Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. TAPESTRY, INC. (1116132) 10-Q published on May 09, 2019 at 4:05 pm
Reporting Period: Mar 29, 2019
The Company is currently performing a comprehensive evaluation of the impact of adopting this guidance on its consolidated financial statements and notes thereto. Assessment efforts to date have included reviewing the standard's provisions, gathering information to evaluate the landscape of arrangements that may meet the definition of a lease, collecting information from lease contracts, gathering information to assess for potential impairment of right-of-use-assets, evaluating accounting policy elections and updating internal controls over systems and financial reporting. The Company has selected a global software solution to manage and account for all leases, which is currently being implemented.
The Company anticipates it will elect the package of practical expedients intended to ease transition whereby the Company need not assess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases and (3) initial direct costs for any existing leases. The Company also intends to elect the practical expedient to combine non-lease components and lease components. Furthermore, the Company has determined that it will apply the provisions of ASU 2018-11 with the initial application at the adoption date with a cumulative effect adjustment in the opening balance of Retained earnings in the first quarter of fiscal 2020. The Company expects the guidance will result in a significant increase to long-term assets and liabilities on its condensed consolidated balance sheets and does not expect it to have a material impact on the condensed consolidated statements of operations. This guidance is not expected to have a material impact on the Company's liquidity.
The Company's effective tax rate for the nine months ended March 30, 2019 was 18.6% as compared to 56.2% for the nine months ended March 31, 2018. The decrease in the effective tax rate is attributable to the decrease in the U.S. federal statutory tax rate from 28% in fiscal 2018 to 21% in fiscal 2019, as well as the impacts of the new guidance released in the third quarter of fiscal 2019. In addition, the Company recorded the effects of the Transition Tax in fiscal year 2018, which was a primary driver of the higher effective tax rate recorded for the nine months ended March 31, 2018. The effective tax rate recorded for the nine months ended March 30, 2019 was impacted unfavorably by the GILTI inclusion and favorably by the FDII deduction. During the three and nine months ended March 30, 2019, the Company recorded approximately $2.8 million and $17.1 million, respectively, to Provision for income taxes related to the GILTI and FDII provisions.
As of December 29, 2018, the Company completed the accounting for the enactment date income tax effects of the Tax Legislation under Accounting Standards Codification ("ASC") 740, Income Taxes, for the measurement of deferred tax assets and liabilities and one-time transition tax. During the third quarter of fiscal 2019, additional Transition Tax guidance was released by the U.S. Treasury which resulted in a $17.0 million reduction of total tax expense. The Company was also able to utilize net operating losses of approximately $94.0 million, resulting in a decrease to its liability of $26.3 million, as well as apply available unrelated foreign tax credits of $34.2 million to reduce the total tax liability. These actions combined resulted in decreased future tax payments as set forth below.
On May 9, 2019, the Company announced that its Board of Directors had authorized the repurchase of up to $1.00 billion of its outstanding common stock. Pursuant to this program, purchases of the Company's common stock will be made subject to market conditions and at prevailing market prices, through open market purchases. Repurchased shares of common stock will become authorized but unissued shares. These shares may be issued in the future for general corporate and other purposes. In addition, the Company may terminate or limit the stock repurchase program at any time.
Additional macroeconomic impacts include but are not limited to the United Kingdom ("U.K.") voting to leave the European Union ("E.U."), commonly known as "Brexit." On March 29, 2017, the U.K. triggered Article 50 of the Lisbon Treaty formally starting negotiations with the E.U. The U.K. and E.U. announced in March 2018 an agreement in principle to transitional provisions under which E.U. law would remain in force in the U.K. for an agreed period, but this remains subject to the successful conclusion of a final withdrawal agreement between the parties and the ratification by U.K. parliament. As of the date of this report, the withdrawal agreement has been voted against three times by U.K. parliament. As a consequence, the E.U. and U.K. agreed to postpone Brexit until October 31, 2019. This date will be accelerated to (i) June 1, 2019 should the U.K. not participate in the E.U. elections (in which case, the U.K. would leave without a deal), or (ii) anytime between now and October 31, 2019 if a withdrawal agreement is concluded between the parties and ratified by U.K. parliament. In the absence of such a withdrawal agreement there would be no transitional provisions and a "hard" Brexit would occur on either June 1 or October 31, 2019, resulting in potential increased legal and regulatory complexities and divergent laws between the U.K. and the E.U.