Acquisitions

Fiscal 2019 Acquisition

Acquisition of Versace

On December 31, 2018, the Company completed the acquisition of Versace for a total enterprise value of approximately €1.753 billion (or approximately $2.005 billion), giving effect to an investment made by the Versace family at acquisition of 2.4 million shares. The acquisition was funded through a combination of borrowings under the Company’s 2018 Term Loan Facility, drawings under the Company’s Revolving Credit Facility and cash on hand (see Note 11 for additional information).

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



	December 31, 2018
Cash consideration paid to Versace shareholders ⁽¹⁾	$	1,914
Capri share consideration ⁽²⁾	91
Total purchase price	$	2,005


⁽¹⁾	The cash consideration includes €90 million (or $103 million) of cash paid on behalf of the shareholder for pre-existing debt as of the Closing Date.


⁽²⁾	The Versace family elected to receive 2,395,170 of the Company’s ordinary shares in exchange for a portion of the cash consideration. The closing price of the Company's shares as of December 31, 2018 of $37.92 was used to compute the fair value of the share consideration as of the acquisition date.

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 Company estimated the preliminary fair value of acquired assets and liabilities as of the date of acquisition based on the currently available information. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. 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):



	December 31, 2018
Cash and cash equivalents	$	41
Accounts receivable	82
Inventory ⁽¹⁾	197
Other current assets	39
Current assets	359
Property and equipment ⁽²⁾	89
Goodwill ⁽³⁾	878
Brand ⁽⁴⁾	948
Customer relationships ⁽⁵⁾	203
Favorable lease ⁽⁶⁾	16
Deferred tax assets ⁽⁷⁾	24
Other assets ⁽⁷⁾	135
Total assets acquired	$	2,652

Accounts payable	$	144
Short term debt	57
Other current liabilities	99
Current liabilities	300
Deferred tax liabilities	289
Other liabilities ^{(6) (7)}	54
Total liabilities assumed	$	643

Less: Noncontrolling interest in joint ventures	$	4

Fair value of net assets acquired	$	2,005

Fair value of acquisition consideration	$	2,005


⁽¹⁾	Includes an inventory step-up adjustment of $19 million, which will be recognized as an adjustment to the Company’s cost of goods sold in its statement of operations within twelve months.


⁽²⁾	Includes a $11 million adjustment to reduce the fair value of Versace’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 allocated to goodwill, which is not deductible for tax purposes.


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


⁽⁵⁾	Represents customer relationships associated with Versace product licensees, wholesale customers and geographic licensees, which are being amortized over 12 years, 10 years and 9 years, respectively. 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.


⁽⁶⁾	Includes favorable leases and unfavorable leases of $16 million and $7 million, respectively, which will be amortized over the remaining lease terms.


⁽⁷⁾	Represents adjustments to reduce deferred tax assets by $39 million and increase uncertain tax positions by $33 million, with an offsetting increase to other assets of $72 million relating to an indemnification.

Versace’s results of operations have been included in our consolidated financial statements beginning on December 31, 2018. Versace contributed total revenue of $137 million and net loss of $12 million, after amortization of non-cash purchase accounting adjustments and transition and transaction costs, from the date of acquisition on December 31, 2018 through February 28, 2019 (reflecting a one-month reporting lag).

The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended March 30, 2019 and March 31, 2018 as if the acquisition had occurred on April 2, 2017, the beginning of Fiscal 2018 (in millions):



	Fiscal Years Ended
	March 30, 2019		March 31, 2018
Pro-forma total revenue	$	5,983	$	5,473
Pro-forma net income	579		526
Pro-forma net income per ordinary share attributable to Capri:
Basic	$	3.82	$	3.40
Diluted	$	3.78	$	3.34

The unaudited pro-forma consolidated results above are based on the historical financial statements of the Company and Versace 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 2018 and are not indicative of the future operating results of the combined company. The financial information for Versace prior to the acquisition has been included in the pro-forma results of operations on a calendar-year basis and includes certain adjustments to Versace’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 definite-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 2, 2017. 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 statements also reflect the impact of debt repayment and borrowings made to finance the acquisition (see Note 11) and exclude historical interest expenses related to Versace’s €90 million pre-existing debt. Transaction costs of $41 million for Fiscal 2019, 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. The shares used to calculate the pro-forma net income per ordinary share attributable to Capri reflect the weighted average impact of a 2.4 million ordinary share investment made by the Versace family at acquisition date.

Fiscal 2018 Acquisition

Acquisition of Jimmy Choo Group Limited

On November 1, 2017, the Company completed the acquisition of Jimmy Choo, whereby 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 11 for additional information).

Jimmy Choo’s results of operations have been included in our consolidated financial statements beginning on November 1, 2017. Jimmy Choo contributed revenue of $223 million and net loss of $15 million (after amortization of non-cash purchase accounting adjustments and transition and transaction costs) for the period from the date of acquisition through March 31, 2018.

The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal years ended March 31, 2018 and April 1, 2017 as if the acquisition had occurred on April 3, 2016, the beginning of Fiscal 2017 (in millions):



	Fiscal Years Ended
	March 31, 2018		April 1, 2017
Pro-forma total revenue	$	5,012	$	4,985
Pro-forma net income	623		554
Pro-forma net income per ordinary share attributable to Capri:
Basic	$	4.09	$	3.34
Diluted	$	4.02	$	3.29

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 definite-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 11) and exclude historical interest expense for Jimmy Choo. Transaction costs of $41 million for Fiscal 2018, 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.

Fiscal 2017 Acquisition

Acquisition of Michael Kors (HK) Limited

On May 31, 2016, the Company acquired 100% of the stock of MKHKL, the Michael Kors licensees in the Greater China region, which includes China, Hong Kong, Macau and Taiwan. The Company believes that having direct control of this business allows it to better manage opportunities and capitalize on the growth potential in the region. This acquisition was funded by a cash payment of $500 million. The Company accounted for the acquisition as a business combination.

MKHKL’s results of operations have been included in our consolidated financial statements beginning on June 1, 2016. MKHKL contributed total revenue of $212 million and net loss of $11 million for the period from the date of acquisition through April 1, 2017 (after amortization of non-cash valuation adjustments and integration costs).

The following table summarizes the unaudited pro-forma consolidated results of operations for the fiscal year ended April 1, 2017 as if the acquisition had occurred on March 29, 2015, the beginning of Fiscal 2016 (in millions):



	Fiscal Years Ended
	April 1, 2017
Pro-forma total revenue	$	4,520
Pro-forma net income	549
Pro-forma net income per ordinary share attributable to Capri:
Basic	$	3.31
Diluted	$	3.26

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 definite-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 Fiscal 2017 also reflect the elimination of transaction costs of approximately $11 million, which have been recorded within restructuring and other charges in the Company’s consolidated statements of operations and comprehensive income for Fiscal 2017.