TAPESTRY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 28,
2020
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June 29,
2019
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(millions)
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(unaudited)
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ASSETS
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Current Assets:
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Cash and cash equivalents
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$
|
742.6
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|
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$
|
969.2
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|
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Short-term investments
|
155.6
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|
|
264.6
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Trade accounts receivable, less allowances of $16.0 and $4.4, respectively
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190.4
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298.1
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Inventories
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852.9
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778.3
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Prepaid expenses
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60.2
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|
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99.8
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Income tax receivable
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35.1
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55.8
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Other current assets
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95.1
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|
91.0
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Total current assets
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2,131.9
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2,556.8
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Property and equipment, net
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818.7
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938.8
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Operating lease right-of-use assets
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1,970.9
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|
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—
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Goodwill
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1,298.5
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1,516.2
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Intangible assets
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1,381.1
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1,711.9
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Deferred income taxes
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35.9
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19.4
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Other assets
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106.0
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134.2
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Total assets
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$
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7,743.0
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$
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6,877.3
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities:
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Accounts payable
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$
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200.1
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$
|
243.6
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Accrued liabilities
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573.9
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|
673.6
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Current portion of operating lease liabilities
|
353.4
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|
|
—
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Current debt
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11.5
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|
|
0.8
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|
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Total current liabilities
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1,138.9
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918.0
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Long-term debt
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1,587.2
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1,601.9
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Long-term operating lease liabilities
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1,897.3
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|
|
—
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Deferred income taxes
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204.6
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234.1
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Long-term income taxes payable
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147.0
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155.9
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Other liabilities
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214.9
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454.0
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Total liabilities
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5,189.9
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3,363.9
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See Note 16 on commitments and contingencies
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Stockholders' Equity:
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Preferred stock: (authorized 25.0 million shares; $0.01 par value per share) none issued
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—
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—
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Common stock: (authorized 1.0 billion shares; $0.01 par value per share) issued and outstanding - 276.1 million and 286.8 million shares, respectively
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2.8
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2.9
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Additional paid-in-capital
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3,346.0
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3,302.1
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Retained earnings (accumulated deficit)
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(699.0
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)
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291.6
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Accumulated other comprehensive income (loss)
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(96.7
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)
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(83.2
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)
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Total stockholders' equity
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2,553.1
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3,513.4
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Total liabilities and stockholders' equity
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$
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7,743.0
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$
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6,877.3
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See accompanying Notes.
TAPESTRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Three Months Ended
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Nine Months Ended
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March 28,
2020
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March 30,
2019
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March 28,
2020
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March 30,
2019
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(millions, except per share data)
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(millions, except per share data)
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(unaudited)
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(unaudited)
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Net sales
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$
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1,072.7
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$
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1,331.4
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$
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4,246.6
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$
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4,513.4
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Cost of sales
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456.5
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415.5
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1,506.2
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1,458.9
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Gross profit
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616.2
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915.9
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2,740.4
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3,054.5
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Other selling, general and administrative expenses
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824.0
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806.1
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2,533.5
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2,405.9
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Impairment of goodwill and intangible assets
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477.7
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—
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477.7
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—
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Total selling, general and administrative expenses
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1,301.7
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806.1
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3,011.2
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2,405.9
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Operating income (loss)
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(685.5
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)
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|
109.8
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(270.8
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)
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648.6
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Interest expense, net
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13.5
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|
10.6
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39.8
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36.9
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Other expense (income)
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6.0
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4.0
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12.8
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4.4
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Income before provision for income taxes
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(705.0
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)
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95.2
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(323.4
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)
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607.3
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Provision for income taxes
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(27.9
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)
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(22.2
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)
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34.9
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|
112.8
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Net income (loss)
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$
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(677.1
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)
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$
|
117.4
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$
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(358.3
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)
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$
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494.5
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Net income (loss) per share:
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Basic
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$
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(2.45
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)
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$
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0.40
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$
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(1.28
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)
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$
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1.71
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Diluted
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$
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(2.45
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)
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$
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0.40
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$
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(1.28
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)
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$
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1.70
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Shares used in computing net income (loss) per share:
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Basic
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276.1
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290.0
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279.4
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289.5
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Diluted
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276.6
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290.9
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280.2
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291.2
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Cash dividends declared per common share
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$
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0.3375
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$
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0.3375
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$
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1.0125
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$
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1.0125
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See accompanying Notes.
TAPESTRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
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Three Months Ended
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Nine Months Ended
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March 28,
2020
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March 30,
2019
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March 28,
2020
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March 30,
2019
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|
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(millions)
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|
|
(millions)
|
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|
(unaudited)
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|
|
(unaudited)
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|
Net income (loss)
|
$
|
(677.1
|
)
|
|
$
|
117.4
|
|
|
|
$
|
(358.3
|
)
|
|
$
|
494.5
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Other comprehensive income (loss), net of tax:
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|
|
|
|
|
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Unrealized gains (losses) on cash flow hedging derivatives, net
|
1.2
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(4.0
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)
|
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6.5
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(2.7
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)
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Unrealized gains (losses) on available-for-sale investments, net
|
—
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0.1
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|
|
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—
|
|
|
0.2
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Other
|
—
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|
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—
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|
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(1.7
|
)
|
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—
|
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|
Foreign currency translation adjustments
|
(12.9
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)
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|
4.9
|
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(18.3
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)
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(5.2
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)
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Other comprehensive income (loss), net of tax
|
(11.7
|
)
|
|
1.0
|
|
|
|
(13.5
|
)
|
|
(7.7
|
)
|
|
Comprehensive income
|
$
|
(688.8
|
)
|
|
$
|
118.4
|
|
|
|
$
|
(371.8
|
)
|
|
$
|
486.8
|
|
See accompanying Notes.
TAPESTRY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine Months Ended
|
|
|
March 28,
2020
|
|
March 30,
2019
|
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|
(millions)
|
|
|
(unaudited)
|
|
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
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|
|
|
|
|
|
Net income (loss)
|
$
|
(358.3
|
)
|
|
$
|
494.5
|
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
|
|
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Depreciation and amortization
|
194.9
|
|
|
189.8
|
|
|
Provision for bad debt
|
16.8
|
|
|
6.4
|
|
|
Share-based compensation
|
47.0
|
|
|
65.4
|
|
|
Organization-related and integration activities
|
15.2
|
|
|
13.0
|
|
|
Impairment charges
|
697.6
|
|
|
—
|
|
|
Changes to lease related balances, net
|
26.1
|
|
|
—
|
|
|
Deferred income taxes
|
(33.3
|
)
|
|
41.5
|
|
|
Other non-cash charges, net
|
4.7
|
|
|
(5.5
|
)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Trade accounts receivable
|
75.2
|
|
|
50.9
|
|
|
Inventories
|
(171.6
|
)
|
|
(123.1
|
)
|
|
Accounts payable
|
(18.5
|
)
|
|
(43.5
|
)
|
|
Accrued liabilities
|
(31.2
|
)
|
|
29.1
|
|
|
Other liabilities
|
(37.6
|
)
|
|
(61.2
|
)
|
|
Other assets
|
19.1
|
|
|
(54.5
|
)
|
|
Net cash provided by (used in) operating activities
|
446.1
|
|
|
602.8
|
|
|
CASH FLOWS USED IN INVESTING ACTIVITIES
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
—
|
|
|
(39.4
|
)
|
|
Purchases of investments
|
(212.4
|
)
|
|
(336.4
|
)
|
|
Proceeds from maturities and sales of investments
|
316.1
|
|
|
82.3
|
|
|
Purchases of property and equipment
|
(172.9
|
)
|
|
(184.2
|
)
|
|
Net cash used in investing activities
|
(69.2
|
)
|
|
(477.7
|
)
|
|
CASH FLOWS USED IN FINANCING ACTIVITIES
|
|
|
|
|
|
|
Dividend payments
|
(287.1
|
)
|
|
(292.8
|
)
|
|
Repurchase of common stock
|
(300.0
|
)
|
|
—
|
|
|
Proceeds from share-based awards
|
1.7
|
|
|
31.6
|
|
|
Taxes paid to net settle share-based awards
|
(14.7
|
)
|
|
(26.1
|
)
|
|
Payments of finance lease liabilities
|
(0.6
|
)
|
|
(0.6
|
)
|
|
Payment of deferred purchase price
|
(2.4
|
)
|
|
—
|
|
|
Net cash used in financing activities
|
(603.1
|
)
|
|
(287.9
|
)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
(0.4
|
)
|
|
(5.3
|
)
|
|
Net decrease in cash and cash equivalents
|
(226.6
|
)
|
|
(168.1
|
)
|
|
Cash and cash equivalents at beginning of period
|
969.2
|
|
|
1,243.4
|
|
|
Cash and cash equivalents at end of period
|
$
|
742.6
|
|
|
$
|
1,075.3
|
|
|
Supplemental information:
|
|
|
|
|
Cash paid for income taxes, net
|
$
|
80.5
|
|
|
$
|
135.3
|
|
|
Cash paid for interest
|
$
|
50.4
|
|
|
$
|
45.4
|
|
|
Noncash investing activity - property and equipment obligations
|
$
|
22.4
|
|
|
$
|
53.2
|
|
See accompanying Notes.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. NATURE OF OPERATIONS
Tapestry, Inc. (the "Company") is a leading New York-based house of modern luxury accessories and lifestyle brands. Tapestry owns the Coach, Kate Spade and Stuart Weitzman brands. The Company’s primary product offerings, manufactured by third-party suppliers, include women’s and men’s bags, small leather goods, footwear, ready-to-wear including outerwear, watches, weekend and travel accessories, scarves, eyewear, fragrance, jewelry and other lifestyle products.
The Coach segment includes global sales of Coach products to customers through Coach operated stores, including the Internet and concession shop-in-shops, and sales to wholesale customers and through independent third party distributors.
The Kate Spade segment includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including the Internet, sales to wholesale customers, through concession shop-in-shops and through independent third party distributors.
The Stuart Weitzman segment includes global sales of Stuart Weitzman brand products primarily through Stuart Weitzman operated stores, including the Internet, sales to wholesale customers and through numerous independent third party distributors.
2. BASIS OF PRESENTATION AND ORGANIZATION
Interim Financial Statements
These unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and are unaudited. In the opinion of management, such condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial position, results of operations, comprehensive income (loss) and cash flows of the Company for the interim periods presented. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") have been condensed or omitted from this report as is permitted by the SEC's rules and regulations. However, the Company believes that the disclosures provided herein are adequate to prevent the information presented from being misleading. This report should be read in conjunction with the audited consolidated financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended June 29, 2019 ("fiscal 2019") and other filings filed with the SEC.
The results of operations, cash flows and comprehensive income for the nine months March 28, 2020 are not necessarily indicative of results to be expected for the entire fiscal year, which will end on June 27, 2020 ("fiscal 2020").
During the fiscal year ended June 29, 2019, the Company acquired designated assets of its Stuart Weitzman distributor in Southern China and Australia and of its Kate Spade distributor in Australia, Malaysia and Singapore. The results of operations of each acquired entity have been included in the condensed consolidated financial statements since the respective date of each acquisition.
Fiscal Periods
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to June 30. Fiscal 2020 will be a 52-week period. Fiscal 2019 ended on June 29, 2019 and was also a 52-week period. The third quarter of fiscal 2020 ended on March 28, 2020 and the third quarter of fiscal 2019 ended on March 30, 2019, both of which were 13-week periods.
Covid-19 Pandemic
The outbreak of a novel strain of coronavirus continues to grow worldwide, impacting a significant majority of the regions in which we operate. In March 2020, the outbreak was labeled a global pandemic by the World Health Organization. National, state and local governments have responded to the Covid-19 pandemic in a variety of ways, including, but not limited to, by declaring states of emergency, restricting people from gathering in groups or interacting within a certain physical distance (i.e., social distancing), requiring individuals to stay at home, and in most cases, ordering non-essential businesses to close or limit operations. The majority of the Company’s stores in mainland China were closed in the third quarter of fiscal 2020, but have essentially all re-opened by the end of the quarter. Also in March 2020, the Company closed all of its stores in North America and Europe, and many in the Asia Pacific region. Many of the Company’s wholesale partners have also closed their bricks and mortar stores and have substantially reduced their operations.
The global Covid-19 pandemic is rapidly evolving and the extent to which this impacts the Company - including unforeseen increased costs to the Company's business - will depend on future developments, which are highly uncertain and cannot be predicted, including the ultimate duration, severity and geographic spread of the virus and the success of actions to contain the virus or treat its impact, among others. As the full magnitude of the effects on the Company's business is difficult to predict at this time, the
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
Covid-19 pandemic has and is expected to continue to have a material adverse impact on the Company's business, financial condition, results of operations and cash flows for the foreseeable future. The Company believes that cash flows from operations, access to the credit and capital markets and our credit lines, on-hand cash and cash equivalents and our investments provide adequate funds to support our operating, capital, and debt service requirements for fiscal 2020 and beyond. There can be no assurance, however, that any such capital will be available to the Company on acceptable terms or at all. The Company could experience other potential adverse impacts as a result of the Covid-19 pandemic, including, but not limited to, further charges from adjustments to the carrying amount of goodwill and other intangible assets, long-lived asset impairment charges, reserves for uncollectible accounts receivable and reserves for the realizability of inventory. In addition, the negative impacts of the Covid-19 pandemic could result in the establishment of additional valuation allowances in certain jurisdictions.
In response to the Covid-19 pandemic, the Company has taken actions to reinforce its liquidity and financial flexibility. In the third quarter of fiscal 2020 the Company announced that it has suspended its quarterly dividend and all share repurchases for the foreseeable future.
In addition, and subsequent to March 28, 2020, the Company has taken other additional actions. These actions include, but are not limited to, actively reducing non-essential SG&A expense, reducing corporate compensation, terminating 2,100 part-time store associates, tightly managing inventory and reducing capital expenditures.
Furthermore, on March 30, 2020, the Company borrowed $700 million under its $900 million definitive credit agreement, as entered on October 24, 2019 ("Revolving Credit Facility") as a precautionary measure. If the Company's stores remain closed for an extended period of time, its liquidity may continue to be negatively impacted and it may need to draw additional funds from our Revolving Credit Facility or seek additional sources of financing, which may or may not be available. If the Company does not repay some or all of the outstanding borrowings under the Revolving Credit Facility prior to the end of the fourth quarter of fiscal 2020, the Company may be unable to maintain compliance with the leverage ratio financial covenant required by the Revolving Credit Facility. The Company is actively seeking an amendment to the terms of the agreement from its lenders, however no assurances can be given that the amendment will be granted or on terms that are acceptable to the Company. Non-compliance with its covenants would constitute an event of default under the terms of the Revolving Credit Facility, which may result in an acceleration of payment to the lenders. In the event of an acceleration of payment to the lenders, this would result in a cross default of the Company’s notes payable (refer to Note 12, "Debt" for further information regarding the Company's outstanding notes payable), causing the Company’s outstanding borrowings to also become due and payable on demand. If the Company is not able to obtain such amendment, it expects, and has the ability to repay some or all of the $700 million borrowed against the Revolving Credit Facility, in order to prevent an event of default under the Revolving Credit Facility.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and footnotes thereto. Actual results could differ from estimates in amounts that may be material to the financial statements.
Significant estimates inherent in the preparation of the condensed consolidated financial statements include useful lives and impairments of long-lived tangible and intangible assets; reserves for the realizability of inventory; customer returns, end-of-season markdowns and operational chargebacks; accounting for income taxes (including the impacts of tax legislation) and related uncertain tax positions; accounting for business combinations; the valuation of stock-based compensation awards and related expected forfeiture rates; reserves for restructuring; and reserves for litigation and other contingencies, amongst others.
Share Repurchases
The Company accounts for share repurchases by allocating the repurchase price to common stock and retained earnings. As a result, all repurchased shares are authorized but unissued shares. Under Maryland law, the Company's state of incorporation, there are no treasury shares. The Company accrues for the shares purchased under the share repurchase plan based on the trade date. Purchases of the Company's common stock are executed through open market purchases, including through a purchase agreement under Rule 10b5-1. The Company may terminate or limit the share repurchase program at any time.
Principles of Consolidation
These unaudited interim condensed consolidated financial statements include the accounts of the Company and all 100% owned and controlled subsidiaries. All intercompany transactions and balances are eliminated in consolidation.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
Reclassifications
Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation. Beginning in fiscal 2020, the Company presented the impact of foreign currency gains and losses within Other expense (income) within its Condensed Consolidated Statements of Operations. Accordingly, foreign currency gains and losses that were reported within Selling, general and administrative expenses ("SG&A") in fiscal 2019 are now reflected within Other expense (income).
3. RECENT ACCOUNTING PROUNOUNCEMENTS
Recently Adopted Accounting Pronouncements
During the first quarter of fiscal 2020, the Company adopted Accounting Standards Update ("ASU") No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02") and related ASUs. This ASU requires recognition of lease assets and lease liabilities on the balance sheet for all leases other than short-term leases. The Company elected the package of practical expedients intended to ease transition whereby the Company need not reassess as of the adoption date (1) whether contracts are or contain leases, (2) the lease classification for any existing leases and (3) initial direct costs for any existing leases. The Company also elected the practical expedient to
combine non-lease components and lease components for real estate leases. The Company applied the provisions of ASU No. 2018-11, "Leases (Topic 842): Targeted Improvements" ("ASU 2018-11"), allowing it to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating the comparative prior year periods.
The effects of the adoption on selected line items within the Company's Condensed Consolidated Balance Sheet as of June 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
June 30, 2019
|
|
|
|
As Reported under ASC 840
|
|
ASC 842 Adjustments
|
|
As Reported under ASC 842
|
|
|
|
(millions)
|
|
Current Assets:
|
|
|
|
|
|
|
|
Prepaid expenses(1)
|
|
$
|
99.8
|
|
|
$
|
(37.8
|
)
|
|
$
|
62.0
|
|
|
Other current assets(1)
|
|
91.0
|
|
|
(2.3
|
)
|
|
88.7
|
|
|
Long-term Assets:
|
|
|
|
|
|
|
|
Operating lease right-of-use assets(1)
|
|
—
|
|
|
2,133.7
|
|
|
2,133.7
|
|
|
Intangible assets(1)
|
|
1,711.9
|
|
|
(58.5
|
)
|
|
1,653.4
|
|
|
Deferred income tax assets(3)
|
|
19.4
|
|
|
1.7
|
|
|
21.1
|
|
|
Other assets(1)
|
|
134.2
|
|
|
(27.4
|
)
|
|
106.8
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
Accrued liabilities(1)(3)
|
|
673.6
|
|
|
(39.2
|
)
|
|
634.4
|
|
|
Operating lease liabilities(2)
|
|
—
|
|
|
362.3
|
|
|
362.3
|
|
|
Current debt
|
|
0.8
|
|
|
(0.8
|
)
|
|
—
|
|
|
Long-term Liabilities:
|
|
|
|
|
|
|
|
Long-term debt
|
|
1,601.9
|
|
|
(5.3
|
)
|
|
1,596.6
|
|
|
Operating lease liabilities(2)
|
|
—
|
|
|
1,961.6
|
|
|
1,961.6
|
|
|
Deferred income tax liabilities(3)
|
|
234.1
|
|
|
(13.1
|
)
|
|
221.0
|
|
|
Other liabilities(1)(3)
|
|
454.0
|
|
|
(207.2
|
)
|
|
246.8
|
|
|
Stockholder's Equity:
|
|
|
|
|
|
|
|
Retained earnings (accumulated deficit)(3)
|
|
291.6
|
|
|
(48.9
|
)
|
|
242.7
|
|
|
|
|
|
(1)
|
Upon adoption, the Company recognized operating lease right-of-use ("ROU") assets on the Condensed Consolidated Balance Sheet. In conjunction with this recognition, the Company reclassified amounts to lease right-of-use assets including: prepaid rent from prepaid expenses; key money and lease right intangibles from current and long-term other assets; deferred rent, lease incentives, unfavorable lease right liability and other accrued rent from current and long-term other liabilities. In addition, upon adoption in the first quarter of fiscal 2020, the Company recognized initial ROU asset balances of $2.13 billion on its Condensed Consolidated Balance Sheet.
|
|
|
|
|
(2)
|
Upon adoption, the Company recognized lease liabilities of $2.32 billion on the Condensed Consolidated Balance Sheet, which were recorded with Current and Long-term lease liabilities.
|
|
|
|
|
(3)
|
Upon adoption, the Company recognized a cumulative adjustment of $63.7 million, net of tax, decreasing the opening balance of Retained earnings, related to right-of-use asset impairment charges for certain of the Company’s stores where it was previously determined that the carrying value of assets was not recoverable. This adjustment was partially offset by ($14.8) million, net of tax, of increases to retained earnings to recognize deferred gains resulting from real estate transactions.
|
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820)" ("ASU 2018-13"), which is intended to improve the effectiveness of fair value disclosures. The ASU removes or modifies certain disclosure requirements related to fair value information, as well as adds new disclosure requirements for Level 3 fair value measurements. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently in the process of evaluating the impact that adopting ASU 2018-13 will have on its condensed consolidated financial
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
statements and notes thereto, however, does not expect a material impact resulting from this guidance.
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40)" ("ASU 2018-15"), which is intended to clarify the accounting for implementation costs of cloud computing arrangements which are deemed to be a service contract rather than a software license. The requirements of the new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently in the process of evaluating the impact that adopting ASU 2018-15 will have on its condensed consolidated financial statements and notes thereto.
In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which requires companies to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables. The FASB has subsequently issued updates to the standard to provide additional clarification on specific topics. The requirement of the new standard will be effective for annual reporting periods beginning after December 15, 2019, and interim periods within those annual periods, which for the Company is the first quarter of fiscal 2021. Early adoption is permitted. The Company is currently in the process of evaluating the impact that adopting ASU 2016-13 will have on its condensed consolidated financial statements and notes thereto.
4. REVENUE
The Company recognizes revenue primarily from sales of the products of its brands through retail and wholesale channels, including the Internet. The Company also generates revenue from royalties related to licensing its trademarks, as well as sales in ancillary channels. In all cases, revenue is recognized upon the transfer of control of the promised products or services to the customer, which may be at a point in time or over time. Control is transferred when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized is the amount of consideration to which the Company expects to be entitled, including estimation of sale terms that may create variability in the consideration. Revenue subject to variability is constrained to an amount which will not result in a significant reversal in future periods when the contingency that creates variability is resolved.
The Company recognizes revenue in its retail stores, including concession shop-in-shops, at the point-of-sale when the customer obtains physical possession of the products. Internet revenue from sales of products ordered through the Company's e-commerce sites is recognized upon delivery and receipt of the shipment by its customers and includes shipping and handling charges paid by customers. Retail and Internet revenues are recorded net of estimated returns, which are estimated by developing an expected value based on historical experience. Payment is due at the point of sale.
Gift cards issued by the Company are recorded as a liability until redeemed by the customer, at which point revenue is recognized. The Company also uses historical information to estimate the amount of gift card balances that will never be redeemed
and recognizes that amount as revenue over time in proportion to actual customer redemptions if the Company does not have a legal obligation to remit unredeemed gift cards to any jurisdiction as unclaimed property.
The Company recognizes revenue within the wholesale channel at the time title passes and risk of loss is transferred to customers, which is generally at the point of shipment of products but may occur upon receipt of the shipment by the customer in certain cases. Payment is generally due 30 to 90 days after shipment. Wholesale revenue is recorded net of estimates for returns, discounts, end-of-season markdowns, cooperative advertising allowances and other consideration provided to the customer. Discounts are based on contract terms with the customer, while cooperative advertising allowances and other consideration may be based on contract terms or negotiated on a case-by-case basis. Returns and markdowns generally require approval from the Company and are estimated based on historical trends, current season results and inventory positions at the wholesale locations, current market and economic conditions as well as, in select cases, contractual terms. The Company's historical estimates of these variable amounts have not differed materially from actual results.
The Company recognizes licensing revenue over time during the contract period in which licensees are granted access to the Company's trademarks. These arrangements require licensees to pay a sales-based royalty and may include a contractually guaranteed minimum royalty amount. Revenue for contractually guaranteed minimum royalty amounts is recognized ratably over the license year and any excess sales-based royalties are recognized as earned once the minimum royalty threshold is achieved. Payments from the customer are generally due quarterly in an amount based on the licensee's sales of goods bearing the licensed trademarks during the period, which may differ from the amount of revenue recorded during the period thereby generating a contract asset or liability. Contract assets and liabilities and contract costs related to the licensing arrangements are immaterial as the licensing business represents approximately 1% of total net sales in the nine months ended March 28, 2020.
The Company has elected a practical expedient not to disclose the remaining performance obligations that are unsatisfied as of the end of the period related to contracts with an original duration of one year or less or variable consideration related to sales-based royalty arrangements. There are no other contracts with transaction price allocated to remaining performance obligations other than future minimum royalties as discussed above, which are not material.
Other practical expedients elected by the Company include (i) assuming no significant financing component exists for any contract with a duration of one year or less, (ii) accounting for shipping and handling as a fulfillment activity within SG&A expense regardless of the timing of the shipment in relation to the transfer of control and (iii) excluding sales and value added tax from the transaction price.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
Disaggregated Net Sales
The following table disaggregates the Company's net sales into geographies that depict how economic factors may impact the revenues and cash flows for the periods presented. Each geography presented includes net sales related to the Company's directly operated channels, global travel retail business and to wholesale customers, including distributors, in locations within the specified geographic area.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Greater China(1)
|
|
Other Asia(2)
|
|
Other(3)
|
|
Total
|
|
|
(millions)
|
|
Three Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
Coach
|
$
|
427.6
|
|
|
$
|
103.7
|
|
|
$
|
193.8
|
|
|
$
|
47.4
|
|
|
$
|
772.5
|
|
|
Kate Spade
|
181.4
|
|
|
8.9
|
|
|
41.1
|
|
|
18.1
|
|
|
249.5
|
|
|
Stuart Weitzman
|
28.7
|
|
|
10.6
|
|
|
4.5
|
|
|
6.9
|
|
|
50.7
|
|
|
Total
|
$
|
637.7
|
|
|
$
|
123.2
|
|
|
$
|
239.4
|
|
|
$
|
72.4
|
|
|
$
|
1,072.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Coach
|
$
|
484.0
|
|
|
$
|
213.7
|
|
|
$
|
212.8
|
|
|
$
|
54.5
|
|
|
$
|
965.0
|
|
|
Kate Spade
|
205.1
|
|
|
13.6
|
|
|
43.8
|
|
|
18.6
|
|
|
281.1
|
|
|
Stuart Weitzman
|
45.8
|
|
|
18.0
|
|
|
6.3
|
|
|
15.2
|
|
|
85.3
|
|
|
Total
|
$
|
734.9
|
|
|
$
|
245.3
|
|
|
$
|
262.9
|
|
|
$
|
88.3
|
|
|
$
|
1,331.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
Coach
|
$
|
1,751.3
|
|
|
$
|
451.0
|
|
|
$
|
622.0
|
|
|
$
|
184.0
|
|
|
$
|
3,008.3
|
|
|
Kate Spade
|
761.8
|
|
|
34.8
|
|
|
125.2
|
|
|
63.6
|
|
|
985.4
|
|
|
Stuart Weitzman
|
137.7
|
|
|
62.7
|
|
|
16.4
|
|
|
36.1
|
|
|
252.9
|
|
|
Total
|
$
|
2,650.8
|
|
|
$
|
548.5
|
|
|
$
|
763.6
|
|
|
$
|
283.7
|
|
|
$
|
4,246.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Coach
|
$
|
1,788.1
|
|
|
$
|
577.2
|
|
|
$
|
627.9
|
|
|
$
|
181.1
|
|
|
$
|
3,174.3
|
|
|
Kate Spade
|
812.3
|
|
|
37.4
|
|
|
118.9
|
|
|
66.3
|
|
|
1,034.9
|
|
|
Stuart Weitzman
|
170.4
|
|
|
57.1
|
|
|
18.5
|
|
|
58.2
|
|
|
304.2
|
|
|
Total
|
$
|
2,770.8
|
|
|
$
|
671.7
|
|
|
$
|
765.3
|
|
|
$
|
305.6
|
|
|
$
|
4,513.4
|
|
|
|
|
|
(1)
|
Greater China includes mainland China, Hong Kong SAR, Macao SAR and Taiwan.
|
|
|
|
|
(2)
|
Other Asia includes Japan, Australia, New Zealand, South Korea, Thailand and other countries within Asia.
|
|
|
|
|
(3)
|
Other sales primarily represents sales in Europe, the Middle East and royalties related to licensing.
|
Deferred Revenue
Deferred revenue results from cash payments received or receivable from customers prior to the transfer of the promised goods or services, and is primarily related to unredeemed gift cards, net of breakage which has been recognized. Additional deferred revenue may result from sales-based royalty payments received or receivable which exceed the revenue recognized during the contractual period. The balance of such amounts as of March 28, 2020 and June 29, 2019 was $31.6 million and $27.5 million, respectively, which were primarily recorded within Accrued liabilities on the Company's Condensed Consolidated Balance Sheets and are generally expected to be recognized as revenue within a year. For the nine months ended March 28, 2020, net sales of $11.3 million were recognized from amounts recorded as deferred revenue as of June 29, 2019. For the nine months ended March 30, 2019, net sales of $16.6 million were recognized from amounts recorded as deferred revenue as of June 30, 2018.
5. INTEGRATION
During the three and nine months ended March 28, 2020, the Company incurred integration costs of $3.4 million and $11.6 million. The charges recorded in Cost of sales for the nine months ended March 28, 2020 were $5.6 million. There were no charges recorded for the three months ended March 28, 2020. Of the amount recorded to Cost of sales for the nine months ended March 28, 2020, $4.3 million was recorded in the Stuart Weitzman segment, $1.2 million was recorded in the Kate Spade segment and $0.1 million was recorded in the Coach segment, respectively. The charges recorded to SG&A expenses for the three and nine months ended March 28, 2020 were $3.4 million and $6.0 million, respectively. Of the amount recorded to SG&A expenses, $2.9 million and $6.9 million was recorded within Corporate, $0.2 million and a reduction of expense of $1.9 million was recorded in the Stuart Weitzman segment, $0.3 million and $1.1 million was recorded in the Kate Spade segment and $0.0 million and a reduction of expense of $0.1 million was recorded in the Coach segment, respectively. Of the total costs of $3.4 million, a reduction of expense of $0.1 million were non-cash charges. Of the total costs of $11.6 million, $3.8 million were non-cash charges related to inventory charges, organization-related costs and purchase accounting adjustments.
The Company estimates that it will incur approximately $5 million in pre-tax charges, of which the majority are expected to be cash charges, for the remainder of fiscal 2020.
During the three and nine months ended March 30, 2019, the Company incurred integration costs of $20.6 million and $55.3 million, respectively. The charges recorded in Cost of sales for the three and nine months ended March 30, 2019 were $5.0 million and $9.1 million, respectively. Of the amount recorded to Cost of sales, $4.3 million and $5.4 million was recorded in the Kate Spade segment, $0.0 million and $2.0 million was recorded in the Coach segment and $0.7 million and $1.7 million was recorded in the Stuart Weitzman segment, respectively. The charges recorded in SG&A expenses for the three and nine months ended March 30, 2019 were $15.6 million and $46.2 million, respectively. Of the amount recorded to SG&A expenses, $7.0 million and $18.4 million was recorded within Corporate, $0.1 million and $12.2 million was recorded in the Stuart Weitzman segment and $3.0 million and $10.1 million was recorded in the Kate Spade segment, respectively. The charges recorded to SG&A expenses in the Coach segment were $5.5 million for the three and nine months ended March 30, 2019. Of the total costs of $20.6 million, $6.7 million were non-cash charges related to purchase accounting adjustments and asset write-offs. Of the total costs of $55.3 million, $13.0 million were non-cash charges related to purchase accounting adjustments and organization-related costs.
Refer to Note 6, "Acquisitions," for more information.
A summary of the integration charges is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
|
|
(millions)
|
|
Purchase accounting adjustments(1)
|
|
$
|
—
|
|
|
$
|
3.9
|
|
|
$
|
0.8
|
|
|
$
|
9.3
|
|
|
Acquisition costs(2)
|
|
—
|
|
|
0.3
|
|
|
—
|
|
|
1.0
|
|
|
Inventory-related charges(3)
|
|
—
|
|
|
1.0
|
|
|
4.9
|
|
|
(0.4
|
)
|
|
Contractual payments(4)
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
6.6
|
|
|
Other(5)
|
|
3.4
|
|
|
16.0
|
|
|
5.9
|
|
|
38.8
|
|
|
Total
|
|
$
|
3.4
|
|
|
$
|
20.6
|
|
|
$
|
11.6
|
|
|
$
|
55.3
|
|
|
|
|
|
(1)
|
Purchase accounting adjustments primarily relate to the short-term impact of the amortization of fair value adjustments.
|
|
|
|
|
(2)
|
Acquisition costs were primarily related to deal fees associated with acquisitions.
|
|
|
|
|
(3)
|
Inventory-related charges primarily relate to inventory reserves.
|
|
|
|
|
(4)
|
Contractual payments primarily relate to contract termination charges for the three and nine months ended March 30, 2019.
|
|
|
|
|
(5)
|
Other primarily relates to share-based compensation, severance charges, professional fees and asset write-offs.
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
6. ACQUISITIONS
Fiscal 2019 Acquisitions
Distributor Acquisitions
During the fiscal year ended June 29, 2019, the Company acquired designated assets of its Stuart Weitzman distributor in Southern China and Australia and of its Kate Spade distributor in Australia, Malaysia and Singapore.
The aggregate purchase consideration for the acquisitions was $47.8 million, $44.0 million of which was cash consideration and the remaining is related to non-cash consideration. Of the $44.0 million of cash consideration, $43.5 million was paid during fiscal 2019 and the remaining will be paid in the future. Of the total purchase consideration of $47.8 million, $21.8 million of net assets were recorded at their fair values. The excess of the purchase consideration over the fair value of the net assets acquired was recorded as non-tax deductible goodwill in the amount of $26.0 million, of which $13.3 million was assigned to the Stuart Weitzman segment and $12.7 million was assigned to the Kate Spade segment. Refer to Note 7, "Goodwill and Other Intangible Assets" for further information.
The purchase price allocation for these assets acquired and liabilities assumed is completed, however may be subject to change as additional information is obtained during the acquisition measurement period for the respective acquisitions. The pro forma results are not presented for these acquisitions as they are immaterial.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Interim Impairment Assessment
The Company performs its annual impairment assessment of goodwill as well as brand intangibles at the beginning of the fourth quarter of each fiscal year or if an event occurs that would more likely than not reduce the fair value below its carrying amount.
During the three months ended March 28, 2020, profitability trends continued to decline from those that were expected for the Stuart Weitzman brand. This reduction in both current and future expected cash flows was exacerbated by the Covid-19 pandemic, which resulted in a decline in sales driven by full and partial closures of a significant portion of our stores globally. As a result of these macroeconomic conditions, the Company concluded that a triggering event had occurred during the third quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company’s Stuart Weitzman reporting unit and indefinite-lived brand intangible assets. The assessment concluded that the fair values of the Stuart Weitzman reporting unit and indefinite-lived brand intangible asset as of March 28, 2020 did not exceed their respective carrying values.
Accordingly, the Company recorded a goodwill impairment charge of $210.7 million related to the Stuart Weitzman reporting unit, resulting in a full impairment. The Company also recorded an impairment charge of $267.0 million related to the Stuart Weitzman indefinite-lived brand, resulting in a full impairment. The goodwill and brand intangible impairment charges were recorded within total SG&A expenses on the Company's Condensed Consolidated Statement of Operations for the three and nine months ended March 28, 2020.
The estimated fair value of the Stuart Weitzman reporting unit was based on a weighted average of the income and market approaches. The income approach is based on estimated discounted future cash flows, while the market approach is based on earnings multiples of selected guideline companies. The approach, which qualifies as level 3 in the fair value hierarchy, incorporated a number of significant assumptions and judgments, including, but not limited to, estimated future cash flows, discount rates, income tax rates, terminal growth rates and valuation multiples derived from comparable publicly traded companies. In considering the excess of the fair value over its carrying value for the Coach and Kate Spade reporting units and indefinite-lived brand intangibles, management did not perform an interim assessment for these reporting units.
Goodwill
The change in the carrying amount of the Company’s goodwill by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coach
|
|
Kate Spade
|
|
Stuart Weitzman
|
|
Total
|
|
|
(millions)
|
|
Balance at June 29, 2019
|
$
|
661.8
|
|
|
$
|
640.4
|
|
|
$
|
214.0
|
|
|
$
|
1,516.2
|
|
|
Impairment charges
|
—
|
|
|
—
|
|
|
(210.7
|
)
|
|
(210.7
|
)
|
|
Foreign exchange impact
|
(1.9
|
)
|
|
(1.8
|
)
|
|
(3.3
|
)
|
|
(7.0
|
)
|
|
Balance at March 28, 2020
|
$
|
659.9
|
|
|
$
|
638.6
|
|
|
$
|
—
|
|
|
$
|
1,298.5
|
|
Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
June 29, 2019
|
|
|
Gross
Carrying
Amount
|
|
Accum.
Amort.
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accum.
Amort.
|
|
Net
|
|
|
(millions)
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
100.5
|
|
|
$
|
(29.2
|
)
|
|
$
|
71.3
|
|
|
$
|
100.6
|
|
|
$
|
(24.0
|
)
|
|
$
|
76.6
|
|
|
Favorable lease rights(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
93.1
|
|
|
(34.6
|
)
|
|
58.5
|
|
|
Total intangible assets subject to amortization
|
100.5
|
|
|
(29.2
|
)
|
|
71.3
|
|
|
193.7
|
|
|
(58.6
|
)
|
|
135.1
|
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names(2)
|
1,309.8
|
|
|
—
|
|
|
1,309.8
|
|
|
1,576.8
|
|
|
—
|
|
|
1,576.8
|
|
|
Total intangible assets
|
$
|
1,410.3
|
|
|
$
|
(29.2
|
)
|
|
$
|
1,381.1
|
|
|
$
|
1,770.5
|
|
|
$
|
(58.6
|
)
|
|
$
|
1,711.9
|
|
|
|
|
|
(1)
|
Refer to Note 3, "Recent Accounting Pronouncements," for further information.
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
|
|
|
|
(2)
|
During the three and nine months ended March 28, 2020, the Company recognized a $267.0 million non-cash charge related to the impairment of the Stuart Weitzman indefinite-lived brand.
|
As of March 28, 2020, the expected amortization expense for intangible assets is as follows:
|
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
(millions)
|
|
Remainder of fiscal 2020
|
$
|
1.1
|
|
|
Fiscal 2021
|
6.5
|
|
|
Fiscal 2022
|
6.5
|
|
|
Fiscal 2023
|
6.5
|
|
|
Fiscal 2024
|
6.5
|
|
|
Fiscal 2025
|
6.5
|
|
|
Fiscal 2026 and thereafter
|
37.7
|
|
|
Total
|
$
|
71.3
|
|
The expected amortization expense above reflects remaining useful lives ranging from approximately 10.1 to 12.3 years for customer relationships.
8. STOCKHOLDERS' EQUITY
A reconciliation of stockholders' equity is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
Common
Stock
|
|
Common Stock
|
|
Additional
Paid-in-
Capital
|
|
Retained Earnings / (Accumulated Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders'
Equity
|
|
|
(millions, except per share data)
|
|
Balance at June 30, 2018
|
288.0
|
|
|
$
|
2.9
|
|
|
$
|
3,205.5
|
|
|
$
|
119.0
|
|
|
$
|
(82.8
|
)
|
|
$
|
3,244.6
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
122.3
|
|
|
—
|
|
|
122.3
|
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.3
|
)
|
|
(5.3
|
)
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
1.8
|
|
|
—
|
|
|
3.2
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
22.4
|
|
|
—
|
|
|
—
|
|
|
22.4
|
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(97.8)
|
|
|
—
|
|
|
(97.8)
|
|
|
Cumulative adjustment from adoption of new accounting standard
(see Note 3)
|
—
|
|
|
—
|
|
|
—
|
|
|
20.2
|
|
|
—
|
|
|
20.2
|
|
|
Balance at September 29, 2018
|
289.8
|
|
|
$
|
2.9
|
|
|
$
|
3,231.1
|
|
|
$
|
163.7
|
|
|
$
|
(88.1
|
)
|
|
$
|
3,309.6
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
254.8
|
|
|
—
|
|
|
254.8
|
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.4
|
)
|
|
(3.4
|
)
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
0.2
|
|
|
—
|
|
|
3.7
|
|
|
—
|
|
|
—
|
|
|
3.7
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
21.5
|
|
|
—
|
|
|
—
|
|
|
21.5
|
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(97.8
|
)
|
|
—
|
|
|
(97.8
|
)
|
|
Balance at December 29, 2018
|
290.0
|
|
|
$
|
2.9
|
|
|
$
|
3,256.3
|
|
|
$
|
320.7
|
|
|
$
|
(91.5
|
)
|
|
$
|
3,488.4
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
117.4
|
|
|
—
|
|
|
117.4
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
0.1
|
|
|
—
|
|
|
(1.2
|
)
|
|
—
|
|
|
—
|
|
|
(1.2
|
)
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
23.5
|
|
|
—
|
|
|
—
|
|
|
23.5
|
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(97.9
|
)
|
|
—
|
|
|
(97.9
|
)
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 30, 2019
|
290.1
|
|
|
$
|
2.9
|
|
|
$
|
3,278.6
|
|
|
$
|
340.2
|
|
|
$
|
(90.5
|
)
|
|
$
|
3,531.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of
Common
Stock
|
|
Common Stock
|
|
Additional
Paid-in-
Capital
|
|
Retained Earnings / (Accumulated Deficit)
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders'
Equity
|
|
|
(millions, except per share data)
|
|
Balance at June 29, 2019
|
286.8
|
|
|
$
|
2.9
|
|
|
$
|
3,302.1
|
|
|
$
|
291.6
|
|
|
$
|
(83.2
|
)
|
|
$
|
3,513.4
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
20.0
|
|
|
—
|
|
|
20.0
|
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12.8
|
)
|
|
(12.8
|
)
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
1.0
|
|
|
—
|
|
|
(14.5
|
)
|
|
—
|
|
|
—
|
|
|
(14.5
|
)
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
26.8
|
|
|
—
|
|
|
—
|
|
|
26.8
|
|
|
Repurchase of common stock
|
(11.9
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
(299.9
|
)
|
|
—
|
|
|
(300.0
|
)
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(97.1
|
)
|
|
—
|
|
|
(97.1
|
)
|
|
Cumulative adjustment from adoption of new accounting standard
|
—
|
|
|
—
|
|
|
—
|
|
|
(48.9
|
)
|
|
—
|
|
|
(48.9
|
)
|
|
Balance at September 28, 2019
|
275.9
|
|
|
$
|
2.8
|
|
|
$
|
3,314.4
|
|
|
$
|
(134.3
|
)
|
|
$
|
(96.0
|
)
|
|
$
|
3,086.9
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
298.8
|
|
|
—
|
|
|
298.8
|
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11.0
|
|
|
11.0
|
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
0.1
|
|
|
—
|
|
|
2.1
|
|
|
—
|
|
|
—
|
|
|
2.1
|
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
16.8
|
|
|
—
|
|
|
—
|
|
|
16.8
|
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(93.2
|
)
|
|
—
|
|
|
(93.2
|
)
|
|
Balance at December 28, 2019
|
276.0
|
|
|
$
|
2.8
|
|
|
$
|
3,333.3
|
|
|
$
|
71.3
|
|
|
$
|
(85.0
|
)
|
|
$
|
3,322.4
|
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(677.1
|
)
|
|
—
|
|
|
(677.1
|
)
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11.7
|
)
|
|
(11.7
|
)
|
|
Shares issued, pursuant to stock-based compensation arrangements, net of shares withheld for taxes
|
0.1
|
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|
—
|
|
|
(0.5
|
)
|
|
Share-based compensation
|
—
|
|
|
—
|
|
|
13.2
|
|
|
—
|
|
|
—
|
|
|
13.2
|
|
|
Dividends declared ($0.3375 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
(93.2
|
)
|
|
—
|
|
|
(93.2
|
)
|
|
Balance at March 28, 2020
|
276.1
|
|
|
$
|
2.8
|
|
|
$
|
3,346.0
|
|
|
$
|
(699.0
|
)
|
|
$
|
(96.7
|
)
|
|
$
|
2,553.1
|
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The components of accumulated other comprehensive income (loss) ("AOCI"), as of the dates indicated, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) on Cash
Flow
Hedging Derivatives(1)
|
|
Unrealized Gains
(Losses) on Available-
for-Sale Investments
|
|
Cumulative
Translation
Adjustment
|
|
Other(2)
|
|
Total
|
|
|
(millions)
|
|
Balances at June 30, 2018
|
$
|
1.4
|
|
|
$
|
—
|
|
|
$
|
(85.3
|
)
|
|
$
|
1.1
|
|
|
$
|
(82.8
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(0.4
|
)
|
|
0.2
|
|
|
(5.2
|
)
|
|
—
|
|
|
(5.4
|
)
|
|
Less: amounts reclassified from accumulated other comprehensive income to earnings
|
2.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2.3
|
|
|
Net current-period other comprehensive income (loss)
|
(2.7
|
)
|
|
0.2
|
|
|
(5.2
|
)
|
|
—
|
|
|
(7.7
|
)
|
|
Balances at March 30, 2019
|
$
|
(1.3
|
)
|
|
$
|
0.2
|
|
|
$
|
(90.5
|
)
|
|
$
|
1.1
|
|
|
$
|
(90.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at June 29, 2019
|
$
|
(4.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(79.9
|
)
|
|
$
|
1.7
|
|
|
$
|
(83.2
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
(1.7
|
)
|
|
—
|
|
|
(18.3
|
)
|
|
—
|
|
|
(20.0
|
)
|
|
Less: amounts reclassified from accumulated other comprehensive income to earnings
|
(8.2
|
)
|
|
—
|
|
|
—
|
|
|
1.7
|
|
|
(6.5
|
)
|
|
Net current-period other comprehensive income (loss)
|
6.5
|
|
|
—
|
|
|
(18.3
|
)
|
|
(1.7
|
)
|
|
(13.5
|
)
|
|
Balances at March 28, 2020
|
$
|
2.0
|
|
|
$
|
(0.5
|
)
|
|
$
|
(98.2
|
)
|
|
$
|
—
|
|
|
$
|
(96.7
|
)
|
|
|
|
|
(1)
|
The ending balances of AOCI related to cash flow hedges are net of tax of ($0.4) million and $0.0 million as of March 28, 2020 and March 30, 2019, respectively. The amounts reclassified from AOCI are net of tax of $4.1 million and ($1.5) million as of March 28, 2020 and March 30, 2019, respectively.
|
|
|
|
|
(2)
|
Other represents the accumulated loss on the Company's minimum pension liability adjustment. The balance at March 30, 2019 is net of tax of $(0.6) million. There was no remaining balance at March 28, 2020.
|
9. LEASES
The Company leases retail space, office space, warehouse facilities, distribution centers, storage space, machinery, equipment and certain other items under operating leases. The Company's leases have initial terms ranging from 1 to 20 years and may have renewal or early termination options ranging from 1 to 10 years. These leases may also include rent escalation clauses or lease incentives in the form of construction allowances and rent reduction. In determining the lease term used in the lease ROU asset and lease liability calculations, the Company considers various factors such as market conditions and the terms of any renewal or termination options that may exist. When deemed reasonably certain, the renewal and termination options are included in the determination of the lease term and calculation of the lease ROU asset and lease liability. The Company is typically required to make fixed minimum rent payments, variable rent payments primarily based on performance (i.e., percentage-of-sales-based payments), or a combination thereof, directly related to its ROU asset. The Company is also often required, by the lease, to pay for certain other costs including real estate taxes, insurance, common area maintenance fees, and/or certain other costs, which may be fixed or variable, depending upon the terms of the respective lease agreement. To the extent these payments are fixed, the Company has included them in calculating the lease ROU assets and lease liabilities.
The Company calculates lease ROU assets and lease liabilities as the present value of fixed lease payments over the reasonably certain lease term beginning at the commencement date. ASU 2016-02 requires the use of the implicit rate to determine the present value of lease payments. As the rate implicit in the Company's leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, including the lease term, currency, country, Company specific risk premium and adjustments for collateral.
For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases and impaired operating leases, the ROU asset is depreciated on a straight-line basis over the remaining lease term, along with recognition of interest expense associated with accretion of the lease liability. For leases with a lease term of 12 months or less ("short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the Condensed Consolidated Balance Sheets. Variable lease cost for both operating and finance leases, if any, is recognized as incurred.
The Company acts as sublessor in certain leasing arrangements, primarily related to a sublease of a portion the Company's leased headquarters space as well as certain retail locations. Fixed sublease payments received are recognized on a straight-line basis over the sublease term.
ROU assets, along with any other related long-lived assets, are periodically evaluated for impairment.
The following table summarizes the ROU assets and lease liabilities recorded on the Company's Condensed Consolidated Balance Sheet as of March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
Location Recorded on Balance Sheet
|
|
|
|
(millions)
|
|
|
Assets:
|
|
|
|
|
Operating leases
|
|
$
|
1,970.9
|
|
Operating lease right-of-use assets
|
|
Finance leases
|
|
3.4
|
|
Property and equipment, net
|
|
Total lease assets
|
|
$
|
1,974.3
|
|
|
|
Liabilities:
|
|
|
|
|
Operating leases:
|
|
|
|
|
Current lease liabilities
|
|
$
|
353.4
|
|
Current lease liabilities
|
|
Long-term lease liabilities
|
|
1,897.3
|
|
Long-term lease liabilities
|
|
Total operating lease liabilities
|
|
$
|
2,250.7
|
|
|
|
Finance leases:
|
|
|
|
|
Current lease liabilities
|
|
$
|
0.8
|
|
Accrued liabilities
|
|
Long-term lease liabilities
|
|
4.7
|
|
Other liabilities
|
|
Total finance lease liabilities
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
Total lease liabilities
|
|
$
|
2,256.2
|
|
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The following table summarizes the composition of net lease costs, primarily recorded within SG&A expenses on the Company's Condensed Consolidated Statement of Operations for the three and nine months ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
March 28, 2020
|
|
|
|
(millions)
|
|
Finance lease cost:
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
0.2
|
|
|
$
|
0.6
|
|
|
Interest on lease liabilities(1)
|
|
0.2
|
|
|
0.5
|
|
|
Total finance lease cost
|
|
0.4
|
|
|
1.1
|
|
|
Operating lease cost
|
|
107.3
|
|
|
324.6
|
|
|
Short-term lease cost
|
|
3.5
|
|
|
7.1
|
|
|
Variable lease cost(2)
|
|
39.6
|
|
|
151.7
|
|
|
Operating lease right-of-use impairment
|
|
27.9
|
|
|
63.7
|
|
|
Less: sublease income
|
|
(4.5
|
)
|
|
(15.2
|
)
|
|
Total net lease cost
|
|
$
|
174.2
|
|
|
$
|
533.0
|
|
|
|
|
|
(1)
|
Interest on lease liabilities is recorded within Interest expense, net on the Company's Condensed Consolidated Statement of Operations.
|
(2) Rent concessions negotiated related to Covid-19 are recorded in variable lease expense and have an immaterial impact as of March 28, 2020.
The following table summarizes certain cash flow information related to the Company's leases for the nine months ended March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
March 28, 2020
|
|
|
|
(millions)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
322.8
|
|
|
Operating cash flows from finance leases
|
|
0.5
|
|
|
Financing cash flows from finance leases
|
|
0.6
|
|
|
Non-cash transactions:
|
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
|
184.7
|
|
|
Right-of-use assets obtained in exchange for finance lease liabilities
|
|
—
|
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The following table provides a maturity analysis of the Company's lease liabilities recorded on the Condensed Consolidated Balance Sheet as of March 28, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
Operating Leases
|
|
Finance Leases
|
|
Total
|
|
|
|
(millions)
|
|
Remainder of Fiscal 2020
|
|
$
|
106.4
|
|
|
$
|
0.4
|
|
|
$
|
106.8
|
|
|
Fiscal 2021
|
|
413.7
|
|
|
1.4
|
|
|
415.1
|
|
|
Fiscal 2022
|
|
371.9
|
|
|
1.4
|
|
|
373.3
|
|
|
Fiscal 2023
|
|
326.6
|
|
|
1.4
|
|
|
328.0
|
|
|
Fiscal 2024
|
|
276.5
|
|
|
1.4
|
|
|
277.9
|
|
|
Fiscal 2025 and thereafter
|
|
1,199.5
|
|
|
1.3
|
|
|
1,200.8
|
|
|
Total lease payments
|
|
2,694.6
|
|
|
7.3
|
|
|
2,701.9
|
|
|
Less: imputed interest
|
|
(443.9
|
)
|
|
(1.8
|
)
|
|
(445.7
|
)
|
|
Total lease liabilities
|
|
$
|
2,250.7
|
|
|
$
|
5.5
|
|
|
$
|
2,256.2
|
|
The future minimum fixed sublease receipts under non-cancelable operating lease agreements as of March 28, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
|
|
(millions)
|
|
Remainder of Fiscal 2020
|
|
$
|
5.2
|
|
|
Fiscal 2021
|
|
21.0
|
|
|
Fiscal 2022
|
|
19.9
|
|
|
Fiscal 2023
|
|
15.9
|
|
|
Fiscal 2024
|
|
15.5
|
|
|
Fiscal 2025 and thereafter
|
|
187.5
|
|
|
Total sublease income
|
|
$
|
265.0
|
|
The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's operating leases and finance leases recorded on the Condensed Consolidated Balance Sheet as of March 28, 2020:
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
Weighted average remaining lease term (years):
|
|
|
|
Operating leases
|
|
8.72
|
|
|
Finance leases
|
|
5.18
|
|
|
Weighted average discount rate:
|
|
|
|
Operating leases
|
|
3.7
|
%
|
|
Finance leases
|
|
11.3
|
%
|
Additionally, the Company had approximately $3.3 million of future payment obligations related to executed lease agreements for which the related lease has not yet commenced as of March 28, 2020.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
As reported under the previous accounting standard, the following table provides a summary of future minimum rental payments under non-cancelable operating leases, as of June 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
June 29, 2019
|
|
|
|
(millions)
|
|
2020
|
|
$
|
399.0
|
|
|
2021
|
|
341.5
|
|
|
2022
|
|
308.2
|
|
|
2023
|
|
270.4
|
|
|
2024
|
|
226.5
|
|
|
Subsequent to 2024
|
|
1,065.7
|
|
|
Total minimum future rental payments
|
|
$
|
2,611.3
|
|
10. EARNINGS PER SHARE
Basic net income per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted net income per share is calculated similarly but includes potential dilution from the exercise of stock options and restricted stock units and any other potentially dilutive instruments, only in the periods in which such effects are dilutive under the treasury stock method.
The following is a reconciliation of the weighted-average shares outstanding and calculation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
March 28,
2020
|
|
March 30,
2019
|
|
|
(millions, except per share data)
|
|
Net income (loss)
|
$
|
(677.1
|
)
|
|
$
|
117.4
|
|
|
$
|
(358.3
|
)
|
|
$
|
494.5
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic shares
|
276.1
|
|
|
290.0
|
|
|
279.4
|
|
|
289.5
|
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
0.5
|
|
|
0.9
|
|
|
0.8
|
|
|
1.7
|
|
|
Weighted-average diluted shares
|
276.6
|
|
|
290.9
|
|
|
280.2
|
|
|
291.2
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(2.45
|
)
|
|
$
|
0.40
|
|
|
$
|
(1.28
|
)
|
|
$
|
1.71
|
|
|
Diluted
|
$
|
(2.45
|
)
|
|
$
|
0.40
|
|
|
$
|
(1.28
|
)
|
|
$
|
1.70
|
|
Earnings per share amounts have been calculated based on unrounded numbers. Options to purchase shares of the Company's common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, the Company has outstanding restricted stock unit awards that are issuable only upon the achievement of certain performance goals. Performance-based restricted stock unit awards are included in the computation of diluted shares only to the extent that the underlying performance conditions (and any applicable market condition modifiers) (i) are satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive under the treasury stock method. As of March 28, 2020 and March 30, 2019, there were 13.0 million and 11.3 million, respectively, of additional shares issuable upon exercise of anti-dilutive options and contingent vesting of performance-based restricted stock unit awards, which were excluded from the diluted share calculations.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
11. SHARE-BASED COMPENSATION
The following table shows the share-based compensation expense and the related tax benefits recognized in the Company's Condensed Consolidated Statements of Operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
March 28,
2020
|
|
March 30, 2019
|
|
March 28,
2020
|
|
March 30, 2019
|
|
|
(millions)
|
|
Share-based compensation expense(1)
|
$
|
13.2
|
|
|
$
|
23.5
|
|
|
$
|
56.8
|
|
|
$
|
67.4
|
|
|
Income tax benefit related to share-based compensation expense
|
2.9
|
|
|
4.4
|
|
|
11.8
|
|
|
12.6
|
|
|
|
|
|
(1)
|
During the nine months ended March 28, 2020, the Company incurred $9.8 million of share-based compensation expense related to its organization-related and integration activities. During the three and nine months ended March 30, 2019, the Company incurred $1.2 million and $2.0 million of share-based compensation expense related to integration activities, respectively.
|
Stock Options
A summary of stock option activity during the nine months ended March 28, 2020 is as follows:
|
|
|
|
|
|
|
|
Number of
Options
Outstanding
|
|
|
(millions)
|
|
Outstanding at June 29, 2019
|
12.4
|
|
|
Granted
|
5.4
|
|
|
Exercised
|
—
|
|
|
Forfeited or expired
|
(0.8
|
)
|
|
Outstanding at March 28, 2020
|
17.0
|
|
The weighted-average grant-date fair value of options granted during the nine months ended March 28, 2020 and March 30, 2019 was $3.83 and $9.77, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
March 30,
2019
|
|
Expected term (years)
|
5.1
|
|
|
5.0
|
|
|
Expected volatility
|
37.6
|
%
|
|
30.3
|
%
|
|
Risk-free interest rate
|
1.5
|
%
|
|
3.1
|
%
|
|
Dividend yield
|
6.4
|
%
|
|
3.1
|
%
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
Service-based Restricted Stock Unit Awards ("RSUs")
A summary of service-based RSU activity during the nine months ended March 28, 2020 is as follows:
|
|
|
|
|
|
|
|
Number of
Non-vested RSUs
|
|
|
(millions)
|
|
Non-vested at June 29, 2019
|
3.3
|
|
|
Granted
|
4.0
|
|
|
Vested
|
(1.4
|
)
|
|
Forfeited
|
(0.5
|
)
|
|
Non-vested at March 28, 2020
|
5.4
|
|
The weighted-average grant-date fair value of share awards granted during the nine months ended March 28, 2020 and March 30, 2019 was $21.34 and $49.87, respectively.
Performance-based Restricted Stock Unit Awards ("PRSUs")
A summary of PRSU activity during the nine months ended March 28, 2020 is as follows:
|
|
|
|
|
|
|
|
Number of
Non-vested PRSUs
|
|
|
(millions)
|
|
Non-vested at June 29, 2019
|
0.9
|
|
|
Granted
|
0.6
|
|
|
Change due to performance condition achievement
|
—
|
|
|
Vested
|
(0.3
|
)
|
|
Forfeited
|
(0.1
|
)
|
|
Non-vested at March 28, 2020
|
1.1
|
|
The PRSU awards included in the non-vested amount are based on certain Company-specific financial metrics. The effect of the change due to performance condition on the non-vested amount is recognized at the conclusion of the performance period, which may differ from the date on which the award vests.
The weighted-average grant-date fair value per share of PRSU awards granted during the nine months ended March 28, 2020 and March 30, 2019 was $21.30 and $50.35, respectively.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
12. DEBT
The following table summarizes the components of the Company’s outstanding debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28,
2020
|
|
June 29,
2019
|
|
|
(millions)
|
|
Current debt:
|
|
|
|
|
Capital lease obligations
|
$
|
—
|
|
|
$
|
0.8
|
|
|
Note Payable
|
11.5
|
|
|
—
|
|
|
Total current debt
|
$
|
11.5
|
|
|
$
|
0.8
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
4.250% Senior Notes due 2025
|
$
|
600.0
|
|
|
$
|
600.0
|
|
|
3.000% Senior Notes due 2022
|
400.0
|
|
|
400.0
|
|
|
4.125% Senior Notes due 2027
|
600.0
|
|
|
600.0
|
|
|
Note Payable
|
—
|
|
|
11.4
|
|
|
Capital lease obligations(1)
|
—
|
|
|
5.3
|
|
|
Total long-term debt
|
1,600.0
|
|
|
1,616.7
|
|
|
Less: Unamortized discount and debt issuance costs on Senior Notes
|
(12.8
|
)
|
|
(14.8
|
)
|
|
Total long-term debt, net
|
$
|
1,587.2
|
|
|
$
|
1,601.9
|
|
|
|
|
|
(1)
|
Refer to Note 3, "Recent Accounting Pronouncements," for further information.
|
During the three and nine months ended March 28, 2020, the Company recognized interest expense related to its debt of $16.7 million and $50.2 million, respectively. During the three and nine months ended March 30, 2019, the Company recognized interest expense related to its debt of $16.7 million and $50.1 million, respectively.
Revolving Credit Facility
On October 24, 2019, the Company entered into a definitive credit agreement whereby Bank of America, N.A., as administrative agent, the other agents party thereto, and a syndicate of banks and financial institutions have made available to the Company a $900.0 million revolving credit facility, including sub-facilities for letters of credit, with a maturity date of October 24, 2024. The Revolving Credit Facility refinanced and replaced the Company’s unsecured revolving facility dated May 30, 2017. The Revolving Credit Facility may be used to finance the working capital needs, capital expenditures, permitted investments, share purchases, dividends and other general corporate purposes of the Company and its subsidiaries (which may include commercial paper back-up). Letters of credit and swing line loans may be issued under the Revolving Credit Facility as described below. There were no outstanding borrowings on the Revolving Credit Facility as of March 28, 2020. On March 30, 2020, the Company borrowed $700.0 million in the aggregate under the Revolving Credit Facility. Refer to Note 2, "Basis of Presentation and Organization" and Note 18, "Subsequent Events" for further information.
Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to, at the Borrowers’ option, either (a) an alternate base rate (which is a rate equal to the greatest of (i) the Prime Rate in effect on such day, (ii) the Federal Funds Effective Rate in effect on such day plus ½ of 1% or (iii) the Adjusted LIBO Rate for a one month Interest Period on such day plus 1%) or (b) a rate based on the rates applicable for deposits in the interbank market for U.S. Dollars or the applicable currency in which the loans are made plus, in each case, an applicable margin. The applicable margin will be determined by reference to a grid, as defined in the Credit Agreement, based on the ratio of (a) consolidated debt plus operating lease liability to (b) consolidated EBITDAR. Additionally, the Company pays a commitment fee at a rate determined by the reference to the aforementioned pricing grid.
4.250% Senior Notes due 2025
On March 2, 2015, the Company issued $600.0 million aggregate principal amount of 4.250% senior unsecured notes due April 1, 2025 at 99.445% of par (the “2025 Senior Notes”). Interest is payable semi-annually on April 1 and October 1 beginning October 1, 2015. Prior to January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
the principal amount of the 2025 Senior Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2025 Senior Notes calculated as if the maturity date of the 2025 Senior Notes was January 1, 2025 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined in the indenture for the 2025 Senior Notes) plus 35 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date. On and after January 1, 2025 (90 days prior to the scheduled maturity date), the Company may redeem the 2025 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to 100% of the principal amount of the 2025 Senior Notes to be redeemed, plus accrued and unpaid interest to the redemption date.
3.000% Senior Notes due 2022
On June 20, 2017, the Company issued $400.0 million aggregate principal amount of 3.000% senior unsecured notes due July 15, 2022 at 99.505% of par (the "2022 Senior Notes"). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to June 15, 2022 (one month prior to the scheduled maturity date), the Company may redeem the 2022 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2022 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2022 Senior Notes calculated as if the maturity date of the 2022 Senior Notes was June 15, 2022 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 25 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.
4.125% Senior Notes due 2027
On June 20, 2017, the Company issued $600.0 million aggregate principal amount of 4.125% senior unsecured notes due July 15, 2027 at 99.858% of par (the "2027 Senior Notes"). Interest is payable semi-annually on January 15 and July 15 beginning January 15, 2018. Prior to April 15, 2027 (the date that is three months prior to the scheduled maturity date), the Company may redeem the 2027 Senior Notes in whole or in part, at its option at any time or from time to time, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2027 Senior Notes to be redeemed or (2) as determined by a Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon that would have been payable in respect of the 2027 Senior Notes calculated as if the maturity date of the 2027 Senior Notes was April 15, 2027 (not including any portion of payments of interest accrued to the date of redemption), discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined in the Prospectus Supplement) plus 30 basis points, plus, in the case of each of (1) and (2), accrued and unpaid interest to the redemption date.
At March 28, 2020, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately $556.7 million, $388.5 million, and $474.2 million, respectively, based on external pricing data, including available quoted market prices of these instruments, and consideration of comparable debt instruments with similar interest rates and trading frequency, among other factors, and is classified as a Level 2 measurement within the fair value hierarchy. At June 29, 2019, the fair value of the 2025, 2022 and 2027 Senior Notes was approximately $629.6 million, $398.6 million and $605.5 million, respectively.
Note Payable
As a result of taking operational control of the Kate Spade Joint Ventures in China, the Company has an outstanding Note Payable of $11.5 million and $11.4 million as of March 28, 2020 and June 29, 2019, respectively, to the other partner of the Kate Spade Joint Ventures, to be paid in fiscal 2021.
13. FAIR VALUE MEASUREMENTS
The Company categorizes its assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. The three levels of the hierarchy are defined as follows:
Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1. Level 2 inputs include quoted prices for identical assets or liabilities in non-active markets, quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs reflecting management’s own assumptions about the input used in pricing the asset or liability. The Company does not have any Level 3 investments.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The following table shows the fair value measurements of the Company’s financial assets and liabilities at March 28, 2020 and June 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
|
March 28,
2020
|
|
June 29,
2019
|
|
March 28,
2020
|
|
June 29,
2019
|
|
|
(millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents(1)
|
$
|
293.6
|
|
|
$
|
454.3
|
|
|
$
|
0.3
|
|
|
$
|
0.4
|
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
Time deposits(2)
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.6
|
|
|
Commercial paper(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
17.9
|
|
|
Government securities - U.S.(2)
|
—
|
|
|
102.6
|
|
|
—
|
|
|
—
|
|
|
Corporate debt securities - U.S.(2)
|
—
|
|
|
—
|
|
|
102.2
|
|
|
95.8
|
|
|
Corporate debt securities - non U.S.(2)
|
—
|
|
|
—
|
|
|
42.9
|
|
|
37.3
|
|
|
Other
|
—
|
|
|
—
|
|
|
9.9
|
|
|
10.4
|
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
Other
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
Derivative assets:
|
|
|
|
|
|
|
|
|
Inventory-related instruments(3)
|
—
|
|
|
—
|
|
|
4.7
|
|
|
1.1
|
|
|
Intercompany loan and payable hedges(3)
|
—
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
Inventory-related instruments(3)
|
—
|
|
|
—
|
|
|
2.5
|
|
|
4.9
|
|
|
Intercompany loan and payable hedges(3)
|
—
|
|
|
—
|
|
|
2.4
|
|
|
0.1
|
|
|
|
|
|
(1)
|
Cash equivalents consist of money market funds and time deposits with maturities of three months or less at the date of purchase. Due to their short-term maturity, management believes that their carrying value approximates fair value.
|
|
|
|
|
(2)
|
Short-term investments are recorded at fair value, which approximates their carrying value, and are primarily based upon quoted vendor or broker priced securities in active markets.
|
|
|
|
|
(3)
|
The fair value of these hedges is primarily based on the forward curves of the specific indices upon which settlement is based and includes an adjustment for the counterparty’s or Company’s credit risk.
|
Refer to Note 12, "Debt," for the fair value of the Company's outstanding debt instruments.
Non-Financial Assets and Liabilities
The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value, considering market participant assumptions.
During the three months ended March 28, 2020, the Company recorded a full impairment of $267.0 million to the Stuart Weitzman indefinite-lived brand intangibles, and a full impairment of $210.7 million to goodwill pertaining to the Stuart Weitzman reporting unit. Refer to Note 7, "Goodwill and Other Intangible Assets" for further information.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
Furthermore, when the Company evaluates its long-lived assets for impairment, the assessment is performed for the related asset group that represents the lowest level for which identifiable cash flows are independent of the cash flows of other assets. This determination requires a significant amount of judgment, and is dependent on the Company's overall operating strategy. The Company historically grouped select flagship locations with other stores located within the geographic area surrounding the flagship store as the Company believed the assets of the related group benefited from the Company's investments in the flagship location. Beginning in fiscal 2020, the Company began to (i) evaluate select flagship store closures across all brands, (ii) be more selective about new store openings as it focuses on store productivity and (iii) invest more significantly in growing its digital business and capabilities. Following this shift in strategy, during the quarter ended September 28, 2019, the Company determined for these certain flagship locations that the individual store represents the lowest level of independent identifiable cash flows.
As a result, the Company identified impairment indicators at certain flagship store locations and recorded lease ROU assets and property and equipment asset impairment charges. In addition, during the third quarter of fiscal 2020, the Company identified impairment indicators at various store locations globally as a result of the Covid-19 pandemic. The fair value of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amounts and the timing of the stores' net future discounted cash flows based on historical experience, current trends and market conditions.
During the three months and nine months ended March 28, 2020, the Company recorded $46.7 million and $86.5 million of impairment charges to reduce the carrying amount of certain store assets within property and equipment, net to their estimated fair values. During the three months and nine months ended March 28, 2020, the Company recorded $27.9 million and $63.7 million of impairment charges to reduce the carrying amount of certain operating lease right-of-use assets to their estimated fair values.
14. INVESTMENTS
The following table summarizes the Company’s U.S. dollar-denominated investments, recorded within the Company's Condensed Consolidated Balance Sheets as of March 28, 2020 and June 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
June 29, 2019
|
|
|
Short-term
|
|
Long-term
|
|
Total
|
|
Short-term
|
|
Long-term
|
|
Total
|
|
|
(millions)
|
|
Available-for-sale investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
17.9
|
|
|
$
|
—
|
|
|
$
|
17.9
|
|
|
Government securities - U.S.(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
102.6
|
|
|
—
|
|
|
102.6
|
|
|
Corporate debt securities - U.S.(2)
|
102.2
|
|
|
—
|
|
|
102.2
|
|
|
95.8
|
|
|
—
|
|
|
95.8
|
|
|
Corporate debt securities - non-U.S.(2)
|
42.9
|
|
|
—
|
|
|
42.9
|
|
|
37.3
|
|
|
—
|
|
|
37.3
|
|
|
Available-for-sale investments, total
|
$
|
145.1
|
|
|
$
|
—
|
|
|
$
|
145.1
|
|
|
$
|
253.6
|
|
|
$
|
—
|
|
|
$
|
253.6
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits(1)
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
0.6
|
|
|
—
|
|
|
0.6
|
|
|
Other
|
9.9
|
|
|
0.1
|
|
|
10.0
|
|
|
10.4
|
|
|
0.1
|
|
|
10.5
|
|
|
Total Investments
|
$
|
155.6
|
|
|
$
|
0.1
|
|
|
$
|
155.7
|
|
|
$
|
264.6
|
|
|
$
|
0.1
|
|
|
$
|
264.7
|
|
|
|
|
|
(1)
|
These securities have original maturities greater than three months and are recorded at fair value.
|
|
|
|
|
(2)
|
These securities as of March 28, 2020 have maturity dates between calendar years 2020 and 2021 and are recorded at fair value.
|
There were no material gross unrealized gains or losses on available-for-sale investments as of the periods ended March 28, 2020 and June 29, 2019.
15. INCOME TAXES
The effective tax rate for the nine months ended March 28, 2020, was calculated based on year to date results. The Company normally calculates the rate based on annual forecasted results (“annual effective tax rate method”). However, given the rapidly evolving Covid-19 pandemic and the difficulty predicting the full magnitude of the effects on the Company's forecasted results, it was determined that the historical method of calculating the provision for income taxes during interim reporting periods would not provide a reliable estimate for the period ended March 28, 2020.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The Company's effective tax rate for the nine months ended March 28, 2020, was (10.8%) as compared to 18.6% for the nine months ended March 30, 2019. The negative rate resulted from tax expense being recorded on an overall operating loss for the period ended March 28, 2020. The decrease in the effective tax rate was primarily attributable to certain goodwill and trade name impairments that were non-deductible for tax purposes and the overall decline in revenue.
On March 27, 2020, H.R. 748, known as the CARES Act, was enacted. The provisions of the Act most applicable to the Company are the modification to allow for a five-year carryback of net operating losses and the technical amendment allowing businesses to claim an immediate deduction for costs associated with qualified improvement property. Given the Company’s approach for reporting its effective tax rate for the nine months ended March 28, 2020, based on year to date results, neither of these provisions materially impacted the Company’s rate for the period ended March 28, 2020.
16. COMMITMENTS AND CONTINGENCIES
Letters of Credit
The Company had standby letters of credit, surety bonds and bank guarantees totaling $33.2 million and $34.5 million outstanding at March 28, 2020 and June 29, 2019, respectively. The agreements, which expire at various dates through calendar 2039, primarily collateralize the Company's obligation to third parties for duty, leases, insurance claims and materials used in product manufacturing. The Company pays certain fees with respect to these instruments that are issued.
Other
The Company had other contractual cash obligations as of March 28, 2020 related to debt repayments. Refer to Note 12, "Debt," for further information.
In the ordinary course of business, the Company is a party to several pending legal proceedings and claims. Although the outcome of such items cannot be determined with certainty, the Company's Chief Legal Officer and management are of the opinion that the final outcome will not have a material effect on the Company’s cash flow, results of operations or financial position.
17. SEGMENT INFORMATION
The Company has three reportable segments:
|
|
|
|
•
|
Coach - Includes global sales of Coach brand products to customers through Coach operated stores, including the Internet and concession shop-in-shops, sales to wholesale customers and through independent third party distributors.
|
|
|
|
|
•
|
Kate Spade - Includes global sales primarily of kate spade new york brand products to customers through Kate Spade operated stores, including the Internet, sales to wholesale customers, through concession shop-in-shops and through independent third party distributors.
|
|
|
|
|
•
|
Stuart Weitzman - Includes global sales of Stuart Weitzman brand products to customers primarily through Stuart Weitzman operated stores, including the Internet, sales to wholesale customers and through numerous independent third party distributors.
|
In deciding how to allocate resources and assess performance, the Company's chief operating decision maker regularly evaluates the sales and operating income of these segments. Operating income is the gross margin of the segment less direct expenses of the segment.
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
The following table summarizes segment performance for the three and nine months ended March 28, 2020 and March 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coach
|
|
Kate
Spade
|
|
Stuart Weitzman
|
|
Corporate(1)
|
|
Total
|
|
|
(millions)
|
|
Three Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
772.5
|
|
|
$
|
249.5
|
|
|
$
|
50.7
|
|
|
$
|
—
|
|
|
$
|
1,072.7
|
|
|
Gross profit(2)
|
475.7
|
|
|
122.5
|
|
|
18.0
|
|
|
—
|
|
|
616.2
|
|
|
Operating income (loss)
|
38.1
|
|
|
(91.3
|
)
|
|
(530.7
|
)
|
|
(101.6
|
)
|
|
(685.5
|
)
|
|
Income (loss) before provision for income taxes
|
38.1
|
|
|
(91.3
|
)
|
|
(530.7
|
)
|
|
(121.1
|
)
|
|
(705.0
|
)
|
|
Depreciation and amortization expense(3)
|
42.0
|
|
|
42.1
|
|
|
487.5
|
|
|
13.6
|
|
|
585.2
|
|
|
Additions to long-lived assets(4)
|
21.5
|
|
|
19.2
|
|
|
3.0
|
|
|
7.0
|
|
|
50.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
965.0
|
|
|
$
|
281.1
|
|
|
$
|
85.3
|
|
|
$
|
—
|
|
|
$
|
1,331.4
|
|
|
Gross profit
|
691.7
|
|
|
177.9
|
|
|
46.3
|
|
|
—
|
|
|
915.9
|
|
|
Operating income (loss)
|
238.9
|
|
|
7.1
|
|
|
(14.1
|
)
|
|
(122.1
|
)
|
|
109.8
|
|
|
Income (loss) before provision for income taxes
|
238.9
|
|
|
7.1
|
|
|
(14.1
|
)
|
|
(136.7
|
)
|
|
95.2
|
|
|
Depreciation and amortization expense(3)
|
31.8
|
|
|
14.7
|
|
|
4.3
|
|
|
12.8
|
|
|
63.6
|
|
|
Additions to long-lived assets(4)
|
17.3
|
|
|
15.2
|
|
|
4.7
|
|
|
30.6
|
|
|
67.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,008.3
|
|
|
$
|
985.4
|
|
|
$
|
252.9
|
|
|
$
|
—
|
|
|
$
|
4,246.6
|
|
|
Gross profit(2)
|
2,030.6
|
|
|
576.4
|
|
|
133.4
|
|
|
—
|
|
|
2,740.4
|
|
|
Operating income (loss)
|
620.4
|
|
|
(30.6
|
)
|
|
(540.4
|
)
|
|
(320.2
|
)
|
|
(270.8
|
)
|
|
Income (loss) before provision for income taxes
|
620.4
|
|
|
(30.6
|
)
|
|
(540.4
|
)
|
|
(372.8
|
)
|
|
(323.4
|
)
|
|
Depreciation and amortization expense(3)
|
121.1
|
|
|
84.1
|
|
|
505.2
|
|
|
39.8
|
|
|
750.2
|
|
|
Additions to long-lived assets(4)
|
66.2
|
|
|
54.5
|
|
|
13.3
|
|
|
38.9
|
|
|
172.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
3,174.3
|
|
|
$
|
1,034.9
|
|
|
$
|
304.2
|
|
|
$
|
—
|
|
|
$
|
4,513.4
|
|
|
Gross profit
|
2,231.5
|
|
|
658.0
|
|
|
165.0
|
|
|
—
|
|
|
3,054.5
|
|
|
Operating income (loss)
|
848.4
|
|
|
140.1
|
|
|
(21.9
|
)
|
|
(318.0
|
)
|
|
648.6
|
|
|
Income (loss) before provision for income taxes
|
848.4
|
|
|
140.1
|
|
|
(21.9
|
)
|
|
(359.3
|
)
|
|
607.3
|
|
|
Depreciation and amortization expense(3)
|
98.9
|
|
|
43.3
|
|
|
12.4
|
|
|
36.5
|
|
|
191.1
|
|
|
Additions to long-lived assets(4)
|
50.6
|
|
|
53.8
|
|
|
8.5
|
|
|
71.3
|
|
|
184.2
|
|
|
|
|
|
(1)
|
Corporate, which is not a reportable segment, represents certain costs that are not directly attributable to a brand. These costs primarily include administration and certain information systems expense.
|
|
|
|
|
(2)
|
Gross profit reflects charges recorded within Cost of sales of $61.9 million within the Coach segment, $32.3 million within the Kate Spade segment and $9.8 million within the Stuart Weitzman segment for the three and nine months ended March 28, 2020 as a result of establishing inventory reserves directly related to the expected impact of Covid-19 on the Company's future sales projections. The non-cash portion of these charges are presented within Impairment charges on the Condensed Consolidated Statement of Cash Flows.
|
|
|
|
|
(3)
|
Depreciation and amortization expense includes $0.2 million of integration costs recorded within the Kate Spade segment for the nine months ended March 28, 2020 and $0.1 million and $1.3 million for the three and nine months ended March 30, 2019, respectively. Depreciation and amortization expense includes impairment charges of $11.9 million for Coach, $21.0 million for Kate Spade and $482.4 million for Stuart Weitzman for the three months ended March 28, 2020, as a result of impairment of Stuart Weitzman intangible assets as well as store impairments due to the Covid-19 pandemic. Depreciation
|
TAPESTRY, INC.
Notes to Condensed Consolidated Financial Statements (continued)
and amortization expense includes impairment charges of $31.4 million for Coach, $33.0 million for Kate Spade and $490.7 million for Stuart Weitzman for the nine months ended March 28, 2020. Refer to Note 7, "Goodwill and Other Intangible Assets" and Note 13, "Fair Value Measurements," for further information. Depreciation and amortization expense for the segments includes an allocation of expense related to assets which support multiple segments.
|
|
|
|
(4)
|
Additions to long-lived assets for the reportable segments primarily includes store assets as well as assets that support a specific brand. Corporate additions include all other assets which include a combination of Corporate assets, as well as assets that may support all segments. As such, depreciation expense for these assets may be subsequently allocated to a reportable segment.
|
18. SUBSEQUENT EVENTS
On March 25, 2020, the Company elected to draw down $700 million in the aggregate under the Revolving Credit Facility. The draw down was funded to the Company on March 30, 2020. The Company elected to borrow under the Credit Agreement as a precautionary measure in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the Covid-19 outbreak. The draw-down proceeds from the Credit Agreement are expected to be held on the Company’s balance sheet and may be used for general corporate purposes.
Furthermore, in response to the Covid-19 pandemic, the Company has taken other actions to reinforce its liquidity and financial flexibility. Specific actions that the Company is undertaking include, but are not limited to, actively reducing non-essential SG&A expense, reducing corporate compensation, terminating 2,100 part-time store associates, tightly managing inventory, reducing capital expenditures, in addition to suspending its quarterly dividend and all share repurchases for the foreseeable future which was announced during the third fiscal quarter. Refer to Note 2, "Basis of Presentation and Organization" for further information.