- 01
POLO RALPH LAUREN
’ innovative brands, unique marketing and leadership position in visual presentation have
driven a breadth of products that are unmatched. From our original designs in luxury apparel, accessories and
home décor, we’ve built a successful and profitable company. These innovations have driven 34 years of growth.
That’s exceptional in our marketplace.
As an industry leader, we continue to create opportunities. As an innovator, we fulfill aspirations. Our products
are sold in 65 countries and last year accounted for global wholesale net sales of 4.8 billion dollars. But that isn’t
enough. We continue to build new brands within the world of Polo Ralph Lauren. And we are taking our designs
to new countries, extending the Polo Ralph Lauren experience of luxury throughout the world.
To guide our growth, we’ve added new talent to our team. We have new ideas. We have new momentum.
We’ve succeeded by breaking the rules. And we’re ready to break the rules again.
Chairman of the Board
Chief Executive Officer
Fiscal 2001 was a strong year and I am proud of our success.
We continued to strengthen our business and expand Polo Ralph Lauren worldwide. And
we did it by following the philosophy we founded this company on 34 years ago — product,
concept and leadership.
Our record results show that, in increasing numbers, customers want to be part of the
Polo Ralph Lauren lifestyle. They know what we stand for and they share our values.
Experts might call this branding, a term that seems to have lost much of its meaning.
Instead, I prefer to call it “bonding” — a bond of trust we’ve earned from our 34-year
commitment to quality, sophistication and style.
We are more excited than ever about our business. And I see that same passion in the eyes
of our 10,000 employees, who have been energized by our achievements over the past year
— and I owe them countless thanks. This spirit will drive our great company to achieve even
greater things.
As we look back on the year, one accomplishment stands out — our ability to marry our
world-class design and marketing capabilities with equally strong business processes.
So, in addition to being known for our skill in bringing innovative products to market, we
are building a reputation for delivering consistent operating results.
We’ve reached this goal by adding new talent to our team and refocusing our existing
talent. Companies are about teams. No one person can do it. I can offer leadership, but it
takes the team to make it happen.
Roger Farah joined Polo as President and Chief Operating Officer a little over a year ago.
Roger is a strong leader with the ability to make things happen. As head of Polo Ralph
Lauren operations, Roger has helped to take our design and marketing-driven company and
support it with a world-class structure that has produced world-class results in the past year.
With Roger focused on day-to-day operations, I asked Lance Isham, our Vice Chairman, to
assume responsibility for our European expansion and the management of our businesses
in key international markets. Lance, who has worked with me for two decades, has been
instrumental in building the Polo Ralph Lauren business. He understands my vision and
performs a key role in positioning Polo as a global player with diverse brands.
We’ve added depth to our organization through new senior executives in Finance, Global
Logistics, Human Resources and a new leader for our Club Monaco business. The result is
the strongest and most talented management group in the industry.
In addition to adding talent to our organization, we added new expertise to our Board of
Directors. We are delighted that Judith A. McHale, President and Chief Operating Officer
of Discovery Communications, Inc., joined our board in February and Dr. Joyce F. Brown,
President of the Fashion Institute of Technology, was appointed to our board last month.
Both directors add important new voices to our board and we believe they will be tremendous
assets to our Company.
While our business evolves, our principles remain firm. Rather than chasing the winds
of “what’s hot and what’s not,” we remain committed to capturing the timeless, appealing
elements of the American lifestyle in our designs and our global marketing. The Polo
concept of luxury is built on an enduring belief in living with style and quality.
Guided by these ideals, we will continue to grow by expanding our breadth and reach
in the U.S. and worldwide. This includes broadening our luxury product portfolio and
increasing our focus on our full-line retail stores which have the greatest power to market
these products to our customers. We see an excellent opportunity to expand our operations
internationally, particularly in Europe, where our brands already enjoy widespread
recognition and the demand for our products is growing.
Entering our 35th year, I see tremendous opportunities on a global scale. I believe we have
only begun to explore Polo Ralph Lauren’s true potential, as we continue to drive the same
level of excellence from our business operations that we receive from our design studio.
My colleagues and I look forward to sharing our progress with you in the months and
years ahead.
Chairman of the Board
Chief Executive Officer
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POLO RALPH LAUREN HAS A UNIQUE
ABILITY TO CREATE DIVERSE BRANDS
FROM WITHIN, WHILE EXPLORING THE
WORLD FOR NEW OPPORTUNITIES
FOR EXPANSION.
P10
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POLO RALPH LAUREN
Polo Ralph Lauren began with a man’s tie and a singular point of view about style, elegance and taste. Today,
that vision has been translated into 20 diverse brands that span a wide range of distribution channels.
We continue to lead because we have the unique ability to build brands from within. We established the
ultimate luxury brand and created an entire lifestyle around this single vision. At the same time, we examine
the world for new ideas to extend our brand.
We’ve created luxury brands for our own Polo Ralph Lauren stores and leading specialty retail shops.
Our Purple Label, Women’s Collection and Black Label represent the very best in style, design, fabric, quality and
craftsmanship. We stayed true to our lifestyle vision, building our luxury point of view into our Home Collection.
Our goal wasn’t simply to create a blanket or a crystal bowl; we sought to create a fully designed life.
Additionally, we are developing and building a luxury accessory business because we believe there is a strong
and growing market for our point of view.
Because the demand for our luxury products continues to grow, we are expanding our Polo Ralph Lauren stores
in important markets such as Dallas and Beverly Hills. And we plan to open a new, luxury-focused store in
Boston in the fall of this year.
We have created new brands such as Lauren by Ralph Lauren, RALPH by Ralph Lauren and Polo Jeans Co. that
have positioned us as the number one resource in our category for department stores. The Lauren brand was
one of the most successful sportswear launches in the history of women’s wear. We extended the brand into
shoes, dresses, handbags, and petite and women’s sizes. And we created RALPH by Ralph Lauren for the
daughter of our Lauren customer. The RALPH fragrance, launched in the fall of 2000, was one of the most
successful new fragrances of the year.
And now we’re extending the Lauren brand with men’s wear classics. During holiday 1999, we launched Lauren
for men ties. The line has grown to include men’s shirts, knitwear and trousers. This fall, we will introduce
Lauren sweaters and outerwear.
In addition to matching the right products with the right retail environment, we have a strong sense of where
we need to take the brand next. We see enormous growth potential in our women’s and children’s markets,
which today represent approximately 30% of our sales. And the accessories market, today just under 10% of our
sales, offers enormous opportunities in luxury handbags and shoes.
We’ve been able to expand continually and build on our brand because we never stray from our core
competency — understanding our customers. That knowledge has given us the unique and ongoing ability to
create new brands from a single vision: to build an entire lifestyle from a single tie.
P11
POLO RALPH LAUREN
In 1978, long before global expansion became a part of the vocabulary of most luxury companies, Polo Ralph
Lauren built a substantial business in Japan. In 1981, Ralph Lauren became the first American designer to open
a European boutique by building a well-appointed store on London’s New Bond Street. Five years later, we
opened a store on Place de la Madeleine and he became the first American designer with a store in Paris.
Today, customers from Tokyo to Paris universally recognize Polo Ralph Lauren’s icon of quality, value and
timeless style.
We’ve led our industry in global expansion and we continue to grow beyond our domestic roots for one simple
reason: We understand our customers and their desire to be a part of the lifestyle we represent. Driven by this
knowledge and growing customer demand, we’re more focused than ever on expanding our business in both
existing and new international markets.
We accelerated our European expansion last year when we repurchased our European license. We wanted to take
direct control of merchandising and distributing our brands in Europe because we believe there is
enormous opportunity for growth. Europe’s size and demographics are similar to the U.S., where we have built
a multi-billion dollar business.
Our decision has proven to be a very good one.
In the first year of our direct ownership of our European business, we have expanded Polo Ralph Lauren
distribution by 40% and have achieved strong double-digit gains in both revenues and operating income.
To maximize this potential, we realigned our management, enabling Lance Isham to focus on directing Polo’s
ongoing European and worldwide expansion.
We are excited by these results, in part because they exceeded our initial expectations, and in part because of the
tremendous opportunities ahead. We will continue to build on our success by carefully introducing additional
brands. And we are studying the retail potential for our Company abroad. Polo Ralph Lauren stores at One New
Bond Street in London and on Place de la Madeleine in Paris play an important part in showcasing our finest
products. We also have 10 licensed stores throughout Europe that enhance our brand.
We have extended the Polo Ralph Lauren and Polo Jeans Co. brands into many of Europe’s most popular shopping
venues in Spain, the U.K. and France. Polo Ralph Lauren’s boys’ brands have performed particularly well,
demonstrating the next-generation appeal of our products across continents and cultures.
While our short-term focus remains on Europe, we continue to look long-term toward Asia. In the late 1970s,
we entered into a relationship with Seibu Department stores that continues today. We see tremendous potential
in this region and plan to refurbish more than 150 Ralph Lauren men’s, women’s, children’s and home
collection shop-in-shops in Japan over the next three years. We believe this commitment will be well-rewarded
as we expand our brands in other parts of Asia as well.
Whether it’s growing our brand by category or by geography, we believe we have just begun to tap into the next
level of potential for Polo.
P12
POLO RALPH LAUREN IS A BRAND
THAT KNOWS NO BOUNDARIES.
IT HAS UNIVERSAL APPEAL BECAUSE IT
UNDERSTANDS CULTURES AND WHAT
IT MEANS TO BE A PART OF THEM.
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P13
POLO RALPH LAUREN
(1) (2)
(1) (2)
1
2
3
4
5
6
’
’
’
,,
,,
,
,
,
,
total
,,
1
2
3
4 ⁄
(Australia, South America, etc.)
5
6
,,
,
,
,
,
,
total
,,
() Includes worldwide wholesale net sales of Polo Ralph Lauren products by Polo and its licensees for Fiscal 2001.
() Wholesale net sales for products sold by the company’s licensing partners have been derived from information obtained from such licensing partners.
P20
POLO RALPH LAUREN
(1)
By all measures, Fiscal 2001 was an outstanding year. We achieved record revenues driven by growing demand for
our products. Our revenues increased by 14% to $2.2 billion, compared to $1.96 billion the prior year. We increased
our gross profit margin by 90 basis points to 49.6% and expenses were 36.1% as a percentage of net revenues.
As a result, our income, as adjusted, rose 16% to $166.5 million, compared to $143.5 million in Fiscal 2000.
Earnings per diluted share, as adjusted, rose 18% to $1.71 from $1.45 the prior year.(1)
We drove this performance through our focused business strategy to expand Polo’s luxury goods portfolio and
global distribution, while maintaining strong control of our operating costs.
Our European operations also performed exceptionally well and we expanded our brands’ distribution by 40%.
We believe our opportunities for growth remain strong, as we strategically increase the presence of our brands in
Europe’s luxury marketplace.
Rapid growth of our men’s and women’s brands, in both select specialty stores and our own Polo Ralph Lauren
stores, epitomize the outstanding performance of our luxury business. The sales of our men’s Purple Label,
Women’s Collection and Black Label businesses grew more than 65% in Fiscal 2001.
Customer demand remained high across all three of our operating businesses — Wholesale, Retail and Licensing.
Our multi-channel distribution strategy is one of Polo’s core strengths, providing us with both a diversified
revenue stream and a powerful platform from which to grow our global brands across a range of lifestyle products.
The domestic and international demand for Polo by Ralph Lauren, Polo Sport and Lauren for Men brands led
our sales growth, with each brand building on its respective category leadership. Our Wholesale operation, which
markets our products through major department and specialty stores, increased revenues by 19% to $1.1 billion
and operating income, as adjusted, by 57% to $127.0 million. This increase reflects the inclusion of our
European operations, which we acquired at the end of the last fiscal year.
Revenues from our Retail operation rose to $929 million, an 11% increase over last year. Retail operating income
grew 6%(2) to $27.7 million. Our strategy to increase the mix of luxury goods in our Polo Ralph Lauren stores
proved highly successful during the year, producing strong single-digit comp sale improvements. Sales at Club
Monaco — our dynamic, international retail concept — increased in the high single digits for the year. And
we believe that we are beginning Fiscal 2002 with the right merchandise strategy and real estate portfolio.
The outlet business continues to be affected by a promotional environment at department stores and generally
reduced traffic in outlet centers. While we have felt the impact of less traffic on outlet sales, we have managed this
business well during the year.
(3)
(Dollars in millions)
(Dollars in millions)
(Dollars in millions)
rl-01
P21
POLO RALPH LAUREN
During our second quarter, we completed an operational review to enhance our luxury retail business and its
profitability, and to support a more efficient corporate infrastructure. As part of this review, we opened Club
Monaco stores in key, urban locations and we continued to expand Polo Ralph Lauren stores domestically. We also
decided to discontinue our domestic, freestanding Polo Jeans Co. business, choosing instead to market the popular
brand solely through department stores and to close several Club Monaco locations in non-profitable markets.
For the year, we increased our Retail square footage by 8%, ending Fiscal 2001 with a total of 229 stores, consisting
of 28 Polo brand stores, seven concept stores, 65 Club Monaco stores, 95 full-line outlet stores, 26 Polo Jeans outlet
stores and eight European outlet stores.
In addition to expanding our Polo Ralph Lauren stores in Dallas and Beverly Hills during Fiscal 2002, we also plan
to open a new, luxury-focused store in Boston.
Our Licensing operation — including apparel and accessories, home and international businesses — continues to
be an important part of our Company. While apparel, accessories and international posted single-digit growth, our
home business declined due to softness in our licensee’s home textile business in department stores. For the year,
revenues increased 3% to $243.4 million, while operating income decreased 3% to $145.6 million.
In November 2000, Ralph Lauren Media launched Polo.com, the first luxury, designer, e-commerce destination Web
site. Polo.com offers online access to the classic, American Ralph Lauren lifestyle with clothing, accessories,
fragrances, vintage items, video entertainment and more. Polo.com, an initiative of Ralph Lauren Media, a joint
venture with Polo Ralph Lauren and NBC and certain of its affiliated companies, represents opportunities that
increase our ability to reach new customers all over the world.
We successfully implemented these growth initiatives, while we continued to reduce costs through better expense
management across all of our businesses. We achieved these cost savings primarily in the second half of Fiscal 2001
and we are continuing to look at additional opportunities for efficiencies that will enable us to
accelerate our growth.
As a result of the operational review, we began streamlining our supply chain and many of our business processes
to improve our operations. Inventory turns also continued to show improvement, due to better planning in our
Wholesale operation and improved merchandising in our Retail operation. Many additional efficiencies, including
an increasing number of services shared among our businesses, have already been identified for implementation in
Fiscal 2002 and beyond.
Looking ahead, we will focus on expanding our luxury business worldwide, both in our Wholesale and Retail
operations, while maintaining disciplined control of costs. We believe Europe will continue to have an important
impact on our Company, as will the performance of our Polo Ralph Lauren stores.
(1) This operational review excludes the impact of the restructuring and special charges and foreign currency gains since we believe this information is useful given the
significance of our internal operational review. This data should not be considered as an alternative to any measure of performance or liquidity under generally accepted
accounting principles. Also, restructuring and special charges may not be comparable to similarly titled measures reported by other companies.
(2) Retail operating income for Fiscal 2000 includes the impact of the $6.7 million pretax charge for the change in accounting for store pre-opening costs.
(3) Retail sales for Fiscal 1999 are presented on a pro forma basis to give effect to the acquisition of Club Monaco as if it had occurred at the beginning of the period.
P22
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YEAR TWO THOUSAND ONE
MANAGEMENT’S DISCUSSION AND ANALYSIS
INDEPENDENT AUDITORS’ REPORT
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SELECTED FINANCIAL DATA
BOARD OF DIRECTORS AND MANAGEMENT
STOCKHOLDER INFORMATION
P23
’
POLO RALPH LAUREN
The following discussion and analysis is a summary and should be read together with our consolidated financial statements and
related notes which are included in this Annual Report. We use a 52-53 week fiscal year ending on the Saturday nearest March 31.
Fiscal 2001 and fiscal 2000 reflect a 52-week period and fiscal 1999 reflects a 53-week period.
-
Certain statements in this Annual Report and in future filings by us with the SEC, in our press releases and in oral statements
made by or with the approval of authorized personnel constitute ‘‘forward-looking statements’’ within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations and are
indicated by words or phrases such as ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘expect,’’ ‘‘project,’’ ‘‘we believe,’’ ‘‘is or remains optimistic,’’
‘‘currently envisions’’ and similar words or phrases and involve known and unknown risks, uncertainties and other factors which
may cause actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Some of the factors that would affect our financial per-
formance or cause actual results to differ from our estimates in, or underlying, such forward-looking statements are set forth
under the heading of ‘‘Risk Factors’’ in our Annual Report on Form 10-K for fiscal 2001. We urge you to carefully read the fol-
lowing discussion in conjunction with those factors.
We began operations in 1968 as a designer and marketer of premium quality men’s clothing and sportswear. Since our incep-
tion, we have grown through increased sales of existing product lines, the introduction of new brands and products, expansion
into international markets, development of our retail operations, and acquisitions. Over the last five years, our net revenues have
grown to approximately $2.2 billion in fiscal 2001 from approximately $1.2 billion in fiscal 1997, while income from operations,
excluding restructuring and special charges, has grown to approximately $300.3 million in fiscal 2001 from approximately
$157.4 million in fiscal 1997. Our net revenues are generated from our three integrated operations: wholesale, retail and licens-
ing. The following table sets forth net revenues for the last five fiscal years:
:
(Dollars in thousands)
WHOLESALE SALES
RETAIL SALES
NET SALES
LICENSING REVENUE
NET REVENUES
1,053,842
928, 577
1,982,419
243,355
2,225,774
885,246
833,980
1,719,226
236,302
1,955,528
859,498
659,352
1,518,850
208,009
1,726,859
742,674
570,751
1,313,425
167,119
1,480,544
671,132
379,972
1,051,104
137,113
1,188,217
P24
’
POLO RALPH LAUREN
Wholesale net sales result from the sale of our men’s and women’s apparel to wholesale customers, principally to major
department stores, specialty stores and non-company operated Polo stores located throughout the United States and Europe.
Net sales for the wholesale division increased to $1.1 billion in fiscal 2001 from $671.1 million in fiscal 1997. This increase is pri-
marily a result of growth in sales of our existing Polo Brands’ and Collection Brands’ products and the introduction of new
brands. Additionally, this expansion reflects the acquisition of the wholesale operations of Poloco in January 2000.
We generate retail sales from our full price Polo stores, outlet stores and Club Monaco stores. Net sales for the retail division
have grown to $928.6 million in fiscal 2001 from $380.0 million in fiscal 1997. This increase is primarily a result of our expan-
sion of our existing retail operations and growth through acquisitions. Since the beginning of fiscal 1997, we have added, net of
store closings, 32 full price Polo stores, 71 outlet stores and 65 Club Monaco stores. This expansion reflects 21 full price Polo
stores acquired in the fiscal 1997 acquisition of the 50% interest we did not own in Polo Retail Corporation, 70 freestanding
Club Monaco stores (57 in Canada and 13 in the United States) acquired in fiscal 2000 and seven Polo stores (one flagship and
six outlets) acquired in January 2000 in connection with the Poloco transaction. At March 31, 2001, we operated 35 Polo stores,
129 outlet stores and 65 Club Monaco stores.
Licensing revenue consists of royalties paid to us under our agreements with our licensing partners. In fiscal 2001, Product,
International and Home Collection licensing alliances accounted for 56.0%, 24.2% and 19.8% of total licensing revenue.
Through these alliances, we combine our core skills with the product or geographic competencies of our licensing partners to
create and develop specific businesses. The growth of existing and development of new businesses under licensing alliances has
resulted in an increase in licensing revenue to $243.4 million in fiscal 2001 from $137.1 million in fiscal 1997.
During our last two fiscal years, we undertook the following:
• In February 2000, we announced the formation of Ralph Lauren Media, LLC, a joint venture between ourselves, and
National Broadcasting Company, Inc. and certain of its affiliated companies. We own 50% of this joint venture.
• In January 2000, we completed the acquisition of stock and certain assets of Poloco S.A.S. and certain of its affiliates,
which hold licenses to sell our men’s and boys’ apparel, our men’s and women’s Polo Jeans apparel, and certain of our
accessories in Europe. In addition to acquiring Poloco’s wholesale business, we acquired one flagship store in Paris and six
outlet stores located in France, the United Kingdom and Austria.
• In 1999, we acquired Club Monaco, Inc. Founded in 1985, Club Monaco is an international specialty retailer of casual
apparel and other accessories which are sold under the ‘‘Club Monaco’’ brand name and associated trademarks. In addi-
tion, Club Monaco franchises three freestanding stores in Canada, one freestanding store in Israel, four freestanding
stores and 15 shop-within-shops in Japan and two freestanding stores and 16 shop-within-shops in Korea and other
parts of Asia.
In connection with our growth strategies, we plan to introduce new products and brands and expand our retail operations.
Implementation of these strategies may require significant investments for advertising, furniture and fixtures, infrastructure,
design and additional inventory. Notwithstanding our investment, we cannot assure you that our growth strategies will
be successful.
rl-2001
P25
’
POLO RALPH LAUREN
Fiscal 2001 Restructuring and Special Charges During fiscal 2001, we completed an internal operational review and formal-
ized our plans to enhance the growth of our worldwide luxury retail business, to better manage inventory and increase our
overall profitability. The major initiatives of the operational review included:
• refining our retail strategy;
• developing efficiencies in our supply chain; and
• consolidating corporate business functions and internal processes.
We will continue to refine our retail strategy by expanding the presence of our full-line luxury stores, both in North America
and abroad, and by building a profitable portfolio of Club Monaco stores in key urban locations that fully emphasize and capi-
talize on its fashion-forward merchandising strategy. In connection with this initiative, we closed all 12 Polo Jeans Co. full price
retail stores and 11 under-performing Club Monaco retail stores.
Additionally, as a result of changes in market conditions combined with our change in retail strategy in certain locations in
which we operate full price retail stores, we performed an evaluation of the recoverability of the assets of certain of these stores.
We concluded from the results of this evaluation that a significant permanent impairment of long-lived assets had occurred.
Accordingly, we recorded a write down of these assets (primarily leasehold improvements) to their estimated fair value based on
discounted future cash flows.
In connection with the implementation of the operational review discussed above, we recorded a pretax restructuring charge
of $123.6 million. The major components of the charge included asset write downs of $98.8 million, lease and contract termina-
tion costs of $15.7 million, severance and termination benefits of $8.0 million and other restructuring costs of $1.1 million.
Our operational review also targeted our supply chain management as one of the most important areas for improvement. The
development of operating efficiencies in our worldwide logistics and supply chain management will better support our growing
and increasingly global operations. In connection with initiating this aspect of the operational plan, we recorded
$41.5 million of inventory write downs in fiscal 2001 associated with our planned acceleration in the reduction of aged inventory.
Total severance and termination benefits as a result of the operational review related to approximately 550 employees, 450 of
whom have been terminated as of March 31, 2001. We expect to complete the implementation of the operational review by the
end of the second quarter of fiscal 2002.
P26
rl-2001
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POLO RALPH LAUREN
Fiscal 1999 Restructuring During the fourth quarter of fiscal 1999, we formalized our plans to streamline operations within
our wholesale and retail operations and reduce our overall cost structure. The major initiatives of our restructuring plan includ-
ed: (i) an evaluation of our retail operations and site locations; (ii) the realignment and operational integration of our wholesale
operating units; and (iii) the realignment and consolidation of corporate strategic business functions and internal processes.
In fiscal 2000, we closed three Polo stores and three outlet stores that were not performing at an acceptable level and converted
two Polo stores and five outlet stores to new concepts expected to be more productive. Costs associated with this aspect of our
restructuring plan included lease and contract termination costs, store fixed asset (primarily leasehold improvements) and
intangible asset write downs and severance and termination benefits.
Our wholesale operations were realigned into two new operating units: Polo Brands and Collection Brands. Aspects of this
realignment included:
• the reorganization of the sales force and retail development areas;
• the streamlining of the design and development process; and
• the consolidation of the customer service departments.
We also integrated the sourcing and production of our Polo Brands, outlet store and licensees’ products into one consolidated
unit. Costs associated with the wholesale realignment consisted primarily of severance and termination benefits and lease and
contract termination costs.
Our review of our corporate business functions and internal processes resulted in a new management structure designed to
better align businesses with similar functions and to identify and eliminate duplicative processes. Costs associated with the cor-
porate realignment consisted primarily of severance and termination benefits and lease and contract termination costs.
We recorded a restructuring charge of $58.6 million on a pretax basis in our fourth quarter of fiscal 1999. The major compo-
nents of the restructuring charge included lease and contract termination costs of $24.7 million, asset write downs of
$17.8 million, severance and termination benefits of $15.3 million and other restructuring costs of $0.8 million. Total severance
and termination benefits as a result of our restructuring plan related to approximately 280 employees, all of whom have been
terminated. We completed the implementation of our restructuring plan in fiscal 2000.
The table below sets forth the percentage relationship to net revenues of certain items in our statements of income for our last
three fiscal years:
:
NET SALES
LICENSING REVENUE
NET REVENUES
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
RESTRUCTURING AND SPECIAL CHARGES
INCOME FROM OPERATIONS
FOREIGN CURRENCY GAINS
INTEREST EXPENSE
INCOME BEFORE INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE
89.1%
10.9
100.0
47.8
36.9
5.6
5.3
0.2
(1.1)
4.4%
87.9%
12.1
100.0
48.7
35.2
–
13.5
–
(0.8)
12.7%
88.0%
12.0
100.0
47.6
35.2
3.4
9.0
–
(0.2)
8.8%
P27
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POLO RALPH LAUREN
Net Sales Net sales increased 15.3% to $2.0 billion in fiscal 2001 from $1.7 billion in fiscal 2000. Wholesale net sales increased
19.0% to $1.1 billion in fiscal 2001 from $885.2 million in fiscal 2000. Wholesale growth primarily reflected the benefit of one
year of operations for Poloco’s wholesale division included in operating results for the first time in fiscal 2001 and increased unit
sales of our luxury products.
Retail sales increased by 11.3% to $928.6 million in fiscal 2001 from $834.0 million in fiscal 2000. This increase was primarily
attributable to a $131.7 million benefit from the following:
• new stores in fiscal 2001 (37 stores, prior to 34 store closures in late fiscal 2001);
• a full year of revenues from new stores opened in fiscal 2000; and
• the inclusion of the results of one flagship and six outlet stores purchased in connection
with the acquisition of Poloco.
Although our stores remained highly productive, comparable store sales, which represent net sales of stores open in both report-
ing periods for the full portion of such periods, decreased by 5.3%. The decline was due to a mature and promotionally driven
outlet environment and lower sales in Club Monaco’s Canadian stores.
Licensing Revenue Licensing revenue increased 3.0% to $243.4 million in fiscal 2001 from $236.3 million in fiscal 2000. This
increase is primarily attributable to increases in sales of existing men’s, women’s, and children’s apparel, accessories and
fragrance products. These gains were partially offset by decreases in sales of Home Collection products.
Gross Profit Gross profit as a percentage of net revenues decreased to 47.8% in fiscal 2001 from 48.7% in fiscal 2000. This
decrease was mainly attributable to $41.5 million of inventory write downs recorded in fiscal 2001 in connection with the imple-
mentation of our operational review and our decision to accelerate the disposition of aged inventory. Excluding these special
charges, gross profit as a percentage of net revenues was 49.6%. This improvement reflects increased wholesale gross margins as
a result of the acquisition of Poloco, which generates higher margins than our domestic wholesale operations. Additionally, gross
profit was favorably impacted by the increase in licensing revenue in fiscal 2001. These improvements were offset by declines in
our retail gross margins as we incurred higher markdowns in fiscal 2001.
Selling, General and Administrative Expenses Selling, general and administrative (‘‘SG&A’’) expenses as a percentage of net
revenues increased to 36.9% in fiscal 2001 from 35.2% in fiscal 2000. This increase in SG&A expenses as a percentage of net rev-
enues was primarily due to a charge of $18.1 million recorded in the second quarter of fiscal 2001 relating to nonrecurring
charges associated with targeted opportunities for improvement, including the termination of operating contracts, streamlining
of certain corporate and operating functions, and employee-related matters. Additionally, SG&A expenses as a percentage of net
revenues increased due to an increase in depreciation and amortization expense, start-up costs associated with the expansion of
our retail operations and the acquisition of Poloco.
Interest Expense Interest expense increased to $25.1 million in fiscal 2001 from $15.0 million in fiscal 2000. This increase was
due to a higher level of borrowings during the current period attributable to the additional financing used for the acquisition
of Poloco.
Income Taxes The effective tax rate decreased to 39.5% in fiscal 2001 from 40.8% in fiscal 2000. This decline is primarily a
result of the benefit of tax strategies implemented by the Company. We expect to lower our effective tax rate to 38.5% in fiscal
2002 as a result of tax strategies implemented.
Net Sales Net sales increased 13.2% to $1.7 billion in fiscal 2000 from $1.5 billion in fiscal 1999. Wholesale net sales increased
3.0% to $885.2 million in fiscal 2000 from $859.5 million in fiscal 1999. Wholesale growth primarily reflected increased unit
sales of our existing brands and luxury products. These unit increases were partially offset by a decline in average selling prices
resulting from changes in product mix.
Retail sales increased by 26.5% to $834.0 million in fiscal 2000 from $659.4 million in fiscal 1999. This increase was primarily
attributable to a $209.9 million benefit from the following:
• new store openings in fiscal 2000 (23 stores, net of closures);
• a full year impact of new stores opened in fiscal 1999; and
• the acquisition of 70 Club Monaco stores in the quarter ended July 3, 1999.
P28
’
POLO RALPH LAUREN
Although our stores remained highly productive, comparable store sales, which represent net sales of stores open in both report-
ing periods for the full portion of such periods, decreased by 4.6%, excluding the unfavorable impact of a 53rd week in fiscal
1999. The decline was due to a promotionally driven retail environment, an inadequate inventory of leading products, and the
effects of a mature and challenging outlet store environment.
Licensing Revenue Licensing revenue increased 13.6% to $236.3 million in fiscal 2000 from $208.0 million in fiscal 1999.
This increase is primarily attributable to increases in sales of existing licensed products, particularly Lauren, Polo Jeans and
Home Collection.
Gross Profit Gross profit as a percentage of net revenues increased to 48.7% in fiscal 2000 from 47.6% in fiscal 1999. This
increase was attributable to an increase in retail gross margins due to a higher concentration of retail sales to net revenues in the
current period as a result of the acquisition of Club Monaco in fiscal 2000 and lower markdowns taken in fiscal 2000. Retail
gross margins were negatively impacted by higher markdowns in fiscal 1999 as we implemented a strategic initiative in our
fourth fiscal quarter of 1999 to reduce inventory levels and move excess product. Additionally, gross profit was favorably impacted
by the increase in licensing revenue in fiscal 2000. Wholesale gross margins were consistent with prior years.
Selling, General and Administrative Expenses SG&A expenses as a percentage of net revenues was 35.2% in fiscal 2000 and
fiscal 1999. Despite increases in depreciation expense from the shop-within-shops development program and start-up costs
incurred with the expansion of our retail operations, these expenses, as a percentage of net revenues, were consistent with the
prior year period as we were able to achieve expense leveraging from revenue growth in fiscal 2000.
Interest Expense Interest expense increased to $15.0 million in fiscal 2000 from $2.8 million in fiscal 1999. This increase was
due to a higher level of borrowings incurred during the current period to fund the acquisitions of Club Monaco and Poloco.
Our cash requirements primarily derive from working capital needs, construction and renovation of shop-within-shops, retail
expansion and other corporate activities. Our main sources of liquidity are cash flows from operations, credit facilities and
other borrowings.
Net cash provided by operating activities decreased to $100.3 million in fiscal 2001 from $242.7 million in fiscal 2000. Net
cash provided by operations was negatively impacted by the cash portion of charges recorded in our second quarter of fiscal
2001 in connection with the implementation of our operational review and increases in inventories and accounts receivable due
to timing of shipments. Net cash used in investing activities decreased to $182.0 million in fiscal 2001 from $318.3 million in fis-
cal 2000. The decrease principally reflects the use of funds to acquire Poloco in fiscal 2000. Net cash used by financing activities
was $25.9 million in fiscal 2001 as compared to cash provided of $201.6 million in fiscal 2000. This change is primarily due to
proceeds received from the Euro offering in fiscal 2000.
In June 1997, we entered into a credit facility with a syndicate of banks which provides for a $225.0 million revolving line of
credit available for the issuance of letters of credit, acceptances and direct borrowings and matures on December 31, 2002.
Borrowings under the syndicated bank credit facility bear interest, at our option, at a base rate equal to the higher of the Federal
Funds rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial lending
rate of The Chase Manhattan Bank in effect from time to time, or at the Eurodollar rate plus an interest margin.
In March 1999, in connection with our acquisition of Club Monaco, we entered into a $100.0 million senior credit facility
with a syndicate of banks consisting of a $20.0 million revolving line of credit and an $80.0 million term loan. The revolving line
of credit is available for working capital needs and general corporate purposes and matures on June 30, 2003. The term loan was
used to finance the acquisition of all of the outstanding common stock of Club Monaco and to repay indebtedness of Club
Monaco. The term loan is also repayable on June 30, 2003. Borrowings under the 1999 syndicated bank credit facility bear inter-
est, at our option, at a base rate equal to the higher of the Federal Funds rate, as published by the Federal Reserve Bank of New
York, plus 1/2 of one percent, and the prime commercial lending rate of The Chase Manhattan Bank in effect from time to time,
or at the Eurodollar rate plus an interest margin. In April 1999, we entered into interest rate swap agreements with a notional
amount of $100.0 million to convert the variable interest rate on our 1999 senior credit facility to a fixed rate of 5.5%.
The syndicated bank credit facility and our 1999 senior bank credit facility contain customary representations, warranties,
covenants and events of default, including covenants regarding maintenance of net worth and leverage ratios, limitations on
rl-2001
P29
’
POLO RALPH LAUREN
indebtedness, loans, investments and incurrences of liens, and restrictions on sales of assets and transactions with affiliates.
Additionally, the agreements provide that an event of default will occur if Mr. Ralph Lauren and related entities fail to maintain
a specified minimum percentage of the voting power of our common stock.
In November 1999, we issued Euro 275.0 million of 6.125% notes due November 2006. Our Euro debt is listed on the London
Stock Exchange. The net proceeds from the Euro offering were $281.5 million based on the Euro exchange rate on the issuance
date. Interest on the Euro debt is payable annually. A portion of the net proceeds from the issuance was used to acquire Poloco
while the remaining net proceeds were retained for general corporate purposes. We acquired Poloco for an aggregate cash
consideration of $209.7 million, plus the assumption of $10.0 million in short-term debt.
During fiscal 2001, we repurchased Euro 27.5 million, or $25.3 million based on Euro exchange rates, of our outstanding
Euro debt.
As of March 31, 2001, we had $86.1 million outstanding in direct borrowings, $80.0 million outstanding under the term loan
and $217.0 million outstanding in Euro debt based on the year-end Euro exchange rate. We were also contingently liable for
$34.2 million in outstanding letters of credit related primarily to commitments for the purchase of inventory. The weighted aver-
age interest rate on borrowings at March 31 2001, was 5.9%.
During the second quarter of fiscal 2001, we completed an internal operational review and formalized our plans to enhance
the growth of our international luxury retail business, to better manage inventory and to increase our overall profitability.
Total cash outlays related to the operational review are expected to be approximately $24.7 million, $16.8 million of which has
been paid through March 31, 2001. We expect to settle the remaining liabilities in accordance with contract terms which
extend until fiscal 2003. On October 18, 2000, we received consent from our lenders under the credit facilities permitting us to
incur the charges we recorded in connection with the operational review (see Note 3 to our consolidated financial statements)
up to specified thresholds.
Total cash outlays related to the 1999 restructuring plan are approximately $39.5 million, $33.5 million of which has been paid
through March 31, 2001. The remaining obligations approximated $6.0 million at March 31, 2001, and primarily relate to sever-
ance and lease termination agreements, which extend until fiscal 2003.
Capital expenditures were $105.2 million in fiscal 2001, $122.0 million in fiscal 2000 and $141.7 million in fiscal 1999. Capital
expenditures primarily reflect costs associated with the following:
• the expansion of our distribution facilities;
• the shop-within-shops development program which includes new shops, renovations and expansions;
• the expansion of our retail operations;
• our information systems; and
• other capital projects.
We plan to invest approximately $90.0 million, net of landlord incentives, over the next fiscal year primarily for
our retail stores, our European expansion, the shop-within-shops development program, our information systems and other
capital projects.
In March 1998, our Board of Directors authorized the repurchase, subject to market conditions, of up to $100.0 million of our
Class A common stock. Share repurchases under this plan were made in the open market over the two-year period which com-
menced April 1, 1998. On March 2, 2000, the Board of Directors authorized a two-year extension of the stock repurchase
program. Shares acquired under the repurchase program will be used for stock option programs and for other corporate
purposes. As of March 31, 2001, we had repurchased 3,771,806 shares of our Class A common stock at an aggregate cost of
$71.2 million.
We extend credit to our customers, including those who have accounted for significant portions of our net revenues. We had
three customers, Dillard Department Stores, Inc., Federated Department Stores, Inc. and The May Department Stores Company,
who in aggregate constituted approximately 52.0% and 54.0% of trade accounts receivable outstanding at March 31, 2001 and
April 1, 2000. Additionally, we had four licensing partners, Jones Apparel Group, Inc., WestPoint Stevens, Inc., Seibu Department
Stores, Ltd. and Warnaco, Inc., who in aggregate constituted approximately 53.0%, 58.0% and 55.0% of licensing revenue in fis-
cal 2001, fiscal 2000 and fiscal 1999. Accordingly, we may have significant exposure in collecting accounts receivable from our
wholesale customers and licensees. We have credit policies and procedures which we use to manage our credit risk.
P30
rl-2001
’
POLO RALPH LAUREN
We believe that cash from ongoing operations and funds available under our credit facilities and from our Euro offering will
be sufficient to satisfy our current level of operations, the operational review, the restructuring plan, capital requirements, the
stock repurchase program and other corporate activities for the next 12 months. We do not currently intend to pay dividends on
our common stock in the next 12 months.
Our business is affected by seasonal trends, with higher levels of wholesale sales in our second and fourth quarters and higher
retail sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments to
retail customers and key vacation travel and holiday shopping periods in the retail segment. As a result of growth in our retail
operations and licensing revenue, historical quarterly operating trends and working capital requirements may not accurately
reflect future performances. In addition, fluctuations in sales and operating income in any fiscal quarter may be affected by the
timing of seasonal wholesale shipments and other events affecting retail.
In June 1998, the Financial Accounting Standards Board (‘‘FASB’’) issued Statement of Financial Accounting Standards
(‘‘SFAS’’) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (‘‘SFAS No. 133’’). This Statement, as amend-
ed and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires the recognition of all derivatives, whether desig-
nated in hedging relationships or not, as either assets or liabilities in the statement of financial position, and measurement of
those instruments at fair value. The accounting for changes in the fair value of a derivative is dependent upon the intended use
of the derivative. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as
ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in
fair value will be recognized in earnings. SFAS No. 133 is effective for our first quarter of fiscal 2002.
We have entered into interest rate swap agreements and forward foreign exchange contracts which qualify as cash flow hedges
under SFAS No. 133. In accordance with SFAS No. 133, we will record the fair value of these derivatives at April 1, 2001, and the
resulting net unrealized gain, after taxes, of approximately $4.2 million will be recorded in other comprehensive income as a
cumulative transition adjustment.
In April 2001, the FASB’s Emerging Issues Task Force reached a consensus on Issue No. 00-25, “Vendor Income Statement
Characteristics of Consideration Paid to a Reseller of the Vendor’s Products” (‘‘EITF No. 00-25’’). EITF No. 00-25 concluded that
consideration from a vendor to a reseller of the vendor’s products is presumed to be a reduction of the selling prices of the ven-
dor’s products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor’s income
statement. That presumption is overcome and the consideration characterized as a cost incurred if a benefit is or will be received
from the recipient of the consideration if certain conditions are met. This pronouncement is effective for our first quarter of
fiscal 2003. We have not yet determined the impact of adopting this pronouncement on our consolidated results
of operations.
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising
from adverse changes in interest rates or foreign currency exchange rates. We manage these exposures through operating and
financing activities and, when appropriate, through the use of derivative financial instruments. Our policy allows for the use of
derivative financial instruments for identifiable market risk exposures, including interest rate and foreign currency fluctuations.
The following quantitative disclosures were derived using quoted market prices and theoretical pricing models obtained
through independent pricing sources for the same or similar types of financial instruments, taking into consideration the underly-
ing terms and maturities. The quantitative disclosures discussed below do not represent the maximum possible loss nor any
expected loss that may occur since actual results may differ from those estimates.
P31
’
POLO RALPH LAUREN
Foreign Currency Exchange Rates Foreign currency exposures arise from transactions, including firm commitments and
anticipated contracts, denominated in a currency other than an entity’s functional currency and from foreign-denominated rev-
enues translated into U.S. dollars. From time to time, we hedge exposures to foreign currency exchange rate fluctuations with
forward foreign exchange contracts. With respect to foreign operations, substantially all of our foreign subsidiaries operate in
their respective functional currencies. Our primary foreign currency exposures relate to our Euro debt and Euro investments.
The potential loss in value at March 31, 2001, on our Euro debt and Euro investments based on a hypothetical 10.0% adverse
change in the Euro rate would have been $21.7 million and $4.5 million. As of March 31, 2001, a hypothetical immediate
10.0% adverse change in the Euro rate on the Euro debt and Euro investments would have a $1.3 million and $0.2 million
unfavorable impact on our earnings and cash flows in fiscal 2002.
Interest Rates Our primary interest rate exposure relates to our fixed and variable rate debt. The fair value of our fixed Euro
debt was $217.1 million based on its quoted market price as listed on the London Stock Exchange and using Euro exchange rates
in effect as of March 31, 2001. The potential loss in value at March 31, 2001, on our fixed Euro debt based on a hypothetical
10.0% adverse change in the interest rate would have been $21.7 million. At March 31, 2001, the carrying value of amounts out-
standing of $166.1 million under our variable debt borrowing arrangements under our bank credit facilities approximated their
fair value. We employ an interest rate hedging strategy utilizing swaps to effectively fix a portion of our interest rate exposure on
our floating rate financing arrangements. At March 31, 2001, we had interest rate swap agreements with a notional amount of
$100.0 million which fixed the interest rate on our variable rate debt at 5.5%. As of March 31, 2001, a hypothetical immediate
10.0% adverse change in interest rates relating to our unhedged portion of our variable rate debt would have a $0.4 million
unfavorable impact on our earnings and cash flows in fiscal 2002.
P32
’
POLO RALPH LAUREN
,
We have audited the accompanying consolidated balance sheets of Polo Ralph Lauren Corporation and subsidiaries as of
March 31, 2001 and April 1, 2000, and the related consolidated statements of income, stockholders’ equity, and cash flows for
each of the three years in the period ended March 31, 2001. 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 auditing standards generally accepted in the United States of America. 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 man-
agement, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Polo
Ralph Lauren Corporation and subsidiaries as of March 31, 2001 and April 1, 2000, and the results of their operations and their
cash flows for each of the years in the period ended March 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
New York, New York
May 23, 2001
rl-2001
P33
POLO RALPH LAUREN
(Dollars in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Accounts receivable, net of allowances
of $12,090 and $16,631
Inventories
Deferred tax assets
Prepaid expenses and other
TOTAL CURRENT ASSETS
PROPERTY AND EQUIPMENT, NET
DEFERRED TAX ASSETS
GOODWILL, NET
OTHER ASSETS, NET
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Notes and acceptances payable—banks
Accounts payable
Accrued expenses and other
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
OTHER NONCURRENT LIABILITIES
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS’ EQUITY:
Common stock
Class A, par value $.01 per share;
500,000,000 shares authorized:
34,948,730 and 34,381,653 shares issued
Class B, par value $.01 per share;
100,000,000 shares authorized:
43,280,021 shares issued and outstanding
Class C, par value $.01 per share;
70,000,000 shares authorized:
22,720,979 shares issued and outstanding
Additional paid-in-capital
Retained earnings
Treasury stock, Class A, at cost (3,771,806 and 2,952,677 shares)
Accumulated other comprehensive income
Unearned compensation
TOTAL STOCKHOLDERS’ EQUITY
See accompanying notes to consolidated financial statements.
P34
rl-2001
,
,
51,498
50,721
164,571
–
269,010
425,594
31,244
73,654
901,721
204,447
390,953
40,378
52,542
852,891
328,929
61,056
249,391
84,996
1,626,093
372,977
11,068
277,822
105,804
1,620,562
86,112
178,293
175,172
439,577
296,988
80,219
86,131
151,281
168,816
406,228
342,707
99,190
349
433
344
433
227
463,001
430,047
(71,179)
(10,529)
(3,040)
809,309
1,626,093
227
450,030
370,785
(57,346)
9,655
(1,691)
772,437
1,620,562
POLO RALPH LAUREN
:
(Dollars in thousands, except share data)
NET SALES
LICENSING REVENUE
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
RESTRUCTURING CHARGE
TOTAL EXPENSES
INCOME FROM OPERATIONS
FOREIGN CURRENCY GAINS
INTEREST EXPENSE
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE
PROVISION FOR INCOME TAXES
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES
NET INCOME
INCOME PER SHARE BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE—BASIC AND DILUTED
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES,
PER SHARE—BASIC AND DILUTED
NET INCOME PER SHARE—BASIC AND DILUTED
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—BASIC
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING—DILUTED
See accompanying notes to consolidated financial statements.
,
1,982,419
243,355
2,225,774
,
,
1,719,226
236,302
1,955,528
1,518,850
208,009
1,726,859
1,162,727
1,063,047
1,002,390
953,138
904,586
822,273
608,128
58,560
666,688
155,585
–
(2,759)
689,227
–
689,227
263,911
–
(15,025)
822,272
123,554
945,826
117,221
5,846
(25,113)
97,954
38,692
59,262
–
59,262
0.61
–
0.61
96,773,282
97,446,482
248,886
152,826
101,422
147,464
3,967
143,497
1.49
0.04
1.45
98,926,993
99,035,781
62,276
90,550
–
90,550
0.91
–
0.91
99,813,328
99,972,152
P35
’
POLO RALPH LAUREN
(Dollars in thousands,
except share data)
-
-
-
BALANCE AT MARCH 28, 1998
100,273,726
1,003 447,918
136,738
–
–
–
(1,333) 584,326
COMPREHENSIVE INCOME:
NET INCOME
TOTAL COMPREHENSIVE INCOME
90,550
EXERCISE OF STOCK OPTIONS
4,352
113
REPURCHASES OF COMMON STOCK
RESTRICTED STOCK GRANTS
BALANCE AT APRIL 3, 1999
104,575
100,382,653
1
1,999
1,004 450,030
603,864
(16,084)
227,288
603,864
(16,084)
–
COMPREHENSIVE INCOME:
NET INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS, NET OF INCOME
TAXES OF $6.2 MILLION
TOTAL COMPREHENSIVE INCOME
REPURCHASES OF COMMON STOCK
RESTRICTED STOCK AMORTIZATION
143,497
9,655
2,348,813
(41,262)
BALANCE AT APRIL 1, 2000
100,382,653
1,004 450,030
370,785 2,952,677
(57,346)
9,655
COMPREHENSIVE INCOME:
NET INCOME
FOREIGN CURRENCY TRANSLATION
ADJUSTMENTS, NET OF INCOME
TAX BENEFIT OF $13.2 MILLION
TOTAL COMPREHENSIVE INCOME
REPURCHASES OF COMMON STOCK
EXERCISE OF STOCK OPTIONS
448,778
INCOME TAX BENEFIT FROM STOCK
OPTION EXERCISES
RESTRICTED STOCK GRANTS
118,299
RESTRICTED STOCK AMORTIZATION
4
1
10,293
679
1,999
59,262
(20,184)
819,129
(13,833)
BALANCE AT MARCH 31, 2001
100,949,730
1,009 463,001
430,047 3,771,806
(71,179)
(10,529)
See accompanying notes to consolidated financial statements.
90,550
113
(16,084)
–
(3,333) 658,905
(2,000)
153,152
(41,262)
1,642
(1,691) 772,437
1,642
39,078
(13,833)
10,297
679
–
651
(3,040) 809,309
(2,000)
651
P36
POLO RALPH LAUREN
:
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
(Benefit from) provision for deferred income taxes
Depreciation and amortization
Cumulative effect of change in accounting principle
Provision for losses on accounts receivable
Changes in deferred liabilities
Provision for restructuring
Foreign currency gains
Other
Changes in assets and liabilities, net of acquisitions
Accounts receivable
Inventories
Prepaid expenses and other
Other assets
Accounts payable
Accrued expenses and other
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net
Investments in marketable securities
Acquisitions, net of cash acquired
Proceeds from (payments of) restricted cash for Club Monaco acquisition
Cash surrender value—officers’ life insurance
NET CASH USED IN INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchases of common stock
Proceeds from issuance of common stock
Proceeds from (repayments of) short-term borrowings, net
Repayments of long-term debt
Proceeds from long-term debt
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON CASH
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
SUPPLEMENTAL CASH FLOW INFORMATION:
CASH PAID FOR INTEREST
CASH PAID FOR INCOME TAXES
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
FAIR VALUE OF ASSETS ACQUIRED, EXCLUDING CASH
LESS:
Cash paid
Acquisition obligation
Promissory notes issued
LIABILITIES ASSUMED
See accompanying notes to consolidated financial statements.
,
,
,
59,262
143,497
90,550
(23,430)
78,599
–
547
(27,989)
98,836
(5,846)
(9,885)
(68,968)
(44,626)
(22,967)
8,042
30,683
28,028
100,286
(105,170)
(50,721)
(20,929)
–
(5,152)
(181,972)
(13,833)
10,297
2,939
(25,289)
–
(25,886)
(5,501)
(113,073)
164,571
51,498
25,318
72,599
6,761
66,280
3,967
2,734
3,155
–
–
4,770
(32,746)
53,325
1,216
(9,801)
31,281
(31,750)
242,689
(122,010)
–
(235,144)
44,217
(5,385)
(318,322)
(41,262)
–
(39,400)
(37,358)
319,610
201,590
(5,844)
120,113
44,458
164,571
7,713
112,202
398,737
235,144
21,637
–
141,956
(25,771)
46,414
–
1,060
(4,782)
19,040
–
2,073
(9,542)
(76,396)
(25,526)
(9,095)
(13,452)
43,950
38,523
(141,692)
–
(6,981)
(44,217)
(3,339)
(196,229)
(16,084)
113
115,500
(337)
44,217
143,409
–
(14,297)
58,755
44,458
2,776
77,877
14,868
6,981
–
5,000
2,887
rl-2001
P37
POLO RALPH LAUREN
.
(a) Basis of Presentation Polo Ralph Lauren Corporation (‘‘PRLC’’) was incorporated in Delaware in March 1997. The con-
solidated financial statements include the accounts of PRLC and its wholly and majority owned subsidiaries. All intercompany
balances and transactions have been eliminated. PRLC and its subsidiaries are collectively referred to herein as ‘‘we,’’ ‘‘us,’’ ‘‘our’’
and ‘‘ourselves.’’
We have included the December 31, 2000 consolidated balance sheet and January 6, 2000 combined balance sheet of Poloco
(as defined), our wholly owned subsidiary, in the accompanying March 31, 2001 and April 1, 2000, consolidated balance sheets.
We also have consolidated the results of operations of Poloco for the year ended December 31, 2000, in the March 31, 2001 con-
solidated statements of income, stockholders’ equity and cash flows.
(b) Acquisition and Joint Venture On February 7, 2000, we announced the formation of Ralph Lauren Media, LLC
(‘‘RL Media’’), a joint venture between National Broadcasting Company, Inc. and certain affiliated companies (‘‘NBC’’) and our-
selves. RL Media was created to bring our American lifestyle experience to consumers via multiple media platforms, including
the Internet, broadcast, cable and print. Under the 30-year joint venture agreement, RL Media will be owned 50% by us and
50% by NBC. In exchange for a 50% interest, we will provide marketing through our annual print advertising campaign, make
our merchandise available at initial cost of inventory and sell RL Media’s excess inventory through our outlet stores, among
other things. NBC will contribute $110.0 million of television and online advertising. NBC will also contribute $40.0 million in
online distribution and promotion and a cash funding commitment up to $50.0 million. Under the terms of the joint venture
agreement, for tax purposes, we will not absorb any losses from the joint venture up to the first $50.0 million incurred and will
share proportionately in the net income or losses thereafter. Additionally, we will receive a royalty on the sale of our products by
RL Media based on specified percentages of net sales over a predetermined threshold, subject to certain limitations; to date, no
such royalty income has been recognized. RL Media’s managing board will have equal representation from NBC and us. The
joint venture has been accounted for under the equity method from the effective date of its formation. We have not recognized
any losses in excess of our financial basis.
On January 6, 2000, we completed the acquisition of stock and certain assets of Poloco S.A.S. and certain of its affiliates
(‘‘Poloco’’), which hold licenses to sell our men’s and boys’ apparel, our men’s and women’s Polo Jeans apparel, and certain of
our accessories in Europe. In addition to acquiring Poloco’s wholesale business, we acquired one flagship store in Paris and six
outlet stores located in France, the United Kingdom and Austria. We acquired Poloco for an aggregate cash consideration of
$209.7 million, plus the assumption of $10.0 million in short-term debt. We used a portion of the net proceeds from the
Eurobond Offering (as defined) to finance this acquisition. During the quarter ended July 1, 2000, the final 10% of the acquisi-
tion price for Poloco in the amount of $20.9 million was distributed in accordance with the terms of the agreement. This
acquisition has been accounted for as a purchase. The purchase price has been allocated based upon the fair values of the net
assets acquired at the date of acquisition. This allocation resulted in an excess of purchase price over the estimated fair value of
net assets acquired of $198.3 million, which has been recorded as goodwill and is being amortized on a straight-line basis over
an estimated useful life of 40 years.
The following table sets forth unaudited pro forma combined statement of income information for fiscal 2000 had the acquisi-
tion of Poloco occurred at the beginning of the period:
:
(Dollars in thousands, except per share data)
PRO FORMA NET REVENUES
PRO FORMA NET INCOME
PRO FORMA NET INCOME PER SHARE—BASIC AND DILUTED
()
2,135,736
162,398
1.64
P38
rl-2001
POLO RALPH LAUREN
The unaudited pro forma information above has been prepared for comparative purposes only and includes certain adjust-
ments to our historical statements of income, such as additional amortization as a result of goodwill and increased interest
expense on acquisition debt. The results do not purport to be indicative of the results of operations that would have resulted had
the acquisition occurred at the beginning of the period, or of future results of operations of the consolidated entities.
On April 6, 1999, PRL Acquisition Corp., a Nova Scotia unlimited liability corporation and our wholly owned subsidiary,
acquired, through a tender offer, 98.83% of the outstanding shares of Club Monaco Inc. (‘‘Club Monaco’’), a corporation organ-
ized under the laws of the Province of Ontario, Canada. On May 3, 1999, PRL Acquisition Corp. acquired the remaining
outstanding 1.17% shares pursuant to a statutory compulsory acquisition. The total purchase price was $51.0 million in cash
based on foreign exchange rates in effect on the dates indicated. We used funds from our credit facility to finance this acquisition
and to repay in full assumed debt of Club Monaco of $35.0 million. We have accounted for this acquisition as a purchase and
have consolidated the operations of Club Monaco in the accompanying financial statements from the effective date of the trans-
action. The purchase price has been allocated based upon the fair values of the net assets acquired at the date of the acquisition.
This allocation resulted in an excess of purchase price over the estimated fair value of net assets acquired of $44.5 million, which
has been recorded as goodwill and is being amortized on a straight-line basis over an estimated useful life of 40 years.
(c) Business We design, license, contract for the manufacture of, market and distribute men’s and women’s apparel, acces-
sories, fragrances, skin care products and home furnishings. Our sales are principally to major department and specialty stores
located throughout the United States and Europe. We also sell directly to consumers through full price, flagship, outlet and Club
Monaco stores located throughout the United States, Canada, Europe, Great Britain and Asia.
We are party to licensing agreements which grant the licensee exclusive rights to use our various trademarks in connection
with the manufacture and sale of designated products in specified geographical areas. The license agreements typically provide
for designated terms with renewal options based on achievement of specified sales targets. The agreements also require that cer-
tain minimum amounts be spent on advertising for licensed products. Additionally, as part of the licensing arrangements, each
licensee is typically required to enter into a design services agreement pursuant to which design and other creative services are
provided. The license and design services agreements provide for payments based on specified percentages of net sales of
licensed products. Additionally, we have granted royalty-free licenses to independent parties to operate Polo stores to promote
the sale of our merchandise and our licensees’ merchandise both domestically and internationally.
A significant amount of our products are produced in the Far East, through arrangements with independent contractors. As a
result, our operations could be adversely affected by political instability resulting in the disruption of trade from the countries in
which these contractors are located, by the imposition of additional duties or regulations relating to imports, by the contractors’
inability to meet our production requirements or by other factors.
.
Fiscal Year Our fiscal year ends on the Saturday nearest to March 31. All references to ‘‘2001,’’ ‘‘2000’’ and ‘‘1999’’ represent the
52- or 53-week fiscal years ended March 31, 2001, April 1, 2000 and April 3, 1999. Fiscal 2001 and 2000 reflect a 52-week period
and fiscal 1999 reflects a 53-week period.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make certain 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 and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates embodied
in the consolidated financial statements include reserves for accounts receivable, inventories and restructuring.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with an original maturity of three
months or less.
Marketable Securities We determine the appropriate classification of our investments in debt securities at the time of pur-
chase and reevaluate such determinations at each balance sheet date. At March 31, 2001, we had invested in debt securities which
we do not intend to hold to maturity. Accordingly, these investments are classified as available-for-sale securities and are carried
at fair value, with the unrealized gains and losses, net of income taxes, reported in stockholders’ equity. The amortized cost of
available-for-sale securities approximated their fair value at March 31, 2001. Gross realized gains and losses on sales of available-
for-sale securities were not material.
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POLO RALPH LAUREN
Our investments in debt securities are diversified among high-credit quality securities in accordance with our risk manage-
ment policy. The following is a summary of our investments in available-for-sale marketable securities at March 31, 2001:
(Dollars in thousands)
CORPORATE DEBT SECURITIES
COMMERCIAL PAPER
MONEY MARKET FUNDS
,
18,462
9,584
22,675
50,721
The contractual maturities of debt securities at March 31, 2001, are as follows: $44.6 million due in one year or less and
$6.1 million due between one and two years. Expected maturities may differ from contractual maturities because the issuers of
the securities may have the right to prepay obligations without prepayment penalties.
Inventories Inventories are valued at the lower of cost (first-in, first-out (‘‘FIFO’’) method) or market. Effective April 4, 1999,
we changed our method of valuing our retail inventories from the retail method to the FIFO method. The impact of this change
was not material.
Store Pre-opening Costs Effective April 4, 1999, we adopted the provisions of Statement of Position No. 98-5 (‘‘SOP No. 98-
5’’), “Reporting on the Costs of Start-up Activities.” SOP No. 98-5 requires that costs of start-up activities, including store
pre-opening costs, be expensed as incurred. Prior to the adoption of SOP No. 98-5, our accounting policy was to capitalize store
pre-opening costs as prepaid expenses and amortize such costs over a 12-month period following store opening. As a result of
adopting SOP No. 98-5, we recorded a charge of $4.0 million, after taxes, in fiscal 2000 as the cumulative effect of a change in
accounting principle in the accompanying consolidated financial statements.
Property, Equipment, Depreciation and Amortization Property and equipment are carried at cost less accumulated deprecia-
tion. Depreciation is provided over the estimated useful lives of the related assets on a straight-line basis. The range of useful
lives is as follows: buildings—37.5 years; furniture and fixtures and machinery and equipment—3 to 10 years. Leasehold
improvements are amortized using the straight-line method over the lesser of the term of the related lease or the estimated use-
ful life (up to 28 years). Major additions and betterments are capitalized, and repairs and maintenance are charged to operations
in the period incurred. Additionally, we capitalize our share of the cost of constructing shop-within-shops under agreements
with retailers and amortize such costs using the straight-line method over their estimated useful lives of 3 to 5 years.
Goodwill Goodwill represents the excess of purchase cost over the fair value of net assets of businesses acquired. We amortize
goodwill on a straight-line basis over its estimated useful life, ranging from 11 to 40 years. Amortization expense was
$8.0 million, $3.7 million and $1.6 million in fiscal 2001, 2000 and 1999. Accumulated amortization was $13.9 million and
$5.9 million at March 31, 2001 and April 1, 2000.
Impairment of Long-Lived and Intangible Assets We assess the carrying value of long-lived and intangible assets, including
unamortized goodwill, as current facts and circumstances indicate that they may be impaired. In evaluating the fair value and
future benefits of such assets, we perform an analysis of the anticipated undiscounted future net cash flows of the individual
assets over the remaining amortization period and would recognize an impairment loss if the carrying value exceeded the
expected future cash flows. The impairment loss would be measured based upon the difference between the fair value of the
asset and its recorded carrying value. See Note 3 for long-lived and intangible asset write downs recorded in connection with our
fiscal 2001 Operational Plan (as defined - see Note 3) and fiscal 1999 Restructuring Plan (as defined - see Note 3).
Officers’ Life Insurance We maintain key man life insurance policies on several of our senior executives, the majority of
which contain split dollar arrangements. The key man policies are recorded at their cash surrender value, while the policies with
split dollar arrangements are recorded at the lesser of their cash surrender value or premiums paid. Amounts recorded under
these policies aggregated $42.0 million and $36.9 million at March 31, 2001 and April 1, 2000, and are included in other assets in
the accompanying consolidated balance sheets.
Revenue Recognition Sales are recognized upon shipment of products to customers since title passes upon shipment and, in
the case of sales by our retail and outlet stores, when goods are sold to consumers. Allowances for estimated uncollectible
accounts and discounts are provided when sales are recorded. Licensing revenue is recognized based upon shipment of licensed
products sold by our licensees, net of allowances.
P40
POLO RALPH LAUREN
Advertising We expense the production costs of advertising, marketing and public relations expenses upon the first showing
of the related advertisement. Total advertising expenses, including cooperative advertising, amounted to $88.8 million,
$73.6 million and $76.2 million in fiscal 2001, 2000 and 1999.
Income Taxes We account for income taxes under the liability method. Deferred tax assets and liabilities are recognized based
on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. A valuation
allowance is recorded to reduce a deferred tax asset to that portion which is expected to more likely than not be realized.
Deferred Rent Obligations We account for rent expense under noncancelable operating leases with scheduled rent increases
and landlord incentives on a straight-line basis over the lease term. The excess of straight-line rent expense over scheduled pay-
ment amounts and landlord incentives is recorded as a deferred liability. Unamortized deferred rent obligations amounted to
$46.8 million and $52.9 million at March 31, 2001 and April 1, 2000, and are included in accrued expenses and other, and other
noncurrent liabilities in the accompanying consolidated balance sheets.
Foreign Currency Transactions and Translations The financial position and results of operations of our foreign subsidiaries
are measured using the local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect
at each year end. Results of operations are translated at the average rate of exchange prevailing throughout the period.
Translation adjustments arising from differences in exchange rates from period to period are included in other comprehensive
income, net of taxes, except for certain foreign-denominated debt. We have designated a portion of our Eurobond (as defined -
See Note 7) debt as a hedge of our net investment in a foreign subsidiary. Transaction gains or losses on the unhedged portion
resulting from changes in the euro rate are recorded in income and amounted to $5.8 million in fiscal 2001. Gains and losses from
other foreign currency transactions are included in operating results and were not material.
Financial Instruments We, from time to time, use derivative financial instruments to reduce our exposure to changes in for-
eign exchange and interest rates. While these instruments are subject to risk of loss from changes in exchange or interest rates,
those losses generally would be offset by gains on the related exposure.
In June 1998, the Financial Accounting Standards Board (‘‘FASB’’) issued Statement of Financial Accounting Standards
(‘‘SFAS’’) No. 133, “Accounting for Derivative Instruments and Hedging Activities” (‘‘SFAS No. 133’’). This Statement, as amend-
ed and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires the recognition of all derivatives, whether desig-
nated in hedging relationships or not, as either assets or liabilities in the statement of financial position, and measurement of
those instruments at fair value. The accounting for changes in the fair value of a derivative is dependent upon the intended use
of the derivative. SFAS No. 133 defines new requirements for designation and documentation of hedging relationships as well as
ongoing effectiveness assessments in order to use hedge accounting. For a derivative that does not qualify as a hedge, changes in
fair value will be recognized in earnings. SFAS No. 133 is effective for our first quarter of our fiscal year ending March 30, 2002.
As described further in Note 9, we have entered into interest rate swap agreements and forward foreign exchange contracts
which qualify as cash flow hedges under SFAS No. 133. In accordance with SFAS No. 133, we will record the fair value of these
derivatives at April 1, 2001 and the resulting net unrealized gain, after taxes, of approximately $4.2 million will be recorded in
other comprehensive income as a cumulative transition adjustment.
Stock Options We use the intrinsic value method to account for stock-based compensation in accordance with Accounting
Principles Board (‘‘APB’’) Opinion No. 25, “Accounting for Stock Issued to Employees” and have adopted the disclosure-only
provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.”
Comprehensive Income Other comprehensive income consists of foreign currency translation adjustments, net of taxes, and is
reflected in the consolidated statements of stockholders’ equity.
Shipping and Handling Costs We reflect shipping and handling costs as a component of selling, general and administrative
expenses in the consolidated statements of income. These costs approximated 2.0% of net sales in each of the fiscal years
presented. We bill our wholesale customers for shipping and handling costs and record such revenues in net sales upon shipment.
rl-2001
P41
POLO RALPH LAUREN
Net Income per Share Basic net income per share was calculated by dividing net income by the weighted average number of
shares outstanding during the period, excluding any potential dilution. Diluted net income per share was calculated similarly
but includes potential dilution from the exercise of stock options and awards. The difference between the basic and diluted
weighted average shares outstanding is due to the dilutive effect of stock options and restricted stock awards issued under our
stock option plans.
Recent Accounting Pronouncements In April 2001, the FASB’s Emerging Issues Task Force reached a consensus on Issue No.
00-25, ‘‘Vendor Income Statement Characteristics of Consideration Paid to a Reseller of the Vendor’s Products” (‘‘EITF No. 00-
25’’). EITF No. 00-25 concluded that consideration from a vendor to a reseller of the vendor’s products is presumed to be a
reduction of the selling prices of the vendor’s products and, therefore, should be characterized as a reduction of revenue when
recognized in the vendor’s income statement. That presumption is overcome and the consideration characterized as a cost
incurred if a benefit is or will be received from the recipient of the consideration if certain conditions are met. This pronounce-
ment is effective for our first quarter in the year ending March 29, 2003. We have not yet determined the impact of adopting this
pronouncement on our consolidated results of operations.
Reclassifications For comparative purposes, certain prior period amounts have been reclassified to conform to the current
period’s presentation.
.
(a) 2001 Operational Plan During the second quarter of fiscal 2001, we completed an internal operational review and for-
malized our plans to enhance the growth of our worldwide luxury retail business, to better manage inventory and to increase
our overall profitability (the ‘‘Operational Plan’’). The major initiatives of the Operational Plan included: refining our retail
strategy; developing efficiencies in our supply chain; and consolidating corporate strategic business functions and
internal processes.
In connection with refining our retail strategy, we closed all 12 Polo Jeans Co. full-price retail stores and 11 under-performing
Club Monaco retail stores. Costs associated with this aspect of the Operational Plan included lease and contract termination
costs, store fixed asset write downs (primarily leasehold improvements of $21.5 million) and severance and termination benefits.
Additionally, as a result of changes in market conditions combined with our change in retail strategy in certain locations in
which we operate full-price retail stores, we performed an evaluation of the recoverability of the assets of certain of these stores
in accordance with SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of.” We concluded from the results of this evaluation that a significant permanent impairment of long-lived assets had
occurred. Accordingly, we recorded a write down of these assets (primarily leasehold improvements) to their estimated fair value
based on discounted future cash flows.
In connection with the implementation of the Operational Plan, we recorded a pretax restructuring charge of $128.6 million
in our second quarter of fiscal 2001. After extensive review of the Operational Plan, and changes in business conditions in cer-
tain markets in which we operate, we made an adjustment to the Operational Plan in our fourth quarter of fiscal 2001. We
recorded a $5.0 million reduction of the liability for lease and contract termination costs resulting from the overestimation of
costs associated with the closure of our retail stores due to market conditions that were more favorable than originally estimated.
The major components of the charge and the activity through March 31, 2001, were as follows:
(Dollars in thousands)
2001 PROVISION
2001 ACTIVITY
BALANCE AT MARCH 31, 2001
7,947
(5,005)
2,942
98,835
(98,835)
–
15,638
(11,469)
4,169
1,134
(352)
782
123,554
(115,661)
7,893
P42
rl-2001
POLO RALPH LAUREN
Our operational review also targeted our supply chain management as one of the most important areas for improvement. In
connection with initiating this aspect of the Operational Plan, we recorded $37.9 million of inventory write downs in our sec-
ond quarter of fiscal year 2001 associated with our planned acceleration in the reduction of aged inventory. In the fourth quarter
of fiscal 2001, we determined that the original provision was not sufficient and recorded additional inventory write downs of
$3.6 million. These charges are reflected in cost of goods sold in the accompanying consolidated statement of income.
Our Operational Plan also included the consolidation of certain corporate strategic business functions and internal processes.
Costs associated with this aspect of the plan included the termination of operating contracts, streamlining of certain corporate
and operating functions, and employee related matters. These costs aggregated $18.1 million and are included in selling, general
and administrative expenses in the accompanying consolidated statement of income.
Total severance and termination benefits as a result of the Operational Plan related to approximately 550 employees, 450 of
whom have been terminated as of March 31, 2001. Total cash outlays related to the Operational Plan are expected to be approxi-
mately $24.7 million, $16.8 million of which have been paid to date. We expect to complete the implementation of the
Operational Plan by the end of our second quarter of fiscal 2002 and expect to settle the remaining liabilities in accordance with
contract terms which extend until fiscal 2003.
(b) 1999 Restructuring Plan During the fourth quarter of fiscal 1999, we formalized our plans to streamline operations with-
in our wholesale and retail operations and reduce our overall cost structure (the ‘‘Restructuring Plan’’). The major initiatives of
the Restructuring Plan included the following: an evaluation of our retail operations and site locations; the realignment and
operational integration of our wholesale operating units; and the realignment and consolidation of corporate strategic business
functions and internal processes.
In an effort to improve the overall profitability of our retail operations, we closed three Polo stores and three outlet stores that
were not performing at an acceptable level. Additionally, we converted two Polo stores and five outlet stores to new concepts
expected to be more productive. Costs associated with this aspect of the Restructuring Plan included lease and contract
termination costs, store fixed asset (primarily leasehold improvements) and intangible asset write downs and severance and
termination benefits.
Our wholesale operations were realigned into two new operating units: Polo Brands and Collection Brands. Aspects of this
realignment included: (i) the reorganization of the sales force and retail development areas; (ii) the streamlining of the design
and development process; and (iii) the consolidation of the customer service departments. Additionally, we integrated the sourc-
ing and production of our Polo Brands, outlet store and licensees’ products into one consolidated unit. Costs associated with the
wholesale realignment consisted primarily of severance and termination benefits and lease termination costs. Our review of our
corporate business functions and internal processes resulted in a new management structure designed to better align businesses
with similar functions and to identify and eliminate duplicative processes. Costs associated with the corporate realignment con-
sisted primarily of severance and termination benefits and lease and contract termination costs.
In connection with the implementation of the Restructuring Plan, we recorded a pretax restructuring charge of $58.6 million
in our fourth quarter of fiscal 1999. The major components of the restructuring charge and the activity through March 31, 2001,
were as follows:
(Dollars in thousands)
1999 PROVISION
1999 ACTIVITY
BALANCE AT APRIL 3, 1999
2000 ACTIVITY
BALANCE AT APRIL 1, 2000
2001 ACTIVITY
BALANCE AT MARCH 31, 2001
15,277
(3,318)
11,959
(4,694)
7,265
(3,019)
4,246
17,788
(17,788)
–
–
–
–
–
24,665
(1,112)
23,553
(18,675)
4,878
(3,131)
1,747
830
(105)
725
(585)
140
(140)
–
58,560
(22,323)
36,237
(23,954)
12,283
(6,290)
5,993
P43
POLO RALPH LAUREN
After extensive review of the Restructuring Plan, and changes in business conditions in certain markets in which we operate,
we made adjustments to the Restructuring Plan and incurred other restructuring related costs in fiscal 2000. These adjustments
included the following: (i) a $0.9 million reduction of the liability for lease and contract termination costs resulting from the
overestimation of costs associated with the closure and conversion of our retail stores due to improved market conditions; and
(ii) a $0.9 million charge for the underestimation of severance and termination benefits recorded in the Restructuring Plan. The
above adjustments had no net impact.
Total severance and termination benefits as a result of the Restructuring Plan related to 280 employees, all of whom have been
terminated. Total cash outlays related to the Restructuring Plan are approximately $39.5 million, $33.5 million of which have
been paid to date. We completed the implementation of the Restructuring Plan in fiscal 2000 and expect to settle the remaining
liabilities in accordance with contract terms which extend until fiscal 2003.
.
(Dollars in thousands)
RAW MATERIALS
WORK-IN-PROCESS
FINISHED GOODS
.
(Dollars in thousands)
LAND AND IMPROVEMENTS
BUILDINGS
FURNITURE AND FIXTURES
MACHINERY AND EQUIPMENT
LEASEHOLD IMPROVEMENTS
LESS: ACCUMULATED DEPRECIATION AND AMORTIZATION
.
(Dollars in thousands)
ACCRUED OPERATING EXPENSES
ACCRUED PAYROLL AND BENEFITS
ACCRUED RESTRUCTURING CHARGE
ACCRUED ACQUISITION OBLIGATION
ACCRUED SHOP-WITHIN-SHOPS
P44
,
7,024
6,251
412,319
425,594
,
3,408
10,178
229,824
56,833
304,681
604,924
,
13,649
6,337
370,967
390,953
,
3,108
10,178
192,444
49,807
350,367
605,904
275,995
328,929
232,927
372,977
,
108,441
37,760
13,886
–
15,085
175,172
,
90,467
26,621
12,283
21,637
17,808
168,816
POLO RALPH LAUREN
.
On June 9, 1997, we entered into a credit facility with a syndicate of banks which consists of a $225.0 million revolving line of
credit available for the issuance of letters of credit, acceptances and direct borrowings and matures on December 31, 2002 (the
‘‘Credit Facility’’). Borrowings under the Credit Facility bear interest, at our option, at a Base Rate equal to the higher of the
Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial
lending rate of The Chase Manhattan Bank in effect from time to time, or at the Eurodollar Rate plus an interest margin.
On March 30, 1999, in connection with our acquisition of Club Monaco, we entered into a $100.0 million senior credit facility
(the ‘‘1999 Credit Facility’’) with a syndicate of banks consisting of a $20.0 million revolving line of credit and an $80.0 million
term loan (the ‘‘Term Loan’’). The revolving line of credit is available for working capital needs and general corporate purposes
and matures on June 30, 2003. The Term Loan was used to finance the acquisition of the stock of Club Monaco and to repay
existing indebtedness of Club Monaco. The Term Loan is repayable on June 30, 2003. Borrowings under the 1999 Credit Facility
bear interest, at our option, at a Base Rate equal to the higher of the Federal Funds Rate, as published by the Federal Reserve
Bank of New York, plus 1/2 of one percent, and the prime commercial lending rate of The Chase Manhattan Bank in effect from
time to time, or at the Eurodollar Rate plus an interest margin. In April 1999, we entered into interest rate swap agreements with
a notional amount of $100.0 million to convert the variable interest rate on the 1999 Credit Facility to a fixed rate of 5.5%
(see Note 9).
The Credit Facility and 1999 Credit Facility (the ‘‘Credit Facilities’’) contain customary representations, warranties, covenants
and events of default, including covenants regarding maintenance of net worth and leverage ratios, limitations on indebtedness,
loans, investments and incurrences of liens, and restrictions on sales of assets and transactions with affiliates. Additionally, the
agreements provide that an event of default will occur if Mr. Lauren and related entities fail to maintain a specified minimum
percentage of the voting power of our common stock. On October 18, 2000, we received consent from our lenders under the
Credit Facilities permitting us to incur the charges we recorded in connection with the Operational Plan (see Note 3) up to spec-
ified thresholds.
On November 22, 1999, we issued Euro 275.0 million of 6.125 percent Notes (the ‘‘Eurobonds’’) due November 2006 (the
‘‘Eurobond Offering’’). The Eurobonds are listed on the London Stock Exchange. The net proceeds from the Eurobond Offering
were $281.5 million based on the Euro exchange rate on the issuance date. A portion of the net proceeds from the issuance was
used to finance the acquisition of stock and certain assets of Poloco while the remaining net proceeds were retained for general
corporate purposes. Interest on the Eurobonds is payable annually. During fiscal 2001, we repurchased 27.5 million of our out-
standing Eurobonds, or $25.3 million based on Euro exchange rates. The loss on this early extinguishment of debt was
not material.
As discussed in Note 2 (b), in connection with the Poloco acquisition, the Company assumed borrowings under short-term
facilities which represent overdraft positions on bank accounts. These borrowings bore interest at .5% to 1.0% over the Euro
Overnight Indexed Average which was 5.16% and 3.75% at March 31, 2001 and April 1, 2000.
At March 31, 2001, we had $86.1 million outstanding in direct borrowings, $80.0 million outstanding under the Term Loan
and $217.0 million outstanding in Eurobonds based on the year-end Euro exchange rate. We were also contingently liable for
$34.2 million in outstanding letters of credit related primarily to commitments for the purchase of inventory. At April 1, 2000,
we had $86.1 million outstanding in direct borrowings, $80.0 million outstanding under the Term Loan and $262.7 million out-
standing in Eurobonds based on the year-end Euro exchange rate. The Credit Facilities bore interest primarily at the institution’s
prime rate (ranging from 5.9% to 8.5% at March 31, 2001 and 6.9% to 9.0% at April 1, 2000). The weighted average interest rate
on borrowings was 6.3%, 6.1% and 7.4% in fiscal 2001, 2000 and 1999.
rl-2001
P45
POLO RALPH LAUREN
.
The components of the provision for income taxes were as follows:
:
(Dollars in thousands)
CURRENT:
FEDERAL
STATE AND LOCAL
FOREIGN
DEFERRED:
FEDERAL
STATE AND LOCAL
27,984
21,605
12,533
62,122
(11,689)
(11,741)
(23,430)
38,692
71,565
17,398
5,698
94,661
4,527
2,234
6,761
101,422
68,012
15,080
4,955
88,047
(19,654)
(6,117)
(25,771)
62,276
The foreign and domestic components of income (loss) before income taxes were as follows:
:
(Dollars in thousands)
DOMESTIC
FOREIGN
127,071
(29,117)
97,954
215,270
33,616
248,886
102,644
50,182
152,826
The deferred tax assets reflect the net tax effect of temporary differences, primarily net operating loss carryforwards, property
and equipment, and accounts receivable, between the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. The components of the net deferred tax assets at March 31, 2001 and April 1, 2000,
were as follows:
(Dollars in thousands)
DEFERRED TAX ASSETS:
NET OPERATING LOSS CARRYFORWARDS
PROPERTY AND EQUIPMENT
ACCOUNTS RECEIVABLE
UNIFORM INVENTORY CAPITALIZATION
DEFERRED COMPENSATION
RESTRUCTURING RESERVES
TRADEMARK EXPENSES
ACCRUED EXPENSES
ACCRUED ROYALTY INCOME
OTHER
LESS: VALUATION ALLOWANCE
,
,
30,651
27,622
14,785
8,217
6,628
5,106
4,473
2,057
1,941
13,246
114,726
22,426
92,300
15,602
1,082
20,353
7,945
6,778
4,709
2,924
3,327
3,519
2,569
68,808
17,362
51,446
P46
rl-2001
POLO RALPH LAUREN
We have available Federal net operating loss carryforwards of approximately $17.2 million and state net operating loss carry-
forwards of approximately $202.2 million for tax purposes to offset future taxable income. The net operating loss carryforwards
expire beginning in fiscal 2004. The utilization of the Federal net operating loss carryforwards is subject to the limitations of
Internal Revenue Code Section 382 which applies following certain changes in ownership of the entity generating the loss carry-
forward. As a result of the limitation of Section 382, we believe that approximately $3.2 million of the federal net operating loss
carryforwards will expire and not be utilized. A valuation allowance has been recorded against such net operating losses.
Also, we have available additional state and foreign net operating loss carryforwards of approximately $15.0 million and
$20.4 million for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded since we do
not believe that we will more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent
recognition of a substantial portion of the deferred tax asset relating to these Federal, state and foreign net operating loss carry-
forwards would result in a reduction of goodwill recorded in connection with acquisitions. Additionally, we have recorded a
valuation allowance against certain other deferred tax assets relating to our Canadian operations. Subsequent recognition of
these deferred tax assets, as well as a portion of the foreign net operating loss carryforwards, would result in an income tax bene-
fit in the year of such recognition.
Provision has not been made for United States or additional foreign taxes on approximately $49.0 million of undistributed
earnings of foreign subsidiaries. Those earnings have been and will continue to be reinvested. These earnings could become sub-
ject to tax if they were remitted as dividends, if foreign earnings were lent to PRLC or a subsidiary or U.S. affiliate of PRLC, or if
the stock of the subsidiaries were sold. Determination of the amount of unrecognized deferred tax liability with respect to such
earnings is not practical. We believe that the amount of the additional taxes that might be payable on the earnings of foreign
subsidiaries, if remitted, would be partially offset by United States foreign tax credits.
The historical provision for income taxes in fiscal 2001, 2000 and 1999 differs from the amounts computed by applying the
statutory Federal income tax rate to income before income taxes due to the following:
:
(Dollars in thousands)
PROVISION FOR INCOME TAXES AT STATUTORY FEDERAL RATE
INCREASE (DECREASE) DUE TO:
STATE AND LOCAL INCOME TAXES, NET OF FEDERAL BENEFIT
FOREIGN INCOME, NET
OTHER
.
34,284
6,005
(2,499)
902
38,692
87,110
53,489
12,761
753
798
101,422
5,825
1,055
1,907
62,276
In April 1999, we entered into interest rate swap agreements with commercial banks which expire in 2003 to hedge against
interest rate fluctuations. The swap agreements effectively convert borrowings under the 1999 Credit Facility from variable rate
to fixed rate obligations. Under the terms of these agreements, we make payments at a fixed rate of 5.5% and receive payments
from the counterparty based on the notional amount of $100.0 million at a variable rate based on the London Inter-Bank Offer
Rate (‘‘LIBOR’’). The net interest paid or received on this arrangement is included in interest expense. The fair value of these
agreements was an unrealized loss of $1.4 million and an unrealized gain of $4.4 million at March 31, 2001 and April 1, 2000,
based upon the estimated amount that we would have to pay or would receive to terminate the agreements, as determined by the
financial institutions.
We entered into forward foreign exchange contracts as hedges relating to identifiable currency positions to reduce our risk
from exchange rate fluctuations. Gains and losses on these contracts are deferred and recognized as adjustments to the basis of
those assets. These gains and losses were not material. At March 31, 2001, we had foreign exchange contracts outstanding
as follows: (i) to receive 60 million French Francs in fiscal 2001 in exchange for 5.6 million British Pounds; (ii) to deliver 279
million French Francs in fiscal 2001 in exchange for $50.0 million; (iii) to deliver 1.5 million British Pounds in fiscal 2001 in
exchange for Euro 2.5 million; and (iv) to deliver $1.3 million in fiscal 2001 in exchange for Euro 1.5 million. The fair value of
these contracts resulted in an unrealized gain of approximately $10.0 million at March 31, 2001.
P47
POLO RALPH LAUREN
The carrying amounts of financial instruments reported in the accompanying consolidated balance sheets at March 31, 2001
and April 1, 2000, approximated their estimated fair values, except for the Eurobonds, primarily due to either the short-term
maturity of the instruments or their adjustable market rate of interest. The fair value of the Eurobonds, net of discounts, was
$217.1 million and $258.6 million as of March 31, 2001 and April 1, 2000, based on its quoted market price as listed on the
London Stock Exchange. Considerable judgment is required in interpreting certain market data to develop estimated fair values
for certain financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that
we could realize in a current market exchange.
.
We sell our merchandise primarily to major upscale department stores across the United States and extend credit based on an
evaluation of the customer’s financial condition generally without requiring collateral. Credit risk is driven by conditions or
occurrences within the economy and the retail industry and is principally dependent on each customer’s financial condition. A
decision by the controlling owner of a group of stores or any substantial customer to decrease the amount of merchandise pur-
chased from us or to cease carrying our products could have a material adverse effect. We had three customers who in aggregate
constituted approximately 52.0% and 54.0% of trade accounts receivable outstanding at March 31, 2001 and April 1, 2000.
We had three significant customers who accounted for approximately 11.0%, 10.0% and 10.0% each of net sales in fiscal 2001,
and for approximately 12.0%, 11.0% and 10.0% each of net sales in fiscal 2000. We had two significant customers who account-
ed for approximately 10.0% each of net sales in fiscal 1999. Additionally, we had four significant licensees who in aggregate
constituted approximately 53.0%, 58.0% and 55.0% of licensing revenue in fiscal 2001, 2000 and 1999.
We monitor credit levels and the financial condition of our customers on a continuing basis to minimize credit risk. We
believe that adequate provision for credit loss has been made in the accompanying consolidated financial statements.
We are also subject to concentrations of credit risk with respect to our cash and cash equivalents, marketable securities, inter-
est rate swap agreements and forward foreign exchange contracts which we attempt to minimize by entering into these
arrangements with major banks and financial institutions and investing in high-quality instruments. We do not expect any
counterparties to fail to meet their obligations.
.
Profit Sharing Retirement Savings Plans We sponsor two defined contribution benefit plans covering substantially all eligible
U.S. employees not covered by a collective bargaining agreement. The plans include a savings plan feature under Section 401(k)
of the Internal Revenue Code. We make discretionary contributions to the plans and contribute an amount equal to 50% of the
first 6% of an employee’s contribution. Under the terms of the plans, a participant is 100% vested in our matching and discre-
tionary contributions after five years of credited service. Contributions under these plans approximated $7.4 million,
$4.3 million and $8.7 million in fiscal 2001, 2000 and 1999.
Union Pension We participate in a multi-employer pension plan and are required to make contributions to the Union of
Needletrades Industrial and Textile Employees (the ‘‘Union’’) for dues based on wages paid to union employees. A portion of
these dues is allocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers.
We do not participate in the management of the plan and have not been furnished with information with respect to the type of
benefits provided, vested and nonvested benefits or assets.
Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or termina-
tion of a multi-employer plan, is required to continue funding its proportionate share of the plan’s unfunded vested benefits.
Such withdrawal liability was assumed in conjunction with the acquisition of certain assets from a nonaffiliated licensee. We
have no current intention of withdrawing from the plan.
Deferred Compensation We have deferred compensation arrangements for certain key executives which generally provide for
payments upon retirement, death or termination of employment. The amounts accrued under these plans were $18.1 million
and $16.7 million at March 31, 2001 and April 1, 2000 and are reflected in other noncurrent liabilities in the accompanying con-
solidated balance sheets. Total compensation expense recorded was $3.2 million, $2.6 million and $2.7 million in fiscal 2001,
P48
POLO RALPH LAUREN
2000 and 1999. We fund a portion of
trust accounts on behalf
of the executives participating in the plans. The trust accounts are reflected in other assets in the accompanying
consolidated balance sheets.
these obligations through the establishment of
.
All of our outstanding Class B Common Stock is owned by Mr. Ralph Lauren and related entities and all of our outstanding
Class C Common Stock is owned by certain investment funds affiliated with The Goldman Sachs Group, Inc., (collectively, the
“GS Group”). Shares of Class B Common Stock are convertible at any time into shares of Class A Common Stock on a one-for-
one basis and may not be transferred to anyone other than affiliates of Mr. Lauren. Shares of Class C Common Stock are
convertible at any time into shares of Class A Common Stock on a one-for-one basis and may not be transferred to anyone other
than among members of the GS Group or, until April 15, 2002, any successor of a member of the GS Group. The holders of Class
A Common Stock generally have rights identical to holders of Class B Common Stock and Class C Common Stock, except that
holders of Class A Common Stock and Class C Common Stock are entitled to one vote per share and holders of Class B
Common Stock are entitled to ten votes per share. Holders of all classes of Common Stock entitled to vote will vote together as a
single class on all matters presented to the stockholders for their vote or approval except for the election and the removal of
directors and as otherwise required by applicable law. Class A Common Stock, Class B Common Stock and Class C Common
Stock are collectively referred to herein as ‘‘Common Stock.’’
.
On June 9, 1997, our Board of Directors adopted the 1997 Long-Term Stock Incentive Plan (the ‘‘Stock Incentive Plan’’). The
Stock Incentive Plan authorizes the grant of awards to any officer or other employee, consultant to, or director with respect to a
maximum of 10.0 million shares of our Class A Common Stock (the ‘‘Shares’’), subject to adjustment to avoid dilution or
enlargement of intended benefits in the event of certain significant corporate events, which awards may be made in the form of:
(i) nonqualified stock options; (ii) stock options intended to qualify as incentive stock options under Section 422 of the Internal
Revenue Code; (iii) stock appreciation rights; (iv) restricted stock and/or restricted stock units; (v) performance awards; and
(vi) other stock-based awards. On June 13, 2000, our Board of Directors increased the maximum number of Shares that can be
granted under the Stock Incentive Plan to 20.0 million shares. At March 31, 2001, we had an additional 11.0 million Shares
reserved for issuance under this plan.
On June 9, 1997, our Board of Directors adopted the 1997 Stock Option Plan for Non-Employee Directors (the ‘‘Non-
Employee Directors Plan’’). Under the Non-Employee Directors Plan, grants of options to purchase up to 500,000 Shares may be
granted to non-employee directors. Stock options vest in equal installments over two years and expire ten years from the date of
grant. In fiscal 2001, 2000 and 1999, our Board of Directors granted options to purchase 12,250, 12,000 and 28,500 Shares with
exercise prices equal to the stock’s fair market value on the date of grant. At March 31, 2001, we had 417,250 options reserved for
issuance under this plan.
Stock options were granted in fiscal 2001, 2000 and 1999 under the plans with an exercise price equal to the stock’s fair market
value on the date of grant. These options vest in equal installments primarily over three years for officers and other key employ-
ees and over two years for all remaining employees and non-employee directors. The options expire ten years from the date of
grant. No compensation cost has been recognized in the accompanying consolidated financial statements in accordance with
APB No. 25. If compensation cost had been recognized for stock options granted under the plans based on the fair value of the
stock options at the grant date in accordance with SFAS No. 123, our historical net income and net income per share in fiscal
2001, 2000 and 1999 would have been reduced to the following pro forma amounts:
:
(Dollars in thousands, except per share data)
PRO FORMA NET INCOME
PRO FORMA NET INCOME PER SHARE—
BASIC
DILUTED
43,120
128,000
0.45
0.44
1.29
1.29
77,953
0.78
0.78
rl-2001
P49
POLO RALPH LAUREN
We used the Black-Scholes option-pricing model to determine the fair value of grants made. The weighted average fair value
of options granted was $11.14, $12.33 and $14.02 per share in fiscal 2001, 2000 and 1999. The following assumptions were
applied in determining the fair value of options granted:
:
RISK-FREE INTEREST RATE
EXPECTED DIVIDEND YIELD
WEIGHTED AVERAGE EXPECTED OPTION LIFE
EXPECTED STOCK PRICE VOLATILITY
6.35 %
0 %
6.0 yrs.
85.0 %
5.81 %
0 %
6.0 yrs.
65.0 %
5.46 %
0 %
6.0 yrs.
44.0 %
Stock option activity for the Stock Incentive Plan and Non-Employee Directors Plan in fiscal 2001, 2000 and 1999 was as follows:
(Shares in thousands)
BALANCE AT MARCH 28, 1998
GRANTED
EXERCISED
FORFEITED
BALANCE AT APRIL 3, 1999
GRANTED
EXERCISED
FORFEITED
BALANCE AT APRIL 1, 2000
GRANTED
EXERCISED
FORFEITED
BALANCE AT APRIL 1, 2001
Additional information relating to options outstanding as of March 31, 2001, was as follows:
-
-
$13.94 - $17.06
$17.13 - $19.56
$20.19 - $25.19
$26.00 - $29.91
2,576
2,144
328
3,820
8,868
9.2
8.2
8.6
6.5
7.8
14.28
19.00
22.14
26.71
20.79
4,084
1,736
(4)
(518)
5,298
2,767
–
(815)
7,250
2,831
(449)
(764)
8,868
26.00
27.70
26.00
26.24
26.53
19.07
–
25.64
23.77
14.73
22.95
22.00
20.79
-
17.06
18.98
22.52
6.53
25.31
9
607
95
3,414
4,125
In March 1998, our Board of Directors authorized the repurchase, subject to market conditions, of up to $100.0 million of our
Shares. Share repurchases were made in the open market over the two-year period which commenced April 1, 1998. On March 2,
2000, our Board of Directors authorized a two-year extension to the stock repurchase program. Shares acquired under the
repurchase program will be used for stock option programs and other corporate purposes. The repurchased Shares have been
accounted for as treasury stock at cost. At March 31, 2001, we had repurchased 3,771,806 Shares at an aggregate cost of
$71.2 million.
P50
rl-2001
POLO RALPH LAUREN
.
Leases We lease office, warehouse and retail space and office equipment under operating leases which expire through 2029.
As of March 31, 2001, aggregate minimum annual rental payments under noncancelable operating leases with lease terms in
excess of one year were payable as follows:
:
(Dollars in thousands)
2002
2003
2004
2005
2006
THEREAFTER
80,842
73,473
69,055
62,669
54,891
318,553
659,483
Rent expense charged to operations was $75.6 million, $66.7 million and $59.6 million, net of sublease income of
$2.2 million, $1.7 million and $1.6 million, in fiscal 2001, 2000 and 1999. Substantially all outlet and retail store leases provide
for contingent rentals based upon sales and require us to pay taxes, insurance and occupancy costs. Certain rentals are based
solely on a percentage of sales, and one significant lease requires a fair market value adjustment at January 1, 2004. Contingent
rental charges included in rent expense were $6.1 million, $5.3 million and $4.1 million in fiscal 2001, 2000
and 1999.
Employment Agreements We are party to employment agreements with certain executives which provide for compensation
and certain other benefits. The agreements also provide for severance payments under certain circumstances.
Taxes The predecessor of Poloco, which we acquired in January 2000, has been subject to a tax audit in France for the years
1996, 1997 and 1998. In late December 1999, the French tax authorities issued a notification preliminarily advising that addi-
tional taxes, penalties and interest would be due for the years in question. Poloco and its former parent, S.A. Louis Dreyfus
(‘‘Dreyfus’’) are contesting the assessment. We are indemnified by Dreyfus under the purchase agreement.
Legal Matters In January 1999, two actions were filed in California naming as defendants more than a dozen United States-
based companies that source apparel garments from Saipan (Commonwealth of the Northern Mariana Islands) and a large
number of Saipan-based factories. The actions assert that the Saipan factories engage in unlawful practices relating to the
recruitment and employment of foreign workers and that the apparel companies, by virtue of their alleged relationships with the
factories, have violated various Federal and state laws. One action, filed in California Superior Court in San Francisco by a union
and three public interest groups, alleges unfair competition and false advertising and seeks equitable relief, unspecified amounts
for restitution and disgorgement of profits, interest and an award of attorney’s fees. The second, filed in Federal Court for the
Central District of California and subsequently transferred to the United States District Court for the District of Hawaii, is
brought on behalf of a purported class consisting of the Saipan factory workers. It alleges claims under the Federal civil RICO
statute, Federal peonage and involuntary servitude laws, the Alien Tort Claims Act, and state tort law, and seeks equitable relief
and unspecified damages, including treble and punitive damages, interest and an award of attorney’s fees. Although we were not
named as a defendant in these suits, we source products in Saipan, and counsel for the plaintiffs in these actions informed us
that we are a potential defendant in these or similar actions. We have since entered into an agreement to settle any claims for
nonmaterial consideration. The settlement agreement is subject to court approval. We have denied any liability and are
not in a position to evaluate the likelihood of a favorable or unfavorable outcome if the settlement is not approved and
litigation proceeds.
As part of the settlement, we have since been named as a defendant, along with certain other apparel companies, in a State
Court action in California styled Union of Needletrades Industrial and Textile Employees, et al. v. Brylane, L.P., et al., in the San
Francisco County Superior Court for the District of Hawaii, that mirrors portions of the larger State and Federal Court actions
but does not include RICO and certain of the other claims alleged in those actions. The newly filed actions are expected to
remain inactive unless settlement is not finally approved by the Federal Court.
P51
POLO RALPH LAUREN
We are from time to time involved in legal claims, involving trademark and intellectual property, licensing, employee relations
and other matters incidental to our business. In our opinion, the resolution of any matter currently pending will not have a
material adverse effect on our consolidated financial condition or results of operations.
. ()
The following is a summary of certain unaudited quarterly financial information for fiscal 2001 and 2000:
(Dollars in thousands, except per share data)
NET REVENUES
GROSS PROFIT
NET INCOME (LOSS)
NET INCOME (LOSS) PER SHARE—
BASIC
DILUTED
SHARES OUTSTANDING—BASIC
SHARES OUTSTANDING—DILUTED
(Dollars in thousands, except per share data)
NET REVENUES
GROSS PROFIT
NET INCOME
NET INCOME PER SHARE—BASIC AND DILUTED
SHARES OUTSTANDING—BASIC
SHARES OUTSTANDING—DILUTED
,
487,297
252,547
23,983
0.25
0.25
97,092
97,350
,
434,421
216,975
24,110
0.24
99,533
99,704
. ,
586,217
250,133
(62,821)
(0.65)
(0.65)
96,713
97,256
. ,
543,885
269,415
55,349
0.56
99,118
99,251
. ,
613,740
297,520
50,603
0.52
0.52
96,530
97,347
. ,
510,299
239,580
32,268
0.33
98,808
98,938
,
538,520
262,847
47,497
0.49
0.48
96,740
98,164
,
466,923
227,168
31,770
0.32
98,243
98,347
P52
POLO RALPH LAUREN
.
We have three reportable business segments: wholesale, retail and licensing. Our reportable segments are individual business
units that offer different products and services. The segments are managed separately because each segment requires different
strategic initiatives, promotional campaigns, marketing, and advertising, based upon its own individual positioning in the mar-
ket. Additionally, these segments reflect the reporting basis used internally by senior management to evaluate performance and
the allocation of resources.
Our wholesale segment consists of two operating units: Polo Brands and Collection Brands. Each unit designs, sources, mar-
kets and distributes discrete brands. Both units primarily sell products to major department and specialty stores and to our
owned and licensed retail stores.
The retail segment operates two types of stores: outlet and full price stores, including flagship stores. The stores sell our prod-
ucts purchased from our wholesale segment, our licensees and our suppliers.
The licensing segment, which consists of product, international and home collection, generates revenues from royalties
through its licensing alliances. The licensing agreements grant the licensee rights to use our various trademarks in connection
with the manufacture and sale of designated products in specified geographical areas.
The accounting policies of the segments are consistent with those described in Note 2, Significant Accounting Policies.
Intersegment sales and transfers are recorded at cost and treated as a transfer of inventory. All intercompany revenues and prof-
its or losses are eliminated in consolidation. We do not review these sales when evaluating segment performance. We evaluate
each segment’s performance based upon income or loss from operations before interest, nonrecurring gains and losses
and income taxes. Corporate overhead expenses are allocated to each segment based upon each segment’s usage of
corporate resources.
Our net revenues, income from operations, depreciation and amortization expense and capital expenditures for fiscal 2001,
2000 and 1999, and total assets as of March 31, 2001, April 1, 2000 and April 3, 1999, for each segment were as follows:
:
(Dollars in thousands)
NET REVENUES:
WHOLESALE
RETAIL
LICENSING
INCOME FROM OPERATIONS:
WHOLESALE
RETAIL
LICENSING
LESS: UNALLOCATED RESTRUCTURING AND SPECIAL CHARGES
ADD: CUMULATIVE EFFECT OF PRETAX ACCOUNTING CHANGE
DEPRECIATION AND AMORTIZATION:
WHOLESALE
RETAIL
LICENSING
CAPITAL EXPENDITURES:
WHOLESALE
RETAIL
LICENSING
CORPORATE
1,053,842
928,577
243,355
2,225,774
885,246
833,980
236,302
1,955,528
859,498
659,352
208,009
1,726,859
127,040
27,710
145,598
300,348
183,127
–
117,221
31,642
35,896
11,061
78,599
20,957
57,836
6,217
20,160
105,170
81,139
26,176
149,900
257,215
–
6,696
263,911
23,004
36,393
6,883
66,280
16,219
60,778
3,813
41,200
122,010
59,796
31,840
122,509
214,145
58,560
–
155,585
21,111
20,349
4,954
46,414
32,013
59,568
7,817
42,294
141,692
rl-2001
P53
POLO RALPH LAUREN
(Dollars in thousands)
TOTAL ASSETS:
WHOLESALE
RETAIL
LICENSING
CORPORATE
,
,
,
604,834
528,836
154,714
337,709
1,626,093
524,223
596,989
202,090
297,260
1,620,562
376,154
424,203
73,389
230,838
1,104,584
Our net revenues for fiscal 2001, 2000 and 1999, and our long-lived assets as of March 31, 2001 and April 1, 2000, by geo-
graphic location were as follows:
:
(Dollars in thousands)
NET REVENUES:
UNITED STATES
FOREIGN COUNTRIES
LONG-LIVED ASSETS:
UNITED STATES
FOREIGN COUNTRIES
1,875,223
350,551
2,225,774
1,802,246
153,282
1,955,528
1,648,092
78,767
1,726,859
,
,
286,257
42,672
328,929
306,439
66,538
372,977
P54
rl-2001
POLO RALPH LAUREN
:
(Dollars in thousands, except share data)
,
,
,
,
,
STATEMENT OF INCOME:
NET SALES
LICENSING REVENUE
NET REVENUES
COST OF GOODS SOLD
GROSS PROFIT
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES
RESTRUCTURING CHARGE
TOTAL EXPENSES
INCOME FROM OPERATIONS
FOREIGN CURRENCY GAINS
INTEREST EXPENSE
EQUITY IN NET LOSS OF JOINT VENTURE
INCOME BEFORE INCOME TAXES AND
CHANGE IN ACCOUNTING PRINCIPLE
PROVISION FOR INCOME TAXES
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET OF TAXES
NET INCOME
INCOME PER SHARE BEFORE
CHANGE IN ACCOUNTING PRINCIPLE
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE, NET PER SHARE
NET INCOME PER SHARE—BASIC AND DILUTED
COMMON SHARES OUTSTANDING—BASIC
COMMON SHARES OUTSTANDING—DILUTED
(Dollars in thousands)
BALANCE SHEET DATA:
WORKING CAPITAL
INVENTORIES
TOTAL ASSETS
TOTAL DEBT
STOCKHOLDERS’ EQUITY AND PARTNERS’ CAPITAL
1,982,419
243,355
2,225,774
1,162,727
1,063,047
1,719,226
236,302
1,955,528
1,002,390
953,138
1,518,850
208,009
1,726,859
904,586
822,273
1,313,425
167,119
1,480,544
759,988
720,556
1,051,104
137,113
1,188,217
652,000
536,217
520,801
–
520,801
199,755
–
(159)
–
199,596
52,025
147,571
378,854
–
378,854
157,363
–
(13,660)
(3,599)
140,104
22,804
117,300
–
147,571
–
117,300
822,272
123,554
945,826
117,221
5,846
(25,113)
–
97,954
38,692
59,262
–
59,262
0.61
–
0.61
689,227
–
689,227
263,911
–
(15,025)
–
248,886
101,422
147,464
3,967
143,497
1.49
0.04
1.45
608,128
58,560
666,688
155,585
–
(2,759)
–
152,826
62,276
90,550
–
90,550
0.91
–
0.91
96,773,282
98,926,993
99,813,328
97,446,482
99,035,781
99,972,152
,
,
,
,
,
462,144
425,594
1,626,093
383,100
809,309
446,663
390,953
1,620,562
428,838
772,437
331,482
376,860
1,104,584
159,717
658,905
354,206
298,485
825,130
337
584,326
209,038
222,147
588,758
140,900
260,685
P55
POLO RALPH LAUREN
President, Polo Retail Group
Executive Vice President
Women’s Design and Advertising
.
Executive Vice President
Polo Retail Corporation
.
President and Chief Operating Officer
Polo Europe
President, Polo Brands
Executive Vice President, Men’s Design
President and Chief Executive Officer
Club Monaco
.
Executive Vice President, Creative Services,
Polo Shop Development and Home Collection
Design Studio
.
President, Ralph Lauren Home Collection
.
President, Collection Brands
President, New Business Development
Chairman and Chief Executive Officer
Polo Ralph Lauren Corporation
. , .
President and Chief Executive Officer
The Hearst Corporation
. .
President
Fashion Institute of Technology
.
President and Chief Operating Officer
Polo Ralph Lauren Corporation
.
Professor of Law and Public Policy Studies
Duke University
.
Managing Director
Goldman, Sachs & Co.
.
Vice Chairman
Polo Ralph Lauren Corporation
.
President and Chief Operating Officer
Discovery Communications, Inc.
Chairman and Chief Executive Officer
J.C. Penney Company, Inc.
.
Chairman and Chief Executive Officer
Yahoo! Inc.
Chairman and Chief Executive Officer
.
Vice Chairman
.
President and Chief Operating Officer
.
Group President, Global Business Development
.
Senior Vice President of Finance, Chief Financial Officer
©
P56
CORPORATE OFFICES
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INVESTOR RELATIONS
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m
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Polo Ralph Lauren Corporation’s
Class A Common Stock is listed
on the New York Stock Exchange.
:
ANNUAL MEETING
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REGISTRAR AND TRANSFER AGENT
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INDEPENDENT AUDITORS
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