What changed in this filing

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Item 1. Financial Statements

2021-02-03 compared with 2020-11-05 · 243 added, 244 removed, 630 unchanged (44% of the section changed)

3 unchanged sentences

(In millions, except share data)

September 26,

2020 March 28,

30 unchanged sentences

650,000,000 shares authorized;

218,563,307 shares issued and 150,621,274 outstanding at September 26, 2020;

218,624,581 shares issued and 150,682,036 outstanding at December 26, 2020;

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

Treasury shares, at cost ( 67,942,033 shares at September 26, 2020 and 67,894,398 shares at March 28, 2020)

Treasury shares, at cost ( 67,942,545 shares at December 26, 2020 and 67,894,398 shares at March 28, 2020)

( 3,326 ) ( 3,325 )

8 unchanged sentences

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In millions, except share and per share data)

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Total revenue $ 1,302 $ 1,571 $ 2,863 $ 4,359

6 unchanged sentences

Total operating expenses 681 727 1,702 2,296

Income (loss) from operations 153 75 ( 9 ) 139

Income from operations 167 205 158 344

Other income, net ( 3 ) ( 1 ) ( 4 ) ( 4 )

Interest expense, net 10 3 39 19

Foreign currency loss (gain) — 4 ( 3 ) 6

Income (loss) before provision for income taxes 141 69 ( 34 ) 120

Provision for (benefit from) income taxes 20 ( 4 ) 25 2

Net income (loss) 121 73 ( 59 ) 118

Foreign currency (gain) loss ( 13 ) ( 2 ) ( 16 ) 4

Income before provision for income taxes 173 205 139 325

(Benefit from) provision for income taxes ( 5 ) ( 4 ) 20 ( 2 )

Net income 178 209 119 327

Net loss attributable to noncontrolling interest ( 1 ) ( 1 ) ( 2 ) ( 1 )

Net income (loss) attributable to Capri $ 122 $ 73 $ ( 58 ) $ 118

Net income attributable to Capri $ 179 $ 210 $ 121 $ 328

Weighted average ordinary shares outstanding:

1 unchanged sentence

Diluted 151,958,057 152,154,372 151,417,457 152,354,936

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

Net income per ordinary share attributable to Capri:

Basic $ 1.19 $ 1.39 $ 0.80 $ 2.17

Diluted $ 1.18 $ 1.38 $ 0.80 $ 2.15

Statements of Comprehensive Income (Loss):

Net income (loss) $ 121 $ 73 $ ( 59 ) $ 118

Statements of Comprehensive Income:

Net income $ 178 $ 209 $ 119 $ 327

Foreign currency translation adjustments ( 27 ) 78 26 40

Net (loss) income on derivatives ( 2 ) 3 ( 3 ) 1

Comprehensive income (loss) 175 63 ( 9 ) 81

Net loss on derivatives ( 7 ) ( 4 ) ( 10 ) ( 3 )

Comprehensive income 144 283 135 364

Net loss attributable to noncontrolling interest ( 1 ) ( 1 ) ( 2 ) ( 1 )

Comprehensive income (loss) attributable to Capri $ 176 $ 63 $ ( 8 ) $ 81

Comprehensive income attributable to Capri $ 145 $ 284 $ 137 $ 365

See accompanying notes to consolidated financial statements.

5 unchanged sentences

Comprehensive

Income Retained

Income (Loss) Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Shares Amounts Shares Amounts

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

Balance at September 26, 2020 218,563 $ — $ 1,126 ( 67,942 ) $ ( 3,326 ) $ 125 $ 4,274 $ 2,199 $ — $ 2,199

Net income (loss) — — — — — — 179 179 ( 1 ) 178

Other comprehensive income

— — — — — 54 — 54 — 54

Other comprehensive loss — — — — — ( 34 ) — ( 34 ) — ( 34 )

Total comprehensive income (loss) — — — — — — — 145 ( 1 ) 144

4 unchanged sentences

Share based compensation expense — — 12 — — — — 12 — 12

Purchase of treasury shares — — — ( 10 ) — — — — — —

Balance at September 26, 2020 218,563 $ — $ 1,126 ( 67,942 ) $ ( 3,326 ) $ 125 $ 4,274 $ 2,199 $ — $ 2,199

Repurchase of common stock — — — ( 1 ) — — — — — —

Balance at December 26, 2020 218,625 $ — $ 1,138 ( 67,943 ) $ ( 3,326 ) $ 91 $ 4,453 $ 2,356 $ ( 1 ) $ 2,355

Ordinary Shares Additional

5 unchanged sentences

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

Net loss — — — — — — ( 58 ) ( 58 ) ( 1 ) ( 59 )

Net income (loss) — — — — — — 121 121 ( 2 ) 119

Other comprehensive income

— — — — — 16 — 16 — 16

Total comprehensive loss — — — — — — — ( 8 ) ( 1 ) ( 9 )

Total comprehensive income (loss) — — — — — — — 137 ( 2 ) 135

Vesting of restricted awards, net of forfeitures

3 unchanged sentences

Share based compensation expense — — 53 — — — — 53 — 53

Purchase of treasury shares — — — ( 48 ) ( 1 ) — — ( 1 ) — ( 1 )

Balance at September 26, 2020 218,563 $ — $ 1,126 ( 67,942 ) $ ( 3,326 ) $ 125 $ 4,274 $ 2,199 $ — $ 2,199

Repurchase of common stock — — — ( 49 ) ( 1 ) — — ( 1 ) — ( 1 )

Balance at December 26, 2020 218,625 $ — $ 1,138 ( 67,943 ) $ ( 3,326 ) $ 91 $ 4,453 $ 2,356 $ ( 1 ) $ 2,355

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

3 unchanged sentences

Capital Treasury Shares Accumulated

Comprehensive Loss Retained

Comprehensive (Loss) Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Shares Amounts Shares Amounts

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

Net income — — — — — — 73 73 — 73

Other comprehensive loss

— — — — — ( 10 ) — ( 10 ) — ( 10 )

Total comprehensive income

— — — — — — — 63 — 63

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 — — — — — 74 — 74 — 74

Total comprehensive income (loss) — — — — — — — 284 ( 1 ) 283

Vesting of restricted awards, net of forfeitures

87 — — — — — — — — —

Exercise of employee share options

5 — — — — — — — — —

Share based compensation expense — — 16 — — — — 16 — 16

Purchase of treasury shares — — — ( 5 ) — — — — — —

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

Repurchase of common stock — — — ( 2,712 ) ( 100 ) — — ( 100 ) — ( 100 )

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

Ordinary Shares Additional

Capital Treasury Shares Accumulated

Comprehensive Loss Retained

Comprehensive (Loss) Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

6 unchanged sentences

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

Net income — — — — — — 118 118 — 118

Other comprehensive loss — — — — — ( 37 ) — ( 37 ) — ( 37 )

Total comprehensive income

— — — — — — — 81 — 81

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 — — — — — — — — —

Share based compensation expense — — 65 — — — — 65 — 65

Purchase of treasury shares — — — ( 63 ) ( 2 ) — — ( 2 ) — ( 2 )

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

Repurchase of common stock — — — ( 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

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In millions)

Six Months Ended

September 26,

2020 September 28,

Nine Months Ended

2020 December 28,

Cash flows from operating activities

Net (loss) income $ ( 59 ) $ 118

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net income $ 119 $ 327

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

Depreciation and amortization 160 188

24 unchanged sentences

Debt issuance costs ( 4 ) —

Purchase of treasury shares ( 1 ) ( 2 )

Repurchase of common stock ( 1 ) ( 102 )

Net cash used in financing activities ( 803 ) ( 554 )

20 unchanged sentences

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

The interim consolidated financial statements as of September 26, 2020 and for the three and six months ended September 26, 2020 and September 28, 2019 are unaudited.

The Company consolidates the results of its Versace business on a one-month lag, as consisent with prior periods.

The interim consolidated financial statements as of December 26, 2020 and for the three and nine months ended December 26, 2020 and December 28, 2019 are unaudited.

The Company consolidates the results of its Versace business on a one-month lag, as consistent with prior periods.

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

4 unchanged sentences

The Company utilizes a 52 to 53 week fiscal year and the term “Fiscal Year” or “Fiscal” refers to that 52-week or 53-week period.

The results for the three and six months ended September 26, 2020 and September 28, 2019 are based on 13-week and 26-week periods, respectively.

The Company’s Fiscal Year 2021 will be a 52-week period ending March 27, 2021.

The results for the three and nine months ended December 26, 2020 and December 28, 2019 are based on 13-week and 39-week periods, respectively.

The Company’s Fiscal Year 2021 is a 52-week period ending March 27, 2021.

Summary of Significant Accounting Policies

8 unchanged sentences

Inventories, net

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 $ 22 million and $ 27 million, respectively, as of September 26, 2020 and March 28, 2020.

The net realizable value of the Company's inventory as of September 26, 2020 and March 28, 2020 includes the expected adverse impacts of the COVID-19 pandemic.

Inventories primarily 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 $ 25 million and $ 27 million, respectively, as of December 26, 2020 and March 28, 2020.

The net realizable value of the Company’s inventory as of December 26, 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.

8 unchanged sentences

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 income until the hedged item affects earnings.

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

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.

6 unchanged sentences

Dollars and these foreign currencies.

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 (loss).

The Company has elected the spot method of designating these contracts under ASU 2017-12, “Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities,” and has designated these contracts as net investment hedges.

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 net investment is sold, diluted or liquidated.

6 unchanged sentences

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 July 2024.

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

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

17 unchanged sentences

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

Six Months Ended Six Months Ended

September 26, 2020 September 28, 2019

Nine Months Ended Nine Months Ended

December 26, 2020 December 28, 2019

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

Operating cash flows used in operating leases $ 341 (1)

(1) Operating cash flows used in operating leases for the six months ended September 26, 2020 exclude $ 60 million of rent payments that have been deferred due to the COVID-19 pandemic.

During the three and six months ended September 26, 2020, the Company recorded sublease income of $ 1 million and $ 3 million, respectively, and $ 2 million and $ 3 million, respectively, for the three and six months ended September 28, 2019, within selling, general, and administrative expenses.

During the three and six months ended September 26, 2020, the Company recorded $ 9 million and $ 24 million, respectively, of rent concessions negotiated in connection with the impact of COVID-19 as if it were contemplated as part of the existing contract, and these concessions are recorded as a reduction to variable lease expense within selling, general and administrative expenses.

Net Income (Loss) per Share

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

Diluted net income (loss) 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.

(1) Operating cash flows used in operating leases for the nine months ended December 26, 2020 exclude $ 41 million of rent payments that have been deferred due to the COVID-19 pandemic.

During the three and nine months ended December 26, 2020, the Company recorded sublease income of $ 1 million and $ 4 million, respectively, and $ 2 million and $ 5 million, respectively, for the three and nine months ended December 28, 2019, within selling, general and administrative expenses.

During the three and nine months ended December 26, 2020, the Company recorded $ 13 million and $ 37 million, respectively, of rent concessions negotiated in connection with the impact of COVID-19 as if it were contemplated as part of the existing contract, and these concessions are recorded as a reduction to variable lease expense within selling, general and administrative expenses.

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 as 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 (loss) per ordinary share and diluted net income (loss) per ordinary share are as follows (in millions, except share and per share data):

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Net income (loss) attributable to Capri $ 122 $ 73 $ ( 58 ) $ 118

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

2020 December 28,

2019 December 26,

2020 December 28,

Net income attributable to Capri $ 179 $ 210 $ 121 $ 328

Basic weighted average shares 150,661,252 150,826,196 150,236,612 151,159,423

3 unchanged sentences

Diluted weighted average shares 151,958,057 152,154,372 151,417,457 152,354,936

Basic net income (loss) per share (1)

Basic net income per share (1)

$ 1.19 $ 1.39 $ 0.80 $ 2.17

Diluted net income (loss) per share (1)

Diluted net income per share (1)

$ 1.18 $ 1.38 $ 0.80 $ 2.15

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

During the three and six months ended September 26, 2020, share equivalents of 3,961,838 shares and 4,675,372 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

Share equivalents of 5,822,186 shares and 4,098,382 shares, respectively, have been excluded from the above calculations for the three and six months ended September 28, 2019.

Diluted net income (loss) per share attributable to Capri for the six months ended September 26, 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.

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

During the three and nine months ended December 26, 2020, share equivalents of 4,269,343 shares and 4,540,029 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

Share equivalents of 2,264,959 shares and 3,487,241 shares, respectively, have been excluded from the above calculations for the three and nine months ended December 28, 2019.

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.

10 unchanged sentences

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 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

The Company has considered all new accounting pronouncements and has 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.

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on the Company’s results of operations, financial condition or cash flows based on current information.

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.

7 unchanged sentences

“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,” of $ 11 million as of both September 26, 2020 and March 28, 2020, is included within 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 $ 13 million and $ 11 million as of December 26, 2020 and March 28, 2020, respectively, is included within accrued expenses and other current liabilities in the Company’s consolidated balance sheet.

Loyalty Program .

3 unchanged sentences

These amounts include estimated “breakage” for points that are not expected to be redeemed.

The contract liability, net of an estimated “breakage,” of $ 2 million as of both September 26, 2020 and March 28, 2020, is recorded as a reduction to revenue in the consolidated statements of operations and comprehensive income (loss) 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 December 26, 2020 and March 28, 2020, is recorded 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.

1 unchanged sentence

The Company provides its third-party licensees with the right to access its Versace, Jimmy Choo and Michael Kors trademarks under product and geographic licensing arrangements.

Under 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.

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.

Generally, the Company’s guaranteed minimum royalty amounts due from licensees relate to contractual periods that do not exceed 12 months, however, certain guaranteed minimums for Versace are multi-year based.

As of September 26, 2020, contractually guaranteed minimum fees from our license agreements expected to be recognized as revenue during future periods were as follows (in millions):

As of December 26, 2020, contractually guaranteed minimum fees from the Company’s license agreements expected to be recognized as revenue during future periods were as follows (in millions):

Contractually Guaranteed Minimum Fees

6 unchanged sentences

Sales Returns

The refund liability recorded as of September 26, 2020 and March 28, 2020 was $ 40 million and $ 37 million, respectively, and the related asset for the right to recover returned product as of September 26, 2020 and March 28, 2020 was $ 12 million and $ 14 million, respectively.

The refund liability recorded as of December 26, 2020 and March 28, 2020 was $ 55 million and $ 37 million, respectively, and the related asset for the right to recover returned product as of December 26, 2020 and March 28, 2020 was $ 17 million and $ 14 million, respectively.

Contract Balances

Total contract liabilities were $ 14 million and $ 22 million as of September 26, 2020 and March 28, 2020, respectively.

For the three and six months ended September 26, 2020, the Company recognized $ 2 million and $ 5 million, respectively, in revenue which related to contract liabilities that existed at March 28, 2020.

For the three and six months ended September 28, 2019, the Company recognized $ 3 million and $ 17 million, respectively, in revenue which related to contract liabilities that existed at March 30, 2019.

There were no material contract assets recorded as of September 26, 2020 and March 28, 2020.

Total contract liabilities were $ 16 million and $ 22 million as of December 26, 2020 and March 28, 2020, respectively.

For the three and nine months ended December 26, 2020, the Company recognized $ 2 million and $ 7 million, respectively, in revenue which related to contract liabilities that existed at March 28, 2020.

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.

There were no material contract assets recorded as of December 26, 2020 and March 28, 2020.

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

1 unchanged sentence

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

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Versace revenue - the Americas $ 57 $ 41 $ 132 $ 133

19 unchanged sentences

Receivables, net, consist of (in millions):

September 26,

2020 March 28,

2 unchanged sentences

allowances ( 61 ) ( 138 )

(1) As of September 26, 2020 and March 28, 2020, $ 78 million and $ 80 million, respectively, of trade receivables were insured.

(1) As of December 26, 2020 and March 28, 2020, $ 75 million and $ 80 million, respectively, of trade receivables were insured.

Receivables are presented net of allowances for discounts, markdowns, operational chargebacks and credit losses.

3 unchanged sentences

Such provisions, and related recoveries, are reflected in revenues.

The Company’s allowance for credit losses is determined through analysis of periodic aging of receivables 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 Company’s allowance for credit losses is determined through analysis of periodic aging of receivables and assessments of collectibility 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 credit losses was $ 31 million and $ 39 million as of September 26, 2020 and March 28, 2020, respectively, including the impact related to COVID-19.

The Company had a credit loss of $ 4 million and $( 2 ) million, respectively, for the three and six months ended September 26, 2020.

The Company had bad debt expense of $ 4 million for the six months ended September 28, 2019.

The Company had immaterial bad debt expense for the three months ended September 28, 2019.

Allowance for credit losses was $ 29 million and $ 39 million as of December 26, 2020 and March 28, 2020, respectively, including the impact related to COVID-19.

The Company had a credit loss of $( 3 ) million and $( 5 ) million, respectively, for the three and nine months ended December 26, 2020.

The Company had bad debt expense of $ 0 million and $ 3 million for the three and nine months ended December 28, 2019, respectively.

Property and Equipment, net

Property and equipment, net, consists of (in millions):

September 26,

2020 March 28,

7 unchanged sentences

Construction-in-progress 49 69

Depreciation and amortization of property and equipment for the three months ended September 26, 2020 and September 28, 2019 was $ 41 million and $ 52 million, respectively, and was $ 84 million and $ 99 million, respectively, for the six months ended September 26, 2020 and September 28, 2019.

During the three and six months ended September 26, 2020, the Company recorded $ 2 million in property and equipment impairment charges.

During the three and six months ended September 28, 2019, the Company recorded property and equipment impairment charges of $ 10 million and $ 23 million, respectively, primarily related to Jimmy Choo and Versace store locations and determining asset groups for the Company's premier store locations at an individual store level, respectively (see Note 11 for additional information).

Depreciation and amortization of property and equipment for the three months ended December 26, 2020 and December 28, 2019 was $ 41 million and $ 50 million, respectively, and was $ 125 million and $ 149 million, respectively, for the nine months ended December 26, 2020 and December 28, 2019.

During the three and nine months ended December 26, 2020, the Company recorded $ 13 million and $ 15 million in property and equipment impairment charges, respectively.

During the three and nine months ended December 28, 2019, the Company recorded property and equipment impairment charges of $ 10 million and $ 33 million, respectively, primarily related to Michael Kors retail store locations and determining asset groups for the Company’s premier store locations at an individual store level (see Note 11 for additional information).

Intangible Assets and Goodwill

The following table details the carrying values of the Company’s intangible assets and goodwill (in millions):

September 26,

2020 March 28,

16 unchanged sentences

The change in the carrying value since March 28, 2020 reflects the impact of foreign currency translation.

Amortization expense for the Company’s definite-lived intangible assets for the three months ended September 26, 2020 and September 28, 2019 was $ 12 million and $ 13 million, respectively, and was $ 23 million and $ 26 million for the six months ended September 26, 2020 and September 28, 2019, respectively.

Amortization expense for the Company’s definite-lived intangible assets for the three months ended December 26, 2020 and December 28, 2019 was $ 12 million and $ 13 million, respectively, and was $ 35 million and $ 39 million for the nine months ended December 26, 2020 and December 28, 2019, respectively.

Current Assets and Current Liabilities

Prepaid expenses and other current assets consist of the following (in millions):

September 26,

2020 March 28,

Prepaid taxes $ 49 $ 116

Prepaid contracts 13 17

Other accounts receivables 12 10

Prepaid contracts 11 17

Prepaid insurance 5 2

Interest receivable related to net investment hedges 5 1

Accrued expenses and other current liabilities consist of the following (in millions):

September 26,

2020 March 28,

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Restructuring liability 7 9

Derivative liability 7 —

(1) The accrued rent balance relates to variable lease payments.

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In addition, the Company expects to incur approximately $ 75 million of one-time costs related to this program, including lease termination and other store closure costs, the majority of which are expected to result in future cash expenditures.

During the six months ended September 26, 2020, the Company closed 48 of its retail stores which have been incorporated into the Capri Retail Store Optimization Program.

Net restructuring charges recorded in connection with the Capri Retail Store Optimization Program during the three and six months ended September 26, 2020 were $ 2 million and $ 5 million, respectively.

During the nine months ended December 26, 2020, the Company closed 66 of its retail stores which have been incorporated into the Capri Retail Store Optimization Program.

Net restructuring charges recorded in connection with the Capri Retail Store Optimization Program during the three and nine months ended December 26, 2020 were $( 4 ) million and $ 1 million, respectively.

The below table presents a roll forward of the Company's restructuring liability related to its Capri Retail Store Optimization Program (in millions):

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Payments ( 1 ) ( 10 ) ( 11 )

Balance at September 26, 2020 $ — $ 1 $ 1

(1) Excludes a net credit of $ 3 million related to lease termination gains of previously impaired operating lease right-of-use assets partially offset by additional impairments on the stores closing under our Capri Retail Store Optimization Program during the six months ended September 26, 2020.

Balance at December 26, 2020 $ — $ 2 $ 2

(1) Excludes a net credit of $ 9 million related to lease termination gains of previously impaired operating lease right-of-use assets partially offset by additional impairments for the stores closing under the Company’s Capri Retail Store Optimization Program during the nine months ended December 26, 2020.

Michael Kors Retail Fleet Optimization Plan

During the six months ended September 28, 2019, the Company incurred charges of $ 1 million relating to the Michael Kors Retail Fleet Optimization Plan, which was completed during the fourth quarter of Fiscal 2020.

During the three and nine months ended December 28, 2019, the Company incurred charges of $ 5 million and $ 6 million, respectively, relating to the Michael Kors Retail Fleet Optimization Plan, which was completed during the fourth quarter of Fiscal 2020.

Other Restructuring Charges

In addition to the restructuring charges related to the Michael Kors Retail Fleet Optimization Plan, the Company incurred charges of $ 1 million during the three and six months ended September 28, 2019 related to the Company's intent to exit certain of its agreements in the EMEA region.

During the six months ended September 28, 2019, the Company also incurred charges of $ 2 million relating to Jimmy Choo lease-related charges.

During the three and six months ended September 26, 2020, the Company recorded costs of $ 7 million and $ 12 million, respectively, primarily related to equity awards associated with the acquisition of Versace.

During the three months ended September 28, 2019, the Company recorded costs of $ 6 million, primarily related to equity awards associated with the acquisition of Versace.

During the six months ended September 28, 2019, the Company recorded costs of $ 18 million, which included $ 13 million, primarily related to equity awards associated with the acquisition of Versace, and $ 5 million, primarily related to equity awards associated with the acquisition of Jimmy Choo.

In addition to the restructuring charges related to the Capri Retail Store Optimization Program, the Company incurred charges of $ 2 million during the three and nine months ended December 26, 2020, respectively, primarily relating to closures of corporate locations.

The Company incurred $ 2 million and $ 5 million of restructuring charges related to the Michael Kors Retail Fleet Optimization Plan, during the three and nine months ended December 28, 2019, respectively, primarily consisting of lease-related costs.

During the three and nine months ended December 26, 2020, the Company recorded costs of $ 3 million and $ 15 million, respectively, primarily related to equity awards associated with the acquisition of Versace.

During the three months ended December 28, 2019, the Company recorded costs of $ 8 million, primarily related to equity awards associated with the acquisition of Versace.

During the nine months ended December 28, 2019, the Company recorded costs of $ 26 million, which included $ 18 million, primarily related to equity awards associated with the acquisition of Versace, and $ 8 million, primarily related to equity awards associated with the acquisition of Jimmy Choo.

Debt Obligations

The following table presents the Company’s debt obligations (in millions):

September 26,

2020 March 28,

Term Loan $ 894 $ 1,015

Revolving Credit Facilities 345 720

Senior Notes due 2024 450 450

Revolving Credit Facilities 65 720

Total debt 1,420 2,188

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When this financial covenant is reinstated, the applicable ratio will be calculated net of the Company’s unrestricted cash and cash equivalents in excess of $ 100 million and shall exclude up to $ 150 million of supply chain financings, and the maximum permitted net leverage ratio will be 4.00 to 1.0.

In addition, until March 31, 2021, the material adverse change representation required to be made in connection with revolving borrowings and the issuance or amendment of letters of credit will be modified to disregard certain COVID-19 pandemic-related impacts to the business, results of operations or financial condition of the Company and its subsidiaries, taken as a whole.

The Second Amendment also requires the Company, during the period from June 25, 2020 until it delivers its financial statements with respect to the fiscal quarter ending June 26, 2021, to

maintain at all times unrestricted cash and cash equivalents plus the aggregate undrawn amounts under the revolving facilities under the 2018 Credit Facility of not less than $ 300 million, increasing to $ 400 million on October 1, 2020 and $ 500 million on December 1, 2020.

condition of the Company and its subsidiaries, taken as a whole.

The Second Amendment also requires the Company, during the period from June 25, 2020 until it delivers its financial statements with respect to the fiscal quarter ending June 26, 2021, to maintain at all times unrestricted cash and cash equivalents plus the aggregate undrawn amounts under the revolving facilities under the 2018 Credit Facility of not less than $ 300 million, increasing to $ 400 million on October 1, 2020 and $ 500 million on December 1, 2020.

The 2018 Credit Facility and the Indenture governing the Company's senior notes contain certain restrictive covenants that impose operating and financial restrictions on the Company, and the Second Amendment imposes incremental restrictions on certain of these covenants during the covenant relief period provided under the 2018 Credit Facility, including restrictions on its ability to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem capital stock, make loans and investments, including acquisitions, sell assets, incur liens, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of its assets.

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The Second Amendment also permits certain working capital facilities between the Company or any of its subsidiaries with a lender or an affiliate of a lender under the 2018 Credit Facility to be guaranteed under the 2018 Credit Facility guarantees and certain supply chain financings with, and up to $ 50 million outstanding principal amount of bilateral letters of credit and bilateral bank guarantees issued by a lender or an affiliate of a lender to be guaranteed and secured under the 2018 Credit Facility guarantees and collateral documents.

As of September 26, 2020, and the date these financial statements were issued, the Company was in compliance with all covenants related to the 2018 Credit Facility as amended by the Second Amendment.

As of September 26, 2020 and March 28, 2020, the Company had borrowings of $ 274 million and $ 681 million, respectively, outstanding under the 2018 Revolving Credit Facility, which were recorded within long-term debt in its consolidated balance sheets.

In addition, stand-by letters of credit of $ 22 million were outstanding as of September 26, 2020.

At September 26, 2020, the amount available for future borrowings under the 2018 Revolving Credit Facility and the 364 Day Facility were $ 704 million and $ 230 million, respectively.

As of September 26, 2020 and March 28, 2020, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $ 985 million and $ 1.010 billion, respectively, of which $ 128 million was recorded within short-term debt for both periods and $ 857 million and $ 882 million, respectively, was recorded within long-term debt in its consolidated balance sheets.

As of December 26, 2020, and the date these financial statements were issued, the Company was in compliance with all covenants related to the 2018 Credit Facility as amended by the Second Amendment.

As of December 26, 2020 the Company had no borrowings outstanding under the 2018 Revolving Credit Facility as a result of paying off the remaining borrowings during the period and $ 681 million as of March 28, 2020, which were recorded within long-term debt in its consolidated balance sheets.

In addition, stand-by letters of credit of $ 22 million were outstanding as of December 26, 2020.

At December 26, 2020, the amount available for future borrowings under the 2018 Revolving Credit Facility and the 364 Day Facility were $ 978 million and $ 230 million, respectively.

As of December 26, 2020 and March 28, 2020, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $ 890 million and $ 1.010 billion, respectively, of which $ 97 million and $ 128 million, respectively, was recorded within short-term debt and $ 793 million and $ 882 million, respectively, was recorded within long-term debt in its consolidated balance sheets.

During the third quarter of Fiscal 2021, the Company began offering a supplier financing program to certain suppliers as the Company continues to identify opportunities to improve liquidity.

This program enables suppliers, at their sole discretion, to sell their receivables (i.e., the Company’s payment obligations to suppliers) to a financial institution on a non-recourse basis in order to be paid earlier than current payment terms provide.

The Company’s obligations, including the amount due and scheduled payment dates, are not impacted by a suppliers’ decision to participate in this program.

The Company does not reimburse suppliers for any costs they incur to participate in the program and their participation is voluntary.

The amount outstanding under this program as of December 26, 2020 is $ 7 million and is presented as short-term debt in the Company’s consolidated balance sheets.

See Note 12 to the Company’s Fiscal 2020 Annual Report on Form 10-K for additional information regarding the Company’s credit facilities and debt obligations.

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In the ordinary course of business, the Company is party to various legal proceedings and claims.

Although the outcome of such claims 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.

Although the outcome of such claims cannot be determined with certainty, the Company 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 28, 2020 for a detailed disclosure of other commitments and contractual obligations as of March 28, 2020.

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Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At September 26, 2020 and March 28, 2020, the fair values of the Company’s forward foreign currency exchange contracts, interest rate swaps and net investment hedges were determined using broker quotations, which were calculations derived from observable market information:

At December 26, 2020 and March 28, 2020, the fair values of the Company’s forward foreign currency exchange contracts, interest rate swaps 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.

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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 September 26, 2020 using:

Fair value at December 26, 2020 using:

Fair value at March 28, 2020 using:

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Interest rate swaps — 1 — — — —

Undesignated forward currency exchange contracts — 2 — — — —

Total derivative liabilities $ — $ 268 $ — $ — $ — $ —

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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):

September 26, 2020 March 28, 2020

December 26, 2020 March 28, 2020

Value Estimated

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Value Estimated

4.000 % Senior Notes

$ 447 $ 437 $ 446 $ 443

Senior Notes due 2024 $ 446 $ 471 $ 446 $ 443

Term Loan $ 890 $ 890 $ 1,010 $ 957

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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 Company recorded $ 22 million in impairment charges during the three and six months ended September 26, 2020.

The following table details the carrying values and fair values of the Company’s assets that have been impaired during the three and six months ended September 26, 2020 and three and six months ended September 28, 2019 (in millions):

Three and Six Months Ended

September 26, 2020

The Company recorded $ 91 million and $ 113 million in impairment charges during the three and nine months ended December 26, 2020, respectively.

The following table details the carrying values and fair values of the Company’s assets that have been impaired during the three and nine months ended December 26, 2020 and three and nine months ended December 28, 2019 (in millions):

Three Months Ended

December 26, 2020 Nine Months Ended

December 26, 2020

Carrying Value Prior to Impairment Fair Value Impairment Charge (1)

Operating Lease Right-of-Use Assets

$ 284 $ 206 $ 78 $ 321 $ 223 $ 98

Property and Equipment 17 4 13 21 6 15

Total $ 301 $ 210 $ 91 $ 342 $ 229 $ 113

(1) Includes $ 2 million of impairment charges that were recorded within restructuring and other charges related to the Capri Retail Store Optimization Program.

(1) Includes $ 1 million and $ 3 million of impairment charges that were recorded within restructuring and other charges related to the Capri Retail Store Optimization Program during the three and nine months ended December 26, 2020, respectively.

Three Months Ended

September 28, 2019 Six Months Ended

September 28, 2019

December 28, 2019 Nine Months Ended

December 28, 2019

Carrying Value Prior to Impairment Fair Value Impairment Charge Carrying Value Prior to Impairment Fair Value Impairment Charge

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Net Investment Hedges

As of September 26, 2020, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 2 billion to hedge its net investment in Euro-denominated subsidiaries and $ 44 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between the U.S.

As of December 26, 2020, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 3 billion to hedge its net investment in Euro-denominated subsidiaries and $ 44 million to hedge its net investment in Japanese Yen-denominated subsidiaries against future volatility in the exchange rates between the U.S.

Dollar and these currencies.

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denominated debt for fixed rate payments of 0 % to 4.508 % in Euros and 0.89 % in Japanese Yen.

Certain of these contracts include mandatory early termination dates between September 2023 and September 2025, while the remaining contracts have maturity dates between July 2022 and August 2027.

Certain of these contracts include mandatory early termination dates between November 2022 and September 2025, while the remaining contracts have maturity dates between July 2022 and August 2027.

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 (loss).

Accordingly, the Company recorded a reduction in interest expense of $ 2 million during the three and six months ended September 26, 2020 and $ 19 million and $ 34 million, respectively, during the three and six months ended September 28, 2019.

This decrease from prior year is due to the Company having a lower average notional amount outstanding and lower interest rates on these hedges compared to the prior year.

Accordingly, the Company recorded a reduction in interest expense of $ 6 million and $ 8 million during the three and nine months ended December 26, 2020, respectively, and $ 19 million and $ 53 million during the three and nine months ended December 28, 2019, respectively.

This decrease from prior year is primarily due to the Company having lower interest rates and lower average notional amount outstanding on these hedges.

Interest Rate Swap

As of September 26, 2020, the Company had an interest rate swap with an initial notional amount of $ 500 million that will decrease to $ 350 million in April 2022.

As of December 26, 2020, the Company had an interest rate swap with an initial notional amount of $ 500 million that will decrease to $ 350 million in April 2022.

The swap was designated as a cash flow hedge designed to mitigate the impact of adverse interest rate fluctuations for a portion of the Company’s variable-rate debt equal to the notional amount of the swap.

The interest rate swap converts the one-month Adjusted LIBOR interest rate on these borrowings to a fixed interest rate of 0.237 % through December 2022.

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 income (loss) and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.

During the three and six months ended September 26, 2020, the Company recorded an immaterial amount of interest expense related to this agreement.

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 September 26, 2020 and March 28, 2020 (in millions):

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 income and are reclassified into interest expense in the same period during which the hedged transactions affect earnings.

During the three and nine months ended December 26, 2020, the Company recorded an immaterial amount of interest expense related to this agreement.

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 26, 2020 and March 28, 2020 (in millions):

Notional Amounts Assets Liabilities

September 26,

2020 March 28,

2020 September 26,

2020 December 26,

2020 March 28,

2020 September 26,

2020 December 26,

2020 March 28,

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Total designated hedges 3,690 205 1 4 266 —

Undesignated derivative contracts (5)

$ 30 — — — $ 2 —

Total $ 3,720 $ 205 $ 1 $ 4 $ 268 $ —

(1) Recorded within prepaid expenses and other current assets in the Company’s consolidated balance sheets.

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(4) Recorded within other long-term liabilities in the Company’s consolidated balance sheets.

(5) Primarily includes undesignated hedges of inventory purchases.

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 previous 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 set-off amounts for similar transactions denominated in the same currencies, the resulting impact as of September 26, 2020 and March 28, 2020 would be as follows (in millions):

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 set-off amounts for similar transactions denominated in the same currencies, the resulting impact as of December 26, 2020 and March 28, 2020 would be as follows (in millions):

Forward Currency Exchange Contracts Net Investment

Hedges Interest Rate

September 26,

2020 March 28,

2020 September 26,

2020 December 26,

2020 March 28,

2020 September 26,

2020 December 26,

2020 March 28,

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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.

accumulated other comprehensive income 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.

Upon discontinuation of the hedge, such amounts remain in CTA until the related investment is sold or liquidated.

Changes in the fair value of the Company’s interest rate swaps 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 interest expense within the Company’s consolidated statements of operations and comprehensive income (loss).

Changes in the fair value of the Company’s interest rate swaps that are designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income and are reclassified from accumulated other comprehensive income into earnings when the items underlying the hedged transactions are recognized into earnings, as a component of interest expense within the Company’s consolidated statements of operations and comprehensive income.

The following table summarizes the pre-tax impact of the gains and losses on the Company’s designated forward foreign currency exchange contracts, net investment hedges and interest rate swaps (in millions):

Three Months Ended Six Months Ended

September 26, 2020 September 28, 2019 September 26, 2020 September 28, 2019

Three Months Ended Nine Months Ended

December 26, 2020 December 28, 2019 December 26, 2020 December 28, 2019

Pre-Tax Losses

Recognized in OCI Pre-Tax Gains

Recognized in OCI Pre-Tax Losses

Recognized in OCI Pre-Tax Gains

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Designated interest rate swaps $ — $ — $ ( 1 ) $ —

The following tables summarize the pre-tax impact of the gains and losses within the consolidated statements of operations and comprehensive income (loss) related to the designated forward foreign currency exchange contracts for the three and six months ended September 26, 2020 and September 28, 2019 (in millions):

The following tables summarize the pre-tax 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 26, 2020 and December 28, 2019 (in millions):

Three Months Ended

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Accumulated OCI Location of Gain recognized

September 26, 2020 September 28, 2019

December 26, 2020 December 28, 2019

Designated forward foreign currency exchange contracts

$ ( 1 ) $ ( 3 ) Cost of goods sold

Six Months Ended

Nine Months Ended

Pre-Tax Gain Reclassified from

Accumulated OCI Location of Gain recognized

September 26, 2020 September 28, 2019

December 26, 2020 December 28, 2019

Designated forward foreign currency exchange contracts

$ ( 4 ) $ ( 8 ) Cost of goods sold

The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income (loss) for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover.

The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive income for its forward foreign currency exchange contracts will be reclassified into earnings during the next 12 months, based upon the timing of inventory purchases and turnover.

Undesignated Hedges

During the three and six months ended September 26, 2020 and September 28, 2019, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency (gain) loss in the Company’s consolidated statement of operations and comprehensive income (loss) was immaterial.

There were no undesignated hedges outstanding as of September 26, 2020.

During the three and nine months ended December 26, 2020, a loss of $ 2 million was recognized within foreign currency (gain) loss in the Company’s consolidated statement of operations and comprehensive income as a result of the changes in the fair value of undesignated forward foreign currency exchange contracts.

During the three and nine months ended December 28, 2019, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency (gain) loss in the Company’s consolidated statement of operations and comprehensive income was immaterial.

Shareholders’ Equity

Share Repurchase Program

During the first quarter of Fiscal 2021, the Company suspended its $ 500 million share-repurchase program in response to the continued impact of the COVID-19 pandemic.

During the six months ended September 26, 2020, the Company did no t purchase any shares through open market transactions under the current plan.

As of September 26, 2020, the remaining availability under the Company’s share repurchase program was $ 400 million.

During the six months ended September 28, 2019, the Company did no t purchase any shares through open market transactions under its previous $ 1.0 billion share-repurchase program, which expired on May 25, 2019.

During the first quarter of Fiscal 2021, the Company suspended its $ 500 million share-repurchase program in response to the continued impact of the COVID-19 pandemic and the provisions of the Second Amendment of the 2018 Credit Facility, which imposes incremental restrictions, including restrictions to pay dividends or make other distribution or repurchase or redeem capital stocks.

During the nine months ended December 26, 2020, the Company did no t purchase any shares through open market transactions under the current plan.

As of December 26, 2020, the remaining availability under the Company’s share repurchase program was $ 400 million.

During the nine months ended December 28, 2019, the Company repurchased 2,711,807 shares through open market transactions at a cost of $ 100 million under its $ 500 million share-repurchase program.

Share repurchases may be made in open market or privately negotiated transactions, subject to market conditions, applicable legal requirements, trading transactions under the Company’s insider trading policy and other relevant factors.

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The Company also has in place a “withhold to cover” repurchase program, which allows the Company to withhold ordinary shares from certain executive officers and directors to satisfy minimum tax withholding obligations relating to the vesting of their restricted share awards.

During the six month periods ended September 26, 2020 and September 28, 2019, the

Company withheld 47,635 shares and 63,223 shares, respectively, with a fair value of $ 1 million and $ 2 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.

During the nine month periods ended December 26, 2020 and December 28, 2019, the Company withheld 48,147 shares and 63,958 shares, respectively, with a fair value of $ 1 million and $ 2 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.

Accumulated Other Comprehensive Income (Loss)

The following table details changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes for the six months ended September 26, 2020 and September 28, 2019, respectively (in millions):

Translation (Losses) Gains (1)

The following table details changes in the components of accumulated other comprehensive income (loss) (“AOCI”), net of taxes, for the nine months ended December 26, 2020 and December 28, 2019, respectively (in millions):

Gains (Losses) (1)

Net Gains (Losses) on Derivatives (2)

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Other comprehensive income (loss), net of tax 26 ( 10 ) 16

Balance at September 28, 2019 $ ( 111 ) $ 8 $ ( 103 )

Balance at December 26, 2020 $ 98 $ ( 7 ) $ 91

Balance at March 30, 2019 $ ( 73 ) $ 7 $ ( 66 )

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Other comprehensive income (loss), net of tax 40 ( 3 ) 37

Balance at September 26, 2020 $ 125 $ — $ 125

(1) Foreign currency translation gains and losses for the six months ended September 26, 2020 include net loss of $ 2 million on intra-entity transactions that are of a long-term investment nature.

Foreign currency translation gains and losses for the six months ended September 28, 2019 include net gains of $ 6 million on intra-entity transactions that are of a long-term investment nature, a $ 42 million translation loss relating to the Versace business and an $ 86 million gain, net of taxes of $ 18 million, relating to the Company’s net investment hedges.

(2) Reclassified amounts relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive income (loss).

Balance at December 28, 2019 $ ( 33 ) $ 4 $ ( 29 )

(1) Foreign currency translation gains and losses for the nine months ended December 26, 2020 include a net loss of $ 7 million on intra-entity transactions that are of a long-term investment nature, and a $ 198 million loss, net of taxes of $ 64 million, relating to the Company's net investment hedges, which was offset by a net $ 227 million translation gain.

Foreign currency translation gains and losses for the nine months ended December 28, 2019 include net gains of $ 3 million on intra-entity transactions that are of a long-term investment nature, a $ 4 million translation loss relating to the Versace business and an $ 44 million gain, net of taxes of $ 9 million, relating to the Company’s net investment hedges.

(2) Reclassified amounts primarily relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are recorded within cost of goods sold in the Company’s consolidated statements of operations and comprehensive income.

All tax effects were not material for the periods presented.

Share-Based Compensation

The Company issues equity grants to certain employees and directors of the Company at the discretion of the Company’s Compensation and Talent Committee.

The Company grants equity awards to certain employees and directors of the Company at the discretion of the Company’s Compensation and Talent Committee.

The Company has two equity plans, one stock option plan adopted in Fiscal 2008 (as amended and restated, the “2008 Plan”), and the Omnibus Incentive Plan adopted in the third fiscal quarter of Fiscal 2012 and amended and restated with shareholder approval in May 2015 and again in June 2020 (the “Incentive Plan”).

The 2008 Plan only provided for grants of share options and was authorized to issue up to 23,980,823 ordinary shares.

As of September 26, 2020, there were no shares available to grant equity awards under the 2008 Plan.

As of December 26, 2020, there were no shares available to grant equity awards under the 2008 Plan.

The Incentive Plan allows for grants of share options, restricted shares and RSUs, and other equity awards, and authorizes a total issuance of up to 18,846,000 ordinary shares after amendments in June 2020.

At September 26, 2020, there were 5,174,442 ordinary shares available for future grants of equity awards under the Incentive Plan.

At December 26, 2020, there were 5,138,884 ordinary shares available for future grants of equity awards under the Incentive Plan.

Option grants issued from the 2008 Plan generally expire ten years from the date of the grant, and those issued under the Incentive Plan generally expire seven years from the date of the grant.

The following table summarizes the Company’s share-based compensation activity during the six months ended September 26, 2020:

The following table summarizes the Company’s share-based compensation activity during the nine months ended December 26, 2020:

Options Service-Based RSUs Performance-Based RSUs

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Canceled/Forfeited ( 471,693 ) ( 396,314 ) ( 144,414 )

Outstanding/Unvested at September 26, 2020

Outstanding/Unvested at December 26, 2020

1,331,386 5,097,688 569,341

The weighted average grant date fair value of service-based RSUs granted during the six months ended September 26, 2020 was $ 15.98 .

The weighted average grant date fair value of service-based and performance-based RSUs granted during the six months ended September 28, 2019 was $ 33.90 and $ 33.86 , respectively.

The weighted average grant date fair value of service-based RSUs granted during the nine months ended December 26, 2020 was $ 16.72 .

The weighted average grant date fair value of service-based and performance-based RSUs granted during the nine months ended December 28, 2019 was $ 33.89 and $ 33.86 , respectively.

Share-Based Compensation Expense

The following table summarizes compensation expense attributable to share-based compensation for the three and six months ended September 26, 2020 and September 28, 2019 (in millions):

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

The following table summarizes compensation expense attributable to share-based compensation for the three and nine months ended December 26, 2020 and December 28, 2019 (in millions):

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Share-based compensation expense $ 12 $ 16 $ 53 $ 65

3 unchanged sentences

The Company estimates forfeitures based on its historical forfeiture rates.

The estimated value of future forfeitures for equity grants as of September 26, 2020 is approximately $ 12 million.

The estimated value of future forfeitures for equity grants as of December 26, 2020 is approximately $ 12 million.

See Note 17 in the Company’s Fiscal 2020 Annual Report on Form 10-K for additional information relating to the Company’s share-based compensation awards.

The Company’s effective tax rate for the three and six months ended September 26, 2020 was 14.2 % and ( 73.5 )%, respectively.

Such rates differs from the United Kingdom (“U.K.”) federal statutory rate of 19% primarily due to the impacts of a valuation allowance on a portion of our consolidated pre-tax loss, a tax detriment related to share-based compensation and the impact of the tax rate change in the U.K.

on the Company’s net deferred tax liabilities recorded as of September 26, 2020, as well as the impact of global financing activities.

The Company’s effective tax rate for the three and nine months ended December 26, 2020 was ( 2.9 )% and 14.4 %, respectively.

Such rates differs from the United Kingdom (“U.K.”) federal statutory rate of 19% primarily due to the favorable impact of global financing activities as well as the release of a valuation allowance on tax loss carryforwards of one of our U.S.

subsidiaries during the three months ended December 26, 2020.

The favorable impacts are partially offset by the impact of the tax rate change in the United Kingdom on the Company's net deferred tax liabilities recorded for the nine months ended December 26, 2020, as well as tax detriments related to share based compensation.

The global financing activities are related to the Company’s 2014 move of its principal executive office from Hong Kong to the U.K.

1 unchanged sentence

tax resident.

In connection with this decision, the Company funded its international growth strategy through intercompany debt financing arrangements between certain of our U.S., U.K.

In connection with this decision, the Company funded its international growth strategy through intercompany debt

financing arrangements between certain of our U.S., U.K.

and Switzerland subsidiaries in December 2015.

Due to the difference in the statutory income tax rates between these jurisdictions, the Company realized a lower effective tax rate on the consolidated pre-tax income for the three months ended September 26, 2020 and a higher effective tax rate on the consolidated pre-tax loss for the six months ended September 26, 2020, respectively.

The Company’s effective tax rate for the three and six months ended September 28, 2019 was ( 5.8 )% and 1.7 %, respectively.

Due to the difference in the statutory income tax rates between these jurisdictions, the Company realized a lower effective tax rate.

The Company’s effective tax rate for the three and nine months ended December 28, 2019 was 2.0 % and 0.6 %, respectively.

Such rates differed from the U.K.

federal statutory rate of 19% primarily due to the favorable impact from the realization of previously unrecognized tax benefits associated with certain positions in Europe realized during the period and return to provision adjustments in the US and Europe, which resulted in a benefit to the Company’s effective income tax rate for the three and six months ended September 28, 2019.

and Europe, which resulted in a benefit to the Company’s effective income tax rate for the three and nine months ended December 28, 2019.

In addition, the Company had favorable effects related to global financing activities.

2 unchanged sentences

tax resident.

In connection with this decision, the Company funded its international growth strategy through intercompany debt financing arrangements between certain of our U.S., U.K.

Switzerland subsidiaries in December 2015.

In connection with this decision, the Company funded its international growth strategy through intercompany debt financing arrangements between certain of the our U.S., U.K.

and Switzerland subsidiaries in December 2015.

Due to the difference in the statutory income tax rates between these jurisdictions, the Company realized a lower effective tax rate.

5 unchanged sentences

The Company’s three reportable segments are as follows:

• Versace — segment includes revenue generated through the sale of Versace luxury ready-to-wear, accessories, footwear and home furnishings through directly operated Versace boutiques throughout North America (United States and Canada), EMEA and certain parts of Asia, including Australia, as well as through Versace outlet stores and e-commerce sites.

In addition, revenue is generated through wholesale sales to distribution partners (including geographic licensing arrangements that allow third parties to use the Versace trademarks in connection with retail and/or wholesale sales of Versace branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide, as well as through product license agreements in connection with the manufacturing and sale of products, including jeans, fragrances, watches, jewelry and eyewear.

• Versace — segment includes revenue generated through the sale of Versace luxury ready-to-wear, accessories, and footwear through directly operated Versace boutiques throughout North America (United States and Canada), EMEA and certain parts of Asia, including Australia, as well as through Versace outlet stores and e-commerce sites.

• Jimmy Choo — segment includes revenue generated through the sale of Jimmy Choo luxury footwear, handbags and small leather goods through directly operated Jimmy Choo retail and outlet stores throughout the Americas, EMEA and certain parts of Asia, including Australia, through its e-commerce sites, as well as through wholesale sales of luxury goods to distribution partners (including geographic licensing arrangements that allow third parties to use the Jimmy Choo trademarks in connection with retail and/or wholesale sales of Jimmy Choo branded products in specific geographic regions), multi-brand department stores and specialty stores worldwide.

4 unchanged sentences

In addition, revenue is generated through product and geographic licensing arrangements, which allow third parties to use the Michael Kors brand name and trademarks in connection with the manufacturing and sale of products, including watches, jewelry, fragrances and eyewear.

In addition to these reportable segments, the Company has certain corporate costs that are not directly attributable to its brands and, therefore, are not allocated to segments.

In addition to these reportable segments, the Company has certain corporate costs that are not directly attributable to its brands and, therefore, are not allocated to its segments.

Such costs primarily include certain administrative, corporate occupancy, and information systems expenses, including enterprise resource planning system implementation costs.

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The following table presents the key performance information of the Company’s reportable segments (in millions):

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Total revenue:

13 unchanged sentences

COVID-19 related charges 1 — ( 2 ) —

Total income (loss) from operations $ 153 $ 75 $ ( 9 ) $ 139

___________________

(1) COVID-19 related charges for the three months ended September 26, 2020 primarily relate to the reversal of previously recorded inventory reserves as a result of improved sell through of excess inventory, partially offset by increased credit losses.

COVID-19 related charges for the six months ended September 26, 2020 primarily relate to severance and other COVID-19 related operating expenses, partially offset by a reduction to COVID-19 related inventory reserves.

Total income from operations $ 167 $ 205 $ 158 $ 344

Depreciation and amortization expense for each segment are as follows (in millions):

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Depreciation and amortization:

4 unchanged sentences

Total revenue (based on country of origin) by geographic location are as follows (in millions):

Three Months Ended Six Months Ended

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Three Months Ended Nine Months Ended

2020 December 28,

2019 December 26,

2020 December 28,

Total revenue:

5 unchanged sentences

(1) Total revenue earned in the U.S.

were $ 531 million and $ 692 million, respectively, for the three and six months ended September 26, 2020 and $ 741 million and $ 1.422 billion, respectively, for the three and six months ended September 28, 2019.

As of September 26, 2020 and March 28, 2020, the Company's total assets were $ 7.803 billion and $ 7.946 billion, respectively.

The decrease in total assets was primarily due to the reduction of the Company's cash and cash equivalents from $ 592 million as of March 28, 2020 to $ 238 million as of September 26, 2020, due to net payments the Company made to lower the outstanding balance of its Revolving Credit Facilities.

were $ 722 million and $ 1.414 billion, respectively, for the three and nine months ended December 26, 2020 and $ 845 million and $ 2.267 billion, respectively, for the three and nine months ended December 28, 2019.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements