Acquisitions

Acquisition of Jimmy Choo Group Limited

On November 1, 2017, the Company completed the acquisition of Jimmy Choo, whereby JAG Acquisitions (UK) Limited, the Company’s wholly-owned subsidiary, acquired all of Jimmy Choo’s issued and to be issued shares at a purchase price of 230 pence per share in cash, for a total transaction value of $1.447 billion, including the repayment of existing debt obligations, which was funded through a combination of borrowings under the Company’s new $1.0 billion term loan facility, the issuance of the Senior Notes and cash on hand (please refer to Note 9 for additional information).

The following table summarizes the aggregate purchase price consideration paid to acquire Jimmy Choo in cash (in millions):



	November 1, 2017
Consideration paid to Jimmy Choo shareholders	$	1,181.2
Repayment of debt and related obligations	266.2
Total purchase price	$	1,447.4

The Company believes that this combination will further strengthen its future growth opportunities while also increasing both product and geographic diversification and will allow it to grow its international presence through the formation of a global fashion luxury group, bringing together industry-leading luxury fashion brands. The Company accounted for this acquisition as a business combination under the acquisition method of accounting. The following table summarizes the preliminary purchase price allocation of fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):



	November 1, 2017
Cash and cash equivalents	$	34.3
Accounts receivable	30.7
Inventory⁽¹⁾	126.2
Other current assets	63.9
Current assets	255.1
Property and equipment⁽²⁾	51.0
Goodwill⁽³⁾	684.9
Brand⁽⁴⁾	577.8
Customer relationships⁽⁵⁾	212.8
Lease rights	5.9
Deferred tax assets	22.5
Other assets	28.1
Total assets acquired	$	1,838.1

Accounts payable	$	129.3
Other current liabilities	96.5
Current liabilities	225.8
Deferred tax liabilities	134.9
Other liabilities	26.9
Total liabilities assumed	$	387.6

Less: Noncontrolling interest in joint ventures	$	3.1

Fair value of net assets acquired	$	1,447.4
Fair value of acquisition consideration	$	1,447.4

⁽¹⁾ Includes an inventory step-up adjustment of $9.5 million, which will be recognized as an adjustment to the Company's cost of goods sold in its statement of operations over twelve months.

⁽²⁾ Includes a $7.0 million adjustment to reduce the fair value of Jimmy Choo's leasehold improvements, which will be recognized over the remaining lease term.

⁽³⁾ Represents the difference between the purchase price over the net identifiable tangible and intangible assets acquired has been allocated to goodwill, which is not deductible for tax purposes.


⁽⁴⁾	Represents the fair value Jimmy Choo's brand, which is an indefinite-lived intangible asset due to being essential to the Company's ability to operate the Jimmy Choo business for the foreseeable future. The Jimmy Choo brand was valued using the relief-from-royalty method of the income valuation approach.

⁽⁵⁾ Represents customer relationships associated with Jimmy Choo wholesale customers and geographic licensees, which are being amortized over 15 years and customer relationships with product licensees, which are being amortized over 18 years. These useful lives were estimated based on the time to recover the related future discounted cash flows. These intangible assets were valued using multi-period excess-earnings valuation method.

Jimmy Choo's results of operations have been included in our consolidated financial statements beginning on November 1, 2017. Jimmy Choo contributed revenue of $114.7 million and net income of $8.1 million (after amortization of non-cash purchase accounting adjustments and transition and transaction costs) for the period from the date of acquisition through December 30, 2017.

The following table summarizes the unaudited pro-forma consolidated results of operations for the three and nine months ended December 30, 2017 and December 31, 2016 as if the acquisition had occurred on April 3, 2016, the beginning of Fiscal 2017 (in millions):



	Three Months Ended				Nine Months Ended
	December 30, 2017		December 31, 2016		December 30, 2017		December 31, 2016
Pro-forma total revenue	$	1,478.5	$	1,499.1	$	3,832.6	$	3,819.6
Pro-forma net income	242.8		279.4		574.2		586.2
Pro-forma net income per ordinary share attributable to MKHL:
Basic	$	1.60	$	1.71	$	3.76	$	3.49
Diluted	$	1.57	$	1.69	$	3.70	$	3.44

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Jimmy Choo and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2017 and are not indicative of the future operating results of the combined company. The financial information for Jimmy Choo prior to the acquisition has been included in the pro-forma results of operations on a calendar-year basis and includes certain adjustments to Jimmy Choo’s historical consolidated financial statements to align with U.S. GAAP and the Company's accounting policies. The pro-forma consolidated results of operations also include the effects of purchase accounting adjustments, including amortization charges related to the finite-lived intangible assets acquired, fair value adjustments relating to leases and fixed assets, and the related tax effects assuming that the business combination occurred on April 3, 2016. Purchase accounting amortization of the inventory step-up adjustment has been excluded from the above pro-forma amounts due to the short-term nature of this adjustment. The pro-forma consolidated financial statement also reflect the impact of debt repayment and borrowings made to finance the acquisition (see Note 9) and exclude historical interest expense for Jimmy Choo. Transaction costs of $22.2 million and $39.6 million for the three and nine months ended December 30, 2017, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income, have been excluded from the above pro-forma consolidated results of operations due to their non-recurring nature.

Acquisition of Michael Kors (HK) Limited

On May 31, 2016, the Company acquired 100% of the stock of MKHKL, its licensee in the Greater China region, which includes China, Hong Kong, Macau and Taiwan, to allow it to better manage opportunities and capitalize on the growth potential in the region. This acquisition was funded by a cash payment of $500.0 million. The Company accounted for the acquisition as a business combination and MKHKL’s results of operations have been included in its consolidated financial statements beginning on June 1, 2016.

MKHKL contributed revenue of $79.8 million and $216.5 million, respectively, for the three and nine months ended December 30, 2017, and net income of $0.4 million and $2.8 million, respectively, for the three and nine months ended December 30, 2017. During the three months ended December 31, 2016, MKHKL contributed revenue of $65.7 million and net loss of $5.3 million, and revenue of $137.7 million and net loss of $11.3 million for the period from the date of acquisition through December 31, 2016 (after amortization of non-cash valuation adjustments and integration costs).

The following table summarizes the unaudited pro-forma consolidated results of operations for the three and nine months ended December 31, 2016 as if the acquisition had occurred on March 29, 2015, the beginning of Fiscal 2016 (in millions):



	Three Months Ended		Nine Months Ended
	December 31, 2016		December 31, 2016
Pro-forma total revenue	$	1,352.8	$	3,455.3
Pro-forma net income	271.0		584.0
Pro-forma net income per ordinary share attributable to MKHL:
Basic	$	1.66	$	3.48
Diluted	$	1.64	$	3.43

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and MKHKL and are not necessarily indicative of the results of operations that would have been achieved if the acquisition was completed at the beginning of Fiscal 2016 and are not indicative of the future operating results of the combined company. The pro-forma consolidated results of operations reflect the elimination of intercompany transactions and include the effects of purchase accounting adjustments, including amortization charges related to the finite-lived intangible assets acquired (reacquired rights and customer relationships), fair value adjustments relating to leases, fixed assets and inventory, and the related tax effects assuming that the business combination occurred on March 29, 2015. The pro-forma consolidated results of operations for the nine months ended December 31, 2016 also reflect the elimination of transaction costs of approximately $11.3 million, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income for the nine months ended December 31, 2016.

Other Acquisitions

During the three months ended July 1, 2017, the Company repurchased a portion of the non-controlling interest in its Latin American joint venture, MK (Panama) Holdings, S.A. and subsidiaries (“MK Panama”) for approximately $0.5 million. As of December 30, 2017, the Company has a 75% ownership interest in MK Panama.