these contracts under ASU 2017-12 and has designated these contracts as net investment hedges.

The net gain or (loss) on the net investment hedge 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.

The net gain or (loss) on the net investment hedge is reported within foreign currency translation gains and losses (“CTA”), as a component of accumulated other comprehensive (loss) income 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 (loss) income.

Upon discontinuation of a hedge, all previously recognized amounts remain in CTA until the net investment is sold, diluted or liquidated.

Interest Rate Swap Agreements

The Company also uses interest rate swap agreements to hedge the variability of its cash flows resulting from floating interest rates on the Company's borrowings.

When an interest rate swap agreement qualifies for hedge accounting as a cash flow hedge, the changes in the fair value are recorded in equity as a component of accumulated other comprehensive (loss) income and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.

On March 31, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, except certain short-term leases.

The Company adopted the new standard recognizing 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 leases retail stores, office space and warehouse space under operating lease agreements that expire at various dates through September 2043.

The Company’s leases generally have terms of up to 10 years, generally require a fixed annual rent and may require the payment of additional rent if store sales exceed a negotiated amount.

Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through June 2024.

The Company acts as sublessor in certain leasing arrangements, primarily related to closed stores under its restructuring activities, as discussed in Note 8.

Fixed sublease payments received are recognized on a straight-line basis over the sublease term.

The Company determines the sublease term based on the date it provides possession to the subtenant through the expiration date of the sublease.

The Company recognizes operating lease right-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term.

The Company uses its incremental borrowing rates to determine the present value of fixed lease payments based on the information available at the lease commencement date, as the rate implicit in the lease is not readily determinable for the Company’s leases.

The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases and reflect the expected interest rate it would incur to borrow on a secured basis.

Certain leases include one or more renewal options, generally for the same period as the initial term of the lease.

The exercise of lease renewal options is generally at the Company’s sole discretion and as such, the Company typically determines that exercise of these renewal options is not reasonably certain.

As a result, the Company generally does not include the renewal option period in the expected lease term and the associated lease payments are not included in the measurement of the operating lease right-of-use asset and lease liability.

Certain leases also contain termination options with an associated penalty.

Generally, the Company is reasonably certain not to exercise these options and as such, they are not included in the determination of the expected lease term.

The Company recognizes operating lease expense on a straight-line basis over the lease term.

Leases with an initial lease term of 12 months or less are not recorded on the balance sheet.

The Company recognizes lease expense for its short-term leases on a straight-line basis over the lease term.

The Company’s leases generally provide for payments of non-lease components, such as common area maintenance, real estate taxes and other costs associated with the leased property.

The Company accounts for lease and non-lease components of its real estate leases together as a single lease component and, as such, includes fixed payments of non-lease components in the measurement of the operating lease right-of-use assets and lease liabilities for its real estate leases.

Variable lease payments, such as percentage rentals based on location sales, periodic adjustments for inflation, reimbursement of real estate taxes, any variable common area maintenance and any other variable costs associated with the leased property are expensed as incurred as variable lease costs and are not recorded on the balance sheet.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictions or covenants.

The following table presents the Company’s supplemental cash flow information related to leases (in millions):

Three Months Ended Three Months Ended

June 27, 2020 June 29, 2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in operating leases $ 40 (1)

(1) Operating cash flows used in operating leases for the three months ended June 27, 2020 reflect $ 85 million of rent payments that have been deferred due to the COVID-19 pandemic.

During the three months ended June 27, 2020 and June 29, 2019, the Company recorded sublease income of $ 2 million and $ 1 million, respectively, within selling, general, and administrative expenses.

During the three months ended June 27, 2020, the Company recorded $ 15 million in rent relief for rent concessions negotiated in connection with COVID-19 as if it were contemplated as part of the existing contract, and these concessions are recorded as variable lease costs within selling, general and administrative expenses.

Net (Loss) Income per Share

The Company’s basic net (loss) income per ordinary share is calculated by dividing net (loss) income by the weighted average number of ordinary shares outstanding during the period.

Diluted net (loss) 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

2019 December 29,

2018 December 28,

2019 December 29,

Net income attributable to Capri $ 210 $ 200 $ 328 $ 524

The components of the calculation of basic net (loss) income per ordinary share and diluted net loss per ordinary share are as follows (in millions, except share and per share data):

Three Months Ended

2020 June 29,

Net (loss) income attributable to Capri $ ( 180 ) $ 45

Basic weighted average shares 149,556,310 151,049,572

1 unchanged sentence

Share options and restricted shares/units, and performance restricted share units

1,328,176 1,085,375 1,195,513 2,037,834

Diluted weighted average shares 149,556,310 152,334,153

Basic net income per share (1)

Basic net (loss) income per share (1)

$ ( 1.21 ) $ 0.30

Diluted net income per share (1)

Diluted net (loss) income per share (1)

$ ( 1.21 ) $ 0.30

(1) Basic and diluted net income per share are calculated using unrounded numbers.

During the three and nine months ended December 28, 2019, share equivalents of 2,264,959 shares and 3,487,241 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

Share equivalents of 2,022,564 shares and 1,117,277 shares, respectively, have been excluded from the above calculations during the three and nine months ended December 29, 2018.

(1) Basic and diluted net (loss) income per share are calculated using unrounded numbers.

Share equivalents of 5,388,905 and 2,374,578 for the three months ended June 27, 2020 and June 29, 2019, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

Diluted net loss per share attributable to Capri for the three months ended June 27, 2020 excluded all potentially dilutive securities because there was a net loss attributable to Capri for the period and, as such, the inclusion of these securities would have been anti-dilutive.

See Note 2 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020 for a complete disclosure of the Company’s significant accounting policies.

Recently Adopted Accounting Pronouncements

Lease Accounting

On March 31, 2019, the Company adopted ASU 2016-02, “ Leases (Topic 842), ” which requires lessees to recognize a lease liability and a right-of-use asset on the balance sheet for all leases, except certain short-term leases.

In evaluating the impact of ASU 2016-02, the Company considered guidance provided by several additional ASUs issued by the FASB, 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.

In connection with its implementation of ASU 2016-02, the Company adopted 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.

The Company also adopted the practical expedient allowing it to combine lease and non-lease components for its real estate leases.

Lastly, the Company adopted the practical expedient provided by 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, are subject to the new standard and resulted in recording of lease liabilities and right-of-use assets for operating leases on the Company’s consolidated balance sheet.

The below table details the balance sheet adjustments recorded on March 31, 2019 in connection with the Company’s adoption of ASU 2016-02 (in millions):

March 30, 2019

As Reported under ASC 840 ASC 842 Adjustments March 31, 2019

As Reported Under ASC 842

Prepaid expenses and other current assets $ 221 $ ( 23 ) (1)

Operating lease right-of-use assets — 1,856 (2)

Intangible assets, net 2,293 ( 20 ) (3)

Deferred tax assets 112 38 (4)

Current portion of operating lease liabilities — 386 (5)

Accrued expenses and other current liabilities 374 ( 72 ) (6)

Long-term portion of operating lease liabilities — 1,828 (5)

Deferred Rent 132 ( 132 ) (7)

Deferred tax liabilities 438 ( 7 ) (4)

Shareholders’ Equity

Retained earnings 4,707 ( 152 ) (4)

(1) Represents the reclassification of rent paid in advance to current operating lease liabilities.

(2) Represents the recognition of operating lease right-of-use assets, reflecting the reclassifications of deferred rent, sublease liabilities, tenant allowances and favorable and unfavorable lease rights.

This balance also reflects the initial impairments of the operating lease right-of-use assets recorded through retained earnings, as described below.

(3) Represents the reclassifications of favorable and unfavorable lease rights for leases recorded in conjunction with the Company’s acquisitions to operating lease right-of-use assets.

(4) Represents the initial impairment recognized through retained earnings for certain underperforming retail store locations for which property and equipment were previously impaired, net of associated deferred taxes.

(5) Represents the recognition of current and non-current lease liabilities for fixed payments associated with the Company’s operating leases.

(6) Represents the reclassification of $ 54 million in sublease liabilities, primarily related to Michael Kors retail stores closed under the Retail Fleet Optimization Plan as defined in Note 10, as well as the reclassification of $ 18 million of deferred rent and tenant allowances to operating lease right-of-use assets.

(7) Represents the reclassification of noncurrent deferred rent and tenant improvement allowances to operating lease right-of-use assets.

See Note 4 for additional disclosures related to the Company’s lease accounting policy.

Measurement of Credit Losses on Financial Instruments

On March 29, 2020, the Company adopted ASU No.

2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which amends the guidance on measuring credit losses for certain financial assets measured at amortized cost, including trade receivables.

The Financial Accounting Standards Board has subsequently issued several updates to the standard, providing additional guidance on certain topics covered by the standard.

This update requires entities to recognize an allowance for credit losses using a forward-looking expected loss impairment model, taking into consideration historical experience, current conditions and supportable forecasts that impact collectibility.

The adoption of this update did not have a material impact on the Company's consolidated financial statements.

Implementation Costs Associated with Cloud Computing Arrangements

On March 29, 2020, the Company adopted ASU No.

2018-15, “Intangibles – Goodwill and Other – Internal-Use Software:

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"), which provides guidance related to the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.

The guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software and hosting arrangements that include an internal-use software license.

The adoption of this update did not have a material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements

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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 are transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

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:

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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 utilize the exemption allowing it not to disclose the amount of the transaction price allocated to the remaining performance obligations that have an expected duration of twelve months or less.

The Company generates sales through directly operated stores and e-commerce throughout the Americas (U.S., Canada and Latin America), EMEA (Europe, Middle East and Africa) and certain parts of Asia.

The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability recorded upon issuance.

The Company sells gift cards that can be redeemed for merchandise, resulting in a contract liability 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 contract liability related to gift cards, net of estimated “breakage,” was $ 13 million as of both December 28, 2019 and March 30, 2019, respectively, and is included in accrued expenses and other current liabilities in the Company’s consolidated balance sheet.

The contract liability related to gift cards, net of estimated “breakage,” of $ 11 million as of both June 27, 2020 and March 28, 2020, 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 offers a loyalty program, which allows its Michael Kors U.S.

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 $ 4 million and $ 3 million as of December 28, 2019 and March 30, 2019, respectively, is recorded as a reduction to revenue in the consolidated statements of operations 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.

The contract liability, net of an estimated “breakage,” of $ 2 million as of both June 27, 2020 and March 28, 2020, is recorded as a reduction to revenue in the consolidated statements of operations and comprehensive (loss) 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.

The Company’s products are sold primarily to major department stores, specialty stores and travel retail shops throughout the Americas, EMEA and Asia.

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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 December 28, 2019, contractually guaranteed minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):

As of June 27, 2020, 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

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Sales Returns

The refund liability recorded as of December 28, 2019 and March 30, 2019 was $ 51 million and $ 35 million, respectively, and the related asset for the right to recover returned product as of December 28, 2019 and March 30, 2019 was $ 16 million and $ 12 million, respectively.

The refund liability recorded as of June 27, 2020 and March 28, 2020 was $ 35 million and $ 37 million, respectively, and the related asset for the right to recover returned product as of June 27, 2020 and March 28, 2020 was $ 10 million and $ 14 million, respectively.

Contract Balances

Total contract liabilities were $ 19 million and $ 31 million as of December 28, 2019 and March 30, 2019, respectively.

For the three and nine months ended December 28, 2019, the Company recognized $ 2 million and $ 19 million, respectively, in revenue which related to contract liabilities that existed at March 30, 2019.

For the three and nine months ended December 29, 2018, the Company recognized $ 3 million and $ 14 million, respectively, in revenue which related to contract liabilities that existed at April 1, 2018.

There were no contract assets recorded as of December 28, 2019 and March 30, 2019.

Total contract liabilities were $ 21 million and $ 22 million as of June 27, 2020 and March 28, 2020, respectively.

For the three months ended June 27, 2020, the Company recognized $ 3 million in revenue which related to contract liabilities that existed at March 28, 2020.

For the three months ended June 29, 2019, the Company recognized $ 14 million in revenue which related to contract liabilities that existed at March 30, 2019.

There were no contract assets recorded as of June 27, 2020 and March 28, 2020.

There were no changes in historical variable consideration estimates that were materially different from actual results.

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The following table presents the Company’s segment revenues disaggregated by geographic location (in millions):

Three Months Ended Nine Months Ended

2019 December 29,

2018 December 28,

2019 December 29,

Three Months Ended

2020 June 29,

Versace revenue - the Americas $ 15 $ 44

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Total Michael Kors

1,211 1,276 3,281 3,443

Total revenue - the Americas 177 729

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See Note 3 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 28, 2020 for a complete disclosure of the Company’s revenue recognition policy.

The Company leases retail stores, office space and warehouse space under operating lease agreements that expire at various dates through September 2043.

The Company’s leases generally have terms of up to 10 years, generally require a fixed annual rent and may require the payment of additional rent if store sales exceed a negotiated amount.

Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through February 2024.

The Company acts as sublessor in certain leasing arrangements, primarily related to closed stores under its Retail Fleet Optimization Plan, as defined in Note 10.

Fixed sublease payments received are recognized on a straight-line basis over the sublease term.

The Company determines the sublease term based on the date it provides possession to the subtenant through the expiration date of the sublease.

The Company recognizes operating lease right-of-use assets and lease liabilities at lease commencement date, based on the present value of fixed lease payments over the expected lease term.

The Company’s incremental borrowing rates are based on the term of the leases, the economic environment of the leases, and reflect the rate it would pay to borrow on a secured basis.