UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 28, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-35368
Michael Kors Holdings Limited
(Exact Name of Registrant as Specified in Its Charter)
British Virgin Islands
(State or other jurisdiction of
incorporation or organization)
N/A
(I.R.S. Employer
Identification No.)
33 Kingsway
London, United Kingdom
WC2B 6UF
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: 44 207 632 8600
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
Ordinary Shares, no par value
Name of Each Exchange on which Registered
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
No
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated filer
Non-accelerated filer
(Do not check if smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
The aggregate market value of the registrant’s voting and non-voting ordinary shares held by non-affiliates of the registrant was
$14,237,144,924 as of September 27, 2014, the last business day of the registrant’s most recently completed second fiscal quarter
based on the closing price of the common stock on the New York Stock Exchange.
As of May 20, 2014, Michael Kors Holdings Limited had 198,700,035 ordinary shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this report, to the extent not set forth herein, is incorporated by reference from the Registrant’s
definitive Proxy Statement, which will be filed in June 2015, for the 2015 Annual Meeting of the Shareholders.
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accountant Fees and Services
Item 15
Exhibits and Financial Statement Schedules
PART IV
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements in this Annual Report on Form 10-K, including documents incorporated herein by reference, that refer to
plans and expectations for future periods are forward-looking statements. These forward-looking statements are based on
management’s current expectations. Words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “may,” “will,”,
“should” and variations of such words and similar expressions are intended to identify such forward-looking statements. You should
not place undue reliance on such statements. These forward-looking statements are subject to a number of risks and uncertainties,
many of which are beyond the Company’s control, which could cause the Company’s actual results to differ materially from those
indicated in these forward-looking statements. These factors are more fully discussed in the Company’s risk factors, as they may be
amended from time to time, which are set forth in the Company’s filings with the Securities and Exchange Commission, including in
this Annual Report, particularly under “Item 1A. Risk Factors” and in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” The Company undertakes no obligation to update or revise any forward-looking statements to
reflect subsequent events or circumstances, except as required by applicable laws or regulations.
Electronic Access to Company Reports
Our investor website can be accessed at www.michaelkors.com under “Investor Relations.” Our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports filed with or furnished to the Securities and Exchange Commission
(the “SEC”) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, are available free of
charge on our investor website under the caption “SEC Filings” promptly after we electronically file such materials with, or furnish
such materials to, the SEC. No information contained on our website is intended to be included as part of, or incorporated by
reference into, this Annual Report on Form 10-K. Information relating to corporate governance at our Company, including our
Corporate Governance Guidelines, our Code of Business Conduct and Ethics for all directors, officers, and employees, and
information concerning our directors, Committees of the Board, including Committee charters, and transactions in Company
securities by directors and executive officers, is available at our investor website under the captions “Corporate Governance” and
“SEC Filings.” Paper copies of these filings and corporate governance documents are available to shareholders free of charge by
written request to Investor Relations, Michael Kors Holdings Limited, 33 Kingsway, London, United Kingdom, WC2B 6UF.
Documents filed with the SEC are also available on the SEC’s website at www.sec.gov.
3
PART I
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “Michael Kors”, “we”, “us”,
“our”, “the Company”, “our Company” and “our business” refer to Michael Kors Holdings Limited and its wholly owned
subsidiaries, unless the context requires otherwise. References to our stores, retail stores and retail segment include all of our full-
price retail stores (including concessions) and outlet stores and the term “Fiscal,” with respect to any year, refers to the 52-week
period ending on the Saturday closest to March 31 of such year, except for “Fiscal 2016,” which refers to the 53-week period ending
April 2, 2016. Some differences in the numbers in the tables and text throughout this annual report may exist due to rounding. All
comparable store sales are presented on a 52-week basis.
Item 1. Business
Our Company
We are a rapidly growing global luxury lifestyle brand led by a world-class management team and a renowned, award-
winning designer. Since launching his namesake brand over 30 years ago, Michael Kors has featured distinctive designs, materials
and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Mr. Kors’ vision has taken the
Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a
presence in over 100 countries.
We operate our business in three segments — retail, wholesale and licensing — and we have a strategically controlled
global distribution network focused on company-operated retail stores, leading department stores, specialty stores and select licensing
partners. In Fiscal 2015, our retail segment accounted for approximately 48.8% of our total revenue. As of March 28, 2015, our retail
segment included:
•
•
343 North American retail stores, including concessions and our U.S. e-commerce site; and
183 international retail stores, including concessions, in Europe and Japan.
In Fiscal 2015, our wholesale segment accounted for approximately 47.3% of our total revenue. As of March 28, 2015, our
wholesale segment included:
•
•
wholesale sales through approximately 2,541 department store and specialty store doors in North America; and
wholesale sales through approximately 1,497 specialty store and department store doors internationally.
A small number of our wholesale customers account for a significant portion of our net sales. Net sales to our five largest
wholesale customers represented 26.3% of our total revenue for Fiscal 2015 and 28.9% of our total revenue for Fiscal 2014. Our
largest wholesale customer, Federated, accounted for 13.7% of our total revenue for Fiscal 2015 and 14.4% of our total revenue for
Fiscal 2014.
Our remaining revenue is generated through our licensing segment, through which we license to third parties certain
production, sales and/or distribution rights through geographic licensing arrangements. In Fiscal 2015, our licensing segment
accounted for approximately 3.9% of our total revenue, respectively, and consisted primarily of royalties earned on licensed products
and our geographic licenses.
For additional financial information regarding our segments, see the Segment Information note presented in the Notes to
the Consolidated Financial Statements.
We offer two primary collections: the Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury
collection. The Michael Kors collection establishes the aesthetic authority of our entire brand and is carried in many of our retail
stores, as well as in the finest luxury department stores in the world, including, among others, Bergdorf Goodman, Saks Fifth Avenue,
Neiman Marcus, Holt Renfrew, Harrods, Harvey Nichols and Printemps. In 2004, we saw an opportunity to capitalize on the brand
strength of the Michael Kors collection and address the significant demand opportunity in accessible luxury goods, and we introduced
the MICHAEL Michael Kors collection, which has a strong focus on accessories, in addition to offering footwear and apparel. The
MICHAEL Michael Kors collection is carried in all of our lifestyle stores, as well as leading department stores throughout the world,
including, among others, Bloomingdale’s, Nordstrom, Macy’s, Harrods, Harvey Nichols, Galeries Lafayette, Lotte, Hyundai, Isetan
and Lane Crawford. Taken together, our two primary collections target a broad customer base while retaining our premium luxury
image.
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Industry
We operate in the global luxury goods industry. Over the past ten years, the luxury goods industry has grown and has
remained resilient during economic downturns. The demand for the worldwide luxury goods industry, and accessories in particular, is
predicted to continue to grow in Fiscal 2016. We believe that we are well positioned to capitalize on the continued growth of the
accessories product category, as it is one of our primary product categories of focus.
Geographic Information
We generate revenue globally through our segments. Through our retail and wholesale segments we sell our products in
three principal geographic markets: North America, Europe and Asia. Through our licensing segment, we enter into agreements that
license to third parties use of our brand name and trademarks, certain production, and sales and/or distribution rights. Revenues
generated through these agreements are primarily earned in North America and Europe.
The following table details our net sales and revenue by segment and geographic location for the fiscal years then ended (in
thousands):
Retail net sales - North America
Retail net sales - Europe
Retail net sales - Japan
Wholesale net sales - North America
Wholesale net sales - Europe
Wholesale net sales - Asia
Licensing Revenue- North America
Licensing Revenue- Europe
March 28,
2015
$1,656,095
412,063
66,420
1,662,540
401,068
1,480
100,289
71,514
Fiscal Years Ended
March 29,
2014
$1,318,887
235,571
38,547
1,335,545
241,972
—
117,386
22,935
$4,371,469
$3,310,843
March 30,
2013
$ 938,515
101,754
22,373
913,145
118,970
—
86,975
—
$2,181,732
Competitive Strengths
We believe that the following strengths differentiate us from our competitors:
Rapidly Growing Luxury Lifestyle Brand with Best-in-Class Growth Metrics. We believe that the Michael Kors
name has become synonymous with luxurious fashion that is timeless and elegant, expressed through sophisticated accessory and
ready-to-wear collections. Each of our collections exemplifies the jet-set lifestyle and features high quality designs, materials and
craftsmanship. Some of the most widely recognized global trendsetters—including celebrities such as Halle Berry, Angelina
Jolie, Blake Lively, Penelope Cruz, Jennifer Lopez, Michelle Obama, Gwyneth Paltrow, the Duchess of Cambridge, and Cate
Blanchett—walk the red carpet in our collections. We have built a solid foundation for continued long-term global growth and
currently enjoy best-in-class growth metrics.
Design Vision Led by World-Renowned, Award-Winning Designer. Michael Kors, a world-renowned designer,
personally leads our experienced design team. Mr. Kors and his team are responsible for conceptualizing and directing the design of
all of our products, and their design leadership is a unique advantage that we possess. Mr. Kors has received a number of awards,
which recognize the contribution Mr. Kors and his team have made to the fashion industry and our Company.
Poised to Take Share in the Growing Global Accessories Product Category. The accessories product category has been
the fastest growing product category in the global luxury goods industry. In 2004, we saw the opportunity to capitalize on growing
accessories demand by leveraging the strength of the Michael Kors luxury collection, and we introduced the accessible luxury
MICHAEL Michael Kors collection further enhancing our brand awareness within North America.
Proven Multi-Format Retail Segment with Significant Growth Opportunity. In Fiscal 2015, our retail segment
reported net sales of $2,134.6 million and a 10.3% increase in year-over-year comparable store sales from Fiscal 2014. Within our
retail segment we have four primary retail store formats: collection stores, lifestyle stores, outlet stores and e-commerce site. Our
collection stores are located in some of the world’s most prestigious shopping areas, such as Madison Avenue in New York and
Rodeo Drive in California, and are generally 3,200 square feet in size. Our lifestyle stores are located in some of the world’s most
frequented metropolitan shopping locations and leading regional shopping centers, and are generally 2,600 square feet in size. We
also extend our reach to additional consumer groups through our outlet stores, which are generally 3,400 square feet in size. In
addition to these three retail store formats, we operate concessions in a select number of department stores in North America and
internationally. During Fiscal 2015, we also launched a new U.S. e-commerce platform and plan to continue to expand our
international e-commerce presence in the future.
5
Strong Relationships with Premier Wholesale Customers. We partner with leading wholesale customers, such as
Bergdorf Goodman, Saks Fifth Avenue, Neiman Marcus, Holt Renfrew, Bloomingdale’s, Nordstrom and Macy’s in North America;
and Harrods, Harvey Nichols, Selfridges and Galeries Lafayette in Europe. These relationships enable us to access large numbers of
our key consumers in a targeted manner. In addition, we are engaged in wholesale growth initiatives that are designed to transform
the Michael Kors displays at select department stores into branded “shop-in-shops.” By installing customized freestanding fixtures,
wall casings and components, decorative items and flooring, as well as deploying specially trained staff, we believe that our shop-in-
shops provide department store consumers with a more personalized shopping experience than traditional retail department store
configurations. These initiatives, among others, have helped increase total revenue for our wholesale segment from $1,577.5 million
in Fiscal 2014 to $2,065.1 million in Fiscal 2015, representing a 30.9% year-over-year increase.
Growing Licensing Segment. The strength of our global brand has been instrumental in helping us build our licensing
business. We collaborate with a select number of product licensees who produce and sell what we believe are products requiring
specialized expertise that are enhanced by our brand strength. Our relationship with Fossil Partners, LP. (“Fossil”), for instance, has
helped us create a line of watches and jewelry that we believe have become, and will continue to be, status items for young fashion-
conscious consumers. As of March 28, 2015, other product licensees, in addition to Fossil, included the Aramis and Designer
Fragrances division of The Estée Lauder Companies Inc. (“Estée Lauder”) for fragrances and beauty, and Luxottica Group
(Luxottica) for eyewear, among others. Our relationships with our product licensees have helped us leverage our success across
demographics and categories by taking advantage of their unique expertise, resulting in total revenue for licensed products increasing
from $140.3 million in Fiscal 2014 to $171.8 million in Fiscal 2015. In addition, we have entered into agreements with non-
manufacturing third-party licensees who we believe have particular expertise in the distribution of fashion accessories, footwear and
apparel in specific geographic territories, such as the Middle East, Eastern Europe, Latin America and the Caribbean, throughout all
of Asia (excluding Japan), and Australia.
Proven and Experienced Management Team. Our senior management team has extensive experience across a broad
range of disciplines in the retail industry, including design, sales, marketing, public relations, merchandising, real estate, supply chain
and finance. With an average of 25 years of experience in the retail industry, including at a number of public companies, and an
average of ten years with Michael Kors, our senior management team has strong creative and operational experience and a successful
track record. This extensive experience extends beyond our senior management team and deep into our organization.
Business Strategy
Our goal is to increase our revenue and profits and strengthen our global brand. Our business strategy includes the
following:
Increase Our Brand Awareness. We intend to continue increasing brand awareness and customer loyalty in North
America and internationally in a number of ways, including by:
•
•
•
•
continuing to open new retail stores in preeminent, high-visibility locations;
maintaining our strong advertising position in global fashion publications, growing our online advertising exposure
and internet presence and continuing to distribute our store catalog featuring our new collections;
holding our semi-annual runway shows that reinforce Mr. Kors’ designer status and high-fashion image, creating
excitement around the Michael Kors and MICHAEL Michael Kors collections and generating global multimedia
press coverage; and
leveraging Mr. Kors’ global prestige and popularity through a variety of press activities and personal appearances.
Expand Our Global Retail Store Base and E-Commerce. Continue to expand our global retail store base, as well as
expand our international e-commerce presence by launching new e-commerce sites in Canada, Europe and Asia. We believe that there
is significant opportunity to continue expanding our retail stores in both North America and Europe, and to increase our stores in
these regions to approximately 600 locations in the long term. We will look to open new stores predominately in high traffic areas of
street and mall locations in high-income demographic areas and will adhere to our already successful retail store formats, which we
believe reinforce our brand image and generate strong sales per square foot.
6
Expand North American Shop-in-Shop Footprint at Select Department Stores. Continue to increase our North American
wholesale sales by increasing shop-in-shops. We believe that our proprietary shop-in-shop fixtures effectively communicate our brand
image within the department store, enhance the presentation of our merchandise and create a more personalized shopping experience for
department store consumers. We plan to grow our North American shop-in-shop footprint at select department stores by continuing to
convert existing wholesale door space into shop-in-shops and expanding the size of existing shop-in-shops.
Increase Global Comparable Store Sales. Continue to increase global comparable store sales with a number of initiatives
already under way to increase the size and frequency of purchases by our existing customers and to attract new customers. Such
initiatives include, among others, increasing the size of existing stores, creating compelling store environments and offering new
products, including menswear, small leather goods, active footwear, beauty and fashion jewelry.
Grow International Retail and Wholesale Businesses. Continue our international expansion in select regions throughout
Europe and other key international markets, and continue to leverage our existing operations in Europe and Japan to drive continued
expansion. This includes increasing our international retail store base, including concessions, expanding our international e-commerce
presence, as well as increasing our wholesale doors and shop-in-shop conversions at select department stores throughout Europe.
Collections and Products
We have two primary collections that offer accessories, footwear and apparel: the Michael Kors collection and the MICHAEL
Michael Kors collection, both of which are offered through our retail and wholesale segments. We also offer licensed products primarily
through our retail segment. Our net sales by major product category were as follows (in thousands):
March 28,
2015
% of
Total
March 29,
2014
% of
Total
March 30,
2013
% of
Total
March 31,
2012
% of
Total
Fiscal Years Ended
Accessories
Apparel
Footwear
Licensed product
Net sales
The Michael Kors Collection
$2,872,221 68.4% $2,060,824 65.0% $1,255,536 59.9% $ 652,451 52.7%
413,731 19.8% 304,231 24.6%
549,433 13.1% 482,435 15.2%
210,982 10.1% 150,564 12.2%
444,046 10.5% 337,988 10.7%
333,966 8.0% 289,275 9.1%
214,508 10.2% 129,854 10.5%
$4,199,666
$1,237,100
$2,094,757
$3,170,522
In the Michael Kors collection we offer accessories, including handbags and small leather goods, many of which are made
from high quality leathers and other exotic skins, footwear and apparel, including ready-to-wear womenswear and menswear. Generally,
our handbags and small leather goods retail from $300 to $6,000, our footwear retails from $300 to $1,500, our women’s apparel retails
from $300 to $6,000 and our menswear apparel retails from $50 to $1,300.
The MICHAEL Michael Kors Collection
The MICHAEL Michael Kors collection has a strong focus on accessories, in addition to offering footwear and apparel, and is
carried in all of our lifestyle stores as well as leading department stores throughout the world. In the MICHAEL Michael Kors collection,
we offer: accessories, primarily handbags, which are created to meet the fashion and functional requirements of our broad and diverse
consumer base, and small leather goods, such as clutches, wallets, wristlets and cosmetic cases; footwear, exclusively in women’s styles;
and womenswear, including dresses, tops, jeans, pants, skirts, shorts and outerwear. Generally, our handbags retail from $200 to $600,
our small leather goods retail from $45 to $250, our footwear retails from $40 to $350 and our women’s apparel retails from $50 to
$500.
Our Licensed Products
Watches. Fossil has been our exclusive watch licensee since April 2004. Watches are sold in our retail stores, our e-commerce site and
by Fossil to wholesale customers in addition to select watch retailers. Generally, our watches retail from $195 to $695.
Eyewear. In January 2015, Luxottica became our exclusive eyewear licensee for developing distinctive eyewear inspired by our
collections. Our eyewear products are focused on status eyewear with sunglasses serving as a key category. Eyewear is sold in our retail
stores, our e-commerce site and by Luxottica to wholesale customers in addition to select sunglass retailers and prescription eyewear
providers. Generally, our eyewear retails from $99 to $255. Prior to January 2015, Marchon was our exclusive eyewear licensee.
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Jewelry. Fossil has been our exclusive fashion jewelry licensee since December 2010. Our jewelry product line is complementary to
our watches and accessories lines and is comprised of bracelets, necklaces, rings and earrings. Our jewelry is sold in our retail stores,
our e-commerce site and by Fossil to wholesale customers in addition to other specialty stores. Generally, our jewelry retails from $55
to $500.
Fragrances and Beauty. Estée Lauder has been our exclusive women’s and men’s fragrance licensee since May 2003. Fragrances are
sold in our retail stores, our e-commerce site and by Estée Lauder to wholesale customers in addition to select fragrance retailers. In
Fiscal 2015, Estée Lauder also became our exclusive licensee of beauty products, which includes nail lacquers, lip products, powders,
and a collection of body and sun products. Our fragrance and beauty products generally retail from $18 to $125.
Marketing and Advertising
Our marketing strategy is to deliver a consistent message every time the consumer comes in contact with our brand through
all of our communications and visual merchandising. Our global image is created and executed internally by our creative marketing,
visual merchandising and public relations teams, which helps ensure the consistency of our message.
In Fiscal 2015, we recognized approximately $103.6 million in advertising and marketing expense in North America and
internationally. In conjunction with promoting a consistent global image, we use our extensive customer database and consumer
knowledge to best target our consumers in an effort to foster marketing efficiency. We engage in a wide range of direct marketing
programs, including such vehicles as emails, print advertising, outdoor advertising, social media, catalogs and brochures, in order to
stimulate sales in a consumer-preferred shopping venue. As part of our direct marketing strategy, our catalogs are sent to selected
households to encourage consumer purchases and to build brand awareness. In addition, our spring and fall ready-to-wear collections
and our latest accessories and shoes are showcased at New York Fashion Week. The semi-annual runway shows generate extensive
media coverage.
The growing number of visitors to our michaelkors.com online store provides an opportunity to increase the size of our
customer database and to communicate with consumers to increase online and physical store sales and build brand awareness. We
launched michaelkors.com in 2007 in partnership with Neiman Marcus, our wholesale customer, and sold merchandise to Neiman
Marcus at wholesale, which was subsequently resold by Neiman Marcus through michaelkors.com. Accordingly, Neiman Marcus
received substantially all of the proceeds from these online sales. This arrangement was terminated upon our launch of a new in-house
U.S. e-commerce platform for michaelkors.com in September 2014. Our new mobile optimized e-commerce site features the Michael
Kors lifestyle images, which allows us to better engage new and existing customers and create innovative ways to keep the
brand at the forefront of consumers’ minds by offering a broad selection of products, including accessories, apparel, and footwear.
Since e-commerce growth is critical to our overall growth strategy, we continued to expand our global e-commerce presence by
launching a new e-commerce site in Canada in April 2015, with plans to launch e-commerce sites in Europe and Asia in Fiscal 2017.
Manufacturing and Sourcing
We contract for the purchase of finished goods principally with independent third-party manufacturing contractors,
whereby the manufacturing contractor is generally responsible for the entire manufacturing process, including the purchase of piece
goods and trim. Although we do not have written agreements with any of our manufacturing contractors, we believe we have
mutually satisfactory relationships with them. We allocate product manufacturing among third-party agents based on their
capabilities, the availability of production capacity, pricing and delivery. We have relationships with various agents who source our
finished goods with numerous manufacturing contractors on our behalf. Although our relationships with our agents are generally
terminable at any time, we believe we have mutually satisfactory relationships with them. In Fiscal 2015 and 2014, one third-party
agent sourced approximately 11.7% and 12.6% of our finished goods purchases, respectively. In Fiscal 2015, by dollar volume,
approximately 97.8% of our products were produced in Asia and Europe. See Item 1A. — “Import Restrictions and Other
Government Regulations” and “Risk Factors”— “We primarily use foreign manufacturing contractors and independent third-party
agents to source our finished goods, which poses legal, regulatory, political and economic risks to our business operations.”
Manufacturing contractors and agents operate under the close supervision of our global manufacturing divisions and
buying agents headquartered in North America, Europe and Asia. All products are produced according to our specifications.
Production staff monitors manufacturing at supplier facilities in order to correct problems prior to shipment of the final product.
Quality assurance is focused on as early as possible in the production process, allowing merchandise to be received at the distribution
facilities and shipped to customers with minimal interruption.
8
Distribution
Our primary distribution facility in the United States is the 1,120,500 square foot leased facility in Whittier, California. We
also have several smaller distribution facilities across the United States. Outside of the United States, we have regional distribution
centers in Canada, Holland, Japan, and Hong Kong, which are either leased or operated by third-parties. In April 2015, we expanded our
existing distribution facility in Whittier, California to service our e-commerce site. In addition, during Fiscal 2016, we plan to invest in
building our own distribution facility in Holland, which will support our European operations.
Intellectual Property
We own the Michael Kors and MICHAEL Michael Kors trademarks, as well as other material trademark rights related to the
production, marketing and distribution of our products, both in the United States and in other countries in which our products are
principally sold. We also have trademark applications pending for a variety of related logos. We aggressively police our trademarks and
pursue infringers both domestically and internationally. We also pursue counterfeiters in the United States, Europe, the Middle East, the
Far East and elsewhere in the world in both online and offline channels through leads generated internally, as well as through our
network of customs authorities, law enforcement, legal representatives and brand specialists around the world.
Pursuant to an agreement entered into by Mr. Kors in connection with the acquisition by our former principal shareholder of a
majority interest in the Company in 2003, Mr. Kors (i) represented that all intellectual property rights used in connection with the
Company’s business at such time were owned exclusively by the Company, (ii) assigned to the Company (to the extent not already
assigned to and owned by the Company) exclusive worldwide rights in perpetuity to the “Michael Kors” name and trademark and all
derivations thereof, as well as to Mr. Kors’ signature and likeness, and all goodwill associated therewith, (iii) agreed not to take any
action against the Company inconsistent with such ownership by the Company (including, without limitation, by asserting any privacy,
publicity or moral rights) and (iv) agreed not to use, whether or not he is employed by the Company, any of such intellectual property in
connection with any commercial enterprise (provided that he may use the name Michael Kors as his legal name only, and not as service
mark or trade name, to identify himself personally and to engage in charitable activities and other activities that do not compete with any
businesses of the Company).
Employees
At the end of Fiscal 2015, 2014 and 2013, we had approximately 11,094, 9,184 and 6,379 total employees, respectively. As
of March 28, 2015, we had approximately 5,378 full-time employees and approximately 5,716 part-time employees. Approximately
9,469 of our employees were engaged in retail selling and administrative positions, and our remaining employees were engaged in other
aspects of our business as of March 28, 2015. None of our employees are currently covered by collective bargaining agreements and we
believe that our relations with our employees are good.
Competition
We face intense competition in the product lines and markets in which we compete. Our products compete with other branded
products within their product category. In varying degrees, depending on the product category involved, we compete on the basis of
style, price, customer service, quality, brand prestige and recognition, among other bases. In our wholesale business, we compete with
numerous manufacturers, importers and distributors of accessories, footwear and apparel for the limited space available for product
display. Moreover, the general availability of manufacturing contractors allows new entrants easy access to the markets in which we
compete, which may increase the number of our competitors and adversely affect our competitive position and our business.
Over the last several years the accessories category, in particular, has grown, encouraging the entry of new competitors, as
well as increasing the competition from existing competitors. We believe, however, that we have significant competitive advantages
because of our brand recognition and the acceptance of our brand name by consumers. See Item 1A. “Risk Factors — The markets in
which we operate are highly competitive, both within North America and internationally, and increased competition based on a number
of factors could cause our profitability to decline.”
Seasonality
We experience certain effects of seasonality with respect to our wholesale and retail segments. Our wholesale segment
generally experiences its greatest sales in our third and fourth fiscal quarters while our first fiscal quarter experiences the lowest sales.
Our retail segment generally experiences greater sales during our third fiscal quarter as a result of Holiday season sales. In the aggregate,
our first fiscal quarter typically experiences significantly less sales volume relative to the other three quarters and our third fiscal quarter
generally has higher sales volume relative to other three quarters. However, given our recent growth, the effects of any seasonality are
further muted by incremental sales related to our new retail stores, wholesale doors and shop-in-shops.
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Import Restrictions and Other Governmental Regulations
Virtually all of our merchandise imported into the United States, Canada, Europe and Asia is subject to duties. In addition, most of
the countries to which we ship could impose safeguard quotas to protect their local industries from import surges that threaten to create market
disruption. The United States and other countries may also unilaterally impose additional duties in response to a particular product being
imported at unfairly traded prices that, in such increased quantities, cause or threaten injury to the relevant domestic industry (generally known
as “anti-dumping” actions). If dumping is suspected in the United States, the United States government may self-initiate a dumping case on
behalf of a particular industry. Furthermore, additional duties, generally known as countervailing duties, can also be imposed by the United
States government to offset subsidies provided by a foreign government to foreign manufacturers if the importation of such subsidized
merchandise injures or threatens to injure a United States industry. We are also subject to other international trade agreements and regulations,
such as the North American Free Trade Agreement. See Item 1A.“Risk Factors—We primarily use foreign manufacturing contractors and
independent third-party agents to source our finished goods, which poses legal, regulatory, political and economic risks to our business
operations.”
Accessories, footwear and apparel sold by us are also subject to regulation in the United States and other countries by
governmental agencies, including, in the United States, the Federal Trade Commission and the Consumer Products Safety Commission. These
regulations relate principally to product labeling, licensing requirements, flammability testing and product safety. We are also subject to
environmental laws, rules and regulations. Similarly, accessories, footwear and apparel sold by us are also subject to import regulations in the
United States and other countries concerning the use of wildlife products for commercial and non-commercial trade, including the U.S. Fish
and Wildlife Service. We do not estimate any significant capital expenditures for environmental control matters either in the current fiscal year
or in the near future. Our licensed products and licensing partners are also subject to regulation. Our agreements require our licensing partners
to operate in compliance with all applicable laws and regulations, and we are not aware of any violations that could reasonably be expected to
have a material adverse effect on our business or operating results.
We are also required to comply with the disclosure requirements under the Securities Exchange Act of 1934, as amended, relating
to the use of conflict minerals in our products. As a result, we have incurred, and expect to continue to incur, additional costs to comply with
this rule.
Although we have not suffered any material restriction from doing business in desirable markets in the past, we cannot assure that
significant impediments will not arise in the future as we expand product offerings and introduce additional trademarks to new markets.
Item 1A. Risk Factors
You should carefully read this entire report, including, without limitation, the following risk factors and the section of this annual
report entitled “Note Regarding Forward-Looking Statements.” Any of the following factors could materially adversely affect our business,
financial condition and operating results. Additional risks and uncertainties not currently known to us or that we currently view as immaterial
may also materially adversely affect our business, financial condition and operating results.
The accessories, footwear and apparel industries are heavily influenced by general macroeconomic cycles that affect consumer spending,
and a prolonged period of depressed consumer spending could have a material adverse effect on our business, financial condition and
operating results.
The accessories, footwear and apparel industries have historically been subject to cyclical variations, recessions in the general
economy and uncertainties regarding future economic prospects that can affect consumer spending habits. Purchases of discretionary luxury
items, such as our products, tend to decline during recessionary periods when disposable income is lower. The success of our operations
depends on a number of factors impacting discretionary consumer spending, including general economic conditions, consumer confidence,
wages and unemployment, housing prices, consumer debt, interest rates, fuel and energy costs, taxation and political conditions. A
continuation or worsening of the current weakness in the economy may negatively affect consumer and wholesale purchases of our products
and could have a material adverse effect on our business, financial condition and operating results.
We may not be able to respond to changing fashion and retail trends in a timely manner, which could have a material adverse effect on
our brand, business, financial condition and operating results.
The accessories, footwear and apparel industries have historically been subject to rapidly changing fashion trends and consumer
preferences. We believe that our success is largely dependent on our brand image and ability to anticipate and respond promptly to changing
consumer demands and fashion trends in the design, styling, production, merchandising and pricing of products. If we do not correctly gauge
consumer needs and fashion trends and respond appropriately, consumers may not purchase our products and our brand name and brand image
may be impaired. Even if we react appropriately to changes in fashion trends and consumer preferences, consumers may consider our brand
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image to be outdated or associate our brand with styles that are no longer popular or trend-setting. Any of these outcomes could have a material
adverse effect on our brand, business, financial condition and operating results.
Privacy breaches and other cyber security risks related to our business could negatively affect our reputation, credibility and business.
We are dependent on information technology systems and networks for a significant portion of our direct-to-consumer sales,
including our e-commerce site and retail business credit card transaction authorization and processing. We are responsible for storing data
relating to our customers and employees and also rely on third party vendors for the storage, processing and transmission of personal and
Company information. Consumers, lawmakers and consumer advocates alike are increasingly concerned over the security of personal
information transmitted over the internet, consumer identity theft and privacy. In addition to taking the necessary precautions ourselves, we
require that third-party service providers implement reasonable security measures to protect our employees’ and customers’ identity and privacy.
We do not, however, control these third-party service providers and cannot guarantee that no electronic or physical computer break-ins and
security breaches will occur in the future. Likewise, our systems and technology are subject to the risk of system failures, viruses, “hackers” and
other causes that are out of our control. A significant breach of customer, employee or Company data could damage the Company’s reputation, its
relationship with customers and the Michael Kors brand, and could result in lost sales, sizable fines, significant breach-notification costs and
lawsuits, as well as adversely affect results of operations. The Company may also incur additional costs in the future related to the
implementation of additional security measures to protect against new or enhanced data security and privacy threats, or to comply with state,
federal and international laws that may be enacted to address those threats.
Our business is exposed to foreign currency exchange rate fluctuations.
Our results of operations for our international subsidiaries are exposed to foreign exchange rate fluctuations as the financial results of
the applicable subsidiaries are translated from the local currency into U.S. dollars during financial statement consolidation. If the U.S. dollar
strengthens against foreign currencies, the translation of these foreign currency denominated transactions could impact our consolidated results of
operations. In addition, we have intercompany notes amongst certain of our non-U.S. subsidiaries, which may be denominated in a currency other
than the local currency of a particular reporting entity. As a result of using a currency other than the functional currency of the related subsidiary,
results of these operations may be adversely affected during times of significant fluctuation between the functional currency of that subsidiary
and the denomination currency of the note. We continuously monitor our foreign currency exposure and hedge a portion of our foreign
subsidiaries’ foreign currency-denominated inventory purchases to minimize the impact of changes in foreign currency exchange rates. However,
we cannot fully anticipate all of our foreign currency exposures and cannot ensure that these hedges will fully offset the impact of foreign
currency exchange rate fluctuations.
As a result of operating retail stores and concessions in various countries outside of the U.S., we are also exposed to market risk from
fluctuations in foreign currency exchange rates, particularly the Euro, the British Pound, the Japanese Yen and the Canadian Dollar. A substantial
weakening of foreign currencies against the U.S. dollar could require us to raise our retail prices or reduce our profit margins in various locations
outside of the U.S. In addition, our sales and profitability could be negatively impacted if consumers in those markets were unwilling to purchase
our products at increased prices.
We face risks associated with operating in international markets and our strategy to continue to expand internationally.
We operate on a global basis, with approximately 26.2% of our total revenue from operations outside of the U.S. during Fiscal 2015.
As a result, we are subject to the risks of doing business internationally, including political and economic instability in foreign countries, laws,
regulations and policies of foreign governments, potential negative consequences from changes in taxation policies, political or civil unrest, acts
of terrorism, military actions or other conditions. Economic instability and unsettled regional and global conflicts may negatively affect consumer
spending by foreign tourists and local consumers in the various regions where we operate, which could adversely affect our sales and results of
operations. We also sell our products at varying retail price points based on geographic location that yield different gross profit margins, and we
achieve different operating profit margins, depending on geographic region, due to a variety of factors including product mix, store size,
occupancy costs, labor costs and retail pricing. Changes in any one or more of these factors could result in lower revenues, increased costs, and
negatively impact our business, financial condition and operating results.
We face additional risks with respect to our strategy to expand internationally, including our efforts to further grow and expand our
operations in Europe and Asia. Specifically, during the second half of Fiscal 2016, we plan to transition the currently licensed business in South
Korea to a wholly owned operation. We may not be able to successfully integrate the business of any licensee that we acquire into our own
business or achieve any expected cost savings or synergies from such integration. Furthermore, we may have difficulty integrating any new or
reacquired businesses into our operations, hiring and retaining qualified key employees, or otherwise successfully managing such expansion. In
some of the countries we do not yet have significant operating experience, and in most of these countries we face established competitors with
significantly more operating experience in those locations. Many countries have different operational characteristics, including, but not limited to,
employment and labor, transportation, logistics, real estate (including lease terms) and local reporting or legal requirements. Furthermore,
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consumer demand and behavior, as well as tastes and purchasing trends may differ in these countries and, as a result, sales of our product
may not be successful, or the margins on those sales may not be in line with those we currently anticipate. In addition, in many of these
countries there is significant competition to attract and retain experienced and talented employees. If our international expansion plans are
unsuccessful, it could have a material adverse effect on our business, financial condition and operating results.
The growth of our business depends on the successful execution of our growth strategies, including our efforts to open and operate new
retail stores, to increase the number of department stores and specialty stores that sell our products, and to acquire select operations from
our third-party licensees.
As part of our growth strategy, we intend to open and operate new retail stores and shop-in-shops within select department stores,
both domestically and internationally. Our ability to successfully open and operate new retail stores, including concessions, and shop-in-
shops depends on many factors, including, among others, our ability to:
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identify new markets where our products and brand image will be accepted or the performance of our retail stores,
including concessions, and shop-in-shops will be considered successful;
negotiate acceptable lease terms, including desired tenant improvement allowances, to secure suitable store locations;
hire, train and retain personnel and field management;
assimilate new personnel and field management into our corporate culture;
source sufficient inventory levels; and
successfully integrate new retail stores, including concessions, and shop-in-shops into our existing operations and
information technology systems.
We will encounter pre-opening costs and we may encounter initial losses when new retail stores, including concessions, and
shop-in-shops commence operations. Certain of our European stores require investments in the form of key money to secure prime locations,
which may be paid to landlords or existing lessees. While we expect to open a number of additional retail stores, including concessions, and
shop-in-shops in the future, there can be no assurance that we will open the planned number, that we will recover the expenditure costs
associated with opening these new retail stores, including concessions, and shop-in-shops or that the operation of these new venues will be
successful or profitable. Any changes from our initial expectations could have a material adverse effect on our business, financial condition
and operating results.
A material disruption in our information technology systems could have a material adverse effect on our business, financial condition
and results of operations.
We rely extensively on our information technology (“IT”) systems to track inventory, manage our supply chain, record and
process transactions, manage customer communications, summarize results and manage our business. The failure of our IT systems to
operate properly or effectively, problems with transitioning to upgraded or replacement systems, or difficulty in integrating new systems,
could adversely affect our business. In addition, we have an e-commerce website in the United States, a new e-commerce site in Canada
launched in April 2015, and plans for additional e-commerce sites in Europe and Japan in Fiscal 2017. Our IT systems and websites may be
subject to damage and/or interruption from power outages, computer, network and telecommunications failures, computer viruses, “hackers”,
security breaches, usage errors by our employees and bad acts by our customers and website visitors. If our IT systems or websites are
damaged or cease to function properly, we may have to make a significant investment to fix or replace them, and we may suffer loss of
critical data (including our customer data) and interruptions or delays in our operations in the interim. Any significant disruption in our IT
systems or websites could harm our reputation and credibility, and could have a material adverse effect on our business, financial condition
and operating results.
We are dependent on a limited number of distribution facilities. If one or more of our distribution facilities experiences operational
difficulties or becomes inoperable, it could have a material adverse effect on our business, financial condition and operating results.
We operate a limited number of distribution facilities. Our ability to meet the needs of our wholesale customers and our own
retail stores and e-commerce sites depends on the proper operation of these distribution facilities. If any of these distribution facilities were
to shut down or otherwise become inoperable or inaccessible for any reason, we could suffer a substantial loss of inventory and/or
disruptions of deliveries to our retail and wholesale customers. For example, during the fourth quarter of Fiscal 2015 our U.S. third party
operated e-commerce fulfillment center was impacted by structural damage, which resulted in shipping delays to consumers who ordered
merchandise through our e-commerce website. In addition, we could incur significantly higher costs and longer lead times associated with
the distribution of our products during the time it takes to reopen or replace the damaged facility. Any of the foregoing factors could result in
decreased sales and have a material adverse effect on our business, financial condition and operating results.
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In addition, we have been moving into new and larger facilities as needed, to increase our capacity as we grow, and have been
concurrently implementing new warehouse management systems to further support our efforts to operate with increased efficiency and
flexibility. There are risks inherent in operating in new distribution environments and implementing new warehouse management systems,
including operational difficulties that may arise with such transitions. We may experience shipping delays should there be any disruptions
in our new warehouse management systems or warehouses themselves.
The markets in which we operate are highly competitive, both within North America and internationally, and increased competition
based on a number of factors could cause our profitability to decline.
We face intense competition from other domestic and foreign accessories, footwear and apparel producers and retailers,
including, among others, Coach, Burberry, Ralph Lauren, Hermès, Louis Vuitton, Gucci, Marc Jacobs, Chloé, Tori Burch and Prada.
Competition is based on a number of factors, including, without limitation, the following:
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anticipating and responding to changing consumer demands in a timely manner;
establishing and maintaining favorable brand-name recognition;
determining and maintaining product quality;
maintaining key employees;
maintaining and growing market share;
developing quality and differentiated products that appeal to consumers;
establishing and maintaining acceptable relationships with retail customers;
pricing products appropriately;
providing appropriate service and support to retailers;
optimizing retail and supply chain capabilities;
determining size and location of retail and department store selling space; and
protecting intellectual property.
In addition, some of our competitors may be significantly larger and more diversified than us and may have significantly
greater financial, technological, manufacturing, sales, marketing and distribution resources than we do. Their greater capabilities in these
areas may enable them to better withstand periodic downturns in the accessories, footwear and apparel industries, compete more
effectively on the basis of price and production and more quickly develop new products. The general availability of manufacturing
contractors and agents also allows new entrants easy access to the markets in which we compete, which may increase the number of our
competitors and adversely affect our competitive position and our business. Any increased competition, or our failure to adequately
address any of these competitive factors, could result in reduced sales, which could adversely affect our business, financial condition and
operating results.
Competition, along with other factors such as consolidation, changes in consumer spending patterns and a highly promotional
environment, could also result in significant pricing pressure. These factors may cause us to reduce our sales prices to our wholesale
customers and retail consumers, which could cause our gross margins to decline if we are unable to appropriately manage inventory levels
and/or otherwise offset price reductions with comparable reductions in our operating costs. If our sales prices decline and we fail to
sufficiently reduce our product costs or operating expenses, our profitability may decline, which could have a material adverse effect on
our business, financial condition and operating results.
The departure of our founder, members of our executive management and other key employees could have a material adverse effect
on our business.
We depend on the services and management experience of our founder and executive officers, who have substantial experience
and expertise in our business. In particular, Mr. Kors, our Honorary Chairman and Chief Creative Officer, has provided design and
executive leadership to the Company since its inception. He is instrumental to our marketing and publicity strategy and is closely
identified with both the brand that bears his name and our Company in general. Our ability to maintain our brand image and leverage the
goodwill associated with Mr. Kors’ name may be damaged if we were to lose his services. Mr. Kors has the right to terminate his
employment with us without cause. In addition, the leadership of John D. Idol, our Chairman and Chief Executive Officer, and Joseph B.
Parsons, our Executive Vice President, Chief Financial Officer, Chief Operating Officer and Treasurer, has been a critical element of our
success. We also depend on other key employees involved in our licensing, design and advertising operations. Competition for qualified
personnel in the apparel industry is intense, and competitors may use aggressive tactics to recruit our executive officers and key
employees. Although we have entered into employment agreements with Mr. Kors and certain of our other executive officers, including
Mr. Idol and Mr. Parsons, we may not be able to retain the services of such individuals in the future. The loss of services of one or more
of these individuals or any negative public perception with respect to, or relating to, the loss of one or more of these individuals could
have a material adverse effect on our business, financial condition and operating results.
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We have grown rapidly in recent years and we have limited operating experience at our current scale of operations. If we are
unable to manage our operations at our current size or are unable to manage any future growth effectively, our brand image
and financial performance may suffer.
We have expanded our operations rapidly and have limited operating experience at our current size. If our operations
continue to grow, we will be required to continue to expand our sales and marketing, product development and distribution functions,
to upgrade our management information systems and other processes and to obtain more space for our expanding administrative
support and other headquarter personnel. Our continued growth could strain our existing resources, and we could experience
operating difficulties, including the availability of desirable locations and the negotiation of acceptable lease terms, difficulties in
hiring, training and managing an increasing number of employees, difficulties in obtaining sufficient raw materials and manufacturing
capacity to produce our products and delays in production and shipments. These difficulties could result in the erosion of our brand
image and could have a material adverse effect on our business, financial condition and operating results.
As we expand our store base, we may be unable to maintain the same comparable store sales or average sales per square foot that
we have in the past, which could cause our share price to decline.
As we expand our store base, we may not be able to maintain the levels of comparable store sales that we have experienced
historically. In addition, we may not be able to maintain our historic average sales per square foot as we move into new markets. If
our future comparable store sales or average sales per square foot decline or fail to meet market expectations, the price of our ordinary
shares could decline. In addition, the aggregate results of operations of our stores have fluctuated in the past and can be expected to
continue to fluctuate in the future. A variety of factors affect both comparable store sales and average sales per square foot, including,
among others, fashion trends, competition, current economic conditions, pricing, inflation, the timing of the release of new
merchandise and promotional events, changes in our merchandise mix, the success of marketing programs and weather conditions. If
we misjudge the market for our products, we may incur excess inventory for some of our products and miss opportunities for other
products. These factors may cause our comparable store sales results and average sales per square foot in the future to be materially
lower than recent periods and our expectations, which could have a material adverse effect on our results of operations and result in a
decline in the price of our ordinary shares.
We are subject to risks associated with leasing retail space under long-term, non-cancelable leases and are required to make
substantial lease payments under our operating leases. Any failure to make these lease payments when due could materially
adversely affect our business, financial condition and operating results.
We do not own any of our store facilities; instead, we lease all of our stores under operating leases. Our leases generally
have terms of up to 10 years. Our leases generally require a fixed annual rent and most require the payment of additional rent if store
sales exceed a negotiated amount. Certain of our European stores also require initial investments in the form of key money to secure
prime locations, which may be paid to landlords or existing lessees. Generally, our leases are “net” leases, which require us to pay all
of the costs of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases at our option. Payments under
these operating leases account for a significant portion of our operating costs. For example, as of March 28, 2015, we were party to
operating leases associated with our stores as well as other corporate facilities requiring future minimum lease payments aggregating
to $897.4 million through Fiscal 2020 and approximately $695.3 million thereafter through Fiscal 2029. We expect that any new
stores we open under operating leases will have terms similar to those contained in leases we have entered previously, which will
further increase our operating lease expenses.
Our substantial operating lease obligations could have significant negative consequences, including, among others:
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increasing our vulnerability to general adverse economic and industry conditions;
limiting our ability to obtain additional financing;
requiring a substantial portion of our available cash to pay our rental obligations, thus reducing cash available for
other purposes;
limiting our flexibility in planning for or reacting to changes in our business or in the industry in which we compete;
and
placing us at a disadvantage with respect to some of our competitors.
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We depend on cash flow from operations to pay our lease expenses and to fulfill our other cash needs. If our business does not
generate sufficient cash flow from operating activities, and sufficient funds are not otherwise available to us, we may not be able to
service our operating lease expenses, grow our business, respond to competitive challenges or fund our other liquidity and capital needs.
Our current and future licensing arrangements may not be successful and may make us susceptible to the actions of third parties over
whom we have limited control.
We have entered into a select number of product licensing agreements with companies that produce and sell, under our
trademarks, products requiring specialized expertise. We have also entered into a number of select licensing agreements pursuant to which
we have granted third parties certain rights to distribute and sell our products in certain geographical areas, such as the Middle East,
Eastern Europe, Latin America, the Caribbean, throughout all of Asia (excluding Japan), and Australia. In addition, we have entered into
similar licensing agreements with entities that are indirectly owned by certain of our directors and officers, including Michael Kors and
John Idol, pursuant to which we have granted such entities certain rights to distribute and sell our products in China, Hong Kong, Macau
and Taiwan. See Note 19 — “Agreements with Shareholders and Related Party Transactions” to the accompanying consolidated audited
financial statements. In the future, we may enter into additional licensing arrangements. Although we take steps to carefully select our
licensing partners, such arrangements may not be successful. Our licensing partners may fail to fulfill their obligations under their license
agreements or have interests that differ from or conflict with our own, such as the timing of new store openings, the pricing of our
products and the offering of competitive products. In addition, the risks applicable to the business of our licensing partners may be
different than the risks applicable to our business, including risks associated with each such partner’s ability to:
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obtain capital;
exercise operational and financial control over its business;
manage its labor relations;
maintain relationships with suppliers;
manage its credit and bankruptcy risks; and
maintain customer relationships.
Any of the foregoing risks, or the inability of any of our licensing partners to successfully market our products or otherwise
conduct its business, may result in loss of revenue and competitive harm to our operations in regions or product categories where we have
entered into such licensing arrangements.
We rely on our licensing partners to preserve the value of our brands. Although we attempt to protect our brands through,
among other things, approval rights over store location and design, product design, production quality, packaging, merchandising,
distribution, advertising and promotion of our stores and products, we may not be able to control the use by our licensing partners of our
brand. The misuse of our brand by a licensing partner could have a material adverse effect on our business, financial condition and
operating results.
A substantial portion of our revenue is derived from a small number of large wholesale customers, and the loss of any of these
wholesale customers could substantially reduce our total revenue.
A small number of our wholesale customers account for a significant portion of our net sales. Net sales to our five largest
wholesale customers represented 26.3% of our total revenue for Fiscal 2015 and 28.9% of our total revenue for Fiscal 2014. Our largest
wholesale customer, Federated, accounted for 13.7% of our total revenue for Fiscal 2015 and 14.4% of our total revenue for Fiscal 2014.
We do not have written agreements with any of our wholesale customers, and purchases generally occur on an order-by-order basis. A
decision by any of our major wholesale customers, whether motivated by marketing strategy, competitive conditions, financial difficulties
or otherwise, to decrease significantly the amount of merchandise purchased from us or our licensing partners, or to change their manner
of doing business with us or our licensing partners, could substantially reduce our revenue and have a material adverse effect on our
profitability. During the past several years, the retail industry has experienced a great deal of consolidation and other ownership changes,
and we expect such changes will continue. In addition, store closings by our wholesale customers decrease the number of stores carrying
our products, while the remaining stores may purchase a smaller amount of our products and/or may reduce the retail floor space
designated for our brands. In the future, retailers may further consolidate, undergo restructurings or reorganizations, realign their
affiliations or reposition their stores’ target markets. Any of these types of actions could decrease the number of stores that carry our
products or increase the ownership concentration within the retail industry. These changes could decrease our opportunities in the market,
increase our reliance on a smaller number of large wholesale customers and decrease our negotiating strength with our wholesale
customers. These factors could have a material adverse effect on our business, financial condition and operating results.
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Increases in the cost of raw materials could increase our production costs and cause our operating results and financial condition
to suffer.
The costs of raw materials used in our products are affected by, among other things, weather, consumer demand,
speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer
countries and other factors that are generally unpredictable and beyond our control. We are not always successful in our efforts to
protect our business from the volatility of the market price of raw materials and our business can be materially affected by dramatic
movements in prices of raw materials. The ultimate effect of this change on our earnings cannot be quantified, as the effect of
movements in raw materials prices on industry selling prices are uncertain, but any significant increase in these prices could have a
material adverse effect on our business, financial condition and operating results.
We primarily use foreign manufacturing contractors and independent third-party agents to source our finished goods, which
poses legal, regulatory, political and economic risks to our business operations.
Our products are primarily produced by, and purchased or procured from, independent manufacturing contractors located
mainly in Asia and Europe. A manufacturing contractor’s failure to ship products to us in a timely manner or to meet the required
quality standards could cause us to miss the delivery date requirements of our customers for those items. The failure to make timely
deliveries may cause customers to cancel orders, refuse to accept deliveries or demand reduced prices, any of which could have a
material adverse effect on us. In addition, any of the following factors could negatively affect our ability to produce or deliver our
products and, as a result, could have a material adverse effect on our business, financial condition and operating results:
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political or labor instability, labor shortages (stemming from labor disputes or otherwise), or increases in costs of
labor or production in countries where manufacturing contractors and suppliers are located;
significant delays or disruptions in delivery of our products due to labor disputes or strikes at the location of the
source of our goods and/or at U.S. ports of entry;
political or military conflict involving the United States, which could cause a delay in the transportation of our
products and raw materials and increase transportation costs;
heightened terrorism security concerns, which could subject imported or exported goods to additional, more frequent
or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods of time
or could result in increased scrutiny by customs officials for counterfeit goods, leading to lost sales, increased costs
for our anti-counterfeiting measures and damage to the reputation of our brands;
a significant decrease in availability or an increase in the cost of raw materials;
disease epidemics and health-related concerns, which could result in closed factories, reduced workforces, scarcity
of raw materials and scrutiny or embargoing of goods produced in infected areas;
the migration and development of manufacturing contractors, which could affect where our products are or are
planned to be produced;
imposition of regulations, quotas and safeguards relating to imports and our ability to adjust in a timely manner to
changes in trade regulations, which, among other things, could limit our ability to produce products in cost-effective
countries that have the labor and expertise needed;
increases in the costs of fuel, travel and transportation;
imposition of duties, taxes and other charges on imports;
significant fluctuation of the value of the United States dollar against foreign currencies; and
restrictions on transfers of funds out of countries where our foreign licensees are located.
We do not have written agreements with any of our third-party manufacturing contractors. As a result, any single
manufacturing contractor could unilaterally terminate its relationship with us at any time. In Fiscal 2015, our largest manufacturing
contractor, who primarily produces its products in China and who we have worked with for over ten years, accounted for the
production of 29.1% of our finished products. Our inability to promptly replace manufacturing contractors that terminate their
relationships with us or cease to provide high quality products in a timely and cost-efficient manner could have a material adverse
effect on our business, financial condition and operating results, and impact the cost and availability of our goods.
16
In addition, we use third-party agents to source our finished goods with numerous manufacturing contractors on our behalf.
Any single agent could unilaterally terminate its relationship with us at any time. In Fiscal 2015, our largest third-party agent, whose
primary place of business is Hong Kong and who we have worked with for over 10 years, sourced approximately 11.7% of our
purchases of finished goods. Our inability to promptly replace agents that terminate their relationships with us or cease to provide
high quality service in a timely and cost-efficient manner could have a material adverse effect on our business, financial condition and
operating results.
If we fail to comply with labor laws, or if our manufacturing contractors fail to use acceptable, ethical business practices, our
business and reputation could suffer.
We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements. Compliance with these laws and regulations may lead to increased costs and
operational complexity and may increase our exposure to governmental investigations or litigation.
In addition, we require our manufacturing contractors to operate in compliance with applicable laws, rules and regulations
regarding working conditions, employment practices and environmental compliance. Additionally, we impose upon our business
partners operating guidelines that require additional obligations in those three areas in order to promote ethical business practices, and
our staff and third parties we retain for such purposes periodically visit and monitor the operations of our manufacturing contractors
to determine compliance. However, we do not control our manufacturing contractors or their labor and other business practices. If one
of our manufacturing contractors violates applicable labor or other laws, rules or regulations or implements labor or other business
practices that are generally regarded as unethical in the United States, the shipment of finished products to us could be interrupted,
orders could be cancelled, relationships could be terminated and our reputation could be damaged. Any of these events could have a
material adverse effect on our business, financial condition and operating results.
Our business is subject to risks associated with importing products.
There are risks inherent to importing our products. Virtually all of our merchandise imported into the United States,
Canada, Europe and Asia is subject to duties and most of the countries to which we ship could impose safeguard quotas to protect
their local industries from import surges that threaten to create market disruption. The United States and other countries may also
unilaterally impose additional duties in response to a particular product being imported at unfairly traded prices that, in such increased
quantities, cause or threaten injury to the relevant domestic industry (generally known as “anti-dumping” actions). If dumping is
suspected in the United States, the United States government may self-initiate a dumping case on behalf of a particular industry.
Furthermore, additional duties, generally known as countervailing duties, can also be imposed by the United States government to
offset subsidies provided by a foreign government to foreign manufacturers if the importation of such subsidized merchandise injures
or threatens to injure a United States industry. In addition, accessories, footwear and apparel sold by us are also subject to import
regulations in the United States and other countries concerning the use of wildlife products for commercial and non-commercial trade,
including the U.S. Fish and Wildlife Service (“F&W”). F&W requires that we obtain a license to import animal and fauna that are
subject to regulation by F&W and can revoke (or refuse to renew) this license, seize and possibly destroy our shipments and/or fine
the Company for F&W violations. The imposition of duties and quotas, the initiation of an anti-dumping action and/or the
repercussions of F&W violations could have a material adverse effect on our business, financial condition and operating results.
We may be unable to protect our trademarks and other intellectual property rights, and others may allege that we infringe upon
their intellectual property rights.
Our trademarks, including MICHAEL KORS and MICHAEL MICHAEL KORS, logos and other intellectual property
rights are important to our success and our competitive position. We are susceptible to others imitating our products and infringing on
our intellectual property rights in the United States, Europe, the Middle East, the Far East and elsewhere in the world in both online
and offline channels. Our brand enjoys significant worldwide consumer recognition, and the generally higher pricing of our products
creates additional incentive for counterfeiters to infringe on our brand. We work with customs authorities, law enforcement, legal
representatives and brand specialists globally in an effort to prevent the sale of counterfeit Michael Kors products, but we cannot
guarantee the extent to which our efforts to prevent counterfeiting of our brand and other intellectual property infringement will be
successful. Such counterfeiting and other infringement could dilute our brand and harm our reputation and business.
Our trademark applications may fail to result in registered trademarks or provide the scope of coverage sought, and others
may seek to invalidate our trademarks or block sales of our products as a violation of their trademarks and intellectual property rights.
In addition, others may assert rights in, or ownership of, trademarks and other intellectual property rights of ours or in trademarks that
17
are similar to ours or trademarks that we license and/or market, and we may not be able to successfully resolve these types of conflicts
to our satisfaction. In some cases, trademark owners may have prior rights to our trademarks or similar trademarks. Furthermore,
certain foreign countries may not protect trademarks and other intellectual property rights to the same extent as do the laws of the
United States.
From time to time, in the ordinary course of our business, we become involved in opposition and cancellation proceedings
with respect to trademarks similar to some of our brands. Any litigation or dispute involving the scope or enforceability of our
intellectual property rights or any allegation that we infringe upon the intellectual property rights of others could be costly and time-
consuming and could result, if determined adversely to us, in harm to our competitive position.
Restrictive covenants in our credit agreement may restrict our ability to pursue our business strategies.
We have a $200.0 million senior unsecured credit facility (the “2013 Credit Facility”) under which Michael Kors (USA),
Inc. (“MKUSA”), Michael Kors (Europe) B.V., Michael Kors (Canada) Holdings Ltd. and Michael Kors (Switzerland) GmbH, our
indirect wholly owned subsidiaries, are borrowers and we are a parent guarantor. The credit agreement governing the terms of the
2013 Credit Facility restricts, among other things, asset dispositions, mergers and acquisitions, dividends, share repurchases and
redemptions, other restricted payments, indebtedness, loans and investments, liens and affiliate transactions. Our credit agreement
also contains customary events of default, including a change in control of the Company. In addition, our credit agreement contains
financial covenants such as requiring an adjusted leverage ratio of 3.5 to 1.0 (with the ratio being total consolidated indebtedness plus
8.0 times consolidated rent expense to EBITDA plus consolidated rent expense) and a fixed charge coverage ratio of 2.0 to 1.0 (with
the ratio being EBITDA plus consolidated rent expense to the sum of fixed charges plus consolidated rent expense). See credit
discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity”. These
covenants, among other things, may limit our ability to fund our future working capital needs and capital expenditures, engage in
future acquisitions or development activities, or otherwise realize the value of our assets and opportunities fully because of the need
to dedicate a portion of our cash flow from operations to payments on debt.
Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting,
which could harm our business and cause a decline in the price of our ordinary shares.
As a public company we are required to document and test our internal controls over financial reporting pursuant to
Section 404 of the Sarbanes-Oxley Act. If our management is unable to certify the effectiveness of our internal controls or if our
independent registered public accounting firm cannot render an opinion on management’s assessment and on the effectiveness of our
internal control over financial reporting, or if material weaknesses in our internal controls are identified, we could be subject to
regulatory scrutiny and a loss of public confidence, which could have an adverse effect on our business and cause a decline in the
price of our ordinary shares.
Provisions in our organizational documents may delay or prevent our acquisition by a third party.
Our Memorandum and Articles of Association (together, as amended from time to time, our “Memorandum and Articles”)
contains several provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval
of our board of directors. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other
transaction that might otherwise result in our shareholders receiving a premium over the market price for their ordinary shares. These
provisions include, among others:
•
•
•
•
•
our board of directors’ ability to amend the Memorandum and Articles to create and issue, from time to time, one or
more classes of preference shares and, with respect to each such class, to fix the terms thereof by resolution;
provisions relating to the multiple classes and three-year terms of directors, the manner of election of directors,
removal of directors and the appointment of directors upon an increase in the number of directors or vacancy on our
board of directors;
restrictions on the ability of shareholders to call meetings and bring proposals before meetings;
elimination of the ability of shareholders to act by written consent; and
the requirement of the affirmative vote of 75% of the shares entitled to vote to amend certain provisions of our
Memorandum and Articles.
These provisions of our Memorandum and Articles could discourage potential takeover attempts and reduce the price that
investors might be willing to pay for our ordinary shares in the future, which could reduce the market price of our ordinary shares.
18
Rights of shareholders under British Virgin Islands law differ from those under United States law, and, accordingly, our
shareholders may have fewer protections.
Our corporate affairs are governed by our Memorandum and Articles, the BVI Business Companies Act, 2004 (as
amended, the “BVI Act”) and the common law of the British Virgin Islands. The rights of shareholders to take legal action against our
directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are to a
large extent governed by the common law of the British Virgin Islands and by the BVI Act. The common law of the British Virgin
Islands is derived in part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common
law, which has persuasive, but not binding, authority on a court in the British Virgin Islands. The rights of our shareholders and the
fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under
statutes or judicial precedents in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed
body of securities laws as compared to the United States, and some states (such as Delaware) have more fully developed and
judicially interpreted bodies of corporate law. As a result of the foregoing, holders of our ordinary shares may have more difficulty in
protecting their interests through actions against our management, directors or major shareholders than they would as shareholders of
a U.S. company.
The laws of the British Virgin Islands provide limited protection for minority shareholders, so minority shareholders will have
limited or no recourse if they are dissatisfied with the conduct of our affairs.
Under the laws of the British Virgin Islands, there is limited statutory law for the protection of minority shareholders other
than the provisions of the BVI Act dealing with shareholder remedies (as summarized under Item 10. — “Additional Information —
Memorandum and Articles of Association”). The principal protection under statutory law is that shareholders may bring an action to
enforce the constituent documents of a British Virgin Islands company and are entitled to have the affairs of the company conducted
in accordance with the BVI Act and the memorandum and articles of association of the company. As such, if those who control the
company have persistently disregarded the requirements of the BVI Act or the provisions of the company’s memorandum and articles
of association, then the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an
act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority;
(ii) acts that constitute fraud on the minority where the wrongdoers control the company; (iii) acts that infringe on the personal rights
of the shareholders, such as the right to vote; and (iv) acts where the company has not complied with provisions requiring approval of
a special or extraordinary majority of shareholders, which are more limited than the rights afforded to minority shareholders under the
laws of many states in the United States.
It may be difficult to enforce judgments against us or our executive officers and directors in jurisdictions outside the United
States.
Under our Memorandum and Articles, we may indemnify and hold our directors harmless against all claims and suits
brought against them, subject to limited exceptions. Furthermore, to the extent allowed by law, the rights and obligations among or
between us, any of our current or former directors, officers and employees and any current or former shareholder will be governed
exclusively by the laws of the British Virgin Islands and subject to the jurisdiction of the British Virgin Islands courts, unless those
rights or obligations do not relate to or arise out of their capacities as such. Although there is doubt as to whether United States courts
would enforce these provisions in an action brought in the United States under United States securities laws, these provisions could
make judgments obtained outside of the British Virgin Islands more difficult to enforce against our assets in the British Virgin Islands
or jurisdictions that would apply British Virgin Islands law.
British Virgin Islands companies may not be able to initiate shareholder derivative actions, thereby depriving shareholders of one
avenue to protect their interests.
British Virgin Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the
United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in
respect of any such action, may result in the rights of shareholders of a British Virgin Islands company being more limited than those
of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to
them if they believe that corporate wrongdoing has occurred. The British Virgin Islands courts are also unlikely to recognize or
enforce judgments of courts in the United States based on certain liability provisions of United States securities law or to impose
liabilities, in original actions brought in the British Virgin Islands, based on certain liability provisions of the United States securities
laws that are penal in nature. There is no statutory recognition in the British Virgin Islands of judgments obtained in the United States,
although the courts of the British Virgin Islands will generally recognize and enforce the non-penal judgment of a foreign court of
competent jurisdiction without retrial on the merits. This means that even if shareholders were to sue us successfully, they may not be
able to recover anything to make up for the losses suffered.
19
Fluctuations in our tax obligations and changes in tax laws and regulations may have a material impact on our future effective
tax rates and results of operations.
Our subsidiaries are subject to taxation in the United States and various foreign jurisdictions, with the applicable tax rates
varying by jurisdiction. As a result, our overall effective tax rate is effected by the proportion of earnings from the various tax
jurisdictions. We record tax expense based on our estimates of taxable income and required reserves for uncertain tax positions in
multiple tax jurisdictions. At any time, there are multiple tax years that are subject to examinations by various taxing authorities. The
ultimate resolution of these audits and negotiations with taxing authorities may result in a settlement amount that differs from our
original estimate. In addition, any proposed or future changes in tax laws and regulations or interpretations could have a material
effect on our effective tax rates, financial condition, and results of operations.
On March 26, 2015, the United Kingdom enacted new Diverted Profits Tax legislation (the “DPT”), which is effective on
April 1, 2015. Under the DPT, profits of certain multinational enterprises (such as the Company) deemed to have been artificially
diverted from the United Kingdom will be taxed at a rate of 25%. While the Company believes that all of its affiliated entities and the
transactions among them have the required economic substance, there is no assurance that this legislation will not have a material
effect on its results of operations and financial condition.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The following table sets forth the location, use and size of our significant distribution and corporate facilities as of
March 28, 2015, all of which are leased. The leases expire at various times through Fiscal 2029, subject to renewal options.
Location
Whittier, CA
New York, NY
Montreal, Quebec
East Rutherford, NJ
Secaucus, NJ
Use
Distribution
Corporate Offices
Canadian Corporate Office and Distribution
Corporate Offices
Distribution
Approximate Square
Footage
1,120,500
262,450
205,500
53,476
22,760
In April 2015, we expanded our leased distribution facilities in Whittier, California by approximately 260,912 square feet,
to accommodate distribution for our e-commerce site, which is currently handled by a third-party distribution facility. In addition, in
May 2016, we acquired land and plan to begin building our own distribution facility in Holland, which will support our European
operations.
As of March 28, 2015, we also occupied 526 leased retail stores worldwide (including concessions). We consider our
properties to be in good condition and believe that our facilities are adequate for our operations and provide sufficient capacity to
meet our anticipated requirements.
Other than fixed assets related to our stores (e.g. leasehold improvements, fixtures, etc.) and computer equipment, we do
not own any material property as of March 28, 2015.
Item 3. Legal Proceedings
We are involved in various routine legal proceedings incident to the ordinary course of our business. We believe that the
outcome of all pending legal proceedings in the aggregate will not have a material adverse effect on our business, financial condition
or operating results.
Item 4. Mine Safety Disclosures
None.
20
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Since our IPO on December 15, 2011, our ordinary shares have traded on the NYSE under the symbol “KORS”. At
March 28, 2015, there were 199,656,833 ordinary shares outstanding, and the closing sale price of our ordinary shares was $66.97. Also
as of that date, we had approximately 303 ordinary shareholders of record. The table below sets forth the high and low closing sale
prices of our ordinary shares for the periods indicated:
Fiscal 2014 Quarter Ended:
June 29, 2013
September 28, 2013
December 28, 2013
March 29, 2014
Fiscal 2015 Quarter Ended:
June 28, 2014
September 27, 2014
December 27, 2014
March 28, 2015
High
Low
$ 66.18
$ 78.62
$ 84.58
$101.04
$ 98.96
$ 91.79
$ 79.70
$ 76.05
$51.63
$60.08
$70.59
$74.11
$85.71
$71.25
$68.25
$63.31
Share Performance Graph
The line graph below compares the cumulative total shareholder return on our ordinary shares with the Russell 1000 Index
(RUI), Standard & Poor’s 500 Index (GSPC), S&P Retail Index (RLX) and the NYSE Composite Index (NYA), and a peer group index
of companies that we believe are closest to ours for the period covering our initial public offering on December 15, 2011 through
March 27, 2015, the last business day of the our fiscal year. The graph assumes an investment of $100 made at the closing of trading on
December 15, 2011, in (i) our ordinary shares, (ii) the shares comprising the RUI, (iii) the shares comprising the GSPC, (iv) the shares
comprising the RLX and (v) the shares comprising the NYA. The peer group consists of the following: Coach, Inc., Guess, Inc., PVH
Corp., Limited Brands, Inc., and Ralph Lauren Corporation. All values assume reinvestment of the full amount of all dividends, if any,
into additional shares of the same class of equity securities at the frequency with which dividends are paid on such securities during the
applicable time period.
21
Issuer Purchases of Equity Securities
On October 30, 2014, the Company’s Board of Directors authorized a $1.0 billion share repurchase program, which
authorized the repurchase of the Company’s shares for a period of two years. On May 20, 2015, the Company’s Board of Directors
authorized the repurchase of up to an additional $500 million under the Company’s existing share repurchase program and extended
the program through May 2017. The Company also has in place a “withhold to cover” repurchase program, which allows the
Company to withhold ordinary shares from certain executive officers to satisfy minimum tax withholding obligations relating to the
vesting of their restricted share awards.
The following table provides information regarding the Company’s ordinary share repurchases during the three months
ended March 28, 2015:
Total Number of
Shares Purchased
Average
Price Paid
per Share
Total Number of Shares (or
Units) Purchased as Part of
Publicly Announced
Plans or Programs
Maximum Dollar Value of
Shares (or Units) That May
Yet be Purchased Under the
Plans or Programs
December 28-January 24
January 25 – February 21
February 22 – March 28
280,819(1) $ —
—
65.27
—
1,409,682
— $
—
1,409,682
600,060,087
600,060,087
508,050,618
(1)
Represents additional shares delivered to the Company in connection with the November 14, 2014 accelerated share
repurchase program, pursuant to which the Company paid $355.0 million and received 4,437,516 of its ordinary
shares in November 2014. These additional shares delivered in January 2015 were determined based on the volume-
weighted average price of the Company’s ordinary shares, less a discount, during the repurchase period and did not
require any additional cash outlay by the Company. See Note 12 to the accompanying audited consolidated financial
statements for additional information.
Item 6.
Selected Financial Data
The following table sets forth selected historical consolidated financial and other data for Michael Kors Holdings Limited
and its consolidated subsidiaries for the periods presented. The statements of operations data for Fiscal 2015, 2014 and 2013 and the
balance sheet data as of the end of Fiscal 2015 and 2014 have been derived from our audited consolidated financial statements
included elsewhere in this report. The statements of operations data for Fiscal 2012 and Fiscal 2011 and the balance sheet data as of
the end of Fiscal 2013, Fiscal 2012 and Fiscal 2011 have been derived from our prior audited consolidated financial statements, which
are not included in this report.
22
The selected historical consolidated financial data below should be read in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere
in this annual report.
March 28,
2015
Fiscal Years Ended
March 30,
2013
(data presented in thousands, except for shares and per share data)
March 31,
2012
March 29,
2014
April 2,
2011
Statement of Operations Data:
Net sales
Licensing revenue
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income
Interest expense, net
Foreign currency loss (gain)
Income before provision for income taxes
Provision for income taxes
Net income
Net income applicable to preference shareholders
Net income available for ordinary shareholders
Weighted average ordinary shares outstanding(1):
Basic
Diluted
Net income per ordinary share(2):
Basic
Diluted
$
4,199,666 $
171,803
4,371,469
1,723,818
2,647,651
1,251,431
138,425
822
1,390,678
1,256,973
(3,117)
215
4,052
1,255,823
374,800
881,023
—
881,023
$
$
3,170,522 $
140,321
3,310,843
1,294,773
2,016,070
926,913
79,654
1,332
1,007,899
1,008,171
—
393
131
1,007,647
346,162
661,485
—
661,485
$
2,094,757 $
86,975
2,181,732
875,166
1,306,566
621,536
54,291
725
676,552
630,014
—
1,524
1,363
627,127
229,525
397,602
—
397,602 $
1,237,100 $
65,154
1,302,254
549,158
753,096
464,568
37,554
3,292
505,414
247,682
—
1,495
(2,629)
248,816
101,452
147,364
21,227
126,137 $
757,800
45,539
803,339
357,274
446,065
279,822
25,543
3,834
309,199
136,866
—
1,861
1,786
133,219
60,713
72,506
15,629
56,877
202,680,572
205,865,769
202,582,945
205,638,107
196,615,054
201,540,144
158,258,126
189,299,197
140,554,377
179,177,268
$
$
4.35
$
4.28 $
3.27
$
3.22 $
2.02 $
1.97 $
0.80 $
0.78 $
0.40
0.40
(1) Gives effect to the corporate reorganization completed by the Company and certain of its affiliates in July 2011 (the “Reorganization”) and the 3.8-to-1 split of our
ordinary shares (the “Share Split”) that occurred on November 30, 2011.
(2) Basic net income per ordinary share is computed by dividing net income available for ordinary shareholders by basic weighted average ordinary shares
outstanding. Diluted net income per ordinary share assumes the conversion of preference shares to ordinary shares and is computed by dividing net income by
diluted weighted average ordinary shares outstanding.
March 28,
2015
Fiscal Years Ended
March 30,
2013
(data presented in thousands, except for share and store data)
March 31,
2012
March 29,
2014
April 2,
2011
Operating Data:
Comparable retail store sales growth
Retail stores, including concessions, at end of period
Balance Sheet Data (as of the end of period dated above):
Working capital
Total assets
Revolving line of credit
Note payable to parent
Shareholders’ equity
Number of ordinary shares issued
Number of preference shares
10.3%
526
26.2%
405
40.1%
304
39.2%
237
48.2%
166
1,687,350
$
2,691,893
$
—
$
—
$
$
2,240,965
206,486,699
—
1,468,799
$
2,216,973
$
—
$
—
$
$
1,806,131
204,291,345
—
824,941
$
1,289,565
$
—
$
—
$
$
1,047,246
201,454,408
—
299,057
$
674,425
$
22,674
$
—
$
$
456,237
192,731,390
—
117,673
$
399,495
$
12,765
$
101,650
$
$
125,320
140,554,377
10,163,920
23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following Management’s Discussion and Analysis of our Financial Condition and Results of Operations should be read
in conjunction with the consolidated financial statements and notes thereto included as part of this Annual Report on Form 10-K. This
discussion contains forward-looking statements that are based upon current expectations. We sometimes identify forward-looking
statements with such words as “may,” “expect,” “anticipate,” “estimate,” “seek,” “intend,” “believe” or similar words concerning
future events. The forward-looking statements contained herein, include, without limitation, statements concerning future revenue
sources and concentration, gross profit margins, selling and marketing expenses, capital expenditures, general and administrative
expenses, capital resources, new stores, additional financings or borrowings and additional losses and are subject to risks and
uncertainties including, but not limited to, those discussed in this report that could cause actual results to differ materially
from the results contemplated by these forward-looking statements. We also urge you to carefully review the risk factors set forth in
“Item 1A – Risk Factors.”
Overview
Our Business
We are a rapidly growing global luxury lifestyle brand led by a world-class management team and a renowned,
award-winning designer. Since launching his namesake brand over 30 years ago, Michael Kors has featured distinctive designs,
materials and craftsmanship with a jet-set aesthetic that combines stylish elegance and a sporty attitude. Mr. Kors’ vision has taken the
Company from its beginnings as an American luxury sportswear house to a global accessories, footwear and apparel company with a
presence in over 100 countries. As a highly recognized luxury lifestyle brand in North America, with accelerating awareness in targeted
international markets, we have experienced exceptional sales momentum and intend to continue along this course as we grow our
business.
We operate our business in three segments—retail, wholesale and licensing—and we have a strategically controlled global
distribution network focused on company-operated retail stores, leading department stores, specialty stores and select licensing partners.
As of March 28, 2015, our retail segment included 343 North American retail stores (including concessions), 183 international retail
stores (including concessions) throughout Europe and Japan and our U.S. e-commerce site. As of March 28, 2015, our wholesale
segment included wholesale sales through approximately 2,541 department store and specialty store doors in North America and
wholesale sales through approximately 1,497 specialty store and department store doors internationally. Our remaining revenue is
generated through our licensing segment, through which we license to third parties certain production, sales and/or distribution rights.
During Fiscal 2015, our licensing segment accounted for approximately 3.9% of our total revenue and consisted of royalties earned on
licensed products and our geographic licenses.
We offer two primary collections: the Michael Kors luxury collection and the MICHAEL Michael Kors accessible luxury
collection. The Michael Kors collection establishes the aesthetic authority of our entire brand and is carried by many of our retail stores
as well as in the finest luxury department stores in the world. In 2004, we introduced the MICHAEL Michael Kors collection, which has
a strong focus on accessories, in addition to offering footwear and apparel, and addresses the significant demand opportunity in
accessible luxury goods. Taken together, our two collections target a broad customer base while retaining a premium luxury image.
Trends and Uncertainties
Disruptions in shipping and distribution. Our operations are subject to the impact of shipping disruptions as a result of
changes or damage to our distribution infrastructure, as well as due to external factors. During the fourth quarter of Fiscal 2015, our U.S.
third party operated e-commerce fulfillment center was impacted by structural damage, which resulted in shipping delays to consumers
who ordered merchandise through our e-commerce website. In addition, we were impacted by the work slowdowns and stoppages
resulting from the labor dispute at the U.S. west coast ports during our Fiscal 2015, which created a backlog of containers at the ports
and resulted in inventory delivery delays. We may continue to experience inventory delivery delays until this backlog is cleared by the
ports. We also experienced disruptions in shipping of our products within the U.S. during the second quarter of Fiscal 2014 as a result of
implementing new material handling equipment and systems for purposes of automating our California distribution facility, which
negatively impacted our ability to ship at full capacity during the second and third quarters of Fiscal 2014. In addition to delivery delays,
incremental expenses related to the above disruptions were incurred throughout the related time periods. These disruptions to our
shipping have had a negative impact on our net sales, operating expenses, and net income for Fiscal 2015 and 2014, and any future
disruptions could have a negative impact on our results of operations.
Currency fluctuation and the Strengthening U.S. Dollar. Our consolidated operations are impacted by the relationships
between our reporting currency, the U.S. dollar, and those of our non-U.S. subsidiaries whose functional/local currency is other than
24
the U.S. dollar. The recent decline in the value of the Euro relative to the U.S. Dollar has impacted the conversion of the results of our European
operations, as they are reported, which represent approximately 20% of our consolidated revenue. At March 28, 2015, the Euro experienced an
approximate 21% decline in value relative to the U.S. Dollar compared to the same time in the prior year, and we believe that this trend may
continue in Fiscal 2016. Our results have also been negatively impacted by an approximate 12% year-over-year decline in the Canadian Dollar
relative to the U.S. Dollar.
Costs of Manufacturing. Our industry is subject to volatility in costs related to certain raw materials used in the manufacturing of our
products. This volatility applies primarily to costs driven by commodity prices, which can increase or decrease dramatically over a short period of
time. These fluctuations may have a material impact on our sales, results of operations and cash flows to the extent they occur. We use
commercially reasonable efforts to mitigate these effects by sourcing our products as efficiently as possible. In addition, manufacturing labor
costs are also subject to degrees of volatility based on local and global economic conditions. We use commercially reasonable efforts to source
from localities that suit our manufacturing standards and result in more favorable labor driven costs to our products.
Establishing brand identity and enhancing global presence. We intend to continue to increase our international presence and global
brand recognition through the formation of various joint ventures with international partners, and continuing with our international licensing
arrangements. We feel this is an efficient method for continued penetration into the global luxury goods market, especially for markets where we
have yet to establish a substantial presence.
Demand for Our Accessories and Related Merchandise. Our performance is affected by trends in the luxury goods industry, as well as
shifts in demographics and changes in lifestyle preferences. Currently, we expect that the demand for our products will continue to grow, as the
demand for the worldwide luxury goods industry, and accessories in particular, is predicted to experience continued growth. We believe that we
are well positioned to capitalize on the continued growth of the accessories product category, as it is one of our primary product categories of
focus.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period.
Critical accounting policies are those that are the most important to the portrayal of our financial condition and results of operations, and that
require our most difficult, subjective and complex judgments to make estimates about the effect of matters that are inherently uncertain. In
applying such policies, we must use certain assumptions that are based upon our informed judgments, assessments of probability and best
estimates. Estimates, by their nature, are subjective and are based upon analysis of available information, including historical factors, current
circumstances and the experience and judgment of management. We evaluate our assumptions and estimates on an ongoing basis. While our
significant accounting policies are detailed in Note 2 to the accompanying audited financial statements, our critical accounting policies are
discussed below and pertain to revenue recognition, inventories, impairment of long-lived assets, goodwill, share-based compensation,
derivatives and income taxes.
Revenue Recognition
Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been fixed and
determinable and collectability is reasonably assured. We recognize retail store revenue upon sale of our products to retail consumers, net of
estimated returns. Revenue from sales through our e-commerce site is recognized at the time of delivery to the customer, reduced by an estimate
of returns. Wholesale revenue is recognized net of estimates for sales returns, discounts, markdowns and allowances, after merchandise is shipped
and title and risk of loss are transferred to our wholesale customers. To arrive at net sales for retail, gross sales are reduced by actual customer
returns, as well as by a provision for estimated future customer returns, which is based on management’s review of historical and current
customer returns. The amounts reserved for retail sales returns were $2.5 million, $2.3 million, and $3.1 million at March 28, 2015, March 29,
2014 and March 30, 2013, respectively. To arrive at net sales for wholesale, gross sales are reduced by provisions for estimated future returns
based on current expectations, as well as trade discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling
expenses. Total sales reserves for wholesale were $87.5 million, $65.9 million and $43.0 million at March 28, 2015, March 29, 2014 and
March 30, 2013, respectively. These estimates are based on such factors as historical trends, actual and forecasted performance, and market
conditions, which are reviewed by management on a quarterly basis. Our historical estimates of these costs were not materially different from
actual results.
As of March 28, 2015, a hypothetical 1% increase in allowances for our reserves for sales returns, discounts, markdowns and other
allowances would have decreased our Fiscal 2015 revenues by less than $1 million.
Royalty revenue generated from product licenses, which includes contributions for advertising, is based on reported sales of licensed
products bearing our tradenames at rates specified in the license agreements. These agreements are also subject to contractual minimum levels.
Royalty revenue generated by geography-specific licensing agreements is recognized as it is earned under the licensing agreements based on
reported sales of licensees applicable to specified periods, as outlined in the agreements. These agreements allow for the use of our tradenames to
sell our branded products in specific geographic regions.
25
Inventories
Our inventory costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the
Company’s warehouses, which are located in the United States, Holland, Canada, Japan and Hong Kong. We continuously evaluate
the composition of our inventory and make adjustments when the cost of inventory is not expected to be fully recoverable. The net
realizable value of our inventory is estimated based on historical experience, current and forecasted demand, and market conditions.
In addition, reserves for inventory loss are estimated based on historical experience and physical inventory counts. Our inventory
reserves are estimates, which could vary significantly from actual results if future economic conditions, customer demand or
competition differ from expectations. Our historical estimates of these adjustments have not differed materially from actual results.
Long-lived Assets
We evaluate all long-lived assets, including fixed assets and finite-lived intangible assets, for impairment whenever events
or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. For the purposes of
impairment testing, we group our long-lived assets according to their lowest level of use, such as aggregating and capitalizing all
construction costs related to a retail store into leasehold improvements and those related to our wholesale business into shop-in-shops.
Our leasehold improvements are typically amortized over the life of the store lease, including highly probable renewals, and our
shop-in-shops are amortized over a useful life of three or four years. Our impairment testing is based on our best estimate of the future
operating cash flows. If the sum of our estimated undiscounted future cash flows associated with the asset is less than the asset’s
carrying value, we recognize an impairment charge, which is measured as the amount by which the carrying value exceeds the fair
value of the asset. These estimates of cash flow require significant management judgment and certain assumptions about future
volume, sales and expense growth rates, devaluation and inflation. As such, these estimates may differ from actual cash flows and
future impairments may result if actual cash flows are lower than our expectations. For Fiscal 2015, Fiscal 2014, and Fiscal 2013, we
recorded charges for impairments on fixed assets related to our retail segment of $0.8 million, $1.3 million and $0.7 million,
respectively.
Goodwill
We perform an impairment assessment of goodwill on an annual basis, or whenever impairment indicators exist. In the
absence of any impairment indicators, goodwill is assessed during the fourth quarter of each fiscal year. These assessments are made
with regards to reporting units within our wholesale and licensing segments where our goodwill is recorded, and are based on our
current operating projections. Judgments regarding the existence of impairment indicators are based on market conditions and
operational performance of the business.
We assess our goodwill for impairment initially using a qualitative approach (“step zero”) to determine whether it is more
likely than not that the fair value of goodwill is greater than its carrying value. If the results of the qualitative assessment indicate that
it is not more likely than not that the fair value of goodwill exceeds its carrying value, a quantitative goodwill analysis would be
performed to determine if impairment is required. The valuation methods used in the quantitative fair value assessment, discounted
cash flow and market multiples methods, require our management to make certain assumptions and estimates regarding certain
industry trends and future profitability of our reporting units. If the carrying amount of a reporting unit exceeds its fair value, we
would compare the implied fair value of the reporting unit goodwill to its carrying value. To compute the implied fair value, we
would assign the fair value of the reporting unit to all of the assets and liabilities of that unit (including any unrecognized intangible
assets) as if the reporting unit had been acquired in a business combination. The excess of the fair value of a reporting unit over the
amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying value of the reporting unit’s goodwill
exceeded the implied fair value of the reporting unit’s goodwill, we would record an impairment loss to write down such goodwill to
its implied fair value. The valuation of goodwill is affected by, among other things, our business plan for the future and estimated
results of future operations. Future events could cause us to conclude the impairment indicators exist and, therefore, that goodwill
may be impaired.
During the fourth quarter of Fiscal 2015, we performed our annual impairment analysis using a qualitative approach. Based
on the results of this assessment, we concluded that the carrying amounts of all reporting units were significantly exceeded by their
respective fair values, and there were no reporting units at risk of impairment. There were no impairment charges related to goodwill
in any of the fiscal periods presented.
26
Share-based Compensation
We grant share-based awards to certain of our employees and directors. The grant date fair value of share options is
calculated using the Black-Scholes option pricing model, which requires us to use subjective assumptions. The closing market price at
the grant date is used to determine the grant date fair value of restricted shares, restricted share units, and performance restricted share
units. These values are recognized as expense over the requisite service period, net of estimated forfeitures, based on expected
attainment of pre-established performance goals for performance grants, or the passage of time for those grants which have only
time-based vesting requirements.
Our expected volatility is based on the average volatility rates of similar actively traded companies over the past 4.5-9.5
years, which is our range of estimated expected holding periods. The expected holding period for performance-based options is based
on the period to expiration, which is generally 9-10 years. This approach was chosen as it directly correlates to our service period.
The expected holding period for time-based options is calculated using a simplified method, which uses the vesting term of the
options, generally 4 years, and the contractual term of 7 years, resulting in holding periods of 4.5-4.75 years. The simplified method
was chosen as a means to determine the Company’s estimated holding period, as prior to December 2011, the Company was privately
held and, as such, there is insufficient historical option exercise experience. The risk-free rate is derived from the zero-coupon U.S.
Treasury Strips yield curve based on the grant’s estimated holding period. Determining the grant date fair value of share-based awards
requires considerable judgment, including estimating expected volatility, expected term, risk-free rate, and forfeitures. If factors
change and we employ different assumptions, the fair value of future awards and resulting share-based compensation expense may
differ significantly from what we have estimated in the past.
Derivative Financial Instruments
We use forward currency exchange contracts to manage our exposure to fluctuations in foreign currency for certain of our
transactions. We are exposed to risks on certain purchase commitments to foreign suppliers based on the value of our purchasing
subsidiaries’ local currency relative to the currency requirement of the supplier on the date of the commitment. As such, we enter into
forward currency contracts that generally mature in 12 months or less, which is consistent with the related purchase commitments.
We designate certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow hedges, while
others remain undesignated. All of our derivative instruments are recorded in our consolidated balance sheets at fair value on a gross
basis, regardless of their hedge designation. The effective portion of changes in the fair value for contracts designated as cash flow
hedges is recorded in equity as a component of accumulated other comprehensive income (loss) until the hedged item effects
earnings. When the inventory related to forecasted inventory purchases that are being hedged is sold to a third party, the gains or
losses deferred in accumulated other comprehensive income (loss) are recognized within cost of goods sold. We use regression
analysis to assess effectiveness of derivative instruments that are designated as hedges, which compares the change in the fair value of
the derivative instrument to the change in the related hedged item. Effectiveness is assessed on a quarterly basis and any portion of
the designated hedge contracts deemed ineffective is recorded to other income. If the hedge is no longer expected to be highly
effective in the future, future changes in the fair value are recognized in earnings. For those contracts that are not designated as
hedges, changes in the fair value are recorded in other income in our consolidated statements of operations.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual
obligations. In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial
institutions based upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure.
Income Taxes
Deferred income tax assets and liabilities reflect temporary differences between the tax basis and financial reporting basis
of our assets and liabilities and are determined using the tax rates and laws in effect for the periods in which the differences are
expected to reverse. We periodically assess the realizability of deferred tax assets and the adequacy of deferred tax liabilities, based
on the results of local, state, federal or foreign statutory tax audits or our own estimates and judgments.
Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon
generating sufficient taxable income prior to their expiration in the applicable tax jurisdiction. We periodically review the
recoverability of our deferred tax assets and provide valuation allowances as deemed necessary to reduce deferred tax assets to
amounts that more-likely-than-not will be realized. This determination involves considerable judgment and our management
considers many factors when assessing the likelihood of future realization of deferred tax assets, including recent earnings results
within various taxing jurisdictions, expectations of future taxable income, the carryforward periods remaining and other factors.
Changes in the required valuation allowance are recorded in income in the period such determination is made. Deferred tax assets
could be reduced in the future if our estimates of taxable income during the carryforward period are significantly reduced or
alternative tax strategies are no longer viable.
27
We recognize the impact of an uncertain income tax position taken on our income tax returns at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing authority. The effect of an uncertain income tax position will
not be taken into account if the position has less than a 50% likelihood of being sustained. Our tax positions are analyzed periodically
(at least quarterly) and adjustments are made as events occur that warrant adjustments for those positions. We record interest expense
and penalties payable to relevant tax authorities as income tax expense.
Recent Accounting Pronouncements
We have considered all new accounting pronouncements, and other than the recent pronouncements discussed below, have
concluded that there are no new pronouncements that have a material impact on our results of operations, financial condition or cash
flows based on current information.
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period,” ASU 2014-12 requires that a performance target under stock-based compensation
arrangements that could be achieved after the service period is treated as a performance condition and not reflected in the grant-date
fair value of the award. Rather, the related compensation cost should be recognized when it becomes probable that the performance
targets will be achieved. ASU 2014-12 is effective beginning with our Fiscal 2017, with early adoption and retrospective application
permitted. We do not expect that ASU 2014-12 will have a significant impact on our consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides new
guidance for revenues recognized from contracts with customers, and will replace the existing revenue recognition guidance. ASU
No. 2014-09 requires that revenue is recognized at an amount the company is entitled to upon transferring control of goods or services
to customers, as opposed to when risks and rewards transfer to a customer. ASU No. 2014-09 will become effective for the interim
reporting periods within the annual reporting period beginning after December 15, 2016, or beginning with our Fiscal 2018, and may
be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the
year of adoption. In April 2015, the FASB issued a proposal to defer the effective date by one year which, if approved, would make
this standard effective beginning in our Fiscal 2019. We are currently evaluating the adoption method and the impact that
ASU 2014-09 will have on our consolidated financial statements and related disclosures.
Segment Information
We generate revenue through three business segments: retail, wholesale and licensing. The following table presents our
revenue and income from operations by segment for Fiscal 2015, Fiscal 2014 and Fiscal 2013 (in thousands):
Revenue:
Net sales: Retail
Wholesale
Licensing
Total revenue
Income from operations:
Retail
Wholesale
Licensing
Income from operations
Retail
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$2,134,578
2,065,088
171,803
$1,593,005
1,577,517
140,321
$4,371,469
$3,310,843
$1,062,642
1,032,115
86,975
$2,181,732
$ 557,162
610,886
88,925
$1,256,973
$ 467,248
459,774
81,149
$1,008,171
$ 315,654
269,323
45,037
$ 630,014
We sell our products, as well as licensed products bearing our name, directly to the end consumer through our retail stores
and concessions throughout North America, Europe, and Japan. We have four primary retail store formats: collection stores, lifestyle
stores, outlet stores and e-commerce. Our collection stores are located in highly prestigious shopping areas, while our lifestyle stores
are located in well-populated commercial shopping locations and leading regional shopping centers. Our outlet stores,
28
which are generally in outlet centers, extend our reach to additional consumer groups. In addition to these three retail store formats,
we operate concessions in a select number of department stores in North America, Europe and Japan. During Fiscal 2015, we also
launched a new U.S. e-commerce platform and continued to expand our global e-commerce presence by launching a new e-commerce
site in Canada in April 2015.
The following table presents the growth in our network of retail stores during Fiscal 2015, Fiscal 2014 and Fiscal 2013:
Full price retail stores including concessions:
Number of stores
Increase during period
Percentage increase vs. prior year
Total gross square footage
Average square footage per store
Outlet stores:
Number of stores
Increase during period
Percentage increase vs. prior year
Total gross square footage
Average square footage per store
The following table presents our retail stores by geographic location:
Store count by region:
North America
Europe
Japan
Total
Wholesale
March 28,
2015
March 29,
2014
March 30,
2013
373
94
33.7%
279
78
38.8%
201
43
27.2%
859,352
2,304
562,773
2,017
410,681
2,043
153
27
21.4%
126
23
22.3%
103
24
30.4%
517,308
3,381
381,567
3,028
291,407
2,829
March 28,
2015
March 29,
2014
March 30,
2013
343
133
50
526
288
80
37
405
231
44
29
304
We sell our products directly to department stores primarily located across North America and Europe to accommodate
consumers who prefer to shop at major department stores. In addition, we sell to specialty stores for those consumers who enjoy the
boutique experience afforded by such stores. We continue to focus our sales efforts and drive sales in existing locations by enhancing
presentation, primarily through the creation of more shop-in-shops with our proprietary fixtures that effectively communicate our
brand and create a more personalized shopping experience for consumers. We tailor our assortments through wholesale product
planning and allocation processes to better match the demands of our department store customers in each local market.
The following table presents the growth in our network of wholesale doors during Fiscal 2015, Fiscal 2014 and Fiscal
2013:
Number of full-price wholesale doors
Increase during period
Percentage increase vs. prior year
Licensing
March 28,
2015
4,038
310
8.3%
Fiscal Years Ended
March 29,
2014
3,728
479
14.7%
March 30,
2013
3,249
572
21.4%
We generate revenue through product and geographic licensing arrangements. Our product license agreements allow third
parties to use our brand name and trademarks in connection with the manufacturing and sale of a variety of products, including
watches, fragrances and beauty, eyewear and jewelry. In our product licensing arrangements, we take an active role in the design
process, marketing and distribution of products under our brands. Our geographic licensing arrangements allow third parties to use
our tradenames in connection with the retail and/or wholesale sales of our branded products in specific geographic regions.
29
Key Performance Indicators and Statistics
We use a number of key indicators of operating results to evaluate our performance, including the following (dollars in
thousands):
Total revenue
Gross profit as a percent of total revenue
Income from operations
Retail net sales - North America
Retail net sales - Europe
Retail net sales - Japan
Increase in comparable store net sales - North America
Increase in comparable store net sales - Europe
Increase in comparable store net sales - Japan
Wholesale net sales - North America
Wholesale net sales - Europe
Wholesale net sales - Asia
March 28,
2015
$4,371,469
Fiscal years ended
March 29,
2014
$3,310,843
March 30,
2013
$2,181,732
60.6%
60.9%
59.9%
$1,256,973
$1,656,095
$ 412,063
66,420
$
$1,008,171
$1,318,887
$ 235,571
38,547
$
$ 630,014
$ 938,515
$ 101,754
22,373
$
6.9%
25.1%
33.9%
22.5%
60.0%
29.0%
39.6%
51.3%
14.7%
$1,662,540
$ 401,068
1,480
$
$1,335,545
$ 241,972
—
$
$ 913,145
$ 118,970
—
$
General Definitions for Operating Results
Net sales consist of sales from comparable retail stores and non-comparable retail stores, net of returns and markdowns, as
well as those made to our wholesale customers, net of returns, discounts, markdowns and allowances.
Comparable store sales include sales from a store that has been opened for one full year after the end of the first month of
its operations. For stores that are closed, sales that were made in the final month of their operations (assuming closure prior to the
fiscal months end), are excluded from the calculation of comparable store sales. Additionally, sales for stores that are either relocated,
or expanded by a square footage of 25% or greater, in any given fiscal year, are also excluded from the calculation of comparable
store sales at the time of their move or interruption, until such stores have been in their new location, or are operating under their new
size/capacity, for at least one full year after the end of the first month of their relocation or expansion. All comparable store sales are
presented on a 52-week basis.
Constant currency effects are non-GAAP financial measures, which are provided to supplement our reported operating
results to facilitate comparisons of our operating results and trends in our business, excluding the effects of foreign currency rate
fluctuations. Because we are a global Company, foreign currency exchange rates may have a significant effect on our reported results.
We calculate constant currency measures and the related foreign currency impacts by translating the current-year’s reported amounts
into comparable amounts using prior year’s foreign exchange rates for each currency. All constant currency performance measures
discussed below should be considered a supplement to and not in lieu of our operating performance measures calculated in
accordance with accounting principles generally accepted in the United States (“U.S. GAAP.”)
Licensing revenue consists of fees charged on sales of licensed products to our licensees as well as contractual royalty
rates for the use of our trademarks in certain geographic territories.
Cost of goods sold includes the cost of inventory sold, freight-in on merchandise and foreign currency exchange
gains/losses related to forward contracts for purchase commitments. All retail store operating and occupancy costs are included in
Selling, general and administrative expenses (see below), and as a result our cost of goods sold may not be comparable to that of
other entities that have chosen to include some or all of those expenses as a component of their cost of goods sold.
Gross profit is total revenue (net sales plus licensing revenue) minus cost of goods sold. As a result of retail store operating
and occupancy costs being excluded from our cost of goods, our gross profit may not be comparable to that of other entities that have
chosen to include some or all of those expenses as a component of their gross profit.
Selling, general and administrative expenses consist of warehousing and distribution costs, rent for our distribution
centers, store payroll, store occupancy costs (such as rent, common area maintenance, store pre-opening, real estate taxes and
utilities), information technology and systems costs, corporate payroll and related benefits, advertising and promotion expense and
other general expenses.
30
Depreciation and amortization includes depreciation and amortization of fixed and definite-lived intangible assets.
Impairment charges consist of charges to write-down both fixed and intangible assets to fair value.
Income from operations consists of gross profit minus total operating expenses.
Other expense (income) includes proceeds received related to our anti-counterfeiting efforts, net gains or losses related to
the mark-to-market (fair value) on our forward currency contracts not designated as hedges and income or loss earned on our joint
venture. Future amounts may include any miscellaneous activities not directly related to our operations.
Interest expense, net represents interest and fees on our revolving credit facilities and letters of credit (see “Liquidity and
Capital Resources” for further detail on our credit facilities), as well as amortization of deferred financing costs, offset by interest
earned on highly liquid investments (investments purchased with an original maturity of six months or less, classified as cash
equivalents), as well as interest income earned on the loan to our joint venture.
Foreign currency loss (gain) represents unrealized income or loss from the re-measurement of monetary assets and
liabilities denominated in currencies other than the functional currencies of our subsidiaries.
Results of Operations
Comparison of Fiscal 2015 with Fiscal 2014
The following table details the results of our operations for Fiscal 2015 and Fiscal 2014 and expresses the relationship of
certain line items to total revenue as a percentage (dollars in thousands):
Fiscal Years Ended
March 28,
2015
March 29,
2014
$ Change
% Change
% of Total
Revenue for
Fiscal 2015
% of Total
Revenue for
Fiscal 2014
$4,199,666 $3,170,522 $1,029,144
31,482
171,803
1,060,626
4,371,469
429,045
1,723,818
631,581
2,647,651
324,518
1,251,431
58,771
138,425
822
(510)
382,779
1,390,678
248,802
1,256,973
(3,117)
(3,117)
(178)
215
3,921
4,052
248,176
1,255,823
374,800
28,638
$ 881,023 $ 661,485 $ 219,538
140,321
3,310,843
1,294,773
2,016,070
926,913
79,654
1,332
1,007,899
1,008,171
—
393
131
1,007,647
346,162
32.5%
22.4%
32.0%
33.1%
31.3%
35.0%
73.8%
-38.3%
38.0%
24.7%
NM
-45.3%
NM
24.6%
8.3%
33.2%
39.4%
60.6%
28.6%
3.2%
0.0%
31.8%
28.8%
-0.1%
0.0%
0.1%
28.7%
8.6%
39.1%
60.9%
28.0%
2.4%
0.0%
30.4%
30.5%
0.0%
0.0%
0.0%
30.4%
10.5%
Statements of Operations Data:
Net sales
Licensing revenue
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income
Interest expense, net
Foreign currency loss
Income before provision for income taxes
Provision for income taxes
Net income
NM Not meaningful.
Total Revenue
Total revenue increased $1,060.6 million, or 32.0%, to $4,371.5 million for the fiscal year ended March 28, 2015,
compared to $3,310.8 million for the fiscal year ended March 29, 2014, which included unfavorable foreign currency effects of
$76.5 million primarily related to the weakening of the Euro and the Canadian Dollar against the U.S. Dollar in Fiscal 2015 as
compared to
31
Fiscal 2014. On a constant currency basis, our total revenue increased by $1,137.1 million, or 34.3%. The increase in our revenues was due to
an increase in our comparable and non-comparable retail store sales and wholesale sales, as well as increases in our licensing revenue.
The following table details revenues for our three business segments (dollars in thousands):
Fiscal Years Ended
March 28,
2015
March 29,
2014
% Change
$ Change
As Reported
Constant
Currency
% of Total
Revenue
for Fiscal
2015
% of Total
Revenue
for Fiscal
2014
Revenue:
Net sales: Retail
Wholesale
Licensing
Total revenue
Retail
$2,134,578 $1,593,005 $ 541,573
487,571
31,482
1,577,517
140,321
2,065,088
171,803
$4,371,469
$3,310,843
$1,060,626
34.0%
30.9%
22.4%
32.0%
36.7%
33.0%
22.4%
34.3%
48.8%
47.3%
3.9%
48.1%
47.7%
4.2%
Net sales from our retail stores increased $541.6 million, or 34.0%, to $2,134.6 million for Fiscal 2015, compared to $1,593.0
million for Fiscal 2014, which included unfavorable foreign currency effects of $43.0 million. On a constant currency basis, net sales from our
retail stores increased $584.6 million, or 36.7%. We operated 526 retail stores, including concessions, as of March 28, 2015, compared to 405
retail stores, including concessions, as of March 29, 2014.
Our comparable store sales increased $143.9 million, or 10.3%, during Fiscal 2015, which included unfavorable foreign currency
effects of $22.5 million. On a constant currency basis, our comparable store sales increased $166.4 million, or 11.9%. The growth in our
comparable store sales was primarily due to an increase in sales from our accessories product line during Fiscal 2015.
Our non-comparable store sales increased $397.7 million during Fiscal 2015, which included unfavorable foreign currency effects
of $20.5 million. On a constant currency basis, our non-comparable store sales increased $418.2 million. This sales growth was primarily
attributable to operating 121 additional stores since March 29, 2014 and sales from our e-commerce site.
Wholesale
Net sales to our wholesale customers increased $487.6 million, or 30.9%, to $2,065.1 million for Fiscal 2015, compared to
$1,577.5 million for Fiscal 2014, which included unfavorable foreign currency effects of $33.5 million. On a constant currency basis, our
wholesale net sales increased $521.1 million, or 33.0%. The increase in our wholesale net sales was primarily attributable to increased sales
from our accessories and footwear product lines during Fiscal 2015, as we continue to enhance our presence in department and specialty stores
by converting more doors to shop-in-shops. In addition, wholesale net sales increased due to the continuing expansion of our European
operations, whose net sales grew by 65.7% from Fiscal 2015 to Fiscal 2014.
Licensing
Royalties earned on our licensing agreements increased $31.5 million, or 22.4%, to $171.8 million for Fiscal 2015, compared to
$140.3 million for Fiscal 2014. The increase in licensing revenue was primarily due to royalties earned on licensing agreements related to the
sales of watches, jewelry and winter outerwear.
Gross Profit
Gross profit increased $631.6 million, or 31.3%, to $2,647.7 million during Fiscal 2015, compared to $2,016.1 million for Fiscal
2014, which included unfavorable foreign currency effects of $51.2 million. Gross profit as a percentage of total revenue declined to 60.6%
during Fiscal 2015, compared to 60.9% during Fiscal 2014. The decline in gross profit margin resulted from a decrease of 66 basis points in
gross profit margin from our retail segment, which represents nearly half of our business. The decrease in gross profit margin from our retail
segment was primarily due to an increase in markdowns and discounts, partially offset by a more favorable product mix experienced during
Fiscal 2015 as compared to Fiscal 2014. Wholesale gross margin remained flat, as the favorable impact resulting from the increase on our
European wholesale sales in proportion to total wholesale sales was offset by higher allowances in Fiscal 2015, as compared to Fiscal 2014.
Total Operating Expenses
Total operating expenses increased $382.8 million, or 38.0%, to $1,390.7 million during Fiscal 2015, compared to $1,007.9 million
for Fiscal 2014. Our operating expenses included a net favorable foreign currency impact of approximately $30.3 million. Total operating
32
expenses as a percentage of total revenue increased to 31.8% in Fiscal 2015, as compared to 30.4% in Fiscal 2014. The changes in our
operating expenses are further described below:
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $324.5 million, or 35.0%, to $1,251.4 million during Fiscal 2015,
compared to $926.9 million for Fiscal 2014. The increase in selling, general and administrative expenses was primarily due to the following:
•
•
•
•
•
•
An increase in retail-related costs, including salary and occupancy cost, of $180.1 million, primarily attributable to
operating 526 retail stores versus 405 retail stores in the prior period;
an increase in corporate employee-related costs of $70.1 million, primarily due to an increase in our corporate staff
to support our North American and international growth;
an increase in promotional costs (which consist of advertising, marketing and various promotional costs) of
$25.9 million, primarily due to our continuing expansion into new markets, as well as social media during Fiscal
2015;
an increase in professional fees of $23.4 million, primarily comprised of legal and consulting fees incurred in
connection with the relocation of our principal executive offices, as well as fees related to our new customer service
call center in Fiscal 2015;
an increase in distribution expenses of $13.9 million, primarily due to increased shipments attributable to increased
sales, as well incremental costs incurred to ensure timely delivery of our products to customers despite the
aforementioned delays at the U.S. west coast ports; and
an increase in litigation-related costs of $3.6 million.
Selling, general and administrative expenses as a percentage of total revenue increased to 28.6% during Fiscal 2015, compared to
28.0% for Fiscal 2014, primarily due to the aforementioned retail store and overhead costs, as well as corporate operating expenses during
Fiscal 2015, as compared to Fiscal 2014. These increases were partially offset by our operating leverage achieved on other operating
expenses, including selling and distribution costs as a percentage of total revenue.
Depreciation and Amortization
Depreciation and amortization increased $58.7 million, or 73.8%, to $138.4 million during Fiscal 2015, compared to
$79.7 million for Fiscal 2014, primarily due to an increase in the build-out of our new retail stores, new shop-in-shop locations, increase
in lease rights related to our new European stores, and investments made in our information systems infrastructure to accommodate our
growth. Depreciation and amortization increased to 3.2% as a percentage of total revenue during Fiscal 2015, compared to 2.4% for Fiscal
2014.
Impairment of Long-Lived Assets
During Fiscal 2015 and Fiscal 2014, we recognized impairment charges of approximately $0.8 million and $1.3 million,
respectively, on fixed assets related to two of our retail locations in Fiscal 2015 and three retail locations in Fiscal 2014.
Income from Operations
As a result of the foregoing, income from operations increased $248.8 million, or 24.7%, to $1,257.0 million during Fiscal 2015,
compared to $1,008.2 million for Fiscal 2014, which included unfavorable foreign currency effects of $20.9 million. Income from operations
as a percentage of total revenue declined to 28.8% during Fiscal 2015, compared to 30.5% for Fiscal 2014.
The following table details income from operations for our three business segments (dollars in thousands):
Fiscal Years Ended
March 28,
2015
March 29,
2014
$ Change
% Change
% of Net
Sales/
Revenue for
Fiscal 2015
% of Net
Sales/
Revenue for
Fiscal 2014
Income from Operations:
Retail
Wholesale
Licensing
$ 557,162 $ 467,248 $ 89,914
459,774 151,112
7,776
610,886
88,925
81,149
Income from operations
$1,256,973
$1,008,171
$248,802
33
19.2%
32.9%
9.6%
24.7%
26.1%
29.6%
51.8%
28.8%
29.3%
29.1%
57.8%
30.5%
Retail
Income from operations for our retail segment increased $89.9 million, or 19.2%, to $557.2 million during Fiscal 2015, compared
to $467.3 million for Fiscal 2014. Income from operations as a percentage of net retail sales for the retail segment declined by approximately
3.2% to 26.1% during Fiscal 2015. The decrease in retail income from operations as a percentage of net sales was primarily due to an
increase in operating costs as a percentage of net retail sales of approximately 2.6%, as well as due to the decrease in gross profit margin, as
previously discussed above, during Fiscal 2015 as compared to Fiscal 2014. The increase in operating expenses as a percentage of net retail
sales was largely due to an increase in depreciation and amortization expense, primarily related to new stores and lease rights (key money),
as well as increased retail store and overhead costs, and distribution expenses.
Wholesale
Income from operations for our wholesale segment increased $151.1 million, or 32.9%, to $610.9 million during Fiscal 2015,
compared to $459.8 million for Fiscal 2014. Income from operations as a percentage of net wholesale sales increased approximately 50 basis
points to 29.6%. This increase as a percentage of net sales was due to a net decrease in operating expenses as a percentage of net wholesale
sales during Fiscal 2015 as compared to Fiscal 2014, which was primarily due to lower selling and distribution costs, reflecting our operating
expense leverage, partially offset by increased depreciation and amortization expenses as a result of the growth in our wholesale doors.
Licensing
Income from operations for our licensing segment increased $7.8 million, or 9.6%, to $88.9 million during Fiscal 2015, compared
to $81.1 million for Fiscal 2014. Income from operations as a percentage of licensing revenue decreased approximately 6.0% to 51.8%. This
decrease as a percentage of licensing revenue was due to an increase in operating expenses as a percentage of licensing revenues during
Fiscal 2015, as compared to Fiscal 2014. This increase was largely due to increased advertising expenses, as well as certain administrative
expenses incurred in connection with the formation of our new licensing operations in Europe during Fiscal 2015.
Other income
Other income was $3.1 million during Fiscal 2015, and was comprised of the following: $1.5 million in income related to our
anti-counterfeiting efforts, an unrealized gain of $1.5 million related to mark-to-market of our forward foreign currency contracts not
designated as accounting hedges, and a gain of $0.1 million earned on our joint venture.
Foreign Currency Loss
We recognized a foreign currency loss of $4.1 million during Fiscal 2015, as compared to a foreign currency loss of $0.1 million
during Fiscal 2014. The Fiscal 2015 loss was primarily related to the revaluation and settlement of certain of our accounts payable in
currencies other than the functional currency of the applicable reporting units, as well as the strengthening of the U.S. Dollar relative to the
Euro and the Canadian Dollar, which impacted the re-measurement of dollar-denominated intercompany loans with certain of our
subsidiaries. The $0.1 million loss for Fiscal 2014 was primarily related to the revaluation and settlement of certain of our accounts payable
in currencies other than the functional currency of the applicable reporting units.
Provision for Income Taxes
We recognized $374.8 million of income tax expense during Fiscal 2015, compared with $346.2 million for Fiscal 2014. Our
effective tax rate for Fiscal 2015 was 29.8%, compared to 34.4% for Fiscal 2014. The decrease in our effective tax rate was primarily due to
the increase in taxable income in certain of our non-U.S. subsidiaries (predominantly European operations) during Fiscal 2015, which are
subject to lower statutory income tax rates. Given that certain of our non-U.S. operations have become consistently profitable, we expect this
impact on our combined consolidated effective rate to continue. The Fiscal 2015 effective tax rate was also favorably impacted by the
settlement of certain financial instruments in connection with our international income tax structuring.
Our effective tax rate may fluctuate from time to time due to the effects of changes in U.S. state and local taxes and tax rates in
foreign jurisdictions. In addition, factors such as the geographic mix of earnings, enacted tax legislation and the results of various global tax
strategies, may also impact our effective tax rate in future periods.
Net Income
As a result of the foregoing, our net income increased $219.5 million, or 33.2%, to $881.0 million during Fiscal 2015, compared
to $661.5 million for Fiscal 2014.
34
Comparison of Fiscal 2014 with Fiscal 2013
The following table details the results of our operations for Fiscal 2014 and Fiscal 2013 and expresses the relationship of
certain line items to total revenue as a percentage (dollars in thousands):
Fiscal Years Ended
March 29,
2014
March 30,
2013
$ Change
% Change
% of Total
Revenue for
Fiscal 2014
% of Total
Revenue for
Fiscal 2013
Statements of Operations Data:
Net sales
Licensing revenue
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Total operating expenses
Income from operations
Interest expense, net
Foreign currency loss
Income before provision for income taxes
Provision for income taxes
Net income
$3,170,522 $2,094,757 $1,075,765
53,346
140,321
1,129,111
3,310,843
419,607
1,294,773
709,504
2,016,070
305,377
926,913
25,363
79,654
1,332
607
331,347
1,007,899
378,157
1,008,171
(1,131)
393
(1,232)
131
1,007,647
380,520
116,637
346,162
$ 661,485 $ 397,602 $ 263,883
86,975
2,181,732
875,166
1,306,566
621,536
54,291
725
676,552
630,014
1,524
1,363
627,127
229,525
51.4%
61.3%
51.8%
47.9%
54.3%
49.1%
46.7%
83.7%
49.0%
60.0%
-74.2%
-90.4%
60.7%
50.8%
66.4%
39.1%
60.9%
28.0%
2.4%
0.0%
30.4%
30.5%
0.0%
0.0%
30.4%
10.5%
40.1%
59.9%
28.5%
2.5%
0.0%
31.0%
28.9%
0.1%
0.1%
28.7%
10.5%
Total Revenue
Total revenue increased $1,129.1 million, or 51.8%, to $3,310.8 million for the fiscal year ended March 29, 2014,
compared to $2,181.7 million for the fiscal year ended March 30, 2013. The increase was the result of an increase in our comparable
and non-comparable retail store sales and wholesale sales, as well as increases in our licensing revenue.
The following table details revenues for our three business segments (dollars in thousands):
Revenue:
Net sales: Retail
Wholesale
Licensing
Total Revenue
Retail
Fiscal Years Ended
March 29,
2014
March 30,
2013
$ Change
% Change
% of Total
Revenue
for Fiscal
2014
% of Total
Revenue
for Fiscal
2013
$1,593,005 $1,062,642 $ 530,363
545,402
1,577,517 1,032,115
53,346
86,975
$3,310,843 $2,181,732 $1,129,111
140,321
49.9%
52.8%
61.3%
51.8%
48.1%
47.6%
4.2%
48.7%
47.3%
4.0%
Net sales from our retail stores increased $530.4 million, or 49.9%, to $1,593.0 million for Fiscal 2014, compared to
$1,062.6 million for Fiscal 2013. We operated 405 retail stores, including concessions, as of March 29, 2014, compared to 304 retail
stores, including concessions, as of March 30, 2013. During Fiscal 2014, our comparable store sales growth increased $275.1 million,
or 26.2%, from Fiscal 2013. The growth in our comparable store sales was primarily due to an increase in sales of our accessories line
and watches during Fiscal 2014. In addition, the change to our non-comparable store sales were $255.3 million during Fiscal 2014,
which was primarily the result of opening 101 new stores since March 30, 2013.
35
Wholesale
Net sales to our wholesale customers increased $545.4 million, or 52.8%, to $1,577.5 million for Fiscal 2014, compared to
$1,032.1 million for Fiscal 2013. The increase in our wholesale net sales occurred primarily as a result of increased sales of our accessories
line during Fiscal 2014, as we continue to enhance our presence in department and specialty stores by converting more doors to
shop-in-shops, and in continuing our expansion of our European operations. Net wholesale sales from our European operations increased
approximately 103.4% during Fiscal 2014 compared to Fiscal 2013, due largely to an increase in full-price doors to 1,232 from 1,034 in the
same period last year.
Licensing
Royalties earned on our licensing agreements increased $53.3 million, or 61.3%, to $140.3 million for Fiscal 2014, compared to
$87.0 million for Fiscal 2013. The increase in royalties was primarily due to royalties earned on licensing agreements related to sales of
watches.
Gross Profit
Gross profit increased $709.5 million, or 54.3%, to $2,016.1 million during Fiscal 2014, compared to $1,306.6 million for Fiscal
2013. Gross profit as a percentage of total revenue increased to 60.9% during Fiscal 2014, compared to 59.9% during Fiscal 2013. The
increase in profit margin resulted from increases in gross profit margin of 25 basis points and 188 basis points from our retail and wholesale
segments, respectively. The increase in profit margin on both our retail and wholesale segments resulted primarily from a more favorable
product sales mix during Fiscal 2014, as compared to Fiscal 2013. In addition, we achieved a more favorable purchase cost to selling price
relationship during Fiscal 2014, as compared to Fiscal 2013, as we experienced reductions in cost on certain of our inventory items.
Total Operating Expenses
Total operating expenses increased $331.3 million, or 49.0%, to $1,007.9 million during Fiscal 2014, compared to $676.6 million
for Fiscal 2013. Total operating expenses decreased to 30.4% as a percentage of total revenue for Fiscal 2014, compared to 31.0% for Fiscal
2013. The components that comprise total operating expenses are explained below:
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $305.4 million, or 49.1%, to $926.9 million during Fiscal 2014, compared
to $621.5 million for Fiscal 2013. The increase in selling, general and administrative expenses was due to the following: increases in our
retail occupancy and salary costs of $167.3 million, an increase in corporate employee-related costs of $57.6 million, an increase in
distribution expenses of $49.5 million, as well as increases in promotional costs (which consist of advertising, marketing and various
promotional costs) of $24.2 million,. The increase in our retail occupancy and payroll costs was due to operating 405 retail stores versus 304
retail stores in the prior period. The increase in our corporate employee-related costs was due primarily to an increase in our corporate staff
to accommodate our North American and international growth. Advertising costs increased primarily due to our continuing expansion into
new markets, including domestic and international, as well as social media during Fiscal 2014. The increases to our distribution expenses
were primarily the result of the aforementioned disruption to our warehouse facility in California during the second and third 2014 fiscal
quarters, as a result of implementation of certain material handling equipment and systems to automate the facility. The expenses related to
this disruption included, shipping and handling, and consulting fees. Selling, general and administrative expenses as a percentage of total
revenue decreased to 28.0% during Fiscal 2014, compared to 28.5% for Fiscal 2013. The decrease as a percentage of total revenue was
primarily due to achieving economies of scale during Fiscal 2014, as compared to Fiscal 2013, as our revenue is increasing at a greater rate
relative to our fixed costs.
Depreciation and Amortization
Depreciation and amortization increased $25.4 million, or 46.7%, to $79.7 million during Fiscal 2014, compared to $54.3 million
for Fiscal 2013. Dollar increases in depreciation and amortization were primarily due to the build-out of 101 new retail locations during this
fiscal year, new shop-in-shop locations, investments made in our information systems infrastructure, as well as for our new U.S. material
handling and distribution systems. Depreciation and amortization decreased to 2.4% as a percentage of total revenue during Fiscal 2014,
compared to 2.5% for Fiscal 2013.
Impairment of Long-Lived Assets
We recognized an impairment charge of approximately $1.3 million on fixed assets related to three of our retail locations during
Fiscal 2014. During Fiscal 2013, we recognized an impairment charge of approximately $0.7 million on fixed assets related to one of our
retail locations.
36
Income from Operations
As a result of the foregoing, income from operations increased $378.2 million, or 60.0%, to $1,008.2 million during Fiscal 2014,
compared to $630.0 million for Fiscal 2013. Income from operations as a percentage of total revenue increased to 30.5% during Fiscal 2014,
compared to 28.9% for Fiscal 2013.
The following table details income from operations for our three business segments (dollars in thousands):
Fiscal Years Ended
March 29,
2014
March 30,
2013
$ Change
% Change
% of Net
Sales/
Revenue for
Fiscal 2014
% of Net
Sales/
Revenue for
Fiscal 2013
Income from Operations:
Retail
Wholesale
Licensing
Income from operations
Retail
$ 467,248 $315,654 $151,594
190,451
36,112
459,774
81,149
269,323
45,037
$630,014
$1,008,171
$378,157
48.0%
70.7%
80.2%
60.0%
29.3%
29.1%
57.8%
30.5%
29.7%
26.1%
51.8%
28.9%
Income from operations for our retail segment increased $151.6 million, or 48.0%, to $467.3 million during Fiscal 2014,
compared to $315.7 million for Fiscal 2013. Income from operations as a percentage of net retail sales for the retail segment decreased
approximately 0.4% as a percentage of net retail sales to 29.3% during Fiscal 2014. The decrease as a percentage of net sales was due to an
approximately 0.6% increase in operating expenses as a percentage of net retail sales, offset, in part, by the aforementioned increase in gross
profit margin as a percentage of net retail sales, discussed above. The increase in operating expenses as a percentage of net retail sales
resulted from an increase in rent on our stores as a percentage of net retail sales during Fiscal 2014, as compared to Fiscal 2013.
Wholesale
Income from operations for our wholesale segment increased $190.5 million, or 70.7%, to $459.8 million during Fiscal 2014,
compared to $269.3 million for Fiscal 2013. Income from operations as a percentage of net wholesale sales for the wholesale segment
increased approximately 3.0% as a percentage of net wholesale sales to 29.1%. This increase was primarily due to the aforementioned
increase in gross profit margin as a percentage of net wholesale sales during Fiscal 2014 compared to Fiscal 2013. In addition, there was a
decrease in operating expenses of approximately 1.2% as a percent of net wholesale sales during Fiscal 2014. The decrease in operating
expenses as a percentage of net wholesale sales resulted from the increase in our net wholesale sales during Fiscal 2014, which grew at a
greater rate relative to expenses and more than offset the additional expenses incurred during the period such as those discussed above in
selling, general and administrative expenses.
Licensing
Income from operations for our licensing segment increased $36.1 million, or 80.2%, to $81.1 million during Fiscal 2014,
compared to $45.0 million for Fiscal 2013. Income from operations as a percentage of licensing revenue for the licensing segment increased
approximately 6% as a percentage of revenue to 57.8%. This increase is primarily the result of the aforementioned increase in sales licensing
revenue, which grew at a greater rate relative to operating expenses during Fiscal 2014.
Interest Expense, net
Interest expense net decreased $1.1 million, or 74.2%, to $0.4 million for Fiscal 2014, as compared to $1.5 million for Fiscal
2013, due primarily to a an increase in interest income earned on our short-term investments (cash equivalents) during Fiscal 2014, as well as
a decrease in borrowing during Fiscal 2014 as compared to Fiscal 2013. The primary components of interest expense during both Fiscal 2014
and 2013 were commitment fees and amortization of deferred financing fees.
Foreign Currency Loss
We recognized a foreign currency loss of $0.1 million during Fiscal 2014, as compared to a foreign currency loss of $1.4 million
during Fiscal 2013. The decrease in foreign currency loss during Fiscal 2014, was primarily due to a decrease in the balances of our U.S.
dollar denominated intercompany loan balances with certain of our non-U.S. subsidiaries (whose functional currency was other than the U.S.
dollar), which yield translation gains or losses during their re-measurement. During Fiscal 2013 the larger balances of these U.S. dollar
denominated intercompany loans were impacted by the U.S. dollar’s strengthening against the Yen during that period.
37
Provision for Income Taxes
We recognized $346.2 million of income tax expense during Fiscal 2014, compared with $229.5 million for Fiscal 2013.
Our effective tax rate for Fiscal 2014 was 34.4%, compared to 36.6% for Fiscal 2013. The decrease in our effective tax rate resulted
primarily due to a decrease in our U.S. blended state income tax rate, as well as a greater portion of our income being recognized in
jurisdictions with lower statutory income tax rates during Fiscal 2014 as compared to Fiscal 2013.
Net Income
As a result of the foregoing, our net income increased $263.9 million, or 66.4%, to $661.5 million during Fiscal 2014,
compared to $397.6 million for Fiscal 2013.
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, along with borrowings available under
our 2013 Credit Facility (see below discussion regarding “Senior Unsecured Revolving Credit Facility”) and available cash and cash
equivalents. Our primary use of this liquidity is to fund our ongoing cash requirements, including working capital requirements,
global retail store expansion and renovation, construction and renovation of shop-in-shops, investment in information systems
infrastructure and expansion of our distribution and corporate facilities. We believe that the cash generated from our operations,
together with borrowings available under our revolving credit facility and available cash and cash equivalents, will be sufficient to
meet our working capital needs for the next 12 months, including investments made and expenses incurred in connection with our
store growth plans, shop-in-shop growth, investments in corporate and distribution facilities, continued systems development, as well
as e-commerce sales and marketing initiatives. We spent approximately $356 million on capital expenditures during Fiscal 2015, and
expect to spend approximately $400 million during Fiscal 2016. The majority of these expenditures related to the retail store openings
which occurred during the year, with the remainder being used on investments made in connection with new shop-in-shops, the
build-out of our corporate offices and enhancements to our distribution and information systems infrastructure.
The following table sets forth key indicators of our liquidity and capital resources (in thousands):
Balance Sheet Data:
Cash and cash equivalents (1)
Working capital
Total assets
Cash Flows Provided By (Used In):
Operating activities (1)
Investing activities
Financing activities
Effect of exchange rate changes
Net increase in cash and cash equivalents (1)
As of
March 28,
2015
March 29,
2014
$ 978,922
$1,687,350
$2,691,893
$ 971,194
$1,468,799
$2,216,973
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$ 857,869 $ 633,055 $ 363,837
(139,099)
150,561
(1,641)
$ 373,658
(388,373)
(434,694)
(27,074)
7,728
(215,520)
71,058
(4,683)
$ 483,910
$
(1)
As of March 28, 2015, credit cards receivables of $15.8 million were included within cash and cash equivalents in
our consolidated balance sheets. Accordingly, the above balance sheet and cash flow information for prior periods
reflects the reclassification of credit card receivable balances of $16.0 million and $14.8 million as of March 29,
2014 and March 30, 2013, respectively, from accounts receivable to cash and cash equivalents to conform to the
current-period presentation.
38
Cash Provided by Operating Activities
Cash provided by operating activities increased $224.8 million to $857.9 million during Fiscal 2015, as compared to
$633.1 million for Fiscal 2014. The increase in cash flows from operating activities was primarily due an increase in our net income after
non-cash adjustments, as well as a favorable change on our inventory primarily attributable to the sell through of our inventory relative to
purchases made during Fiscal 2015. These increases were partially offset by decreases related to changes in our accrued expenses and
other current liabilities and accounts payable, as compared to Fiscal 2014, primarily due to timing of payments. The decline related to
accrued expenses and other current liabilities was also due to the payment of certain non-U.S. current income tax liabilities during Fiscal
2015.
Cash provided by operating activities increased $269.3 million to $633.1 million during Fiscal 2014, as compared to
$363.8 million for Fiscal 2013. The increase in cash flows from operating activities was primarily due to an increase in our net income
after non-cash adjustments, as well as an increase in changes to our accounts payable during Fiscal 2014 as compared to Fiscal 2013.
These increases were offset, in part, by a decrease in changes to our accounts receivable and an increase in cash outflows on our inventory
during Fiscal 2014 as compared to Fiscal 2013. The increase in changes to our accounts payable was largely related to the increases in our
inventory purchases. The increase in cash outflows on our inventory occurred primarily due to the increase in our inventory requirements
driven by our increased sales during Fiscal 2014, as compared to Fiscal 2013. The decrease in changes to our accounts receivable was
directly related to the increase in our sales which drove the increase to our accounts receivable balances during Fiscal 2014.
Cash Used in Investing Activities
Net cash used in investing activities was $388.4 million during Fiscal 2015, compared to net cash used in investing activities of
$215.5 million during Fiscal 2014. The increase in cash used in investing activities is primarily the result of the build-out of our new retail
stores, which were constructed during Fiscal 2015, shop-in-shops we installed during Fiscal 2015, as well as certain technology initiatives
undertaken during Fiscal 2015, which related to distribution system enhancements and various other improvements to our infrastructure.
Net cash used in investing activities was $215.5 million during Fiscal 2014, compared to net cash used in investing activities of
$139.1 million during Fiscal 2013. The increase in cash used in investing activities was primarily the result of the build-out of our new
retail stores, which were constructed during Fiscal 2014, shop-in-shops we installed during Fiscal 2014, as well as certain technology
initiatives undertaken during Fiscal 2014, which related to distribution system enhancements and various other improvements to our
infrastructure. In addition, we purchased approximately $28.8 million of intangible assets related to certain of our stores opened during
Fiscal 2014, as well as made an investment in our joint venture for approximately $2.0 million during Fiscal 2014.
Cash Provided by (Used in) Financing Activities
Net cash used in financing activities was $434.7 million during Fiscal 2015, compared to net cash provided by financing
activities of $71.1 million during Fiscal 2014. This decline in cash from financing activities was primarily attributable to increased cash
payments of $492.8 million in connection with the repurchase of our ordinary shares, as well a $13.1 million decrease in proceeds from
our share option arrangements.
Net cash provided by financing activities was $71.1 million during Fiscal 2014, compared to net cash provided by financing
activities of $150.6 million during Fiscal 2013. After excluding the non-cash effects of tax benefits from the exercise of share options,
cash provided by financing activities increased by $10.3 million. This increase was primarily due to the net repayments on our revolving
credit facility of $22.7 million during Fiscal 2013. This increase was offset, in part, by a decrease of $11.4 million in cash received from
the exercise of employee share options during Fiscal 2014 as compared to Fiscal 2013.
Revolving Credit Facilities
Senior Unsecured Revolving Credit Facility
On February 8, 2013, we entered into a senior unsecured credit facility (“2013 Credit Facility”). Pursuant to the agreement, the
2013 Credit Facility provides for up to $200.0 million of borrowings, and expires on February 8, 2018. The agreement also provides for
loans and letters of credit to our European subsidiaries of up to $100.0 million. The 2013 Credit Facility contains financial covenants,
such as requiring an adjusted leverage ratio of 3.5 to 1.0 (with the ratio being total consolidated indebtedness plus 8.0 times consolidated
rent expense to EBITDA plus consolidated rent expense) and a fixed charge coverage ratio of 2.0 to 1.0 (with the ratio being EBITDA
plus consolidated rent expense to the sum of fixed charges plus consolidated rent expense), restricts and limits additional indebtedness,
and restricts the incurrence of additional liens and cash dividends. As of March 28, 2015, we were in compliance with all of our covenants
covered under this agreement.
39
Borrowings under the 2013 Credit Facility accrue interest at the rate per annum announced from time to time by the agent based on the
rates applicable for deposits in the London interbank market for U.S. Dollars or the applicable currency in which the loans are made (the “Adjusted
LIBOR”) plus an applicable margin. The applicable margin may range from 1.25% to 1.75%, and is based on, or dependent upon, a particular
threshold related to the adjusted leverage ratio calculated during the period of borrowing. For Fiscal 2015 and Fiscal 2014, the weighted average
interest rate for the revolving credit facility was 1.6%. The 2013 Credit Facility requires an annual facility fee of $0.1 million, and an annual
commitment fee of 0.25% to 0.35% on the unused portion of the available credit under the facility.
As of March 28, 2015 and March 29, 2014, there were no borrowings outstanding under the 2013 Credit Facility, and there were no
amounts borrowed during Fiscal 2015. As of March 29, 2015, there were stand-by letters of credit of $10.8 million outstanding. As of March 29,
2015, the amount available for future borrowings was $189.2 million.
Share Repurchase Program
On November 14, 2014, we entered into a $355.0 million accelerated share repurchase program (the “ASR program”) with a major
financial institution (the “ASR Counterparty”) to repurchase our ordinary shares. Under the ASR program, we paid $355.0 million to the ASR
Counterparty and received 4,437,516 of our ordinary shares from the ASR Counterparty, which represents 100 percent of the shares expected to be
purchased pursuant to the ASR program, based on an initial share price determination. The ASR program also contained a forward contract
indexed to our ordinary shares whereby additional shares would be delivered to us by January 29, 2015 (the settlement date) if the share price
declined from the initial share price, limited to a stated share price “floor.” The total number of shares repurchased/acquired was determined on
final settlement, with the additional shares reacquired based on the volume-weighted average price of our ordinary shares, less a discount, during
the repurchase period, subject to aforementioned price floor. In January 2015, 280,819 additional shares were delivered to us pursuant to these
provisions, which did not require us to make any additional cash outlay. The ASR program was accounted for as a treasury stock repurchase,
reducing the number of our ordinary shares outstanding by 4,718,335 shares.
In addition to shares purchased under the ASR program, we repurchased an additional 2,040,979 shares at a cost of $136.9 million
under our current share-repurchase program through open market transactions. As of March 28, 2015, the remaining availability under our share
repurchase program was $508.1 million. On May 20, 2015, our Board of Directors authorized the repurchase of up to an additional $500 million
under our existing share repurchase program and extended the program through May 2017.
We also have in place a “withhold to cover” repurchase program, which allows us to withhold ordinary shares from certain executive
officers to satisfy minimum tax withholding obligations relating to the vesting of their restricted share awards. During Fiscal 2015, we withheld
40,787 shares at a cost of $3.3 million in satisfaction of minimum tax withholding obligations relating to the vesting of restricted share awards.
Contractual Obligations and Commercial Commitments
As of March 28, 2015, our lease commitments and contractual obligations were as follows (in thousands):
Fiscal Years Ending
Operating leases
Inventory Purchase Obligations
Other commitments
Total
Fiscal
2016
Fiscal
Fiscal
2017-2018
2019-2020
$177,159 $367,651 $352,603 $695,255 $1,592,668
299,600
36,810
$1,929,078
—
—
$352,603
299,600
36,264
$513,023
—
—
$695,255
—
546
$368,197
Total
Fiscal
2021 and
Thereafter
Operating lease obligations represent our equipment leases and the minimum lease rental payments under non-cancelable operating
leases for our real estate locations globally. In addition to the above amounts, we are typically required to pay real estate taxes, contingent rent
based on sales volume and other occupancy costs relating to our leased properties for our retail stores.
Inventory purchase obligations represent our contractual agreements relating to future purchases of inventory.
Other commitments include our non-cancelable contractual obligations related to marketing and advertising agreements, a land
purchase commitment, information technology agreements, and supply agreements.
Excluded from the above commitments is $21.2 million of long-term liabilities related to uncertain tax positions, due to the uncertainty
of the time and nature of resolution.
The above table also excludes amounts included in current liabilities in our consolidated balance sheet as of March 28, 2015, as these
items will be paid within one year, and non-current liabilities that have no cash outflows associated with them (e.g., deferred taxes).
40
Off-Balance Sheet Arrangements
We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital,
incurring debt or operating our business. In addition to the commitments in the above table, our off-balance sheet commitments relating to our
outstanding letters of credit were $10.8 million at March 28, 2015. We do not have any other off-balance sheet arrangements or relationships
with entities that are not consolidated into our financial statements that have or are reasonably likely to have a material current or future effect
on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital
resources.
Effects of Inflation
We do not believe that our sales or operating results have been materially impacted by inflation during the periods presented in our
financial statements. However, we may experience an increase in cost pressure from our suppliers in the future, which could have an adverse
impact on our gross profit results in the periods effected.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks during the normal course of our business, such as risk arising from fluctuations in foreign
currency exchange rates, as well as fluctuations in interest rates. In attempts to manage these risks, we employ certain strategies to mitigate the
effect of these fluctuations. We enter into foreign currency forward contracts to manage our foreign currency exposure to the fluctuations of
certain foreign currencies. The use of these instruments primarily helps to manage our exposure to our foreign purchase commitments and
better control our product costs. We do not use derivatives for trading or speculative purposes.
Foreign Currency Exchange Risk
We are exposed to risks on certain purchase commitments to foreign suppliers based on the value of our purchasing subsidiaries
local currency relative to the currency requirement of the supplier on the date of the commitment. As such, we enter into forward currency
exchange contracts that generally mature in 12 months or less and are consistent with the related purchase commitments. These contracts are
recorded at fair value in our consolidated balance sheets as either an asset or liability, and are derivative contracts to hedge cash flow risks.
Certain of these contracts are designated as hedges for hedge accounting purposes, while certain of these contracts, currently a relatively small
portion, are not designated as hedges for accounting purposes. Accordingly, the changes in the fair value of the majority of these contracts at
the balance sheet date are recorded in our equity as a component of accumulated other comprehensive income, and upon maturity (settlement)
are recorded in, or reclassified into, our cost of sales or operating expenses, in our consolidated statement of operations, as applicable to the
transactions for which the forward currency exchange contracts were established. For those contracts which are designated as hedges for
accounting purposes, any portion of those contracts deemed ineffective would be charged to earnings, in the period the ineffectiveness was
determined.
We perform a sensitivity analysis on our forward currency contracts, both designated and not designated as hedges for accounting
purposes, to determine the effects of fluctuations in foreign currency exchange rates. For this sensitivity analysis, we assume a hypothetical
change in U.S. dollar against foreign exchange rates. Based on all foreign currency exchange contracts outstanding as of March 28, 2015, a
10% appreciation or devaluation of the U.S. dollar compared to the level of foreign currency exchange rates for currencies under contract as of
March 28, 2015, would result in a net increase and decrease of approximately $21 million and $22 million, respectively, in the fair value of
these contracts.
Interest Rate Risk
We are exposed to interest rate risk in relation to our 2013 Credit Facility. Our 2013 Credit Facility carries interest rates that are
tied to LIBOR and the prime rate, among other institutional lending rates (depending on the particular origination of borrowing), and therefore
our statements of operations and cash flows are exposed to changes in those interest rates. At March 28, 2015 and March 29, 2014, there were
no balances outstanding on our 2013 Credit Facility, which is not indicative of future balances that may be subject to fluctuations in interest
rates. Any increases in the applicable interest rate(s) would cause an increase to the interest expense on our 2013 Credit Facility relative to any
outstanding balance at that date.
Item 8.
Financial Statements and Supplementary Data
The response to this item is provided in this Annual Report on Form 10-K under Item 15. “Exhibits and Financial Statement
Schedule” and is incorporated herein by reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
41
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, our principal executive officer and principal financial officer, respectively, of the
design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a - 15(e) and 15(d) - 15(e) under
the Securities and Exchange Act of 1934 (the “Exchange Act”)) as of March 28, 2015. Based on the evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that disclosure controls and procedures as of March 28, 2015 are effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined under the Exchange Act Rule 13a-15 (f)) to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”).
Such internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance
(A) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that
receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors; and
(B) regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material
effect on the financial statements.
Our management assessed the effectiveness of our internal control over financial reporting as of March 28, 2015. In
making this assessment, it used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), the 2013 Framework. Based on this assessment, management has
determined that, as of March 28, 2015, our internal control over financial reporting is effective based on those criteria.
The Company’s internal control over financial reporting as of March 28, 2015, as well as the consolidated financial
statements, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report
which appears herein. The audit report appears on page 50 of this report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 28, 2015, that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On May 20, 2015, Michael Kors (USA), Inc. (the “Company”) and Michael Kors Holdings Limited (“MKHL”) entered
into amended and restated employment agreements with each of Michael Kors, our Honorary Chairman and Chief Creative Officer
(the “Kors Agreement”), and John D. Idol, our Chairman and Chief Executive Officer (the “Idol Agreement”), as required under the
terms thereof. The material terms of these agreements are set forth below, such terms qualified in their entirety by terms of the Kors
Agreement and the Idol Agreement, respectively. Because these agreements are restatements of prior agreements, many provisions
described below are continuations of terms from the prior agreements and have been previously disclosed.
Kors Agreement
The term of Mr. Kors’ employment agreement remains unchanged. It terminates upon his death, permanent disability or for
“Cause” (as defined in the Kors Agreement and unchanged from the prior agreement).
Under the Kors Agreement, Mr. Kors’ titles also remain unchanged. He is Honorary Chairman and Chief Creative Officer
of the Company and MKHL. The Company and MKHL will use best efforts to cause Mr. Kors to be appointed or elected to their
respective boards of directors.
Mr. Kors’ salary and bonus rights have been amended, as described below. His rights to retirement, welfare, fringe and
other employee benefits remain unchanged, except he is eligible for six weeks of paid vacation per year, rather than five weeks under
the prior agreement, and he is no longer entitled to reimbursement of reasonable out-of-pocket professional costs incurred for the
preparation of his U.S. tax returns or for membership in a health club.
42
He continues to be entitled to participate in all Company employee benefit plans (to the extent eligible therefor), excluding
bonus plans unless provided in the Kors Agreement or determined by the Compensation Committee (the “Compensation Committee”)
of the board of directors of MKHL (the “MKHL Board”). If any benefit plan is not available to Mr. Kors due to his nationality or
residence, the Company must use best efforts to provide a substantially equivalent benefit through another source, at its expense. The
Company must provide health and medical insurance to Mr. Kors at its own cost without contribution from Mr. Kors. The Company
also pays the premiums on the whole life insurance policy and the $500,000 term life insurance policy, in each case currently owned
by and in place on the life of Mr. Kors. The Company provides him with an automobile and driver for transportation to and from the
Company’s offices and for other business purposes.
The contract termination provisions have not been changed in the Kors Agreement. A termination by the Company will not
result in any severance. However, if Mr. Kors dies or becomes permanently disabled, or terminates under circumstances where the
Company breached the Kors Agreement, he or his estate (as applicable) is entitled to a pro rata portion of his bonus that would have
been payable to Mr. Kors in respect of the fiscal year or half year during which the termination, death or permanent disability
occurred. If Mr. Kors terminates his employment without the Company’s consent (and other than due to death or permanent disability
or due to the Company’s breach of his employment agreement), for the remainder of his lifetime he will be an independent and
exclusive design consultant for the Company for an annual fee of $1.0 million and will not compete with the Company. The Kors
Agreement no longer gives MKHL the option to purchase for book value all of the ordinary shares of MKHL held by Mr. Kors in the
event his employment is terminated for Cause.
The Kors Agreement continues the indemnification commitments that applied under the prior agreement. The Company
and MKHL will indemnify Mr. Kors and hold him harmless to the maximum extent permitted by applicable law, against liabilities,
costs, and expenses incurred in connection with any action, suit, claim or proceeding to which he may be made a party by reason of
his being an officer, director or employee of the Company or any of its affiliates, but not for any acts taken in bad faith or in breach of
his duty of loyalty to the Company or MKHL under applicable law. Such rights may not be less favorable than any indemnification
and hold harmless rights provided by the Company or MKHL to any senior officer. These provisions survive the termination of the
Kors agreement.
The Kors Agreement gives Mr. Kors creative and aesthetic control over the products produced and sold under the
MICHAEL KORS trademarks and related marks, including exclusive control of the design of such products (so long as the exercise
of such control is commercially reasonable). All intellectual property created by or at Mr. Kors’ direction in the course of his
employment is the exclusive property of the Company. Mr. Kors remains obligated to maintain the confidentiality of the Company’s
proprietary information.
The Company has agreed not to enter into any new line of business without Mr. Kors’ consent, if he reasonably determines
that such line of business is detrimental to our trademarks. Mr. Kors may not render services to any other persons or compete with the
Company’s business (except for charitable activities not inconsistent with the intent of the Kors Agreement and literary, theatrical and
artistic activities not detrimental to the Company’s trademarks).
Idol Agreement
The term of the Idol Agreement extends through March 31, 2018 and will be automatically renewed for additional one-year
terms, unless either Mr. Idol or the Company gives advance written notice of non-renewal. Mr. Idol will serve as Chairman and Chief
Executive Officer of the Company and MKHL, reporting to the MKHL Board. The Company and MKHL must use best efforts to
cause Mr. Idol to be appointed or elected to the position of Chairman of the board of directors of each of them. As in the prior
agreement, upon his termination from employment for any reason, Mr. Idol will immediately resign from such boards and from other
officer and director positions with MKHL and its subsidiaries.
Mr. Idol’s employee, retirement and fringe benefit rights are not changed in the Idol Agreement. He remains entitled to
participate in all Company employee benefit plans and programs generally available to senior officers, excluding bonus plans unless
otherwise provided in the Idol Agreement or determined by the Compensation Committee. The Company pays the premiums, up to a
maximum of $50,000 per annum, for Mr. Idol’s $5.0 million whole life insurance policy. The Company also provides Mr. Idol with
an automobile and driver for transportation to and from the Company’s offices and for business purposes as provided for in the Idol
Agreement.
43
The circumstances and consequences of termination of Mr. Idol’s employment remain unchanged. The Idol Agreement
will terminate upon a change of control (defined as the purchase or acquisition by any person, entity or group of affiliated persons or
entities of more than 50% of the combined voting power of the outstanding shares of MKHL or all or substantially all of MKHL’s
assets). It will also terminate upon Mr. Idol’s death or “Total Disability” (as defined in the Idol Agreement and unchanged from the
prior agreement). Mr. Idol may terminate the Idol Agreement without Good Reason (as defined in the Idol Agreement and unchanged
from the prior agreement) upon six months’ advance notice or with Good Reason, subject to certain notice and cure rights. We may
terminate the Idol Agreement with “Cause” (as defined in the Idol Agreement and unchanged from the prior agreement) upon 10 days
advance written notice, subject to Mr. Idol’s having certain rights to meet with the MKHL Board, and a majority of the MKHL Board
approving his dismissal.
If Mr. Idol’s employment is terminated by the Company without Cause or by him for Good Reason, he will be entitled to
receive a pro rata portion of his bonuses (described below) that would have been payable in respect of the fiscal year, or part fiscal
year, as of the date of termination plus severance equal to two times the sum of his then current base salary and the annual bonus paid
or payable to him with respect to the Company’s last full fiscal year, payable in a single lump sum within 30 days following
termination. If Mr. Idol dies or becomes totally disabled, Mr. Idol is entitled to a pro rata portion of his bonus that would have payable
to Mr. Idol in respect of such fiscal year as of the date of death or total disability.
Mr. Idol has also agreed that during the term of the Idol Agreement he will not engage in, or carry on any Competitive
Business (as defined below); provided, that he may own ten percent (10%) or less in a Competitive Business as a passive investor so
long as he does not manage or exercise influence or control over such business. For purposes of the Idol Agreement, “Competitive
Business” means a business which directly competes in any material respects with the Company or its parents, subsidiaries, affiliates
or product licensees.
The Idol Agreement continues the indemnification commitments that applied under the prior agreement. To the extent
permitted by law and the Company’s or MKHL’s by-laws or other governing documents, the Company and/or MKHL (as applicable)
will indemnify Mr. Idol with respect to any claims made against him as an officer, director or employee of MKHL, the Company or
any other subsidiary of MKHL, except for acts taken in bad faith or in breach of his duty of loyalty to the Company or MKHL.
During the term and for as long thereafter as is practicable, the Company agreed that Mr. Idol will be covered under a directors and
officers liability insurance policy with coverage limits in amounts no less than that which the Company currently maintains as of the
date of the Idol Agreement.
Mr. Idol has agreed that all rights to the Company’s intellectual property are and will remain the sole and exclusive
property of the Company and Mr. Idol remains obligated to maintain the confidentiality of the Company’s proprietary information.
For two years after termination of his employment, Mr. Idol has agreed not to hire any person who was employed or retained by the
Company or any of its affiliates within the one-year period immediately preceding such employment or retention.
Kors and Idol Agreements
Under the new agreements, each of Mr. Kors and Mr. Idol is entitled to an annual salary of not less than $1.0 million. The
executives are also entitled to receive the bonuses described below, subject to approval by the shareholders of MKHL of the plan
pursuant to which the bonuses will be paid.
Commencing with the fiscal year beginning March 29, 2016 (the “2016 Fiscal Year”), each executive is eligible to receive
a cash bonus with respect to performance over the period beginning on the first day of each fiscal year and ending on the last day of
the second fiscal quarter of such fiscal year equal to 1% of MKHL’s consolidated income from operations for such performance
period, increased by depreciation plus amortization plus impairment of long-lived assets, in each case calculated in accordance with
U.S. generally accepted accounting principles and disclosed in MKHL’s Consolidated Statements of Operations and Comprehensive
Income (“EBITDA”) for such performance period, up to a maximum of $1.5 million (the “Part-Year Bonus”). In addition,
commencing with the 2016 Fiscal Year, each executive is eligible to receive an annual bonus with respect to each full fiscal year of
MKHL equal to 1% of EBITDA during such annual performance period, up to a maximum of $6.5 million, reduced by the amount of
the Part-Year Bonus in respect of the same fiscal year. If the Compensation Committee determines that the executive was overpaid as
a result of certain restatements of the reported financial or operating results of MKHL due to material non-compliance with financial
reporting requirements, then it may reduce the amount of a bonus, or require the executive to re-pay the overpaid portion of the
bonuses, as long as the determination as to the fact that a bonus has been over paid is made before the end of the third fiscal year
following the year for which the bonus performance criteria were inaccurate, but extended until any restatement is complete.
44
Item 10. Directors, Executive Officers and Corporate Governance
Part III
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2015, which is
incorporated herein by reference.
Item 11. Executive Compensation
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2015, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of March 28, 2015 regarding compensation plans under which the Company’s
equity securities are authorized for issuance:
Equity Compensation Plan Information
(a)
Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
Plan category
Equity compensation plans approved by
(c)
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
security holders (1)
Equity compensation plans not approved by
security holders (3)
Total
3,996,866 $
4,313,870 $
8,310,736 $
55.11(2)
5.97(2)
29.60(2)
10,739,867
—
10,739,867
(1)
(2)
(3)
Reflects share options, restricted shares and restricted share units issued under the Michael Kors Holdings Limited
Omnibus Incentive Plan.
Represents the weighted average exercise price of outstanding share awards only.
Reflects share options issued under the Amended and Restated Michael Kors (USA), Inc. Stock Option Plan (the
“Option Plan”). Prior to our initial public offering, we granted share options to purchase ordinary shares to our
executive officers and other eligible employees pursuant to the terms of the Option Plan. All of the share options
granted under the Option Plan are ten-year share options and vest in full at the end of the ten-year term if our
shareholder net equity has increased by at least 20% per annum during such ten-year period. However, a portion of
each share option is eligible to vest on an accelerated basis over the course of five years with 20% vesting each year
if the pre-established annual performance goal for the year has been met, in each case, subject to the grantee’s
continued employment through the vesting date. The annual performance goals are tied to annual divisional pre-tax
profit as determined by the Board. As of March 28, 2015, there were no shares available for future issuance under
the 2008 Plan.
Item 13. Certain Relationships, Related Transactions and Director Independence
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2015, which is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information with respect to this Item is included in the Company’s Proxy Statement to be filed in June 2015, which is
incorporated herein by reference.
45
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this annual report on Form 10-K:
PART IV
1.
The following consolidated financial statements listed below are filed as a separate section of this Annual Report on Form
10-K:
Report of Independent Registered Public Accounting Firm - Ernst & Young LLP.
Report of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP.
Consolidated Balance Sheets as of March 28, 2015 and March 29, 2014.
Consolidated Statements of Operations and Comprehensive Income for the fiscal years ended March 28, 2015, March 29,
2014 and March 30, 2013.
Consolidated Statements of Shareholders’ Equity for the fiscal years ended March 28, 2015, March 29, 2014 and March 30,
2013.
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2015, March 29, 2014 and March 30, 2013.
Notes to Consolidated Financial Statements for the fiscal years ended March 28, 2015, March 29, 2014 and
March 30, 2013.
2.
Exhibits:
Exhibit
No.
2.1
3.1
4.1
4.2
4.3
4.4
10.1
10.2
EXHIBIT INDEX
Document Description
Restructuring Agreement, dated as of July 7, 2011, by and among Michael Kors Holdings Limited, John Idol, SHL-Kors Limited,
Michael Kors, SHL Fashion Limited, Michael Kors (USA), Inc., Michael Kors Far East Holdings Limited, Sportswear Holdings
Limited, Littlestone, Northcroft Trading Inc., Vax Trading, Inc., OB Kors LLC, John Muse, Muse Children’s GS Trust, JRM
Interim Investors, LP and Muse Family Enterprises (included as Exhibit 2.1 to the Company’s Registration Statement on Form F-1,
as amended (File No. 333-178282), filed on December 2, 2011, and incorporated herein by reference).
Amended and Restated Memorandum and Articles of Association of Michael Kors Holdings Limited (included as Exhibit 99.3 to
the Company’s Current Report on Form 6-K filed on February 14, 2012, and incorporated herein by reference).
Specimen of Ordinary Share Certificate of Michael Kors Holdings Limited (included as Exhibit 4.1 to the Company’s Registration
Statement on Form F-1, as amended (File No. 333-178282), filed on December 2, 2011, and incorporated herein by reference).
Credit Agreement, dated as of February 8, 2013, among Michael Kors (USA), Inc., the foreign subsidiary borrowers party thereto,
the lenders party thereto, the guarantors party thereto, J.P. Morgan Chase Bank, N.A., Bank of America, N.A., HSBC Bank USA,
National Association, Wells Fargo Bank, National Association, and J.P. Morgan Securities L.L.C. (included as Exhibit 4.2 to the
Company’s Annual Report on Form 10-K for the fiscal year ended March 30, 2013 filed on May 29, 2013, and incorporated herein
by reference).
Shareholders Agreement, dated as of July 11, 2011, among Michael Kors Holdings Limited and certain shareholders of Michael
Kors Holdings Limited (included as Exhibit 10.2 to the Company’s Registration Statement on Form F-1, as amended (File No.
333-178282), filed on December 2, 2011, and incorporated herein by reference).
Subscription Agreement, dated as of July 7, 2011, among Michael Kors Holdings Limited and certain shareholders of Michael
Kors Holdings Limited (included as Exhibit 10.1 to the Company’s Registration Statement on Form F-1, as amended (File No.
333-178282), filed on December 2, 2011, and incorporated herein by reference).
Form of Indemnification Agreement between Michael Kors Holdings Limited and its directors and executive officers (included as
Exhibit 10.5 to the Company’s Registration Statement on Form F-1, as amended (File No. 333-178282), filed on December 2,
2011, and incorporated herein by reference).
Licensing Agreement, dated as of April 1, 2011, between Michael Kors, L.L.C. and Michael Kors (HK) Limited (included as
Exhibit 10.6 to the Company’s Registration Statement on Form F-1, as amended (File No. 333-178282), filed on December 2,
2011, and incorporated herein by reference). (Certain portions of this exhibit were omitted pursuant to a confidential treatment
request. Omitted information was filed separately with the Securities and Exchange Commission.)
46
Exhibit
No.
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Document Description
Licensing Agreement, dated as of April 1, 2011, between Michael Kors, L.L.C. and Michael Kors Trading Shanghai
Limited (included as Exhibit 10.7 to the Company’s Registration Statement on Form F-1, as amended (File No. 333-
178282), filed on December 2, 2011, and incorporated herein by reference). (Certain portions of this exhibit were omitted
pursuant to a confidential treatment request. Omitted information was filed separately with the Securities and Exchange
Commission).
Amended and Restated Michael Kors (USA), Inc. Stock Option Plan (included as Exhibit 10.4 to the Company’s
Registration Statement on Form F-1, as amended (File No. 333-178282), filed on December 2, 2011, and incorporated
herein by reference).
Amended No. 1 to the Amended and Restated Michael Kors (USA), Inc. Share Option Plan. (included as Exhibit 4.9 to the
Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2012, filed on June 12, 2012, and
incorporated herein by reference).
Michael Kors Holdings Limited Omnibus Incentive Plan (included as Exhibit 10.8 to the Company’s Registration
Statement on Form F-1, as amended (File No. 333-178282), filed on December 2, 2011, and incorporated herein by
reference).
Second Amended and Restated Employment Agreement, dated as of May 20, 2015, by and among Michael Kors (USA),
Inc., Michael Kors Holdings Limited and Michael Kors.
Second Amended and Restated Employment Agreement, dated as of May 20, 2015, by and among Michael Kors (USA),
Inc., Michael Kors Holdings Limited and John D. Idol.
Amended and Restated Employment Agreement, dated as of May 23, 2013, by and among Michael Kors (USA), Inc.,
Michael Kors Holdings Limited and Joseph B. Parsons (included as Exhibit 10.9 to the Company’s Annual Report on
Form 10-K for the fiscal year ended March 30, 2013 filed on May 29, 2013, and incorporated herein by reference).
Amended and Restated Employment Agreement, dated as of May 23, 2013, by and among Michael Kors (USA), Inc.,
Michael Kors Holdings Limited and Lee S. Sporn (included as Exhibit 10.10 to the Company’s Annual Report on Form
10-K for the fiscal year ended March 30, 2013 filed on May 29, 2013, and incorporated herein by reference).
Separation Agreement and General Release, dated June 9, 2014, by and between Britton Russell and Michael Kors (USA),
Inc. (included as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2014
filed on August 7, 2014, and incorporated herein by reference).
Michael Kors Holdings Limited Executive Bonus Program (included as Exhibit 10.1 to the Company’s Quarterly Report
on Form 10-Q for the fiscal quarter ended June 29, 2013 filed on August 6, 2013, and incorporated herein by reference).
Employment Agreement, dated as of May 12, 2014, by and between Michael Kors (USA), Inc., and Cathy Marie Robison
(included as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2014 filed
on May 28, 2014, and incorporated herein by reference).
10.14 Employment Agreement, dated as of July 14, 2014, by and between Pascale Meyran and Michael Kors (USA), Inc.
10.15 Form of Employee Non-Qualified Option Award Agreement.
10.16 Form of Employee Restricted Share Unit Award Agreement.
10.17 Form of Performance-Based Restricted Share Unit Award Agreement.
10.18 Form of Independent Director Restricted Share Unit Award Agreement.
10.19 Aircraft Time Sharing Agreement, dated November 24, 2014, by and between Michael Kors (USA), Inc. and John Idol.
10.20
Aircraft Time Sharing Agreement, dated December 12, 2014, by and between Michael Kors (USA), Inc. and Michael
Kors.
47
Exhibit
No.
Document Description
21.1 List of subsidiaries of Michael Kors Holdings Limited.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Ernst & Young LLP.
31.1 Certification of Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002.
32.1
32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.1
Interactive Data Files.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hereby certifies
that it meets all of the requirements for filing on Form 10-k and that it has duly caused and authorized the undersigned to sign this
report on its behalf.
Date: May 27, 2015
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
MICHAEL KORS HOLDINGS LIMITED
/s/ John D. Idol
By:
Name: John D. Idol
Title: Chairman & Chief Executive Officer
By:
By:
By:
By:
By:
By:
By:
By:
By:
/s/ Michael Kors
Michael Kors
/s/ John D. Idol
John D. Idol
/s/ Joseph B. Parsons
Joseph B. Parsons
/s/ M. William Benedetto
M. William Benedetto
/s/ Stephen F. Reitman
Stephen F. Reitman
/s/ Ann McLaughlin Korologos
Ann McLaughlin Korologos
/s/ Jean Tomlin
Jean Tomlin
/s/ Judy Gibbons
Judy Gibbons
/s/ Jane Thompson
Jane Thompson
Honorary Chairman, Chief Creative Officer and
May 27, 2015
Director
Chairman, Chief Executive Officer and Director
May 27, 2015
(Principal Executive Officer)
Chief Financial Officer, Chief Operating Officer and
Treasurer (Principal Financial and Accounting
Officer)
May 27, 2015
Director
Director
Director
Director
Director
Director
49
May 27, 2015
May 27, 2015
May 27, 2015
May 27, 2015
May 27, 2015
May 27, 2015
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Michael Kors Holdings Limited
We have audited the accompanying consolidated balance sheets of Michael Kors Holdings Limited and subsidiaries (“the
Company”) as of March 28, 2015 and March 29, 2014, and the related consolidated statements of operations and comprehensive
income, changes in shareholders’ equity and cash flows for each of the two years in the period ended March 28, 2015. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Michael Kors Holdings Limited and subsidiaries at March 28, 2015 and March 29, 2014, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended March 28, 2015, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
Michael Kors Holdings Limited internal control over financial reporting as of March 28, 2015, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated May 27, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
May 27, 2015
50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Michael Kors Holdings Limited
We have audited Michael Kors Holdings Limited and subsidiaries’ (“the Company”) internal control over financial reporting as
of March 28, 2015, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Michael Kors Holdings Limited and subsidiaries’
management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on
our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control
over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Michael Kors Holdings Limited and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of March 28, 2015, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Michael Kors Holdings Limited and subsidiaries as of March 28, 2015 and March 29, 2014, and the
related consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for each of
the two years in the period ended March 28, 2015 and our report dated May 27, 2015 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
May 27, 2015
51
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Michael Kors Holdings Limited
In our opinion, the consolidated statements of operations and comprehensive income, of shareholders’ equity and of cash flows
for the year ended March 30, 2013 present fairly, in all material respects, the results of operations and cash flows of Michael Kors
Holdings Limited and its subsidiaries for the year then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
May 29, 2013
52
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
Assets
Current assets
Cash and cash equivalents
Receivables, net
Inventories
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable
Accrued payroll and payroll related expenses
Accrued income taxes
Deferred tax liabilities
Accrued expenses and other current liabilities
Total current liabilities
Deferred rent
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies
Shareholders’ equity
Ordinary shares, no par value; 650,000,000 shares authorized; 206,486,699 shares issued and
199,656,833 outstanding at March 28, 2015; 204,291,345 shares issued and 204,261,580
outstanding at March 29, 2014
Treasury shares, at cost (6,829,866 shares at March 28, 2015 and 29,765 shares at March 29,
2014)
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to consolidated financial statements.
53
March 28,
2015
March 29,
2014
$ 978,922 $ 971,194
298,006
426,938
30,539
50,492
1,777,169
350,678
48,034
14,005
3,662
23,425
$2,216,973
363,419
519,908
27,739
127,443
2,017,431
562,934
61,541
14,005
2,484
33,498
$2,691,893
$ 142,818
62,869
25,507
3,741
95,146
330,081
88,320
10,490
22,037
450,928
$ 143,563
54,703
47,385
—
62,719
308,370
76,785
5,887
19,800
410,842
—
—
(497,724)
636,732
(66,804)
2,168,761
2,240,965
$2,691,893
(2,447)
527,213
(6,373)
1,287,738
1,806,131
$2,216,973
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except share and per share data)
Net sales
Licensing revenue
Total revenue
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Depreciation and amortization
Impairment of long-lived assets
Total operating expenses
Income from operations
Other income
Interest expense, net
Foreign currency loss
Income before provision for income taxes
Provision for income taxes
Net income
Weighted average ordinary shares outstanding:
Basic
Diluted
Net income per ordinary share:
Basic
Diluted
Statements of Comprehensive Income:
Net income
Foreign currency translation adjustments
Net gains (losses) on derivatives
Comprehensive income
March 28,
2015
$ 4,199,666
171,803
4,371,469
1,723,818
2,647,651
1,251,431
138,425
822
1,390,678
1,256,973
(3,117)
215
4,052
1,255,823
374,800
881,023
$
Fiscal Years Ended
March 29,
2014
$ 3,170,522
140,321
3,310,843
1,294,773
2,016,070
926,913
79,654
1,332
1,007,899
1,008,171
—
393
131
1,007,647
346,162
661,485
$
March 30,
2013
$ 2,094,757
86,975
2,181,732
875,166
1,306,566
621,536
54,291
725
676,552
630,014
—
1,524
1,363
627,127
229,525
397,602
$
202,680,572
205,865,769
202,582,945
205,638,107
196,615,054
201,540,144
$
$
$
$
4.35
4.28
881,023
(91,293)
30,862
820,592
$
$
$
$
3.27
3.22
661,485
(34)
(2,878)
658,573
$
$
$
$
2.02
1.97
397,602
(4,006)
1,280
394,876
See accompanying notes to consolidated financial statements.
54
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands except share data)
Additional
Paid-in
Treasury Shares
Comprehensive Retained
Accumulated
Other
Amounts Capital
Shares
Amounts (Loss) Income Earnings Total
Ordinary Shares
Shares
Balance at March 31, 2012
Net income
Foreign currency translation adjustment
Net gain on derivatives (net of taxes of $0.1 million)
Total comprehensive income
Issuance of restricted shares
Exercise of employee share options
Equity compensation expense
Tax benefits on exercise of share options
Contributed capital - services from former parent
Balance at March 30, 2013
Net income
Foreign currency translation adjustment
Net loss on derivatives (net of taxes of $0.4 million)
Total comprehensive income
Issuance of restricted shares
Exercise of employee share options
Equity compensation expense
Tax benefits on exercise of share options
Purchase of treasury shares
Balance at March 29, 2014
Net income
Foreign currency translation adjustment
Net gain on derivatives (net of taxes of $3.6 million)
Total comprehensive income
Issuance of restricted shares
Exercise of employee share options
Equity compensation expense
Tax benefits on exercise of share options
Purchase of treasury shares
Balance at March 28, 2015
192,731,390 $ — $ 228,321
—
—
—
—
—
30,435
20,932
144,508
—
—
—
—
18,541
8,704,477
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
250,654
2,586,283
—
—
—
258
201,454,408 $ — $ 424,454
—
—
—
—
—
18,988
29,078
54,693
—
204,291,345 $ — $ 527,213
—
—
—
—
—
—
—
—
—
413,108
1,782,246
—
—
—
—
—
—
—
—
—
—
—
—
15,313
48,936
45,270
—
— $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
(29,765)
(29,765) $
—
—
—
—
—
—
—
—
(6,800,101)
— $
—
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
(2,447)
(2,447) $
—
—
—
—
—
—
—
—
(495,277)
206,486,699 $ — $ 636,732 (6,829,866) $(497,724) $
(735) $ 228,651 $ 456,237
397,602 397,602
—
(4,006)
(4,006)
1,280
1,280
—
394,876
—
—
—
—
—
30,435
—
—
—
—
20,932
— 144,508
—
258
—
—
(3,461) $ 626,253 $1,047,246
661,485
661,485
(34)
(2,878)
658,573
—
18,988
29,078
54,693
(2,447)
(6,373) $1,287,738 $1,806,131
881,023
881,023
(91,293)
—
—
30,862
— 820,592
—
—
15,313
—
48,936
—
45,270
—
(495,277)
—
(66,804) $2,168,761 $2,240,965
—
(91,293)
30,862
—
—
—
—
—
—
—
(34)
(2,878)
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
55
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Equity compensation expense
Deferred income taxes
Non-cash litigation related costs
Amortization of deferred rent
Loss on disposal of fixed assets
Impairment and write-off of property and equipment
Amortization of deferred financing costs
Tax benefits on exercise of share options
Foreign currency (gains) losses
Loss (income) earned on joint venture
Non-cash charges for services provided by former parent
Change in assets and liabilities:
Receivables, net
Inventories
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities
Capital expenditures
Purchase of intangible assets
Investment in joint venture
Equity method investments
Loans receivable - joint venture
Net cash used in investing activities
Cash flows from financing activities
Repurchase of treasury shares
Tax benefits on exercise of share options
Exercise of employee share options
Repayments of borrowings under revolving credit agreement
Borrowings under revolving credit agreement
Payment of deferred financing costs
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Beginning of period
End of period
Supplemental disclosures of cash flow information
Cash paid for interest
Cash paid for income taxes
Supplemental disclosure of noncash investing and financing activities
Accrued capital expenditures
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$ 881,023 $ 661,485 $ 397,602
138,425
48,936
6,232
5,651
5,053
1,938
822
746
(45,270)
(1,467)
(130)
—
79,654
29,078
(29,905)
2,009
6,333
3,758
1,332
746
(54,693)
131
(354)
—
(83,336)
(112,418)
(20,152)
(6,333)
5,809
21,865
10,475
857,869
(104,372)
(158,243)
(5,222)
(4,274)
55,916
124,317
25,359
633,055
(356,209)
(29,224)
(2,940)
—
—
(388,373)
(184,738)
(28,822)
—
(1,960)
—
(215,520)
54,291
20,932
3,222
—
3,245
229
725
703
(144,508)
1,363
—
258
(73,080)
(81,108)
(3,866)
6
17,698
151,231
14,894
363,837
(121,321)
(8,546)
—
(3,232)
(6,000)
(139,099)
(495,277)
45,270
15,313
—
—
—
(434,694)
(27,074)
7,728
971,194
$ 978,922
(2,447)
54,693
18,988
(21,120)
21,120
(176)
71,058
(4,683)
483,910
487,284
$ 971,194
—
144,508
30,435
(38,954)
16,280
(1,708)
150,561
(1,641)
373,658
113,626
$ 487,284
729
$
$ 373,314
699
$
$ 280,667
484
$
$ 70,500
$ 32,876
$ 16,324
$ 12,289
See accompanying notes to consolidated financial statements.
56
MICHAEL KORS HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Basis of Presentation
Michael Kors Holdings Limited (“MKHL,” and together with its subsidiaries, the “Company”) was incorporated in the
British Virgin Islands (“BVI”) on December 13, 2002. The Company is a leading designer, marketer, distributor and retailer of
branded women’s apparel and accessories and men’s apparel bearing the Michael Kors tradename and related trademarks
“MICHAEL KORS,” “MICHAEL MICHAEL KORS,” and various other related trademarks and logos. The Company’s business
consists of retail, wholesale and licensing segments. Retail operations consist of collection stores and lifestyle stores, including
concessions and outlet stores, located primarily in the United States, Canada, Europe and Japan, as well as e-commerce. Wholesale
revenues are principally derived from major department and specialty stores located throughout the United States, Canada and
Europe. The Company licenses its trademarks on products such as fragrances, beauty, eyewear, leather goods, jewelry, watches,
coats, men’s suits, swimwear, furs and ties, as well as through geographic licenses.
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in
the United States (“U.S. GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
The Company utilizes a 52 to 53 week fiscal year ending on the Saturday closest to March 31. As such, each of the fiscal
years ending on March 28, 2015, March 29, 2014, and March 30, 2013 (“Fiscal 2015,” “Fiscal 2014” and “Fiscal 2013,” respectively)
consist of 52 weeks.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States
requires management to use judgment and make estimates that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying
transactions are completed. The most significant assumptions and estimates involved in preparing the financial statements include
allowances for customer deductions, sales returns, sales discounts and doubtful accounts, estimates of inventory recovery, the
valuation of share-based compensation, valuation of deferred taxes and the estimated useful lives used for amortization and
depreciation of intangible assets and property and equipment. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior periods’ financial information in order to conform to the current period’s
presentation.
Revenue Recognition
Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred, the price has been
fixed and determinable and collectability is reasonably assured. The Company recognizes retail store revenues upon sale of its
products to retail consumers, net of estimated returns. Revenue from sales through the Company’s e-commerce site is recognized at
the time of delivery to the customer, reduced by an estimate of returns. Wholesale revenue is recognized net of estimates for sales
returns, discounts, markdowns and allowances, after merchandise is shipped and the title and risk of loss are transferred to the
Company’s wholesale customers. To arrive at net sales for retail, gross sales are reduced by actual customer returns as well as by a
provision for estimated future customer returns, which is based on management’s review of historical and current customer returns.
Sales taxes collected from retail customers are presented on a net basis and, as such, are excluded from revenue. To arrive at net sales
for wholesale, gross sales are reduced by provisions for estimated future returns, based on current expectations, as well as trade
discounts, markdowns, allowances, operational chargebacks, and certain cooperative selling expenses. These estimates are based on
such factors as historical trends, actual and forecasted performance, and market conditions, which are reviewed by management on a
quarterly basis.
57
The following table details the activity and balances of the Company’s sales reserves for the fiscal years ended March 28,
2015, March 29, 2014, and March 30, 2013 (in thousands):
Balance
Beginning
of Year
Amounts
Charged to
Revenue
Write-offs
Against
Reserves
Balance
at
Year End
Retail
Return Reserves:
Fiscal year ended March 28, 2015
Fiscal year ended March 29, 2014
Fiscal year ended March 30, 2013
Wholesale
Total Sales Reserves:
Fiscal year ended March 28, 2015
Fiscal year ended March 29, 2014
Fiscal year ended March 30, 2013
$ 2,320 $ 57,031 $ (56,873) $ 2,478
2,320
3,146
(46,458)
(33,961)
45,632
35,448
3,146
1,659
Balance
Beginning
of Year
Amounts
Charged to
Revenue
Write-offs
Against
Reserves
Balance
at
Year End
$65,921 $281,032 $(259,408) $87,545
65,921
43,009
(180,553)
(122,822)
203,465
135,450
43,009
30,381
Royalty revenue generated from product licenses, which includes contributions for advertising, is based on reported sales of
licensed products bearing the Company’s tradenames at rates specified in the license agreements. These agreements are also subject to
contractual minimum levels. Royalty revenue generated by geography-specific licensing agreements is recognized as it is earned under
the licensing agreements based on reported sales of licensees applicable to specified periods, as outlined in the agreements. These
agreements allow for the use of the Company’s tradenames to sell its branded products in specific geographic regions.
Advertising
Advertising and marketing costs are expensed when incurred and are reflected in general and administrative expenses.
Advertising and marketing expense was $103.6 million, $65.7 million and $41.9 million in Fiscal 2015, Fiscal 2014 and Fiscal 2013,
respectively.
Cooperative advertising expense, which represents the Company’s participation in advertising expenses of its wholesale
customers, is reflected as a reduction of net sales. Expenses related to cooperative advertising for Fiscal 2015, Fiscal 2014, and Fiscal
2013, were $8.0 million, $7.3 million and $5.1 million, respectively.
Shipping and Handling
Shipping and handling costs were $92.6 million, $78.6 million and $29.1 million for Fiscal 2015, Fiscal 2014, and Fiscal
2013, respectively, and are included in selling, general and administrative expenses in the consolidated statements of operations.
Cash and Cash Equivalents
All highly liquid investments with original maturities of three months or less are considered to be cash equivalents. Included
in the Company’s cash and cash equivalents as of March 28, 2015 and March 29, 2014 are credit card receivables of $15.8 million and
$16.0 million, respectively, which generally settle within two to three business days.
Inventories
Inventories consist of finished goods and are stated at the lower of cost or market value. Cost is determined using the
weighted-average cost method. Costs include amounts paid to independent manufacturers, plus duties and freight to bring the goods to
the Company’s warehouses, which are located in the United States, Holland, Canada, Japan and Hong Kong. The Company
continuously evaluates the composition of its inventory and makes adjustments when the cost of inventory is not expected to be fully
recoverable. The net realizable value of the Company’s inventory is estimated based on historical experience, current and forecasted
demand, and market conditions. In addition, reserves for inventory loss are estimated based on historical experience and physical
inventory counts. The Company’s inventory reserves are estimates, which could vary significantly from actual results if future economic
conditions, customer demand or competition differ from expectations. Our historical estimates of these adjustments have not differed
materially from actual results.
58
Store Pre-opening Costs
Costs associated with the opening of new retail stores and start up activities, are expensed as incurred.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and amortization (carrying value). Depreciation is
recorded on a straight-line basis over the expected remaining useful lives of the related assets. Equipment, furniture and fixtures, are
depreciated over five to seven years, computer hardware and software are depreciated over three to five years and in-store shops are
amortized over three to four years. Leasehold improvements are amortized using the straight-line method over the shorter of the
estimated remaining useful lives of the related assets or the remaining lease term, including highly probable renewal periods. The
Company includes all depreciation and amortization expense as a component of total operating expenses, as the underlying long-lived
assets are not directly or indirectly related to bringing the Company’s products to their existing location and condition. Maintenance
and repairs are charged to expense in the year incurred.
The Company’s share of the cost of constructing in-store shop displays within its wholesale customers’ floor-space (“shop-
in-shops”), which is paid directly to third-party suppliers, is capitalized as property and equipment and is generally amortized over a
useful life of three or four years.
The Company capitalizes, in property and equipment, direct costs incurred during the application development stage and
the implementation stage for developing, purchasing or otherwise acquiring software for its internal use. These costs are amortized
over the estimated useful lives of the software, generally five years. All costs incurred during the preliminary project stage, including
project scoping and identification and testing of alternatives, are expensed as incurred.
Finite-Lived Intangible Assets
The Company’s finite-lived intangible assets consist of trademarks and lease rights and are stated at cost less accumulated
amortization. Trademarks are amortized over twenty years and lease rights are amortized over the terms of the related lease
agreements, including highly probable renewal periods, on a straight-line basis.
Impairment of Long-lived Assets
The Company evaluates its long-lived assets, including fixed assets and finite-lived intangible assets, for impairment
whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The
Company’s impairment testing is based on its best estimate of its future operating cash flows. If the sum of estimated undiscounted
future cash flows associated with the asset is less than the asset’s carrying value, an impairment charge is recognized, which is
measured as the amount by which the carrying value exceeds the fair value of the asset. These estimates of cash flow require
significant management judgment and certain assumptions about future volume, sales and expense growth rates, devaluation and
inflation. As such, these estimates may differ from actual cash flows.
Goodwill
The Company performs an assessment of goodwill on an annual basis, or whenever impairment indicators exist. In the
absence of any impairment indicators, goodwill is assessed during the fourth quarter of each fiscal year. Judgments regarding the
existence of impairment indicators are based on market conditions and operational performance of the business.
The Company assesses its goodwill for impairment initially using a qualitative approach (“step zero”) to determine
whether it is more likely than not that the fair value of goodwill is greater than its carrying value. If the results of the qualitative
assessment indicate that it is not more likely than not that the fair value of goodwill exceeds its carrying value, a quantitative goodwill
analysis would be performed to determine if impairment is required. The valuation methods used in the quantitative fair value
assessment, discounted cash flow and market multiples method, require the Company’s management to make certain assumptions and
estimates regarding certain industry trends and future profitability of the Company’s reporting units. If the carrying amount of a
reporting unit exceeds its fair value, the Company would compare the implied fair value of the reporting unit goodwill to its carrying
value. To compute the implied fair value, the Company would assign the fair value of the reporting unit to all of the assets and
liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair
59
value of goodwill. If the carrying value of the reporting unit goodwill exceeded the implied fair value of the reporting unit goodwill, the
Company would record an impairment loss to write down such goodwill to its implied fair value. The valuation of goodwill is affected by,
among other things, the Company’s business plan for the future and estimated results of future operations. Future events could cause the
Company to conclude that impairment indicators exist, and, therefore, that goodwill may be impaired.
During the fourth quarter of Fiscal 2015, the Company performed its annual impairment analysis using a qualitative approach.
Based on the results of its assessment, the Company concluded that the carrying amounts of all reporting units were significantly exceeded by
their respective fair values, and there were no reporting units at risk of impairment. There were no impairment charges related to goodwill in
any of the fiscal periods presented.
Joint Venture Investments
The Company accounts for its investment it its Latin American joint venture as an equity method investment and records it in other
assets in the Company’s consolidated balance sheets. During Fiscal 2013, the Company made a non-recourse loan to this joint venture for
approximately $6.0 million, which accrues at a 5% annual rate. The purpose of the loan was to provide working capital for the joint venture’s
operations. The $6.0 million loan is repayable at the time of the expiration of the joint venture agreement, along with accrued interest payable
at the expiration date. The loan, along with accrued interest, is recorded in other assets in the Company’s consolidated balance sheets.
Share-based Compensation
The Company grants share-based awards to certain employees and directors of the Company. The grant date fair value of share
options is calculated using the Black-Scholes option pricing model. The closing market price at the grant date is used to determine the grant
date fair value of restricted shares, restricted shares units (RSUs) and performance RSUs. These fair values are recognized as expense over the
requisite service period, net of estimated forfeitures, based on expected attainment of pre-established performance goals for performance
grants, or the passage of time for those grants which have only time-based vesting requirements.
The Company’s expected volatility is based on the average volatility rates of similar actively traded companies over the
Company’s estimated expected holding periods. The expected holding period for performance-based options is based on the period to
expiration, which is generally 9-10 years, which directly correlates to the Company’s service period requirement for such options. The
expected holding period for time-based options is calculated using the simplified method, which uses the vesting term of the options, generally
4 years, and the contractual term of 7 years, resulting in a holding period of 4.5-4.75 years. The simplified method was chosen as a means to
determine the Company’s estimated holding period, as prior to December 2011, the Company was privately held and, as such, there is
insufficient historical option exercise experience. The risk-free interest rate is derived from the zero-coupon U.S. Treasury Strips yield curve
based on the grant’s estimated holding period. Determining the grant date fair value of share-based awards requires considerable judgment,
including estimating expected volatility, expected term and risk-free rate. If factors change and the Company employs different assumptions,
the fair value of future awards and the resulting share-based compensation expense may differ significantly from what the Company has
estimated in the past.
Foreign Currency Translation and Transactions
The financial statements of the majority of the Company’s foreign subsidiaries are measured using the local currency as the
functional currency. The Company’s functional currency is the United States Dollar (“USD”) for MKHL and its United States based
subsidiaries. Assets and liabilities are translated using period-end exchange rates, while revenues and expenses are translated using average
exchange rates over the reporting period. The resulting translation adjustments are recorded separately in shareholders’ equity as a component
of accumulated other comprehensive income (loss). Foreign currency income and losses resulting from the re-measuring of transactions
denominated in a currency other than the functional currency of a particular entity are included in foreign currency loss on the Company’s
consolidated statements of operations.
Derivative Financial Instruments
The Company uses forward currency exchange contracts to manage its exposure to fluctuations in foreign currency for certain of
its transactions. The Company in its normal course of business enters into transactions with foreign suppliers and seeks to minimize risks
related to these transactions. The Company employs these forward currency contracts to hedge the Company’s cash flows, as they relate to
foreign currency transactions. Certain of these contracts are designated as hedges for accounting purposes, while others remain undesignated.
All of the Company’s derivative instruments are recorded in the Company’s consolidated balance sheets at fair value on a gross basis,
regardless of their hedge designation.
The Company designates certain contracts related to the purchase of inventory that qualify for hedge accounting as cash flow
hedges. Formal hedge documentation is prepared for all derivative instruments designated as hedges, including description of the hedged item
and the hedging instrument, the risk being hedged, and the manner in which hedge effectiveness will be assessed prospectively and
60
retrospectively. The effective portion of changes in the fair value for contracts designated as cash flow hedges is recorded in equity as a
component of accumulated other comprehensive income (loss) until the hedged item effects earnings. When the inventory related to
forecasted inventory purchases that are being hedged is sold to a third party, the gains or losses deferred in accumulated other
comprehensive income (loss) are recognized within cost of goods sold. The Company uses regression analysis to assess effectiveness of
derivative instruments that are designated as hedges, which compares the change in the fair value of the derivative instrument to the
change in the related hedged item. Effectiveness is assessed on a quarterly basis and any portion of the designated hedge contracts
deemed ineffective is recorded to other income. If the hedge is no longer expected to be highly effective in the future, future changes in
the fair value are recognized in earnings. For those contracts that are not designated as hedges, changes in the fair value are recorded in
other income in the Company’s consolidated statements of operations. The Company classifies cash flows relating to its derivative
instruments consistently with the classification of the hedged item, within cash from operating activities.
The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations.
In order to mitigate counterparty credit risk, the Company only enters into contracts with carefully selected financial institutions based
upon their credit ratings and certain other financial factors, adhering to established limits for credit exposure. The aforementioned
forward contracts generally have a term of no more than 12 months. The period of these contracts is directly related to the foreign
transaction they are intended to hedge.
Income Taxes
Deferred income tax assets and liabilities have been provided for temporary differences between the tax bases and financial
reporting bases of the Company’s assets and liabilities using the tax rates and laws in effect for the periods in which the differences are
expected to reverse. The Company periodically assesses the realizability of deferred tax assets and the adequacy of deferred tax
liabilities, based on the results of local, state, federal or foreign statutory tax audits or estimates and judgments used.
Realization of deferred tax assets associated with net operating loss and tax credit carryforwards is dependent upon
generating sufficient taxable income prior to their expiration in the applicable tax jurisdiction. The Company periodically reviews the
recoverability of its deferred tax assets and provides valuation allowances, as deemed necessary, to reduce deferred tax assets to amounts
that more-likely-than-not will be realized. The Company’s management considers many factors when assessing the likelihood of future
realization of deferred tax assets, including recent earnings results within various taxing jurisdictions, expectations of future taxable
income, the carryforward periods remaining and other factors. Changes in the required valuation allowance are recorded in income in the
period such determination is made. Deferred tax assets could be reduced in the future if the Company’s estimates of taxable income
during the carryforward period are significantly reduced or alternative tax strategies are no longer viable.
The Company recognizes the impact of an uncertain income tax position taken on its income tax returns at the largest amount
that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will be
recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least quarterly) and
adjustments are made as events occur that warrant adjustments for those positions. The Company records interest expense and penalties
payable to relevant tax authorities as income tax expense.
Rent Expense, Deferred Rent and Landlord Construction Allowances
The Company leases office space, retail stores and distribution facilities under agreements that are classified as operating
leases. Many of these operating leases include contingent rent provisions (percentage rent), and/or provide for certain landlord
allowances related to tenant improvements and other relevant items. The recognition of rent expense for an operating lease commences
on the earlier of the related lease commencement date or the date of possession of the property. Rent expense is calculated by
recognizing total minimum rental payments (net of any rental abatements, construction allowances and other rental concessions) on a
straight-line basis over the lease term. The difference between straight-line rent expense and rent paid is recorded as deferred rent, which
is classified within short-term and long-term liabilities in the Company’s consolidated balance sheets. The Company accounts for
landlord allowances and incentives as a component of deferred rent, which is amortized over the lease term as a reduction of rent
expense. The Company records rent expense as a component of selling, general and administrative expenses.
Deferred Financing Costs
The Company defers costs directly associated with acquiring third party financing. These deferred costs are amortized on a
straight-line basis, which approximates the effective interest method, as interest expense over the term of the related indebtedness. As of
March 28, 2015, deferred financing costs were $2.1 million, net of accumulated amortization of $3.6 million. As of March 29, 2014,
deferred financing costs were $2.9 million, net of accumulated amortization of $2.8 million. Deferred financing costs are included in
other assets on the consolidated balance sheets.
61
Net Income per Share
The Company’s basic net income per ordinary share is calculated by dividing net income by the weighted average number
of ordinary shares outstanding during the period.
Diluted net income per ordinary share reflects the potential dilution that would occur if share option grants or any other
potentially dilutive instruments, including restricted shares and units (“RSUs”), were exercised or converted into ordinary shares.
These potentially dilutive securities are included in diluted shares to the extent they are dilutive under the treasury stock method for
the applicable periods. Performance-based RSUs are included in diluted shares if the related performance conditions are considered
satisfied as of the end of the reporting period and to the extent they are dilutive under the treasury stock method.
The components of the calculation of basic net income per ordinary share and diluted net income per ordinary share are as
follows (in thousands except share and per share data):
Numerator:
Net income
Denominator:
Basic weighted average shares
Weighted average dilutive share equivalents:
Share options and restricted shares/units
Diluted weighted average shares
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$
881,023 $
661,485 $
397,602
202,680,572 202,582,945 196,615,054
3,185,197
3,055,162
205,865,769
205,638,107
4,925,090
201,540,144
Basic net income per share
Diluted net income per share
$
$
4.35 $
4.28 $
3.27 $
3.22 $
2.02
1.97
Share equivalents for 699,321 shares, 44,256 shares, and 7,341 shares, for fiscal years ending March 28, 2015, March 29,
2014, and March 30, 2013, respectively, have been excluded from the above calculation due to their anti-dilutive effect.
Recent Accounting Pronouncements — The Company has considered all new accounting pronouncements and has
concluded that, with the exception of the below, there are no new pronouncements that are currently expected to have a material
impact on results of operations, financial condition, or cash flows.
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be
Achieved after the Requisite Service Period,” ASU 2014-12 requires that a performance target under stock-based compensation
arrangements that could be achieved after the service period is treated as a performance condition and not reflected in the grant-date
fair value of the award. Rather, the related compensation cost should be recognized when it becomes probable that the performance
targets will be achieved. ASU 2014-12 is effective beginning with the Company’s Fiscal 2017, with early adoption and retrospective
application permitted. The Company does not expect that ASU 2014-12 will have a significant impact on its consolidated financial
statements.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which provides new
guidance for revenues recognized from contracts with customers, and will replace the existing revenue recognition guidance. ASU
No. 2014-09 requires that revenue is recognized at an amount the company is entitled to upon transferring control of goods or services
to customers, as opposed to when risks and rewards transfer to a customer. ASU No. 2014-09 will become effective for the interim
reporting periods within the annual reporting period beginning after December 15, 2016, or beginning with the Company’s Fiscal
2018, and may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained
earnings in the year of adoption. In April 2015, the FASB issued a proposal to defer the effective date by one year which, if approved,
would make this standard effective beginning in the Company’s Fiscal 2019. The Company is currently evaluating the adoption
method and the impact that ASU 2014-09 will have on its consolidated financial statements and related disclosures.
62
3. Receivables
Receivables consist of (in thousands):
Trade receivables:
Credit risk assumed by factors/insured
Credit risk retained by Company
Receivables due from licensees
Less allowances:
March 28,
2015
March 29,
2014
67,530
11,763
$374,150 $261,900
93,045
11,302
366,247
(68,241)
$298,006
453,443
(90,024)
$363,419
The Company has historically assigned a substantial portion of its trade receivables to factors in the United States (U.S.) and
Europe whereby the factors assumed credit risk with respect to such receivables assigned. Under the factor agreements, factors bear the
risk of loss from the financial inability of the customer to pay the trade receivable when due, up to such amounts as accepted by the
factor; but not the risk of non-payment of such trade receivable for any other reason. Beginning in July 2012, the Company assumed
responsibility for a large portion of previously factored accounts receivable balances, the majority of which were insured at March 28,
2015. The Company provides an allowance for such non-payment risk at the time of sale, which is recorded as an offset to revenue.
Receivables are presented net of allowances for sales returns, discounts, markdowns, operational chargebacks and doubtful
accounts. Sales returns are determined based on an evaluation of current market conditions and historical returns experience. Discounts
are based on open invoices where trade discounts have been extended to customers. Markdowns are based on retail sales performance,
seasonal negotiations with customers, historical deduction trends and an evaluation of current market conditions. Operational
chargebacks are based on deductions taken by customers, net of expected recoveries. Such provisions, and related recoveries, are
reflected in net sales.
The allowance for doubtful accounts is determined through analysis of periodic aging of receivables for which credit risk is
not assumed by the factors, or which are not covered by insurance, and assessments of collectability based on an evaluation of historic
and anticipated trends, the financial conditions of the Company’s customers and the impact of general economic conditions. The past
due status of a receivable is based on its contractual terms. Amounts deemed uncollectible are written off against the allowance when it
is probable the amounts will not be recovered. Allowances for doubtful accounts were $0.7 million and $1.5 million, at March 28, 2015
and March 29, 2014, respectively.
4. Concentration of Credit Risk, Major Customers and Suppliers
Financial instruments that subject the Company to concentration of credit risk are cash and cash equivalents and receivables.
As part of its ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order to
avoid any undue exposure. The Company mitigates its risk by depositing cash and cash equivalents in major financial institutions. With
respect to certain of its receivables, the Company mitigates its credit risk through the assignment of receivables to a factor, as well as
obtaining insurance coverage for a portion of non-factored receivables (as demonstrated in the above table in “Credit risk assumed by
factors”). For the fiscal years ended March 28, 2015, March 29, 2014, and March 30, 2013, net sales related to our largest wholesale
customer, Federated, accounted for approximately 13.7%, 14.4%, and 14.0%, respectively, of total revenue. The accounts receivable
related to this customer were fully factored or substantially insured for all three fiscal years. No other customer accounted for 10% or
more of the Company’s total consolidated revenues during Fiscal 2015, Fiscal 2014, or Fiscal 2013.
The Company contracts for the purchase of finished goods principally with independent third-party contractors, whereby the
contractor is generally responsible for all manufacturing processes, including the purchase of piece goods and trim. Although the
Company does not have any long-term agreements with any of its manufacturing contractors, the Company believes it has mutually
satisfactory relationships with them. The Company allocates product manufacturing among agents and contractors based on their
capabilities, the availability of production capacity, quality, pricing and delivery. The inability of certain contractors to provide needed
services on a timely basis could adversely affect the Company’s operations and financial condition. The Company has relationships with
various agents who source the Company’s finished goods with numerous contractors on the Company’s behalf. For the fiscal years
ended March 28, 2015, March 29, 2014, and March 30, 2013, one agent sourced approximately 11.7%, 12.6%, and 14.0%, respectively,
and one contractor accounted for approximately 29.1%, 30.4%, and 31.8%, respectively, of the Company’s finished goods purchases.
63
5. Property and Equipment, Net
Property and equipment, net, consists of (in thousands):
Furniture and fixtures
Equipment
Computer equipment and software
In-store shops
Leasehold improvements
Less: accumulated depreciation and amortization
Construction-in-progress
March 28,
2015
$ 160,178
73,609
104,372
189,308
294,225
821,692
(337,755)
483,937
78,997
$ 562,934
March 29,
2014
$ 108,757
31,683
50,646
123,637
216,451
531,174
(234,381)
296,793
53,885
$ 350,678
Depreciation and amortization of property and equipment for the fiscal years ended March 28, 2015, March 29, 2014, and
March 30, 2013, was $131.4 million, $76.6 million, and $52.7 million, respectively. During the fiscal years ended March 28,
2015, March 29, 2014, and March 30, 2013, the Company recorded impairment charges of $0.8 million, $1.3 million, and $0.7
million, respectively, related to certain retail locations still in operation. The impairments related to two retail locations in Fiscal
2015, three retail locations in Fiscal 2014, and one retail location in Fiscal 2013.
6. Intangible Assets and Goodwill
The following table details the carrying values of intangible assets and goodwill (in thousands):
March 28, 2015
March 29, 2014
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
Trademarks
Lease Rights
Goodwill
$23,000 $ 13,995 $ 9,005 $23,000 $ 12,845 $10,155
37,879
14,005
$62,039
8,551
—
$ 22,546
3,869
—
$ 16,714
52,536
14,005
$75,546
61,087
14,005
$98,092
41,748
14,005
$78,753
The trademarks relate to the Company’s brand name and are amortized over twenty years. Lease rights are amortized over
the respective terms of the underlying lease, including highly probable renewal periods. Amortization expense was $7.0 million, $3.1
million, and $1.5 million, respectively, for each of the fiscal years ended March 28, 2015, March 29, 2014, and March 30, 2013.
Goodwill is not amortized but is evaluated annually for impairment in the last quarter or each fiscal year, or whenever
impairment indicators exist. The Company evaluated goodwill during the fourth fiscal quarter of Fiscal 2015, and determined that
there was no impairment. As of March 28, 2015, cumulative impairment related to goodwill totaled $5.4 million. There were no
charges related to the impairment of goodwill in the periods presented.
64
Estimated amortization expense for each of the next five years is as follows (in thousands):
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Thereafter
$ 7,331
7,164
7,130
7,105
7,093
25,718
$61,541
The future amortization expense above reflects weighted-average estimated remaining useful lives of 9.2 years for lease
rights and 7.8 years for trademarks. There were no impairment charges related to the Company’s lease rights or trademarks during
any of the periods presented.
7. Current Assets and Current Liabilities
Prepaid expenses and other current assets consist of the following (in thousands):
Prepaid taxes
Unrealized gains on forward foreign exchange contracts
Leasehold incentive receivable
Prepaid rent
Other
Accrued expenses and other current liabilities consist of the following (in thousands):
Other taxes payable
Accrued rent
Advance royalties
Professional services
Accrued litigation
Accrued advertising
Accrued samples
Unrealized loss on forward foreign exchange contracts
Other
65
March 28,
2015
$ 60,637
25,004
12,289
11,681
17,832
$127,443
March 29,
2014
$20,943
12
8,022
8,740
12,775
$50,492
March 28,
2015
$20,202
27,058
5,081
7,347
5,539
5,653
816
600
22,850
$95,146
March 29,
2014
$17,321
14,159
2,097
6,319
2,009
4,810
797
1,875
13,332
$62,719
8. Credit Facilities
Senior Unsecured Revolving Credit Facility
On February 8, 2013, the Company entered into a senior unsecured credit facility (“2013 Credit Facility”). Pursuant to the
agreement, the 2013 Credit Facility provides for up to $200.0 million of borrowings, and expires on February 8, 2018. The agreement
also provides for loans and letters of credit to the Company’s European subsidiaries of up to $100.0 million. The 2013 Credit Facility
contains financial covenants, such as requiring an adjusted leverage ratio of 3.5 to 1.0 (with the ratio being total consolidated
indebtedness plus 8.0 times consolidated rent expense to EBITDA plus consolidated rent expense) and a fixed charge coverage ratio
of 2.0 to 1.0 (with the ratio being EBITDA plus consolidated rent expense to the sum of fixed charges plus consolidated rent
expense), restricts and limits additional indebtedness, and restricts the incurrence of additional liens and cash dividends. As of
March 28, 2015, the Company was in compliance with all covenants related to this agreement.
Borrowings under the 2013 Credit Facility accrue interest at the rate per annum announced from time to time by the agent
based on the rates applicable for deposits in the London interbank market for U.S. dollars or the applicable currency in which the
loans are made (the “Adjusted LIBOR”) plus an applicable margin. The applicable margin may range from 1.25% to 1.75%, and is
based, or dependent upon, a particular threshold related to the adjusted leverage ratio calculated during the period of borrowing. For
Fiscal 2015 and Fiscal 2014, the weighted average interest rate for the revolving credit facility was 1.6%. The 2013 Credit Facility
requires an annual facility fee of $0.1 million and an annual commitment fee of 0.25% to 0.35% on the unused portion of the
available credit under the facility.
As of March 28, 2015 and March 29, 2014, there were no borrowings outstanding under the 2013 Credit Facility, and there
were no amounts borrowed during Fiscal 2015. At March 28, 2015, there were stand-by letters of credit of $10.8 million outstanding.
The amount available for future borrowings under the agreement was $189.2 million as of March 28, 2015.
9. Commitments and Contingencies
Leases
The Company leases office space, retail stores and warehouse space under operating lease agreements that expire at various
dates through September 2029. In addition to minimum rental payments, the leases require payment of increases in real estate taxes
and other expenses incidental to the use of the property.
Rent expense for the Company’s operating leases consists of the following (in thousands):
Minimum rentals
Contingent rent
Total rent expense
March 28,
2015
$151,007
65,752
$216,759
Fiscal Years Ended
March 29,
2014
$107,071
56,299
$163,370
March 30,
2013
$ 74,708
29,871
$104,579
Future minimum lease payments under the terms of these noncancelable operating lease agreements are as follows (in
thousands):
Fiscal years ending:
2016
2017
2018
2019
2020
Thereafter
$ 177,159
183,467
184,184
177,927
174,676
695,255
$1,592,668
The Company has issued stand-by letters of credit to guarantee certain of its retail and corporate operating lease
commitments, aggregating $10.8 million at March 28, 2015.
66
Other Commitments
As of March 28, 2015, the Company also has other contractual commitments aggregating $336.4 million, which consist of
inventory purchase commitments of $299.6 million, and other contractual obligations of $36.8 million.
Long-term Employment Contract
As of March 28, 2015, the Company had an employment agreement with one of its officers that provided for continuous
employment through the date of the officer’s death or permanent disability at a salary of $2.5 million. In addition to salary, the
agreement provided for an annual bonus and other employee related benefits. Refer to Part II, Item 9B – Other Information for officer
employment agreements, as amended and restated on May 20, 2015.
Contingencies
In the ordinary course of business, the Company is party to various legal proceedings and claims. Although the outcome of
such items cannot be determined with certainty, the Company’s management does not believe that the outcome of all pending legal
proceedings in the aggregate will have a material adverse effect on its cash flow, results of operations or financial position.
10. Fair Value of Financial Instruments
Financial assets and liabilities are measured at fair value using the three-level valuation hierarchy for disclosure of fair value
measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the inputs used
in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally derived
(unobservable). Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on
market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own assumptions about market
participant assumptions developed based on the best information available in the circumstances. The hierarchy is broken down into three
levels based on the reliability of inputs as follows:
Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to
access at the measurement date.
Level 2 – Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for the asset or
liability, either directly or indirectly through corroboration with observable market data.
Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
At March 28, 2015 and March 29, 2014, the fair values of the Company’s foreign currency forward contracts, the Company’s
only derivative instruments, were determined using broker quotations, which were calculations derived from observable market
information: the applicable currency rates at the balance sheet date and those forward rates particular to the contract at inception. The
Company makes no adjustments to these broker obtained quotes or prices, but assesses the credit risk of the counterparty and would
adjust the provided valuations for counterparty credit risk when appropriate. The fair values of the forward contracts are included in
prepaid expenses and other current assets, and in accrued expenses and other current liabilities in the consolidated balance sheets,
depending on whether they represent assets or (liabilities) to the Company, as detailed in Note 11. All contracts are measured and
recorded at fair value on a recurring basis and are categorized in Level 2 of the fair value hierarchy, as shown in the following table:
Fair value at March 28, 2015, using:
Fair value at March 29, 2014, using:
(In thousands)
Foreign currency forward contracts- Euro
Foreign currency forward contracts- Canadian Dollar
Foreign currency forward contracts- U.S. Dollar
Total
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
— $ 23,590 $
—
—
— $ 24,404 $
1,404
(590)
$
$
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Significant
unobservable
inputs
(Level 3)
— $
—
—
— $
— $ (1,875) $
— —
—
12
— $ (1,863) $
—
—
—
—
The Company’s cash and cash equivalents, accounts receivable and accounts payable, are recorded at carrying value, which
approximates fair value. Borrowings under the Credit Facility, if outstanding, are recorded at carrying value, which resembles fair value
due to the short-term nature of the revolving Credit Facility.
67
11. Derivative Financial Instruments
The Company uses forward currency exchange contracts to manage its exposure to fluctuations in foreign currency for
certain of its transactions. The Company in its normal course of business enters into transactions with foreign suppliers and seeks to
minimize risks related to certain forecasted inventory purchases by using foreign currency forward exchange contracts. The Company
only enters into derivative instruments with highly credit-rated counterparties. The Company’s derivative financial instruments are
not currently subject to master netting arrangements. The Company does not enter into derivative contracts for trading or speculative
purposes.
The following table details the fair value of the Company’s derivative contracts, which are recorded on a gross basis in the
consolidated balance sheets as of March 28, 2015 and March 29, 2014 (in thousands):
Fair Values
Designated forward currency exchange contracts
Undesignated forward currency exchange contracts
Total
Notional Amounts
Current Assets (1)
March 28,
2015
March 29,
2014
$226,090 $127,955 $23,590 $
1,414
27,105
$251,878 $155,060 $25,004 $
March 28,
2015
25,788
March 29,
2014
Current Liabilities (2)
March 28,
2015
March 29,
2014
5 $
7
12 $
522 $ 1,875
—
600 $ 1,875
78
(1) Recorded within prepaid expenses and other current assets in the Company’s audited consolidated balance sheets.
(2) Recorded within accrued expenses and other current liabilities in the Company’s audited consolidated balance sheets.
Changes in the fair value of the effective portion of the Company’s forward foreign currency exchange contracts that are
designated as accounting hedges are recorded in equity as a component of accumulated other comprehensive income, and are
reclassified from accumulated other comprehensive income into earnings when the items underlying the hedged transactions are
recognized into earnings, as a component of cost of sales within the Company’s consolidated statements of operations. The following
table summarizes the impact of the effective portion of gains and losses of the forward contracts designated as hedges for the fiscal
years ended March 28, 2015 and March 29, 2014 (in thousands):
Forward currency exchange contracts
Fiscal Year Ended March 28, 2015
Pre-tax Gain
Reclassified from
Accumulated OCI
into Earnings
(Effective Portion)
Pre-Tax
Gain
Recognized
in OCI
(Effective Portion)
$
36,633 $
2,059 $
Pre-Tax
(Loss)
Recognized
in OCI
(Effective Portion)
Fiscal Year Ended March 29, 2014
Pre-tax Loss
Reclassified from
Accumulated OCI
into Earnings
(Effective Portion)
(540)
(3,797) $
Activity related to contracts designated for hedge accounting purposes during Fiscal 2013 was not material, as the
Company did not begin to designate its hedges until the end of Fiscal 2013. Amounts related to ineffectiveness were not material
during all periods presented.
The Company expects that substantially all of the amounts currently recorded in accumulated other comprehensive loss
will be reclassified into earnings during the next twelve months, based upon the timing of inventory purchases and turns. These
amounts are subject to fluctuations in the applicable currency exchange rates.
During Fiscal 2015, the Company recognized $1.5 million in gains related to the change in the fair value of undesignated
forward currency exchange contracts within other income in the Company’s consolidated statement of operations. During Fiscal 2014
and Fiscal 2013, realized gains and losses related to undesignated forward currency exchange contracts were not material.
12. Shareholders’ Equity
Secondary Offerings
During Fiscal 2013, the Company completed the following secondary offerings:
•
In April 2012, in connection with the Company’s March 2012 secondary offering of 25,000,000 ordinary shares at a price of
$47.00 per share, the underwriters exercised their additional share purchase option, where an additional 3,750,000 shares were
offered at $47.00 per share.
68
•
During September 2012, the Company completed a secondary offering of 23,000,000 ordinary shares at a price of $53.00 per
share. Subsequent to this offering, and in connection with it, the underwriters exercised their additional share purchase option
during October 2012, where an additional 3,450,000 shares were offered at $53.00 per share.
•
During February 2013, the Company completed a secondary offering of 25,000,000 ordinary shares at a price of $61.50 per
share.
The Company did not receive any of the proceeds related to the sale of the shares from any of the secondary offerings and
incurred approximately $1.7 million in fees, which were charged to selling, general and administrative expenses in Fiscal 2013.
Share Repurchase Program
On November 14, 2014, the Company entered into a $355.0 million accelerated share repurchase program (the “ASR
program”) with a major financial institution (the “ASR Counterparty”) to repurchase the Company’s ordinary shares. Under the ASR
program, the Company paid $355.0 million to the ASR Counterparty and received 4,437,516 of its ordinary shares from the ASR
Counterparty, which represents 100 percent of the shares expected to be purchased pursuant to the ASR program, based on an initial
share price determination. The ASR program also contained a forward contract indexed to the Company’s ordinary shares whereby
additional shares would be delivered to the Company by January 29, 2015 (the settlement date) if the share price declined from the
initial share price, limited to a stated share price “floor.” The total number of shares repurchased/acquired was determined on final
settlement, with the additional shares reacquired based on the volume-weighted average price of the Company’s ordinary shares, less
a discount, during the repurchase period, subject to aforementioned price floor. In January 2015, 280,819 additional shares were
delivered to the Company pursuant to these provisions, which did not require any additional cash outlay by the Company. The ASR
program was accounted for as a treasury stock repurchase, reducing the number of ordinary shares outstanding by 4,718,335 shares.
The forward contract was accounted for as an equity instrument.
In addition to shares purchased under the ASR program, the Company repurchased an additional 2,040,979 shares at a cost
of $136.9 million under its current share-repurchase program through open market transactions. As of March 28, 2015, the remaining
availability under the Company’s share repurchase program was $508.1 million. On May 20, 2015, the Company’s Board of Directors
authorized the repurchase of up to an additional $500 million under the Company’s existing share repurchase program and extended
the program through May 2017.
The Company also has in place a “withhold to cover” repurchase program, which allows the Company to withhold
ordinary shares from certain executive officers to satisfy minimum tax withholding obligations relating to the vesting of their
restricted share awards. During Fiscal 2015, the Company withheld 40,787 shares at a cost of $3.3 million in satisfaction of minimum
tax withholding obligations relating to the vesting of restricted share awards.
13. Accumulated Other Comprehensive Income
The following table details changes in the components of accumulated other comprehensive income, net of taxes for Fiscal
2015, Fiscal 2014 and Fiscal 2013 (in thousands):
Balance at March 31, 2012
Other comprehensive income (loss) before reclassifications (1)
Amounts reclassified from AOCI to earnings (1)
Other comprehensive income (loss) net of tax
Balance at March 30, 2013
Other comprehensive income (loss) before reclassifications
Less: amounts reclassified from AOCI to earnings (2)
Other comprehensive income (loss) net of tax
Balance at March 29, 2014
Other comprehensive income (loss) before reclassifications (3)
Less: amounts reclassified from AOCI to earnings (2)
Other comprehensive income (loss) net of tax
Balance at March 28, 2015
69
Foreign Currency
Translation
Losses
Net Gains
(Losses) on
Derivatives
Total
Accumulated Other
Comprehensive
Income (Loss)
$
$
(4,006)
(735) $ — $
1,280
— —
(4,006)
(4,741)
(34)
—
(34)
(4,775)
1,280
1,280
(3,360)
(482)
(2,878)
(1,598)
—
(91,293) 32,822
1,960
(91,293) 30,862
(96,068) $ 29,264 $
(735)
(2,726)
—
(2,726)
(3,461)
(3,394)
(482)
(2,912)
(6,373)
(58,471)
1,960
(60,431)
(66,804)
(1) The Company did not begin to designate certain of its hedges as accounting hedges until the end of Fiscal 2013.
(2) Reclassified amounts relate to the Company’s forward foreign currency exchange contracts for inventory purchases and are
recorded within Cost of goods sold in the Company’s consolidated statements of operations. The related tax effects recorded
within income tax expense in the Company’s consolidated statements of operations were not material.
(3) Other comprehensive income (loss) before reclassifications is related to derivative financial instruments designated as cash flow
hedges net of tax provision of $3.7 million for Fiscal 2015. The tax effects related to all other amounts were not material.
14. Share-Based Compensation
The Company issues equity grants to certain employees and directors of the Company at the discretion of the Company’s
Compensation Committee. The Company has two equity plans, one adopted in Fiscal 2008, the Michael Kors (USA), Inc. Stock
Option Plan (as amended and restated, the “2008 Plan”), and the other adopted in the third fiscal quarter of Fiscal 2012, the Michael
Kors Holdings Limited Omnibus Incentive Plan (the “2012 Plan”). The 2008 Plan only provided for grants of share options and was
authorized to issue up to 23,980,823 ordinary shares. As of March 28, 2015, there were no shares available to grant equity awards
under the 2008 Plan. The 2012 Plan allows for grants of share options, restricted shares and restricted share units, and other equity
awards, and authorizes a total issuance of up to 15,246,000 ordinary shares. At March 28, 2015, there were 10,739,867 ordinary
shares available for future grants of equity awards under the 2012 Plan. Option grants issued from the 2008 Plan generally expire ten
years from the date of the grant, and those issued under the 2012 Plan generally expire seven years from the date of the grant.
Share Options
Share options are generally exercisable at no less than the fair market value on the date of grant. The Company has issued
two types of option grants, those that vest based on the attainment of a performance target and those that vest based on the passage of
time. Performance-based share options may vest based upon the attainment of one of two performance measures. One performance
measure is an individual performance target, which is based upon certain performance targets unique to the individual grantee, and
the other measure is a company-wide performance target, which is based on a cumulative minimum growth requirement in
consolidated net equity. The individual performance target vests 20% of the total option grant each year the target is satisfied. The
individual has ten years in which to achieve five individual performance vesting tranches. The company-wide performance target
must be achieved over the ten-year term. Performance is measured at the end of the term, and any unvested options vest if the target is
achieved. The Company-wide performance target is established at the time of the grant. The target metrics underlying individual
performance vesting requirements are established for each recipient each year up until such time as the grant is fully vested. Options
subject to time-based vesting requirements become vested in four equal increments on each of the first, second, third and fourth
anniversaries of the date on which such options were awarded.
The following table summarizes the share options activity during Fiscal 2015, and information about options outstanding at
March 28, 2015:
Outstanding at March 29, 2014
Granted
Exercised
Canceled/forfeited
Outstanding at March 28, 2015
Vested or expected to vest at March 28, 2015
Vested and exercisable at March 28, 2015
Number of
Options
8,377,928
810,063
(1,782,246)
(218,742)
7,187,003
7,102,610
3,365,746
Weighted
Average
Exercise price
13.69
$
90.56
$
8.69
$
28.05
$
23.14
$
23.14
$
12.61
$
Weighted
Average
Remaining
Contractual
Life (years)
Aggregate
Intrinsic
Value
(in thousands)
5.37
5.37
4.89
$ 333,870
$ 182,984
There were 3,821,257 unvested options and 3,365,746 vested options outstanding at March 28, 2015. The total intrinsic
value of options exercised during Fiscal 2015 and Fiscal 2014 was $131.6 million and $163.2 million, respectively. The cash received
from options exercised during Fiscal 2015 and Fiscal 2014 was $15.3 million and $19.0 million, respectively. As of March 28, 2015,
the remaining unrecognized share-based compensation expense for nonvested share options was $28.8 million, which is expected to
be recognized over the related weighted-average period of approximately 2.62 years.
70
The weighted average grant date fair value for options granted during Fiscal 2015, Fiscal 2014, and Fiscal 2013, was
$27.96, $24.95, and $20.66, respectively. The following table represents assumptions used to estimate the fair value of options:
Expected dividend yield
Volatility factor
Weighted average risk-free interest rate
Expected life of option
Restricted Shares and Restricted Share Units
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
0.0%
33.2%
1.5%
0.0%
46.0%
1.0%
0.0%
48.5%
0.6%
4.75 years
4.75 years
4.75 years
The Company grants restricted shares and restricted share units at the fair market value on the date of the grant. Expense
for restricted share awards is based on the closing market price of the Company’s shares on the date of grant and is recognized ratably
over the vesting period, which is generally three to four years from the date of the grant, net of expected forfeitures.
Restricted share grants generally vest in equal increments on each of the four anniversaries of the date of grant. In addition,
the Company grants two types of restricted share unit (“RSU”) awards: time-based RSUs and performance-based RSUs. Time-based
RSUs generally vest in full either on the first anniversary of the date of the grant, or in equal increments on each of the four
anniversaries of the date of grant. Performance-based RSUs vest in full on the three-year anniversary of the date of grant, subject to
the employee’s continued employment during the vesting period and only if certain pre-established cumulative performance targets
are met at the end of the three-year performance period. Expense related to performance-based RSUs is recognized ratably over the
three-year performance period, net of forfeitures, based on the probability of attainment of the related performance targets. The
potential number of shares that may be earned ranges between 0%, if the minimum level of performance is not attained, and 150%, if
the level of performance is at or above the pre-determined maximum achievement level.
The following table summarizes restricted share activity under the 2012 Plan during Fiscal 2015:
Unvested at March 29, 2014
Granted
Vested
Canceled/forfeited
Unvested at March 28, 2015
Restricted Shares
Number of Unvested
Restricted Shares
657,853
436,317
(288,599)
(34,979)
770,592
Weighted
Average Grant
Date Fair Value
38.38
$
90.46
$
32.52
$
69.94
$
68.77
$
The total fair value of restricted shares vested was $22.8 million, $17.6 million, and $10.5 million during Fiscal 2015,
Fiscal 2014, and Fiscal 2013, respectively. As of March 28, 2015, the remaining unrecognized share-based compensation expense for
non-vested restricted share grants was $41.1 million, which is expected to be recognized over the related weighted-average period of
approximately 2.86 years.
The following table summarizes the RSU activity under the 2012 Plan during Fiscal 2015:
Unvested at March 29, 2014
Granted
Vested
Canceled/forfeited
Unvested at March 28, 2015
Service-based
Performance-based
Weighted
Average Grant
Date Fair Value
40.83
$
74.42
$
38.06
$
20.00
$
66.26
$
Number of
Restricted
Share Units
163,077
155,570
—
(1,446)
317,201
Weighted
Average Grant
Date Fair Value
62.24
$
91.70
$
—
$
62.24
$
76.69
$
Number of
Restricted
Share Units
36,701
20,409
(11,770)
(9,400)
35,940
71
The total fair value of service-based RSUs vested during Fiscal 2015, Fiscal 2014 and Fiscal 2013 was $0.4 million,
$0.2 million and $0.8 million, respectively. As of March 28, 2015, the remaining unrecognized share-based compensation expense for
non-vested service-based and performance-based RSU grants was $1.2 million and $21.8 million, respectively, which is expected to
be recognized over the related weighted-average periods of approximately 2.82 years and 1.94 years, respectively.
Compensation expense attributable to share-based compensation for Fiscal 2015, Fiscal 2014, and Fiscal 2013 was
approximately $48.9 million, $29.1 million, and $20.9 million, respectively. The associated income tax benefits recognized in Fiscal
2015, Fiscal 2014, and Fiscal 2013 were $17.5 million, $11.5 million and $8.1 million, respectively. Forfeitures are estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company estimates
forfeitures based on its historical forfeiture rate to date. The estimated value of future forfeitures for equity grants as of March 28,
2015 is approximately $1.3 million.
15. Taxes
On October 29, 2014, the Board of Directors of MKHL approved a proposal to move the Company’s principal executive
office from Hong Kong to the United Kingdom and to become a U.K. tax resident. The Company will remain incorporated in the
British Virgin Islands. The Company has achieved tremendous international growth over the past several years and believes that
moving its principal executive office to the U.K. will better position it for further expansion in Europe and internationally, and allow
it to compete more effectively with other international luxury brands.
MKHL’s subsidiaries are subject to taxation in the U.S. and various other foreign jurisdictions, which are aggregated in the
“Non-U.S” information captioned below.
Income before provision for income taxes consisted of the following (in thousands):
U.S.
Non-U.S.
Total income before provision for income taxes
The provision for income taxes was as follows (in thousands):
Current
U.S. Federal
U.S. State
Non-U.S.
Total current
Deferred
U.S. Federal
U.S. State
Non-U.S.
Total deferred
Total provision for income taxes
Fiscal Years Ended
March 28,
2015
$ 814,368
441,455
March 29,
2014
$ 792,899
214,748
$1,255,823
$1,007,647
March 30,
2013
$538,607
88,520
$627,127
Fiscal Years Ended
March 28,
2015
March 29,
2014
March 30,
2013
$ 277,001
49,645
41,922
368,568
$ 295,159
50,348
30,560
376,067
$179,014
32,249
15,040
226,303
5,020
331
881
6,232
$ 374,800
(24,847)
(3,594)
(1,464)
(29,905)
$ 346,162
1,246
2,088
(112)
3,222
$229,525
MKHL is incorporated in the British Virgin Islands and is a tax resident of the U.K. However, since the proportion of the
U.S. revenues, assets, operating income, and the associated tax provisions is significantly higher than any other single tax jurisdiction
within the worldwide group, the reconciliation of the differences between the provision for income taxes and the statutory rate is
72
presented on the basis of the U.S. statutory federal income tax rate of 35%. The following table summarizes the significant
differences between the U.S. federal statutory tax rate and the Company’s effective tax rate for financial statement purposes:
Federal tax at 35% statutory rate
State and local income taxes, net of federal benefit
Differences in tax effects on foreign income
Foreign tax credit
Liability for uncertain tax positions
Effect of changes in valuation allowances on deferred tax
assets
Other
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
35.0%
2.4%
-9.0%
-0.4%
0.2%
-0.1%
1.7%
29.8%
35.0%
2.3%
-3.9%
-0.2%
0.8%
-0.2%
0.6%
34.4%
35.0%
3.6%
-3.1%
-0.2%
0.5%
0.3%
0.5%
36.6%
Significant components of the Company’s deferred tax assets (liabilities) consist of the following (in thousands):
Deferred tax assets
Inventories
Payroll related accruals
Deferred rent
Deferred revenue
Net operating loss carryforwards
Stock compensation
Sales allowances
Other
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Goodwill and intangibles
Depreciation
Other
Total deferred tax liabilities
Net deferred tax assets
March 28,
2015
March 29,
2014
$ 11,194
408
30,428
—
5,860
23,845
10,090
11,054
92,879
(5,640)
87,239
(32,704)
(34,633)
(3,910)
(71,247)
$ 15,992
$ 11,380
4,722
24,281
2,389
7,743
14,117
7,654
9,589
81,875
(8,020)
73,855
(24,324)
(20,691)
(526)
(45,541)
$ 28,314
The Company maintains valuation allowances on deferred tax assets applicable to subsidiaries in jurisdictions for which
separate income tax returns are filed and where realization of the related deferred tax assets from future profitable operations is not
reasonably assured. Deferred tax valuation allowances increased approximately $0.2 million, $0.9 million and $1.6 million in
Fiscal 2015, Fiscal 2014 and Fiscal 2013, respectively. As a result of the attainment and expectation of achieving profitable
operations in certain countries comprising the Company’s European operations and certain state jurisdictions in the U.S., for which
deferred tax valuation allowances had been previously established, the Company released valuation allowances amounting to
approximately $2.6 million, $1.6 million, and $1.1 million in Fiscal 2015, Fiscal 2014 and Fiscal 2013, respectively.
73
The Company has non-U.S. net operating loss carryforwards of approximately $23.2 million that will begin to expire
in 2017.
As of March 28, 2015 and March 29, 2014, the Company has liabilities related to its uncertain tax positions, including
accrued interest, of approximately $21.2 million and $19.0 million, respectively, which are included in other long-term liabilities in
the Company’s audited consolidated balance sheets.
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately
$19.9 million, $18.1 million and $6.6 million as of March 28, 2015, March 29, 2014, and March 30, 2013, respectively. A
reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding accrued interest, for Fiscal 2015, Fiscal
2014, and Fiscal 2013, are presented below (in thousands):
Unrecognized tax benefits beginning balance
Additions related to prior period tax positions
Additions related to current period tax positions
Decreases from prior period positions
Unrecognized tax benefits ending balance
March 28,
2015
$18,087
443
5,193
(3,838)
$19,885
March 29,
2014
$ 6,628
2,515
9,312
(368)
$18,087
March 30,
2013
$ 1,758
3,318
2,482
(930)
$ 6,628
The Company classifies interest expense and penalties related to unrecognized tax benefits as components of the provision
for income taxes. Interest expense recognized in the consolidated statements of operations for Fiscal 2015, Fiscal 2014, and Fiscal
2013 was approximately $1.3 million, $0.9 million and $0.3 million, respectively.
The total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future
events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes of
limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance
of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months.
However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company’s current estimate to
change materially in the future.
The Company files income tax returns in the U.S., for federal, state, and local purposes, and in certain foreign jurisdictions.
With few exceptions, the Company is no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year
ended April 2, 2011.
The Company’s policy with respect to its undistributed earnings of the U.S. and non-U.S. subsidiaries is to consider those
earnings to be either indefinitely reinvested or able to be repatriated tax-neutral. Undistributed earnings of subsidiaries considered to
be either indefinitely reinvested or able to be repatriated tax-neutral amounted to $1.955 billion at March 28, 2015. Accordingly, as of
March 28, 2015, the Company did not record a provision for withholding taxes on the excess of the amount recorded for financial
reporting purposes over the related tax basis of investments in subsidiaries. Deferred taxes are recorded when a subsidiary’s earnings
are no longer deemed to be indefinitely reinvested.
16. Retirement Plans
The Company maintains defined contribution plans for employees, who become eligible to participate after three months of
service. Features of these plans allow participants to contribute to a plan a percentage of their compensation, up to statutory limits
depending upon the country in which a plan operates, and provide for mandatory and/or discretionary matching contributions by the
Company, which vary by country. During Fiscal 2015, Fiscal 2014 and Fiscal 2013, the Company recognized expenses of
approximately $5.8 million, $3.5 million, and $2.2 million, respectively, related to these retirement plans.
17. Segment Information
The Company operates its business through three operating segments—Retail, Wholesale and Licensing—which are based
on its business activities and organization. The operating segments are segments of the Company for which separate financial
information is available and for which operating results are evaluated regularly by executive management in deciding how to allocate
resources, as well as in assessing performance. The primary key performance indicators are net sales or revenue (in the case of
Licensing) and operating income for each segment. The Company’s reportable segments represent channels of distribution that offer
74
similar merchandise, customer experience and sales/marketing strategies. The Company’s Retail segment includes sales through the
Company owned stores, including “Collection,” “Lifestyle” including “concessions,” and outlet stores located throughout North
America, Europe, and Japan, as well as the Company’s e-commerce sales. Products sold through the Retail segment include women’s
apparel, accessories (which include handbags and small leather goods such as wallets), footwear and licensed products, such as
watches, jewelry, fragrances and beauty, and eyewear. The Wholesale segment includes sales primarily to major department stores
and specialty shops throughout North America, Europe and Asia. Products sold through the Wholesale segment include accessories
(which include handbags and small leather goods such as wallets), footwear and women’s and men’s apparel. The Licensing segment
includes royalties earned on licensed products and use of the Company’s trademarks, and rights granted to third parties for the right to
sell the Company’s products in certain geographic regions such as the Middle East, Eastern Europe, Latin America and the Caribbean,
throughout all of Asia (excluding Japan), as well as Australia. All intercompany revenues are eliminated in consolidation and are not
reviewed when evaluating segment performance. Corporate overhead expenses are allocated to the segments based upon specific
usage or other allocation methods.
The Company has allocated $12.1 million and $1.9 million of its recorded goodwill to its Wholesale and Licensing
segments, respectively. The Company does not have identifiable assets separated by segment. The following table presents the key
performance information of the Company’s reportable segments (in thousands):
Revenue:
Net sales: Retail
Wholesale
Licensing
Total revenue
Income from operations:
Retail
Wholesale
Licensing
Income from operations
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$2,134,578
2,065,088
171,803
$1,593,005
1,577,517
140,321
$4,371,469
$3,310,843
$1,062,642
1,032,115
86,975
$2,181,732
$ 557,162
610,886
88,925
$1,256,973
$ 467,248
459,774
81,149
$1,008,171
$ 315,654
269,323
45,037
$ 630,014
Depreciation and amortization expense for each segment are as follows (in thousands):
Depreciation and amortization:
Retail (1)
Wholesale
Licensing
Total depreciation and amortization
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$
84,523
52,980
922
$ 138,425
$
$
46,679
32,364
611
79,654
$
$
35,388
18,531
372
54,291
(1)
Excluded from the above table are impairment charges related to the retail segment for $0.8 million, $1.3 million,
and $0.7 million, during the fiscal years ended March 28, 2015, March 29, 2014, and March 30, 2013, respectively.
75
Total revenue (as recognized based on country of origin) and long-lived assets by geographic location of the consolidated
Company are as follows (in thousands):
Net revenues:
North America (U.S. and Canada)(1)
Europe
Other regions
Total net revenues
Long-lived assets:
North America (U.S. and Canada)(1)
Europe
Other regions
Total Long-lived assets:
March 28,
2015
Fiscal Years Ended
March 29,
2014
March 30,
2013
$3,418,924
884,645
67,900
$2,771,818
500,478
38,547
$4,371,469
$3,310,843
$1,938,635
220,724
22,373
$2,181,732
As of
March 28,
2015
March 29,
2014
$ 443,816
169,243
11,416
$ 624,475
$ 283,162
108,074
7,476
$ 398,712
(1)
Net revenues earned in the U.S. during Fiscal 2015, Fiscal 2014, and Fiscal 2013 were $3,227.5 million, $2,600.1
million and $1,800.4 million, respectively. Long-lived assets located in the U.S. as of March 28, 2015 and
March 29, 2014 were $418.8 million and $265.9 million, respectively.
Net revenues by major product category are as follows (in thousands):
Accessories
Apparel
Footwear
Licensed product
Net sales
March 28,
2015
% of
Total
Fiscal Years Ended
March 29,
% of
2014
Total
March 30,
2013
% of
Total
$2,872,221 68.4% $2,060,824 65.0% $1,255,536 59.9%
482,435 15.2% 413,731 19.8%
549,433 13.1%
337,988 10.7% 210,982 10.1%
444,046 10.5%
289,275 9.1% 214,508 10.2%
333,966 8.0%
$4,199,666
$3,170,522
$2,094,757
18. Other income
Other income consists of the following (in thousands):
Income related to joint venture (1)
Income related to anti-counterfeit program
Net gains on foreign currency forward contracts (1)
Fiscal Year Ended
March 28,
2015
$
$
130
1,505
1,482
3,117
(1)
Prior period amounts have been included in income from operations and have not been reclassified to other income
due to immateriality.
76
19. Agreements with Shareholders and Related Party Transactions
On October 24, 2014, the Company purchased an aircraft from a former board member (who resigned on September 10,
2014) in the amount of $16.5 million. The purchase price was the fair market value of the aircraft at the purchase date and was no less
favorable to the Company than it would have received in an arm’s-length transaction. The aircraft was purchased for purposes of
business travel for the Company’s executives, and was recorded as a fixed asset in the Company’s consolidated balance sheets. Prior
to the purchase of this plane, the Company or its Chief Executive Officer arranged for a plane owned by Sportswear Holdings Limited
or its affiliates, which was used for the Company’s directors and senior management for purposes of business travel on terms and
conditions not less favorable to the Company than it would receive in an arm’s-length transaction with a third party. To the extent the
Company’s Chief Executive Officer entered into such an arrangement for business travel, the Company reimbursed him for the actual
market price paid for the use of such plane. The Company chartered this plane from Sportswear Holdings Limited for business
purposes, the amounts of which were paid in cash and charged to operating expenses. Amounts charged to the Company in
connection with these services were approximately $1.4 million during each of Fiscal 2015 and Fiscal 2014. During Fiscal 2013,
$0.3 million, representing the estimated costs of these services, which are based on allocated or incremental cost, was charged to
selling, general and administrative expenses as an offset to contributed capital (additional paid-in capital). There were no amounts
recorded to contributed capital related to these services during Fiscal 2015 or Fiscal 2014.
The Company’s Chief Creative Officer, Michael Kors, and the Company’s Chief Executive Officer, John Idol, and certain
of the Company’s former shareholders, including Sportswear Holdings Limited, jointly own Michael Kors Far East Holdings Limited,
a BVI company. On April 1, 2011, the Company entered into certain licensing agreements with certain subsidiaries of Michael Kors
Far East Holdings Limited (the “Licensees”) which provide the Licensees with certain exclusive rights for use of the Company’s
trademarks within China, Hong Kong, Macau and Taiwan, and to import, sell, advertise and promote certain of the Company’s
products in these regions, as well as to own and operate stores which bear the Company’s tradenames. The agreements between the
Company and subsidiaries of Michael Kors Far East Holdings Limited expire on March 31, 2041, and may be terminated by the
Company at certain intervals if certain minimum sales benchmarks are not met. During Fiscal 2015 and Fiscal 2014, there were
approximately $4.7 million and $1.6 million, respectively, of royalties earned under these agreements. There were no royalties earned
during Fiscal 2013, as the Company was not entitled to royalties under this agreement until the start of Fiscal 2014. These royalties
were driven by Licensee sales (of the Company’s goods) to their customers of approximately $103.7 million and $36.5 million in
Fiscal 2015 and Fiscal 2014, respectively. In addition, the Company sells certain inventory items to the Licensees through its
wholesale segment at terms consistent with those of similar licensees in the region. During Fiscal 2015 and Fiscal 2014, amounts
recognized as net sales
these sales, were
the Company’s consolidated statements of operations
approximately $35.3 million and $12.9 million, respectively. As of March 28, 2015 and March 29, 2014, the Company’s total
accounts receivable from this related party were $6.5 million and $4.5 million, respectively. The Company also previously provided
the Licensees with certain services, including, but not limited to, supply chain and logistics support, and management information
system support at the request of the Licensees, for which the Company charged a service fee based on costs incurred in delivering the
services, and includes a contractually agreed upon markup. These services were discontinued during Fiscal 2014, where a nominal
amount of fees were charged. During Fiscal 2013, amounts charged to the Licensees for these services totaled $0.3 million, which
was recorded in other selling, general and administrative expenses.
related
to
in
The Company routinely purchases certain inventory from a manufacturer owned by one of its former directors. Amounts
purchased during Fiscal 2015, Fiscal 2014 and Fiscal 2013, were approximately $9.1 million, $8.1 million and $5.7 million,
respectively. As of March 28, 2015 and March 29, 2014, the related accounts payable balances were immaterial.
77
20. Selected Quarterly Financial Information (Unaudited)
The following table summarizes the Fiscal 2015 and 2014 quarterly results (dollars in thousands):
June
September
December
March
Fiscal Quarter Ended
Year Ended March 28, 2015
Total revenue
Gross profit
Income from operations
Net income
Weighted average ordinary shares
$
$
$
$
919,154 $ 1,056,605 $ 1,314,726 $ 1,080,984
630,848
571,633 $
256,167
276,771 $
182,642
187,716 $
800,143 $
418,477 $
303,675 $
645,027 $
305,558 $
206,990 $
outstanding:
Basic
Diluted
Year Ended March 29, 2014
Total revenue
Gross profit
Income from operations
Net income
Weighted average ordinary shares
outstanding:
Basic
Diluted
203,749,572
207,176,243
204,464,952
207,432,250
202,668,541
205,647,816
199,828,293
203,195,838
$
$
$
$
640,859 $
397,271 $
197,562 $
124,996 $
740,303 $ 1,012,229 $
619,498 $
449,875 $
343,240 $
221,460 $
229,643 $
145,808 $
917,452
549,426
245,909
161,038
201,208,189
204,336,124
202,560,870
205,154,692
203,175,380
206,088,062
203,387,343
206,973,550
78
Exhibit 10.7
EXECUTION COPY
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of May 20, 2015 (this
“Agreement”), by and among MICHAEL KORS (USA), INC., a Delaware corporation having its principal executive office in New
York County, New York (the “Corporation”), MICHAEL KORS HOLDINGS LIMITED, a British Virgin Islands corporation
having its principal executive office in London, United Kingdom (“MKHL”) and MICHAEL D. KORS, a resident of New York,
New York (“Kors”).
IT IS AGREED AS FOLLOWS:
1. Term. The Corporation agrees to employ Kors, and Kors agrees to serve the Corporation, for a term (the “Term”) that
began on January 29, 2003 and ending as provided herein, upon the terms and conditions set forth herein.
2. Offices and Positions. Throughout the Term, Kors shall have the title of Honorary Chairman and Chief Creative Officer
of the Corporation and MKHL, and the Corporation and MKHL shall each use its best efforts to cause Kors to be appointed or
elected, as the case may be, to the Board of Directors of MKHL (the “Board”) and the Board of Directors of the Corporation. During
the Term, MKHL shall consult with Kors regarding the hiring of any Chief Executive Officer (or equivalent executive officer) of
MKHL or the Corporation.
3. Duties.
(a) Throughout the Term, Kors shall devote substantially all of his business time exclusively to the business of
MKHL and its affiliates to design collections of apparel, accessories and related products as needed by MKHL and its affiliates and to
promote the business and affairs of MKHL and its affiliates. It is agreed and understood that, during the Term, Kors will have creative
and aesthetic control of the products produced and sold under or bearing the “MICHAEL KORS” trademark and any variation of such
name and the initials of such name in whatever form or style and all related trade names, copyrights, logos and similar rights (the
“Marks”), including exclusive control of the design of such products; provided, that this sentence shall not apply to any attempted
exercise by Kors of the foregoing rights that is not commercially reasonable.
(b) Throughout the Term, Kors shall not, without the prior written consent of the Corporation, directly or indirectly,
render services to or for any other person or firm whether or not for compensation or engage in any activity that, in either case, is in
competition with the business of MKHL, the Corporation or any other subsidiary of MKHL (MKHL and its subsidiaries collectively,
the “MK Group”); provided, however, that Kors may participate in charitable activities not inconsistent with the intent of this
Agreement. The making of passive personal investments shall not be prohibited hereunder. In addition, subject to Section 3(a), Kors
may participate in literary, theatrical or artistic activities, but only if and to the extent that the Corporation shall have determined in
advance (in its reasonable discretion) that such activities would not be detrimental to the Marks.
4. Compensation.
(a) Salary. Throughout the Term, the Corporation shall pay to Kors a salary (the “Base Salary”) at the rate of
US$1,000,000 per annum, which, except as otherwise set forth in the last sentence of this Section 4(a), shall be payable by the
Corporation to Kors in periodic installments in accordance with the Corporation’s customary payroll practices. The Base Salary shall
be subject to possible increases at the sole discretion of the Board; provided, however, that in no event shall Kors’ Base Salary during
the Term be less than at the rate of US$1,000,000 per year. A portion of Kors’ Base Salary equal to the annual retainer paid to
MKHL’s independent directors (currently US$70,000) shall be payable to Kors by MKHL on a quarterly basis at the same time such
retainer payments are paid to the independent directors of MKHL.
(b) Bonus.
(i) During the Term, commencing with MKHL’s fiscal year that began on March 29, 2015 (the “2016 Fiscal
Year”), Kors shall be eligible to receive the bonuses described in this Section 4, subject to approval of the bonus plan pursuant to
which bonuses will be paid by the shareholders of MKHL in a manner that complies with the shareholder approval requirements of
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (“Section 162(m)”). Except as otherwise provided in
Section 10, Kors must be employed by MKHL or the Corporation as of the last day of the applicable performance period described
below in order to be eligible to receive the bonus payable in respect of such period. Each bonus shall be administered by the
Compensation Committee of the Board (the “Compensation Committee”).
(ii) During the Term, commencing with the 2016 Fiscal Year, Kors shall be eligible to receive a bonus (the
“Part-Year Bonus”) with respect to the performance period beginning on the first day of each fiscal year and ending on the last day of
the second fiscal quarter of such year (the “Part-Year Performance Period”). The amount of the Part-Year Bonus shall be equal to 1%
of the consolidated income from operations of MKHL for the Part-Year Performance Period, increased by depreciation plus
amortization plus impairment of long-lived assets, in each case calculated in accordance with U.S. generally accepted accounting
principles and disclosed in MKHL’s Consolidated Statements of Operations and Comprehensive Income (“MKHL EBITDA”), up to
a maximum of US$1,500,000. The Compensation Committee must certify the MKHL EBITDA for the Part-Year Performance Period
and the amount of the Part-Year Bonus. Once certified, the Part-Year Bonus will be paid to Kors reasonably promptly and in no event
later than December 30 next following the last day of the applicable Part-Year Performance Period.
(iii) During the Term, commencing with the 2016 Fiscal Year, Kors shall be eligible to receive an annual
bonus (the “Annual Bonus”) with respect to each full fiscal year of MKHL (the “Annual Performance Period”). The amount of the
Annual Bonus shall be (i) 1% of MKHL EBITDA during the Annual Performance Period, up to a maximum of US$6,500,000,
reduced by (ii) the amount of the Part-Year Bonus in respect of the same fiscal year. The Compensation Committee must certify the
MKHL EBITDA for the Annual Performance Period and the amount of the Annual Bonus. Once certified, the Annual Bonus will be
paid to Kors reasonably promptly and in no event later than June 30 next following the last day of the Annual Performance Period.
(iv) Notwithstanding the foregoing, if the Compensation Committee determines that Kors was overpaid, in
whole or in part, as a result of a restatement of the reported financial or operating results of MKHL due to material non-compliance
with financial reporting requirements (unless due to a change in accounting policy or applicable law), the Corporation shall be entitled
to recover or cancel the difference between (i) any bonus payment that was based on having met or exceeded performance targets and
(ii) the bonus payment that would have been paid or earned to Kors had the actual payment or accrual been calculated based on the
accurate data or restated results, as applicable (the “Overpayment”). If the Compensation Committee determines that there has been
an Overpayment, the Corporation shall be entitled to demand that Kors reimburse the Corporation for the Overpayment. To the extent
Kors does not make reimbursement of the Overpayment, the Corporation shall have the right to enforce the repayment through the
reduction of future salary or the reduction or cancellation of outstanding and future incentive compensation and/or to pursue all other
available legal remedies in law or in equity. The Compensation Committee may make determinations of Overpayment at any time
through the end of the third (3rd) fiscal year following the year for which the inaccurate performance criteria were measured;
provided, that if steps have been taken within such period to restate MKHL’s financial or operating results, the time period shall be
extended until such restatement is completed.
(c) Other Compensation. In addition to what is required pursuant to Section 5, the Corporation may pay, but shall
have no obligation to pay, to Kors such additional compensation in the form of bonuses, fringe benefits or otherwise in such amounts
and at such times as the Compensation Committee shall from time to time determine in its sole and absolute discretion.
5. Benefits.
(a) In addition to the compensation described in Section 4, during the Term, Kors shall be entitled to the following:
(i) Kors shall be entitled to participate in all Corporation employee benefit plans (to the extent Kors is eligible
therefor), including, without limitation, any health and retirement plans (but, except as otherwise provided in this Agreement or as
determined by the Compensation Committee, excluding bonus plans), in each case subject to any applicable laws which shall be in
effect from time to time and on the same basis as is available to the other senior officers of the Corporation. If any such benefit plan
shall be unavailable to Kors by reason of his nationality or residence, the Corporation shall use it best efforts to provide a
substantially equivalent benefit, through another source, at its expense.
(ii) Kors shall be eligible, in the discretion of the Compensation Committee, for share option awards, restricted
share unit awards and other equity-based awards under the equity incentive plan generally applicable to eligible employees of the
Corporation (currently the Michael Kors Holdings Limited Omnibus Incentive Plan) (the “Equity Incentive Plan”), in accordance
with, and subject to, the terms and conditions of the Equity Incentive Plan as the same may be amended or modified by MKHL or its
subsidiaries from time to time in their sole discretion (subject to shareholder approval if required) and the applicable equity award
agreement. Except in the case of the termination of Kors for Cause, in which case any share-based awards granted to Kors under the
Equity Plan shall be forfeited and any share options granted to Kors under the Equity Plan shall immediately terminate (whether or
not vested and/or exercisable), any such equity awards that have become vested and/or exercisable prior to the date of Kors’
termination of employment hereunder (the “Termination Date”) shall remain vested and/or exercisable after the Termination Date in
accordance with the terms and conditions of the Equity Incentive Plan and/or any applicable equity award agreement.
2
(iii) The Corporation shall provide the health and medical insurance coverage referred to in Section 5(a)(i) above
at its own cost without contribution from Kors. The Corporation also shall pay during the Term the premiums on (A) the whole life
insurance policy (the “Whole Life Policy”) currently in place on the life of Kors and (B) the $500,000 term life insurance policy (the
“Term Life Policy”) currently in place on the life of Kors, both of which policies are owned by Kors. Upon termination of this
Agreement, the Corporation shall cease to pay premiums on the Whole Life Policy and the Term Life Policy and Kors shall thereafter be
solely responsible for the payment of any premiums on both such policies.
(iv) The Corporation shall provide Kors with an automobile and driver for transportation to and from the
Corporation’s offices and for other business purposes. Such automobile shall be a Mercedes-Benz S-Class or an automobile at least
substantially equivalent in price thereto.
(b) In addition to the foregoing, Kors acknowledges and agrees that the Corporation may apply for, and purchase, key-
man life insurance covering Kors (the “Key-Man Insurance”). The Corporation shall own all rights in any such Key-Man Insurance
policies and the proceeds thereof, and Kors shall not have any right, title or interest therein. Kors agrees to assist the Corporation, at the
Corporation’s expense, in obtaining such Key-Man Insurance by, among other things, submitting to the customary examinations and
correctly preparing, signing and delivering such applications and other documents as may be required by potential insurers.
(c) Anything to the contrary herein notwithstanding, in the event of the occurrence of a condition that may with the
passage of time constitute a Permanent Disability (as defined below) of Kors, then the Corporation shall continue to pay to Kors his Base
Salary and all other compensation and benefits owed to Kors hereunder until the termination of this Agreement as provided in Section 10
below, less any payments received by Kors from any disability insurance policy whose premiums are paid by the Corporation. For
purposes of this Agreement, the term “Permanent Disability” shall mean any mental or physical condition that: (i) prevents Kors from
reasonably discharging his services and employment duties hereunder; (ii) is attested to in writing by a physician who is licensed to
practice in the State of New York and is mutually acceptable to Kors and the Corporation (or, if Kors and the Corporation are unable to
mutually agree on a physician, the Board may select a physician who is a chairman of a department of medicine at a university-affiliated
hospital in the City of New York); and (iii) continues, for any one or related condition, during any period of six (6) consecutive months or
for a period aggregating six (6) months in any twelve-month period; and such Permanent Disability shall be deemed to have occurred on
the last day of such applicable six-month period.
6. Vacation; Meetings. Kors shall be entitled to six (6) weeks of vacation annually, and such additional vacation time as may
be agreed to by the Chairman of the Board. Kors shall be entitled to additional time off for attendance at meetings, conventions and
educational courses, as the Chairman or the Board may from time to time allow.
7. Expenses; Indemnification.
(a) The Corporation shall reimburse Kors for the reasonable business expenses (including travel at the highest class of service
available and the use of the corporate jet or private charter in accordance with the Corporation’s policy) incurred by Kors in the course of
performing his duties for MKHL and the Corporation, subject to Kors’ compliance with the policies and procedures for reimbursement
generally in effect from time to time for senior officers of the Corporation.
(b) The Corporation and/or MKHL (as applicable) will indemnify Kors and hold him harmless to the maximum extent
permitted by applicable law, against all costs, charges, liabilities and expenses incurred or sustained by him in connection with any action,
suit, claim or proceeding to which he may be made a party by reason of his being an officer, director or employee of the Corporation or of
any other member of the MK Group; provided, however, that in no event shall Kors be indemnified for acts taken by him in bad faith or in
breach of his duty of loyalty to the Corporation or MKHL under applicable law. Notwithstanding the foregoing, Kors’ indemnification
and hold harmless rights under this Section 7 shall in no event be less favorable in any respect than the terms of any indemnification and
hold harmless rights provided by the Corporation and/or MKHL to any senior officer of the Corporation under an employment agreement,
indemnification agreement or otherwise. The provisions of this subsection (b) shall survive the termination of this Agreement.
8. Confidentiality; Intellectual Property Rights.
(a) Kors acknowledges that his work for and with the Corporation and the other members of the MK Group will bring him into
close contact with the confidential affairs of the MK Group, including, without limitation, confidential information and trade secrets
concerning the MK Group’s working methods, processes, business and other plans, programs, designs, products, profit formulas,
customer names, customer requirements and supplier names (collectively, “Confidential Information”). “Confidential Information” shall
not include (i) information generally known to the public, (ii) information properly received by Kors outside his engagement with the
Corporation (or any predecessor of the Corporation) or any other member of the MK Group from any third party not affiliated with the
3
MK Group and not under any duty to the Corporation not to disclose such information, and (iii) any materials, including designs and
products created by Kors and which are otherwise “Confidential Information”, to the extent approved in writing by the Corporation,
which approval shall not be unreasonably withheld. Kors acknowledges that such Confidential Information is reposed in him in trust and
he shall, both during and for a period of three years after the Term (or such longer period as the Corporation may be bound to keep any
such Confidential Information confidential pursuant to any agreement or otherwise), maintain such Confidential Information in
confidence and, except as may be required under applicable law, neither disclose to others nor use such Confidential Information
personally without written permission of the Corporation. Kors agrees, upon termination of this Agreement, to return to the Corporation
all documents or recorded material of any type (including all copies thereof) which may be in his possession or under his control dealing
with the Confidential Information.
(b) All trademarks, designs, copyrights and other intellectual property created by or at the direction of Kors in the
course of his employment by the Corporation shall remain the property of, and be exclusively owned by, the Corporation without further
act of either party. Kors shall, at the reasonable request of the Corporation, execute such documents as may be reasonably necessary to
confirm or evidence the Corporation’s ownership of such property.
(c) The obligations of this Section 8 shall survive the termination of this Agreement. Notwithstanding anything to the
contrary set forth herein or in any other agreement to which Kors, on the one hand, and the Corporation or any other member of the MK
Group, on the other hand, are parties or by which they are bound, the obligations of confidentiality contained herein and therein, as they
relate to the transactions contemplated by this Agreement, shall not apply to the “structure or the tax aspects” (as that phrase is used in
Section 1.6011-4T(a)(3) (or any successor provision) of the Treasury Regulations promulgated under Section 6011 of the Code) of such
transactions.
9. Notices. Any notice or request permitted or required hereunder shall be in writing deemed sufficient when delivered in
person or mailed by certified mail, postage prepaid, or transmitted by facsimile, and addressed if to the Corporation or MKHL, c/o the
Corporation at the Corporation’s principal executive offices in New York, New York, Facsimile No.: (646) 354-4826, Attn: Chief
Executive Officer, and if to Kors, to his home address on file with the Corporation, with copy to:
Patterson Belknap, Webb & Tyler LLP
1133 Avenue of the Americas
New York, New York 10036-6710
Attention: Peter J. Schaeffer, Esq.
Facsimile No.: (212) 336-2222
or to such other address as may be provided by such notice.
10. No Termination.
(a) The Corporation may not terminate the Agreement and Kors’ employment hereunder for any reason other than
Cause (as defined below). It is expressly understood that Kors is to be employed hereunder until he dies or becomes Permanently
Disabled (in which case this Agreement shall immediately terminate and the Corporation shall only be liable to promptly pay to Kors or
his estate (as applicable) the Accrued Obligations and Pro Rata Bonus Payment (each as defined below)); provided, however, that Kors
has not been terminated for Cause as aforesaid. In the event that the Corporation or MKHL materially breaches its obligations hereunder,
including, without limitation, the Corporation’s obligations to make payments pursuant to Section 4 hereof, then upon thirty (30) days’
notice to the Corporation (which notice shall describe such breach in reasonable detail), unless the Corporation or MKHL, as applicable,
(i) cures such breach within such thirty (30)-day period (or, if the breach cannot reasonably be cured within such thirty (30)-day period,
initiates all possible action that substantially cures the breach within such thirty (30)-day period) to Kors’ reasonable satisfaction (which
curative action, at a minimum, places Kors in a no less favorable economic and financial position than he would have been in had the
breach not occurred) and (ii) provides evidence satisfactory to Kors that the Corporation or MKHL, as applicable, has done so, Kors may
terminate his employment under this Agreement and in such event shall be relieved of all his further obligations hereunder and entitled
to exercise any rights and remedies he may have at law or in equity with respect to such material breach. In the event of such termination
due to breach by the Corporation or MKHL, the Corporation shall, in addition and not in limitation to any other rights and remedies
Kors may have hereunder, at law or in equity, (A) promptly (i) pay Kors any Base Salary earned but not yet paid prior to the date of
termination; (ii) pay Kors for any untaken accrued vacation during the calendar year, (iii) reimburse Kors for any expenses pursuant to
Section 7(a) and (iv) permit Kors to maintain his vested equity awards in accordance with Section 5(a)(ii) (collectively, the “Accrued
Obligations”), and (B) (i) with respect to a termination that occurs during the course of any Part-Year Performance Period, an amount
representing the amount that the Part-Year Bonus would have been, based on actual performance over the course of the Part-Year
Performance Period, assuming Kors’ employment had not been terminated hereunder, multiplied by a fraction the numerator of which is
the number of days Kors was employed hereunder during the Part-Year Performance Period and the denominator of which is the full
number of days in the Part-Year Performance Period and (ii) with respect to a termination that occurs during the course of any Annual
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Performance Period, an amount representing the amount that the Annual Bonus would have been, based on actual performance over the
course of the Annual Performance Period, assuming Kors’ employment had not been terminated hereunder, multiplied by a fraction the
numerator of which is the number of days Kors was employed hereunder during the Annual Performance Period and the denominator of
which is the full number of days in the Annual Performance Period ((i) and (ii) together, the “Pro Rata Bonus Payment”).
“Cause” shall mean: (i) the material breach by Kors of any material provision contained in this Agreement (including,
without limitation, the provisions set forth in Section 3 hereof), which breach continues without the cure thereof by Kors for a period of
thirty (30) days following written notice thereof from the Corporation to Kors (which notice shall describe Kors’ breach in reasonable
detail); (ii) the conviction of Kors for fraudulent or criminal conduct adversely affecting the Corporation; and (iii) the commission by
Kors of any willful, reckless, or grossly negligent act which has a material adverse effect on the Corporation or its products, trademarks
or goodwill (including, without limitation, the reputation thereof).
(b) If Kors shall terminate his employment under this Agreement without the consent of the Corporation other than by reason
of Kors’ death, Permanent Disability or pursuant to the third sentence of Section 10(a) of this Agreement, the Corporation shall only
remain responsible to Kors for (i) the Accrued Obligations, (ii) payment of any Part-Year Bonus with respect to a Part-Year
Performance Period that was completed prior to Kors’ termination from employment but which has not yet been paid, and (iii) payment
of any Annual Bonus with respect to any Annual Performance Period that was completed prior to Kors’ termination from employment
but which has not yet been paid, and in the case of each of clauses (ii) and (iii), such bonuses shall be paid at such times as they would
have otherwise been paid to Kors hereunder had employment not been terminated and such bonus amounts shall be subject to
certification by the Compensation Committee as described in Section 4 of this Agreement. All other obligations of the Corporations shall
cease and, subject to Section 11, the parties hereto shall be relieved of all further obligations hereunder.
11. Kors Non-Competition. If Kors shall have terminated this Agreement pursuant to Section 10(b), for the remainder of
Kors’ lifetime, (i) Kors agrees to serve as an independent and exclusive design consultant to the Corporation for a fee of US$1,000,000
per year, payable monthly in arrears in equal installments with such duties as shall be mutually agreed in good faith at such time, and
(ii) in consideration thereof, Kors shall not, without the written consent of the Board, engage anywhere in the world where the
Corporation or any other member of the MK Group is doing business, directly or indirectly, as a designer, consultant, officer, director,
employee, agent, proprietor, partner or shareholder in any business (other than on behalf of the Corporation or any other member of the
MK Group) which engages in activities in competition with the Corporation or any other member of the MK Group to the extent those
activities were carried on by the Corporation or any other member of the MK Group during the Term; provided, however, that the
Corporation may terminate such consulting arrangement and cease making such payments at any time, in which event Kors’ obligations
to serve as a consultant to the Corporation and to comply with such non-competition restrictions shall immediately terminate.
Notwithstanding the foregoing, at any time, Kors may own up to 5% of the common stock or other securities of any public corporation
and may have an interest as a member or limited partner in any limited liability company or partnership, provided he provides no
services or advice of any kind to any such corporation, limited liability company or partnership.
12. Other Lines of Business; Transfer or Encumbrance of Marks. The MK Group shall not enter into any new line of business
without the consent of Kors if Kors shall reasonably determine that such line of business is detrimental to the Marks.
13. Miscellaneous. This Agreement (i) constitutes the entire agreement between the parties concerning the subjects hereof and
supersedes all prior agreements, (ii) may not be assigned by Kors without the prior written consent of the Corporation, but shall be
binding upon and inure to the benefit of Kors’ heirs, legal representatives and permitted assigns (without limiting the generality of the
foregoing, the provisions of Sections 4 and 7 hereof specifically shall inure to the benefit of such heirs, legal representatives, successors
and permitted assigns), (iii) may be assigned by the Corporation in connection with any transfer of all or a substantial portion of the
Corporation’s assets and shall be binding upon, and inure to the benefit of, the Corporation’s and MKHL’s successors and assigns, and
(iv) may not be amended, modified or supplemented except by a writing signed by each party.
14. Arbitration. All disputes arising under this Agreement including but not limited to any claim for specific performance
under Section 15 of this Agreement shall be submitted to binding arbitration in accordance with the rules of commercial arbitration of
the American Arbitration Association of the City of New York. Any arbitration proceeding shall be conducted in New York, New York
before a single arbitrator or, if requested by either party, by a panel of three arbitrators.
15. Specific Enforcement. In addition to any remedies available to the parties at law, the parties each acknowledge that they
would be irreparably damaged and there would be no adequate remedy at law for breach of either’s obligations hereunder and,
accordingly, this Agreement is to be specifically enforced if not performed according to its terms.
16. Severability. The provisions of this Agreement are severable. The invalidity of any provision shall not affect the validity
of any other provision.
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17. Governing Law. This Agreement shall be construed and governed in all respects under the laws of the State of New
York (without reference to such State’s conflict of law rules).
18. Headings. Headings in this Agreement are for convenience of reference only and shall not define, limit or interpret the
contents hereof.
19. Taxes. All payments to be made to and on behalf of Kors under this Agreement will be subject to required withholding
of federal, state and local income and employment taxes, and to related record reporting requirements, including, with respect to the
retainer payment referred to in the last sentence of Section 4(a), applicable U.K. statutory reductions.
20. Code Section 409A.
(a) It is the intention of the parties hereto that, to the extent any amounts or benefits payable under or otherwise with
respect to this Agreement constitute nonqualified deferred compensation that is or may be subject to Section 409A of the Code and
the treasury regulations or other official pronouncements thereunder (herein, collectively, “Section 409A”), the provisions of this
Agreement shall be interpreted and administered in a manner (which may, as appropriate, include amendments to this Agreement)
that will enable such amounts or benefits to satisfy the requirements of Section 409A (either pursuant to qualifying for an exemption
from coverage under Section 409A or satisfying the substantive provisions for compliance with such section).
(b) For purposes of any reimbursement of expenses due to Kors or the provision of in-kind benefits with respect to
Kors (including, without limitation, pursuant to Section 7 above), such reimbursements shall be made in a manner consistent with
Code Section 409A, including Treasury Regulation Section 1.409A-3(i)(1)(iv). In that regard (i) the amount of expenses eligible for
reimbursement, or in-kind benefits provided, during a calendar year shall not affect the expenses eligible for reimbursement, or in-
kind benefits to be provided, in any other taxable year, (ii) the reimbursement of eligible expenses shall be made on or before the end
of the calendar year following the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind
benefits shall not be subject to liquidation or exchange for another benefit.
(c) In the event that any amount or benefit payable under or otherwise with respect to this Agreement is conditioned
on Kors’ termination of employment and such amount or benefit is not otherwise exempt from Section 409A, such termination of
employment shall mean a “separation from service” within the meaning of Section 409A. In addition, if any such payment is
conditioned on a separation from service by Kors and Kors shall then be a “specified employee” (as defined in Treasury Regulation
section 1.409A-1(i)), then, to the extent necessary to avoid a violation of Section 409A, the portion of any such payment that would
otherwise be paid within the six-month period immediately following Kors’ separation from service shall instead be deferred and paid
in a single sum on the first day following the end of such six-month period.
IN WITNESS WHEREOF, this Agreement is entered into as of the day and year first above written.
MICHAEL KORS (USA), INC.
/s/ John D. Idol
By:
Name: John D. Idol
Title: Chairman & Chief Executive Officer
MICHAEL KORS HOLDINGS LIMITED
/s/ John D. Idol
By:
Name: John D. Idol
Title: Chairman & Chief Executive Officer
/s/ Michael D. Kors
Michael D. Kors
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Exhibit 10.8
EXECUTION COPY
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of May 20,
2015, by and among MICHAEL KORS (USA), INC., a Delaware corporation having its principal executive office in New York
County, New York (the “Company”), MICHAEL KORS HOLDINGS LIMITED, a British Virgin Islands corporation having its
principal executive office in London, United Kingdom (“MKHL”) and JOHN D. IDOL (“Executive”).
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, in
accordance with the terms and provisions herein contained.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby
agree as follows:
1. Employment.
subject to the conditions contained herein.
(a) The Company hereby employs Executive, and Executive hereby accepts such employment, on the terms and
(b) Executive shall serve as the Chairman and Chief Executive Officer of the Company and MKHL faithfully and to
the best of his ability. Substantially all of Executive’s business time will be dedicated to serving as Chairman and Chief Executive
Officer of the Company and MKHL. Executive shall have general authority over the business of the Company and shall manage the
day-to-day operations of the Company; provided, however, that Executive understands and agrees that (i) the Board of Directors of
MKHL (the “Board”) will be responsible for setting overall strategic goals of MKHL and its subsidiaries (including, without
limitation, the Company) and advising Executive with respect thereto, and (ii) the Board’s and/or certain of its members’ active
strategic involvement in matters relating to design direction, marketing concepts, production logistics and financial objectives shall
not be deemed to constitute managing day-to-day operations. Executive will report only to the Board, and, subject to any existing
contractual obligations of MKHL and its subsidiaries, all other executives of the Company shall report to Executive, unless Executive
determines otherwise. Executive acknowledges and agrees that, except as otherwise provided in accordance with Section 1(c), the
Company and/or MKHL, as applicable, will be his sole employers in respect of the services contemplated by this Agreement, and the
Company and/or MKHL, as applicable, will provide all payments and benefits to Executive under this Agreement.
(c) At the request of MKHL, Executive further agrees, without additional compensation, to act as an officer and/or
director of subsidiaries of MKHL, other than the Company. At the direction of MKHL, any rights and obligations of the Company
hereunder may be assigned, in whole or in part, to such subsidiaries; provided that the Company’s or MKHL’s, as applicable,
obligations with respect to compensation and benefits, including, without limitation, Base Salary (as defined below), shall remain the
Company’s or MKHL’s obligations, unless Executive consents in writing to such assignment, which such consent shall not be
unreasonably withheld.
(d) During Executive’s employment hereunder, MKHL and the Company shall each use its best efforts to cause
Executive to be elected or appointed, as the case may be, to the position of Chairman of the Board of each of MKHL and the
Company (the “Company Board”). Executive agrees that upon termination of his employment hereunder for any reason, he shall
resign immediately from both the Board and the Company Board, as well as from any officerships and/or other directorships with
MKHL or any of its subsidiaries.
(e) Executive shall devote substantially his full business time and attention and his best efforts to the performance of
his duties hereunder; provided, however, that Executive may engage in charitable, educational, civic and religious activities and may
participate as an investor, officer or director or otherwise manage passive personal investments owned by or for the benefit of
Executive or members of his immediate family, but only to the extent such activities and service are permitted under Section 9(c) of
this Agreement and do not interfere with the performance of Executive’s duties and responsibilities hereunder.
2. Term. The term of the employment of Executive with the Company commenced on December 2, 2003 and shall
continue under this Agreement through March 31, 2018 (the “Initial Term”), subject to the terms and provisions of this Agreement.
After the expiration of the Initial Term, this Agreement shall be automatically renewed for additional one-year terms (each, a
“Renewal Term”) unless either the Company or Executive gives written notice to the other of the termination of this Agreement at
least ninety (90) days in advance of the next successive one-year term. Any election by the Company or Executive not to renew such
employment at the end of the Initial Term or any Renewal Term shall be at the sole, absolute discretion of the Company or Executive,
respectively. The period Executive is employed hereunder during the Initial Term and any such Renewal Terms is referred to herein as the
“Term”.
3. Salary. During the Term, Executive’s base salary (“Base Salary”) shall be at the rate of US$1,000,000 per year, which,
except as otherwise set forth in the last sentence of this Section 3, shall be payable by the Company to Executive in accordance with the
Company’s customary payroll practices in effect from time to time. The Base Salary shall be subject to possible increases at the sole
discretion of the Board; provided, however, that in no event shall Executive’s Base Salary during the Term be less than at the rate of
US$1,000,000 per year. A portion of Executive’s Base Salary equal to the annual retainer paid to MKHL’s independent directors
(currently US$70,000) shall be payable to Executive by MKHL on a quarterly basis at the same time such retainer payments are paid to
the independent directors of MKHL.
4. Bonus.
(a) Bonus. During the Term, commencing with MKHL’s fiscal year that began March 29, 2015 (the “2016 Fiscal
Year”), Executive shall be eligible to receive the bonuses described in this Section 4, subject to approval of the bonus plan pursuant to
which the bonuses will be paid by the shareholders of MKHL in a manner that complies with the shareholder approval requirements of
Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended (“Section 162(m)”). Executive must be employed by MKHL or
the Company as of the last day of the applicable performance period described below in order to be eligible to receive the bonus payable
in respect of such period. Each bonus shall be administered by the Compensation Committee of the Board (the “Compensation
Committee”).
(b) Part-Year Bonus. During the Term, commencing with the 2016 Fiscal Year, Executive shall be eligible to receive a
bonus (the “Part-Year Bonus”) with respect to the performance period beginning on the first day of each fiscal year and ending on the last
day of the second fiscal quarter of such year (the “Part-Year Performance Period”). The amount of the Part-Year Bonus shall be 1% of the
consolidated income from operations of MKHL for the Part-Year Performance Period, increased by depreciation plus amortization plus
impairment of long-lived assets, in each case calculated in accordance with U.S. generally accepted accounting principles and disclosed in
MKHL’s Consolidated Statements of Operations and Comprehensive Income (“MKHL EBITDA”), up to a maximum of US$1,500,000.
The Compensation Committee must certify the MKHL EBITDA for the Part-Year Performance Period and the amount of the Part-Year
Bonus. Once certified, the Part-Year Bonus will be paid to Executive reasonably promptly and in no event later than December 30 next
following the last day of the applicable Part-Year Performance Period.
(c) Annual Bonus. During the Term, commencing with the 2016 Fiscal Year, Executive shall be eligible to receive an
annual bonus (the “Annual Bonus”) with respect to each full fiscal year of MKHL (the “Annual Performance Period”). The amount of the
Annual Bonus shall be (i) 1% of MKHL EBITDA during the Annual Performance Period, up to a maximum of US$6,500,000, reduced by
(ii) the amount of the Part-Year Bonus in respect of the same fiscal year. The Compensation Committee must certify the MKHL EBITDA
for the Annual Performance Period and the amount of the Annual Bonus. Once certified, the Annual Bonus will be paid to Executive
reasonably promptly and in no event later than June 30 next following the last day of the Annual Performance Period.
(d) Clawback. Notwithstanding the foregoing, if the Compensation Committee of the Board determines that Executive
was overpaid, in whole or in part, as a result of a restatement of the reported financial or operating results of MKHL due to material non-
compliance with financial reporting requirements (unless due to a change in accounting policy or applicable law), the Company shall be
entitled to recover or cancel the difference between (i) any bonus payment that was based on having met or exceeded performance targets
and (ii) the bonus payment that would have been paid to or earned by Executive had the actual payment or accrual been calculated based
on the accurate data or restated results, as applicable (the “Overpayment”). If the Compensation Committee of the Board determines that
there has been an Overpayment, the Company shall be entitled to demand that Executive reimburse the Company for the Overpayment.
To the extent Executive does not make reimbursement of the Overpayment, the Company shall have the right to enforce the repayment
through the reduction of future salary or the reduction or cancellation of outstanding and future incentive compensation and/or to pursue
all other available legal remedies in law or in equity. The Compensation Committee of the Board may make determinations of
Overpayment at any time through the end of the third (3rd) fiscal year following the year for which the inaccurate performance criteria
were measured; provided, that if steps have been taken within such period to restate MKHL’s financial or operating results, the time
period shall be extended until such restatement is completed.
5. Equity-Based Compensation.
for share option awards, restricted share unit awards and other equity-based awards under the equity incentive plan generally applicable
(a) Equity-Based Awards. Executive shall be eligible, in the discretion of the Compensation Committee of the Board,
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to eligible employees of the Company (currently the Michael Kors Holdings Limited Omnibus Incentive Plan) (the “Equity Incentive
Plan”), in accordance with, and subject to, the terms and conditions of the Equity Incentive Plan as the same may be amended or
modified by MKHL or its subsidiaries from time to time in their sole discretion (subject to shareholder approval if required) and the
applicable equity award agreement.
(b) Effect of Termination. Except in the case of the termination of Executive for Cause, in which case any share-
based awards granted to Executive under the Equity Plan shall be forfeited and any share options granted to Executive under the
Equity Plan shall immediately terminate (whether or not vested and/or exercisable), any such equity awards that have become vested
and/or exercisable prior to the date of Executive’s termination of employment hereunder (the “Termination Date”) shall remain vested
and/or exercisable after the Termination Date in accordance with the terms and conditions of the Equity Incentive Plan and/or any
applicable equity award agreement.
6. Employee Benefits.
(a) Generally. During the Term, Executive shall be entitled to participate in any and all Company employee benefit
plans and programs (but, except as otherwise provided in this Agreement or as determined by the Compensation Committee of the
Board, excluding bonus plans), which generally are made available to senior officers of the Company, in accordance with, and subject
to, the terms and conditions of such plans and programs (including, without limitation, any eligibility limitations) as they may be
modified by the Company from time to time in its sole discretion.
for the $5,000,000 whole life insurance policy presently maintained by Executive.
(b) Life Insurance. During the Term, the Company shall pay the premiums, up to a maximum of $50,000 per annum,
Company. Executive shall forfeit any vacation time that remains unused at the end of any fiscal year.
(c) Vacation. During the Term, Executive shall be entitled to six (6) weeks of paid vacation in each fiscal year of the
(d) Transportation. During the Term, the Company shall provide Executive with an automobile and driver for
transportation to and from the Company’s offices and for other business purposes. Such automobile shall be a Mercedes-Benz S-Class
or an automobile at least substantially equivalent in price thereto.
(e) Expense Reimbursement. During the Term, the Company shall reimburse Executive for all reasonable and
necessary expenses (including first class air travel and the use of the corporate jet) incurred by Executive incident to the performance
of his duties hereunder, in accordance with the Company’s policies and procedures.
7. Termination of Employment.
(a) Death and Total Disability. Executive’s employment under this Agreement shall terminate immediately upon his
death or Total Disability (as defined below). For purposes of this Agreement, the term “Total Disability” shall mean any mental or
physical condition that: (i) prevents Executive from reasonably discharging his services and employment duties hereunder; (ii) is
attested to in writing by a physician who is licensed to practice in the State of New York and is mutually acceptable to Executive and
the Company (or, if the Executive and the Company are unable to mutually agree on a physician, the Company Board may select a
physician who is a chairman of a department of medicine at a university-affiliated hospital in the City of New York); and
(iii) continues, for any one or related condition, during any period of six (6) consecutive months or for a period aggregating six
(6) months in any twelve-month period. Total Disability shall be deemed to have occurred on the last day of such applicable six-
month period.
(b) Cause. The Company shall at all times, upon written notice to Executive given at least ten (10) days prior to the
Termination Date, have the right to terminate this Agreement and the employment of Executive hereunder for Cause (as defined
below); provided, however, that prior to such termination taking effect, Executive shall have been given an opportunity to meet with
the Board, and a majority of the Board shall have thereafter voted to terminate Executive’s employment.
For purposes of this Agreement, the term “Cause” means the occurrence of any one of the following events:
(i) Executive’s gross negligence, willful misconduct or dishonesty in performing his duties hereunder; (ii) Executive’s conviction of a
felony (other than a felony involving a traffic violation); (iii) Executive’s commission of a felony involving a fraud or other business
crime against MKHL or any of its subsidiaries; or (iv) Executive’s breach of any of the covenants set forth in Section 9 hereof;
provided that, if such breach is curable, Executive shall have an opportunity to correct such breach within thirty (30) days after
written notice by the Company to Executive thereof.
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(c) Change of Control. Unless otherwise agreed by the Company and Executive, this Agreement shall automatically
terminate upon a Change of Control. For purposes of this Agreement, a “Change of Control” shall be deemed to have occurred when any
person, entity or group of affiliated persons or entities purchase or otherwise acquire (i) more than 50% of the combined voting power of
the outstanding stock of MKHL or (ii) all or substantially all of MKHL’s assets.
(d) Executive Termination Without Good Reason. Executive agrees that he shall not terminate his employment for any
reason other than Good Reason without giving the Company at least six (6) months’ prior written notice of the effective date of such
termination. Executive acknowledges that the Company retains the right to waive the notice requirement, in whole or in part, and
accelerate the effective date of Executive’s termination. If the Company elects to waive the notice requirement, in whole or in part, the
Company shall have no further obligations to Executive under this Agreement other than to make the payments specified in Section 8(a).
After Executive provides a notice of termination, the Company may, but shall not be obligated to, provide Executive with work to do
and the Company may, in its discretion, in respect of all or part of an unexpired notice period, (i) require Executive to comply with such
conditions as it may specify in relation to attending at, or remaining away from, the Company’s places of business, or (ii) withdraw any
powers vested in, or duties assigned to, Executive. For purposes of a notice of termination given pursuant to this Section 7(d), the
Termination Date shall be the last day of the six (6) month notice period, unless the Company elects to waive the notice requirement as
set forth herein.
For purposes of this Agreement, “Good Reason” means and shall be deemed to exist if: (i) Executive is assigned duties
or responsibilities that are inconsistent in any material respect with the scope of the duties or responsibilities of his title or position, as set
forth in this Agreement; (ii) the Company or MKHL fails to perform substantially any material term of this Agreement, and, if such
failure is curable, fails to correct such failure within thirty (30) days after written notice by Executive to the Company or MKHL, as
applicable; (iii) Executive’s office is relocated more than fifty (50) miles from its location immediately prior to such relocation; (iv) the
Company or MKHL fails to have this Agreement assumed by a successor; (v) Executive’s duties or responsibilities are significantly
reduced, except with respect to any corporate action initiated or recommended by Executive and approved by the Board; (vi) Executive
is involuntarily removed from the Board and the Company Board (other than in connection with a termination of employment for Cause,
voluntary termination without Good Reason, death or Total Disability); or (vii) subject to the proviso set forth in the third sentence of
Section 1(b) above, the Board is managing the day-to-day operations of the Company and, after receipt of written notice from Executive
to such effect (and sufficient time to cease such involvement), the Board continues to do so.
(e) Executive Termination for Good Reason. Executive may terminate his employment hereunder for Good Reason
(and this Agreement shall accordingly terminate) by providing written notice of his intention to terminate, and specifying the
circumstances relating thereto, to the Board within thirty (30) days following the occurrence of any of the events specified above as
constituting Good Reason and at least ten (10) days prior to the Termination Date.
8. Consequences of Termination or Breach.
(a) Termination Due to Death or Total Disability, for Cause, Upon Change of Control or Without Good Reason. If
Executive’s employment under this Agreement is terminated under Sections 7(a), 7(c) or 7(d) hereunder, or Executive terminates his
employment for any reason other than Good Reason, Executive shall not thereafter be entitled to receive any compensation and benefits
under this Agreement other than for (i) Base Salary earned but not yet paid prior to the Termination Date, (ii) vested equity in
accordance with Section 5(b), (iii) payment for any untaken accrued vacation during the calendar year, (iv) reimbursement of any
expenses pursuant to Section 6(e) incurred prior to the Termination Date, (v) any Part-Year Bonus with respect to a Part-Year
Performance Period that was completed prior to Executive’s termination from employment but which has not yet been paid, and (vi) any
Annual Bonus with respect to any Annual Performance Period that was completed prior to Executive’s termination from employment
but which has not yet been paid, and in the case of each of clauses (v) and (vi), such bonuses shall be paid at such times as they would
have otherwise been paid to Executive hereunder had employment not been terminated and such bonus amounts shall be subject to
certification by the Compensation Committee as described in Section 4 of this Agreement (collectively, the “Accrued Obligations”),
plus, in the case of termination due to death or Total Disability only, the Pro Rata Bonus Payment (as defined below). If Executive’s
employment under this Agreement is terminated by the Company for Cause, Executive shall not thereafter be entitled to receive any
compensation and benefits under this Agreement other than for the Accrued Obligations set forth in clauses (i), (iii) and (iv) above.
(b) Termination Without Cause or With Good Reason. If Executive’s employment under this Agreement is terminated
by the Company without Cause (which right the Company shall have at any time during the Term) and other than for the reasons
provided for in Sections 7(a) or 7(c) above, or Executive terminates his employment for Good Reason, the sole obligations of the
Company to Executive shall be: (i) to make the payments described in Section 8(a) for Accrued Obligations, (ii) to make the Pro Rata
Bonus Payment and (iii) to pay to Executive in a single lump sum payment, within thirty (30) days from the Termination Date, a
separation allowance equal to two times (A) Executive’s then current Base Salary and (B) the bonus payment(s) paid or payable to
Executive pursuant to Section 4 with respect to MKHL’s last full fiscal year ended prior to the Termination Date. For purposes of this
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Agreement, “Pro Rata Bonus Payment” shall mean, (x) with respect to a termination that occurs during the course of any Part-Year
Performance Period, an amount representing the amount that the Part-Year Bonus would have been, based on actual performance over
the course of the Part-Year Performance Period, assuming Executive’s employment had not been terminated hereunder, multiplied by
a fraction the numerator of which is the number of days Executive was employed hereunder during the Part-Year Performance Period
and the denominator of which is the full number of days in the Part-Year Performance Period and (y) with respect to a termination
that occurs during the course of any Annual Performance Period, an amount representing the amount that the Annual Bonus would
have been, based on actual performance over the course of the Annual Performance Period, assuming Executive’s employment had
not been terminated hereunder, multiplied by a fraction the numerator of which is the number of days Executive was employed
hereunder during the Annual Performance Period and the denominator of which is the full number of days in the Annual Performance
Period. Executive acknowledges and agrees that in the event the Company terminates Executive’s employment without Cause and
other than for the reasons provided for in Sections 7(a) or 7(c) or Executive terminates his employment for Good Reason, Executive’s
sole remedy shall be to receive the payments specified in this Section 8(b).
(c) No Duty to Mitigate. Executive shall not be required to mitigate the amount of any damages that Executive may
incur or other payments to be made to Executive hereunder as a result of any termination or expiration of this Agreement, nor shall
any payments to Executive be reduced by any other payments Executive may receive, except as set forth herein.
9. Restrictive Covenants and Confidentiality.
(a) No-Hire. During the two (2) year period following the Termination Date, Executive shall not employ or retain
(or participate in or arrange for the employment or retention of) any person who was employed or retained by the Company or any of
its parents, subsidiaries or affiliates within the one (1) year period immediately preceding such employment or retention.
(b) Confidentiality. Recognizing that the knowledge, information and relationship with customers, suppliers and
agents, and the knowledge of the Company’s and its parents’, subsidiaries’ and affiliates’ business methods, systems, plans and
policies, which Executive shall hereafter establish, receive or obtain as an employee of the Company or any such parent, subsidiary or
affiliate, are valuable and unique assets of the businesses of the Company and its parents, subsidiaries and affiliates, Executive agrees
that, during and after the Term hereunder, he shall not (otherwise than pursuant to his duties hereunder) disclose, without the prior
written approval of the Board, any such knowledge or information pertaining to the Company or any of its parents, subsidiaries and
affiliates, their business, personnel or policies, to any person, firm, corporation or other entity, for any reason or purpose whatsoever.
The provisions of this Section 9(b) shall not apply to information which is or shall become generally known to the public or the trade
(except by reason of Executive’s breach of his obligations hereunder), information which is or shall become available in trade or other
publications and information which Executive is required to disclose by law or an order of a court of competent jurisdiction. If
Executive is required by law or a court order to disclose such information, he shall notify the Company of such requirement and
provide the Company an opportunity (if the Company so elects) to contest such law or court order. Executive agrees that all tangible
materials containing confidential information, whether created by Executive or others which shall come into Executive’s custody or
possession during Executive’s employment shall be and is the exclusive property of the Company or its parents, subsidiaries and
affiliates. Upon termination of Executive’s employment for any reason whatsoever, Executive shall immediately surrender to the
Company all confidential information and property of the Company or its parents, subsidiaries or affiliates in Executive’s possession.
(c) Non-Compete. Executive agrees that during the Term, Executive will not engage in, or carry on, directly or
indirectly, either for himself or as an officer or director of a corporation or as an employee, agent, associate, or consultant of any
person, partnership, business or corporation, any Competitive Business (as defined below); provided, that Executive may own ten
percent (10%) or less in a Competitive Business as a passive investor so long as Executive does not manage (whether as a director,
officer or otherwise) or exercise influence or control over such business. For purposes of this Agreement, “Competitive Business”
shall mean a business which directly competes in any material respects with the Company or its parents, subsidiaries, affiliates or
product licensees.
10. Injunction. It is recognized and hereby acknowledged by the parties hereto that a breach or violation by Executive of
any of the covenants or agreements contained in Section 9 of this Agreement may cause irreparable harm and damage to the
Company or its parents, subsidiaries or affiliates, the monetary amount of which may be virtually impossible to ascertain. Therefore,
Executive recognizes and hereby agrees that the Company and its parents, subsidiaries and affiliates shall be entitled to an injunction
from any court of competent jurisdiction enjoining and restraining any breach or violation of any or all of the covenants and
agreements contained in Section 9 of this Agreement by Executive and/or his employees, associates, partners or agents, or entities
controlled by one or more of them, either directly or indirectly, and that such right to injunction shall be cumulative and in addition to
whatever other rights or remedies the Company, and its parents, subsidiaries or affiliates may possess.
5
11. Indemnification. To the extent permitted by law and the Company’s or MKHL’s by-laws or other governing
documents, the Company and/or MKHL (as applicable) will indemnify Executive with respect to any claims made against him as an
officer, director or employee of MKHL, the Company or any other subsidiary of MKHL, except for acts taken in bad faith or in
breach of his duty of loyalty to the Company or MKHL. During the term and for as long thereafter as is practicable, Executive shall
be covered under a directors and officers liability insurance policy with coverage limits in amounts no less than that which the
Company currently maintains as of the date of this Agreement.
12. Taxes. All payments to be made to and on behalf of Executive under this Agreement will be subject to required
withholding of federal, state and local income and employment taxes, and to related record reporting requirements, including, with
respect to the retainer payment referred to in the last sentence of Section 3, applicable U.K. statutory reductions.
13. Executive’s Representations; No Delegation. Executive hereby represents and warrants that he is not precluded, by any
agreement to which he is a party or to which he is subject, from executing and delivering this Agreement, and that this Agreement and
his performance of the duties and responsibilities set forth herein does not violate any such agreement. Executive shall indemnify and
hold harmless the Company and its parents, subsidiaries and affiliates and their officers, directors, employees, agents and advisors for
any liabilities, losses and costs (including reasonable attorney’s fees) arising from any breach or alleged breach of the foregoing
representation and warranty. Executive shall not delegate his employment obligations under this Agreement to any other person.
14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New
York applicable to agreements made and to be performed in that state, without regard to its conflict of laws provisions.
15. Entire Agreement; Amendment. This Agreement supersedes all prior agreements between the parties with respect to its
subject matter, is intended (with the documents referred to herein) as a complete and exclusive statement of the terms of the
agreement between the parties with respect thereto and may be amended only by a writing signed by all parties hereto.
16. Notices. Any notice or other communication made or given in connection with this Agreement shall be in writing and
shall be deemed to have been duly given when delivered by hand, by facsimile transmission, by a nationally recognized overnight
delivery service or mailed by registered mail, return receipt requested, to a party at his or its address set forth below or at such other
address as a party may specify by notice to the others:
If to the Company or MKHL:
c/o Michael Kors (USA), Inc.
11 West 42nd Street, 28th Floor
New York, NY 10036
Fax: 646-354-4824
Attention: General Counsel
If to Executive:
At the home address on file with the Company
Fax: 516-365-6872
with a copy to:
Schlesinger Gannon & Lazetera LLP
535 Madison Avenue
New York, NY 10022
Fax: 212-652-3789
Attention: Sanford J. Schlesinger, Esq.
or to such other addresses as either party hereto may from time to time specify to the other. Any notice given as aforesaid shall be
deemed received upon actual delivery.
17. Assignment. Except as otherwise provided in this Section 17 and Section 1(c), this Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement shall not
be assignable by Executive and shall be assignable by the Company and MKHL, in whole or in part, only (i) to MKHL or any of its
subsidiaries and (ii) subject to compliance with Section 1(c).
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18. Severability. The invalidity of any one or more of the words, phrases, sentences, clauses or sections contained in this
Agreement shall not affect the enforceability of the remaining portions of this Agreement, or any part thereof, all of which are
inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses or
sections contained in this Agreement shall be declared invalid, this Agreement shall be construed as if such invalid word or words,
phrase or phrases, sentence or sentences, clause or clauses, or section or sections had not been inserted.
19. Waiver. The failure of any party to insist upon strict adherence to any term or condition of this Agreement on any
occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in writing.
20. Section Headings. The section headings contained in this Agreement are for reference purpose only and shall not affect
in any way the meaning or interpretation of this Agreement.
21. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be considered an
original, but all of which together shall constitute the same instrument.
22. Arbitration. Any dispute or claim between the parties hereto arising out of, or in connection with, this Agreement
and/or Executive’s employment shall become a matter for arbitration; provided, however, that Executive acknowledges and agrees
that in the event of any alleged violation of Section 9 hereof, the Company and any of its parents, subsidiaries and affiliates shall be
entitled to obtain from any court in the State of New York, temporary, preliminary or permanent injunctive relief as well as damages,
which rights shall be in addition to any other rights or remedies to which it may be entitled. The arbitration shall take place in New
York City and shall be before a neutral arbitrator in accordance with the Commercial Rules of the American Arbitration Association;
provided however, that to the extent such arbitration involves any allegation(s) of a violation of any law, rule or regulation which
prohibits discrimination in employment, the arbitrator shall apply the National Rules for the Resolution of Employment Disputes (as
modified) of the American Arbitration Association then existing in determining the damages, if any, to be awarded and the allocation
of costs and attorneys fees between or among the parties. The decision or award of the arbitrator shall be final and binding upon the
parties hereto. The parties shall abide by all awards recorded in such arbitration proceedings, and all such awards may be entered and
executed upon in any court having jurisdiction over the party against whom or which enforcement of such award is sought.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first
above written.
MICHAEL KORS (USA), INC.
By:
Name:
Title:
/s/ Joseph B. Parsons
Joseph B. Parsons
EVP, CFO, COO & Treasurer
MICHAEL KORS HOLDINGS LIMITED
/s/ Joseph B. Parsons
By:
Name: Joseph B. Parsons
Title: EVP, CFO, COO & Treasurer
/s/ John D. Idol
JOHN D. IDOL
7
EMPLOYMENT AGREEMENT
Exhibit 10.14
EMPLOYMENT AGREEMENT (this “Agreement”) between Michael Kors (USA), Inc. (the “Company”) and Pascale Meyran
(“Executive”) made as of this 14th day of July 2014.
WHEREAS, the parties desire to enter into this Agreement to reflect their mutual agreements with respect to the employment of
Executive by the Company.
NOW, THEREFORE, in consideration of the mutual covenants, warranties and undertakings herein contained, the parties hereto
agree as follows:
1. Term. The employment of Executive with the Company under this Agreement shall commence on September 22, 2014 (or
such other date as Executive actually begins employment with the Company) (the “Commencement Date”) and shall continue through
June 30, 2017 (the “Initial Term”), subject to the terms and provisions of this Agreement. After the expiration of the Initial Term, this
Agreement shall be automatically renewed for additional one-year terms (each, a “Renewal Term”) unless either the Company or
Executive gives written notice to the other of the termination of this Agreement at least ninety (90) days in advance of the next
successive one-year term. Any election by the Company or Executive not to renew such employment at the end of the Initial Term or
any Renewal Term shall be at the sole, absolute discretion of the Company or Executive, respectively. The period Executive is
actually employed hereunder during the Initial Term and any such Renewal Terms is referred to herein as the “Term”.
2. Position and Duties. Executive shall be employed during the Term as Senior Vice President, Human Resources and shall be
based in New York, New York. Executive shall report directly to the Chief Executive Officer of the Company. Executive shall
perform such duties and services as are commensurate with Executive’s position and such other duties and services as are from time
to time reasonably assigned to Executive by the Chief Executive Officer of the Company or the Board of Directors of the Company.
Except for vacation, holiday, personal and sick days in accordance with this Agreement and the Company’s policies for comparable
senior executives, Executive shall devote her full business time during the Term to providing services to the Company and its
affiliates. Executive shall maintain a primary residence in the New York City metropolitan area during the Term.
3. Compensation.
(a) Base Salary. Executive’s base salary (the “Base Salary”) shall be at the rate of $500,000 per year. The Base Salary shall
be payable in substantially equal installments in accordance with the normal payroll practices of the Company.
(b) Periodic Review of Compensation. On an annual basis during the Term, but without any obligation to increase or
otherwise change the compensation provisions of this Agreement, the Company agrees to undertake a review of the performance by
Executive of her duties under this Agreement and of the efforts that she has undertaken for and on behalf of the Company.
(c) Annual Bonus.
(i) With respect to each full fiscal year of the Company during the Term, Executive shall be eligible to receive a
cash bonus (the “Bonus”) based on a percentage of Executive’s Base Salary (with the incentive levels set at 25% target – 37.5%
stretch – 50% maximum), in accordance with, and subject to, the terms and conditions of the Company’s then existing executive
bonus plan (the “Bonus Plan”). The Bonus shall be 70% based on the achievement of divisional performance targets and 30% based
on the achievement of overall corporate performance targets (in each case based on criteria established by the Michael Kors Holdings
Limited Board of Directors (or appropriate committee thereof) at the beginning of each fiscal year), shall be determined annually at
the same time bonuses are determined for comparable senior executives of the Company in accordance with the Bonus Plan, and shall
be payable at the same time and in the same manner as bonuses are paid to comparable senior executives of the Company.
(ii) During the Term, the targets and performance goals, including, without limitation, the extent to which they will
be based on corporate performance, divisional performance or other criteria consistent with the terms and conditions of the Bonus
Plan, shall be established annually by the Michael Kors Holdings Limited Board of Directors (or appropriate committee thereof) in
accordance with the Bonus Plan.
(iii) Notwithstanding the generality of the foregoing, Executive’s Bonus for the first two fiscal years during the
Term (e.g., Fiscal 2015 and Fiscal 2016 assuming the Commencement Date occurs in Fiscal 2015) shall be equal to 50% of
Executive’s then-current base salary (pro rated from the Commencement Date with respect to the first fiscal year during the Term).
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(d) Benefits. During the Term, Executive shall be entitled to participate in the benefit plans and programs, including, without
limitation, medical, dental, life insurance, disability insurance and 401(k), that the Company provides generally to comparable senior
executives in accordance with, and subject to, the terms and conditions of such plans and programs (including, without limitation, any
eligibility limitations) as they may be modified by the Company from time to time in its sole discretion.
(e) Travel/Expense Reimbursement. The Company shall reimburse Executive for the ordinary and necessary business
expenses incurred by her in the performance of her duties in accordance with the Company’s policies and procedures. To the extent
Executive travels in connection with her duties hereunder, the Company agrees to pay the cost of such travel or to reimburse Executive
if she has incurred any such costs, it being understood and agreed that (i) all air travel shall be in (A) coach class for domestic travel
other than coast-to-coast, which shall be business class, and (B) business class for international travel, and (ii) such costs shall otherwise
be incurred in accordance with the Company’s policies and procedures. The Company shall reimburse Executive for all other ordinary
and necessary business expenses incurred by her in the performance of her duties in accordance with the Company’s policies and
procedures.
(f) Equity-Based Compensation.
(i) Equity-Based Awards. Executive shall be eligible for share option awards, restricted share awards and other equity-
based awards under the equity incentive plan generally applicable to eligible employees of the Company (currently the Michael Kors
Holdings Limited Omnibus Incentive Plan) (the “Equity Incentive Plan”), in accordance with, and subject to, the terms and conditions of
the Equity Incentive Plan as the same may be amended or modified by Michael Kors Holdings Limited or its subsidiaries from time to
time in their sole discretion and the applicable equity award agreement. On the first business day of the month following the
Commencement Date, Executive shall receive an equity grant valued at approximately $1,500,000 in accordance with, and subject to,
the terms and conditions of the Equity Incentive Plan. Such equity grant shall be comprised 35% of restricted shares, 35% of share
options (valued using the Black-Scholes valuation method) and 30% of performance-based restricted share units. The share options and
restricted shares will vest in equal installments over four years. The performance-based restricted share units will cliff vest at the end of
three years subject to attainment of the performance-targets set by the Michael Kors Holdings Limited Board of Directors (or
appropriate committee thereof).
(ii) Effect of Termination. Except in the case of the termination of Executive for Cause, in which case any restricted
shares or restricted share units granted to Executive under the Equity Plan shall be forfeited and any share options granted to Executive
under the Equity Plan shall immediately terminate (whether or not vested and/or exercisable), any such equity awards of Executive that
have become vested and/or exercisable prior to the last day Executive is employed by the Company (the “Termination Date”) shall
remain vested and/or exercisable after the Termination Date in accordance with, and subject to, the terms and conditions of the Equity
Incentive Plan and/or any applicable equity award agreement.
(g) Taxes. All payments to be made to and on behalf of Executive under this Agreement will be subject to required
withholding of federal, state and local income and employment taxes, and to related reporting requirements.
(h) Vacations. Executive shall be entitled to a total of four (4) weeks of paid vacation during each calendar year during the
Term (which shall accrue in accordance with the Company’s vacation policy); provided, however, that such vacations shall be taken by
Executive at such times as will not interfere with the performance by Executive of her duties hereunder.
(i) Housing Allowance. The Company shall pay the reasonable costs and expenses of temporary housing for Executive in the
New York City metropolitan area through December 31, 2014. If on or before the first anniversary of the Commencement Date
Executive terminates her employment hereunder (other than for Good Reason) or the Company terminates Executive’s employment for
Cause, Executive shall promptly repay the Company in full for the amount of such temporary housing allowance actually paid by the
Company.
(j) Clothing Allowance. The Company shall provide Executive with a $5,000 clothing allowance for each fiscal year during
the Term (pro rated from the Commencement Date), which may be used by Executive to purchase product manufactured by the
Company through Company personal orders for Executive’s personal use only at the applicable discount off wholesale (if any) offered
to all eligible employees. Such clothing allowance shall be fully utilized by Executive in each fiscal year otherwise any remaining
amount available for use shall be forfeited at the end of such fiscal year. In addition, Executive shall receive an additional one-time
closing allowance in the amount of $20,000 for Executive’s personal use at any time during the Term. The clothing allowance is a
taxable benefit for Executive.
(k) Relocation Expenses. The Company shall pay directly or reimburse Executive, promptly after receipt from Executive of
invoices or other supporting documentation, for reasonable expenses incurred by Executive in relocating to the New York City
metropolitan area; provided that receipts or invoices for all such expenses must be submitted by Executive to the Company for
reimbursement within a reasonable time after such expense is incurred. Any tax liability incurred by Executive as a result of such
2
relocation reimbursements will be paid for by the Company. If on or before the first anniversary of the Commencement Date Executive
terminates her employment hereunder (other than for Good Reason) or the Company terminates Executive’s employment for Cause,
Executive shall promptly repay the Company in full for the amount of such relocation expenses actually paid by the Company.
4. Termination of Employment.
(a) Death and Disability. Executive’s employment under this Agreement shall terminate automatically upon her death. The
Company may terminate Executive’s employment under this Agreement if Executive is unable to perform substantially all of the duties
required by her hereunder due to illness or incapacity for a period of at least ninety (90) days (whether or not consecutive) in any period of
three hundred and sixty five (365) consecutive days.
(b) Cause. The Company may terminate Executive’s employment under this Agreement at any time with Cause. For purposes of
this Agreement, “Cause” means the occurrence of any of the following events: (i) a material breach by Executive of her obligations under
this Agreement that Executive has failed to cure within thirty (30) days following written notice of such breach from the Company to
Executive; (ii) insubordination or a refusal by Executive to perform her duties under this Agreement that continues for at least five (5) days
after written notice from the Company to Executive; (iii) Executive’s misconduct with respect to the Company or any of its affiliates or
licensees, or any of their respective businesses, assets or employees; (iv) the commission by Executive of a fraud or theft against the
Company or any of its affiliates or licensees or her conviction for the commission of, or aiding or abetting, a felony or of a fraud or a crime
involving moral turpitude or a business crime; or (v) the possession or use by Executive of illegal drugs or prohibited substances, the
excessive drinking of alcoholic beverages on a recurring basis which impairs Executive’s ability to perform her duties under this Agreement,
or the appearance during hours of employment on a recurring basis of being under the influence of such drugs, substances or alcohol.
5. Consequences of Termination or Breach.
(a) Death or Disability; Termination for Cause or Without Good Reason. If, during the Term, Executive’s employment under this
Agreement is terminated under Section 4(a) or 4(b) or as a result of the Company or Executive giving a non-renewal notice pursuant to
Section 1, or Executive terminates her employment for any reason other than for Good Reason, Executive shall not thereafter be entitled to
receive any compensation or benefits under this Agreement, other than (i) Base Salary earned but not yet paid prior to the Termination Date,
(ii) reimbursement of any expenses pursuant to Section 3(e) incurred prior to the Termination Date and (iii) vested equity in accordance with
Section 3(f)(ii). For purposes of this Agreement, “Good Reason” means a material breach by the Company of its obligations under this
Agreement that it has failed to cure within thirty (30) days following written notice of such breach from Executive to the Company.
(b) Termination Without Cause or With Good Reason. If, during the Term, Executive’s employment under this Agreement is
terminated by the Company without Cause (which the Company shall have the right to do with or without Cause at any time during the
Term) and other than under Section 4(a) or as a result of the Company giving a non-renewal notice pursuant to Section 1, or Executive
terminates her employment for Good Reason, the sole obligations of the Company to Executive shall be (i) to make the payments described
in clauses (i) through (iii) (inclusive) of Section 5(a), and (ii) subject to Executive providing the Company with the release and separation
agreement described below, to provide continuation of Executive’s then current Base Salary and medical, dental and insurance benefits by
the Company for a one (1) year period commencing with the Termination Date, which amount shall be payable in substantially equal
installments in accordance with the normal payroll practices of the Company and shall be offset by any compensation and benefits that
Executive receives from other employment (including self-employment) during such payment period. Executive agrees to promptly notify
the Company upon her obtaining other employment or commencing self-employment during the severance period and to provide the
Company with complete information regarding her compensation thereunder. The Company’s obligations to provide the payments referred
to in this Section 5(b) shall be contingent upon (A) Executive having delivered to the Company a fully executed separation agreement and
release (that is not subject to revocation) of claims against the Company and its affiliates and their respective directors, officers, employees,
agents and representatives satisfactory in form and content to the Company’s counsel, and (B) Executive’s continued compliance with her
obligations under Section 6 of this Agreement. Executive acknowledges and agrees that in the event the Company terminates Executive’s
employment without Cause or Executive terminates her employment for Good Reason, (1) Executive’s sole remedy shall be to receive the
payments specified in this Section 5(b) and (2) if Executive does not execute the separation agreement and release described above,
Executive shall have no remedy with respect to such termination.
6. Certain Covenants and Representations.
(a) Confidentiality. Executive acknowledges that in the course of her employment by the Company, Executive will receive and or
be in possession of confidential information of the Company and its affiliates, including, but not limited to, information relating to their
financial affairs, business methods, strategic plans, marketing plans, product and styling development plans, pricing, products, vendors,
3
suppliers, manufacturers, licensees, computer programs and software, and personal information regarding the Company’s personnel
(collectively, “Confidential Information”). Confidential Information shall not include information that is: (i) generally known or
available to the public or in Executive’s possession prior to discussions relating to employment with the Company; (ii) independently
known, obtained, conceived or developed by Executive without access to or knowledge of related information provided by the
Company or obtained in connection with Executive’s efforts on behalf of the Company, (iii) used or disclosed with the prior written
approval of the Company or (iv) made available by the Company to the public. Executive agrees that she will not, without the prior
written consent of the Company, during the Term or thereafter, disclose or make use of any Confidential Information, except as may
be required by law or in the course of Executive’s employment hereunder or in order to enforce her rights under this Agreement.
Executive agrees that all tangible materials containing Confidential Information, whether created by Executive or others which shall
come into Executive’s custody or possession during Executive’s employment shall be and is the exclusive property of the Company.
Upon termination of Executive’s employment for any reason whatsoever, Executive shall immediately surrender to the Company all
Confidential Information and property of the Company in Executive’s possession.
(b) Non-Competition. Executive agrees that, during the Term, and for a one-year period thereafter (the “Non-Competition
Period”), Executive will not engage in, or carry on, directly or indirectly, either for himself or as an officer or director of a corporation
or as an employee, agent, associate, or consultant of any person, partnership, business or corporation, any business in competition
with the business carried on by the Company or any of its affiliates in any jurisdiction in which the Company or any of its affiliates
actively conduct business; provided, however, that if the Company elects to enforce this provision, and Executive is not otherwise
receiving separation pay pursuant to Section 5(b) herein, the Company shall continue Executive’s then current base salary during the
Non-Competition Period, payable in substantially equal installments in accordance with the normal payroll practices of the Company.
If the Company, at its sole option, decides not to continue Executive’s base salary at any time during the Non-Competition Period and
Executive is not otherwise receiving separation pay pursuant to Section 5(b) herein, this non-competition provision shall not
thereafter be enforceable.
(c) No Hiring. During the two-year period immediately following the Termination Date, Executive shall not employ or
retain (or participate in or arrange for the employment or retention of) any person who was employed or retained by the Company or
any of its affiliates within the one (1) year period immediately preceding such employment or retention.
(d) Non-Disparagement. During the Term and thereafter, Executive agrees not to disparage the Company or any of its
affiliates or any of their respective directors, officers, employees, agents, representatives or licensees and not to publish or make any
statement that is reasonably foreseeable to become public with respect to any of such entities or persons.
(e) Copyrights, Inventions, etc. Any interest in patents, patent applications, inventions, technological innovations,
copyrights, copyrightable works, developments, discoveries, designs, concepts, ideas and processes (“Such Inventions”) that
Executive now or hereafter during the Term may own, acquire or develop either individually or with others relating to the fields in
which the Company or any of its affiliates may then be engaged or contemplate being engaged shall belong to the Company or such
affiliate and forthwith upon request of the Company, Executive shall execute all such assignments and other documents (including
applications for patents, copyrights, trademarks and assignments thereof) and take all such other action as the Company may
reasonably request in order to assign to and vest in the Company or its affiliates all of Executive’s right, title and interest (including,
without limitation, waivers to moral rights) in and to Such Inventions throughout the world, free and clear of liens, mortgages,
security interests, pledges, charges and encumbrances. Executive acknowledges and agrees that (i) all copyrightable works created by
Executive as an employee will be “works made for hire” on behalf of the Company and its affiliates and that the Company and its
affiliates shall have all rights therein in perpetuity throughout the world and (ii) to the extent that any such works do not qualify as
works made for hire, Executive irrevocably assigns and transfers to the Company and its affiliates all worldwide right, title and
interest in and to such works. Executive hereby appoints any officer of the Company as Executive’s duly authorized attorney-in-fact
to execute, file, prosecute and protect Such Inventions before any governmental agency, court or authority. If for any reason the
Company does not own any Such Invention, the Company and its affiliates shall have the exclusive and royalty-free right to use in
their businesses, and to make products therefrom, Such Invention as well as any improvements or know-how related thereto.
(f) Remedy for Breach and Modification. Executive acknowledges that the foregoing provisions of this Section 6 are
reasonable and necessary for the protection of the Company and its affiliates, and that they will be materially and irrevocably
damaged if these provisions are not specifically enforced. Accordingly, Executive agrees that, in addition to any other relief or
remedies available to the Company and its affiliates, they shall be entitled to seek an appropriate injunctive or other equitable remedy
for the purposes of restraining Executive from any actual or threatened breach of or otherwise enforcing these provisions and no bond
or security will be required in connection therewith. If any provision of this Section 6 is deemed invalid or unenforceable, such
provision shall be deemed modified and limited to the extent necessary to make it valid and enforceable.
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7. Miscellaneous.
(a) Representations. The Company and Executive each represents and warrants that (i) it has full power and authority to
execute and deliver this Agreement and to perform its respective obligations hereunder and (ii) this Agreement constitutes the legal,
valid and binding obligation of such party and is enforceable against it in accordance with its terms. In addition, Executive represents
and warrants that the entering into and performance of this Agreement by her will not be in violation of any other agreement to which
Executive is a party and that no activities of Executive currently conflict with the provisions of Section 6(b).
(b) Notices. Any notice or other communication made or given in connection with this Agreement shall be in writing and
shall be deemed to have been duly given when delivered by hand, by facsimile transmission, by email, by a nationally recognized
overnight delivery service or mailed by certified mail, return receipt requested, to Executive or to the Company at the addresses set
forth below or at such other address as Executive or the Company may specify by notice to the other:
To the Company:
Michael Kors (USA), Inc.
11 West 42nd Street
New York, NY 10036
Attention: Chief Executive Officer
Fax Number: 646.354.4988
With a copy to:
Michael Kors (USA), Inc.
11 West 42nd Street
New York, NY 10036
Attention: General Counsel
Fax Number: 646.354.4824
To Executive:
[Intentionally omitted]
(c) Entire Agreement; Amendment. This Agreement supersedes all prior agreements between the parties with respect to its
subject matter. This Agreement is intended (with any documents referred to herein) as a complete and exclusive statement of the
terms of the agreement between the parties with respect thereto and may be amended only by a writing signed by both parties hereto.
(d) Waiver. The failure of any party to insist upon strict adherence to any term or condition of this Agreement on any
occasion shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any
other term of this Agreement. Any waiver must be in a writing signed by the party to be charged with such waiver.
(e) Assignment. Except as otherwise provided in this Section 7(e), this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, representatives, successors and assigns. This Agreement shall not be
assignable by Executive and shall be assignable by the Company only to its affiliates; provided, however, that any assignment by the
Company shall not, without the written consent of Executive, relieve the Company of its obligations hereunder.
(f) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be considered an
original, but all of which together shall constitute the same instrument.
(g) Captions. The captions in this Agreement are for convenience of reference only and shall not be given any effect in the
interpretation of the Agreement.
(h) Governing Law. This Agreement shall be governed by the laws of the State of New York applicable to agreements
made and to be performed in that State, without regard to its conflict of laws principles.
(i) Arbitration. Any dispute or claim between the parties hereto arising out of, or, in connection with this Agreement, shall,
upon written request of either party, become a matter for arbitration; provided, however, that Executive acknowledges that in the
event of
5
any violation of Section 6 hereof, the Company shall be entitled to obtain from any court in the State of New York, temporary,
preliminary or permanent injunctive relief as well as damages, which rights shall be in addition to any other rights or remedies to
which it may be entitled. The arbitration shall be before a neutral arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association and take place in New York City. Each party shall bear its own fees, costs and disbursements in
such proceeding. The decision or award of the arbitrator shall be final and binding upon the parties hereto. The parties shall abide by
all awards recorded in such arbitration proceedings, and all such awards may be entered and executed upon in any court having
jurisdiction over the party against whom or which enforcement of such award is sought.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date and year first above written.
MICHAEL KORS (USA), INC.
/s/ John D. Idol
By:
Name: John D. Idol
Title: Chairman & CEO
/s/ Pascale Meyran
Pascale Meyran
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Exhibit 10.15
FORM OPTION AWARD AGREEMENT
MICHAEL KORS HOLDINGS LIMITED
OMNIBUS INCENTIVE PLAN
EMPLOYEE NONQUALIFIED
OPTION AWARD AGREEMENT
THIS NONQUALIFIED OPTION AWARD AGREEMENT (the “Agreement”), dated as of date of grant (the “Date of Grant”),
is made by and between Michael Kors Holdings Limited, a limited liability company under the laws of the British Virgin Islands (the
“Company”), and participant (“Participant”). Any capitalized terms not otherwise defined in this Agreement shall have the definitions
set forth in the Plan.
WHEREAS, the Company has adopted the Michael Kors Holdings Limited Omnibus Incentive Plan (the “Plan”), pursuant to
which Options may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the
Option provided for herein to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and
for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their
successors and assigns, hereby agree as follows:
1. Grant of Option.
(a) Grant. The Company hereby grants to Participant an Option (the “Option”) to purchase ordinary shares, no par value, of the
Company (such shares, the “Option Shares”), on the terms and conditions set forth in this Agreement and as otherwise provided in the
Plan. The Option is not intended to qualify as an Incentive Share Option. The Exercise Price, being the price at which Participant
shall be entitled to purchase the Option Shares upon the exercise of all or any portion of the Option, shall be exercise price per Option
Share.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise
expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations,
amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have
final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its
decision shall be binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under
the Plan or this Agreement.
(c) Acceptance of Agreement. In order to accept this Agreement, Participant must indicate acceptance of the Option and
acknowledgment that the terms of the Plan and this Agreement have been read and understood by signing and returning a copy of this
Agreement, to the General Counsel at Michael Kors (USA), Inc., 11 West 42nd Street, New York, NY 10036 within 14 days
following the date hereof. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports
and other information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in
writing by Participant at any time upon three business days’ notice to the Company, in which case subsequent prospectuses, annual
reports and other information will be delivered in hard copy to Participant).
2. Vesting. Except as may otherwise be provided herein, subject to Participant’s continued employment with the Company or a
Subsidiary, the Option shall become vested and exercisable with respect to twenty five percent (25%) of the Option Shares on each of
the first four anniversaries of the Date of Grant (each such date, a “Vesting Date”). Any fractional Option Shares resulting from the
application of the vesting schedule shall be aggregated and the Option Shares resulting from such aggregation shall vest on the final
Vesting Date.
3. Termination of Employment.
(a) Except as otherwise provided below or as provided in an employment agreement (or similar agreement) between Participant
and the Company or any of its Subsidiaries in effect on the Date of Grant, if Participant’s employment or service with the Company
or any Subsidiary, as applicable, terminates for any reason other than due to death, Disability (as defined in Section 3(b) below) or
Retirement (as defined in Section 3(c) below), then the unvested portion of the Option shall be cancelled immediately and Participant
shall immediately forfeit any rights to the Option Shares subject to such unvested portion.
(b) If Participant dies or is terminated on account of Disability prior to the end of the Option Period and while still in the employ or
service of the Company or a Subsidiary, the unvested Options shall become immediately vested and exercisable as of the date of death or
termination on account of Disability For purposes of this Agreement, “Disability” means a Participant has a total and permanent disability
as defined in Section 22(e) (3) of the Code.
(c) If the Participant’s employment with the Company is terminated due to the Participant’s Retirement, then the Option shall
continue to vest on the schedule provided in Section 2 above. For purposes of this Agreement, “Retirement” means a Participant’s
voluntary termination of employment or service with the Company and its Subsidiaries (other than a termination for Cause) after the
Participant reaches at least the age of sixty (60) and has completed at least ten (10) years of employment or service with the Company or
any of its Subsidiaries.
(d) If within twenty-four (24) months following the occurrence of a Change in Control of the Company, the Participant’s
employment or service with the Company is terminated by the Company without Cause, or, if Participant is a party to an employment
agreement (or similar agreement) with the Company or any of its Subsidiaries that includes the ability of Participant to terminate
Participant’s employment for “good reason” or similar concept and Participant terminates his or her employment for “good reason” or
similar concept as defined therein, the provisions of Section 11.2 of the Plan shall apply.
4. Expiration.
(a) In no event shall all or any portion of the Option be exercisable after the seventh anniversary of the Date of Grant (the “Option
Period”).
(b) If, prior to the end of the Option Period, Participant’s employment or service with the Company and its Subsidiaries is
terminated (i) by the Company or its Subsidiaries without Cause and other than due to death, Disability or Retirement, the Option shall
expire on the earlier of the last day of the Option Period or the date that is 90 days after the date of such termination, or (ii) by Participant
for any reason other than due to death, Disability or Retirement or at a time when grounds to terminate Participant’s employment for
Cause exist, the Option shall expire on the earlier of the last day of the Option Period or the date that is 30 days after the date of such
termination. In the event of a termination described in this subsection (b), the Option shall remain exercisable by Participant until its
expiration only to the extent the Option was exercisable at the time of such termination.
(c) If Participant dies or is terminated on account of Disability in accordance with Section 3(b) above, each Option so accelerated
together with any remaining vested Options shall be exercisable by Participant or his or her beneficiary, as applicable, until the earlier of
the last day of the Option Period or the date that is one year after the date of death or termination on account of Disability of Participant,
as applicable.
(d) If the Participant’s employment with the Company is terminated due to the Participant’s Retirement in accordance with Section 3
(c) above, then the Option shall remain exercisable until the earlier of the last day of the Option Period or the date that is four years after
the date of Retirement.
(e) If Participant ceases employment or service of the Company or any of its Subsidiaries due to a termination for Cause or a
termination by Participant for any reason at a time when grounds to terminate Participant’s employment for Cause exist, the Option
(including any vested portion of the Option) shall expire immediately upon such cessation of employment or service.
5. Method of Exercise.
(a) Options which have become exercisable may be exercised by delivery of a duly executed written notice of exercise to the
Company at its principal business office using such form(s) as may be required from time to time by the Company. Participant may obtain
such form(s) by contacting the General Counsel at Michael Kors (USA), Inc., 11 West 42nd Street, New York, NY 10036.
(b) No Option Shares shall be delivered pursuant to any exercise of the Option until payment in full of the Exercise Price therefor is
received by the Company in accordance with Section 5.5 of the Plan and Participant has paid to the Company an amount equal to any
federal, state, local and non-U.S. income and employment taxes required to be withheld.
(c) Subject to applicable law, the Exercise Price and applicable tax withholding shall be payable by (i) cash or cash equivalents
(including certified check or bank check or wire transfer of immediately available funds), (ii) if approved by the Committee, tendering
previously acquired Shares (either actually or by attestation) valued at their then Fair Market Value, (iii) if approved by the Committee, a
“net exercise” procedure effected by withholding the minimum number of Shares otherwise deliverable in respect of an Option that are
needed to pay for the Exercise Price and all applicable required withholding taxes, and (iv) such other method which is approved by the
Committee. Notwithstanding the foregoing, if, on the last day of the Option Period, the Fair Market Value exceeds the Exercise Price,
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Participant has not exercised the Option, and the Option has not expired, such Option shall be deemed to have been exercised by
Participant on such last day by means of a net exercise and the Company shall deliver to Participant the number of Shares for which the
Option was deemed exercised less such number of Shares required to be withheld to cover the payment of the Exercise Price and all
applicable required withholding taxes. Any fractional Shares shall be settled in cash.
6. Rights as a Shareholder. Participant shall not be deemed for any purpose to be the owner of any Shares subject to this Option unless,
until and to the extent that (i) this Option shall have been exercised pursuant to its terms, (ii) the Company shall have issued and
delivered to Participant the Option Shares, and (iii) Participant’s name shall have been entered as a shareholder of record with respect to
such Option Shares on the books of the Company.
7. Restrictive Covenants. In consideration of the grant of the Option, Participant agrees that Participant will comply with the
restrictions set forth in this Section 7 during the time periods set forth herein.
(a) Subject to Section 7(c) below, while Participant is an Employee or Consultant of the Company and during the two-year period
following termination of employment or service, Participant shall not knowingly perform any action, activity or course of conduct which
is substantially detrimental to the businesses or business reputations of the Company or any of its Subsidiaries, including (i) soliciting,
recruiting or hiring (or attempting to solicit, recruit or hire) any employees of the Company or any of its Subsidiaries or any persons who
have worked for the Company or any of its Subsidiaries during the 12-month period immediately preceding such solicitation,
recruitment or hiring or attempt thereof; (ii) intentionally interfering with the relationship of the Company or any of its Subsidiaries with
any person or entity who or which is employed by or otherwise engaged to perform services for, or any customer, client, supplier,
licensee, licensor or other business relation of, the Company or any of its Subsidiaries; or (iii) assisting any person or entity in any way
to do, or attempt to do, anything prohibited by the immediately preceding clauses (i) or (ii)
(b) Subject to Section 7(c) below, Participant shall not disclose to any unauthorized person or entity or use for Participant’s own
purposes any Confidential Information without the prior written consent of the Company, unless and to the extent that the Confidential
Information becomes generally known to and available for use by the public other than as a result of Participant’s acts or omissions in
violation of this Agreement; provided, however, that if Participant receive a request to disclose Confidential Information pursuant to a
deposition, interrogation, request for information or documents in legal proceedings, subpoena, civil investigative demand,
governmental or regulatory process or similar process, (i) Participant shall promptly notify in writing the Company, and consult with and
assist the Company in seeking a protective order or request for other appropriate remedy, (ii) in the event that such protective order or
remedy is not obtained, or if the Company waives compliance with the terms hereof, Participant shall disclose only that portion of the
Confidential Information which, based on the written advice of Participant’s legal counsel, is legally required to be disclosed and shall
exercise reasonable best efforts to provide that the receiving person or entity shall agree to treat such Confidential Information as
confidential to the extent possible (and permitted under applicable law) in respect of the applicable proceeding or process and (iii) the
Company shall be given an opportunity to review the Confidential Information prior to disclosure thereof. For purposes of this
Agreement, “Confidential Information” means information, observations and data concerning the business or affairs of the Company and
its Subsidiaries, including, without limitation, all business information (whether or not in written form) which relates to the Company or
its Subsidiaries, or their customers, suppliers or contractors or any other third parties in respect of which the Company or its Subsidiaries
has a business relationship or owes a duty of confidentiality, or their respective businesses or products, and which is not known to the
public generally other than as a result of Participant’s breach of this Agreement, including but not limited to: technical information or
reports; formulas; trade secrets; unwritten knowledge and “know-how”; operating instructions; training manuals; customer lists;
customer buying records and habits; product sales records and documents, and product development, marketing and sales strategies;
market surveys; marketing plans; profitability analyses; product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of compensation or other personnel-related information;
contracts; and supplier lists. Confidential Information will not include such information known to Participant prior to Participant’s
involvement with the Company or its Subsidiaries or information rightfully obtained from a third party (other than pursuant to a breach
by Participant of this Agreement).
(c) If and to the extent Section 7(a) or 7(b) is inconsistent with any similar provision governing noncompetition, nonsolicitation
and confidentiality in an employment agreement (or similar agreement) between Participant and the Company or any of its Subsidiaries
in effect on the Date of Grant, the provisions in Participant’s employment agreement (or similar agreement) will govern.
(d) In the event that Participant violates any of the restrictive covenants set forth above in this Section 7, in addition to any other
remedy which may be available at law or in equity, the Option shall be automatically forfeited effective as of the date on which such
violation first occurs, and, in the event that Participant has previously exercised all or any portion of the Option, Participant shall forfeit
any compensation, gain or other value realized on the exercise of such Option, or the subsequent sale of Shares acquired in respect of
such Option, and must promptly repay such amounts to the Company. The foregoing rights and remedies are in addition to any other
rights and remedies that may be available to the Company and shall not prevent (and Participant shall not assert that they shall prevent)
the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a result of Participant’s breach of
such restrictive covenants.
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8. Compliance with Legal Requirements.
(a) Generally. The granting and exercising of the Option, and any other obligations of the Company under this Agreement, shall
be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any
regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions on the Option
as it deems necessary or advisable under applicable federal securities laws, the rules and regulations of any stock exchange or market
upon which Shares are then listed or traded, and/or any blue sky or state securities laws applicable to such Shares. Participant agrees
to take all steps the Committee or the Company determines are necessary to comply with all applicable provisions of federal and state
securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding. The exercise of the Option (or any portion thereof) shall be subject to Participant satisfying any applicable
federal, state, local and foreign tax withholding obligations. The Company shall have the power and the right to deduct or withhold
from all amounts payable to Participant in connection with the Option or otherwise, or require Participant to remit to the Company, an
amount sufficient to satisfy any applicable taxes required by law. Further, the Company may permit or require Participant to satisfy,
in whole or in part, the tax obligations by withholding Shares that would otherwise be received upon exercise of the Option.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting
requirement under the securities laws, any mistake in calculations or other administrative error, in each case, which reduces the
amount payable in respect of the Option that would have been earned had the financial results been properly reported (as determined
by the Committee) (i) the Option will be cancelled and (ii) Participant will forfeit (A) the Shares (or cash) received or payable on the
exercise of the Option and (B) the amount of the proceeds of the sale, gain or other value realized on the exercise of the Option or the
Shares acquired in respect of such Option (and Participant may be required to return or pay such Shares or amount to the Company).
Notwithstanding anything to the contrary contained herein, if Participant, without the consent of the Company, while employed by or
providing services to the Company or any Subsidiary or after termination of such employment or service, violates a non-solicitation
or non-disclosure covenant or agreement, including but not limited to the covenants set forth in Section 7 above, or otherwise has
engaged in or engages in activity that is in conflict with or adverse to the interest of the Company or any Subsidiary as determined by
the Committee in its sole discretion, then (i) any outstanding, vested or unvested, earned or unearned portion of the Option may, at the
Committee’s discretion, be canceled without any payment therefor and (ii) the Committee, in its discretion, may require Participant or
other person to whom any payment has been made or Shares or other property have been transferred in connection with the exercise
of the Option to forfeit and pay over to the Company, on demand, all or any portion of the compensation, gain or other value (whether
or not taxable) realized upon the exercise of such Option, or the subsequent sale of the Shares acquired upon exercise of such Option.
To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of the
Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of New York Stock Exchange or
other securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, or if so required pursuant to a
written policy adopted by the Company, the Option (or the Shares acquired upon exercise of such Option) shall be subject (including
on a retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by
reference into this Agreement).
10. Miscellaneous.
(a) Transferability. The Option may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as
otherwise permitted under Section 12.3 of the Plan. In the event of Participant’s death, the Option shall thereafter be exercisable (to
the extent otherwise exercisable hereunder) only by Participant’s executors or administrators.
(b) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of
any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any
subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement
shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A. The Option is not intended to be subject to Section 409A of the Code. Notwithstanding the foregoing or any
provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or
could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole
discretion and without Participant’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of the
Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum
extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially increasing the
cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an obligation on
the part of the Company to modify the Plan or this Agreement and does not guarantee that the Option or the Option Shares will not be
subject to interest and penalties under Section 409A.
4
(d) Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently
given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail
shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be
directed, if to Participant, at Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the
General Counsel at the Company’s principal business office.
(e) Severability The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
(f) No Rights to Employment. Nothing contained in this Agreement shall be construed as giving Participant any right to be
retained, in any position, as an Employee or Consultant of the Company or its Subsidiaries or shall interfere with or restrict in any
way the right of the Company or its Subsidiaries, which are hereby expressly reserved, to remove, terminate or discharge Participant
at any time for any reason whatsoever.
(g) Fractional Shares. In lieu of issuing a fraction of a Share resulting from any exercise of the Option, resulting from an
adjustment of the Option pursuant to Section 12.2 of the Plan or otherwise, the Company shall be entitled to pay to Participant an
amount equal to the Fair Market Value of such fractional Share.
(h) Beneficiary. Participant may file with the Committee a written designation of a beneficiary on such form as may be
prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the
attention of the General Counsel of the Company at the Company’s principal business office. If no designated beneficiary survives
Participant, Participant’s estate shall be deemed to be Participant’s beneficiary.
(i) Bound by Plan. By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and has
had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.
(j) Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors
and assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
(k) Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with
respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect
thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed
by the parties hereto, except for any changes permitted without consent under Section 12.1 of the Plan.
(l) Governing Law; JURY TRIAL WAIVER. To the extent not otherwise governed by the Code or the laws of the United States,
this Agreement shall be governed, construed and interpreted in accordance with the laws of the British Virgin Islands without regard
to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application
of the laws of any jurisdiction other than the British Virgin Islands or the laws of the United States, as applicable. THE PARTIES
EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER
OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(m) Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this Agreement.
[Intentionally left blank]
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Exhibit 10.16
FORM OF RSU AGREEMENT
MICHAEL KORS HOLDINGS LIMITED
OMNIBUS INCENTIVE PLAN
RESTRICTED SHARE UNIT AGREEMENT
THIS RESTRICTED SHARE UNIT AWARD AGREEMENT (the “Agreement”)dated as of the date of grant (the “Date of Grant”),
is made by and between Michael Kors Holdings Limited, a limited liability company under the laws of the British Virgin Islands (the
“Company”), and participant (“Participant”). Any capitalized terms not otherwise defined in this Agreement shall have the definitions set
forth in the Plan.
WHEREAS, the Company has adopted the Michael Kors Holdings Limited Omnibus Incentive Plan (the “Plan”), pursuant to which
Restricted Share Units may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the Restricted
Share Units provided for herein to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for
other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and
assigns, hereby agree as follows:
1. Grant of Restricted Share Units.
(a) Grant. The Company hereby grants to Participant an award of Restricted Share Units (the “RSUs”), on the terms and conditions
set forth in this Agreement and as otherwise provided in the Plan. Each RSU represents the right to receive payment in respect of one Share
as of the Settlement Date (as defined below), subject to the terms of this Agreement and the Plan. The RSUs are subject to the restrictions
described herein, including forfeiture under the circumstances described in Section 4 hereof. The RSUs shall vest and become
nonforfeitable in accordance with Section 2 and Section 4 hereof.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise
expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations,
amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have final
authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be
binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under the Plan or this
Agreement.
(c) Acceptance of Agreement. In order to accept this Agreement, Participant must indicate acceptance of the RSUs and
acknowledgment that the terms of the Plan and this Agreement have been read and understood by signing and returning a copy of this
Agreement, to the General Counsel at Michael Kors (USA), Inc., 11 West 42nd Street, New York, NY 10036 within 14 days following the
date hereof. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports and other
information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in writing by
Participant at any time upon three business days’ notice to the Company, in which case subsequent prospectuses, annual reports and other
information will be delivered in hard copy to Participant).
2. Vesting. Except as may otherwise be provided herein, subject to Participant’s continued employment or service with the Company or a
Subsidiary, twenty five percent (25%) of the RSUs shall vest on each of the first four anniversaries of the Date of Grant (each such date, a
“Vesting Date”). Any fractional RSUs resulting from the application of the vesting schedule shall be aggregated and the RSUs resulting
from such aggregation shall vest on the final Vesting Date. Upon vesting, the RSUs shall no longer be subject to cancellation pursuant to
Section 4 hereof.
3. Settlement. The obligation to make payments and distributions with respect to RSUs shall be satisfied through the issuance of one Share
for each vested RSU (the “settlement”), and the settlement of the RSUs may be subject to such conditions, restrictions and contingencies as
the Committee shall determine. The RSUs shall be settled as soon as practicable after the applicable Vesting Date, but in no event later than
March 15 of the year following the calendar year in which the applicable Vesting Date occurred (as applicable, the “Settlement Date”).
Notwithstanding the foregoing, the payment dates set forth in this Section 3 have been specified for the purpose of complying with the
provisions of Section 409A of the Code. To the extent payments are made during the periods permitted under Section 409A of the Code
(including any applicable periods before or after the specified payment dates set forth in this Section 3), the Company shall be deemed to
have satisfied its obligations under the Plan and shall be deemed not to be in breach of its payments obligations hereunder. Upon
settlement, the RSUs shall no longer be subject to the transfer restrictions set forth in Section 10(a).
4. Termination of Employment.
(a) Except as otherwise provided below or as provided in an employment agreement (or similar agreement) between Participant
and the Company or any of its Subsidiaries in effect on the Date of Grant, if Participant’s employment or service with the Company or
any Subsidiary, as applicable, terminates for any reason other than due to death, Disability (as defined in Section 4(b) below), or
Retirement (as defined in Section 4(c) below), then the unvested RSUs shall be cancelled immediately and Participant shall immediately
forfeit any rights to settlement of the RSUs.
(b) If Participant dies or is terminated on account of Disability prior to a Vesting Date and while still in the employ or service of
the Company or a Subsidiary, then as of the date of death or termination on account of Disability Participant or his or her beneficiary, as
applicable, shall vest in full in all of the remaining unvested RSUs granted pursuant to this Agreement, and such RSUs shall be settled in
accordance with Section 3 above. For purposes of this Agreement, “Disability” means a Participant has a total and permanent disability
as defined in Section 22(e)(3) of the Code.
(c) If the Participant’s employment with the Company is terminated due to the Participant’s Retirement, then the RSUs shall
continue to vest on the schedule provided in Section 2 above, and such RSUs shall be settled in accordance with Section 3 above. For
purposes of this Agreement, “Retirement” means a Participant’s voluntary termination of employment or service with the Company and
its Subsidiaries (other than a termination for Cause) after the Participant reaches at least the age of sixty (60) and has completed at least
ten (10) years of employment or service with the Company or any of its Subsidiaries.
(d) If within twenty-four (24) months following the occurrence of a Change in Control of the Company, the Participant’s
employment or service with the Company is terminated by the Company without Cause, or, if Participant is a party to an employment
agreement (or similar agreement) with the Company or any of its Subsidiaries that includes the ability of Participant to terminate
Participant’s employment for “good reason” or similar concept and Participant terminates his or her employment for “good reason” or
similar concept as defined therein, the provisions of Section 11.2 of the Plan shall apply.
5. Dividend Equivalents; No Voting Rights. Each outstanding RSU shall be credited with dividend equivalents equal to the dividends
(including extraordinary dividends if so determined by the Committee) declared and paid to other shareholders of the Company in
respect of one Share. Dividend equivalents shall not bear interest. On the Settlement Date, such dividend equivalents in respect of each
vested RSU shall be settled by delivery to Participant of a number of Shares equal to the quotient obtained by dividing (i) the aggregate
accumulated value of such dividend equivalents by (ii) the Fair Market Value of a Share on the applicable vesting date, rounded down to
the nearest whole share, less any applicable withholding taxes. No dividend equivalents shall be accrued for the benefit of Participant
with respect to record dates occurring prior to the Date of Grant, or with respect to record dates occurring on or after the date, if any, on
which Participant has forfeited the RSUs. Participant shall have no voting rights with respect to the RSUs or any dividend equivalents.
6. No Rights as Shareholder. Participant shall not be deemed for any purpose to be the owner of any Shares subject to the RSUs. The
Company shall not be required to set aside any fund for the payment of the RSUs.
7. Restrictive Covenants. In consideration of the grant of the RSUs, Participant agrees that Participant will comply with the restrictions
set forth in this Section 7 during the time periods set forth herein.
(a) Subject to Section 7(c) below, while Participant is an Employee or Consultant to the Company and during the two-year period
following termination of employment or service, Participant shall not knowingly perform any action, activity or course of conduct which
is substantially detrimental to the businesses or business reputations of the Company or any of its Subsidiaries, including (i) soliciting,
recruiting or hiring (or attempting to solicit, recruit or hire) any employees of the Company or any of its Subsidiaries or any persons who
have worked for the Company or any of its Subsidiaries during the 12-month period immediately preceding such solicitation,
recruitment or hiring or attempt thereof; (ii) intentionally interfering with the relationship of the Company or any of its Subsidiaries with
any person or entity who or which is employed by or otherwise engaged to perform services for, or any customer, client, supplier,
licensee, licensor or other business relation of, the Company or any of its Subsidiaries; or (iii) assisting any person or entity in any way
to do, or attempt to do, anything prohibited by the immediately preceding clauses (i) or (ii)
(b) Subject to Section 7(c) below, Participant shall not disclose to any unauthorized person or entity or use for Participant’s own
purposes any Confidential Information without the prior written consent of the Company, unless and to the extent that the Confidential
Information becomes generally known to and available for use by the public other than as a result of Participant’s acts or omissions in
violation of this Agreement; provided, however, that if Participant receive a request to disclose Confidential Information pursuant to a
deposition, interrogation, request for information or documents in legal proceedings, subpoena, civil investigative demand,
governmental or regulatory process or similar process, (i) Participant shall promptly notify in writing the Company, and consult with and
assist the Company in seeking a protective order or request for other appropriate remedy, (ii) in the event that such protective order or
2
remedy is not obtained, or if the Company waives compliance with the terms hereof, Participant shall disclose only that portion of the
Confidential Information which, based on the written advice of Participant’s legal counsel, is legally required to be disclosed and shall
exercise reasonable best efforts to provide that the receiving person or entity shall agree to treat such Confidential Information as
confidential to the extent possible (and permitted under applicable law) in respect of the applicable proceeding or process and (iii) the
Company shall be given an opportunity to review the Confidential Information prior to disclosure thereof. For purposes of this
Agreement, “Confidential Information” means information, observations and data concerning the business or affairs of the Company and
its Subsidiaries, including, without limitation, all business information (whether or not in written form) which relates to the Company or
its Subsidiaries, or their customers, suppliers or contractors or any other third parties in respect of which the Company or its Subsidiaries
has a business relationship or owes a duty of confidentiality, or their respective businesses or products, and which is not known to the
public generally other than as a result of Participant’s breach of this Agreement, including but not limited to: technical information or
reports; formulas; trade secrets; unwritten knowledge and “know-how”; operating instructions; training manuals; customer lists;
customer buying records and habits; product sales records and documents, and product development, marketing and sales strategies;
market surveys; marketing plans; profitability analyses; product cost; long-range plans; information relating to pricing, competitive
strategies and new product development; information relating to any forms of compensation or other personnel-related information;
contracts; and supplier lists. Confidential Information will not include such information known to Participant prior to Participant’s
involvement with the Company or its Subsidiaries or information rightfully obtained from a third party (other than pursuant to a breach
by Participant of this Agreement).
(c) If and to the extent Section 7(a) or 7(b) is inconsistent with any similar provision governing noncompetition, nonsolicitation
and confidentiality in an employment agreement (or similar agreement) between Participant and the Company or any of its Subsidiaries
in effect on the Date of Grant, the provisions in Participant’s employment agreement (or similar agreement) will govern.
(d) In the event that Participant violates any of the restrictive covenants set forth above in this Section 7, in addition to any other
remedy which may be available at law or in equity, the RSUs shall be automatically forfeited effective as of the date on which such
violation first occurs, and, in the event that Participant has previously vested in all or any portion of the RSUs, Participant shall forfeit
any compensation, gain or other value realized on the settlement of such RSUs, or the subsequent sale of Shares acquired upon
settlement of the RSUs (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies are in
addition to any other rights and remedies that may be available to the Company and shall not prevent (and Participant shall not assert
that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a result of
Participant’s breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally. The granting and settlement of the RSUs, and any other obligations of the Company under this Agreement, shall be
subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any regulatory
or governmental agency as may be required. The Committee shall have the right to impose such restrictions or delay the settlement of
the RSUs as it deems necessary or advisable under applicable income tax laws, federal securities laws, the rules and regulations of any
stock exchange or market upon which the RSUs are then listed or traded, and/or any blue sky or state securities laws applicable to the
RSUs; provided that any settlement shall be delayed only until the earliest date on which settlement would not be so prohibited.
Participant agrees to take all steps the Committee or the Company determines are necessary to comply with all applicable provisions of
federal and state securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding. All distributions under the Plan are subject to withholding of all applicable federal, state, local and foreign
taxes, and the Committee may condition the settlement of the RSUs on satisfaction of the applicable withholding obligations. The
Company shall have the power and the right to deduct or withhold from all amounts payable to Participant in connection with the RSUs
or otherwise, or require Participant to remit to the Company, an amount sufficient to satisfy any applicable taxes required by law.
Further, the Company may permit or require Participant to satisfy, in whole or in part, the tax obligations by withholding Shares or other
property deliverable to Participant in connection with the settlement of RSUs or from any compensation or other amounts owing to
Participant the amount (in cash, Shares or other property) of any required tax withholding upon the settlement of the RSUs.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting
requirement under the securities laws, any mistake in calculations or other administrative error, in each case, which reduces the amount
payable in respect of the RSUs that would have been earned had the financial results been properly reported (as determined by the
Committee) (i) the RSUs will be canceled and (ii) Participant will forfeit (A) the Shares received or payable on the settlement of the
RSUs and (B) the amount of the proceeds of the sale, gain or other value realized on the settlement of the RSUs (and Participant may be
required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary contained herein, if
Participant, without the consent of the Company, while providing services to the Company or any Subsidiary or after termination of such
service, violates a non-solicitation or non-disclosure covenant or agreement, including but not limited to the covenants set forth in
3
Section 7 above, or otherwise has engaged in or engages in activity that is in conflict with or adverse to the interest of the Company or
any Subsidiary as determined by the Committee in its sole discretion, then (i) any outstanding, vested or unvested, earned or unearned
portion of the RSUs, may at the Committee’s discretion, be canceled without payment therefor and (ii) the Committee may, in its
discretion, require Participant or other person to whom any payment has been made or Shares or other property have been transferred in
connection with the settlement of the RSUs to forfeit and pay over to the Company, on demand, all or any portion of the compensation,
gain or other value (whether or not taxable) realized upon on the settlement of such RSUs, or the subsequent sale of acquired Shares (if
any). To the extent required by applicable law (including without limitation Section 304 of the Sarbanes-Oxley Act and Section 954 of
the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of New York Stock Exchange or
other securities exchange or inter-dealer quotation system on which the Shares are listed or quoted, or if so required pursuant to a written
policy adopted by the Company, the RSUs (or the Shares acquired upon settlement of the RSUs (if any)) shall be subject (including on a
retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by reference into
this Agreement).
10. Miscellaneous.
(a) Transferability. The RSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise
permitted under Section 12.3 of the Plan.
(b) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any
right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent
occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to
constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A. The RSUs are intended to comply with or be exempt from Section 409A of the Code. Notwithstanding the
foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of
the Code or could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its
sole discretion and without Participant’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of
the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the
maximum extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially
increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an
obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the RSUs will not be subject to
interest and penalties under Section 409A.
(d) Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently
given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail
shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed,
if to Participant, at Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the General
Counsel at the Company’s principal business office.
(e) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent
permitted by law.
(f) No Rights to Employment or Service. Nothing contained in this Agreement shall be construed as giving Participant any right to
be retained, in any position, as an Employee or Consultant of the Company or its Subsidiaries or shall interfere with or restrict in any
way the right of the Company or its Subsidiaries, which are hereby expressly reserved, to remove, terminate or discharge Participant at
any time for any reason whatsoever.
(g) Beneficiary. Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed
by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the
General Counsel of the Company at the Company’s principal business office. If no designated beneficiary survives Participant,
Participant’s estate shall be deemed to be Participant’s beneficiary.
(h) Bound by Plan. By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and has
had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.
(i) Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and
assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
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(j) Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with
respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect
thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed
by the parties hereto, except for any changes permitted without consent under Section 12.1 of the Plan.
(k) Governing Law; JURY TRIAL WAIVER. To the extent not otherwise governed by the Code or the laws of the United
States, this Agreement shall be governed, construed and interpreted in accordance with the laws of the British Virgin Islands without
regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the
application of the laws of any jurisdiction other than the British Virgin Islands or the laws of the United States, as applicable. THE
PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(l) Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this Agreement.
[Intentionally left blank]
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Exhibit 10.17
FORM OF PRSU AGREEMENT
MICHAEL KORS HOLDINGS LIMITED
OMNIBUS INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED SHARE
UNIT AGREEMENT
THIS PERFORMANCE-BASED RESTRICTED SHARE UNIT AWARD AGREEMENT (the “Agreement”), dated as of the
date of grant (the “Date of Grant”), is made by and between Michael Kors Holdings Limited, a limited liability company under the
laws of the British Virgin Islands (the “Company”), and participant (“Participant”). Any capitalized terms not otherwise defined in
this Agreement shall have the definitions set forth in the Plan.
WHEREAS, the Company has adopted the Michael Kors Holdings Limited Omnibus Incentive Plan (the “Plan”), pursuant to
which Restricted Share Units may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the
Restricted Share Units provided for herein to Participant subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and
for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their
successors and assigns, hereby agree as follows:
1. Grant of Performance-Based Restricted Share Units.
(a) Grant. The Company hereby grants to Participant an award of performance-based Restricted Share Units (the “PRSUs”), on
the terms and conditions set forth in this Agreement and as otherwise provided in the Plan. Each PRSU represents the right to receive
payment in respect of one Share as of the Settlement Date (as defined below), subject to the terms of this Agreement and the Plan
including but not limited to certain performance-based vesting conditions as described below. The PRSUs are subject to the
restrictions described herein, including forfeiture under the circumstances described in Section 4 hereof. The PRSUs shall vest and
become nonforfeitable in accordance with Section 2 and Section 4 hereof.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise
expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations,
amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have
final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its
decision shall be binding and conclusive upon Participant and his or her legal representative in respect of any questions arising under
the Plan or this Agreement.
(c) Acceptance of Agreement. In order to accept this Agreement, Participant must indicate acceptance of the PRSUs and
acknowledgment that the terms of the Plan and this Agreement have been read and understood by signing and returning a copy of this
Agreement, to the General Counsel at Michael Kors (USA), Inc., 11 West 42nd Street, New York, NY 10036 within 14 days
following the date hereof. By accepting this Agreement, Participant consents to the electronic delivery of prospectuses, annual reports
and other information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in
writing by Participant at any time upon three business days’ notice to the Company, in which case subsequent prospectuses, annual
reports and other information will be delivered in hard copy to Participant).
2. Vesting. Except as otherwise provided in Section 4 hereof, subject to Participant’s continued employment or service with the
Company or a Subsidiary and the satisfaction of the performance goals for the period commencing March 30, 2014 and continuing
through April 1, 2017 as set forth on Exhibit A hereto, the PRSUs shall be eligible to vest on the date on which the Committee
certifies the results for such Performance Period which in no event shall be later than thirty (30) days following the completion of the
audited financials for the fiscal year ending April 1, 2017. The portion of the PRSUs that will be eligible to vest as of the applicable
vesting date shall range from zero (0%) to one hundred and fifty (150%) based on the extent to which the applicable performance
goals are achieved, as determined by the Committee in its sole and absolute discretion. Notwithstanding the foregoing, the Committee
shall have the authority to remove the restrictions and waive the performance goals on the PRSUs whenever it may determine that, by
reason of changes in applicable laws or other changes in circumstances arising after the Date of Grant, such action is appropriate.
3. Settlement. The obligation to make payments and distributions with respect to PRSUs shall be satisfied through the issuance of
one Share for each vested PRSU (the “settlement”), and the settlement of the PRSUs may be subject to such conditions, restrictions
and contingencies as the Committee shall determine. The PRSUs shall be settled as soon as practicable after the applicable vesting
date, but in no event later than March 15 of the year following the calendar year in which the applicable vesting date occurred (as
applicable, the “Settlement Date”). Notwithstanding the foregoing, the payment dates set forth in this Section 3 have been specified
for the purpose of complying with the provisions of Section 409A of the Code. To the extent payments are made during the periods
permitted under Section 409A of the Code (including any applicable periods before or after the specified payment dates set forth in
this Section 3), the Company shall be deemed to have satisfied its obligations under the Plan and shall be deemed not to be in breach
of its payments obligations hereunder.
4. Termination of Employment.
(a) Except as otherwise provided below or as provided in an employment agreement (or similar agreement) between Participant
and the Company or any of its Subsidiaries in effect on the Date of Grant, if Participant’s employment or service with the Company
or any Subsidiary, as applicable, terminates for any reason other than due to death, Disability (as defined in Section 4(b) below), or
Retirement (as defined in Section 4(c) below), then the unvested PRSUs shall be cancelled immediately and Participant shall
immediately forfeit any rights to settlement of the PRSUs.
(b) If Participant dies or is terminated on account of Disability prior to the applicable vesting date and while still in the
employ or service of the Company or a Subsidiary, then as of the date of death or termination on account of Disability, Participant
or his or her beneficiary, as applicable, shall vest in full in one hundred percent (100%) of the PRSUs granted pursuant to this
Agreement as if the target level performance goals had been achieved as of such date, and such PRSUs shall be settled in
accordance with Section 3 above. For purposes of this Agreement, “Disability” means a Participant has a total and permanent
disability as defined in Section 22(e)(3) of the Code.
(c) If the Participant’s employment with the Company is terminated due to the Participant’s Retirement, then, at the end of the
Performance Period, the Participant shall vest in a percentage of PRSUs determined based on the extent to which the applicable
performance goals set forth in Exhibit A are achieved, as determined by the Committee, prorated from the Date of Grant through the
date of such Retirement based on the number of completed months of employment or service during the Performance Period divided
by thirty-six (36), and such PRSUs shall be settled in accordance with Section 3 above. For purposes of this Agreement, “Retirement”
means a Participant’s voluntary termination of employment or service with the Company and its Subsidiaries (other than a
termination for Cause) after the Participant reaches at least the age of sixty (60) and has completed at least ten (10) years of
employment or service with the Company or any of its Subsidiaries.
(d) If within twenty-four (24) months following the occurrence of a Change in Control of the Company, the Participant’s
employment or service with the Company is terminated by the Company without Cause, or, if Participant is a party to an employment
agreement (or similar agreement) with the Company or any of its Subsidiaries that includes the ability of Participant to terminate
Participant’s employment for “good reason” or similar concept and Participant terminates his or her employment for “good reason” or
similar concept as defined therein, the provisions of Section 11.2 of the Plan shall apply.
5. Dividend Equivalents; No Voting Rights. Each outstanding PRSU shall be credited with dividend equivalents equal to the
dividends (including extraordinary dividends if so determined by the Committee) declared and paid to other shareholders of the
Company in respect of one Share. Dividend equivalents shall not bear interest. On the Settlement Date, such dividend equivalents in
respect of each vested PRSU shall be settled by delivery to Participant of a number of Shares equal to the quotient obtained by
dividing (i) the aggregate accumulated value of such dividend equivalents by (ii) the Fair Market Value of a Share on the applicable
vesting date, rounded down to the nearest whole share, less any applicable withholding taxes. No dividend equivalents shall be
accrued for the benefit of Participant with respect to record dates occurring prior to the Date of Grant, or with respect to record dates
occurring on or after the date, if any, on which Participant has forfeited the PRSUs. Participant shall have no voting rights with
respect to the PRSUs or any dividend equivalents.
6. No Rights as Shareholder. Participant shall not be deemed for any purpose to be the owner of any Shares subject to the PRSUs.
The Company shall not be required to set aside any fund for the payment of the PRSUs.
7. Restrictive Covenants. In consideration of the grant of the PRSUs, Participant agrees that Participant will comply with the
restrictions set forth in this Section 7 during the time periods set forth herein.
2
(a) Subject to Section 7(c) below, while Participant is an Employee or Consultant to the Company and during the two-year
period following termination of employment or service, Participant shall not knowingly perform any action, activity or course of
conduct which is substantially detrimental to the businesses or business reputations of the Company or any of its Subsidiaries,
including (i) soliciting, recruiting or hiring (or attempting to solicit, recruit or hire) any employees of the Company or any of its
Subsidiaries or any persons who have worked for the Company or any of its Subsidiaries during the 12-month period immediately
preceding such solicitation, recruitment or hiring or attempt thereof; (ii) intentionally interfering with the relationship of the Company
or any of its Subsidiaries with any person or entity who or which is employed by or otherwise engaged to perform services for, or any
customer, client, supplier, licensee, licensor or other business relation of, the Company or any of its Subsidiaries; or (iii) assisting any
person or entity in any way to do, or attempt to do, anything prohibited by the immediately preceding clauses (i) or (ii)
(b) Subject to Section 7(c) below, Participant shall not disclose to any unauthorized person or entity or use for Participant’s own
purposes any Confidential Information without the prior written consent of the Company, unless and to the extent that the
Confidential Information becomes generally known to and available for use by the public other than as a result of Participant’s acts or
omissions in violation of this Agreement; provided, however, that if Participant receive a request to disclose Confidential Information
pursuant to a deposition, interrogation, request for information or documents in legal proceedings, subpoena, civil investigative
demand, governmental or regulatory process or similar process, (i) Participant shall promptly notify in writing the Company, and
consult with and assist the Company in seeking a protective order or request for other appropriate remedy, (ii) in the event that such
protective order or remedy is not obtained, or if the Company waives compliance with the terms hereof, Participant shall disclose only
that portion of the Confidential Information which, based on the written advice of Participant’s legal counsel, is legally required to be
disclosed and shall exercise reasonable best efforts to provide that the receiving person or entity shall agree to treat such Confidential
Information as confidential to the extent possible (and permitted under applicable law) in respect of the applicable proceeding or
process and (iii) the Company shall be given an opportunity to review the Confidential Information prior to disclosure thereof. For
purposes of this Agreement, “Confidential Information” means information, observations and data concerning the business or affairs
of the Company and its Subsidiaries, including, without limitation, all business information (whether or not in written form) which
relates to the Company or its Subsidiaries, or their customers, suppliers or contractors or any other third parties in respect of which the
Company or its Subsidiaries has a business relationship or owes a duty of confidentiality, or their respective businesses or products,
and which is not known to the public generally other than as a result of Participant’s breach of this Agreement, including but not
limited to: technical information or reports; formulas; trade secrets; unwritten knowledge and “know-how”; operating instructions;
training manuals; customer lists; customer buying records and habits; product sales records and documents, and product development,
marketing and sales strategies; market surveys; marketing plans; profitability analyses; product cost; long-range plans; information
relating to pricing, competitive strategies and new product development; information relating to any forms of compensation or other
personnel-related information; contracts; and supplier lists. Confidential Information will not include such information known to
Participant prior to Participant’s involvement with the Company or its Subsidiaries or information rightfully obtained from a third
party (other than pursuant to a breach by Participant of this Agreement).
(c) If and to the extent Section 7(a) or 7(b) is inconsistent with any similar provision governing noncompetition, nonsolicitation
and confidentiality in an employment agreement (or similar agreement) between Participant and the Company or any of its
Subsidiaries in effect on the Date of Grant, the provisions in Participant’s employment agreement (or similar agreement) will govern.
(d) In the event that Participant violates any of the restrictive covenants set forth above in this Section 7, in addition to any other
remedy which may be available at law or in equity, the PRSUs shall be automatically forfeited effective as of the date on which such
violation first occurs, and, in the event that Participant has previously vested in all or any portion of the PRSUs, Participant shall
forfeit any compensation, gain or other value realized on the settlement of such PRSUs, or the subsequent sale of Shares acquired
upon settlement of the PRSUs (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies
are in addition to any other rights and remedies that may be available to the Company and shall not prevent (and Participant shall not
assert that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a
result of Participant’s breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally. The granting and settlement of the PRSUs, and any other obligations of the Company under this Agreement, shall
be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any
regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions or delay the
settlement of the PRSUs as it deems necessary or advisable under applicable income tax laws, federal securities laws, the rules and
regulations of any stock exchange or market upon which the PRSUs are then listed or traded, and/or any blue sky or state securities
laws applicable to the PRSUs; provided that any settlement shall be delayed only until the earliest date on which settlement would not
be so prohibited. Participant agrees to take all steps the Committee or the Company determines are necessary to comply with all
applicable provisions of federal and state securities law in exercising his or her rights under this Agreement.
3
(b) Tax Withholding. All distributions under the Plan are subject to withholding of all applicable federal, state, local and foreign
taxes, and the Committee may condition the settlement of the PRSUs on satisfaction of the applicable withholding obligations. The
Company shall have the power and the right to deduct or withhold from all amounts payable to Participant in connection with the
PRSUs or otherwise, or require Participant to remit to the Company, an amount sufficient to satisfy any applicable taxes required by
law. Further, the Company may permit or require Participant to satisfy, in whole or in part, the tax obligations by withholding Shares
or other property deliverable to Participant in connection with the settlement of PRSUs or from any compensation or other amounts
owing to Participant the amount (in cash, Shares or other property) of any required tax withholding upon the settlement of the PRSUs.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting
requirement under the securities laws, any mistake in calculations or other administrative error, in each case, which reduces the
amount payable in respect of the PRSUs that would have been earned had the financial results been properly reported (as determined
by the Committee) (i) the PRSUs will be canceled and (ii) Participant will forfeit (A) the Shares received or payable on the settlement
of the PRSUs and (B) the amount of the proceeds of the sale, gain or other value realized on the settlement of the PRSUs (and
Participant may be required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary
contained herein, if Participant, without the consent of the Company, while providing services to the Company or any Subsidiary or
after termination of such service, violates a non-solicitation or non-disclosure covenant or agreement, including but not limited to the
covenants set forth in Section 7 above, or otherwise has engaged in or engages in activity that is in conflict with or adverse to the
interest of the Company or any Subsidiary as determined by the Committee in its sole discretion, then (i) any outstanding, vested or
unvested, earned or unearned portion of the PRSUs, may at the Committee’s discretion, be canceled without payment therefor and
(ii) the Committee may, in its discretion, require Participant or other person to whom any payment has been made or Shares or other
property have been transferred in connection with the settlement of the PRSUs to forfeit and pay over to the Company, on demand, all
or any portion of the compensation, gain or other value (whether or not taxable) realized upon on the settlement of such PRSUs, or
the subsequent sale of acquired Shares (if any). To the extent required by applicable law (including without limitation Section 304 of
the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and
regulations of New York Stock Exchange or other securities exchange or inter-dealer quotation system on which the Shares are listed
or quoted, or if so required pursuant to a written policy adopted by the Company, the PRSUs (or the Shares acquired upon settlement
of the PRSUs (if any)) shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such
requirements shall be deemed incorporated by reference into this Agreement).
10. Miscellaneous.
(a) Transferability. The PRSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered
by a Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as
otherwise permitted under Section 12.3 of the Plan.
(b) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of
any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any
subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement
shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A. The PRSUs are intended to comply with or be exempt from Section 409A of the Code. Notwithstanding the
foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of
the Code or could cause Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its
sole discretion and without Participant’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A
of the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the
maximum extent practicable, the original intent and economic benefit to Participant of the applicable provision without materially
increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an
obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the PRSUs will not be
subject to interest and penalties under Section 409A.
(d) Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently
given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail
shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be
directed, if to Participant, at Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the
General Counsel at the Company’s principal business office.
(e) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and
enforceable to the extent permitted by law.
4
(f) No Rights to Employment or Service. Nothing contained in this Agreement shall be construed as giving Participant any right
to be retained, in any position, as an Employee or Consultant of the Company or its Subsidiaries or shall interfere with or restrict in
any way the right of the Company or its Subsidiaries, which are hereby expressly reserved, to remove, terminate or discharge
Participant at any time for any reason whatsoever.
(g) Beneficiary. Participant may file with the Committee a written designation of a beneficiary on such form as may be
prescribed by the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the
attention of the General Counsel of the Company at the Company’s principal business office. If no designated beneficiary survives
Participant, Participant’s estate shall be deemed to be Participant’s beneficiary.
(h) Bound by Plan. By signing this Agreement, Participant acknowledges that Participant has received a copy of the Plan and
has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.
(i) Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors
and assigns, and of Participant and the beneficiaries, executors, administrators, heirs and successors of Participant.
(j) Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with
respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect
thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed
by the parties hereto, except for any changes permitted without consent under Section 12.1 of the Plan.
(k) Governing Law; JURY TRIAL WAIVER. To the extent not otherwise governed by the Code or the laws of the United
States, this Agreement shall be governed, construed and interpreted in accordance with the laws of the British Virgin Islands without
regard to principles of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the
application of the laws of any jurisdiction other than the British Virgin Islands or the laws of the United States, as applicable. THE
PARTIES EXPRESSLY AND KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(l) Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for
interpretation or construction, and shall not constitute a part, of this Agreement.
[Intentionally left blank]
5
Exhibit 10.18
FORM OF DIRECTOR RSU AGREEMENT
MICHAEL KORS HOLDINGS LIMITED
OMNIBUS INCENTIVE PLAN
NON-EMPLOYEE DIRECTOR RESTRICTED SHARE
UNIT AGREEMENT
THIS RESTRICTED SHARE UNIT AWARD AGREEMENT (the “Agreement”), dated as of date of grant (the “Date of Grant”),
is made by and between Michael Kors Holdings Limited, a limited liability company under the laws of the British Virgin Islands (the
“Company”), and participant (“the Director”). Any capitalized terms not otherwise defined in this Agreement shall have the definitions
set forth in the Plan.
WHEREAS, the Company has adopted the Michael Kors Holdings Limited Omnibus Incentive Plan (the “Plan”), pursuant to
which Restricted Share Units may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant the
Restricted Share Units provided for herein to the Director subject to the terms set forth herein.
NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and
for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their
successors and assigns, hereby agree as follows:
1. Grant of Restricted Share Units.
(a) Grant. The Company hereby grants to the Director an award of Restricted Share Units (the “RSUs”), on the terms and
conditions set forth in this Agreement and as otherwise provided in the Plan. Each RSU represents the right to receive payment in
respect of one Share as of the Settlement Date (as defined below), subject to the terms of this Agreement and the Plan. The RSUs are
subject to the restrictions described herein, including forfeiture under the circumstances described in Section 4 hereof. The RSUs shall
vest and become nonforfeitable in accordance with Section 2 and Section 4 hereof.
(b) Incorporation by Reference, Etc. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise
expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations,
amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan. The Committee shall have
final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision
shall be binding and conclusive upon the Director and his or her legal representative in respect of any questions arising under the Plan or
this Agreement.
(c) Acceptance of Agreement. In order to accept this Agreement, the Director must indicate acceptance of the RSUs and
acknowledgment that the terms of the Plan and this Agreement have been read and understood by signing and returning a copy of this
Agreement, to the General Counsel at Michael Kors (USA), Inc., 11 West 42nd Street, New York, NY 10036 within 14 days following
the date hereof. By accepting this Agreement, the Director consents to the electronic delivery of prospectuses, annual reports and other
information required to be delivered by Securities and Exchange Commission rules (which consent may be revoked in writing by the
Director at any time upon three business days’ notice to the Company, in which case subsequent prospectuses, annual reports and other
information will be delivered in hard copy to the Director).
2. Vesting. Except as otherwise provided in Section 4 hereof, subject to the Director’s continued service with the Company or a
Subsidiary, the RSUs shall vest [FOR INITIAL/ONE-OFF GRANTS: on the first anniversary of the Date of Grant][FOR ANNUAL
MEETING GRANT: on the earlier of (i) the first anniversary of the Date of Grant and (ii) the date of the annual shareholder meeting
that occurs in the calendar year following the calendar year of the Date of Grant. Notwithstanding the foregoing, the Committee shall
have the authority to remove the restrictions on the RSUs whenever it may determine that, by reason of changes in applicable laws or
other changes in circumstances arising after the Date of Grant, such action is appropriate.
3. Settlement. The obligation to make payments and distributions with respect to RSUs shall be satisfied through the issuance of one
Share for each vested RSU (the “settlement”), and the settlement of the RSUs may be subject to such conditions, restrictions and
contingencies as the Committee shall determine. The RSUs shall be settled [DIRECTOR CHOICE: (1) as soon as practicable after the
RSUs vest, but in no event later than March 15 of the year following the calendar year in which the RSUs vested OR (2) on or within
thirty (30) days following the fifth anniversary of the Date of Grant, or if [earlier/later] the date of the Director’s separation from service
within the meaning of Section 409A of the Code] (as applicable, the “Settlement Date”). Notwithstanding the foregoing, the payment
dates set forth in this Section 3 have been specified for the purpose of complying with the provisions of Section 409A of the Code. To the
extent payments are made during the periods permitted under Section 409A of the Code (including any applicable periods before or after the
specified payment dates set forth in this Section 3), the Company shall be deemed to have satisfied its obligations under the Plan and shall be
deemed not to be in breach of its payments obligations hereunder.
4. Termination of Service. In the event the Director’s service terminates by reason of death or Disability, all outstanding RSUs shall vest on
the date of Director’s death or Disability. In the event the Director’s service terminates prior to the first anniversary of the Date of Grant,
other than by reason of death or Disability, the RSUs shall vest pro-rata based on the number of days from the Date of Grant through and
including the date of the Director’s termination of service; provided, however, that if following the occurrence of a Change in Control of the
Company, the Director’s service is terminated by the Company without Cause, the provisions of Section 11.2 of the Plan shall apply.
5. Dividend Equivalents; No Voting Rights. Each outstanding RSU shall be credited with dividend equivalents equal to the dividends
(including extraordinary dividends if so determined by the Committee) declared and paid to other shareholders of the Company in respect of
one Share. Dividend equivalents shall not bear interest. On the Settlement Date, such dividend equivalents in respect of each vested RSU
shall be settled by delivery to the Director of a number of Shares equal to the quotient obtained by dividing (i) the aggregate accumulated
value of such dividend equivalents by (ii) the Fair Market Value of a Share on the applicable vesting date, rounded down to the nearest
whole share, less any applicable withholding taxes. No dividend equivalents shall be accrued for the benefit of the Director with respect to
record dates occurring prior to the Date of Grant, or with respect to record dates occurring on or after the date, if any, on which the Director
has forfeited the RSUs. The Director shall have no voting rights with respect to the RSUs or any dividend equivalents.
6. No Rights as Shareholder. The Director shall not be deemed for any purpose to be the owner of any Shares subject to the RSUs. The
Company shall not be required to set aside any fund for the payment of the RSUs.
7. Restrictive Covenants. In consideration of the grant of the RSUs, the Director agrees that the Director will comply with the restrictions
set forth in this Section 7 during the time periods set forth herein.
(a) Subject to Section 7(c) below, while the Director is an Employee, Consultant or member of the Board of Directors of the Company
and during the two-year period following termination of service, the Director shall not knowingly perform any action, activity or course of
conduct which is substantially detrimental to the businesses or business reputations of the Company or any of its Subsidiaries, including
(i) soliciting, recruiting or hiring (or attempting to solicit, recruit or hire) any employees of the Company or any of its Subsidiaries or any
persons who have worked for the Company or any of its Subsidiaries during the 12-month period immediately preceding such solicitation,
recruitment or hiring or attempt thereof; (ii) intentionally interfering with the relationship of the Company or any of its Subsidiaries with any
person or entity who or which is employed by or otherwise engaged to perform services for, or any customer, client, supplier, licensee,
licensor or other business relation of, the Company or any of its Subsidiaries; or (iii) assisting any person or entity in any way to do, or
attempt to do, anything prohibited by the immediately preceding clauses (i) or (ii)
(b) Subject to Section 7(c) below, the Director shall not disclose to any unauthorized person or entity or use for the Director’s own
purposes any Confidential Information without the prior written consent of the Company, unless and to the extent that the Confidential
Information becomes generally known to and available for use by the public other than as a result of the Director’s acts or omissions in
violation of this Agreement; provided, however, that if the Director receive a request to disclose Confidential Information pursuant to a
deposition, interrogation, request for information or documents in legal proceedings, subpoena, civil investigative demand, governmental or
regulatory process or similar process, (i) the Director shall promptly notify in writing the Company, and consult with and assist the Company
in seeking a protective order or request for other appropriate remedy, (ii) in the event that such protective order or remedy is not obtained, or
if the Company waives compliance with the terms hereof, the Director shall disclose only that portion of the Confidential Information which,
based on the written advice of the Director’s legal counsel, is legally required to be disclosed and shall exercise reasonable best efforts to
provide that the receiving person or entity shall agree to treat such Confidential Information as confidential to the extent possible (and
permitted under applicable law) in respect of the applicable proceeding or process and (iii) the Company shall be given an opportunity to
review the Confidential Information prior to disclosure thereof. For purposes of this Agreement, “Confidential Information” means
information, observations and data concerning the business or affairs of the Company and its Subsidiaries, including, without limitation, all
business information (whether or not in written form) which relates to the Company or its Subsidiaries, or their customers, suppliers or
contractors or any other third parties in respect of which the Company or its Subsidiaries has a business relationship or owes a duty of
confidentiality, or their respective businesses or products, and which is not known to the public generally other than as a result of the
Director’s breach of this Agreement, including but not limited to: technical information or reports; formulas; trade secrets; unwritten
knowledge and “know-how”; operating instructions; training manuals; customer lists; customer buying records and habits; product sales
records and documents, and product development, marketing and sales strategies; market surveys; marketing plans; profitability analyses;
product cost; long-range plans; information relating to pricing, competitive strategies and new product development; information relating to
any forms of compensation or other personnel-related information;
2
contracts; and supplier lists. Confidential Information will not include such information known to the Director prior to the Director’s
involvement with the Company or its Subsidiaries or information rightfully obtained from a third party (other than pursuant to a
breach by the Director of this Agreement).
(c) If and to the extent Section 7(a) or 7(b) is inconsistent with any similar provision governing noncompetition, nonsolicitation
and confidentiality in a service agreement (or similar agreement) between the Director and the Company or any of its Subsidiaries in
effect on the Date of Grant, the provisions in the Director’s service agreement (or similar agreement) will govern.
(d) In the event that the Director violates any of the restrictive covenants set forth above in this Section 7, in addition to any
other remedy which may be available at law or in equity, the RSUs shall be automatically forfeited effective as of the date on which
such violation first occurs, and, in the event that the Director has previously vested in all or any portion of the RSUs, the Director
shall forfeit any compensation, gain or other value realized on the settlement of such RSUs, or the subsequent sale of Shares acquired
upon settlement of the RSUs (if any), and must promptly repay such amounts to the Company. The foregoing rights and remedies are
in addition to any other rights and remedies that may be available to the Company and shall not prevent (and the Director shall not
assert that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a
result of the Director’s breach of such restrictive covenants.
8. Compliance with Legal Requirements.
(a) Generally. The granting and settlement of the RSUs, and any other obligations of the Company under this Agreement, shall
be subject to all applicable federal, provincial, state, local and foreign laws, rules and regulations and to such approvals by any
regulatory or governmental agency as may be required. The Committee shall have the right to impose such restrictions or delay the
settlement of the RSUs as it deems necessary or advisable under applicable income tax laws, federal securities laws, the rules and
regulations of any stock exchange or market upon which the RSUs are then listed or traded, and/or any blue sky or state securities
laws applicable to the RSUs; provided that any settlement shall be delayed only until the earliest date on which settlement would not
be so prohibited. The Director agrees to take all steps the Committee or the Company determines are necessary to comply with all
applicable provisions of federal and state securities law in exercising his or her rights under this Agreement.
(b) Tax Withholding. All distributions under the Plan are subject to withholding of all applicable federal, state, local and foreign
taxes, and the Committee may condition the settlement of the RSUs on satisfaction of the applicable withholding obligations. The
Company shall have the power and the right to deduct or withhold from all amounts payable to the Director in connection with the
RSUs or otherwise, or require the Director to remit to the Company, an amount sufficient to satisfy any applicable taxes required by
law. Further, the Company may permit or require the Director to satisfy, in whole or in part, the tax obligations by withholding Shares
or other property deliverable to the Director in connection with the settlement of RSUs or from any compensation or other amounts
owing to the Director the amount (in cash, Shares or other property) of any required tax withholding upon the settlement of the RSUs.
9. Clawback. In the event of an accounting restatement due to material noncompliance by the Company with any financial reporting
requirement under the securities laws, any mistake in calculations or other administrative error, in each case, which reduces the
amount payable in respect of the RSUs that would have been earned had the financial results been properly reported (as determined
by the Committee) (i) the RSUs will be canceled and (ii) the Director will forfeit (A) the Shares received or payable on the settlement
of the RSUs and (B) the amount of the proceeds of the sale, gain or other value realized on the settlement of the RSUs (and the
Director may be required to return or pay such Shares or amount to the Company). Notwithstanding anything to the contrary
contained herein, if the Director, without the consent of the Company, while providing services to the Company or any Subsidiary or
after termination of such service, violates a non-solicitation or non-disclosure covenant or agreement, including but not limited to the
covenants set forth in Section 7 above, or otherwise has engaged in or engages in activity that is in conflict with or adverse to the
interest of the Company or any Subsidiary as determined by the Committee in its sole discretion, then (i) any outstanding, vested or
unvested, earned or unearned portion of the RSUs, may at the Committee’s discretion, be canceled without payment therefor and
(ii) the Committee may, in its discretion, require the Director or other person to whom any payment has been made or Shares or other
property have been transferred in connection with the settlement of the RSUs to forfeit and pay over to the Company, on demand, all
or any portion of the compensation, gain or other value (whether or not taxable) realized upon on the settlement of such RSUs, or the
subsequent sale of acquired Shares (if any). To the extent required by applicable law (including without limitation Section 304 of the
Sarbanes-Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act) and/or the rules and
regulations of New York Stock Exchange or other securities exchange or inter-dealer quotation system on which the Shares are listed
or quoted, or if so required pursuant to a written policy adopted by the Company, the RSUs (or the Shares acquired upon settlement of
the RSUs (if any)) shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such
requirements shall be deemed incorporated by reference into this Agreement).
3
10. Miscellaneous.
(a) Transferability. The RSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a the
Director other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise
permitted under Section 12.3 of the Plan.
(b) Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any
right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent
occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to
constitute a waiver of any other breach or a waiver of the continuation of the same breach.
(c) Section 409A. The RSUs are intended to comply with or be exempt from Section 409A of the Code. Notwithstanding the foregoing
or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or
could cause the Director to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and
without the Director’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of the Code, or to avoid
the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum extent practicable, the
original intent and economic benefit to the Director of the applicable provision without materially increasing the cost to the Company or
contravening the provisions of Section 409A of the Code. This Section 10(c) does not create an obligation on the part of the Company to
modify the Plan or this Agreement and does not guarantee that the RSUs will not be subject to interest and penalties under Section 409A.
(d) Notices. Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if
either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail shall be
deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the
Director, at the Director’s address indicated by the Company’s records, or if to the Company, to the attention of the General Counsel at the
Company’s principal business office.
(e) Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted
by law.
(f) No Rights to Service. Nothing contained in this Agreement shall be construed as giving the Director any right to be retained, in any
position, as an Employee, Consultant or the Director of the Company or its Subsidiaries or shall interfere with or restrict in any way the right
of the Company or its Subsidiaries, which are hereby expressly reserved, to remove, terminate or discharge the Director at any time for any
reason whatsoever.
(g) Beneficiary. The Director may file with the Committee a written designation of a beneficiary on such form as may be prescribed by
the Committee and may, from time to time, amend or revoke such designation. Any notice should be made to the attention of the General
Counsel of the Company at the Company’s principal business office. If no designated beneficiary survives the Director, the Director’s estate
shall be deemed to be the Director’s beneficiary.
(h) Bound by Plan. By signing this Agreement, the Director acknowledges that the Director has received a copy of the Plan and has had
an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.
(i) Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and
assigns, and of the Director and the beneficiaries, executors, administrators, heirs and successors of the Director.
(j) Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to
the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change,
modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto,
except for any changes permitted without consent under Section 12.1 of the Plan.
(k) Governing Law; JURY TRIAL WAIVER. To the extent not otherwise governed by the Code or the laws of the United States, this
Agreement shall be governed, construed and interpreted in accordance with the laws of the British Virgin Islands without regard to principles
of conflicts of law thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any
jurisdiction other than the British Virgin Islands or the laws of the United States, as applicable. THE PARTIES EXPRESSLY AND
KNOWINGLY WAIVE ANY RIGHT TO A JURY TRIAL IN THE EVENT ANY ACTION ARISING UNDER OR IN CONNECTION
WITH THIS AGREEMENT IS LITIGATED OR HEARD IN ANY COURT.
(l) Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or
construction, and shall not constitute a part, of this Agreement.
4
AIRCRAFT TIME SHARING AGREEMENT
Exhibit 10.19
THIS TIME SHARING AGREEMENT (the “Agreement”) is entered into this 24 day of November, 2014, by and between
MICHAEL KORS (USA), INC., a Delaware corporation with a place of business at 11 West 42nd Street, 28th Floor, New York, New
York 10036 (“Lessor”), and JOHN IDOL, an individual with a place of business at 11 West 42nd Street, New York, New York 10036
(“Lessee”).
W I T N E S S E T H:
WHEREAS, Lessor is the lessee of, and has possession, command and control of a Bombardier Inc. BD-700-1A11 aircraft,
manufacturer’s serial number 9155, current United States registration N717LS (to be changed to N717MK) (the “Aircraft”); and
WHEREAS, Lessor employs or engages a fully-qualified and credentialed flight crew to operate the Aircraft; and
WHEREAS, Lessor has agreed to lease the Aircraft, with flight crew, to Lessee on a “time sharing” basis as defined in
Section 91.501(c)(1) of the Federal Aviation Regulations (“FAR”) upon the terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee, intending to
be legally bound, hereby agree as follows:
ARTICLE I
TIME SHARING; TERM AND TERMINATION
A. Subject to Aircraft availability, commencing on the date of execution and delivery of this Agreement, Lessor agrees to lease the Aircraft
to Lessee pursuant to the provisions of FAR Section 91.501(c)(1) and to provide a fully-qualified flight crew for all operations hereunder,
including positioning flights. Each such trip shall be predicated upon Aircraft and crew availability, and will be scheduled in advance
between Lessee and Lessor, at mutually-agreeable times. The parties acknowledge and agree that this Agreement did not result in any way
from any direct or indirect advertising, holding out or soliciting on the part of Lessor or any person purportedly acting on behalf of Lessor.
Lessor and Lessee intend that the lease of the Aircraft effected by this Agreement shall be treated as a “wet lease” pursuant to which Lessor
provides transportation services to Lessee in accordance with FAR Section 91.501(b)(6) and Section 91.501(c)(1).
B. The term of this Agreement (the “Term”) shall commence on the date hereof and shall continue until terminated by either party upon
written notice to the other party.
C. For each flight conducted under this Agreement, including positioning and other deadhead legs flown in connection with an occupied
leg hereunder, Lessee shall pay Lessor the following actual expenses of such flight, the total of which is not to exceed the maximum
amount legally payable by Lessee to Lessor for such flight under FAR Section 91.50l(d)(l)-(10):
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
fuel, oil, lubricants, and other additives;
travel expenses of crew, including food, lodging and ground transportation;
hangar and tie-down costs away from the Aircraft’s base of operation;
additional insurance obtained for the specific flight at the request of Lessee;
landing fees, airport taxes and similar assessments;
customs, foreign permits and similar fees directly related to the flight;
in-flight food and beverages;
passenger ground transportation;
flight planning and weather contract services; and
an additional charge equal to 100% of the expenses listed in clause (a) above.
D. Lessor shall pay all expenses relating to the operation of the Aircraft under this Agreement when incurred. As soon as possible after the
end of each calendar month during the Term of this Agreement, Lessor shall provide to Lessee an invoice showing all use of the Aircraft by
Lessee under this Agreement during that month and a complete accounting detailing all amounts payable by Lessee pursuant to Article I
(C) for that month, including all expenses paid or incurred by Lessor for which reimbursement is sought. This invoice shall be paid
within 30 days of receipt.
ARTICLE II
OPERATIONAL CONTROL.
Lessor and Lessee intend and agree that at all times during the Term of this Agreement, Lessor shall have complete and exclusive
operational control over the Aircraft, its flight crew and maintenance, and complete and exclusive possession, command and control of
the Aircraft. Lessor shall have complete and exclusive responsibility for scheduling, dispatching and flight following of the Aircraft on
all flights conducted under this Agreement, which responsibility includes the sole and exclusive right over initiating, conducting and
terminating such flights.
Lessee shall have no responsibility for scheduling, dispatching or flight following on any flight conducted under this Agreement, nor any
right over initiating, conducting or terminating any such flight. Nothing in this Agreement is intended or shall be construed so as to
convey to Lessee any operational control over, or possession, command and control of, the Aircraft, all of which are expressly retained
by Lessor.
ARTICLE III
SCHEDULING OF AIRCRAFT.
A. To the extent possible, Lessor shall accommodate Lessee’s request for the scheduling of flights pursuant to this Agreement,
contingent upon Aircraft and crew availability.
B. Lessee will provide Lessor with requests for flight times and proposed flight schedules as far in advance of any given flight as
possible. Requests for flight time shall be in a form (whether oral or written) mutually agreed by the parties. In addition to proposed
schedules and flight times, Lessee shall provide Lessor with the following information for each proposed flight prior to scheduled
departure: (i) proposed departure point; (ii) destination; (iii) date and time of flight; (iv) the number of anticipated passengers; (v) the
nature and extent of luggage to be carried; (vi) the date and time of a return flight, if any; and (vii) any other pertinent information
concerning the proposed flight that Lessor or the flight crew may request.
C. Subject to Aircraft and crew availability, Lessor shall use its good faith efforts, consistent with Lessor’s approved policies, in order to
accommodate the needs of Lessee, to avoid conflicts in scheduling, and to enable Lessee to enjoy the benefits of this Agreement;
however, Lessee acknowledges and agrees that notwithstanding anything in this Agreement to the contrary, (i) Lessor shall have sole
and exclusive final authority over the scheduling of the Aircraft; and (ii) the needs of Lessor for the Aircraft shall take precedence over
Lessee’s rights and Lessor’s obligations under this Agreement.
D. Although every good faith effort shall be made to avoid its occurrence, any flight scheduled under this Agreement is subject to
cancellation by either party without incurring liability to the other party. In the event that cancellation is necessary, the canceling party
shall provide the maximum notice practicable. Cancellations shall be minimized to the maximum extent possible.
ARTICLE IV
CREW.
A. Lessor shall ensure that for each flight conducted under this Agreement, the Aircraft will be under the command of a flight crew
which is duly licensed and rated by the U.S. Federal Aviation Administration and which has appropriate currency in landing (day and
night), instrument flight requirements as well as current medical certification. All flight crewmembers shall be included on any insurance
policies that Lessor is required to maintain hereunder.
B. In accordance with applicable Federal Aviation Regulations, Lessor’s qualified flight crew provided under this Agreement will
exercise all of its duties and responsibilities in regard to the safety of each flight conducted hereunder. Lessor’s flight crew, in its sole
discretion, may terminate any flight, refuse to commence any flight, or take other action that in the judgment of the pilot-in-command is
necessitated by consideration of safety. No such action of the pilot-in-command shall create or support any liability for loss, injury,
damage or delay to either party or any other person. The parties further agree that neither party shall be liable for delay or failure when
such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor disputes,
weather conditions, or acts of God.
ARTICLE V
CONDITION OF THE AIRCRAFT.
Lessor shall ensure that for each flight conducted under this Agreement, the Aircraft has been properly inspected and maintained in
accordance with the requirements of the U.S. Federal Aviation Administration; and all aircraft equipment and systems are in correct
operating condition. Lessor shall be solely responsible for securing all maintenance, preventive maintenance and required inspections of
the Aircraft, and shall take such requirements into account in scheduling the Aircraft. No period of maintenance, preventive
maintenance or inspection shall be delayed or postponed for the purpose of scheduling the Aircraft hereunder, unless such
maintenance or inspection can be safely conducted at a later time in compliance with all applicable laws and regulations, and within
the sound discretion of the pilot-in-command.
ARTICLE VI
TITLE AND RISK OF LOSS.
Title and risk of loss for the Aircraft shall remain exclusively with Lessor during the entire Term of this Agreement.
ARTICLE VII
INSURANCE.
A. During the entire Term of this Agreement, Lessor shall maintain in full force and effect all risk hull insurance covering the full
value of the Aircraft. Lessor’s hull insurer shall waive any right of subrogation it may have against Lessee under such policy with
respect to loss, damage or destruction of the Aircraft during any flight under this Agreement. Additionally, Lessor will maintain and
have in force its standard aircraft liability insurance policy during the entire Term of the Agreement with a minimum combined single
limit of Three Hundred Million U.S. Dollars (US $300,000,000.00).
B. Such insurance shall (i) name Lessee and his employees, agents, licensees, servants and guests as additional insured; (ii) provide
for 30 days written notice to Lessee by such insurer of cancellation, change, non-renewal or reduction cancellation or material change
in coverage (ten days in the case of non-payment of premiums, and seven days, or such shorter period then prevailing in the business
aviation insurance market, in the case of war risk and allied perils coverage); (iii) cover Lessor’s indemnity obligations under Article
X hereof; and (iv) permit the use of the Aircraft by Lessor for compensation or hire; and (v) be primary insurance, not subject to any
co-insurance clause and without right of contribution from any other insurance.
C. Lessor shall use reasonable commercial efforts to provide such additional insurance coverage for specific flights under this
Agreement, if any, as Lessee may request in writing. Lessee also acknowledges that any trips scheduled to the European Union may
require Lessor to purchase additional insurance to comply with local regulations. The cost of all additional flight-specific insurance
shall be borne by Lessee as set forth in Article I(C)(d).
D. Lessor shall ensure that worker’s compensation insurance with all-states coverage is provided for the Aircraft’s crew and
maintenance personnel.
E. At Lessee’s request, Lessor shall deliver certificates or binders of insurance to Lessee with respect to the insurance required or
permitted to be provided hereunder not later than the first flight of the Aircraft under this Agreement and upon the renewal date of
each policy.
F. Lessee and Lessor shall not do, nor omit to do, nor permit to be done, any act in breach of any of the required insurance whereby
any of such insurance might be, in whole or in part, invalidated, unenforceable, revoked, suspended, adversely amended or allowed to
lapse, so as to maintain such insurance in full force and effect at all times. In no event shall Lessor suffer or permit the Aircraft to be
used or operated under this Agreement without such insurance being fully in effect.
ARTICLE VIII
LESSOR’S REPRESENTATIONS AND WARRANTIES.
Lessor represents and warrants that:
A. It shall conduct all operations under this Agreement in compliance with (i) all applicable provisions of all governmental authorities
having jurisdiction, including, but not limited to, the Federal Aviation Administration and the governmental authorities of each
foreign jurisdiction in or over which the Aircraft may be operated hereunder; (ii) the terms, conditions and limitations of, and in the
geographical areas allowed by, the insurance policies required hereunder; and (iii) the operating instructions of the Aircraft’s flight
manual and the manufacturers’ operating and maintenance instructions.
B. The Aircraft is, and at all times during the Term of this Agreement shall continue to be, in airworthy condition and in full
compliance with all applicable rules of the Federal Aviation Administration and all of the manufacturers’ maintenance requirements.
C. In no event shall Lessor suffer or permit the Aircraft to be used or operated during the Term without the insurance required
hereunder being fully in effect, including, without limitation, use of the Aircraft in any geographical area not covered by the policies
issued to Lessee and then in effect.
D. Lessor will carry a copy of this Agreement in the Aircraft at all times that the Aircraft is being operated hereunder.
E. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LESSOR HAS MADE NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT, INCLUDING ANY WITH RESPECT TO
ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER PERSON FOR ANY INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES, HOWEVER ARISING.
ARTICLE IX
LESSEE’S REPRESENTATIONS AND WARRANTIES.
Lessee represents and warrants that:
A. Lessee shall not use the Aircraft to carry persons or property for compensation or hire (except as permitted under FAR 91.501(b)) or
in any manner which would constitute common carriage within the provisions of the Federal Aviation Regulations.
B. Lessee shall not attempt to convey, mortgage, assign, lease or in any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might mature into such a lien.
C. Lessee will abide by and conform to all laws, governmental and airport orders, rules and regulations, as shall be imposed upon the
lessee of an aircraft under a time sharing agreement and the applicable company policies of Lessor.
ARTICLE X
INDEMNIFICATION.
A. Lessor hereby covenants and agrees that Lessor shall be fully liable to, and shall promptly upon demand defend, indemnify and
hold harmless Lessee and Lessee’s agents, guests, invitees, licensees and employees from and against any and all liabilities, claims,
demands, suits, causes of action, losses, penalties, fines, expenses or damages, including legal fees (collectively, “Liabilities”), arising
out of or in connection with (i) Lessor’s operation or maintenance of the Aircraft, (ii) Lessor’s performance of or failure to perform any
of its obligations under this Agreement, or (iii) any other breach by Lessor of any of its representations, warranties, covenants or
agreements set forth in this Agreement, except to the extent that such Liabilities are attributable to the negligence or willful misconduct
of Lessee and his agents, guests, invitees, licensees and employees; provided, however, that in the case of any Liabilities that result from
the occurrence of any event of the type insured against pursuant to Article VII(A), the insurance described in Article VII(A) shall be the
sole recourse of Lessee and Lessee’s agents, guests, invitees, licensees and employees for any and all Liabilities attributable to the use,
operation or maintenance of the Aircraft pursuant to this Agreement or performance of or failure to perform any obligation under this
Agreement.
B. Lessee hereby covenants and agrees that Lessee shall be fully liable to, and shall promptly upon demand defend, indemnify and hold
harmless Lessor and Lessor’s agents, guests, invitees, licensees and employees from and against any and all Liabilities arising out of or
in connection with (i) Lessee’s performance of or failure to perform any of his obligations under this Agreement, or (ii) any other breach
by Lessee of any of his representations, warranties, covenants or agreements set forth in this Agreement, except to the extent that such
Liabilities are attributable to the negligence or willful misconduct of Lessor or its agents and employees.
ARTICLE XI
ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
Neither party may assign its rights nor delegate its obligations under this Agreement without the prior written consent of the other
party. This Agreement shall be binding upon the parties hereto, and their respective heirs, executors, administrators, other legal
representatives, successors and assigns, and shall inure to the benefit of the parties hereto, and to their respective heirs, executors,
administrators, other legal representatives, successors and permitted assigns.
ARTICLE XII
TAXES.
Lessee shall pay all applicable Federal transportation taxes and any sales, use or other excise taxes imposed by any governmental
authority in connection with any use of the Aircraft by Lessee under this Agreement. Lessor shall be responsible for collecting from
Lessee and paying over to the appropriate agencies all applicable Federal transportation taxes and any sales, use or other excise taxes
imposed by any governmental authority in connection with any use of the Aircraft by Lessee under this Agreement. Without limiting the
generality of the indemnification obligation set forth in Article X, each party shall indemnify the other party against any and all claims,
liabilities, costs and expenses (including attorney’s fees as and when incurred) arising out of its breach of this undertaking.
ARTICLE XIII
AMENDMENT.
This Agreement may not be amended, supplemented, modified or terminated, or any of its terms varied, except by an agreement in
writing signed by each of the parties hereto.
ARTICLE XIV
NOTICES.
All non-routine communications and notices delivered or given under this Agreement shall be in writing and shall be deemed to have
been duly given if hand-delivered, sent by nationally-utilized overnight delivery service, confirmed facsimile transmission or Portable
Document Format (PDF). Such notices shall be addressed to the parties at the addresses set forth above, or to such other address as may be
designated by any party in a writing delivered to the other in the manner set forth in this Article XIV. Notices shall be deemed to have been
given and made on the business day on which hand-delivered or sent by confirmed facsimile or PDF or one business day after having been
sent by nationally-utilized overnight delivery service. Routine communications may be made by e-mail. For purposes of this Agreement, a
“business day” is any day (other than a Saturday or Sunday) on which banks in New York, New York are authorized or required to be open
for business.
ARTICLE XV
CHOICE OF LAW; ENTIRE AGREEMENT; COUNTERPARTS.
A. This Agreement shall be interpreted under and governed by the laws of the State of Delaware for all purposes including any dispute that
may arise hereunder. If any provision of this Agreement conflicts with any statute or rule of law of the State of Delaware, or is otherwise
unenforceable, such provision shall be deemed null and void only to the extent of such conflict or unenforceability, and shall be deemed
separate from and shall not invalidate any other provision of this Agreement.
B. This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all
other agreements, understandings, representations, warranties or negotiations by or between the parties with respect thereto, all of which
are hereby cancelled. There are no other agreements or representations, oral or written, express or implied, with respect to the subject
matter of this Agreement that are not expressly set forth in this Agreement. The representations, warranties and indemnities set forth in this
Agreement shall survive the termination of this Agreement.
C. This Agreement may be executed in counterparts, each of which shall, for all purposes, be deemed an original and all such counterparts,
taken together, shall constitute one and the same agreement, even though all parties may not have executed the same counterpart. Each
party may transmit its signature by confirmed facsimile or PDF and any counterpart of this Agreement sent in either such manner shall
have the same force and effect as a manually-executed original.
D. Lessor is strictly an independent contractor lessor/provider of transportation services with respect to Lessee. Nothing in this Agreement
is intended, nor shall it be construed so as, to constitute the parties as partners or joint venturers or principal and agent. All persons
furnished by Lessor for the performance of the operations and activities contemplated by this Agreement shall at all times and for all
purposes be considered Lessor’s employees or agents.
ARTICLE XVI
TRUTH IN LEASING COMPLIANCE.
Lessor, on behalf of the Lessee, shall (i) mail or deliver a copy of this Agreement to the Aircraft Registration Branch, Technical Section, of
the FAA in Oklahoma City within 24 hours of its execution; (ii) notify the nearest Flight Standards District Office at least 48 hours prior to
the first flight of the Aircraft under this Agreement of the registration number of the Aircraft, and the location of the airport of departure
and departure time of the first flight; and (iii) carry a copy of this Agreement onboard the Aircraft at all times when the Aircraft is being
operated under this Agreement.
ARTICLE XVII
TRUTH IN LEASING; FAR SECTION 91.23(c).
A. LESSOR HEREBY CERTIFIES THAT THE BOMBARDIER INC. BD-700-1A11 AIRCRAFT, MANUFACTURER’S SERIAL
NUMBER 9155, UNITED STATES REGISTRATION N717LS (TO BE CHANGED TO N717MK) HAS BEEN MAINTAINED
AND INSPECTED UNDER FEDERAL AVIATION REGULATION PART 91 DURING THE ENTIRE PERIOD PRECEDING
THE DATE OF EXECUTION OF THIS AGREEMENT IN WHICH THE AIRCRAFT WAS REGISTERED IN THE UNITED
STATES. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR ALL OPERATIONS TO
BE CONDUCTED UNDER THIS AGREEMENT.
B. MICHAEL KORS (USA), INC, WHOSE ADDRESS IS SET FORTH ABOVE, HEREBY CERTIFIES THAT IT IS
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT FOR ALL OPERATIONS UNDER THIS AGREEMENT.
C. EACH PARTY HEREBY CERTIFIES THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
D. THE PARTIES UNDERSTAND THAT AN EXPLANATION OF THE FACTORS BEARING ON OPERATIONAL CONTROL
AND THE PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereby have caused this Time Sharing Agreement to be executed in their names and on their
behalf by their respective duly authorized agents.
LESSOR:
MICHAEL KORS (USA), INC.
By:
/s/ Joseph B. Parsons
Title: EVP, CFO, COO and Treasurer
Date: 11/24/14
LESSEE:
/s/ John D. Idol
John Idol
AIRCRAFT TIME SHARING AGREEMENT
Exhibit 10.20
THIS TIME SHARING AGREEMENT (the “Agreement”) is entered into this 12 day of December, 2014, by and between
MICHAEL KORS (USA), INC., a Delaware corporation with a place of business at 11 West 42nd Street, 28th Floor, New York, New York
10036 (“Lessor”), and MICHAEL KORS, an individual with a place of business at 11 West 42nd Street, New York, New York 10036
(“Lessee”).
W I T N E S S E T H:
WHEREAS, Lessor is the lessee of, and has possession, command and control of a Bombardier Inc. BD-700-1A11 aircraft,
manufacturer’s serial number 9155, current United States registration N717LS (to be changed to N717MK) (the “Aircraft”); and
WHEREAS, Lessor employs or engages a fully-qualified and credentialed flight crew to operate the Aircraft; and
WHEREAS, Lessor has agreed to lease the Aircraft, with flight crew, to Lessee on a “time sharing” basis as defined in
Section 91.501(c)(1) of the Federal Aviation Regulations (“FAR”) upon the terms and subject to the conditions set forth herein;
NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants and agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee, intending to be
legally bound, hereby agree as follows:
ARTICLE I
TIME SHARING; TERM AND TERMINATION
A. Subject to Aircraft availability, commencing on the date of execution and delivery of this Agreement, Lessor agrees to lease the Aircraft to
Lessee pursuant to the provisions of FAR Section 91.501(c)(1) and to provide a fully-qualified flight crew for all operations hereunder,
including positioning flights. Each such trip shall be predicated upon Aircraft and crew availability, and will be scheduled in advance between
Lessee and Lessor, at mutually-agreeable times. The parties acknowledge and agree that this Agreement did not result in any way from any
direct or indirect advertising, holding out or soliciting on the part of Lessor or any person purportedly acting on behalf of Lessor. Lessor and
Lessee intend that the lease of the Aircraft effected by this Agreement shall be treated as a “wet lease” pursuant to which Lessor provides
transportation services to Lessee in accordance with FAR Section 91.501(b)(6) and Section 91.501(c)(1).
B. The term of this Agreement (the “Term”) shall commence on the date hereof and shall continue until terminated by either party upon written
notice to the other party.
C. For each flight conducted under this Agreement, including positioning and other deadhead legs flown in connection with an occupied leg
hereunder, Lessee shall pay Lessor the following actual expenses of such flight, the total of which is not to exceed the maximum amount legally
payable by Lessee to Lessor for such flight under FAR Section 91.501(d)(l)-(10):
(a)
fuel, oil, lubricants, and other additives;
(b)
travel expenses of crew, including food, lodging and ground transportation;
(c) hangar and tie-down costs away from the Aircraft’s base of operation;
(d)
additional insurance obtained for the specific flight at the request of Lessee;
(e)
landing fees, airport taxes and similar assessments;
(f)
customs, foreign permits and similar fees directly related to the flight;
(g)
in-flight food and beverages;
(h) passenger ground transportation;
(i)
(j)
flight planning and weather contract services; and
an additional charge equal to 100% of the expenses listed in clause (a) above.
D. Lessor shall pay all expenses relating to the operation of the Aircraft under this Agreement when incurred. As soon as possible after the end
of each calendar month during the Term of this Agreement, Lessor shall provide to Lessee an invoice showing all use of the Aircraft by Lessee
under this Agreement during that month and a complete accounting detailing all amounts payable by Lessee pursuant to Article I(C) for that
month, including all expenses paid or incurred by Lessor for which reimbursement is sought. This invoice shall be paid within 30 days of
receipt.
ARTICLE II
OPERATIONAL CONTROL.
Lessor and Lessee intend and agree that at all times during the Term of this Agreement, Lessor shall have complete and
exclusive operational control over the Aircraft, its flight crew and maintenance, and complete and exclusive possession, command
and control of the Aircraft. Lessor shall have complete and exclusive responsibility for scheduling, dispatching and flight following of
the Aircraft on all flights conducted under this Agreement, which responsibility includes the sole and exclusive right over initiating,
conducting and terminating such flights.
Lessee shall have no responsibility for scheduling, dispatching or flight following on any flight conducted under this Agreement, nor
any right over initiating, conducting or terminating any such flight. Nothing in this Agreement is intended or shall be construed so as
to convey to Lessee any operational control over, or possession, command and control of, the Aircraft, all of which are expressly
retained by Lessor.
ARTICLE III
SCHEDULING OF AIRCRAFT.
A. To the extent possible, Lessor shall accommodate Lessee’s request for the scheduling of flights pursuant to this Agreement,
contingent upon Aircraft and crew availability.
B. Lessee will provide Lessor with requests for flight times and proposed flight schedules as far in advance of any given flight as
possible. Requests for flight time shall be in a form (whether oral or written) mutually agreed by the parties. In addition to proposed
schedules and flight times, Lessee shall provide Lessor with the following information for each proposed flight prior to scheduled
departure: (i) proposed departure point; (ii) destination; (iii) date and time of flight; (iv) the number of anticipated passengers; (v) the
nature and extent of luggage to be carried; (vi) the date and time of a return flight, if any; and (vii) any other pertinent information
concerning the proposed flight that Lessor or the flight crew may request.
C. Subject to Aircraft and crew availability, Lessor shall use its good faith efforts, consistent with Lessor’s approved policies, in order
to accommodate the needs of Lessee, to avoid conflicts in scheduling, and to enable Lessee to enjoy the benefits of this Agreement;
however, Lessee acknowledges and agrees that notwithstanding anything in this Agreement to the contrary, (i) Lessor shall have sole
and exclusive final authority over the scheduling of the Aircraft; and (ii) the needs of Lessor for the Aircraft shall take precedence
over Lessee’s rights and Lessor’s obligations under this Agreement.
D. Although every good faith effort shall be made to avoid its occurrence, any flight scheduled under this Agreement is subject to
cancellation by either party without incurring liability to the other party. In the event that cancellation is necessary, the canceling
party shall provide the maximum notice practicable. Cancellations shall be minimized to the maximum extent possible.
ARTICLE IV
CREW.
A. Lessor shall ensure that for each flight conducted under this Agreement, the Aircraft will be under the command of a flight crew
which is duly licensed and rated by the U.S. Federal Aviation Administration and which has appropriate currency in landing (day and
night), instrument flight requirements as well as current medical certification. All flight crewmembers shall be included on any
insurance policies that Lessor is required to maintain hereunder.
B. In accordance with applicable Federal Aviation Regulations, Lessor’s qualified flight crew provided under this Agreement will
exercise all of its duties and responsibilities in regard to the safety of each flight conducted hereunder. Lessor’s flight crew, in its sole
discretion, may terminate any flight, refuse to commence any flight, or take other action that in the judgment of the pilot-in-command
is necessitated by consideration of safety. No such action of the pilot-in-command shall create or support any liability for loss, injury,
damage or delay to either party or any other person. The parties further agree that neither party shall be liable for delay or failure
when such failure is caused by government regulation or authority, mechanical difficulty, war, civil commotion, strikes or labor
disputes, weather conditions, or acts of God.
ARTICLE V
CONDITION OF THE AIRCRAFT.
Lessor shall ensure that for each flight conducted under this Agreement, the Aircraft has been properly inspected and maintained
in accordance with the requirements of the U.S. Federal Aviation Administration; and all aircraft equipment and systems are in
correct operating condition. Lessor shall be solely responsible for securing all maintenance, preventive maintenance and required
inspections of the Aircraft, and shall take such requirements into account in scheduling the Aircraft. No period of maintenance,
preventive maintenance or inspection shall be delayed or postponed for the purpose of scheduling the Aircraft hereunder, unless such
maintenance or inspection can be safely conducted at a later time in compliance with all applicable laws and regulations, and within
the sound discretion of the pilot-in-command.
ARTICLE VI
TITLE AND RISK OF LOSS.
Title and risk of loss for the Aircraft shall remain exclusively with Lessor during the entire Term of this Agreement.
ARTICLE VII
INSURANCE.
A. During the entire Term of this Agreement, Lessor shall maintain in full force and effect all risk hull insurance covering the full
value of the Aircraft. Lessor’s hull insurer shall waive any right of subrogation it may have against Lessee under such policy with
respect to loss, damage or destruction of the Aircraft during any flight under this Agreement. Additionally, Lessor will maintain and
have in force its standard aircraft liability insurance policy during the entire Term of the Agreement with a minimum combined single
limit of Three Hundred Million U.S. Dollars (US $300,000,000.00).
B. Such insurance shall (i) name Lessee and his employees, agents, licensees, servants and guests as additional insured; (ii) provide
for 30 days written notice to Lessee by such insurer of cancellation, change, non-renewal or reduction cancellation or material change
in coverage (ten days in the case of non-payment of premiums, and seven days, or such shorter period then prevailing in the business
aviation insurance market, in the case of war risk and allied perils coverage); (iii) cover Lessor’s indemnity obligations under Article
X hereof; and (iv) permit the use of the Aircraft by Lessor for compensation or hire; and (v) be primary insurance, not subject to any
co-insurance clause and without right of contribution from any other insurance.
C. Lessor shall use reasonable commercial efforts to provide such additional insurance coverage for specific flights under this
Agreement, if any, as Lessee may request in writing. Lessee also acknowledges that any trips scheduled to the European Union may
require Lessor to purchase additional insurance to comply with local regulations. The cost of all additional flight-specific insurance
shall be borne by Lessee as set forth in Article I(C)(d).
D. Lessor shall ensure that worker’s compensation insurance with all-states coverage is provided for the Aircraft’s crew and
maintenance personnel.
E. At Lessee’s request, Lessor shall deliver certificates or binders of insurance to Lessee with respect to the insurance required or
permitted to be provided hereunder not later than the first flight of the Aircraft under this Agreement and upon the renewal date of
each policy.
F. Lessee and Lessor shall not do, nor omit to do, nor permit to be done, any act in breach of any of the required insurance whereby
any of such insurance might be, in whole or in part, invalidated, unenforceable, revoked, suspended, adversely amended or allowed to
lapse, so as to maintain such insurance in full force and effect at all times. In no event shall Lessor suffer or permit the Aircraft to be
used or operated under this Agreement without such insurance being fully in effect.
ARTICLE VIII
LESSOR’S REPRESENTATIONS AND WARRANTIES.
Lessor represents and warrants that:
A. It shall conduct all operations under this Agreement in compliance with (i) all applicable provisions of all governmental authorities
having jurisdiction, including, but not limited to, the Federal Aviation Administration and the governmental authorities of each
foreign jurisdiction in or over which the Aircraft may be operated hereunder; (ii) the terms, conditions and limitations of, and in the
geographical areas allowed by, the insurance policies required hereunder; and (iii) the operating instructions of the Aircraft’s flight
manual and the manufacturers’ operating and maintenance instructions.
B. The Aircraft is, and at all times during the Term of this Agreement shall continue to be, in airworthy condition and in full
compliance with all applicable rules of the Federal Aviation Administration and all of the manufacturers’ maintenance requirements.
C. In no event shall Lessor suffer or permit the Aircraft to be used or operated during the Term without the insurance required
hereunder being fully in effect, including, without limitation, use of the Aircraft in any geographical area not covered by the policies
issued to Lessee and then in effect.
D. Lessor will carry a copy of this Agreement in the Aircraft at all times that the Aircraft is being operated hereunder.
E. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LESSOR HAS MADE NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE AIRCRAFT, INCLUDING ANY WITH RESPECT
TO ITS CONDITION, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. IN NO EVENT SHALL
EITHER PARTY BE LIABLE TO THE OTHER PARTY OR TO ANY OTHER PERSON FOR ANY INCIDENTAL,
CONSEQUENTIAL OR SPECIAL DAMAGES, HOWEVER ARISING.
ARTICLE IX
LESSEE’S REPRESENTATIONS AND WARRANTIES.
Lessee represents and warrants that:
A. Lessee shall not use the Aircraft to carry persons or property for compensation or hire (except as permitted under FAR 91.501(b)) or in
any manner which would constitute common carriage within the provisions of the Federal Aviation Regulations.
B. Lessee shall not attempt to convey, mortgage, assign, lease or in any way alienate the Aircraft or create any kind of lien or security
interest involving the Aircraft or do anything or take any action that might mature into such a lien.
C. Lessee will abide by and conform to all laws, governmental and airport orders, rules and regulations, as shall be imposed upon the lessee
of an aircraft under a time sharing agreement and the applicable company policies of Lessor.
ARTICLE X
INDEMNIFICATION.
A. Lessor hereby covenants and agrees that Lessor shall be fully liable to, and shall promptly upon demand defend, indemnify and
hold harmless Lessee and Lessee’s agents, guests, invitees, licensees and employees from and against any and all liabilities, claims,
demands, suits, causes of action, losses, penalties, fines, expenses or damages, including legal fees (collectively, “Liabilities”), arising out
of or in connection with (i) Lessor’s operation or maintenance of the Aircraft, (ii) Lessor’s performance of or failure to perform any of its
obligations under this Agreement, or (iii) any other breach by Lessor of any of its representations, warranties, covenants or agreements set
forth in this Agreement, except to the extent that such Liabilities are attributable to the negligence or willful misconduct of Lessee and his
agents, guests, invitees, licensees and employees; provided, however, that in the case of any Liabilities that result from the occurrence of
any event of the type insured against pursuant to Article VII(A), the insurance described in Article VII(A) shall be the sole recourse of
Lessee and Lessee’s agents, guests, invitees, licensees and employees for any and all Liabilities attributable to the use, operation or
maintenance of the Aircraft pursuant to this Agreement or performance of or failure to perform any obligation under this Agreement.
B. Lessee hereby covenants and agrees that Lessee shall be fully liable to, and shall promptly upon demand defend, indemnify and hold
harmless Lessor and Lessor’s agents, guests, invitees, licensees and employees from and against any and all Liabilities arising out of or in
connection with (i) Lessee’s performance of or failure to perform any of his obligations under this Agreement, or (ii) any other breach by
Lessee of any of his representations, warranties, covenants or agreements set forth in this Agreement, except to the extent that such
Liabilities are attributable to the negligence or willful misconduct of Lessor or its agents and employees.
ARTICLE XI
ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
Neither party may assign its rights nor delegate its obligations under this Agreement without the prior written consent of the other
party. This Agreement shall be binding upon the parties hereto, and their respective heirs, executors, administrators, other legal
representatives, successors and assigns, and shall inure to the benefit of the parties hereto, and to their respective heirs, executors,
administrators, other legal representatives, successors and permitted assigns.
ARTICLE XII
TAXES.
Lessee shall pay all applicable Federal transportation taxes and any sales, use or other excise taxes imposed by any governmental
authority in connection with any use of the Aircraft by Lessee under this Agreement. Lessor shall be responsible for collecting from Lessee
and paying over to the appropriate agencies all applicable Federal transportation taxes and any sales, use or other excise taxes imposed by
any governmental authority in connection with any use of the Aircraft by Lessee under this Agreement. Without limiting the generality of
the indemnification obligation set forth in Article X, each party shall indemnify the other party against any and all claims, liabilities, costs
and expenses (including attorney’s fees as and when incurred) arising out of its breach of this undertaking.
ARTICLE XIII
AMENDMENT.
This Agreement may not be amended, supplemented, modified or terminated, or any of its terms varied, except by an agreement in
writing signed by each of the parties hereto.
ARTICLE XIV
NOTICES.
All non-routine communications and notices delivered or given under this Agreement shall be in writing and shall be deemed to have
been duly given if hand-delivered, sent by nationally-utilized overnight delivery service, confirmed facsimile transmission or Portable
Document Format (PDF). Such notices shall be addressed to the parties at the addresses set forth above, or to such other address as may be
designated by any party in a writing delivered to the other in the manner set forth in this Article XIV. Notices shall be deemed to have been
given and made on the business day on which hand-delivered or sent by confirmed facsimile or PDF or one business day after having
been sent by nationally-utilized overnight delivery service. Routine communications may be made by e-mail. For purposes of this
Agreement, a “business day” is any day (other than a Saturday or Sunday) on which banks in New York, New York are authorized or
required to be open for business.
ARTICLE XV
CHOICE OF LAW; ENTIRE AGREEMENT; COUNTERPARTS.
A. This Agreement shall be interpreted under and governed by the laws of the State of Delaware for all purposes including any
dispute that may arise hereunder. If any provision of this Agreement conflicts with any statute or rule of law of the State of Delaware,
or is otherwise unenforceable, such provision shall be deemed null and void only to the extent of such conflict or unenforceability,
and shall be deemed separate from and shall not invalidate any other provision of this Agreement.
B. This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof and supersedes any
and all other agreements, understandings, representations, warranties or negotiations by or between the parties with respect thereto, all
of which are hereby cancelled. There are no other agreements or representations, oral or written, express or implied, with respect to
the subject matter of this Agreement that are not expressly set forth in this Agreement. The representations, warranties and
indemnities set forth in this Agreement shall survive the termination of this Agreement.
C. This Agreement may be executed in counterparts, each of which shall, for all purposes, be deemed an original and all such
counterparts, taken together, shall constitute one and the same agreement, even though all parties may not have executed the same
counterpart. Each party may transmit its signature by confirmed facsimile or PDF and any counterpart of this Agreement sent in either
such manner shall have the same force and effect as a manually-executed original.
D. Lessor is strictly an independent contractor lessor/provider of transportation services with respect to Lessee. Nothing in this
Agreement is intended, nor shall it be construed so as, to constitute the parties as partners or joint venturers or principal and agent. All
persons furnished by Lessor for the performance of the operations and activities contemplated by this Agreement shall at all times and
for all purposes be considered Lessor’s employees or agents.
ARTICLE XVI
TRUTH IN LEASING COMPLIANCE.
Lessor, on behalf of the Lessee, shall (i) mail or deliver a copy of this Agreement to the Aircraft Registration Branch, Technical
Section, of the FAA in Oklahoma City within 24 hours of its execution; (ii) notify the nearest Flight Standards District Office at least
48 hours prior to the first flight of the Aircraft under this Agreement of the registration number of the Aircraft, and the location of the
airport of departure and departure time of the first flight; and (iii) carry a copy of this Agreement onboard the Aircraft at all times
when the Aircraft is being operated under this Agreement.
ARTICLE XVII
TRUTH IN LEASING; FAR SECTION 91.23(c).
A. LESSOR HEREBY CERTIFIES THAT THE BOMBARDIER INC. BD-700-1A11 AIRCRAFT, MANUFACTURER’S
SERIAL NUMBER 9155, UNITED STATES REGISTRATION N717LS (TO BE CHANGED TO N717MK) HAS BEEN
MAINTAINED AND INSPECTED UNDER FEDERAL AVIATION REGULATION PART 91 DURING THE ENTIRE
PERIOD PRECEDING THE DATE OF EXECUTION OF THIS AGREEMENT IN WHICH THE AIRCRAFT WAS
REGISTERED IN THE UNITED STATES. THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR
PART 91 FOR ALL OPERATIONS TO BE CONDUCTED UNDER THIS AGREEMENT.
B. MICHAEL KORS (USA), INC, WHOSE ADDRESS IS SET FORTH ABOVE, HEREBY CERTIFIES THAT IT IS
RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT FOR ALL OPERATIONS UNDER THIS
AGREEMENT.
C. EACH PARTY HEREBY CERTIFIES THAT IT UNDERSTANDS ITS RESPONSIBILITIES FOR COMPLIANCE WITH
APPLICABLE FEDERAL AVIATION REGULATIONS.
D. THE PARTIES UNDERSTAND THAT AN EXPLANATION OF THE FACTORS BEARING ON OPERATIONAL
CONTROL AND THE PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST
FAA FLIGHT STANDARDS DISTRICT OFFICE.
(SIGNATURE PAGE FOLLOWS)
IN WITNESS WHEREOF, the parties hereby have caused this Time Sharing Agreement to be executed in their names and on their
behalf by their respective duly authorized agents.
LESSOR:
MICHAEL KORS (USA), INC.
By:
/s/ Joseph B. Parsons
Title:
EVP, CFO, COO and Treasurer
Date:
12/12/14
LESSEE:
/s/ Michael D. Kors
Michael Kors
LIST OF SUBSIDIARIES OF MICHAEL KORS HOLDINGS LIMITED
Entity Name
Michael Kors (UK) Holdings Limited
Michael Kors (UK) Limited
Michael Kors (Luxembourg) Holdings S.a.r.l.
Michael Kors (USA) Holdings, Inc.
Michael Kors (USA), Inc.
Michael Kors Retail, Inc.
Michael Kors Stores (California), Inc.
Michael Kors, L.L.C.
Michael Kors Stores, L.L.C.
Michael Kors Aviation, L.L.C.
Michael Kors (Virginia) LLC
Michael Kors (Canada) Co.
Michael Kors (Canada) Holdings Ltd.
Michael Kors (Switzerland) GmbH
Michael Kors (Switzerland) Holdings GmbH
Michael Kors (Switzerland) International GmbH
Michael Kors (Switzerland) Retail GmbH
Michael Kors (UK) Intermediate Ltd.
Michael Kors Japan K.K.
Michael Kors Limited
MK Shanghai Commercial Trading Company Limited
Michael Kors Belgium BVBA
Michael Kors (Bucharest Store) S.R.L.
Michael Kors (France) SAS
Michael Kors (Germany) GmbH
Michael Kors Spain, S.L.
Michael Kors Italy S.R.L. Con Socio Unico
Michael Kors (Austria), GmbH
Michael Kors (Netherlands) B.V.
Michael Kors (Poland) sp. z. o.o.
Michael Kors (Europe) B.V.
Michael Kors (Czech Republic) s.r.o.
Michael Kors (Portugal), Lda
Michael Kors (Ireland) Limited
Michael Kors (Sweden) AB
Michael Kors (Mexico) S. de R.L. de C.V.
Michael Kors (Denmark) ApS
Michael Kors (Norway) AS
Michael Kors (Hungary) Kft
Michael Kors Yuhan Hoesa
Michael Kors (Finland) Oy
Michael Kors (Latvia) SIA
UAB Michael Kors (Lithuania)
Exhibit 21.1
Jurisdiction of Formation
United Kingdom
United Kingdom
Luxembourg
Delaware
Delaware
Delaware
Delaware
Delaware
New York
Delaware
Virginia
Nova Scotia
Nova Scotia
Switzerland
Switzerland
Switzerland
Switzerland
United Kingdom
Japan
Hong Kong
Shanghai
Belgium
Romania
France
Germany
Spain
Italy
Austria
Netherlands
Poland
Netherlands
Czech Republic
Portugal
Ireland
Sweden
Mexico
Denmark
Norway
Hungary
Korea
Finland
Latvia
Lithuania
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-178486) and Form S-3
(No. 333-198571) of Michael Kors Holdings Limited of our report dated May 29, 2013 relating to the financial statements, which
appears in this Form 10-K.
Exhibit 23.1
/s/ PricewaterhouseCoopers LLP
New York, New York
May 27, 2015
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-178486) pertaining to the
Omnibus Incentive Plan of Michael Kors Holdings Limited and Registration Statement on Form S-3 (No. 333-198571) of our reports
dated May 27, 2015 with respect to the consolidated financial statements and the effectiveness of internal control over financial
reporting of Michael Kors Holdings Limited, included in this Annual Report (Form 10-K) for the year ended March 28, 2015.
Exhibit 23.2
/s/ ERNST & YOUNG LLP
New York, New York
May 27, 2015
Exhibit 31.1
I, John D. Idol, certify that:
1.
I have reviewed this Form 10-K of Michael Kors Holdings Limited;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: May 27, 2015
By: /s/ John D. Idol
John D. Idol
Chief Executive Officer
Exhibit 31.2
I, Joseph B. Parsons, certify that:
1.
I have reviewed this Form 10-K of Michael Kors Holdings Limited;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: May 27, 2015
By: /s/ Joseph B. Parsons
Joseph B. Parsons
Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Michael Kors Holdings Limited (the “Company”) for the year ended
March 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Idol, Chief
Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934,
as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Michael Kors Holdings Limited.
Date: May 27, 2015
/S/ John D. Idol
John D. Idol
Chief Executive Officer
(Principal Executive Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this Report.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this annual report on Form 10-K of Michael Kors Holdings Limited (the “Company”) for the year ended
March 28, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph B. Parsons, Chief
Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(i) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934,
as amended; and
(ii) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of Michael Kors Holdings Limited.
Date: May 27, 2015
/S/ Joseph B. Parsons
Joseph B. Parsons
Chief Financial Officer
(Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of this Report.