What changed in this filing

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Item 1. Financial Statements

2022-02-02 compared with 2021-11-03 · 258 added, 243 removed, 628 unchanged (44% of the section changed)

3 unchanged sentences

(In millions, except share data)

September 25,

2021 March 27,

30 unchanged sentences

650,000,000 shares authorized;

221,295,985 shares issued and 150,447,462 outstanding at September 25, 2021;

221,322,510 shares issued and 147,252,018 outstanding at December 25, 2021;

219,222,937 shares issued and 151,280,011 outstanding at March 27, 2021

Treasury shares, at cost ( 70,848,523 shares at September 25, 2021 and 67,942,926 shares at March 27, 2021)

Treasury shares, at cost ( 74,070,492 shares at December 25, 2021 and 67,942,926 shares at March 27, 2021)

( 3,686 ) ( 3,326 )

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 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

Total revenue $ 1,609 $ 1,302 $ 4,162 $ 2,863

6 unchanged sentences

Total operating expenses 717 681 2,004 1,702

Income (loss) from operations 195 153 453 ( 9 )

Income from operations 331 167 784 158

Other income, net — ( 3 ) ( 2 ) ( 4 )

Interest (income) expense, net ( 7 ) 10 ( 11 ) 39

Foreign currency loss (gain) 4 — 5 ( 3 )

Income (loss) before (benefit) provision for income taxes 198 141 454 ( 34 )

(Benefit) provision for income taxes ( 2 ) 20 35 25

Net income (loss) 200 121 419 ( 59 )

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

Net income (loss) attributable to Capri $ 200 $ 122 $ 419 $ ( 58 )

Foreign currency (gain) loss ( 4 ) ( 13 ) 1 ( 16 )

Income before income taxes 342 173 796 139

Provision for (benefit from) income taxes 19 ( 5 ) 54 20

Net income 323 178 742 119

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

Net income attributable to Capri $ 322 $ 179 $ 741 $ 121

Weighted average ordinary shares outstanding:

1 unchanged sentence

Diluted 152,375,294 151,958,057 153,834,120 151,417,457

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

Net income per ordinary share attributable to Capri:

Basic $ 2.15 $ 1.19 $ 4.91 $ 0.80

Diluted $ 2.11 $ 1.18 $ 4.82 $ 0.80

Statements of Comprehensive Income (Loss):

Net income (loss) $ 200 $ 121 $ 419 $ ( 59 )

Statements of Comprehensive Income:

Net income $ 323 $ 178 $ 742 $ 119

Foreign currency translation adjustments 34 ( 27 ) 147 26

Net gain (loss) on derivatives 5 ( 7 ) 9 ( 10 )

Comprehensive income (loss) 227 175 536 ( 9 )

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

Comprehensive income 362 144 898 135

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

Foreign currency translation adjustments attributable to noncontrolling interest — — ( 1 ) —

Comprehensive income (loss) attributable to Capri $ 227 $ 176 $ 537 $ ( 8 )

Comprehensive income attributable to Capri $ 361 $ 145 $ 898 $ 137

See accompanying notes to consolidated financial statements.

4 unchanged sentences

Capital Treasury Shares Accumulated Other Comprehensive Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Earnings Total Equity of Capri Non-controlling Interest Total Equity

Shares Amounts Shares Amounts

Balance at June 26, 2021 220,974 $ — $ 1,201 ( 69,031 ) $ ( 3,385 ) $ 147 $ 4,489 $ 2,452 $ ( 2 ) $ 2,450

Balance at September 25, 2021 221,296 $ — $ 1,225 ( 70,849 ) $ ( 3,486 ) $ 174 $ 4,689 $ 2,602 $ ( 2 ) $ 2,600

Net income — — — — — — 322 322 1 323

7 unchanged sentences

Repurchase of ordinary shares — — — ( 3,222 ) ( 200 ) — — ( 200 ) — ( 200 )

Balance at September 25, 2021 221,296 $ — $ 1,225 ( 70,849 ) $ ( 3,486 ) $ 174 $ 4,689 $ 2,602 $ ( 2 ) $ 2,600

Balance at December 25, 2021 221,323 $ — $ 1,238 ( 74,071 ) $ ( 3,686 ) $ 213 $ 5,011 $ 2,776 $ ( 1 ) $ 2,775

Ordinary Shares Additional

Capital Treasury Shares Accumulated Other Comprehensive Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Earnings Total Equity of Capri Non-controlling Interest Total Equity

Shares Amounts Shares Amounts

2 unchanged sentences

Other comprehensive income (loss) — — — — — 157 — 157 ( 1 ) 156

Total comprehensive income (loss) — — — — — — — 537 ( 1 ) 536

Total comprehensive income — — — — — — — 898 — 898

Vesting of restricted awards, net of forfeitures

4 unchanged sentences

Repurchase of ordinary shares — — — ( 6,128 ) ( 360 ) — — ( 360 ) — ( 360 )

Balance at September 25, 2021 221,296 $ — $ 1,225 ( 70,849 ) $ ( 3,486 ) $ 174 $ 4,689 $ 2,602 $ ( 2 ) $ 2,600

Balance at December 25, 2021 221,323 $ — $ 1,238 ( 74,071 ) $ ( 3,686 ) $ 213 $ 5,011 $ 2,776 $ ( 1 ) $ 2,775

CAPRI HOLDINGS LIMITED AND SUBSIDIARIES

2 unchanged sentences

Ordinary Shares Additional

Capital Treasury Shares Accumulated Other Comprehensive Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Capital Treasury Shares Accumulated Other Comprehensive Income (Loss) Retained

Earnings Total Equity of Capri Non-controlling Interest 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

5 unchanged sentences

Repurchase of ordinary shares — — — ( 1 ) — — — — — —

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

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

Ordinary Shares Additional

Capital Treasury Shares Accumulated Other Comprehensive Income Retained

Earnings Total Equity of Capri Non-controlling Interests Total Equity

Earnings Total Equity of Capri Non-controlling Interest Total Equity

Shares Amounts Shares Amounts

1 unchanged sentence

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 1,037 — — — — — — — — —

996 — — — — — — — — —

Exercise of employee share options 268 — — — — — — — — —

247 — — — — — — — — —

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

Repurchase of ordinary shares — — — ( 49 ) ( 1 ) — — ( 1 ) — ( 1 )

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

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

See accompanying notes to consolidated financial statements.

2 unchanged sentences

(In millions)

Six Months Ended

September 25,

2021 September 26,

Nine Months Ended

2021 December 26,

Cash flows from operating activities

Net income (loss) $ 419 $ ( 59 )

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

Net income $ 742 $ 119

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

Depreciation and amortization 146 160

18 unchanged sentences

Cash paid for asset acquisitions — ( 12 )

Settlement of net investment hedges 59 —

Net cash used in investing activities ( 26 ) ( 97 )

28 unchanged sentences

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

The interim consolidated financial statements as of September 25, 2021 and for the three and six months ended September 25, 2021 and September 26, 2020 are unaudited.

The interim consolidated financial statements as of December 25, 2021 and for the three and nine months ended December 25, 2021 and December 26, 2020 are unaudited.

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

5 unchanged sentences

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

The results for the three and six months ended September 25, 2021 and September 26, 2020 are based on 13-week and 26-week periods, respectively.

The results for the three and nine months ended December 25, 2021 and December 26, 2020 are based on 13-week and 39-week periods, respectively.

The Company’s Fiscal Year 2022 is a 53-week period ending April 2, 2022.

4 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 credit losses, estimates of inventory net realizable value, the valuation of share-based compensation, the valuation of deferred taxes and the valuation of goodwill, intangible assets, operating lease right-of-use assets and property and equipment, along with the estimated useful lives assigned to these assets.

The most significant assumptions and estimates involved in preparing the financial statements include allowances for customer deductions, sales returns, sales discounts, credit losses, estimates of inventory net realizable value, the valuation of share-based compensation, the valuation of deferred taxes, goodwill, intangible assets, operating lease right-of-use assets and property and equipment, along with the estimated useful lives assigned to these assets.

Actual results could differ from those estimates.

2 unchanged sentences

COVID-19 Related Government Assistance and Subsidies

As there is no definitive guidance under U.S.

GAAP, the Company has applied the guidance under International Accounting Standards 20, Accounting for Government Grants and Disclosure of Government Assistance ("IAS 20").

The Company has elected to follow the income approach under IAS 20 and recognize these funds as a reduction to the related expense in the Company’s consolidated statements of operations and comprehensive income (loss).

The Company recognized $ 3 million and $ 9 million for the three months ended September 25, 2021 and September 26, 2020, respectively, and $ 7 million

and $ 23 million for the six months ended September 25, 2021 and September 26, 2020, respectively, related to government assistance and subsidies.

During the three and nine months ended December 25, 2021, the Company recorded $ 2 million and $ 9 million, respectively, related to government assistance and subsidies.

During the three and nine months ended and December 26, 2020, the Company recorded $ 5 million and $ 28 million, respectively, related to government assistance and subsidies.

These amounts mostly relate to rent support and payroll expense and were primarily recorded as a reduction of selling, general and administrative expenses.

Cash, Cash Equivalents and Restricted Cash

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Included in the Company’s cash and cash equivalents as of September 25, 2021 and March 27, 2021 are credit card receivables of $ 24 million and $ 25 million, respectively, which generally settle within two to three business days.

A reconciliation of cash, cash equivalents and restricted cash as of September 25, 2021 and March 27, 2021 from the consolidated balance sheets to the consolidated statements of cash flows is as follows (in millions):

September 25,

Included in the Company’s cash and cash equivalents as of December 25, 2021 and March 27, 2021 are credit card receivables of $ 44 million and $ 25 million, respectively, which generally settle within two to three business days.

A reconciliation of cash, cash equivalents and restricted cash as of December 25, 2021 and March 27, 2021 from the consolidated balance sheets to the consolidated statements of cash flows is as follows (in millions):

2021 March 27,

2 unchanged sentences

Restricted cash included within prepaid expenses and other current assets 3 2

Total cash, cash equivalents and restricted cash shown in the consolidated statements of

Total cash, cash equivalents and restricted cash shown on the consolidated statements of cash flows $ 264 $ 234

Inventories, net

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, net, recorded on the Company’s consolidated balance sheets was $ 30 million and $ 28 million as of September 25, 2021 and March 27, 2021, respectively.

The net realizable value of the Company’s inventory as of September 25, 2021 and March 27, 2021 includes the adverse impacts associated with the COVID-19 pandemic.

The combined total of raw materials and work in process inventory, net, recorded on the Company’s consolidated balance sheets was $ 28 million as of December 25, 2021 and March 27, 2021.

The net realizable value of the Company’s inventory as of December 25, 2021 and March 27, 2021 includes the adverse impacts associated with the COVID-19 pandemic.

Derivative Financial Instruments

11 unchanged sentences

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).

For those contracts that are not designated as hedges, changes in the fair value are recorded to foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income.

The Company classifies cash flows relating to its forward foreign currency exchange contracts related to purchase of inventory consistently with the classification of the hedged item within cash flows from operating activities.

The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.

In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit

The aforementioned forward contracts generally have a term of no more than 12 months.

1 unchanged sentence

Net Investment Hedges

The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between its U.S.

Dollars and these foreign currencies.

The Company also uses fixed-to-fixed cross currency swap agreements to hedge its net investments in foreign operations against future volatility in the exchange rates between the U.S.

Dollars and the associated foreign currencies.

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

1 unchanged sentence

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 on the Company’s consolidated balance sheets.

Interest accruals and coupon payments are recognized directly in interest (income) expense, net, in the Company’s consolidated statements of operations and comprehensive income (loss).

Interest accruals and coupon payments are recognized directly in interest (income) expense, net, in the Company’s consolidated statements 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.

2 unchanged sentences

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 (income) expense, net, in the same period during which the hedged transactions affect earnings.

During the third quarter of Fiscal 2022, the Company terminated its only interest rate swap.

As a result, the Company recognized a $ 1 million gain within interest (income) expense, net, in the Company’s consolidated statements of operations and comprehensive income.

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 August 2025.

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

Although most of the Company’s equipment is owned, the Company has limited equipment leases that expire on various dates through December 2025.

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

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

14 unchanged sentences

Variable lease payments, such as percentage rentals based on 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 Company’s lease agreements do not contain any material residual value guarantees, material restrictions or covenants.

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

Six Months Ended

September 25, 2021 September 26, 2020

Nine Months Ended

December 25, 2021 December 26, 2020

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

Operating cash flows used in operating leases (1)

(1) Operating cash flows used in operating leases for the six months ended September 25, 2021 and September 26, 2020 excluded $ 5 million and $ 60 million, respectively, of rent payments that have been deferred due to the COVID-19 pandemic.

During the three and six months ended September 25, 2021, the Company recorded sublease income of $ 2 million and $ 4 million, respectively, and $ 1 million and $ 3 million, respectively, for the three and six months ended September 26, 2020, within restructuring and other charges for stores relating to our restructuring plan and selling, general and administrative expenses for all other locations.

During the three and six months ended September 25, 2021, the Company recorded $ 3 million and $ 10 million, respectively, and $ 9 million and $ 24 million for the three and six months ended September 26, 2020, 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 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 25, 2021 and December 26, 2020 excluded $ 1 million and $ 41 million, respectively, of deferred rent payments due to the COVID-19 pandemic.

During the three and nine months ended December 25, 2021, the Company recorded sublease income of $ 2 million and $ 6 million, respectively, within restructuring and other charges for stores relating to our restructuring plan and selling, general and administrative expenses for all other locations.

During the three and nine months ended December 26, 2020, the Company recorded sublease income of $ 1 million and $ 4 million, respectively, within restructuring and other charges for stores relating to our restructuring plan and selling, general and administrative expenses for all other locations.

During the three and nine months ended December 25, 2021, the Company recorded $ 3 million and $ 13 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.

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.

The aforementioned rent concessions were 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 25,

2021 September 26,

2020 September 25,

2021 September 26,

Net income (loss) attributable to Capri $ 200 $ 122 $ 419 $ ( 58 )

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

2021 December 26,

2020 December 25,

2021 December 26,

Net income attributable to Capri $ 322 $ 179 $ 741 $ 121

Basic weighted average shares 149,717,485 150,661,252 150,975,773 150,236,612

3 unchanged sentences

Diluted weighted average shares 152,375,294 151,958,057 153,834,120 151,417,457

Basic net income (loss) per share (1)

Basic net income per share (1)

$ 2.15 $ 1.19 $ 4.91 $ 0.80

Diluted net income (loss) per share (1)

Diluted net income per share (1)

$ 2.11 $ 1.18 $ 4.82 $ 0.80

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

During the three and six months ended September 25, 2021, share equivalents of 415,331 shares and 513,088 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

Share equivalents of 3,961,838 shares and 4,675,372 shares have been excluded from the above calculations for the three and six months ended September 26, 2020, respectively.

Diluted net 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 25, 2021, share equivalents of 208,168 shares and 411,394 shares, respectively, have been excluded from the above calculations due to their anti-dilutive effect.

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

See Note 2 in the Company’s Annual Report on Form 10-K for the fiscal year ended March 27, 2021 for a complete disclosure of the Company’s significant accounting policies.

Recently Adopted Accounting Pronouncements

Government Assistance Disclosures

In November 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-10, “Disclosures by Business Entities about Government Assistance”, which requires all business entities provide annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.

These disclosures include providing the nature of the transactions and the related accounting policy used to account for the transactions, the amounts and financial statement line items impacted by these transactions, and the significant terms and conditions of these transactions, including commitments and contingencies related to such transactions.

ASU 2021-10 is effective for the Company beginning in its Fiscal 2023 with early adoption permitted.

The Company early adopted ASU 2021-10 during the third quarter of Fiscal 2022 and will continue to utilize the grant accounting model.

Recently Issued Accounting Pronouncements

1 unchanged sentence

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" and in January 2021, issued ASU 2021-01, "Reference Rate Reform:

In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” and in January 2021, issued ASU 2021-01, “Reference Rate Reform:

Both of these updates aim to ease the potential burden in accounting for reference rate reform.

1 unchanged sentence

The amendments were effective upon issuance and allow companies to adopt the amendments on a prospective basis through December 31, 2022.

The Company has not applied the ASUs to any contract modifications or new hedging relationships in the current year.

The Company has not applied this ASU to any contract modifications or new hedging relationships in the current year.

As of December 25, 2021, the Company’s outstanding borrowings under the 2018 Term Loan Facility of $ 495 million and the total availability of $ 1 billion under the 2018 Revolving Credit Facility are both indexed to LIBOR.

As such, these agreements are likely to be impacted by these ASUs upon adoption.

Revenue Recognition

9 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 $ 12 million and $ 12 million as of September 25, 2021 and March 27, 2021, respectively, 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 $ 15 million and $ 12 million as of December 25, 2021 and March 27, 2021, respectively, is included within accrued expenses and other current liabilities in the Company’s consolidated balance sheet.

Loyalty Program .

9 unchanged sentences

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 25, 2021, contractually guaranteed minimum fees from the Company’s license agreements expected to be recognized as revenue during future periods were as follows (in millions):

As of December 25, 2021, 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 25, 2021 and March 27, 2021 was $ 48 million and $ 46 million, respectively, and the related asset for the right to recover returned product as of September 25, 2021 and March 27, 2021 was $ 15 million and $ 14 million, respectively.

The refund liability recorded as of December 25, 2021 was $ 65 million, and the related asset for the right to recover returned product as of December 25, 2021 was $ 19 million.

The refund liability recorded as of March 27, 2021 was $ 46 million, and the related asset for the right to recover returned product as of March 27, 2021 was $ 14 million.

Contract Balances

Total contract liabilities were $ 17 million and $ 18 million as of September 25, 2021 and March 27, 2021, respectively.

For the three and six months ended September 25, 2021, the Company recognized $ 2 million and $ 8 million, respectively, in revenue which related to contract liabilities that existed at March 27, 2021.

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.

There were no material contract assets recorded as of September 25, 2021 and March 27, 2021.

Total contract liabilities were $ 21 million and $ 18 million as of December 25, 2021 and March 27, 2021, respectively.

For the three and nine months ended December 25, 2021, the Company recognized $ 1 million and $ 9 million, respectively, in revenue which related to contract liabilities that existed at March 27, 2021.

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.

There were no material contract assets recorded as of December 25, 2021 and March 27, 2021.

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 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

Versace revenue - the Americas $ 89 $ 57 $ 283 $ 132

2 unchanged sentences

Total Versace 251 195 773 483

282 195 522 288

Jimmy Choo revenue - the Americas 51 32 127 71

6 unchanged sentences

Total Michael Kors 1,180 986 2,932 2,086

881 793 1,752 1,100

Total revenue - the Americas 954 760 2,370 1,524

5 unchanged sentences

Receivables, net, consist of (in millions):

September 25,

2021 March 27,

2 unchanged sentences

allowances ( 45 ) ( 59 )

(1) As of September 25, 2021 and March 27, 2021, $ 67 million and $ 81 million, respectively, of trade receivables were insured.

Total receivables, net $ 449 $ 373

(1) As of December 25, 2021 and March 27, 2021, $ 97 million and $ 81 million, respectively, of trade receivables were insured.

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

6 unchanged sentences

Amounts deemed uncollectible are written off against the allowance when it is probable the amounts will not be recovered.

Allowance for credit losses was $ 16 million and $ 25 million as of September 25, 2021 and March 27, 2021, respectively, including the impact related to COVID-19.

The Company had immaterial credit losses for the three months ended September 25, 2021 and $( 1 ) million for the six months ended September 25, 2021.

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

Allowance for credit losses was $ 15 million and $ 25 million as of December 25, 2021 and March 27, 2021, respectively, including the impact related to COVID-19.

The Company had $ 3 million of credit losses for the three months ended December 25, 2021 and $ 2 million for the nine months ended December 25, 2021.

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

Property and Equipment, net

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

September 25,

2021 March 27,

Leasehold improvements $ 581 $ 737

Computer equipment and software 372 359

Furniture and fixtures 215 350

Computer equipment and software 208 359

Equipment 82 139

In-store shops 57 53

Building 49 51

In-store shops 48 53

Total property and equipment, gross (1)

accumulated depreciation and amortization (1)

( 791 ) ( 1,271 )

Subtotal 411 438

Construction-in-progress 49 47

Depreciation and amortization of property and equipment for the three months ended September 25, 2021 and September 26, 2020 was $ 37 million and $ 41 million, respectively, and was $ 75 million and $ 84 million for the six months ended September 25, 2021 and September 26, 2020, respectively.

During the three and six months ended September 25, 2021, the Company recorded $ 3 million of property and equipment impairment charges.

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

Total property and equipment, net $ 460 $ 485

(1) As of December 25, 2021, the Company wrote off $ 550 million of fully depreciated assets and related accumulated depreciation of assets no longer in use.

Depreciation and amortization of property and equipment for the three and nine months ended December 25, 2021 was $ 34 million and $ 109 million, respectively.

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

The Company recorded no property and equipment impairment charges for the three months ended December 25, 2021 and $ 3 million for the nine months ended December 25, 2021.

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 (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 25,

2021 March 27,

9 unchanged sentences

Versace brand (1)

Net indefinite-lived intangible assets 1,267 1,316

Total intangible assets, excluding goodwill $ 1,895 $ 1,992

1 unchanged sentence

(1) The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.

(2) Includes accumulated impairment of $ 249 million as of September 25, 2021 and March 27, 2021.

(2) Includes accumulated impairment of $ 249 million as of December 25, 2021 and March 27, 2021.

The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.

(3) Includes accumulated impairment of $ 265 million related to the Jimmy Choo reporting units as of September 25, 2021 and March 27, 2021.

(3) Includes accumulated impairment of $ 265 million related to the Jimmy Choo reporting units as of December 25, 2021 and March 27, 2021.

The change in the carrying value since March 27, 2021 reflects the impact of foreign currency translation.

Amortization expense for the Company’s definite-lived intangible assets for the three months ended September 25, 2021 and September 26, 2020 was $ 12 million, and was $ 24 million and $ 23 million for the six months ended September 25, 2021 and September 26, 2020, respectively.

Amortization expense for the Company’s definite-lived intangible assets for the three and nine months ended December 25, 2021 was $ 13 million and $ 37 million, respectively.

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

Current Assets and Current Liabilities

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

September 25,

2021 March 27,

Prepaid taxes $ 281 $ 133

Interest receivable related to net investment hedges 21 12

Prepaid contracts 17 11

Other accounts receivables 18 13

Prepaid contracts 16 11

Interest receivable related to net investment hedges 7 12

Total prepaid expenses and other current assets $ 384 $ 205

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

September 25,

2021 March 27,

1 unchanged sentence

Return liabilities 65 46

Accrued advertising and marketing 18 11

Accrued rent (1)

Accrued capital expenditures 24 17

Accrued rent (1)

Accrued advertising and marketing 20 11

Professional services 16 13

Gift cards and retail store credits 16 12

Accrued litigation 14 12

Accrued purchases and samples 9 8

Gift cards and retail store credits 13 12

Accrued interest 4 10

1 unchanged sentence

Charitable donations (2)

Total accrued expenses and other current liabilities $ 381 $ 297

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

(2) Relates to a $ 20 million unconditional pledge to The Capri Holdings Foundation for the Advancement of Diversity in Fashion as of March 27, 2021 which was funded during the quarter ended September 25, 2021.

(2) The charitable donations balance relates to a $ 20 million unconditional pledge to The Capri Holdings Foundation for the Advancement of Diversity in Fashion as of March 27, 2021 which was funded during the second quarter ended September 25, 2021.

Restructuring and Other Charges

Capri Retail Store Optimization Program

As previously announced, the Company intends to close approximately 170 of its retail stores over two fiscal years, which began during Fiscal 2021 and will continue into Fiscal 2022, in connection with its Capri Retail Store Optimization Program in order to improve the profitability of its retail store fleet.

As previously announced, the Company intends to close approximately 170 of its retail stores throughout Fiscal 2021 and Fiscal 2022, in connection with its Capri Retail Store Optimization Program in order to improve the profitability of its retail store fleet.

In addition, the Company has reassessed the total cost of the plan and now expects to incur approximately $ 25 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 three and six months ended September 25, 2021, the Company closed 16 and 26 of its retail stores, respectively, which have been incorporated into the Capri Retail Store Optimization Program.

Net restructuring (gains) charges recorded in connection with the Capri Retail Store Optimization Program during the three and six months ended September 25, 2021 were $( 1 ) million and $( 4 ) million, respectively, and $ 2 million and $ 5 million, during the three and six months ended September 26, 2020, respectively.

During the three and nine months ended December 25, 2021, the Company closed 13 and 39 of its retail stores, respectively, 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 25, 2021 were $ 10 million and $ 6 million, respectively.

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

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

3 unchanged sentences

Payments ( 1 ) ( 4 ) ( 5 )

Balance at September 25, 2021 $ — $ 2 $ 2

(1) Excludes a net credit of $ 7 million related to gains on certain lease terminations partially offset by store operating costs for previously closed stores during the six months ended September 25, 2021.

Balance at December 25, 2021 $ — $ 2 $ 2

(1) Excludes $ 10 million of impairment charges related to operating lease right-of-use assets partially offset by a net credit of $ 8 million related to gains on certain lease terminations during the nine months ended December 25, 2021.

Other Restructuring Charges

In addition to the restructuring charges related to the Capri Retail Store Optimization Program, the Company incurred charges of $ 2 million and $ 3 million during the three and six months ended September 25, 2021, respectively, primarily relating to closures of corporate locations.

There were no charges for the three and six months ended September 26, 2020.

During both the three and six months ended September 25, 2021 and 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.

In addition to the restructuring charges related to the Capri Retail Store Optimization Program, the Company incurred charges of $ 1 million and $ 4 million during the three and nine months ended December 25, 2021, respectively, primarily relating to closures of corporate locations.

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.

During both three and nine months ended December 25, 2021 and December 26, 2020, the Company recorded costs of $ 3 million and $ 15 million primarily related to equity awards associated with the acquisition of Versace.

Debt Obligations

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

September 25,

2021 March 27,

1 unchanged sentence

Senior Notes due 2024 450 450

Revolving Credit Facilities 20 —

Total debt 1,006 1,350

5 unchanged sentences

$ 976 $ 1,219

Senior Secured Revolving Credit Facility

On June 25, 2020, the Company entered into the second amendment (the “Second Amendment”) to its third amended and restated credit facility, dated as of November 15, 2018 (as amended, the “2018 Credit Facility”), with, among others, JPMorgan Chase Bank, N.A., as administrative agent.

10 unchanged sentences

Dollar LIBOR will no longer be published after that date.

As of September 25, 2021, and the date these financial statements were issued, the Company was in compliance with all covenants related to the 2018 Credit Facility.

As of September 25, 2021 and March 27, 2021, the Company had no borrowings outstanding under the 2018 Revolving Credit Facility.

In addition, stand-by letters of credit of $ 28 million and $ 27 million were outstanding as of September 25, 2021 and March 27, 2021, respectively.

At September 25, 2021 and March 27, 2021, the amount available for future borrowings under the 2018 Revolving Credit Facility were $ 972 million and $ 973 million, respectively.

As of September 25, 2021 and March 27, 2021, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $ 644 million and $ 865 million, respectively, of which there was no amount recorded within short-term debt as of September 25, 2021 and $ 97 million recorded within short-term debt as of March 27, 2021 and $ 644 million and $ 768 million, respectively, was recorded within long-term debt in its consolidated balance sheets.

As of December 25, 2021, and the date these financial statements were issued, the Company was in compliance with all covenants related to the 2018 Credit Facility.

As of December 25, 2021, the Company had $ 20 million of borrowings outstanding under the 2018 Revolving Credit Facility and no borrowings outstanding as of March 27, 2021.

In addition, stand-by letters of credit of $ 29 million and $ 27 million were outstanding as of December 25, 2021 and March 27, 2021, respectively.

At December 25, 2021 and March 27, 2021, the amount available for future borrowings under the 2018 Revolving Credit Facility were $ 951 million and $ 973 million, respectively.

As of December 25, 2021, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $ 495 million, which was all recorded within long-term debt in its consolidated balance sheets due to prepayments made on the Term Loan during Fiscal 2022.

As of March 27, 2021, the carrying value of borrowings outstanding under the 2018 Term Loan Facility was $ 865 million, of which $ 97 million was recorded within short-term debt and $ 768 million was recorded within long-term debt in its consolidated balance sheets.

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

2 unchanged sentences

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 September 25, 2021 and March 27, 2021 was $ 31 million and $ 17 million, respectively, and was recorded within short-term debt in the Company’s consolidated balance sheets.

The amount outstanding under this program as of December 25, 2021 and March 27, 2021 was $ 18 million and $ 17 million, respectively, and was recorded within short-term debt in the Company’s consolidated balance sheets.

During the first quarter of Fiscal 2022, the Company's subsidiary, Versace, entered into an agreement with Banco BPM Banking Group (“the Bank”) to sell certain tax receivables to the Bank in exchange for cash.

As of September 25, 2021, the outstanding balance was $ 19 million, with $ 9 million and $ 10 million recorded within short-term debt and long-term debt in the Company’s consolidated balance sheets, respectively.

As of December 25, 2021, the outstanding balance was $ 18 million, with $ 8 million and $ 10 million recorded within short-term debt and long-term debt in the Company’s consolidated balance sheets, respectively.

See Note 12 to the Company’s Fiscal 2021 Annual Report on Form 10-K for additional information regarding the Company’s credit facilities and debt obligations.

12 unchanged sentences

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

At September 25, 2021 and March 27, 2021, 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 25, 2021 and March 27, 2021, the fair values of the Company’s derivative contracts 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.

4 unchanged sentences

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 25, 2021 using:

Fair value at December 25, 2021 using:

Fair value at March 27, 2021 using:

15 unchanged sentences

Net investment hedges — 40 — — 3 —

Undesignated derivative contracts — 1 — — — —

Total derivative assets $ — $ 47 $ — $ — $ 5 $ —

4 unchanged sentences

Interest rate swap — — — — 1 —

Undesignated forward currency exchange contracts — — — — — —

Total derivative liabilities $ — $ 24 $ — $ — $ 265 $ —

4 unchanged sentences

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 25, 2021 March 27, 2021

December 25, 2021 March 27, 2021

Value Estimated

10 unchanged sentences

The Company determines the fair values of these assets 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 $ 33 million of impairment charges during the three and six months ended September 25, 2021.

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 25, 2021 and three and six months ended September 26, 2020 (in millions):

Three and Six Months Ended

September 25, 2021 Three and Six Months Ended

September 26, 2020

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

The Company recorded $ 10 million and $ 43 million in impairment charges during the three and nine months ended December 25, 2021, respectively.

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 25, 2021 and three and nine months ended December 26, 2020 (in millions):

Three Months Ended

December 25, 2021 Nine Months Ended

December 25, 2021

Carrying Value Prior to

Impairment Fair Value Impairment Charge (1)

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

Operating Lease Right-of-Use Assets $ 10 $ — $ 10 $ 93 $ 53 $ 40

Property and Equipment — — — 4 1 3

Total $ 10 $ — $ 10 $ 97 $ 54 $ 43

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

2 unchanged sentences

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 for both the three and six months ended September 26, 2020.

(1) Includes $ 10 million of impairment charges that were recorded within restructuring and other charges related to the Capri Retail Store Optimization Program for both the three and nine months ended December 25, 2021.

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.

Derivative Financial Instruments

5 unchanged sentences

Net Investment Hedges

During the first quarter of Fiscal 2022, the Company modified multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 2.875 billion to hedge its net investment in Euro denominated subsidiaries.

Certain of these contracts are supported by a credit support annex ("CSA") which provides for collateral exchange with the earliest effective date being May 2023.

During the third quarter of Fiscal 2022, the Company modified multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 1.5 billion.

The modification of these hedges resulted in the Company receiving $ 59 million in cash during the third quarter of Fiscal 2022.

This amount is classified within investing activities in the Company’s consolidated statements of cash flows.

Certain of these contracts are supported by a credit support annex (“CSA”) which provides for collateral exchange with the earliest effective date being November 2023.

If the outstanding position of a contract exceeds a certain threshold governed by the aforementioned CSA’s, either party is required to post cash collateral.

Due to an-other-than-insignificant financing element on certain of these modified contracts, the net interest cash inflows of $ 8 million during the six months ended September 25, 2021 related to these contracts are classified as financing activities in the Company’s consolidated statements of cash flows.

As of September 25, 2021, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 4 billion to hedge its net investment in Euro denominated subsidiaries and $ 194 million to hedge its net investment in Japanese Yen denominated subsidiaries against future volatility in the exchange rates between the U.S.

Due to an other-than-insignificant financing element for certain of First Quarter Modifications, the net interest cash inflows of $ 31 million during the nine months ended December 25, 2021 related to these contracts are classified as financing activities in the Company’s consolidated statements of cash flows.

As of December 25, 2021, the Company had multiple fixed-to-fixed cross-currency swap agreements with aggregate notional amounts of $ 4 billion to hedge its net investment in Euro denominated subsidiaries and $ 194 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.

1 unchanged sentence

denominated debt for fixed rate payments of 0 % to 4.457 % in Euros and 0 % to 3.408 % in Japanese Yen.

Certain of these contracts include mandatory early termination dates between February 2024 and February 2026, while the remaining contracts have maturity dates between March 2024 and August 2050.

Certain of these contracts include mandatory early termination dates between August 2025 and February 2026, while the remaining contracts have maturity dates between May 2024 and February 2051.

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 $ 15 million and $ 27 million during the three and six months ended September 25, 2021, respectively, and $ 2 million during both the three and six months ended September 26, 2020.

This increase from prior year is primarily due to the Company having higher average notional amounts outstanding on these hedges.

Accordingly, the Company recorded interest income of $ 17 million and $ 44 million during the three and nine months ended December 25, 2021, respectively.

Additionally, the Company recorded interest income of $ 6 million and $ 8 million during the three and nine months ended December 26, 2020, respectively.

This change from prior year is primarily due to the Company having higher average notional amounts outstanding on these hedges during the current period.

Interest Rate Swap

As of September 25, 2021, 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 Company had an interest rate swap with an initial notional amount of $ 500 million that would have decreased 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.

The interest rate swap converted the one-month adjusted LIBOR interest rate on these borrowings to a fixed interest rate of 0.237 % through the date of termination.

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 six months ended September 25, 2021 and September 26, 2020, the Company recorded an immaterial amount of net 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 25, 2021 and March 27, 2021 (in millions):

During the three and nine months ended December 25, 2021 and December 26, 2020, the Company recorded an immaterial amount of net interest expense related to this agreement.

During the third quarter of Fiscal 2022, the Company terminated its only interest rate swap.

As a result, the Company recognized a $ 1 million gain within interest (income) expense, net, within the Company’s consolidated statements of operations and comprehensive income.

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 25, 2021 and March 27, 2021 (in millions):

Notional Amounts Assets Liabilities

September 25,

2021 March 27,

2021 September 25,

2021 December 25,

2021 March 27,

2021 September 25,

2021 December 25,

2021 March 27,

4 unchanged sentences

Undesignated derivative contracts (5)

22 13 — — — —

Total $ 4,341 $ 3,862 $ 47 $ 5 $ 24 $ 265

3 unchanged sentences

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

(5) Primarily includes undesignated hedges of inventory purchases.

(5) Represents 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 25, 2021 and March 27, 2021 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 25, 2021 and March 27, 2021 would be as follows (in millions):

Forward Currency

1 unchanged sentence

Hedges Interest Rate

September 25,

2021 March 27,

2021 September 25,

2021 December 25,

2021 March 27,

2021 September 25,

2021 December 25,

2021 March 27,

6 unchanged sentences

Currently, 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 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 cost of goods sold 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 on the Company’s consolidated balance sheets.

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

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 (loss).

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 25, 2021 September 26, 2020 September 25, 2021 September 26, 2020

Three Months Ended Nine Months Ended

December 25, 2021 December 26, 2020 December 25, 2021 December 26, 2020

Pre-Tax Gains

7 unchanged sentences

Designated interest rate swaps $ 1 $ — $ 1 $ ( 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 25, 2021 and September 26, 2020 (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 25, 2021 and December 26, 2020 (in millions):

Three Months Ended

Pre-Tax Loss (Gain) Reclassified from

Pre-Tax Gain Reclassified from

Accumulated OCI Location of Gain Recognized

September 25, 2021 September 26, 2020

December 25, 2021 December 26, 2020

Designated forward foreign currency exchange contracts

$ — $ ( 1 ) Cost of goods sold

Six Months Ended

Nine Months Ended

Pre-Tax Loss (Gain) Reclassified from

Accumulated OCI Location of Gain recognized

September 25, 2021 September 26, 2020

Accumulated OCI Location of Loss (Gain) Recognized

December 25, 2021 December 26, 2020

Designated forward foreign currency exchange contracts

2 unchanged sentences

Undesignated Hedges

During the three and six months ended September 25, 2021 and September 26, 2020, the net impact of changes in the fair value of undesignated forward foreign currency exchange contracts recognized within foreign currency loss (gain) in the Company’s consolidated statements of operations and comprehensive income (loss) was immaterial.

During the three and nine months ended December 25, 2021, a $ 1 million gain was recognized within foreign currency (gain) loss in the Company’s consolidated statements 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 26, 2020, a loss of $ 2 million was recognized within foreign currency (gain) loss in the Company’s consolidated statements of operations and comprehensive income as a result of the changes in the fair value of undesignated forward foreign currency exchange contracts.

Shareholders’ Equity

1 unchanged sentence

During the first quarter of Fiscal 2022, the Company reinstated its $ 500 million share repurchase program, which was previously suspended during the first quarter of Fiscal 2021 in response to the impact of the COVID-19 pandemic and the provisions of the Second Amendment of the 2018 Credit Facility.

During the six months ended September 25, 2021, the Company purchased 2,712,275 shares for a total cost of approximately $ 150 million including commissions, through open market transactions under the current plan.

As of September 25, 2021, the remaining availability under the Company’s share repurchase program was $ 250 million.

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 the Company's share repurchase plan was suspended at that time.

Subsequently, on November 3, 2021, the Company announced that its Board of Directors had terminated the Company’s existing $ 500 million share repurchase program (the “Prior Plan”), which had $ 250 million of availability remaining at the time, and authorized a new share repurchase program (the “Fiscal 2022 Plan”) pursuant to which the Company may, from time to time, repurchase up to $ 1.0 billion of its outstanding ordinary shares within a period of two years from the effective date of the program.

During the nine months ended December 25, 2021, the Company purchased 5,934,244 shares for a total cost of approximately $ 350 million including commissions, through open market transactions, with 2,712,275 shares purchased for a total cost of $ 150 million including commissions under the Prior Plan and 3,221,969 shares purchased for a total cost of $ 200 million including commissions under the Fiscal 2022 Plan.

As of December 25, 2021, the remaining availability under the Company’s share repurchase program was $ 800 million.

During the nine months ended December 26, 2020, the Company did no t purchase any shares through open market transaction as the Company’s share repurchase plan was suspended at that time.

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.

1 unchanged sentence

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 25, 2021 and September 26, 2020, the Company withheld 193,322 shares and 47,635 shares, respectively, with a fair value of $ 10 million and $ 1 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.

During the nine month periods ended December 25, 2021 and December 26, 2020, the Company withheld 193,322 shares and 48,147 shares, respectively, with a fair value of $ 10 million and $ 1 million, respectively, in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.

Accumulated Other Comprehensive Income

The following table details changes in the components of accumulated other comprehensive income (“AOCI”), net of taxes, for the six months ended September 25, 2021 and September 26, 2020, respectively (in millions):

The following table details changes in the components of accumulated other comprehensive income (“AOCI”), net of taxes, for the nine months ended December 25, 2021 and December 26, 2020, respectively (in millions):

Foreign Currency Adjustments (1)

6 unchanged sentences

Other comprehensive income, net of tax 148 9 157

Balance at September 25, 2021 $ 171 $ 3 $ 174

Balance at December 25, 2021 $ 205 $ 8 $ 213

Balance at March 28, 2020 $ 72 $ 3 $ 75

Other comprehensive income before reclassifications 53 — 53

Other comprehensive income (loss) before reclassifications 26 ( 7 ) 19

amounts reclassified from AOCI to earnings

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

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

(1) Foreign currency translation adjustments for the six months ended September 25, 2021 primarily include a $ 132 million gain, net of taxes of $ 40 million, relating to the Company's net investment hedges, and a net $ 23 million translation loss.

Foreign currency translation adjustments for the six months ended September 26, 2020 primarily include a net $ 88 million translation gain partially offset by a $ 35 million loss, net of taxes of $ 7 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 (loss).

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

(1) Foreign currency translation adjustments for the nine months ended December 25, 2021 primarily include a $ 249 million gain, net of taxes of $ 78 million, relating to the Company’s net investment hedges, and a net $ 102 million translation loss.

Foreign currency translation adjustments for the nine months ended December 26, 2020 primarily include a $ 198 million translation 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.

All tax effects were not material for the periods presented.

3 unchanged sentences

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 25, 2021, there were no shares available to grant equity awards under the 2008 Plan.

As of December 25, 2021, 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 25, 2021, there were 3,932,474 ordinary shares available for future grants of equity awards under the Incentive Plan.

At December 25, 2021, there were 3,951,587 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 25, 2021:

The following table summarizes the Company’s share-based compensation activity during the nine months ended December 25, 2021:

Options Service-Based RSUs Performance-Based RSUs

5 unchanged sentences

Canceled/Forfeited ( 381,602 ) ( 275,969 ) —

Outstanding/Unvested at September 25, 2021

Outstanding/Unvested at December 25, 2021

485,582 4,493,963 260,207

The weighted average grant date fair value of service-based RSUs granted during the six months ended September 25, 2021 was $ 51.64 .

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 RSUs granted during the nine months ended December 25, 2021 was $ 51.75 .

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

Share-Based Compensation Expense

The following table summarizes compensation expense attributable to share-based compensation for the three and six months ended September 25, 2021 and September 26, 2020 (in millions):

Three Months Ended Six Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

The following table summarizes compensation expense attributable to share-based compensation for the three and nine months ended December 25, 2021 and December 26, 2020 (in millions):

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

Share-based compensation expense $ 13 $ 12 $ 69 $ 53

1 unchanged sentence

Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company estimates forfeitures based on its historical forfeiture rates.

The estimated value of future forfeitures for equity grants as of September 25, 2021 is approximately $ 17 million.

The Company estimates forfeitures based on historical forfeiture rates.

The estimated value of future forfeitures for equity grants as of December 25, 2021 is approximately $ 22 million.

See Note 17 in the Company’s Fiscal 2021 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 25, 2021 was ( 1.0 )% and 7.7 %, respectively.

Such rates differ from the United Kingdom (“U.K.”) federal statutory rate of 19% primarily due to a benefit recognized as a result of recently enacted tax legislation in Italy which allowed the Company to reduce its deferred tax liabilities.

Specifically, this change allowed the Company to step up certain intangible assets which will result in lower future cash taxes.

In addition, the tax rate for each period was further reduced by the favorable impact of global financing activities, partially offset by the increases in uncertain tax positions for the three months ended September 25, 2021.

For the six months ended September 25, 2021, the tax rate was also negatively impacted by the tax rate change in the United Kingdom on the Company's net deferred tax liabilities.

The Company’s effective tax rate for the three and nine months ended December 25, 2021 was 5.6 % and 6.8 %, respectively.

Such rates differ from the United Kingdom (“U.K.”) federal statutory rate of 19% primarily due to the favorable effect of a net operating loss carryback claim made in the United States as a result of COVID-19 related losses generated in the prior fiscal year and the impact of global financing activities partially offset by the increases in uncertain tax positions during the three and nine months ended December 25, 2021.

The tax rate for the nine months ended December 25, 2021 also benefited from recently enacted tax legislation in Italy which allowed the Company to reduce its deferred tax liabilities by allowing a step up of certain intangible assets resulting in lower future cash taxes partially offset by the impact of tax rate changes in the United Kingdom on the Company’s net deferred tax liabilities.

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

4 unchanged sentences

and Hungarian subsidiaries.

Due to the difference in the statutory income tax rates between these jurisdictions, the Company realized lower effective tax rates for the three and six months ended September 25, 2021.

Due to the difference in the statutory income tax rates between these jurisdictions, the Company realized lower effective tax rates for the three and nine months ended December 25, 2021.

Segment Information

13 unchanged sentences

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, shared service and information systems expenses, including enterprise resource planning system implementation costs.

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

In addition, certain other costs are not allocated to segments, including restructuring and other charges (including transition costs related to the Company’s acquisitions), impairment costs and COVID-19 related charges.

2 unchanged sentences

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

Three Months Ended Six Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

Total revenue:

14 unchanged sentences

COVID-19 related charges ( 1 ) 1 7 ( 2 )

Total income (loss) from operations $ 195 $ 153 $ 453 $ ( 9 )

(1) Impairment of assets during the three and six months ended September 25, 2021 and September 26, 2020 primarily related to operating lease right-of-use assets at certain Michael Kors store locations.

Total income from operations $ 331 $ 167 $ 784 $ 158

(1) Impairment of assets during the nine months ended December 25, 2021 and the three and nine months ended December 26, 2020 primarily related to operating lease right-of-use assets at certain Michael Kors store locations.

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

Three Months Ended Six Months Ended

September 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

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 25,

2021 September 26,

2020 September 25,

2021 September 26,

Three Months Ended Nine Months Ended

2021 December 26,

2020 December 25,

2021 December 26,

(U.S., Canada and Latin America) (1)

4 unchanged sentences

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

was $ 651 million and $ 1.322 billion, respectively, for the three and six months ended September 25, 2021 and $ 531 million and $ 692 million, respectively, for the three and six months ended September 26, 2020.

Subsequent Events

Share Repurchase Program

On November 3, 2021, the Company announced that its Board of Directors has terminated the Company’s existing $ 500 million share repurchase program, with $ 250 million of availability remaining, and authorized a new share repurchase program pursuant to which the Company may, from time to time, repurchase up to $ 1.0 billion of its outstanding ordinary shares within a period of two years from the effective date of the program.

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

The program may be suspended or discontinued at any time.

was $ 885 million and $ 2.207 billion, respectively, for the three and nine months ended December 25, 2021.

Total revenue earned in the U.S.

was $ 722 million and $ 1.414 billion, respectively, for the three and nine months ended December 26, 2020.

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