Ralph Lauren Annual Report 2010

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K(Mark One)  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 3, 2010 or oo TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934Commission File Number: 001-13057POLO RALPH LAUREN CORPORATION(Exact name of registrant as specified in its charter)Delaware(State or other jurisdiction of incorporation or organization) 13-2622036(I.R.S. Employer Identification No.) 650 Madison Avenue, New York, New York(Address of principal executive offices) 10022(Zip Code)(212) 318-7000(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on Which RegisteredClass A Common Stock, $.01 par value New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes  No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  No oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). Yes o No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best ofregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See thedefinitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer  Accelerated filer oNon-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No The aggregate market value of the registrant’s voting common stock held by non-affiliates of the registrant was approximately $4,059,612,874 as ofSeptember 26, 2009, the last business day of the registrant’s most recently completed second fiscal quarter based on the closing price of the common stock on theNew York Stock Exchange.At May 21, 2010, 56,313,332 shares of the registrant’s Class A common stock, $.01 par value and 41,880,021 shares of the registrant’s Class B commonstock, $.01 par value were outstanding.Part III incorporates information from certain portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commissionwithin 120 days after the fiscal year end of April 3, 2010.Table of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSVarious statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the Securitiesand Exchange Commission (the “SEC”), in our press releases and in oral statements made from time to time by us or on our behalfconstitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-lookingstatements 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 the futureresults, performance or achievements expressed in or implied by such forward-looking statements. Forward-looking statements includestatements regarding, among other items: • our anticipated growth strategies; • our plans to continue to expand internationally; • the impact of the economic recession on the ability of our customers, suppliers and vendors to access sources of liquidity; • the impact of the significant downturn in the global economy on consumer purchases of premium lifestyle products that we offerfor sale; • our plans to open new retail stores; • our ability to make certain strategic acquisitions of certain selected licenses held by our licensees; • our intention to introduce new products or enter into new alliances; • anticipated effective tax rates in future years; • future expenditures for capital projects; • our ability to continue to pay dividends and repurchase Class A common stock; • our ability to continue to maintain our brand image and reputation; • our ability to continue to initiate cost cutting efforts and improve profitability; and • our efforts to improve the efficiency of our distribution system.These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks anduncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of significant risk factors that have thepotential to cause our actual results to differ materially from our expectations is described in Part I of this Form 10-K under the heading of“Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of newinformation, future events or otherwise.WEBSITE ACCESS TO COMPANY REPORTSOur investor website is http://investor.ralphlauren.com. We were incorporated in June 1997 under the laws of the State of Delaware.Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reportsfiled with or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available at ourinvestor website under the caption “SEC Filings” promptly after we electronically file such materials with or furnish such materials to theSEC. Information relating to corporate governance at Polo Ralph Lauren Corporation, including our Corporate Governance Policies, ourCode of Business Conduct and Ethics for all directors, officers, and employees, our Code of Ethics for Principal Executive Officers andSenior Financial Officers, and information concerning our directors, Committees of the Board, including Committee charters, andtransactions in Polo Ralph Lauren Corporation securities by directors and executive officers, is available at our website under the captions“Corporate Governance” and “SEC Filings.” Paper copies of these filings and corporate governance documents are available tostockholders without charge by written request to Investor Relations, Polo Ralph Lauren Corporation, 625 Madison Avenue, New York,New York 10022.1Table of ContentsIn this Form 10-K, references to “Polo,” “ourselves,” “we,” “our,” “us” and the “Company” refer to Polo Ralph LaurenCorporation and its subsidiaries, unless the context indicates otherwise. Due to the collaborative and ongoing nature of ourrelationships with our licensees, such licensees are sometimes referred to in this Form 10-K as “licensing alliances.” Our fiscalyear ends on the Saturday closest to March 31. All references to “Fiscal 2010” represent the 53-week fiscal year ended April 3,2010. All references to “Fiscal 2009” represent the 52-week fiscal year ended March 28, 2009. All references to “Fiscal 2008”represent the 52-week fiscal year ended March 29, 2008.PART IItem 1. Business.GeneralPolo Ralph Lauren Corporation, founded in 1967 by Ralph Lauren, is a global leader in the design, marketing and distribution ofpremium lifestyle products, including men’s, women’s and children’s apparel, accessories, fragrances and home furnishings. We believethat our global reach, breadth of product and multi-channel distribution is unique among luxury and apparel companies. We operate inthree distinct but integrated segments: Wholesale, Retail and Licensing.The tables below show our net revenues and operating profit (excluding unallocated corporate expenses and legal and restructuringcharges) by segment for the last two fiscal years. In connection with the closing of the Asia-Pacific Licensed Operations Acquisition (asdefined and discussed under “Recent Developments”) at the beginning of the fourth quarter of Fiscal 2010, we restated our segmentpresentation to reclassify concessions-based sales arrangements to our Retail segment from our Wholesale segment. Segment informationfor Fiscal 2009 has been recast to conform to the current period’s presentation. See Note 2 to the accompanying audited consolidatedfinancial statements for further discussion of the restatement of our segment presentation. Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Net revenues: Wholesale $2,532.4 $2,749.5 Retail 2,263.1 2,074.2 Licensing 183.4 195.2 Total net revenues $4,978.9 $5,018.9 Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Operating income: Wholesale(a) $585.3 $619.9 Retail(a) 254.1 101.6 Licensing 107.4 103.6 946.8 825.1 Less: Unallocated corporate expenses(a) (229.9) (206.5)Unallocated legal and restructuring charges(b) (10.0) (23.1)Total operating income $706.9 $595.5 2Table of Contents(a)Fiscal years presented included certain asset impairment charges. Fiscal 2010 included asset impairment charges of $6.6 million related to the write-down of certain long-lived assets, primarily in the Retail segment. Fiscal 2009 included asset impairment charges of $55.4 million, of which$52.0 million related to the write-down of certain Retail store assets, and $2.8 million in the Wholesale segment and $0.6 million in the Corporateoffice related to the write-down of certain capitalized software costs (see Note 11 to the accompanying audited consolidated financial statements).(b)Fiscal years presented included certain unallocated restructuring charges and legal-related activity. Restructuring charges, net for Fiscal 2010 consistedof $6.9 million, of which $5.4 million related to the Wholesale segment, $2.0 million related to the Retail segment and $0.5 million represented thereversal of an excess reserve related to Corporate operations. Restructuring charges for Fiscal 2009 consisted of $23.6 million, of which $12.7 millionrelated to the Retail segment, $7.3 million related to the Wholesale segment and $3.6 million related to Corporate operations (see Note 12 to theaccompanying audited consolidated financial statements). Legal-related activity for Fiscal 2010 consisted of legal charges of $4.8 million primarilyrelated to the settlement of the Company’s California Labor Litigation matter, offset in part by the reversal of an excess legal reserve of $1.7 million(see Note 17 to the accompanying audited consolidated financial statements). Legal-related activity for Fiscal 2009 consisted of the reversal of an excesslegal reserve in the amount of $0.5 million.Our net revenues by geographic region for the last two fiscal years are shown in the table below. Note 22 to our accompanyingaudited consolidated financial statements contains additional segment and geographic area information. Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Net revenues: United States and Canada $3,462.3 $3,589.3 Europe 1,052.6 1,028.4 Asia(a) 459.7 392.6 Other regions 4.3 8.6 Total net revenues $4,978.9 $5,018.9 (a)Includes Japan, China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand.Over the past five fiscal years, our sales have grown to $4.979 billion in Fiscal 2010 from $3.746 billion in Fiscal 2006. Thisgrowth has been largely a result of both our acquisitions and organic growth. We have diversified our business by channels ofdistribution, price point and target consumer, as well as by geography. Our global reach is one of the broadest in the apparel industry,with Ralph Lauren-branded merchandise available at approximately 9,000 different retail locations worldwide. In addition to ourwholesale distribution, we sell directly to customers throughout the world via 350 full-price and factory retail stores, 281 concessions-based shop-within-shops and our e-commerce websites, RalphLauren.com and Rugby.com.We continue to invest in our business. In the past five fiscal years, we have invested approximately $1.769 billion for acquisitionsand capital improvements, primarily through strong operating cash flow. We intend to continue to execute our long-term strategy ofexpanding our presence internationally, extending our direct-to-consumer reach, expanding our accessories and other product offerings,and investing in our operational infrastructure. See Item 7 — “Overview — Our Objectives and Risks” for further discussion of theCompany’s long-term strategy.We have been controlled by the Lauren family since the founding of our Company. As of April 3, 2010, Mr. Ralph Lauren, orentities controlled by the Lauren family, owned approximately 84% of the voting power of the outstanding common stock of the Company.Seasonality of BusinessOur business is typically affected by seasonal trends, with higher levels of wholesale sales in our second and fourth quarters andhigher retail sales in our second and third quarters. These trends result primarily from the timing3Table of Contentsof seasonal wholesale shipments and key vacation travel, back-to-school and holiday shopping periods in the Retail segment. As a resultof the growth and other changes in our business, along with changes in consumer spending patterns and the macroeconomic environment,historical quarterly operating trends and working capital requirements may not be indicative of future performances. In addition,fluctuations in sales, operating income and cash flows in any fiscal quarter may be affected by, among other things, the timing ofseasonal wholesale shipments and other events affecting retail sales.Working capital requirements vary throughout the year. Working capital typically increases during the first half of the fiscal year asinventory builds to support peak shipping/selling periods and, accordingly, typically decreases during the second half of the fiscal yearas inventory is shipped/sold. Cash provided by operating activities is typically higher in the second half of the fiscal year due to highernet income and reduced working capital requirements during that period.Recent DevelopmentsAsia-Pacific Licensed Operations AcquisitionOn December 31, 2009, in connection with the transition of the Polo-branded apparel business in Asia-Pacific (excluding Japan)from a licensed to a wholly owned operation, the Company acquired certain net assets from Dickson Concepts International Limited andaffiliates (“Dickson”) in exchange for an initial payment of approximately $20 million and other consideration of approximately$17 million (the “Asia-Pacific Licensed Operations Acquisition”). Dickson was the Company’s licensee for Polo-branded apparel in theAsia-Pacific region (excluding Japan), which is comprised of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore,Taiwan and Thailand. The Company funded the Asia-Pacific Licensed Operations Acquisition with available cash on-hand.The results of operations for the Polo-branded apparel business in Asia-Pacific have been consolidated in the Company’s results ofoperations commencing January 1, 2010.Our Brands and ProductsSince 1967, our distinctive brand image has been consistently developed across an expanding number of products, price tiers andmarkets. Our brands, which include apparel, accessories and fragrance collections for men and women as well as childrenswear andhome furnishings, comprise one of the world’s most widely recognized families of consumer brands. Reflecting a distinctive Americanperspective, we have been an innovator in aspirational lifestyle branding and believe that, under the direction of internationally renowneddesigner Ralph Lauren, we have had a considerable influence on the way people dress and the way that fashion is advertised throughoutthe world. We combine consumer insight with our design, marketing and imaging skills to offer, along with our licensing alliances, broadlifestyle product collections with a unified vision: • Apparel — Products include extensive collections of men’s, women’s and children’s clothing; • Accessories — Products encompass a broad range, including footwear, eyewear, watches, jewelry, hats, belts and leathergoods,including handbags and luggage; • Home — Coordinated products for the home include bedding and bath products, furniture, fabric and wallpaper, paint, tabletopand giftware; and • Fragrance — Fragrance products are sold under our Romance, Polo, Lauren, Safari, Ralph and Black Label brands, amongothers.Our lifestyle brand image is reinforced by our RalphLauren.com and Rugby.com internet sites.Ralph Lauren Purple LabelIn the time-honored tradition of bespoke clothing and haberdashery, Ralph Lauren Purple Label presents a level of sartorialcraftsmanship unparalleled today. Refined suitings are hand-tailored from an exclusive selection of the world’s finest fabrics. Custom-tailored Made-to-Measure suits are hand-constructed by artisans trained in the art4Table of Contentsof handmade clothing. Sophisticated sportswear and dandy-inspired dress furnishings are designed with meticulous attention to everydetail. Dedicated to the highest level of quality and elegance, Ralph Lauren Purple Label is the ultimate expression of luxury for themodern gentleman. Ralph Lauren Purple Label also offers benchmade footwear and Made-to-Order dress furnishings, accessories andluggage, as well as hand monogramming and custom engraving services of the highest quality. Ralph Lauren Purple Label is available inRalph Lauren stores around the world and an exclusive selection of the finest specialty stores.Ralph Lauren Men’s Black LabelWith a sharp, modern attitude, Ralph Lauren Black Label is the essence of sophisticated dressing for men. Classic suitings featurerazor-sharp tailoring and dramatically lean silhouettes. Luxe, racy sportswear is crafted from the finest fabrics and designed with subtlereferences to technical performance wear. Ultra-stylish yet timeless, the Black Label collection is sleek, bold and masculine. RalphLauren Black Label is available in Ralph Lauren stores around the world, a limited selection of specialty stores and better departmentstores and online at RalphLauren.com.Polo Ralph LaurenAuthentic and iconic, Polo is the original symbol of the modern preppy lifestyle. Combining Ivy League classics and time-honoredEnglish haberdashery with downtown styles and All-American sporting looks, Polo sportswear and tailored clothing present aone-of-a-kind vision of menswear that is stylish, timeless and appeals to all generations of men. Often imitated but never matched, Polo’ssignature aesthetic — along with its renowned polo player logo — is recognized worldwide as a mark of contemporary heritage excellence.Polo is available in Ralph Lauren stores around the world, better department stores, select specialty stores and online at RalphLauren.com.Lauren for MenClassic and polished, Lauren for Men conveys a spirit of tradition with a contemporary attitude. A complete collection of men’stailored clothing, including suits, sport coats, dress shirts, dress pants, tuxedos, topcoats and ties, the Lauren men’s line offers thesophisticated spirit and preppy heritage of Ralph Lauren menswear at a more accessible price point. A soft, natural shoulder and modernconstruction details ensure elegant styling with superior comfort and the integrity of a well-made garment. Lauren for Men is available atselect department stores.Ralph by Ralph LaurenSuperior fabrics and a precise, impeccable construction define the distinguished aesthetic of the Ralph by Ralph Lauren collectionfor men. Suit separates, sport coats, vests and topcoats are all fashioned with the hallmarks of better men’s suitings, from half-canvasjacket constructions and high-quality Bemberg linings to hand-finished seams, felled cuffs and hems and reinforcements at naturalpoints of wear. Timeless and unmistakably Ralph Lauren, the Ralph by Ralph Lauren collection offers refined luxury at an excellentvalue. Ralph by Ralph Lauren is available exclusively at Dillard’s stores.Ralph Lauren Women’s CollectionEach runway season, Ralph Lauren’s most dramatic vision of women’s fashion is presented to the world. Timeless andsophisticated, women’s Collection reflects Ralph Lauren’s definitive design philosophy in its groundbreaking juxtapositions of feminineglamour with impeccable tailoring once found only in menswear. From exquisite hand-embroidered evening gowns worn on the red carpetto luxurious hand-finished cashmere tweed suitings to chic vintage denim inspired by rustic Americana, Collection is the epitome ofmodern, rarefied fashion as only Ralph Lauren can express it. Ralph Lauren Collection is available in Ralph Lauren stores around theworld and an exclusive selection of the finest specialty stores. Collection accessories are available at RalphLauren.com.5Table of ContentsRalph Lauren Women’s Black LabelBlack Label is the essence of sleek, modern sophistication for women. Proportions are chic and dramatic, ranging from menswear-inspired silhouettes to shimmering and feminine eveningwear. Fabrics are ultra-luxe and textural, color statements are rich and striking,and racy technical references infuse this glamorous collection with a bold, sexy edge. Black Label is offered in Ralph Lauren stores,designer boutiques, fine specialty stores, better department stores and online at RalphLauren.com.Ralph Lauren Blue LabelModern and eclectic with a sexy, youthful spirit, Blue Label embodies the iconic Ralph Lauren sensibility in its mix of vintage IvyLeague prep, heritage equestrian, romantic bohemian and rugged Western inspirations. Unmistakably Ralph Lauren in its elegance andsophistication, Blue Label defines a fresh, free-spirited femininity. Blue Label is offered in Ralph Lauren stores around the world, betterdepartment stores and online at RalphLauren.com.Lauren by Ralph LaurenLauren translates the sophisticated luxury of Ralph Lauren womenswear into an affordable wardrobe for every occasion. Fromtimeless essentials with special finishing touches to polished silhouettes with a chic, modern spirit, Lauren maintains an elegant, feminineheritage while making strong seasonal fashion statements. Lauren Active infuses a fashion sensibility into practical sports apparel forgolf, tennis, yoga and weekend wear. Lauren Jeans Co. presents a fresh perspective on denim with a breadth of exceptional styles and acomplementary collection of sportswear items. Lauren Handbags are being introduced for the Fall 2010 season, adding to a wide range ofaccessories offerings from Lauren, including belts, scarves, gloves, footwear and jewelry. Lauren offers a range of true, consistent fitsfrom Petites to Women’s sizes. Lauren is sold in select department stores in the U.S., Europe, Canada and Mexico. Lauren is alsoavailable online at RalphLauren.com.Pink PonyEstablished in 2000, Pink Pony is Polo Ralph Lauren’s worldwide initiative in the fight against cancer. Pink Pony supportsprograms for early diagnosis, education, treatment and research, and is dedicated to bringing patient navigation and quality cancer care tomedically underserved communities. A percentage of sales from all Pink Pony products benefits the Pink Pony Fund of the Polo RalphLauren Foundation. Pink Pony consists of feminine, slim-fitting women’s sportswear and accessories crafted in luxurious fabrics. Fromhooded sweatshirts and cotton mesh polos to canvas tote bags and cashmere yoga pants, all Pink Pony items feature our iconic pink PoloPlayer — a symbol of our commitment to the fight against cancer. Pink Pony is available at select Ralph Lauren stores and online atRalphLauren.com. Pink Pony was introduced at Bloomingdale’s in October 2009, and is available on select occasions. To learn moreabout Pink Pony and Polo Ralph Lauren’s other philanthropic efforts, please visit RalphLauren.com/Philanthropy.RRLRRL captures an authentic American spirit with a focus on integrity, character and timeworn charm. Founded in 1993 and namedafter Ralph and Ricky Lauren’s “Double RL” ranch in Colorado, RRL offers a mix of selvage denim, vintage apparel and accessories andcool, rugged sportswear with roots in workwear and military gear. With denim at the heart of the brand, RRL is dedicated to time-honoreddetails and the highest quality workmanship — from ring-spun long-staple cotton yarns to traditional dyeing techniques to hand-appliedartisanal finishes that result in one-of-a-kind, exceptionally durable pieces. Exclusive denim fabrics and rare limited editions haveattracted a loyal following among collectors of special clothing. In Spring 2010, RRL launched womenswear with the same vintageheritage. RRL is available exclusively at RRL stores and select Ralph Lauren stores.RLXCreated to answer the demand for superior high-performance outfitting, RLX for men and women unites the highest standards ofluxury, technology and style. From cutting-edge functional gear for professional athletes to6Table of Contentsexceptionally luxe lifestyle apparel for modern living, RLX defines the next evolution of design with a philosophy focused on purity ofform, unrivaled construction techniques and the world’s most innovative fabrications. The RLX line is available around the world atselect Ralph Lauren stores, top specialty and department stores and online at RalphLauren.com.Polo Jeans Co.In 1996, Ralph Lauren launched Polo Jeans Co. for men and women, combining a heritage philosophy with a fresh, irreverentspirit. With a focus on exceptional-quality denim — most notably the use of time-honored manufacturing techniques and pure indigodyes — Polo Jeans Co. denim and sportswear collections embody authentic American style with a design aesthetic that ranges fromvintage and iconic to bold, modern and urban. Polo Jeans Co. is available exclusively in Asia and Europe.GolfTested and worn by top-ranked professional golfers, Polo Golf for men and Ralph Lauren Golf for women define heritage excellencein the world of golf. With a sharpened focus on the needs of the modern player but always rooted in the rich design tradition of RalphLauren, the Golf collections combine state-of-the-art performance wear with luxurious finishing touches for collections that traveleffortlessly between the course and the clubhouse. The RLX Golf collection is ultramodern, graphic and dedicated to performance-drivendesign. From progressive fits and sophisticated styles to the most technologically advanced fabrics available, RLX golf is the ultimate infunctional luxury. Polo Ralph Lauren is proud to sponsor Tom Watson, Davis Love III, Jonathan Byrd, Morgan Pressel, Luke Donaldand Webb Simpson. The Polo, Ralph Lauren and RLX Golf collections are available in select Ralph Lauren stores, the most exclusiveprivate clubs and resorts and online at RalphLauren.com.RugbyLaunched in 2004, Rugby translates Ralph Lauren’s legacy of authentic prep into an eclectic, irreverent collection for young men andwomen. Cool and rebellious, vintage varsity and heritage classics are reinvented with a chic downtown flair and playful, sexy vibe for anindividualistic approach to personal style. Iconic logos, vintage patches and spirited crests give Rugby a bold, one-of-a-kind edge. TheRugby collections are available at Rugby stores throughout the U.S. and online at Rugby.com, and are being introduced in Tokyo in Fall2010.Ralph Lauren ChildrenswearRalph Lauren Childrenswear is designed to reflect the timeless heritage and modern spirit of Ralph Lauren’s collections for men andwomen. Signature classics, including iconic polo knit shirts and luxurious cashmere cable sweaters, are interpreted in the mostsophisticated and vibrant colors. Fashionable styles are inspired by Ralph Lauren’s unique vision each season — from All-Americansportswear with preppy and equestrian inspirations to tailored and elegant ensembles for special occasions. Ralph Lauren Childrenswearis available in a full range of sizes for children, from Layette, Infant and Toddler to Girls size 16 and Boys size 20. Ralph LaurenChildrenswear can be found in select Ralph Lauren stores, better department stores and online at RalphLauren.com.AccessoriesRalph Lauren accessories for men and women reflect the distinctive design philosophies known throughout the world of RalphLauren and represent a continuous dedication to impeccable craftsmanship and iconic beauty. Ralph Lauren accessories for womencapture a wide array of timeless styles, from a glamorous handmade alligator Ricky Bag that takes up to 12 hours to craft to weatheredcanvas saddle bags with authentic equestrian hardware to vintage luggage — inspired handbags that recall the golden age of travel. RalphLauren’s signature motifs can be found throughout — from jockey-print scarves, riding boots with equestrian hardware and vintageaviator sunglasses to striking diamante evening shoes, romantic ruffled scarves and antique, one-of-a-kind belts and jewelry. RalphLauren accessories and dress furnishings are a man’s most refined finishing touch. Iconic and innovative neckties, which launched thePolo brand in 1967, are woven from the finest silks. Footwear ranges from velvet monogrammed slippers and benchmade dress shoes tohand-sewn penny loafers and rugged suede and shearling duck7Table of Contentsboots. Handcrafted luggage and leathergoods combine handsome sophistication with functionality. Each accessory is meticulouslydesigned to complement Ralph Lauren’s menswear collections — from vintage-inspired eyewear and Savile Row-inspired haberdashery tosleek silver engraved cuff links and engine-turned belt buckles to luxe cashmere scarves and hand-sewn shearling gloves. Ralph Laurenaccessories are available in Ralph Lauren stores, select specialty stores and online at RalphLauren.com.Ralph Lauren WatchesIn 2008, Ralph Lauren launched his premier collection of watches in partnership with internationally renowned luxury groupFinanciere Richemont SA (“Richemont”). The three timepiece collections — the iconic Ralph Lauren Stirrup, the refined Ralph LaurenSlim Classique and the performance-inspired Ralph Lauren Sporting — embody Ralph Lauren’s passion for impeccable quality andexquisite design. Ralph Lauren timepieces feature the finest in Swiss Made mechanical manufacture movements and the world’s mostluxurious materials — from pure platinum and polished 18-carat gold cases to enamel dials, traditional guilloché patterns and full-cutdiamonds. Ralph Lauren Watches are available at select Ralph Lauren stores around the world and only the finest watch retailers.FragranceIn 1978, Ralph Lauren expanded his lifestyle brand to encompass the world of fragrance, launching Lauren for women and Polo formen. Since then, Ralph Lauren Fragrance has captured the essence of Ralph Lauren’s men’s and women’s brands, from the timelessheritage of Lauren and Polo to the sophisticated beauty of Polo Black for men and Romance for women to the modern, fresh Ralphfragrances for her, designed to appeal to a younger audience. Women’s fragrances include Safari, Polo Sport, Ralph Lauren Blue,Lauren, Romance, Ralph, Ralph Hot, Ralph Rocks, Notorious and Love. Men’s fragrances include Safari, Polo Sport, Polo Blue,Romance, Romance Silver, Purple Label, Explorer, Polo Black and Double Black. Ralph Lauren fragrances are available in departmentstores, specialty and duty free stores, perfumeries and online at RalphLauren.com.Ralph Lauren HomeAs the first American fashion designer to create an all-encompassing collection for the home, Ralph Lauren presents homefurnishings and accessories that reflect the enduring style and exquisite craftsmanship synonymous with the name Ralph Lauren.Whether inspired by time-honored tradition, the utmost in modern sophistication or the beauty of rare objects collected around the world,Ralph Lauren Home is dedicated to only the finest materials and the greatest attention to detail for the ultimate in artisanal luxury. Thecollections include furniture, bed and bath linens, china, crystal, silver, decorative accessories, gifts, garden and beach, as well aslighting, window hardware, fabric, trimmings and wallcovering. Ralph Lauren Home offers exclusive luxury goods at select RalphLauren stores, trade showrooms and online at RalphLauren.com. The complete world of Ralph Lauren Home can be explored online atRalphLaurenHome.com.Lauren HomeLauren Home presents a signature design sensibility that combines heritage elegance with a fresh, modern flair. Finely crafted andhighly accessible for any well-appointed home, Lauren Home offers a wide array of collections that range from classic to modern,including bedding, bath, furniture, tabletop, gifts, decorative accessories, floorcovering and lighting. Launched in 2007, Lauren Spaoffers a certified collection of 100% organic bedding in all eco-friendly packaging. Lauren Home is available at select department stores,home specialty stores and online at RalphLauren.com. Information on Lauren Spa is available at RalphLauren.com/SPA.Ralph Lauren PaintIntroduced in 1995, Ralph Lauren Paint offers exceptional-quality interior paint ranked high in the industry for performance.Inspired by classic and modern lifestyles from the world of Ralph Lauren, Ralph Lauren Paint features a signature palette of over 500colors and a collection of unique finishes and innovative techniques. An extension of the Ralph Lauren Home lifestyle, Ralph LaurenPaint is an attainable product designed to reach a selective8Table of Contentsaudience. Ralph Lauren Paint is offered at select specialty stores. The complete color palette, paint how-to’s and a guide to professionalpainters are online at RalphLaurenPaint.com.Club MonacoFounded in 1985, Club Monaco is an international destination for affordable, stylish luxury. Each season, Club Monaco designs,manufactures and markets its own clothing and accessories for men and women, offering key fashion pieces with modern, urbansophistication and a selection of updated classics — from the perfect white shirt and black pencil skirt to refined suiting and Italiancashmere. The brand’s signature aesthetic is defined by clean, contemporary design and a palette of versatile neutrals infused with popsof vibrant colors. Club Monaco apparel and accessories are available exclusively at Club Monaco stores around the world.Global Brand ConceptsAmerican LivingLaunched exclusively at JCPenney in February 2008, American Living offers classic American style with a fresh, modern spirit andauthentic sensibility. From everyday essentials to special occasion looks for the entire family to finely crafted bedding and homefurnishings, American Living promises stylish clothing and home products that are exceptionally made and offered at an incredible value.American Living is available exclusively at JCPenney and JCP.com.ChapsChaps translates the classic heritage and timeless aesthetic of Ralph Lauren into an accessible line for men, women, children and thehome. From casual basics designed for versatility and ease of wear to smart, finely tailored silhouettes perfect for business and moreformal occasions, Chaps creates interchangeable classics that are both enduring and affordable. The Chaps men’s collection is availableat select department and specialty stores. The Chaps collections for women, children and the home are available only at Kohl’s andKohls.com.Our Wholesale SegmentOur Wholesale segment sells our products to leading upscale and certain mid-tier department stores, specialty stores and golf andpro shops, both domestically and internationally. We have continued to focus on elevating our brand by improving in-store productassortment and presentation, and improving full-price sell-throughs to consumers. As of the end of Fiscal 2010, our Ralph Lauren-branded products were sold through approximately 9,000 doors worldwide and during Fiscal 2010, we invested approximately$29 million in related shop-within-shops primarily in domestic and international department and specialty stores.Department stores are our major wholesale customers in North America. In Europe, our wholesale sales are a varying mix of sales toboth department stores and specialty shops, depending on the country. Our collection brands — Women’s Ralph Lauren Collection andBlack Label and Men’s Purple Label Collection and Black Label — are distributed through a limited number of premier fashion retailers.In addition, we sell excess and out-of-season products through secondary distribution channels, including our retail factory stores. InJapan, our wholesale products are distributed primarily through shop-within-shops at premiere and top tier department stores, and themix of business is weighted to Women’s Blue and Black Label. In this region, products distributed through concessions-based salesarrangements are reported within our Retail segment (see “Our Retail Segment” for further discussion).9Table of ContentsWorldwide Distribution ChannelsThe following table presents the number of doors by geographic location, in which Ralph Lauren-branded products distributed byour Wholesale segment were sold to consumers in our primary channels of distribution as of April 3, 2010: Number of Location Doors(a) United States and Canada 4,402 Europe 4,421 Japan 117 Total 8,940 (a)In Asia-Pacific, our products are primarily distributed through concessions-based sales arrangements.In addition, American Living and Chaps-branded products distributed by our Wholesale segment were sold domestically throughapproximately 1,700 doors as of April 3, 2010.We have five key department-store customers that generate significant sales volume. For Fiscal 2010, these customers in the aggregateaccounted for approximately 45% of all wholesale revenues, with Macy’s, Inc. representing approximately 18% of these revenues.Our product brands are sold primarily through their own sales forces. Our Wholesale segment maintains its primary showrooms inNew York City. In addition, we maintain regional showrooms in Atlanta, Chicago, Dallas, Milan, Paris, London, Munich, Madrid andStockholm.Shop-within-Shops. As a critical element of our distribution to department stores, we and our licensing partners utilize shop-within-shops to enhance brand recognition, to permit more complete merchandising of our lines by the department stores and todifferentiate the presentation of products. Shop-within-shops fixed assets primarily include items such as customized freestandingfixtures, wall cases and components, decorative items and flooring.As of April 3, 2010, we had approximately 14,000 shop-within-shops dedicated to our Ralph Lauren-branded wholesale productsworldwide. Excluding significantly larger shop-within-shops in key department store locations, the size of our shop-within-shopstypically ranges from approximately 300 to 6,000 square feet. We normally share in the cost of these shop-within-shops with ourwholesale customers.Basic Stock Replenishment Program. Basic products such as knit shirts, chino pants and oxford cloth shirts can be ordered atany time through our basic stock replenishment programs. We generally ship these products within three-to-five days of order receipt.Our Retail SegmentAs of April 3, 2010, our Retail segment consisted of 179 full-price retail stores and 171 factory stores worldwide, totalingapproximately 2.6 million square feet, 281 concessions-based shop-within-shops and two e-commerce websites. The extension of ourdirect-to-consumer reach is a primary long-term strategic goal.Full-Price Retail StoresOur full-price retail stores reinforce the luxury image and distinct sensibility of our brands and feature exclusive lines that are notsold in domestic department stores. We opened 3 new full-price stores and closed 3 full-price stores in Fiscal 2010. In addition, weassumed 16 full-price stores in connection with the Asia-Pacific10Table of ContentsLicensed Operations Acquisition (see “Recent Developments” for further discussion). We operated the following full-price retail stores asof April 3, 2010:Location Ralph Lauren Club Monaco Rugby Total United States and Canada 65 63 11 139 Europe 20 — — 20 Japan 1 — — 1 Asia(a) 16 — — 16 Latin America 3 — — 3 Total 105 63 11 179 (a)Includes China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand. • Ralph Lauren stores feature the full-breadth of the Ralph Lauren apparel, accessory and home product assortments in anatmosphere reflecting the distinctive attitude and luxury positioning of the Ralph Lauren brand. Our seven flagship Ralph Laurenstore locations showcase our upper-end luxury styles and products and demonstrate our most refined merchandising techniques. • Club Monaco stores feature updated fashion apparel and accessories for both men and women. The brand’s clean and updatedclassic signature style forms the foundation of a modern wardrobe. • Rugby is a vertical retail format featuring an aspirational lifestyle collection of apparel and accessories for men and women. Thebrand is characterized by a youthful, preppy attitude which resonates throughout the line and the store experience.In addition to generating sales of our products, our worldwide full-price stores set, reinforce and capitalize on the image of ourbrands. Our stores range in size from approximately 900 to over 33,000 square feet. These full-price stores are situated in major upscalestreet locations and upscale regional malls, generally in large urban markets. We generally lease our stores for initial periods ranging from5 to 10 years with renewal options.Factory Retail StoresWe extend our reach to additional consumer groups through our 171 Polo Ralph Lauren factory stores worldwide. Our factory storesare generally located in outlet malls. We generally lease our stores for initial periods ranging from 5 to 10 years with renewal options.During Fiscal 2010, we added 7 new Polo Ralph Lauren factory stores, net, and assumed 1 factory store in connection with the Asia-Pacific Licensed Operations Acquisition (see “Recent Developments” for further discussion). We operated the following factory retailstores as of April 3, 2010: Polo Location Ralph Lauren United States 137 Europe 24 Japan 9 Asia(a) 1 Total 171 (a)Includes China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand. • Polo Ralph Lauren domestic factory stores offer selections of our menswear, womenswear, children’s apparel, accessories,home furnishings and fragrances. Ranging in size from approximately 2,700 to 20,000 square feet, with an average ofapproximately 9,200 square feet, these stores are principally located in major outlet centers in 38 states and Puerto Rico. • Europe factory stores offer selections of our menswear, womenswear, children’s apparel, accessories and fragrances. Ranging insize from approximately 2,500 to 10,500 square feet, with an average of approximately 6,500 square feet, these stores are locatedin 9 countries, principally in major outlet centers.11Table of Contents • Japan and Asia factory stores offer selections of our menswear, womenswear, children’s apparel, accessories and fragrances.Ranging in size from approximately 1,000 to 12,000 square feet, with an average of approximately 5,400 square feet, these storesare located in Hong Kong and 9 provinces in Japan, principally in major outlet centers.Factory stores obtain products from our suppliers, our product licensing partners and our retail stores.Concessions-based Shop-within-ShopsIn Asia (including Japan), the terms of trade for shop-within-shops are largely conducted on a concessions basis, whereby inventorycontinues to be owned by the Company (not the department store) until ultimate sale to the end consumer and the salespeople involved inthe sales transaction are employees of the Company. Effective with the closing of the Asia-Pacific Licensed Operations Acquisition, allconcessions-based sales arrangements have been classified within our Retail segment, in contrast to the historical classification within ourWholesale segment. See Note 2 to the accompanying audited consolidated financial statements for further discussion.As of April 3, 2010, we had 281 concessions-based shop-within-shops at approximately 170 retail locations dedicated to our RalphLauren-branded products, primarily in Asia (including Japan). The size of our concessions-based shop-within-shops typically rangesfrom approximately 150 to 4,500 square feet. We share in the cost of these shop-within-shops with our department store partners.RalphLauren.com and Rugby.comIn addition to our stores, our Retail segment sells products online through our e-commerce websites, RalphLauren.com(http://www.RalphLauren.com) and Rugby.com (http://www.Rugby.com).RalphLauren.com offers our customers access to the full breadth of Ralph Lauren apparel, accessories and home products, allowsus to reach retail customers on a multi-channel basis and reinforces the luxury image of our brands. RalphLauren.com averaged3.5 million unique visitors a month and acquired approximately 390,000 new customers, resulting in over 2 million total customers inFiscal 2010.Rugby.com offers clothing and accessories for purchase along with style tips, unique videos and blog-based content. Rugby.comoffers an extensive array of Rugby products for young men and women within a full lifestyle destination. Rugby.com averaged 370,000unique visitors a month and acquired approximately 40,000 new customers, resulting in approximately 60,000 total customers in Fiscal2010.Our Licensing SegmentThrough licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product orgeographic competencies of our licensing partners to create and build new businesses. We generally seek out licensing partners who: • are leaders in their respective markets; • contribute the majority of the product development costs; • provide the operational infrastructure required to support the business; and • own the inventory.We grant our product licensees the right to manufacture and sell at wholesale specified categories of products under one or more ofour trademarks. We grant our international geographic area licensing partners exclusive rights to distribute certain brands or classes of ourproducts and operate retail stores in specific international territories. These geographic area licensees source products from us, our productlicensing partners and independent sources. Each licensing partner pays us royalties based upon its sales of our products, generallysubject to a minimum royalty requirement for the right to use the Company’s trademarks and design services. In addition, licensingpartners may be required to allocate a portion of their revenues to advertise our products and share in the creative costs associated12Table of Contentswith these products. Larger allocations are required in connection with launches of new products or in new territories. Our licensesgenerally have 3 to 5-year terms and may grant the licensee conditional renewal options.We work closely with our licensing partners to ensure that their products are developed, marketed and distributed so as to reach theintended market opportunity and to present consistently to consumers worldwide the distinctive perspective and lifestyle associated withour brands. Virtually all aspects of the design, production quality, packaging, merchandising, distribution, advertising and promotion ofRalph Lauren products are subject to our prior approval and continuing oversight. The result is a consistent identity for Ralph Laurenproducts across product categories and international markets.Approximately 30% of our licensing revenue for Fiscal 2010 was derived from three licensing partners: Luxottica Group, S.p.A.(12%), The Warnaco Group, Inc. (9%) and Peerless, Inc. (9%).Product LicensesThe following table lists our principal product licensing agreements for men’s sportswear, men’s tailored clothing, men’s underwearand sleepwear, eyewear and fragrances as of April 3, 2010. The products offered by these licensing partners are listed below. Except asnoted in the table, these product licenses cover the U.S. or North America only.Licensing Partner Licensed Product CategoryL’Oreal S.A. (global) Men’s and Women’s Fragrances, Cosmetics, Color and SkinCare ProductsPeerless, Inc. Men’s, Chaps, Lauren, Ralph and American Living TailoredClothingHanes Brands Men’s Polo Ralph Lauren Underwear and SleepwearLuxottica Group, S.p.A. (global) EyewearThe Warnaco Group, Inc. Men’s Chaps SportswearInternational LicensesWe believe that international markets offer additional opportunities for our quintessential American designs and lifestyle image. Wework with our international licensing partners to facilitate international growth in their respective territories. International expansion/growthopportunities may include: • the roll out of new products and brands following their launch in the U.S.; • the introduction of additional product lines; • the entrance into new international markets; • the addition of Ralph Lauren or Polo Ralph Lauren stores in these markets; and • the expansion and upgrade of shop-within-shop networks in these markets.The following table identifies our principal international area licensing partners (excluding Ralph Lauren Home and Club Monacolicensees) as of April 3, 2010:Licensing Partner TerritoryOroton Group/PRL Australia Australia and New ZealandDoosan Corporation KoreaP.R.L. Enterprises, S.A. Panama, Aruba, Curacao, The Cayman Islands, Costa Rica,Nicaragua, Honduras, El Salvador, Guatemala, Belize,Colombia, Ecuador, Bolivia, Peru, Antigua, Barbados, Bonaire,The Dominican Republic, St. Lucia, St. Martin, Trinidad andTobago13Table of ContentsOur international licensing partners acquire the right to sell, promote, market and/or distribute various categories of our products ina given geographic area. These rights may include the right to own and operate retail stores. The economic arrangements are similar tothose of our product licensing partners. We design licensed products either alone or in collaboration with our domestic licensing partners.Our product licensees, whose territories do not include the international geographic area licensees’ territories, generally provide ourinternational licensing partners with product or patterns, piece goods, manufacturing locations and other information and assistancenecessary to achieve product uniformity, for which they are often compensated by these partners.As of April 3, 2010, our international licensing partners operated 63 Ralph Lauren stores and 60 Club Monaco stores and dedicatedshops.Ralph Lauren HomeTogether with our licensing partners, we offer an extensive collection of home products that draw upon and further the design themesof our other product lines, contributing to our complete lifestyle concept. Products are sold under the Ralph Lauren Home, LaurenRalph Lauren, Chaps and American Living brands in three primary categories: bedding and bath, home décor and home improvement.As of April 3, 2010, we had agreements with 11 domestic and 2 international home product licensing partners and one international homeproduct sublicensing partner.We perform a broader range of services for our Ralph Lauren Home licensing partners than we do for our other licensing partners.These services include design, operating showrooms, marketing, advertising and, in some cases, sales. In general, the licensing partnersmanufacture and own the inventory, and ship the products. Our Ralph Lauren Home licensing alliances generally have 3 to 5-year termsand may grant the licensee conditional renewal options.Ralph Lauren Home products are positioned at the upper tiers of their respective markets and are offered at a range of price levels.These products are generally distributed through several channels of distribution, including department stores, specialty homefurnishings stores, interior design showrooms, customer direct mail catalogs, home centers and the Internet, as well as our own stores. Aswith our other products, the use of shop-within-shops is central to our department store distribution strategy.The Ralph Lauren Home, Lauren Ralph Lauren, Chaps and American Living home products offered by us and our productlicensing partners as of April 3, 2010 are as follows:Category Licensed Product Licensing PartnerBedding and Bath Sheets, bedding accessories, towels,blankets, down comforters, otherdecorative bedding and accessories WestPoint Home, Inc., Fremaux-Delorme,Ichida, Kohl’s Department Stores, Inc.,J.C. Penney Corp., Inc. Bath rugs Bacova Guild, Ltd.Home Décor Fabric and wallpaper P. Kaufmann, Inc., Designers Guild Ltd. Furniture EJ Victor, Inc., Schnadig InternationalCorp. Tabletop and giftware, table linens,placemats, tablecloths and napkins Fitz and Floyd, Inc., J.C. Penney Corp.,Inc., Town & Country Linen Corp.,Kohl’s Department Stores, Inc. Window and decorative accessories J.C. Penney Corp., Inc.Home Improvement Interior paints and stains and broadloomcarpets Akzo Nobel Paints LLC, Karastan, adivision of Mohawk Carpet Corp.14Table of ContentsWestPoint Home, Inc. offers a basic stock replenishment program that includes bedding and bath products, and accounted forapproximately 76% of the net sales of these Ralph Lauren Home products and approximately 25% of the total Ralph Lauren Homelicensing revenue in Fiscal 2010.Product DesignOur products reflect a timeless and innovative interpretation of American style with a strong international appeal. Our consistentemphasis on new and distinctive design has been an important contributor to the prominence, strength and reputation of the Ralph Laurenbrands.All Ralph Lauren products are designed by, or under the direction of, Mr. Ralph Lauren and our design staff, which is divided intonine departments: Menswear, Women’s Collection, Women’s Ready to Wear, Dresses, Children’s, Accessories, Home, Club Monaco andRugby. We form design teams around our brands and product categories to develop concepts, themes and products for each brand andcategory. Through close collaboration with merchandising, sales and production staff, these teams support all three segments of ourbusiness — Wholesale, Retail and Licensing — in order to gain market and other valuable input.Marketing and AdvertisingOur marketing program communicates the themes and images of our brands and is an integral feature of our product offering.Worldwide marketing is managed on a centralized basis through our advertising and public relations departments in order to ensureconsistency of presentation.We create distinctive image advertising for all of our brands, conveying the particular message of each one within the context of theoverall Ralph Lauren aesthetic. Advertisements generally portray a lifestyle rather than a specific item and include a variety of productsoffered by ourselves and, in some cases, our licensing partners. Our primary advertising medium is print, with multiple pageadvertisements appearing regularly in a range of fashion, lifestyle and general interest magazines. Major print advertising campaigns areconducted during the fall and spring retail seasons, with additions throughout the year to coincide with product deliveries. In addition toprint, some brands have utilized television and outdoor media in their marketing programs. Our RalphLauren.com and Rugby.come-commerce websites present the Ralph Lauren lifestyle on the Internet while offering the full breadth of our apparel, accessories and homeproducts.We advertise in consumer and trade publications, and participate in cooperative advertising on a shared cost basis with some of ourretailer partners. In addition, we provide point-of-sale fixtures and signage to our wholesale customers to enhance the presentation of ourproducts at retail locations. We expensed approximately $157 million related to the advertising of our products in Fiscal 2010, a decreaseof approximately 8% from Fiscal 2009.When our domestic licensing partners are required to spend an amount equal to a percent of their licensed product sales onadvertising, we coordinate the advertising placement on their behalf.We also conduct a variety of public relations activities. Each of our spring and fall womenswear collections are presented at majorfashion shows in New York City, which typically generate extensive domestic and international media coverage. We introduce each of thespring and fall menswear collections at major fashion shows in cities such as New York or Milan, Italy. In addition, we organize in-storeappearances by our models, certain professional athletes and sponsors. We are the first exclusive outfitter for all on-court officials at theWimbledon tennis tournament and are currently the official outfitter of all on-court officials at the U.S. Open tennis tournament.In June 2009, the Company entered into an agreement with the United States Olympic Committee to be the exclusive Official ParadeOutfitter for the 2010 and 2012 U.S. Olympic and Paralympic Teams. Under this agreement, the Company designed the official openingand closing ceremony Parade Outfits for the U.S. Olympic team members of the 2010 Winter Olympics in Vancouver, in addition to anassortment of leisure/village wear (“Leisure Wear”) pieces provided to the athletes on the U.S. Teams. In addition, the Company has theright to manufacture, distribute, advertise, promote and sell products in the U.S. which replicate the Parade Outfits and Leisure Wear.15Table of ContentsSourcing, Production and QualityWe contract for the manufacture of our products and do not own or operate any production facilities. Over 400 differentmanufacturers worldwide produce our apparel, footwear and accessories products, with no one manufacturer providing more than 8% ofour total production during Fiscal 2010. We source both finished products and raw materials. Raw materials include fabric, buttons andother trim. Finished products consist of manufactured and fully assembled products ready for shipment to our customers. In Fiscal2010, less than 2%, by dollar volume, of our products were produced in the U.S., and over 98%, by dollar volume, were producedoutside the U.S., primarily in Asia, Europe and South America. See “Import Restrictions and other Government Regulations” andItem 1A — “Risk Factors — Risks Related to Our Business — Our business is subject to risks associated with importing products.”Most of the businesses in our Wholesale segment must commit to manufacture our garments before we receive customer orders. Wealso must commit to purchase fabric from mills well in advance of our sales. If we overestimate our primary customers’ demand for aparticular product, we may sell the excess in our factory stores or sell the product through secondary distribution channels. If weoverestimate the need for a particular fabric or yarn, that fabric or yarn may be used in garments made for subsequent seasons or madeinto past seasons’ styles for distribution in our factory stores.Suppliers operate under the close supervision of our global manufacturing division and buying agents headquartered in Asia, theAmericas and Europe. All garments are produced according to our specifications. Production and quality control staff in the Americas,Asia and Europe monitor manufacturing at supplier facilities in order to correct problems prior to shipment of the final product.Procedures have been implemented under our vendor certification and compliance programs, so that quality assurance is focused upon asearly as possible in the production process, allowing merchandise to be received at the distribution facilities and shipped to customerswith minimal interruption.CompetitionCompetition is very strong in the segments of the fashion and consumer product industries in which we operate. We compete withnumerous designers and manufacturers of apparel and accessories, fragrances and home furnishing products, domestic and foreign.Some of our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basisof fashion, quality and service, which depend on our ability to: • anticipate and respond to changing consumer demands in a timely manner; • maintain favorable brand recognition; • develop and produce high quality products that appeal to consumers; • appropriately price our products; • provide strong and effective marketing support; • ensure product availability; and • obtain sufficient retail floor space and effectively present our products at retail.See Item 1A — “Risk Factors — Risks Relating to the Industry in Which We Compete — We face intense competition in theworldwide apparel industry.”DistributionTo facilitate distribution in the U.S., Ralph Lauren products are shipped from manufacturers to a network of distribution centersfor inspection, sorting, packing, and shipment to retail and wholesale customers. This network includes our owned distribution center inGreensboro, North Carolina, a leased facility in Martinsburg, West Virginia, and third party logistics centers in Chino Hills, Californiaand Miami, Florida. All facilities are16Table of Contentsdesigned to allow for high density cube storage and value added services, and utilize carton and unit tracking technology to facilitateprocess control and inventory management. Canadian distribution to Club Monaco stores is supported by a third party logistics providerin Toronto, Ontario. European distribution is serviced by a third party facility located in Parma, Italy. Japan logistics are supported bythird party facilities in Kawasaki and Ebina. Excluding Japan, Asia-Pacific distribution is serviced by a third party facility in HongKong, supported by small satellite third party locations in China, Singapore, Malaysia and Taiwan. The network is managed throughglobally integrated information technology systems.RalphLauren.com and Rugby.com customer contact functions and order fulfillment are performed at a leased facility in High Point,North Carolina.Management Information SystemsOur management information systems make the marketing, manufacturing, importing and distribution of our products moreefficient by providing, among other things: • comprehensive order processing; • production information; • accounting information; and • an enterprise view of information for our marketing, manufacturing, importing and distribution functions.The point-of-sale registers in conjunction with other systems in our stores enable us to track inventory from store receipt to final saleon a real-time basis. We believe our merchandising and financial systems, coupled with our point-of-sale registers and software programs,allow for stock replenishment, effective merchandise planning and real-time inventory accounting. See Item 1A — “Risk Factors — Risks Related to Our Business — Certain legal proceedings and regulatory matters could adversely impact our results ofoperations.”We also utilize an automated replenishment system, Logility, to facilitate the processing of basic replenishment orders from ourRetail segment and wholesale customers, the movement of goods through distribution channels, and the collection of information forplanning and forecasting. We have a collaborative relationship with many of our suppliers that enables us to reduce cash-to-cash cycles inthe management of our inventory. See Item 1A — “Risk Factors — Risks Related to Our Business — Our business could suffer if ourcomputer systems and websites are disrupted or cease to operate effectively.”Wholesale Credit ControlWe manage our own credit function. We sell our merchandise primarily to major department stores and extend credit based on anevaluation of the customer’s financial capacity and condition, usually without requiring collateral. We monitor credit levels and thefinancial condition of our customers on a continuing basis to minimize credit risk. We do not factor or underwrite our accountsreceivables, or maintain credit insurance to manage the risks of bad debts. Collection and deduction transactional activities areprincipally provided through a third party service provider. Our bad debt expenses were approximately $5 million in Fiscal 2010,representing less than 1 percent of net revenues. See Item 1A — “Risk Factors — Risks Related to Our Business — Our businesscould be negatively impacted by any financial instability of our customers.”Wholesale BacklogWe generally receive wholesale orders for apparel products approximately three to five months prior to the time the products aredelivered to stores. Such orders are generally subject to broad cancellation rights. As of April 3, 2010, our total backlog was$1.160 billion, compared to $1.289 billion as of March 28, 2009. We expect that substantially all of our backlog orders as of April 3,2010 will be filled within the next fiscal year. The size of our order backlog depends upon a number of factors, including the timing of themarket weeks for our particular lines during which a significant percentage of our orders are received, and the timing of shipments. As aconsequence, a17Table of Contentscomparison of the size of our order backlog from period to period may not be necessarily meaningful, nor may it be indicative of eventualshipments. Nevertheless, the decrease in our order backlog from the prior year is associated in part with a reduction in customer ordersrelating to the contraction in consumer spending likely to continue during Fiscal 2011.TrademarksWe own the “Polo,” “Ralph Lauren,” “Polo by Ralph Lauren Design” and the famous polo player astride a horse trademarks in theU.S. and approximately 100 countries worldwide. Other trademarks that we similarly own include: • “Lauren Ralph Lauren”; • “Lauren”; • “Purple Label”; • “Pink Pony”; • “Ralph”; • “RRL”; • “Club Monaco”; • “Rugby”; • “RLX”; • “Chaps”; • “American Living”; and • Various trademarks pertaining to fragrances and cosmetics.Mr. Ralph Lauren has the royalty-free right to use as trademarks “Ralph Lauren,” “Double RL” and “RRL” in perpetuity inconnection with, among other things, beef and living animals. The trademarks “Double RL” and “RRL” are currently used by the DoubleRL Company, an entity wholly owned by Mr. Lauren. In addition, Mr. Lauren has the right to engage in personal projects involving filmor theatrical productions (not including or relating to our business) through RRL Productions, Inc., a company wholly owned byMr. Lauren. Any activity by these companies has no impact on us.Our trademarks are the subjects of registrations and pending applications throughout the world for use on a variety of items ofapparel, apparel-related products, home furnishings, restaurant and café services, online services and online publications and beautyproducts, as well as in connection with retail services, and we continue to expand our worldwide usage and registration of relatedtrademarks. In general, trademarks remain valid and enforceable as long as the marks are used in connection with the related productsand services and the required registration renewals are filed. We regard the license to use the trademarks and our other proprietary rights inand to the trademarks as extremely valuable assets in marketing our products and, on a worldwide basis, vigorously seek to protect themagainst infringement (see Item 3 — “Legal Proceedings” for further discussion). As a result of the appeal of our trademarks, ourproducts have been the object of counterfeiting. We have a broad enforcement program which has been generally effective in controlling thesale of counterfeit products in the U.S. and in most major markets abroad.In markets outside of the U.S., our rights to some or all of our trademarks may not be clearly established. In the course of ourinternational expansion, we have experienced conflicts with various third parties who have acquired ownership rights in certaintrademarks, including “Polo” and/or a representation of a polo player astride a horse, which impede our use and registration of ourprincipal trademarks. While such conflicts are common and may arise again from time to time as we continue our internationalexpansion, we have, in general, successfully resolved such conflicts in the past through both legal action and negotiated settlements withthird-party owners of the conflicting18Table of Contentsmarks (see Item 1A — “Risk Factors — Risks Related to Our Business — Our trademarks and other intellectual property rightsmay not be adequately protected outside the U.S.” and Item 3 — “Legal Proceedings” for further discussion). Although we have notin the past suffered any material restraints or restrictions on doing business in desirable markets, we cannot assure that significantimpediments will not arise in the future as we expand product offerings and introduce trademarks to new markets.Import Restrictions and Other Government RegulationsVirtually all of our merchandise imported into the U.S., Canada, and Europe is subject to duties. Until January 1, 2008, much ofour apparel merchandise was also subject to safeguard quotas. Notwithstanding quota elimination, China’s accession agreement formembership in the WTO provided that WTO member countries (including the U.S., Canada and European countries) could reimposequotas on specific categories of products in the event it is determined that imports from China surged and threatened to create a marketdisruption for such categories of products (so called “safeguard quota provisions”). Such safeguard quotas were permissible throughJanuary 1, 2008. From January 1, 2008 through January 1, 2011, WTO member countries can reimpose merchandise-specific safeguardquota. No such quotas are currently in effect. The U.S. and other countries may also unilaterally impose additional duties in response toa particular product being imported (from China or other countries) at unfairly traded prices that in such increased quantities as to cause(or threaten) injury to the relevant domestic industry (generally known as “anti-dumping” actions). The European Union has imposedcertain anti-dumping duties on imports from China and Vietnam in certain footwear categories. Canada currently also has an anti-dumping order on waterproof footwear under consideration. If dumping is suspected in the U.S., the U.S. Government may self-initiate adumping case on behalf of the U.S. textile industry which could significantly affect our costs. Furthermore, additional duties, generallyknown as countervailing duties, can also be imposed by the U.S. Government to offset subsidies provided by a foreign government toforeign manufactures if the importation of such subsidized merchandise injures or threatens to injure a U.S. industry. Recentdevelopments have now made it possible to impose countervailing duties on products from non-market economies, such as China, whichcould significantly increase our costs.We are also subject to other international trade agreements and regulations, such as the North American Free Trade Agreement, theCentral American Free Trade Agreement and the Caribbean Basin Initiative. In addition, each of the countries in which our products aresold has laws and regulations covering imports. Because the U.S. and the other countries in which our products are manufactured andsold may, from time to time, impose new duties, tariffs, surcharges or other import controls or restrictions, including the imposition of“safeguard quota,” or adjust presently prevailing duty or tariff rates or levels, we maintain a program of intensive monitoring of importrestrictions and opportunities. We seek to minimize our potential exposure to import related risks through, among other measures,adjustments in product design and fabrication, shifts of production among countries and manufacturers, as well as through geographicaldiversification of our sources of supply.As almost all our products are manufactured by foreign suppliers, the enactment of new legislation or the administration of currentinternational trade regulations, executive action affecting textile agreements, or changes in sourcing patterns resulting from the eliminationof quota could adversely affect our operations. Although we generally expect that the 2005 elimination of quotas will result, over the longterm, in an overall reduction in the cost of apparel produced abroad, the implementation of any “safeguard quota provisions” or any“anti-dumping” or “countervailing duty” actions may result, over the near term, in cost increases and in disruption of the supply chainfor certain products categories. See Item 1A — “Risk Factors — Risks Related to Our Business — Our business is subject to risksassociated with importing products” and “Risk Factors — Risks Related to Our Business — Our ability to conduct business ininternational markets may be affected by legal, regulatory, political and economic risks.”Apparel and other products sold by us are also subject to regulation in the U.S. and other countries by other governmental agencies,including, in the U.S., the Federal Trade Commission, U.S. Fish and Wildlife Service and the Consumer Products Safety Commission,including the recently enacted Consumer Product Safety Improvement Act (“CPSIA”) which imposes new limitations on the permissibleamounts of lead and phthalates allowed in children’s products. These regulations relate principally to product labeling, licensingrequirements, flammability19Table of Contentstesting, and product safety particularly with respect to products used by children. We believe that we are in substantial compliance withthose regulations, as well as applicable federal, state, local, and foreign rules and regulations governing the discharge of materialshazardous to the environment. We do not estimate any significant capital expenditures for environmental control matters either in thecurrent fiscal year or in the near future. Our licensed products and licensing partners are also subject to regulation. Our agreements requireour licensing partners to operate in compliance with all laws and regulations, and we are not aware of any violations which couldreasonably be expected to have a material adverse effect on our business or results of operations.Although we have not suffered any material restriction from doing business in desirable markets in the past, we cannot assure thatsignificant impediments will not arise in the future as we expand product offerings and introduce additional trademarks to new markets.EmployeesAs of April 3, 2010, we had approximately 19,000 employees, both full and part-time, consisting of approximately 13,000 in theU.S. and approximately 6,000 in foreign countries. Approximately 30 of our U.S. production and distribution employees in thewomenswear business are members of UNITE HERE (which was previously known as the Union of Needletrades, Industrial and TextileEmployees, prior to its merger with the Hotel Employees and Restaurant Employees International Union) under an industry associationcollective bargaining agreement, which our womenswear subsidiary has adopted. We consider our relations with both our union and non-union employees to be good.Executive OfficersThe following are our current executive officers and their principal recent business experience:Ralph Lauren Age 70 Mr. Lauren has been Chairman, Chief Executive Officerand a director of the Company since prior to theCompany’s initial public offering in 1997, and was amember of the Advisory Board of the Board of Directorsof the Company’s predecessors since their organization. Hefounded Polo in 1967 and has provided leadership in thedesign, marketing, advertising and operational areas sincesuch time.Roger N. Farah Age 57 Mr. Farah has been President, Chief Operating Officer anda director of the Company since April 2000. He wasChairman of the Board of Venator Group, Inc. fromDecember 1994 to April 2000, and was Chief ExecutiveOfficer of Venator Group, Inc. from December 1994 toAugust 1999. Mr. Farah is a member of the Board ofDirectors of Aetna, Inc. and Progressive Corp.Jackwyn Nemerov Age 58 Ms. Nemerov has been Executive Vice President of theCompany since September 2004 and a director of theCompany since February 2007. From 1998 to 2002, shewas President and Chief Operating Officer of JonesApparel Group, Inc.20Table of ContentsTracey T. Travis Age 47 Ms. Travis has been Senior Vice President of Finance andChief Financial Officer of the Company since January2005. Ms. Travis served as Senior Vice President, Financeof Limited Brands, Inc. from April 2002 until August2004, and Chief Financial Officer of Intimate Brands, Inc.from April 2001 to April 2002. Prior to that time, Ms.Travis was Chief Financial Officer of the Beverage CanAmericas group at American National Can from 1999 to2001, and held various finance and operations positions atPepsi Bottling Group from 1989-1999. Ms. Travis is amember of the boards of directors of Jo-Ann Stores, Inc.and the Lincoln Center Theater.Mitchell A. Kosh Age 60 Mr. Kosh has served as Senior Vice President of HumanResources of the Company since July 2000. He was SeniorVice President of Human Resources of Conseco, Inc., fromFebruary 2000 to July 2000. Prior to that time, Mr. Koshheld executive human resource positions with the VenatorGroup, Inc. starting in 1996.Item 1A. Risk Factors.There are risks associated with an investment in our securities. The following risk factors should be read carefully in connectionwith evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the followingrisks could materially adversely affect our business, our prospects, our operating results, our financial condition, the trading prices ofour securities and the actual outcome of matters as to which forward-looking statements are made in this report. Additional risks that wedo not yet know of or that we currently think are immaterial may also affect our business operations.Risks Related to Our BusinessThe loss of the services of Mr. Ralph Lauren or other key personnel could have a material adverse effect on our business.Mr. Ralph Lauren’s leadership in the design, marketing and operational areas of our business has been a critical element of oursuccess since the inception of our Company. The death or disability of Mr. Lauren or other extended or permanent loss of his services, orany negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on ourbusiness. Our other executive officers and other members of senior management have substantial experience and expertise in our businessand have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individualscould also have a material adverse effect on us. We are not protected by a material amount of key-man or similar life insurance coveringMr. Lauren, our other executive officers and certain other members of senior management. We have entered into employment agreementswith Mr. Lauren and our other executive officers, but the noncompete period with respect to Mr. Lauren and certain other executive officerscould, in some circumstances in the event of their termination of employment with the Company, end prior to the employment term setforth in their employment agreements.Our business could be negatively impacted by any financial instability of our customers.We sell our wholesale merchandise primarily to major department stores across the U.S., Europe and Asia and extend credit basedon an evaluation of each customer’s financial condition, usually without requiring collateral.21Table of ContentsHowever, the financial difficulties of a customer could cause us to curtail or eliminate business with that customer. We may also assumemore credit risk relating to that customer’s receivables. In the aggregate, our five largest department-store customers constitutedapproximately 30% of our gross trade accounts receivable outstanding as of April 3, 2010 and contributed approximately 45% of allwholesale revenues for Fiscal 2010. Our inability to collect on our trade accounts receivable from any one of these customers could have amaterial adverse effect on our business, financial condition or liquidity. See Item 1 — “Business — Wholesale Credit Control.”The economic recession could have a negative impact on our major customers and suppliers which in turn could materiallyadversely affect our results of operations and liquidity.The economic recession is having a significant negative impact on businesses around the world. Although we believe that our cashprovided by operations and available borrowing capacity under our revolving credit facility will provide us with sufficient liquiditythrough the current recession, the impact of this recession on our major customers and suppliers cannot be predicted and may be quitesevere. The inability of major manufacturers to ship our products could impair our ability to meet the delivery date requirements of ourcustomers. A disruption in the ability of our significant customers to access liquidity could cause serious disruptions or an overalldeterioration of their businesses which could lead to a significant reduction in their future orders of our products and the inability orfailure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operationsand liquidity.The Company has an exclusive relationship with certain customers for some of its products. The loss or significant decline inbusiness of any of these customers could negatively impact our business.The Company has exclusive relationships with certain customers for distribution of some of its products, including its AmericanLiving and Chaps products. Our arrangements with JCPenney and Kohl’s for the American Living and Chaps products, respectively,make us dependent on the financial and operational health of those companies. As a result, a decrease in sales volume, as experienced inFiscal 2010 due to a contraction in consumer spending associated with the weakened global economic environment, or the loss of thebusiness of these customers, may negatively impact the Company’s business.We cannot assure the successful implementation of our growth strategy.As part of our growth strategy, we seek to extend our brands, expand our geographic coverage and increase direct management of ourbrands by opening more of our own stores, strategically acquiring or integrating select businesses previously held by our licensees andenhancing our operations. Implementation of our strategy involves the continued expansion of our business in Europe, Asia and otherinternational areas. As discussed in Item 1 — “Business — Recent Developments,” on December 31, 2009, we acquired our previouslylicensed Polo-branded apparel business in the Asia-Pacific region (excluding Japan). In Fiscal 2009, we acquired our previously licensedchildrenswear and golf apparel businesses in Japan. In Fiscal 2008, we acquired a controlling interest in Impact 21 Co., Ltd. and theremaining 50% interest in Polo Ralph Lauren Japan Corporation, as well as our previously licensed belts and leather goods business.We may have difficulty integrating acquired businesses into our operations, hiring and retaining qualified key employees, orotherwise successfully managing such expansion. Furthermore, we may not be able to successfully integrate the business of any licenseethat we acquire into our own business or achieve any expected cost savings or synergies from such integration.Implementation of our growth strategy involves the continuation and expansion of our retail distribution network, both in theU.S. and abroad, which are subject to many factors beyond our control. We may not be able to procure, purchase or lease desirable free-standing or department store locations, or renew and maintain existing free-standing store leases and department store locations onacceptable terms, or secure suitable replacement locations. The lease negotiation as well as the number and timing of new stores actuallyopened during any given period, and their associated contribution to net income for the period, depends on a number of factors including,but not limited, to: (i) the availability of suitable financing to us and our landlords; (ii) the timing of the delivery of the leased premises tous from our landlords in order to commence build-out construction activities; (iii) our ability and22Table of Contentsour landlords’ ability to obtain all necessary governmental licenses and permits to construct and operate our stores on a timely basis;(iv) our ability to manage the construction and development costs of new stores; (v) the rectification of any unforeseen engineering orenvironmental problems with the leased premises; (vi) adverse weather during the construction period; and (vii) the hiring and training ofqualified operating personnel in the local market. While we continue to explore new markets and are always evaluating new potentiallocations, any of the above factors could have an adverse impact on our financial operations.In Europe, we lack the large wholesale distribution channels we have in the U.S., and we may have difficulty developing successfuldistribution strategies and alliances in each of the major European countries. In Asia (including Japan), our primary mode of distributionis via a network of shops located within leading department stores. We may have difficulty in successfully retaining this network, andexpanding into alternate distribution channels. Additionally, macroeconomic trends may not be favorable, and could limit our ability toimplement our growth strategies in select geographies where we have foreign operations, such as Europe and Asia.Our business could suffer as a result of consolidations, liquidations, restructurings and other ownership changes in the retailindustry.Several of our department store customers, including some under common ownership, account for significant portions of ourwholesale net sales. A substantial portion of sales of our licensed products by our domestic licensing partners, including sales made byour sales force of Ralph Lauren Home products, are also made to our largest department store customers. In the aggregate, our five largestdepartment-store customers accounted for approximately 45% of our wholesale net sales during Fiscal 2010. There can be no assurancethat consolidations, restructurings, reorganizations or other ownership changes in the department store sector will not have a materialadverse effect on our wholesale business.We typically do not enter into long-term agreements with our customers. Instead, we enter into a number of purchase ordercommitments with our customers for each of our lines every season. A decision by the controlling owner of a group of stores or any othersignificant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease or eliminate the amountof merchandise purchased from us or our licensing partners; or to change their manner of doing business with us or our licensingpartners or their new strategic and operational initiatives, including their continued focus on further development of their “private label”initiatives, could have a material adverse effect on our business or financial condition.Our profitability may decline as a result of increasing pressure on margins.The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidationin the retail industry, pressure from retailers to reduce the costs of products and changes in consumer spending patterns. These factorsmay cause us to reduce our sales prices to retailers and consumers, which could cause our gross margin to decline if we are unable toappropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our operating costs. If oursales prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. This couldhave a material adverse effect on our results of operations, liquidity and financial condition.Certain legal proceedings and regulatory matters could adversely impact our results of operations.We are involved in certain legal proceedings and are subject from time to time to various claims involving alleged breach of contractclaims, intellectual property and other related claims, credit card fraud, security breaches in certain of our retail store informationsystems, employment issues, consumer matters and other litigations. Certain of these lawsuits and claims, if decided adversely to us orsettled by us, could result in material liability to the Company or have a negative impact on the Company’s reputation or relations with itsemployees, customers, licensees or other third parties. In addition, regardless of the outcome of any litigation or regulatory proceedings,such proceedings could result in substantial costs and may require that the Company devotes substantial time and resources to defenditself. Further, changes in governmental regulations both in the U.S. and in other countries where we conduct business operations couldhave an adverse impact on our results of operations. See Item 3 — “Legal Proceedings” for further discussion of the Company’s legalmatters.23Table of ContentsOur business could suffer if our computer systems and websites are disrupted or cease to operate effectively.The Company relies heavily on its computer systems to record and process transactions and manage and operate our business. Wealso utilize an automated replenishment system to facilitate the processing of basic replenishment orders from our wholesale customers,the movement of goods through distribution channels, and the collection of information for planning and forecasting. In addition, we havee-commerce and other Internet websites in the U.S. Given the complexity of our business and the significant number of transactions thatwe engage in on an annual basis, it is imperative that we maintain constant operation of our computer hardware and software systems.Despite our preventative efforts, our systems are vulnerable from time to time to damage or interruption from, among other things,security breaches, computer viruses or power outages.A privacy breach could damage the Company’s reputation and its relationships with its customers, expose the Company tolitigation risk and adversely affect the Company’s business.As part of the Company’s normal course of business, the Company collects, processes and retains sensitive and confidentialcustomer information. Despite the security measures the Company has in place, the Company’s facilities and systems, and those of theCompany’s third party service providers, may be vulnerable to security breaches, acts of vandalism, computer viruses, misplaced orlost data, programming and/or human errors, or other similar events. Any security breach involving the misappropriation, loss or otherunauthorized disclosure of confidential information, whether by the Company or its vendors, could severely damage the Company’sreputation and its relationships with its customers, expose the Company to risks of litigation and liability and adversely affect theCompany’s business.Our business is subject to risks associated with importing products.As of April 3, 2010, we source a significant portion of our products outside the U.S. through arrangements with over 400 foreignvendors in various countries. In Fiscal 2010, over 98%, by dollar value, of our products were produced outside the U.S., primarily inAsia, Europe and South America. Risks inherent in importing our products include: • quotas imposed by bilateral textile agreements with China and non-WTO countries. These agreements limit the amount and typeof goods that may be imported annually from these countries; • changes in social, political and economic conditions or terrorist acts that could result in the disruption of trade from the countriesin which our manufacturers or suppliers are located; • the imposition of additional regulations relating to imports or exports; • the imposition of additional duties, taxes and other charges on imports or exports; • significant fluctuations of the cost of raw materials; • significant delays in the delivery of cargo due to security considerations; • the imposition of antidumping or countervailing duty proceedings resulting in the potential assessment of special antidumping orcountervailing duties; and • the imposition of sanctions in the form of additional duties either by the U.S. or its trading partners to remedy perceived illegalactions by national governments.Any one of these factors could have a material adverse effect on our financial condition and results of operations.24Table of ContentsOur ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks.Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existinginternational markets is subject to risks associated with international operations. These include: • the burdens of complying with a variety of foreign laws and regulations; • unexpected changes in regulatory requirements; and • new tariffs or other barriers in some international markets.We are also subject to general political and economic risks in connection with our international operations, including: • political instability and terrorist attacks; • changes in diplomatic and trade relationships; and • general economic fluctuations in specific countries or markets.We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the U.S., the European Union,Asia, or other countries upon the import or export of our products in the future, or what effect any of these actions would have on ourbusiness, financial condition or results of operations. Changes in regulatory, geopolitical, social or economic policies and other factorsmay have a material adverse effect on our business in the future or may require us to significantly modify our current business practices.Our trademarks and other intellectual property rights may not be adequately protected outside the U.S.We believe that our trademarks, intellectual property and other proprietary rights are extremely important to our success and ourcompetitive position. We devote substantial resources to the establishment and protection of our trademarks and anti-counterfeitingactivities worldwide. Significant counterfeiting of our products continues, however, and in the course of our international expansion wehave experienced conflicts with various third parties that have acquired or claimed ownership rights in some trademarks that include Poloand/or a representation of a polo player astride a horse, or otherwise have contested our rights to our trademarks. We have in the pastresolved certain of these conflicts through both legal action and negotiated settlements, none of which, we believe, has had a materialimpact on our financial condition and results of operations. We cannot guarantee that the actions we have taken to establish and protectour trademarks and other proprietary rights will be adequate to prevent counterfeiting or a material adverse effect on our business orbrands arising from imitation of our products by others or to prevent others from seeking to block sales of our products as a violation ofthe trademarks and proprietary rights of others. Also, there can be no assurance that others will not assert rights in, or ownership of,trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction orat all. In addition, the laws of certain foreign countries do not protect trademarks or other proprietary rights to the same extent as do thelaws of the U.S. See Item 1 — “Business — Trademarks,” and Item 3 — “Legal Proceedings.”Our business could suffer as a result of increases in the price of raw materials or a manufacturer’s inability to produce ourgoods on time and to our specifications.We do not own or operate any manufacturing facilities and depend exclusively on independent third parties for the manufacture of allof our products. Our products are manufactured to our specifications primarily by international manufacturers. During Fiscal 2010, lessthan 2%, by dollar value, of our men’s and women’s products were manufactured in the U.S. and over 98%, by dollar value, of theseproducts were manufactured in other countries. The inability of a manufacturer to ship orders of our products in a timely manner or tomeet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result incancellation of orders, refusal to accept deliveries or a substantial reduction in purchase prices, any of which could have a materialadverse effect on our financial condition and results of operations. Additionally, prices25Table of Contentsof raw materials used to manufacture our products may fluctuate and increases in prices of such raw materials could have a materialadverse effect on our cost of sales.Our business could suffer if one of our manufacturers fails to use acceptable labor practices.We require our licensing partners and independent manufacturers to operate in compliance with applicable laws and regulations.While our internal and vendor operating guidelines promote ethical business practices and our staff periodically visits and monitors theoperations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of labor orother laws by an independent manufacturer used by us or one of our licensing partners, or the divergence of an independentmanufacturer’s or licensing partner’s labor practices from those generally accepted as ethical or appropriate in the U.S., could interrupt,or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a materialadverse effect on our financial condition and results of operations.Our business could suffer if we need to replace manufacturers.We compete with other companies for the production capacity of our manufacturers and import quota capacity. Some of thesecompetitors have greater financial and other resources than we have, and thus may have an advantage in the competition for productionand import quota capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, wemay have to expand our third-party manufacturing capacity. We cannot guarantee that this additional capacity will be available whenrequired on terms that are acceptable to us. See Item 1 — “Business — Sourcing, Production and Quality.” We enter into a number ofpurchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications and otherstandard industry provisions, but do not have long-term contracts with any manufacturer. None of the manufacturers we use produce ourproducts exclusively.Our business is exposed to domestic and foreign currency fluctuations.We generally purchase our products in U.S. dollars. However, we source most of our products overseas. As a result, the cost ofthese products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may also affect theU.S. dollar value of the foreign currency denominated prices at which our international businesses sell products. Furthermore, ourinternational sales and licensing revenue generally is derived from sales in foreign currencies. These foreign currencies include theJapanese Yen, the Euro and the British Pound Sterling, and this revenue could be materially affected by currency fluctuations. Althoughwe hedge certain exposures to changes in foreign currency exchange rates arising in the ordinary course of business, we cannot assure thatforeign currency fluctuations will not have a material adverse impact on our financial condition and results of operations. See Item 7 —“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Management.”We rely on our licensing partners to preserve the value of our licenses.The risks associated with our own products also apply to our licensed products in addition to any number of possible risks specificto a licensing partner’s business, including, for example, risks associated with a particular licensing partner’s ability to: • obtain capital; • manage its labor relations; • maintain relationships with its suppliers; • manage its credit and bankruptcy risks effectively; and • maintain relationships with its customers.Although a number of our license agreements prohibit licensing partners from entering into licensing arrangements with ourcompetitors, our licensing partners generally are not precluded from offering, under other brands, the types of products covered by theirlicense agreements with us. A substantial portion of sales of our26Table of Contentsproducts by our domestic licensing partners are also made to our largest customers. While we have significant control over our licensingpartners’ products and advertising, we rely on our licensing partners for, among other things, operational and financial control over theirbusinesses. Changes in management, reduced sales of licensed products, poor execution or financial difficulties with respect to any of ourlicensing partners could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reducedsales of our other products. See Item 1 — “Business — Our Licensing Segment.”Failure to maintain licensing partners could harm our business.Although we believe in most circumstances we could replace existing licensing partners if necessary, our inability to do so for anyperiod of time could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reducedsales of our other products. See Item 1 — “Our Licensing Segment.”The voting shares of the Company’s stock are concentrated in one majority stockholder.As of April 3, 2010, Mr. Ralph Lauren, or entities controlled by the Lauren family, owned approximately 84% of the voting power ofthe outstanding common stock of the Company. As a result, Mr. Lauren has the ability to exercise significant control over our business,including, without limitation, (i) the election of the Company’s Class B common stock directors, voting separately as a class, and(ii) any action requiring the approval of our stockholders, including the adoption of amendments to our certificate of incorporation and theapproval of mergers or sales of all or substantially all of our assets.The trading prices of our securities periodically may rise or fall based on the accuracy of predictions of our earnings or otherfinancial performance.Our business planning process is designed to maximize our long-term strength, growth and profitability, not to achieve an earningstarget in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of the Company and our stockholders.At the same time, however, we recognize that from time to time it may be helpful to provide investors with guidance as to our quarterlyand annual forecast of net sales and earnings. While we generally expect to provide updates to our guidance when we report our resultseach fiscal quarter, we assume no responsibility to update any of our forward-looking statements at such times or otherwise. If and whenwe announce actual results that differ from those that have been predicted by us, outside analysts or others, the market price of oursecurities could be affected. Investors who rely on the predictions when making investment decisions with respect to our securities do soat their own risk. We take no responsibility for any losses suffered as a result of such changes in the prices of our securities.Risks Relating to the Industry in Which We CompeteThe downturn in the global economy may continue to affect consumer purchases of discretionary items and luxury retailproducts, which could adversely affect our sales.The industries in which we operate are cyclical. Many economic factors outside of our control affect the level of consumer spendingin the apparel, cosmetic, fragrance, accessories and home products industries, including, among others: • general business conditions; • economic downturns; • employment levels; • downturns in the stock market; • interest rates; • the housing market; • consumer debt levels;27Table of Contents • the availability of consumer credit; • increases in fuel prices; • taxation; and • consumer confidence in future economic conditions.Consumer purchases of discretionary items and luxury retail products, including our products, may continue to decline duringrecessionary periods and at other times when disposable income is lower. A continuing downturn or an uncertain outlook in the economiesin which we, or our licensing partners, sell our products may materially adversely affect our businesses and our revenues and profits.See Item 7 — “Overview — Our Objectives and Risks” for further discussion.The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism,military conflicts or other hostilities could lead to a decrease in consumer spending and may materially adversely affect our business,revenues and profits.We face intense competition in the worldwide apparel industry.We face a variety of intense competitive challenges from other domestic and foreign fashion-oriented apparel and casual apparelproducers, some of which may be significantly larger and more diversified and have greater financial and marketing resources than wehave. We compete with these companies primarily on the basis of: • anticipating and responding to changing consumer demands in a timely manner; • maintaining favorable brand recognition, loyalty and reputation for quality; • developing innovative, high-quality products in sizes, colors and styles that appeal to consumers; • appropriately pricing products; • failure to anticipate and maintain proper inventory levels; • providing strong and effective marketing support; • creating an acceptable value proposition for retail customers; • ensuring product availability and optimizing supply chain efficiencies with manufacturers and retailers; and • obtaining sufficient retail floor space and effective presentation of our products at retail stores.We also face increasing competition from companies selling apparel and home products through the Internet. Although we sell ourproducts domestically through the Internet, increased competition in the worldwide apparel, accessories and home product industries fromInternet-based competitors could reduce our sales, prices and margins and adversely affect our results of operations.The success of our business depends on our ability to respond to constantly changing fashion trends and consumer demands.Our success depends in large part on our ability to originate and define fashion product and home product trends, as well as toanticipate, gauge and react to changing consumer demands in a timely manner. Our products must appeal to a broad range of consumersworldwide whose preferences cannot be predicted with certainty and are subject to rapid change. We cannot assure that we will be able tocontinue to develop appealing styles or successfully meet constantly changing consumer demands in the future. In addition, we cannotassure that any new products or brands that we introduce will be successfully received by consumers. Any failure on our part toanticipate, identify and respond effectively to changing consumer demands and fashion trends could adversely affect retail and consumeracceptance of our products and leave us with a substantial amount of unsold inventory or missed opportunities. If that occurs, we may beforced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may harm our business andimpair the image of our brands. Conversely, if we underestimate consumer demand for our products or if manufacturers fail to supplyquality products in a timely28Table of Contentsmanner, we may experience inventory shortages, which may result in unfilled orders, negatively impact customer relationships, diminishbrand loyalty and result in lost revenues. See Item 1 — “Business — Sourcing, Production and Quality.”Item 1B. Unresolved Staff Comments.Not applicable.Item 2. Properties.We lease space for our retail and factory showrooms, and warehouse and office space in various domestic and internationallocations. We do not own any real property except for our distribution facility in Greensboro, North Carolina and a parcel of land adjacentto the facility, and retail stores in Southampton, New York and Nantucket, Massachusetts.We believe that our existing facilities are well maintained, in good operating condition and are adequate for our present level ofoperations.The following table sets forth information with respect to our key properties: Approximate Current Lease TermLocation Use Sq. Ft. ExpirationGreensboro, NC Wholesale distribution facility 1,500,000 OwnedHigh Point, NC Retail distribution facility 360,000 January 31, 2023Martinsburg, WV Wholesale distribution facility 187,000 December 31, 2010625 Madison Avenue, NYC Corporate offices and home showroom 270,000 December 31, 2019650 Madison Avenue, NYC Executive, corporate office and designstudio, Men’s showrooms 203,500 December 31, 2024Lyndhurst, NJ Corporate and retail administrativeoffices 170,000 December 31, 2019550 7th Avenue, NYC Corporate office, design studio andWomen’s showrooms 84,000 December 31, 2018Geneva, Switzerland European corporate offices 60,000 March 31, 2013London, UK Retail flagship store 40,000 July 4, 2021Chicago, IL Retail flagship store 37,600 November 14, 2017867 Madison Avenue, NYC Retail flagship store 27,700 December 31, 2013Paris, France Retail flagship store 25,700 May 31, 2018Tokyo, Japan Retail flagship store 24,300 December 31, 2020Beverly Hills, CA Retail flagship store 21,600 September 30, 2023Milan, Italy Retail flagship store 18,300 June 30, 2015As of April 3, 2010, we operated 350 retail stores, totaling approximately 2.6 million square feet. We anticipate that we will be able toextend our retail store leases, as well as those leases for our non-retail facilities, which expire in the near future on satisfactory terms orrelocate to desirable locations.Item 3. Legal Proceedings.California Class Action LitigationOn October 11, 2007 and November 2, 2007, two class action lawsuits were filed by two customers in state court in Californiaasserting that while they were shopping at certain of the Company’s factory stores in California, the Company allegedly required them toprovide certain personal information at the point-of-sale in order to complete a credit card purchase. The plaintiffs purported to represent aclass of customers in California who allegedly were injured by being forced to provide their address and telephone numbers in order to usetheir credit29Table of Contentscards to purchase items from the Company’s stores, which allegedly violated Section 1747.08 of California’s Song-Beverly Act. Thecomplaints sought an unspecified amount of statutory penalties, attorneys’ fees and injunctive relief. The Company subsequently had theactions moved to the United States District Court for the Eastern and Central Districts of California. The Company commencedmediation proceedings with respect to these lawsuits and on October 17, 2008, the Company agreed in principle to settle these claims byagreeing to issue $20 merchandise discount coupons with six month expiration dates to eligible parties and paying the plaintiffs’attorneys’ fees. The Court granted preliminary approval of the settlement terms on July 17, 2009. In connection with this settlement, theCompany recorded a $5 million reserve against its expected loss exposure during the second quarter of Fiscal 2009. As part of therequired settlement process, the Company notified the relevant attorneys general regarding the potential settlement, and no objections wereregistered. At a hearing on December 7, 2009, the Court held that the terms of the settlement were fair, just and reasonable and providedfair compensation for class members. In addition, the Court overruled an objection that had been filed by a single customer. The Courtthen denied the objector’s subsequent motion for the Court to reconsider its order on the fairness of the settlement. The period withinwhich the objector had to appeal or otherwise seek relief from the Court’s orders expired in February 2010 without an appeal and thesettlement is effective. Accordingly, the coupons were issued in February with an expiration date of August 16, 2010. Based on couponredemption experience to date, the Company reversed $1.7 million of its original $5 million reserve into income during the fourth quarterof Fiscal 2010.Wathne Imports LitigationOn August 19, 2005, Wathne Imports, Ltd. (“Wathne”), our then domestic licensee for luggage and handbags, filed a complaint inthe U.S. District Court in the Southern District of New York against the Company and Ralph Lauren, our Chairman and ChiefExecutive Officer, asserting, among other things, federal trademark law violations, breach of contract, breach of obligations of good faithand fair dealing, fraud and negligent misrepresentation. The complaint sought, among other relief, injunctive relief, compensatorydamages in excess of $250 million and punitive damages of not less than $750 million. On September 13, 2005, Wathne withdrew thiscomplaint from the U.S. District Court and filed a complaint in the Supreme Court of the State of New York, New York County, makingsubstantially the same allegations and claims (excluding the federal trademark claims), and seeking similar relief. On February 1, 2006,the Court granted our motion to dismiss all of the causes of action, including the cause of action against Mr. Lauren, except for breach ofcontract related claims, and denied Wathne’s motion for a preliminary injunction. Following some discovery, we moved for summaryjudgment on the remaining claims. Wathne cross-moved for partial summary judgment. In an April 11, 2008 Decision and Order, theCourt granted Polo’s summary judgment motion to dismiss most of the claims against the Company, and denied Wathne’s cross-motionfor summary judgment. Wathne appealed the dismissal of its claims to the Appellate Division of the Supreme Court. Following a hearingon May 19, 2009, the Appellate Division issued a Decision and Order on June 9, 2009 which, in large part, affirmed the lower court’sruling. Discovery on those claims that were not dismissed is ongoing and a trial date has not yet been set. We intend to continue to contestthe remaining claims in this lawsuit vigorously. Management does not expect that the ultimate resolution of this matter will have a materialadverse effect on the Company’s liquidity or financial position.California Labor LitigationOn May 30, 2006, four former employees of our Ralph Lauren stores in Palo Alto and San Francisco, California filed a lawsuit inthe San Francisco Superior Court alleging violations of California wage and hour laws. The plaintiffs purported to represent a class ofemployees who allegedly had been injured by not properly being paid commission earnings, not being paid overtime, not receiving restbreaks, being forced to work off of the clock while waiting to enter or leave stores and being falsely imprisoned while waiting to leavestores. The complaint sought an unspecified amount of compensatory damages, damages for emotional distress, disgorgement of profits,punitive damages, attorneys’ fees and injunctive and declaratory relief. Subsequent to answering the complaint, we had the action movedto the United States District Court for the Northern District of California. On July 8, 2008, the United States District Court for theNorthern District of California granted plaintiffs’ motion for class certification and subsequently denied our motion to decertify the class.On November 5, 2008, the District Court stayed litigation of the rest break claims pending the resolution of a separate CaliforniaSupreme Court case on the standards of class treatment for rest break claims. On January 25, 2010, the District Court granted plaintiffs’motion to sever the rest30Table of Contentsbreak claims from the rest of the case and denied our motion to decertify the waiting time claims. The District Court also ordered that atrial be held on the waiting time and overtime claims, which commenced on March 8, 2010. During trial, the parties reached an agreementto settle all of the claims in the litigation, including the rest break claims, for $4 million. The District Court held a hearing on May 14,2010 and advised the parties that it would grant preliminary approval of the settlement. Once the Court enters an order grantingpreliminary approval of the settlement, the members of the class will have 60 days from the date of preliminary approval to submitclaims or object to the settlement. A hearing has been scheduled for August 20, 2010 for the District Court to determine if final approval ofthe settlement should be granted. In connection with this settlement, the Company recorded a $4 million reserve against its expected lossexposure during the fourth quarter of Fiscal 2010.Other MattersWe are otherwise involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with orincidental to our business, including, among other things, matters involving credit card fraud, trademark and other intellectual property,licensing, and employee relations. We believe that the resolution of currently pending matters will not individually or in the aggregate havea material adverse effect on our financial condition or results of operations. However, our assessment of the current litigation or other legalclaims could change in light of the discovery of facts not presently known to us or determinations by judges, juries or other finders offact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Our Class A common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “RL.” The following table setsforth the high and low sales prices per share of the Class A common stock, as reported on the NYSE Composite Tape, and the cashdividends per common share declared for each quarterly period in our two most recent fiscal years: Market Price of Class A Dividends Common Stock Declared per High Low Common ShareFiscal 2010: First Quarter $59.51 $40.79 $0.05 Second Quarter 78.44 49.20 0.05 Third Quarter 83.50 71.71 0.10 Fourth Quarter 86.97 75.06 0.10 Fiscal 2009: First Quarter $71.20 $57.07 $0.05 Second Quarter 82.02 53.86 0.05 Third Quarter 70.64 31.22 0.05 Fourth Quarter 48.29 31.64 0.05 Since 2003, the Company has maintained a regular quarterly cash dividend program on its common stock. On November 4, 2009,the Company’s Board of Directors approved an increase to the Company’s quarterly cash dividend on its common stock from $0.05 pershare to $0.10 per share. Approximately $30 million was recorded as a reduction to retained earnings during Fiscal 2010 in connectionwith the Company’s dividends.As of May 21, 2010, there were 1,103 holders of record of our Class A common stock and 15 holders of record of our Class Bcommon stock. All of our outstanding shares of Class B common stock are owned by Mr. Ralph Lauren, Chairman of the Board andChief Executive Officer, and entities controlled by the Lauren family and are31Table of Contentsconvertible at any time into shares of Class A common stock on a one-for-one basis. During Fiscal 2010, Mr. Lauren converted1.2 million shares of Class B common stock into an equal number of shares of Class A common stock pursuant to the terms of thesecurity.The following table sets forth the repurchases of shares of our Class A common stock during the fiscal quarter ended April 3, 2010: Total Number of Approximate Dollar Average Shares Purchased as Value of Shares Total Number of Price Part of Publicly That May Yet be Shares Paid per Announced Plans or Purchased Under the Purchased(1) Share Programs(1) Plans or Programs (millions) December 27, 2009 to January 23, 2010 — $— — $352 January 24, 2010 to February 20, 2010 1,000,000 77.52 1,000,000 275 February 21, 2010 to April 3, 2010 135(2) 85.67 — 275 1,000,135 1,000,000 (1)Except as noted below, these purchases were made on the open market under the Company’s Class A common stock repurchase program. OnNovember 4, 2009, the Company’s Board of Directors approved an expansion of the Company’s existing common stock repurchase program thatallows the Company to repurchase up to an additional $225 million of Class A common stock. Repurchases of shares of Class A common stock aresubject to overall business and market conditions. This program does not have a fixed termination date.On May 18, 2010, the Company’s Board of Directors approved a further expansion of the Company’s existing common stock repurchase programthat allows the Company to repurchase up to an additional $275 million of Class A common stock.(2)Represents shares surrendered to, or withheld by, the Company in satisfaction of withholding taxes in connection with the vesting of an award underthe Company’s 1997 Long-Term Stock Incentive Plan.The following graph compares the cumulative total stockholder return (stock price appreciation plus dividends) on our Class Acommon stock with the cumulative total return of the Standard & Poor’s 500 Index, and a peer group index of companies that we believeare similar to ours (the “Peer Group”) for the period from April 1, 2005, the last trading day in the Company’s 2005 fiscal year, throughApril 1, 2010, the last trading day in the Company’s 2010 fiscal year. Our Peer Group consists of Coach, Estee Lauder, Jones Apparel,Kenneth Cole, Liz Claiborne, Phillips Van Heusen, Tiffany & Co., VF Corp., Warnaco, LVMH, Burberry, PPR SA, HermesInternational, Richemont, Luxottica and Tod’s Group. All calculations done for foreign companies in our Peer Group are made using thelocal foreign issue of such companies. The returns are calculated by assuming an investment in the Class A common stock and eachindex of $100 on April 1, 2005, with all dividends reinvested.32Table of ContentsCOMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Polo Ralph Lauren Corporation, The S&P 500 IndexAnd A Peer Group*$100 invested on 4/1/05 in stock or 3/31/05 in index, including reinvestment of dividends. Index calculated on month-end basis.Copyright© 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved.33Table of ContentsItem 6. Selected Financial Data.See the “Index to Consolidated Financial Statements and Supplementary Information,” and specifically “Selected FinancialInformation” appearing at the end of this Annual Report on Form 10-K. This selected financial data should be read in conjunction withItem 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 — “FinancialStatements and Supplementary Data” included in this Annual Report on Form 10-K. Historical results may not be indicative of futureresults.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.The following management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be readtogether with our audited consolidated financial statements and footnotes, which are included elsewhere in this Annual Report onForm 10-K for Fiscal 2010 (“Fiscal 2010 10-K”). We utilize a 52-53 week fiscal year ending on the Saturday closest to March 31. Assuch, fiscal year 2010 ended on April 3, 2010 and reflected a 53-week period (“Fiscal 2010”); fiscal year 2009 ended on March 28, 2009and reflected a 52-week period (“Fiscal 2009”); and fiscal year 2008 ended on March 29, 2008 and also reflected a 52-week period(“Fiscal 2008”). The inclusion of the 53rd week in Fiscal 2010 resulted in incremental revenues of approximately $70 million andincreased net income of approximately $13 million.INTRODUCTIONMD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide anunderstanding of our financial condition and liquidity, changes in financial condition, and results of our operations. MD&A is organizedas follows: • Overview. This section provides a general description of our business, including our objectives and risks, and a summary offinancial performance for Fiscal 2010. In addition, this section includes a discussion of recent developments and transactionsaffecting comparability that we believe are important in understanding our results of operations and financial condition, and inanticipating future trends. • Results of operations. This section provides an analysis of our results of operations for Fiscal 2010, Fiscal 2009 and Fiscal2008. • Financial condition and liquidity. This section provides an analysis of our cash flows for Fiscal 2010, Fiscal 2009 and Fiscal2008, as well as a discussion of our financial condition and liquidity as of April 3, 2010. The discussion of our financialcondition and liquidity includes (i) our available financial capacity under our credit facility, (ii) a summary of our key debtcompliance measures and (iii) a summary of our outstanding debt and commitments as of April 3, 2010. • Market risk management. This section discusses how we manage our risk exposures related to interest rates, foreign currencyexchange rates and our investments, as well as the underlying market conditions as of April 3, 2010. • Critical accounting policies. This section discusses accounting policies considered to be important to our financial conditionand results of operations, which require significant judgment and estimation on the part of management in their application. Inaddition, all of our significant accounting policies, including our critical accounting policies, are summarized in Notes 3 and 4 toour accompanying audited consolidated financial statements. • Recently issued accounting standards. This section discusses the potential impact to our reported financial condition andresults of operations of accounting standards that have been recently issued.OVERVIEWOur BusinessOur Company is a global leader in the design, marketing and distribution of premium lifestyle products including men’s, women’sand children’s apparel, accessories, fragrances and home furnishings. Our long-standing34Table of Contentsreputation and distinctive image have been consistently developed across an expanding number of products, brands and internationalmarkets. Our brand names include Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Women’s Collection, BlackLabel, Blue Label, Lauren by Ralph Lauren, RRL, RLX, Rugby, Ralph Lauren Childrenswear, American Living, Chaps and ClubMonaco, among others.We classify our businesses into three segments: Wholesale, Retail and Licensing. Our wholesale business (representingapproximately 51% of Fiscal 2010 net revenues) consists of wholesale-channel sales made principally to major department stores,specialty stores and golf and pro shops located throughout the U.S., Canada, Europe and Asia. Our retail business (representingapproximately 45% of Fiscal 2010 net revenues) consists of retail-channel sales directly to consumers through full-price and factory retailstores located throughout the U.S., Canada, Europe, South America and Asia, through concessions-based shop-within-shops locatedprimarily in Asia, and through our retail internet sites located at www.RalphLauren.com and www.Rugby.com. In addition, our licensingbusiness (representing approximately 4% of Fiscal 2010 net revenues) consists of royalty-based arrangements under which we license theright to third parties to use our various trademarks in connection with the manufacture and sale of designated products, such as apparel,eyewear and fragrances, in specified geographical areas for specified periods. Approximately 30% of our Fiscal 2010 net revenues wasearned in international regions outside of the U.S. and Canada. See Note 22 to the accompanying audited consolidated financialstatements for a summary of net revenues by geographic location.In connection with the closing of the Asia-Pacific Licensed Operations Acquisition (as defined and discussed under “RecentDevelopments”) at the beginning of the fourth quarter of Fiscal 2010, we restated our segment presentation to reclassify concessions-based sales arrangements to our Retail segment from our Wholesale segment. Segment information for Fiscal 2009 has been recast toconform to the current period’s presentation. In periods prior to Fiscal 2009, segment information has not been recast to conform to thecurrent period’s presentation, as it is impracticable to do so. See Note 2 to the accompanying audited consolidated financial statements forfurther discussion of the restatement of our segment presentation.Our business is typically affected by seasonal trends, with higher levels of wholesale sales in our second and fourth quarters andhigher retail sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments andkey vacation travel, back-to-school and holiday shopping periods in the Retail segment.Our Objectives and RisksOur core strengths include a portfolio of global luxury lifestyle brands, a strong and experienced management team, a proven abilityto develop and extend our brands distributed through multiple retail channels in global markets, a disciplined investment philosophy anda solid balance sheet. Despite the various risks associated with the current global economic environment as further discussed below, webelieve our core strengths will allow us to continue to execute our strategy for long-term sustainable growth in revenue, net income andoperating cash flow.Our financial performance has been driven by the Company’s focus on six key objectives: • Creating unique businesses primarily centered around one core and heritage-driven brand; • Diversifying and expanding our products and prices, distribution channels and geographic regions; • Improving brand control and positioning; • Focusing on selective strategic partnerships; • Implementing infrastructure improvements that support a worldwide business; and • Funding our expansion through strong operating cash flow.As our business has grown, our portfolio mix and brand control has evolved from primarily that of a mono-brand U.S. centricmenswear wholesaler with a broad array of product and geographic licenses to that of a portfolio of lifestyle brands with a “direct control”model over most of our brands, products and international territories. We believe that this broader and better-diversified portfolio mixpositions us for ongoing growth, offering our customers35Table of Contentsa range of products, price points and channels of distribution, and our size and global operations favorably position us to take advantageof synergies in design, sourcing and distribution.While balancing our long-term key strategic objectives with our near-term priorities to manage through the many risks associatedwith the weakened global economic environment and related reduction in consumer spending levels, we intend to continue to pursue selectopportunities for growth during the course of Fiscal 2011 and beyond. These opportunities and continued investment initiatives include: • International Growth Opportunities Ø Ongoing development and integration of our recently acquired businesses in Asia-Pacific, including the continued executionof our plans to enhance our supporting organizational infrastructure and expand our retail businesses. • Direct-to-Consumer Growth Opportunities Ø Global expansion of our direct-to-consumer presence in various formats and key markets, including e-commerce operationsin Europe. • Product Innovation and Brand Extension Growth Opportunities Ø Further development of a wide array of luxury accessories product offerings, including handbags, footwear, smallleathergoods and watches/jewelry; and Ø The continued expansion of our Lauren product line in international markets. • Investment in Operational Infrastructure Ø Further systems enhancements and implementations to meet the expanding needs of our global organization. • Disciplined Cost Management Ø The ongoing evaluation of strategies to better align our cost structure with lower sales trends associated with reduced levels ofconsumer spending.Global Economic DevelopmentsThe state of the global economy has continued to negatively impact the level of consumer spending for discretionary items over thecourse of the past year. This has affected our business as it is highly dependent on consumer demand for our products. Particularly,beginning in October 2008, our Retail segment began to experience sharp declines in comparable store sales, as did many of our traditionalwholesale customers. These retail store declines continued until the second half of Fiscal 2010 when our Retail segment experiencedpositive comparable store sales growth due largely to the anniversarying of the lower benchmarks created in the prior year, as well as therealization of higher margins relating to improved inventory management and less promotional activity.While recent statistics indicate that the U.S. and certain other international economies are showing some signs of stabilization, thereare still significant macroeconomic risks, including high rates of unemployment and growing economic uncertainty in Europe. As such,we believe the global macroeconomic environment and the related contraction in the level of worldwide consumer spending will likelycontinue to have a negative effect on our sales and operating margins across all segments through at least Fiscal 2011. We also anticipatethat current inflationary pressures on raw material and fuel costs will likely negatively affect the cost of our products and related grossprofit percentages in Fiscal 2011.We continue to monitor these risks and continually evaluate our operating strategies to adjust to any changes in economic conditions.For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from ourexpectations, see Part I, Item 1A — “Risk Factors” included elsewhere in this Fiscal 2010 10-K.36Table of ContentsSummary of Financial PerformanceOperating ResultsIn Fiscal 2010, we reported revenues of $4.979 billion, net income attributable to Polo Ralph Lauren Corporation (“PRLC”) of$479.5 million and net income per diluted share attributable to PRLC of $4.73. This compares to revenues of $5.019 billion, net incomeattributable to PRLC of $406.0 million and net income per diluted share attributable to PRLC of $4.01 in Fiscal 2009.Our operating performance for Fiscal 2010 was principally affected by a 0.8% decline in revenues, mainly due to lower revenuesfrom our global Wholesale businesses as a result of the ongoing challenging global retail environment. This decrease was largely offset bya net increase in our global Retail sales and the inclusion of a 53rd week of sales in Fiscal 2010, as well as net favorable foreign currencyeffects. Despite the overall decline in revenues, we experienced an increase in gross profit percentage of 380 basis points to 58.2%primarily due to supply chain cost savings initiatives, improved inventory management and decreased promotional activity particularlyacross our global Retail businesses and our European Wholesale operations, as well as growth in our Japanese concessions-basedbusiness driven by the Japanese Childrenswear and Golf Acquisition (see “Recent Developments” for further discussion). SG&Aexpenses increased during Fiscal 2010 primarily driven by higher incentive-based compensation expenses and an increase in operatingexpenses attributable to our new business initiatives, which more than offset the benefits from various cost-savings initiativesimplemented in response to the current economic downturn.Net income and net income per diluted share attributable to PRLC increased in Fiscal 2010 as compared to Fiscal 2009. This wasprimarily due to a $111.4 million increase in operating income, offset in part by a $28.3 million increase in the provision for incometaxes. The increase in the provision for income taxes was driven by the overall increase in pretax income, partially offset by a 50 basispoint decline in our effective tax rate. These results were impacted by a $65.5 million reduction in pretax charges related to assetimpairments and restructurings as well as increased pretax income of approximately $19 million due to the inclusion of the 53rd week inFiscal 2010, which combined had an aggregate effect of increasing our net income trends by approximately $54 million (approximately$0.53 per diluted share).Financial Condition and LiquidityOur financial position reflects the overall relative strength of our business results. We ended Fiscal 2010 in a net cash andinvestments position (total cash and cash equivalents, plus short-term and non-current investments less total debt) of $940.6 million,compared to $443.2 million as of the end of Fiscal 2009.The improvement in our financial position was primarily due to our operating cash flows, partially offset by our treasury stockrepurchases, capital expenditures and the funding of our recent Asia-Pacific Licensed Operations Acquisition (as defined and discussedunder “Recent Developments” below). Our equity increased to $3.117 billion as of April 3, 2010, compared to $2.735 billion as ofMarch 28, 2009, primarily due to our net income during Fiscal 2010, offset in part by our share repurchase activity.We generated $906.5 million of cash from operations during Fiscal 2010, compared to $774.2 million during Fiscal 2009. We usedsome of our cash availability to redeem approximately €90.8 million principal amount of debt for $121.0 million, to fund our Asia-Pacific Licensed Operations Acquisition for $25.3 million (see “Recent Developments”), to support our common stock repurchaseprogram and to reinvest in our business through capital spending. In particular, we used $231.0 million to repurchase 3.2 million sharesof Class A common stock, including shares surrendered for tax withholdings. We also used $201.3 million for capital expendituresprimarily associated with our global retail store expansion, construction and renovation of department store shop-in-shops andinvestments in our facilities and technological infrastructure.37Table of ContentsTransactions Affecting Comparability of Results of Operations and Financial ConditionThe comparability of the Company’s operating results for the three fiscal years presented herein has been affected by certaintransactions, including: • Acquisitions that occurred in Fiscal 2010, Fiscal 2009 and Fiscal 2008. In particular, the Company completed the Asia-PacificLicensed Operations Acquisition on December 31, 2009, the Japanese Childrenswear and Golf Acquisition on August 1, 2008,the Japanese Business Acquisitions on May 29, 2007 and the Small Leathergoods Business Acquisition on April 13, 2007 (eachas defined in Note 5 to the accompanying audited consolidated financial statements); and • Certain pretax charges related to asset impairments and restructurings during the fiscal years presented.A summary of the effect of certain of these items on pretax income for each applicable fiscal year presented is noted below (referencesto “Notes” are to the notes to the accompanying audited consolidated financial statements): Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Impairments of assets (see Note 11) $(6.6) $(55.4) $(5.0)Restructuring charges (see Note 12) (6.9) (23.6) — $(13.5) $(79.0) $(5.0)The comparability of the Company’s operating results has also been affected by the inclusion of a 53rd week in Fiscal 2010, whichresulted in incremental revenues of approximately $70 million and increased net income of approximately $13 million.In addition, as a result of the reclassification of concessions-based sales arrangements to our Retail segment from our Wholesalesegment at the beginning of the fourth quarter of Fiscal 2010, segment information for Fiscal 2009 has been recast to conform to thecurrent period’s presentation. Segment information for Fiscal 2008 has not been recast to conform to the current period’s presentation, as itis impracticable to do so. Accordingly, the related analysis of our results of operations for Fiscal 2009 compared to Fiscal 2008 asincluded in the following MD&A has been prepared on a comparable basis using historical segment information.The following discussion of results of operations highlights, as necessary, the significant changes in operating results arising fromthese items and transactions. However, unusual items or transactions may occur in any period. Accordingly, investors and other financialstatement users individually should consider the types of events and transactions that have affected operating trends.Recent DevelopmentsAsia-Pacific Licensed Operations AcquisitionOn December 31, 2009, in connection with the transition of the Polo-branded apparel business in Asia-Pacific (excluding Japan)from a licensed to a wholly owned operation, the Company acquired certain net assets from Dickson Concepts International Limited andaffiliates (“Dickson”) in exchange for an initial payment of approximately $20 million and other consideration of approximately$17 million (the “Asia-Pacific Licensed Operations Acquisition”). Dickson was the Company’s licensee for Polo-branded apparel in theAsia-Pacific region (excluding Japan), which is comprised of China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore,Taiwan and Thailand. The Company funded the Asia-Pacific Licensed Operations Acquisition with available cash on-hand.The results of operations for the Polo-branded apparel business in Asia-Pacific have been consolidated in the Company’s results ofoperations commencing January 1, 2010.38Table of ContentsJapanese Childrenswear and Golf AcquisitionOn August 1, 2008, in connection with the transition of the Polo-branded childrenswear and golf apparel businesses in Japan from alicensed to a wholly owned operation, the Company acquired certain net assets (including inventory) from Naigai Co. Ltd. (“Naigai”) inexchange for a payment of approximately ¥2.8 billion (approximately $26 million as of the acquisition date) and certain otherconsideration (the “Japanese Childrenswear and Golf Acquisition”). The Company funded the Japanese Childrenswear and GolfAcquisition with available cash on-hand. Naigai was the Company’s licensee for childrenswear, golf apparel and hosiery under the Poloby Ralph Lauren and Ralph Lauren brands in Japan. In conjunction with the Japanese Childrenswear and Golf Acquisition, theCompany also entered into an additional 5-year licensing and design-related agreement with Naigai for Polo and Chaps-branded hosiery inJapan and a transition services agreement for the provision of a variety of operational, human resources and information systems-relatedservices over a period of up to eighteen months from the date of the closing of the transaction.The results of operations for the Polo-branded childrenswear and golf apparel businesses in Japan have been consolidated in theCompany’s results of operations commencing August 2, 2008.RESULTS OF OPERATIONSFiscal 2010 Compared to Fiscal 2009The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certainfinancial statement captions: Fiscal Years Ended April 3, March 28, 2010 2009 $ Change % Change (millions, except per share data) Net revenues $4,978.9 $5,018.9 $(40.0) (0.8)%Cost of goods sold(a) (2,079.8) (2,288.2) 208.4 (9.1)%Gross profit 2,899.1 2,730.7 168.4 6.2 %Gross profit as % of net revenues 58.2% 54.4% Selling, general and administrative expenses(a) (2,157.0) (2,036.0) (121.0) 5.9 %SG&A as % of net revenues 43.3% 40.6% Amortization of intangible assets (21.7) (20.2) (1.5) 7.4 %Impairments of assets (6.6) (55.4) 48.8 (88.1)%Restructuring charges (6.9) (23.6) 16.7 (70.8)%Operating income 706.9 595.5 111.4 18.7 %Operating income as % of net revenues 14.2% 11.9% Foreign currency gains (losses) (2.2) 1.6 (3.8) (237.5)%Interest expense (22.2) (26.6) 4.4 (16.5)%Interest and other income, net 12.4 22.0 (9.6) (43.6)%Equity in income (loss) of equity-method investees (5.6) (5.0) (0.6) 12.0 %Income before provision for income taxes 689.3 587.5 101.8 17.3 %Provision for income taxes (209.8) (181.5) (28.3) 15.6 %Effective tax rate(b) 30.4% 30.9% Net income attributable to PRLC $479.5 $406.0 $73.5 18.1 %Net income per common share attributable to PRLC: Basic $4.85 $4.09 $0.76 18.6 %Diluted $4.73 $4.01 $0.72 18.0 %39Table of Contents(a)Includes total depreciation expense of $159.5 million and $164.2 million for Fiscal 2010 and Fiscal 2009, respectively.(b)Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income taxes.Net Revenues. Net revenues decreased by $40.0 million, or 0.8%, to $4.979 billion in Fiscal 2010 from $5.019 billion in Fiscal2009. The decrease was primarily due to lower revenues from our global Wholesale businesses, partially offset by a net increase in ourglobal Retail sales and net favorable foreign currency effects. Also offsetting the decrease in revenues was the inclusion of a 53rd week inFiscal 2010 compared to 52 weeks in Fiscal 2009, which resulted in incremental revenues of approximately $70 million. Excluding theeffect of foreign currency, net revenues decreased by 1.1%. On a reported basis, Wholesale revenues decreased by $217.1 million,primarily as a result of global net sales declines in most of our product lines largely due to the ongoing challenging global retailenvironment. Retail revenues increased by $188.9 million, primarily as a result of growth in RalphLauren.com sales, increased revenuesfrom our Japanese businesses largely as a result of the childrenswear and golf acquisition and continued global store expansion. Theincrease in Retail revenues also reflected incremental sales from our newly acquired Polo-branded apparel business in Asia-Pacific.Licensing revenue decreased by $11.8 million, primarily due to declines in product and home licensing royalties driven by lowerfragrance and paint-related royalties, respectively, as well as a decrease in international licensing royalties due to the loss of licensingrevenues from the newly acquired Polo-branded apparel business in Asia-Pacific and childrenswear and golf businesses in Japan (all nowconsolidated as part of the Retail segment).Net revenues for our three business segments under the Company’s new (recasted) basis of reporting are provided below: Fiscal Years Ended April 3, March 28, 2010 2009 $ Change % Change (millions) Net Revenues: Wholesale $2,532.4 $2,749.5 $(217.1) (7.9)%Retail 2,263.1 2,074.2 188.9 9.1 %Licensing 183.4 195.2 (11.8) (6.0)%Total net revenues $4,978.9 $5,018.9 $(40.0) (0.8)%Wholesale net revenues — The net decrease primarily reflects: • a $154 million aggregate net decrease in our domestic businesses primarily due to a decrease in womenswear, menswear andchildrenswear sales (including a decline in revenues from related American Living product categories) as a result of the ongoingchallenging U.S. retail environment (as discussed further in the “Overview” section), offset in part by higher footwear salesdriven by increased door penetration; • a $36 million net decrease in our Japanese businesses on a constant currency basis primarily due to a decrease in womenswearsales largely as a result of the ongoing challenging global retail environment; • a $25 million net decrease in our European businesses on a constant currency basis primarily driven by decreased sales in ourmenswear and childrenswear product lines, partially offset by an increase in womenswear sales largely due to the inclusion ofrevenues from the newly launched Lauren product line; and • a $2 million net decrease in revenues due to an unfavorable foreign currency effect related to the overall weakening of the Euro,partially offset by a favorable foreign currency effect related to the strengthening of the Yen, both in comparison to the U.S. dollarduring Fiscal 2010.The total net decrease in Wholesale revenues discussed above included an approximate $30 million increase due to the inclusion ofan extra week of sales in Fiscal 2010 as compared to Fiscal 2009.Retail net revenues — For purposes of the discussion of Retail operating performance below, we refer to the measure “comparablestore sales.” Comparable store sales refer to the growth of sales in stores that are open for at least one full fiscal year. Sales for stores thatare closing during a fiscal year are excluded from the calculation of40Table of Contentscomparable store sales. Sales for stores that are either relocated, enlarged (as defined by gross square footage expansion of 25% or greater)or generally closed for 30 or more consecutive days for renovation are also excluded from the calculation of comparable store sales untilsuch stores have been in their new location or in a newly renovated state for at least one full fiscal year. Comparable store salesinformation includes both Ralph Lauren (including Rugby) and Club Monaco stores, as well as concessions-based shop-within-shopsand RalphLauren.com.The net increase in Retail net revenues primarily reflects: • a $163 million aggregate net increase in non-comparable store sales primarily driven by: Ø a $40 million increase in revenues due to the inclusion of an extra week of sales in Fiscal 2010 as compared to Fiscal 2009; Ø an increase of approximately $32 million on a constant currency basis related to the inclusion of a full year of revenues fromour concessions-based shop-within-shops assumed in connection with the Japanese Childrenswear and Golf Acquisition incomparison to seven months in the prior fiscal year (see “Recent Developments” for further discussion); Ø the inclusion of $29 million of sales from stores and concessions-based shop-within-shops assumed in connection with theAsia-Pacific Licensed Operations Acquisition (see “Recent Developments” for further discussion); Ø an increase related to new store openings within the past twelve months. There was a net increase in average global store countof 9 stores, to a total of 350 stores, as compared to Fiscal 2009. The net increase in store count was primarily due to anumber of new domestic and international full-price and factory store openings as well as the inclusion of stores acquired inAsia-Pacific region, offset in part by the closure of certain Club Monaco stores; and Ø a net aggregate favorable foreign currency effect of $16 million primarily related to the strengthening of the Yen, partiallyoffset by the overall weakening of the Euro, both in comparison to the U.S. dollar during Fiscal 2010. • a $6 million aggregate net decrease in comparable physical store sales driven by our global full-price stores, including a netaggregate unfavorable foreign currency effect of $2 million primarily related to the overall weakening of the Euro, partially offsetby the strengthening of the Yen, both in comparison to the U.S. dollar during Fiscal 2010. This decrease was more than offset bya $32 million increase in RalphLauren.com sales. Comparable store sales under the Company’s new (recasted) basis of reportingare presented below on a 52-week basis: Fiscal Year Ended April 3, 2010Increases/(decreases) in comparable store sales as reported: Full-price Ralph Lauren store sales(a) (4)%Full-price Club Monaco store sales 2 %Factory store sales 1 %RalphLauren.com sales 18 %Total increase in comparable store sales as reported 1 %Increases/(decreases) in comparable store sales excluding the effect of foreign currency: Full-price Ralph Lauren store sales(b) (4)%Full-price Club Monaco store sales 2 %Factory store sales 1 %RalphLauren.com sales 18 %Total increase in comparable store sales excluding the effect of foreign currency 2 %41.1Table of Contents (a)Includes an increase of 24% in comparable sales for concessions-based shop-within-shops.(b)Includes an increase of 15% in comparable sales for concessions-based shop-within-shops.Licensing revenue — The net decrease primarily reflects: • a $8 million decrease in international licensing royalties, primarily due to the Asia-Pacific Licensed Operations Acquisition aswell as the Japanese Childrenswear and Golf Acquisition (see “Recent Developments” for further discussion); and • a $5 million decrease in home licensing royalties primarily driven by lower paint and bedding and bath-related royalties.The above net decrease was partially offset by: • a $1 million net increase in product licensing royalties primarily driven by higher footwear royalties, partially offset by lowerfragrance-related royalties.Gross Profit. Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs,freight-in and import costs, as well as changes in reserves for shrinkage and inventory realizability. The costs of selling merchandise,including those associated with preparing the merchandise for sale, such as picking, packing, warehousing and order charges, areincluded in SG&A expenses.Gross profit increased by $168.4 million, or 6.2%, to $2.899 billion in Fiscal 2010 from $2.731 billion in Fiscal 2009. Grossprofit as a percentage of net revenues increased by 380 basis points to 58.2% in Fiscal 2010 from 54.4% in Fiscal 2009. This increasewas primarily due to supply chain cost savings initiatives, improved inventory management and decreased promotional activityparticularly across our global Retail businesses and our European Wholesale operations, as well as growth in our Japanese concessions-based business driven by the Japanese Childrenswear and Golf Acquisition (see “Recent Developments” for further discussion).Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix amongdistribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates,and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net revenues to fluctuate fromyear to year.We anticipate that current macroeconomic challenges, including inflationary pressures on raw material and fuel costs, couldnegatively affect the cost of our products and related gross profit percentages in Fiscal 2011. See Item 1A — “Risk Factors” for furtherdiscussion.Selling, General and Administrative Expenses. SG&A expenses primarily include compensation and benefits, marketing,distribution, bad debts, information technology, facilities, legal and other costs associated with finance and administration. SG&Aexpenses increased by $121.0 million, or 5.9%, to $2.157 billion in Fiscal 2010 from $2.036 billion in Fiscal 2009. The increaseincluded an unfavorable foreign currency effect of approximately $15 million, primarily related to the strengthening of the Yen incomparison to the U.S. dollar during Fiscal 2010. SG&A expenses as a percent of net revenues increased to 43.3% in Fiscal 2010 from40.6% in Fiscal 2009. The 270 basis point increase was primarily driven by the decrease in net revenues as well as higher compensation-related expenses and an increase in operating expenses attributable to our new business initiatives. Including the $15 million unfavorableforeign currency effect, the $121.0 million increase in SG&A expenses was primarily driven by: • higher compensation-related expenses of approximately $78 million primarily relating to an increase in incentive-basedcompensation; • the inclusion of SG&A costs of approximately $35 million related to our newly acquired Polo-branded apparel business in Asia-Pacific (see “Recent Developments” for further discussion); • an approximate $22 million increase related to the inclusion of a full year of SG&A costs for our recently acquired Japanesechildrenswear and golf businesses in comparison to seven months in the prior fiscal year, including costs incurred pursuant totransition service arrangements (see “Recent Developments” for further discussion); and42Table of Contents • an approximate $17 million increase in rent and utility costs primarily to support the ongoing global growth of our businesses.The above increases were partially offset by lower SG&A expenses associated with the Company’s cost-savings initiativesimplemented in late Fiscal 2009, as well as: • lower selling expenses of approximately $28 million principally relating to lower wholesale sales; and • an approximate $14 million decrease in brand-related marketing and advertising costs.Amortization of Intangible Assets. Amortization of intangible assets increased by $1.5 million, or 7.4%, to $21.7 million inFiscal 2010 from $20.2 million in Fiscal 2009. This increase was primarily due to the inclusion of a full year of amortization expenserelated to intangible assets acquired in connection with the Japanese Childrenswear and Golf Acquisition in comparison to seven monthsin the prior fiscal year, as well as amortization of the intangible assets acquired in connection with the Asia-Pacific Licensed OperationsAcquisition (see “Recent Developments” for further discussion).Impairments of Assets. A non-cash impairment charge of $6.6 million was recognized in Fiscal 2010, compared to $55.4 millionin Fiscal 2009. These charges reduced the net carrying values of certain long-lived assets, primarily in the Company’s Retail segment, totheir estimated fair values. These impairment charges were primarily attributable to the lower-than-expected operating performances ofcertain retail stores, which in Fiscal 2009 arose in large part due to the significant contraction in consumer spending experienced duringthe latter half of that fiscal year. See Note 11 to the accompanying audited consolidated financial statements for further discussion.Restructuring Charges. Restructuring charges of $6.9 million recognized in Fiscal 2010 primarily related to employee terminationcosts, as well as the write-down of an asset associated with exiting a retail store in Japan. Restructuring charges of $23.6 millionrecognized in Fiscal 2009 were primarily associated with a restructuring plan initiated during the fourth quarter of Fiscal 2009 to betteralign the Company’s cost base with lower sales and operating margin trends associated with the slowdown in consumer spending, and toimprove overall operating effectiveness (the “Fiscal 2009 Restructuring Plan”). This Fiscal 2009 Restructuring Plan included a reductionin workforce and the closure of certain underperforming retail stores. See Note 12 to the accompanying audited consolidated financialstatements for further discussion.Operating Income. Operating income increased by $111.4 million, or 18.7%, to $706.9 million in Fiscal 2010 from$595.5 million in Fiscal 2009. Operating income as a percentage of net revenues increased 230 basis points, to 14.2% in Fiscal 2010from 11.9% in Fiscal 2009. The increase in operating income as a percentage of net revenues primarily reflected the increase in grossprofit margin and lower pretax charges related to asset impairments and restructurings, partially offset by the increase in SG&A expensesas a percent of net revenues, as previously discussed.Operating income for our three business segments under the Company’s new (recasted) basis of reporting is provided below: Fiscal Years Ended April 3, March 28, 2010 2009 $ Change % Change (millions) Operating Income: Wholesale $585.3 $619.9 $(34.6) (5.6)%Retail 254.1 101.6 152.5 150.1 %Licensing 107.4 103.6 3.8 3.7 % 946.8 825.1 121.7 14.7 %Less: Unallocated corporate expenses (229.9) (206.5) (23.4) 11.3 %Unallocated legal and restructuring charges (10.0) (23.1) 13.1 (56.7)%Total operating income $706.9 $595.5 $111.4 18.7 %Wholesale operating income decreased by $34.6 million primarily as a result of lower revenues, partially offset by higher grossmargins driven by improved inventory management principally in our European businesses.43Table of ContentsRetail operating income increased by $152.5 million primarily as a result of increased revenues and higher gross margins acrossour global Retail businesses driven by decreased promotional activity and lower reductions in the carrying cost of our retail inventory. Theincrease also was due to lower impairment-related charges. These increases were partially offset by increased SG&A expenses primarilydriven by higher rent and incentive-based compensation expenses.Licensing operating income increased by $3.8 million primarily as a result of lower net costs associated with the transition of ourlicensed businesses to wholly owned operations, offset in part by lower revenues largely driven by a decline in international royalties andhome licensing royalties.Unallocated corporate expenses increased by $23.4 million, primarily as a result of higher incentive-based compensationexpenses, partially offset by lower brand-related marketing and advertising costs.Unallocated legal and restructuring charges of $10.0 million in Fiscal 2010 were comprised of restructuring charges of$6.9 million primarily related to employee termination costs and the write-down of an asset associated with exiting a retail store in Japan,as well as legal charges of $4.8 million primarily related to the Company’s California Labor Litigation matter offset in part by the reversalof an excess legal reserve of $1.7 million (see Note 17 to the accompanying audited consolidated financial statements for furtherdiscussion). In Fiscal 2009, unallocated legal and restructuring charges of $23.1 million were comprised of restructuring charges of$23.6 million primarily associated with the Fiscal 2009 Restructuring Plan, as previously discussed, offset by a reversal of an excesslegal reserve in the amount of $0.5 million.Foreign Currency Gains (Losses). The effect of foreign currency exchange rate fluctuations resulted in a loss of $2.2 million inFiscal 2010, compared to a gain of $1.6 million in Fiscal 2009. Excluding a net increase in foreign currency gains of $1.0 million relatingto undesignated foreign currency hedge contracts, the increase in foreign currency losses in Fiscal 2010 as compared to Fiscal 2009 wasprimarily due to the timing of the settlement of intercompany receivables and payables (that were not of a long-term investment nature)between certain of our international and domestic subsidiaries. Foreign currency gains and losses are unrelated to the impact of changes inthe value of the U.S. dollar when operating results of our foreign subsidiaries are translated to U.S. dollars.Interest Expense. Interest expense includes the borrowing costs of our outstanding debt, including amortization of debt issuancecosts, and interest related to our capital lease obligations. Interest expense decreased by $4.4 million, or 16.5%, to $22.2 million in Fiscal2010 from $26.6 million in Fiscal 2009. This decrease was primarily due to a lower principal amount of our outstanding Euro-denominated 4.5% notes as a result of a partial debt extinguishment in July 2009.Interest and Other Income, net. Interest and other income, net, decreased by $9.6 million, or 43.6%, to $12.4 million in Fiscal2010 from $22.0 million in Fiscal 2009, primarily due to lower yields relating to lower market rates of interest. This decrease was offsetin part by an increase in our average balance of cash and cash equivalents and investments during Fiscal 2010, as well as a net gain of$4.1 million related to a partial extinguishment of the Company’s Euro-denominated 4.5% notes in July 2009.Equity in Income (Loss) of Equity-Method Investees. The equity in loss of equity-method investees of $5.6 million in Fiscal 2010related to the Company’s share of loss from its joint venture, the Ralph Lauren Watch and Jewelry Company, S.A.R.L. (the “RL WatchCompany”), which is accounted for under the equity method of accounting. The equity in loss of equity-method investees of $5.0 millionin Fiscal 2009 related to the Company’s share of loss driven by certain start-up costs associated with the RL Watch Company.Provision for Income Taxes. The provision for income taxes represents federal, foreign, state and local income taxes. Theprovision for income taxes increased by $28.3 million, or 15.6%, to $209.8 million in Fiscal 2010 from $181.5 million in Fiscal 2009.The increase in provision for income taxes was primarily a result of higher pretax income in Fiscal 2010 compared to Fiscal 2009. Thisincrease was partially offset by a net decline in our reported effective tax rate of 50 basis points, to 30.4% in Fiscal 2010 from 30.9% inFiscal 2009. The lower effective tax rate was primarily due to a greater proportion of earnings generated in lower-taxed jurisdictions as wellas tax reserve reductions principally associated with audit settlements, offset in part by certain higher non-deductible expenses. Theeffective tax rate differs from statutory rates due to the effect of state and local taxes, tax rates in foreign jurisdictions and certainnondeductible expenses. Our effective tax rate will change from year to year based on non-recurring factors including, but not limited to,the geographic mix of earnings, the timing and amount of44Table of Contentsforeign dividends, enacted tax legislation, state and local taxes, tax audit findings and settlements, and the interaction of various global taxstrategies.Net Income Attributable to PRLC. Net income increased by $73.5 million, or 18.1%, to $479.5 million in Fiscal 2010 from$406.0 million in Fiscal 2009. The increase in net income was primarily due to a $111.4 million increase in operating income, offset inpart by a $28.3 million increase in the provision for income taxes, as previously discussed. These results were impacted by a$65.5 million reduction in pretax charges related to asset impairments and restructurings as well as increased pretax income ofapproximately $19 million due to the inclusion of the 53rd week in Fiscal 2010, which combined had an aggregate effect of increasing ournet income trends by approximately $54 million.Net Income Per Diluted Share Attributable to PRLC. Net income per diluted share increased by $0.72, or 18.0%, to $4.73 pershare in Fiscal 2010 from $4.01 per share in Fiscal 2009. The increase in diluted per share results was due to the higher level of netincome, as previously discussed. These results were impacted by a $65.5 million reduction in pretax charges related to assetimpairments and restructurings as well as increased pretax income of approximately $19 million due to the inclusion of the 53rd week inFiscal 2010, which combined had an aggregate effect of increasing our net income per diluted share trends by approximately $0.53.Fiscal 2009 Compared to Fiscal 2008The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certainfinancial statement captions: Fiscal Years Ended March 28, March 29, 2009 2008 $ Change % Change (millions, except per share data) Net revenues $5,018.9 $4,880.1 $138.8 2.8 %Cost of goods sold(a) (2,288.2) (2,242.0) (46.2) 2.1 %Gross profit 2,730.7 2,638.1 92.6 3.5 %Gross profit as % of net revenues 54.4% 54.1% Selling, general and administrative expenses(a) (2,036.0) (1,932.5) (103.5) 5.4 %SG&A as % of net revenues 40.6% 39.6% Amortization of intangible assets (20.2) (47.2) 27.0 (57.2)%Impairments of assets (55.4) (5.0) (50.4) 1,008.0 %Restructuring charges (23.6) — (23.6) NM Operating income 595.5 653.4 (57.9) (8.9)%Operating income as % of net revenues 11.9% 13.4% Foreign currency gains (losses) 1.6 (6.4) 8.0 (125.0)%Interest expense (26.6) (25.7) (0.9) 3.5 %Interest and other income, net 22.0 24.7 (2.7) (10.9)%Equity in income (loss) of equity-method investees (5.0) (1.8) (3.2) 177.8 %Income before provision for income taxes 587.5 644.2 (56.7) (8.8)%Provision for income taxes (181.5) (222.3) 40.8 (18.4)%Effective tax rate(b) 30.9% 34.5% Net income $406.0 $421.9 $(15.9) (3.8)%Less: Net income attributable to noncontrolling interest — 2.1 (2.1) (100.0)%Net income attributable to PRLC $406.0 $419.8 $(13.8) (3.3)%Net income per common share attributable to PRLC: Basic $4.09 $4.10 $(0.01) (0.2)%Diluted $4.01 $3.99 $0.02 0.5 %45Table of Contents(a)Includes total depreciation expense of $164.2 million and $154.1 million for Fiscal 2009 and Fiscal 2008, respectively.(b)Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income taxes.NMNot meaningful.As discussed in the “Overview” section, segment information for Fiscal 2008 has not been recast to reflect the reclassification ofconcessions-based sales arrangements to our Retail segment from our Wholesale segment at the beginning of the fourth quarter of Fiscal2010. In order to present operating results on a comparable basis, the following analysis of our results of operations for Fiscal 2009compared to Fiscal 2008 has been prepared using historical segment information.Net Revenues. Net revenues increased by $138.8 million, or 2.8%, to $5.019 billion in Fiscal 2009 from $4.880 billion in Fiscal2008. The increase was principally due to growth in our global Wholesale business, increased global Retail sales, and net favorableforeign currency effects. Excluding the effect of foreign currency, net revenues increased by 2.2%. On a reported basis, Wholesalerevenues increased by $129.1 million, primarily as a result of the inclusion of a full year of revenues from the newly launched AmericanLiving product line and increased revenues from our European and Japanese businesses, offset in part by decreased sales in our coredomestic product lines. Retail revenues increased by $23.9 million primarily as a result of continued global store expansion and growth inRalphLauren.com sales, partially offset by a net decline in comparable store sales. Licensing revenue decreased by $14.2 million,primarily due to a decrease in international licensing royalties as a result of the Japanese Childrenswear and Golf Acquisition (see “RecentDevelopments” for further discussion).Net revenues for our three business segments under the Company’s historical basis of reporting are provided below: Fiscal Years Ended March 28, March 29, 2009 2008 $ Change % Change (millions) Net Revenues: Wholesale $2,887.2 $2,758.1 $129.1 4.7 %Retail 1,936.5 1,912.6 23.9 1.2 %Licensing 195.2 209.4 (14.2) (6.8)%Total net revenues $5,018.9 $4,880.1 $138.8 2.8 %Wholesale net revenues — The net increase primarily reflects: • a $74 million net increase in our European businesses on a constant currency basis driven by increased sales in our menswear,womenswear and childrenswear product lines, partially offset by an increase in promotional activity; • a $47 million net increase in our Japanese operations on a constant currency basis primarily as a result of the inclusion ofrevenues from the Japanese Childrenswear and Golf Acquisition (see “Recent Developments” for further discussion), offset inpart by sales declines in our core businesses; and • a $37 million net increase in revenues due to a favorable foreign currency effect related to the strengthening of the Yen, partiallyoffset by an unfavorable foreign currency effect related to the weakening of the Euro, both in comparison to the U.S. dollar inFiscal 2009.The above increases were partially offset by: • a $29 million aggregate net decrease in our domestic businesses primarily due to reduced shipments across our core menswear,womenswear and childrenswear product lines as a result of the ongoing challenging U.S. retail environment (as discussed furtherin the “Overview” section). Offsetting this decrease was the inclusion of a full year of revenues from the newly launchedAmerican Living product line and an increase in footwear sales largely attributable to increased door penetration.46Table of ContentsRetail net revenues — The net increase primarily reflects: • an $81 million aggregate net increase in non-comparable store sales, primarily relating to new store openings within the pasttwelve months. There was a net increase in average global store count of 21 stores, to a total of 326 stores, as compared to theprior fiscal year. The net increase in store count was primarily due to a number of new domestic and international full-price andfactory store openings.The above increase was partially offset by: • an $84 million aggregate net decrease in comparable physical store sales driven by our global full-price stores, including anaggregate net unfavorable foreign currency effect of $13 million primarily related to the weakening of the Euro in comparison tothe U.S. dollar in Fiscal 2009. This decrease was partially offset by a $27 million increase in RalphLauren.com sales.Comparable store sales under the Company’s historical basis of reporting are provided below: Fiscal Year Ended March 28, 2009Increases/(decreases) in comparable store sales as reported: Full-price Ralph Lauren store sales (12)%Full-price Club Monaco store sales (10)%Factory store sales (2)%RalphLauren.com sales 19 %Total decrease in comparable store sales as reported (4)%Increases/(decreases) in comparable store sales excluding the effect of foreign currency: Full-price Ralph Lauren store sales (12)%Full-price Club Monaco store sales (10)%Factory store sales (1)%RalphLauren.com sales 19 %Total decrease in comparable store sales excluding the effect of foreign currency (3)%Licensing revenue — The net decrease primarily reflects: • a $17 million decrease in international licensing royalties, primarily due to the Japanese Childrenswear and Golf Acquisition (see“Recent Developments” for further discussion).The above decrease was partially offset by: • a $3 million increase in domestic licensing royalties, primarily driven by increases in men’s personal apparel and the inclusionof a full year of royalties for American Living. These increases were partially offset by a decrease in fragrance-related royalties.Gross Profit. Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs,freight-in and import costs, as well as changes in reserves for shrinkage and inventory realizability. The costs of selling merchandise,including those associated with preparing the merchandise for sale, such as picking, packing, warehousing and order charges, areincluded in SG&A expenses.Gross profit increased by $92.6 million, or 3.5%, to $2.731 billion in Fiscal 2009 from $2.638 billion in Fiscal 2008. Gross profitas a percentage of net revenues increased by 30 basis points to 54.4% in Fiscal 2009 from 54.1% in Fiscal 2008, primarily driven by thegrowth of our European and Japanese wholesale operations, as well as the net decrease of unfavorable purchase accounting effectsassociated with prior business acquisitions. These increases were partially offset by increased markdown activity and higher reductionsin the carrying cost of our retail inventory, largely as a result of the economic downturn.Selling, General and Administrative Expenses. SG&A expenses primarily include compensation and benefits, marketing,distribution, bad debts, information technology, facilities, legal and other costs associated with finance and47Table of Contentsadministration. SG&A expenses increased by $103.5 million, or 5.4%, to $2.036 billion in Fiscal 2009 from $1.932 billion in Fiscal2008. The increase included a net unfavorable foreign currency effect of approximately $14 million, primarily related to the strengtheningof the Yen, partially offset by the weakening of the Euro, both in comparison to the U.S. dollar in Fiscal 2009. SG&A expenses as apercent of net revenues increased to 40.6% in Fiscal 2009 from 39.6% in Fiscal 2008. The 100 basis point increase was primarily drivenby increased operating expenses attributable to our new business initiatives. The $103.5 million increase in SG&A expenses wasprimarily driven by: • the inclusion of SG&A costs of approximately $38 million related to our recently acquired Japanese childrenswear and golfbusinesses, including costs incurred pursuant to transition service arrangements (see “Recent Developments” for furtherdiscussion); • higher compensation-related expenses of approximately $35 million principally relating to increased selling costs associated withhigher retail sales and our ongoing product line expansion, including American Living and a dedicated dress business acrossmultiple brands. These increases were partially offset by lower stock-based compensation expense largely driven by a decrease inthe Company’s share price as of the date of its annual equity award grant in the second quarter of Fiscal 2009 compared to theshare price as of the comparable grant date in Fiscal 2008; • an approximate $29 million increase in rent and utility costs to support the ongoing global growth of our businesses, includingrent expense related to certain retail stores scheduled to open in Fiscal 2010; • an approximate $12 million net increase in litigation-related charges, including approximately $4 million related to the reversal ofan excess legal reserve in Fiscal 2008; and • an approximate $11 million increase in bad debt expenses due largely to the negative effects of the slowdown in the globaleconomy on the financial condition and liquidity of our customer base.The above increases were partially offset by: • an approximate $20 million decrease in brand-related marketing and advertising costs primarily as a result of the implementationof related cost-savings initiatives in response to the economic downturn, as well as the absence of costs associated with theCompany’s 40th Anniversary celebration in Fiscal 2008.Amortization of Intangible Assets. Amortization of intangible assets decreased by $27.0 million, or 57.2%, to $20.2 million inFiscal 2009 from $47.2 million in Fiscal 2008. The decrease was primarily due to the absence of the amortization of the licenses acquiredin the Japanese Business Acquisitions, which were fully amortized by the end of Fiscal 2008.Impairments of Assets. An aggregate non-cash impairment charge of $55.4 million was recognized in Fiscal 2009, compared to$5.0 million in Fiscal 2008. These charges reduced the net carrying values of certain long-lived assets, primarily in the Company’s Retailsegment, to their estimated fair values. These impairment charges were primarily attributable to lower-than-expected operatingperformances in certain stores, which in Fiscal 2009, arose in large part due to the significant contraction in consumer spendingexperienced during the latter half of that fiscal year. See Note 11 to the accompanying audited consolidated financial statements for furtherdiscussion.Restructuring Charges. Restructuring charges of $23.6 million were recognized in Fiscal 2009 primarily associated with arestructuring plan initiated during the fourth quarter of Fiscal 2009 to better align the Company’s cost base with lower sales and operatingmargin trends associated with the slowdown in consumer spending, and to improve overall operating effectiveness. This Fiscal 2009Restructuring Plan included a reduction in workforce and the closure of certain underperforming retail stores. No restructuring chargeswere recorded in Fiscal 2008. See Note 12 to the accompanying audited consolidated financial statements for further discussion.Operating Income. Operating income decreased by $57.9 million, or 8.9%, to $595.5 million in Fiscal 2009 from$653.4 million in Fiscal 2008. Operating income as a percentage of net revenues decreased 150 basis points to 11.9% in Fiscal 2009from 13.4% in Fiscal 2008. The decrease in operating income as a percentage of net revenues primarily reflected increases in SG&Aexpenses, and $79.0 million of pretax charges related to asset impairments and restructurings, partially offset by a decrease inamortization of intangible assets, as previously discussed.48Table of ContentsOperating income for our three business segments under the Company’s historical basis of reporting is provided below: Fiscal Years Ended March 28, March 29, 2009 2008 $ Change % Change (millions) Operating Income: Wholesale $613.3 $565.4 $47.9 8.5 %Retail 108.2 204.2 (96.0) (47.0)%Licensing 103.6 96.7 6.9 7.1 % 825.1 866.3 (41.2) (4.8)%Less: Unallocated corporate expenses (206.5) (217.0) 10.5 (4.8)%Unallocated legal and restructuring charges (23.1) 4.1 (27.2) (663.4)%Total operating income $595.5 $653.4 $(57.9) (8.9)%Wholesale operating income increased by $47.9 million primarily as a result of higher revenues, as well as improved grossmargin largely driven by our European and Japanese wholesale operations. The increase also was due to the net decrease of unfavorablepurchase accounting effects primarily associated with prior business acquisitions. These increases were partially offset by higher SG&Aexpenses attributable largely to our new business initiatives.Retail operating income decreased by $96.0 million primarily as a result of $47.0 million of higher impairment-related charges,higher reductions in the carrying cost of our retail inventory, and higher rent and occupancy costs. The decrease was partially offset byhigher revenues and the absence of certain unfavorable purchase accounting effects associated with the acquisition of the remaining 50%equity interest of Ralph Lauren Media included in the prior fiscal year.Licensing operating income increased by $6.9 million primarily as a result of a decrease in amortization of intangible assets due tothe absence of the amortization of the license acquired in the Japanese Business Acquisitions, which was fully amortized by the end ofFiscal 2008. Also contributing to the increased operating income was an increase in domestic licensing royalties, primarily driven by theinclusion of royalties for American Living. These increases were offset in part by a net decrease in international royalties primarily due tothe Japanese Childrenswear and Golf Acquisition (see “Recent Developments” for further discussion).Unallocated corporate expenses decreased by $10.5 million primarily as a result of a decrease in brand-related marketing andadvertising costs, as well as lower stock-based compensation expense, as previously discussed.Unallocated legal and restructuring charges of $23.1 million in Fiscal 2009 were comprised of restructuring charges of$23.6 million primarily associated with the Fiscal 2009 Restructuring Plan, as previously discussed, offset by a reversal of an excesslegal reserve in the amount of $0.5 million. In Fiscal 2008, unallocated legal and restructuring charges were comprised of a reversal of anexcess legal reserve in the amount of $4.1 million.Foreign Currency Gains (Losses). The effect of foreign currency exchange rate fluctuations resulted in a gain of $1.6 million inFiscal 2009, compared to a loss of $6.4 million in Fiscal 2008. The prior fiscal year loss included a $1.6 million write-off of foreigncurrency option contracts, entered into to manage certain foreign currency exposure associated with the Japanese Business Acquisitions,which expired unexercised. Excluding the aforementioned transaction, foreign currency gains increased in Fiscal 2009 as compared toFiscal 2008, primarily due to the timing of the settlement of intercompany receivables and payables (that were not of a long-terminvestment nature) between certain of our international and domestic subsidiaries. Foreign currency gains and losses are unrelated to theimpact of changes in the value of the U.S. dollar when operating results of our foreign subsidiaries are translated to U.S. dollars.Interest Expense. Interest expense includes the borrowing costs of our outstanding debt, including amortization of debt issuancecosts, and interest related to our capital lease obligations. Interest expense increased by49Table of Contents$0.9 million, to $26.6 million in Fiscal 2009 from $25.7 million in Fiscal 2008. This increase is primarily due to an increase in interestexpense related to capital lease obligations, offset in part by a decrease in interest expense related to borrowings under a one-year term loanagreement repaid by the Company in May 2008.Interest and Other Income, net. Interest and other income, net, decreased by $2.7 million, to $22.0 million in Fiscal 2009 from$24.7 million in Fiscal 2008. This decrease was primarily driven by lower yields relating to lower market rates of interest in Fiscal 2009,offset in part by an increase in our average balance of cash and short-term investments during Fiscal 2009.Equity in Income (Loss) of Equity-Method Investees. The equity in loss of equity-method investees of $5.0 million in Fiscal 2009and $1.8 million in Fiscal 2008 primarily related to the Company’s share of loss driven by certain start-up costs associated with the RLWatch Company, which is accounted for under the equity method of accounting.Provision for Income Taxes. The provision for income taxes represents federal, foreign, state and local income taxes. Theprovision for income taxes decreased by $40.8 million, or 18.4%, to $181.5 million in Fiscal 2009 from $222.3 million in Fiscal 2008.The decrease in provision for income taxes was principally due to an overall decrease in pretax income in Fiscal 2009 compared to Fiscal2008. This decrease also was due to a reduction in our reported effective tax rate of 360 basis points, to 30.9% in Fiscal 2009 from 34.5%in Fiscal 2008. The lower effective tax rate was primarily due to a shift in the geographic mix of earnings. In particular, there was a greaterproportion of earnings generated in lower-taxed jurisdictions and the tax benefits associated with the asset impairment and restructuringcharges were recognized in higher-taxed jurisdictions.Net Income Attributable to Noncontrolling Interest. Net income attributable to noncontrolling interest of $2.1 million in Fiscal2008 related to the Company’s remaining 50% interest in Polo Ralph Lauren Japan Corporation, which was acquired in May 2007, andthe allocation of net income of Impact 21 Co., Ltd. to the holders of the 80% interest not owned by the Company prior to the closing dateof the related acquisition. No net income attributable to noncontrolling interest was recorded in Fiscal 2009 as both of these companieshave been wholly owned.Net Income Attributable to PRLC. Net income attributable to PRLC decreased by $13.8 million, or 3.3%, to $406.0 million inFiscal 2009 from $419.8 million in Fiscal 2008. This decrease principally related to a $57.9 million decrease in operating income, offsetin part by a $40.8 million decrease in the provision for income taxes, as previously discussed. These results were negatively impacted by$79.0 million of pretax charges recognized in Fiscal 2009 related to asset impairments and restructurings, which had an aggregate effectof reducing net income attributable to PRLC in Fiscal 2009 by $49.7 million.Net Income Per Diluted Share Attributable to PRLC. Net income per diluted share attributable to PRLC increased by $0.02, or0.5%, to $4.01 per share in Fiscal 2009 from $3.99 per share in Fiscal 2008, as the effect of lower weighted-average diluted sharesoutstanding was mostly offset by the decrease in net income attributable to PRLC in Fiscal 2009. These results were negatively impactedby $79.0 million of pretax charges recognized in Fiscal 2009 related to asset impairments and restructurings, which had an aggregateeffect of reducing net income per diluted share attributable to PRLC in Fiscal 2009 by $0.49.50Table of ContentsFINANCIAL CONDITION AND LIQUIDITYFinancial Condition April 3, March 28, 2010 2009 $ Change (millions) Cash and cash equivalents $563.1 $481.2 $81.9 Short-term investments 584.1 338.7 245.4 Non-current investments 75.5 29.7 45.8 Long-term debt (282.1) (406.4) 124.3 Net cash and investments(a) $940.6 $443.2 $497.4 Equity $3,116.6 $2,735.1 $381.5 (a)“Net cash and investments” is defined as total cash and cash equivalents, plus short-term and non-current investments, less total debt.The increase in the Company’s net cash and investments position as of April 3, 2010 as compared to March 28, 2009 wasprimarily due to our operating cash flows, partially offset by the Company’s use of cash to support its treasury stock repurchases,capital expenditures and acquisition spending. In Fiscal 2010, the Company used $231.0 million to repurchase 3.2 million shares ofClass A common stock, including shares surrendered for tax withholdings, and spent $201.3 million for capital expenditures. Inaddition, the Company used $25.3 million to fund its recent Asia-Pacific Licensed Operations Acquisition (see “Recent Developments”). The Company’s net cash and investments position as of April 3, 2010 also reflected the repurchase of €90.8 million principal amountof Euro-denominated 4.5% notes in July 2009 for $121.0 million (see “Debt and Covenant Compliance” below for further discussion).The increase in equity was primarily due to the Company’s net income in Fiscal 2010, offset in part by an increase in treasurystock as a result of the Company’s common stock repurchase program.Cash FlowsFiscal 2010 Compared to Fiscal 2009 Fiscal Years Ended April 3, March 28, 2010 2009 $ Change (millions) Net cash provided by operating activities $906.5 $774.2 $132.3 Net cash used in investing activities (504.4) (458.0) (46.4)Net cash used in financing activities (306.4) (352.1) 45.7 Effect of exchange rate changes on cash and cash equivalents (13.8) (34.4) 20.6 Net increase (decrease) in cash and cash equivalents $81.9 $(70.3) $152.2 Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $906.5 million in Fiscal 2010,compared to $774.2 million in Fiscal 2009. This net increase in operating cash flow was primarily driven by: • lower accounts receivable levels due to improved cash collections and lower sales in the Company’s Wholesale segment; • an increase related to inventory primarily due to the effects of ongoing inventory management across most businesses; and • an increase in net income before depreciation, amortization, stock-based compensation and other non-cash expenses, includingimpairments of assets.51Table of ContentsThe above increases in cash provided by operating activities were partially offset by: • a decrease related to accounts payable and accrued liabilities primarily due to the timing of payments.Other than the items described above, the changes in operating assets and liabilities were attributable to normal operatingfluctuations.Net Cash Used in Investing Activities. Net cash used in investing activities was $504.4 million in Fiscal 2010, as compared to$458.0 million in Fiscal 2009. The net increase in cash used in investing activities was primarily driven by: • an increase in cash used to purchase investments, less proceeds from sales and maturities of investments. In Fiscal 2010, theCompany used $1.351 billion to purchase investments, less $1.072 billion of proceeds from sales and maturities ofinvestments. On a comparative basis, in Fiscal 2009, the Company used $623.1 million to purchase investments, less$369.5 million of proceeds from sales and maturities of investments; • an increase in cash used in connection with capital expenditures. In Fiscal 2010, the Company spent $201.3 million for capitalexpenditures, as compared to $185.0 million in Fiscal 2009. The Company’s capital expenditures were primarily associated withglobal retail store expansion, construction and renovation of department store shop-within-shops and investments in its facilitiesand technological infrastructure; and • a change in cash deposits restricted in connection with taxes. In Fiscal 2010, net restricted cash of $6.2 million was released, ascompared to $26.9 million of restricted cash released in Fiscal 2009 primarily in connection with the partial settlement of certaininternational tax matters.The above increases in cash used in investing activities were partially offset by: • a decrease in net cash used to fund the Company’s acquisitions and ventures. In Fiscal 2010, the Company used $30.8 millionprimarily to fund the Asia-Pacific Licensed Operations Acquisition. On a comparative basis, in Fiscal 2009, the Company used$46.3 million primarily to fund the Japanese Childrenswear and Golf Acquisition and to complete the minority interest buyoutrelated to the acquisition of certain of the Company’s formerly-licensed Japanese businesses.Net Cash Used in Financing Activities. Net cash used in financing activities was $306.4 million in Fiscal 2010, as compared to$352.1 million in Fiscal 2009. The decrease in net cash used in financing activities was primarily driven by: • a decrease in cash used in connection with the Company’s repayment of debt. In Fiscal 2010, the Company completed a cashtender offer and used $121.0 million to repurchase €90.8 million of principal amount of its 4.5% notes due October 4, 2013. Ona comparative basis, in Fiscal 2009, the Company repaid ¥20.5 billion ($196.8 million as of the repayment date) of borrowingsunder a one-year term loan agreement pursuant to an amendment and restatement to the Company’s existing credit facility (the“Term Loan”); and • an increase in cash received from the exercise of employee stock options. In Fiscal 2010, the Company received $50.5 millionfrom the exercise of employee stock options, as compared to $29.0 million in Fiscal 2009.The above decrease in cash used in financing activities was partially offset by: • an increase in cash used in connection with repurchases of the Company’s Class A common stock. In Fiscal 2010, 2.9 millionshares of Class A common stock at a cost of $215.9 million were repurchased pursuant to the Company’s common stockrepurchase program and 0.3 million shares of Class A common stock at a cost of $15.1 million were surrendered to, or withheldby, the Company in satisfaction of withholding taxes in connection with the vesting of awards under the Company’s 1997 Long-Term Stock Incentive Plan, as amended (the “1997 Plan”). On a comparative basis, in Fiscal 2009, $169.8 million of cash wasused in connection with common stock repurchases and shares surrendered for tax withholdings.52Table of ContentsFiscal 2009 Compared to Fiscal 2008 Fiscal Years Ended March 28, March 29, 2009 2008 $ Change (millions) Net cash provided by operating activities $774.2 $695.4 $78.8 Net cash used in investing activities (458.0) (505.0) 47.0 Net cash used in financing activities (352.1) (260.5) (91.6)Effect of exchange rate changes on cash and cash equivalents (34.4) 57.7 (92.1)Net increase (decrease) in cash and cash equivalents $(70.3) $(12.4) $(57.9)Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $774.2 million in Fiscal 2009,compared to $695.4 million in Fiscal 2008. This net increase in operating cash flow was primarily driven by: • an increase in net income before depreciation, amortization, non-cash asset impairment charges, stock-based compensation andother non-cash expenses; and • an approximate $84 million decrease in cash tax payments.The above increases were partially offset by: • an increase in inventory primarily due to the Japanese Childrenswear and Golf Acquisition, offset in part by the effects ofongoing inventory management across most businesses.Other than the items described above, the changes in operating assets and liabilities were attributable to normal operatingfluctuations.Net Cash Used in Investing Activities. Net cash used in investing activities was $458.0 million in Fiscal 2009, as compared to$505.0 million in Fiscal 2008. The net decrease in cash used in investing activities was primarily driven by: • a decrease in net cash used to fund the Company’s acquisitions and ventures. In Fiscal 2009, the Company used $46.3 millionprimarily to fund the Japanese Childrenswear and Golf Acquisition and to complete the minority squeeze-out related to theJapanese Business Acquisitions. On a comparative basis, in Fiscal 2008, the Company used $188.7 million principally to fundthe Japanese Business Acquisitions, net of cash acquired, and the Small Leathergoods Business Acquisition; • a decrease in cash used in connection with capital expenditures. In Fiscal 2009, the Company spent $185.0 million for capitalexpenditures, as compared to $217.1 million in Fiscal 2008. The Company’s capital expenditures were primarily associated withglobal retail store expansion, construction and renovation of department store shop-within-shops and investments in its facilitiesand technological infrastructure; and • a change in restricted cash deposits. In Fiscal 2009, net restricted cash of $26.9 million was released primarily in connectionwith the partial settlement of certain international tax matters. On a comparative basis, Fiscal 2008 included net restricted cashdeposits of $15.1 million.The above decreases were partially offset by: • an increase in cash used to purchase investments, less proceeds from sales and maturities of investments. In Fiscal 2009, theCompany used $623.1 million to purchase investments, less $369.5 million of proceeds from sales and maturities ofinvestments. On a comparative basis, in Fiscal 2008, $96.8 million was used to purchase investments, less $12.7 million ofproceeds from sales and maturities of investments.53Table of ContentsNet Cash Used in Financing Activities. Net cash used in financing activities was $352.1 million in Fiscal 2009, as compared to$260.5 million in Fiscal 2008. The increase in net cash used in financing activities was primarily driven by: • the repayment of ¥20.5 billion ($196.8 million as of the repayment date) of the Term Loan in Fiscal 2009 related to the JapaneseBusiness Acquisitions, as compared to the receipt of proceeds from the Term Loan of $168.9 million as of the borrowing date inFiscal 2008; and • a decrease in excess tax benefits from stock-based compensation arrangements of $22.3 million in Fiscal 2009 as compared to theprior fiscal year.The above increases were partially offset by: • a decrease in cash used in connection with repurchases of the Company’s Class A common stock. In Fiscal 2009, 2.2 millionshares of Class A common stock at a cost of $150.2 million (including approximately 0.4 million shares at a cost of$24.0 million that was traded prior to the end of Fiscal 2008 for which settlement occurred in April 2008) were repurchasedpursuant to the Company’s common stock repurchase program and 0.3 million shares of Class A common stock at a cost of$19.6 million were surrendered to, or withheld by, the Company in satisfaction of withholding taxes in connection with the1997 Plan. On a comparative basis, in Fiscal 2008, $475.4 million of cash was used in connection with common stockrepurchases and shares surrendered for tax withholdings.LiquidityThe Company’s primary sources of liquidity are the cash flow generated from its operations, $450 million of availability under itscredit facility, available cash and cash equivalents, investments and other available financing options. These sources of liquidity are usedto fund the Company’s ongoing cash requirements, including working capital requirements, global retail store expansion, constructionand renovation of shop-in-shops, investment in technological infrastructure, acquisitions, joint ventures, dividends, debtrepayment/repurchase, stock repurchases, contingent liabilities (including uncertain tax positions) and other corporate activities.Management believes that the Company’s existing sources of cash will be sufficient to support its operating, capital and debt servicerequirements for the foreseeable future, including the finalization of potential acquisitions and plans for business expansion.As discussed in the “Debt and Covenant Compliance” section below, the Company had no revolving credit borrowingsoutstanding under its credit facility as of April 3, 2010. As discussed further below, the Company may elect to draw on its credit facilityor other potential sources of financing for, among other things, a material acquisition, settlement of a material contingency (includinguncertain tax positions) or a material adverse business development, as well as for other general corporate business purposes. TheCompany believes its credit facility is adequately diversified with no undue concentrations in any one financial institution. In particular,as of April 3, 2010, there were 13 financial institutions participating in the credit facility, with no one participant maintaining a maximumcommitment percentage in excess of approximately 20%. Management has no reason at this time to believe that the participatinginstitutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Credit Facility (as definedbelow) in the event of the Company’s election to draw funds in the foreseeable future.Common Stock Repurchase ProgramOn November 4, 2009, the Company’s Board of Directors approved an expansion of the Company’s existing common stockrepurchase program that allows the Company to repurchase up to an additional $225 million of Class A common stock. Repurchases ofshares of Class A common stock are subject to overall business and market conditions.In Fiscal 2010, 2.9 million shares of Class A common stock were repurchased by the Company at a cost of $215.9 million underits repurchase program. The remaining availability under the Company’s common stock repurchase program was approximately$275 million as of April 3, 2010. In addition, in Fiscal 2010, 0.3 million54Table of Contentsshares of Class A common stock at a cost of $15.1 million were surrendered to, or withheld by, the Company in satisfaction ofwithholding taxes in connection with the vesting of awards under the 1997 Plan.In Fiscal 2009, 1.8 million shares of Class A common stock were repurchased by the Company at a cost of $126.2 million. Also,during the first quarter of Fiscal 2009, 0.4 million shares traded prior to the end of Fiscal 2008 were settled at a cost of $24.0 million. Inaddition, in Fiscal 2009, 0.3 million shares of Class A common stock at a cost of $19.6 million were surrendered to, or withheld by, theCompany in satisfaction of withholding taxes in connection with the vesting of awards under the 1997 Plan.In Fiscal 2008, share repurchases amounted to 6.1 million shares of Class A common stock at a cost of $476.4 million, including$24.0 million (0.4 million shares) that was traded prior to the end of the fiscal year for which settlement occurred in April 2008. Inaddition, in Fiscal 2008, 0.3 million shares of Class A common stock at a cost of $23.0 million were surrendered to, or withheld by, theCompany in satisfaction of withholding taxes in connection with the vesting of awards under the 1997 Plan.On May 18, 2010, the Company’s Board of Directors approved a further expansion of the Company’s existing common stockrepurchase program that allows the Company to repurchase up to an additional $275 million of Class A common stock.DividendsSince 2003, the Company has maintained a regular quarterly cash dividend program on its common stock. On November 4, 2009,the Company’s Board of Directors approved an increase to the Company’s quarterly cash dividend on its common stock from $0.05 pershare to $0.10 per share. Dividends paid amounted to $24.7 million in Fiscal 2010, $19.9 million in Fiscal 2009 and $20.5 million inFiscal 2008.The Company intends to continue to pay regular quarterly dividends on its outstanding common stock. However, any decision todeclare and pay dividends in the future will be made at the discretion of the Company’s Board of Directors and will depend on, amongother things, the Company’s results of operations, cash requirements, financial condition and other factors that the Board of Directorsmay deem relevant.Debt and Covenant ComplianceEuro DebtAs of April 3, 2010, the Company had outstanding €209.2 million principal amount of 4.5% notes due October 4, 2013 (the “EuroDebt”). The Company has the option to redeem all of the outstanding Euro Debt at any time at a redemption price equal to the principalamount plus a premium. The Company also has the option to redeem all of the outstanding Euro Debt at any time at par plus accruedinterest in the event of certain developments involving U.S. tax law. Partial redemption of the Euro Debt is not permitted in either instance.In the event of a change of control of the Company, each holder of the Euro Debt has the option to require the Company to redeem the EuroDebt at its principal amount plus accrued interest. The indenture governing the Euro Debt (the “Indenture”) contains certain limitedcovenants that restrict the Company’s ability, subject to specified exceptions, to incur liens or enter into a sale and leaseback transactionfor any principal property. The Indenture does not contain any financial covenants.As of April 3, 2010, the carrying value of the Euro Debt was $282.1 million, compared to $406.4 million as of March 28, 2009.In July 2009, the Company completed a cash tender offer and used $121.0 million to repurchase €90.8 million of principal amountof its then outstanding €300 million principal amount of 4.5% notes due October 4, 2013 at a discounted purchase price of approximately95%. A net pretax gain of $4.1 million related to this extinguishment of debt was recorded during the second quarter of Fiscal 2010 andhas been classified as a component of interest and other income, net, in the Company’s consolidated statement of operations. TheCompany used its cash on hand to fund the debt extinguishment.55Table of ContentsRevolving Credit Facility and Term LoanThe Company has a credit facility that provides for a $450 million unsecured revolving line of credit through November 2011 (the“Credit Facility”). The Credit Facility also is used to support the issuance of letters of credit. As of April 3, 2010, there were noborrowings outstanding under the Credit Facility and the Company was contingently liable for $13.9 million of outstanding letters ofcredit (primarily relating to inventory purchase commitments). The Company has the ability to expand its borrowing availability to$600 million subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are nomandatory reductions in borrowing ability throughout the term of the Credit Facility.Borrowings under the Credit Facility bear interest, at the Company’s option, either at (a) a base rate determined by reference to thehigher of (i) the prime commercial lending rate of JP Morgan Chase Bank, N.A. in effect from time to time and (ii) the weighted-averageovernight Federal funds rate (as published by the Federal Reserve Bank of New York) plus 50 basis points or (b) a LIBOR rate in effectfrom time to time, as adjusted for the Federal Reserve Board’s Euro currency liabilities maximum reserve percentage plus a margindefined in the Credit Facility (“the applicable margin”). The applicable margin of 35 basis points is subject to adjustment based on theCompany’s credit ratings.In addition to paying interest on any outstanding borrowings under the Credit Facility, the Company is required to pay acommitment fee to the lenders under the Credit Facility in respect of the unutilized commitments. The commitment fee rate of 8 basispoints under the terms of the Credit Facility also is subject to adjustment based on the Company’s credit ratings.The Credit Facility contains a number of covenants that, among other things, restrict the Company’s ability, subject to specifiedexceptions, to incur additional debt; incur liens and contingent liabilities; sell or dispose of assets, including equity interests; merge withor acquire other companies; liquidate or dissolve itself; engage in businesses that are not in a related line of business; make loans,advances or guarantees; engage in transactions with affiliates; and make investments. The Credit Facility also requires the Company tomaintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the “leverage ratio”) of no greater than 3.75 as of the date ofmeasurement for four consecutive quarters. Adjusted Debt is defined generally as consolidated debt outstanding plus 8 times consolidatedrent expense for the last twelve months. EBITDAR is defined generally as consolidated net income plus (i) income tax expense, (ii) netinterest expense, (iii) depreciation and amortization expense and (iv) consolidated rent expense. As of April 3, 2010, no Event of Default(as such term is defined pursuant to the Credit Facility) has occurred under the Company’s Credit Facility.Upon the occurrence of an Event of Default under the Credit Facility, the lenders may cease making loans, terminate the CreditFacility, and declare all amounts outstanding to be immediately due and payable. The Credit Facility specifies a number of events ofdefault (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal and interestpayments or to satisfy the covenants, including the financial covenant described above. Additionally, the Credit Facility provides that anEvent of Default will occur if Mr. Ralph Lauren, the Company’s Chairman and Chief Executive Officer, and entities controlled by theLauren family fail to maintain a specified minimum percentage of the voting power of the Company’s common stock.The Credit Facility was amended and restated as of May 22, 2007 to provide for the addition of a ¥20.5 billion Term Loan, made toPolo JP Acqui B.V., a wholly owned subsidiary of the Company. The proceeds of the Term Loan were used to finance the Company’sacquisition of certain of its formerly-licensed Japanese businesses. The Company repaid the Term Loan by its maturity date on May 22,2008 using $196.8 million of the cash on-hand acquired as part of the acquisition. See Note 5 to the accompanying audited consolidatedfinancial statements for further discussion of the Japanese Business Acquisitions.Contractual and Other ObligationsFirm CommitmentsThe following table summarizes certain of the Company’s aggregate contractual obligations as of April 3, 2010, and the estimatedtiming and effect that such obligations are expected to have on the Company’s liquidity and cash flow in future periods. The Companyexpects to fund the firm commitments with operating cash flow generated56Table of Contentsin the normal course of business and, if necessary, availability under its $450 million credit facility or other potential sources offinancing. Fiscal Fiscal Fiscal Fiscal 2016 and 2011 2012-2013 2014-2015 Thereafter Total (millions) Euro debt $— $— $282.1 $— $282.1 Capital leases 9.9 13.9 12.4 46.0 82.2 Operating leases 205.6 394.2 354.2 877.3 1,831.3 Inventory purchase commitments 604.6 150.4 — — 755.0 Total $820.1 $558.5 $648.7 $923.3 $2,950.6 The following is a description of the Company’s material, firmly committed contractual obligations as of April 3, 2010: • Euro debt represents the principal amount due at maturity of the Company’s outstanding Euro Debt on a U.S. dollar-equivalentbasis. Amounts do not include any fair value adjustments, call premiums or interest payments; • Lease obligations represent the minimum lease rental payments under noncancelable leases for the Company’s real estate andoperating equipment in various locations around the world. Approximately 60% of these lease obligations relates to theCompany’s retail operations. Information has been presented separately for operating and capital leases. In addition to suchamounts, the Company is normally required to pay taxes, insurance and occupancy costs relating to its leased real estateproperties; and • Inventory purchase commitments represent the Company’s legally binding agreements to purchase fixed or minimum quantitiesof goods at determinable prices.Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $126.0 million asof April 3, 2010. This liability for unrecognized tax benefits has been excluded from the above table because the Company cannot make areliable estimate of the period in which the liability will be settled, if ever.The above table also excludes the following: (i) amounts included in current liabilities in the consolidated balance sheet as of April 3,2010 as these items will be paid within one year; and (ii) non-current liabilities that have no cash outflows associated with them (e.g.,deferred revenue) or the cash outflows associated with them are uncertain or do not represent a “purchase obligation” as the term is usedherein (e.g., deferred taxes and other miscellaneous items).The Company also has certain contractual arrangements that would require it to make payments if certain circumstances occur. SeeNote 17 to the accompanying audited consolidated financial statements for a description of the Company’s contingent commitments notincluded in the above table.Off-Balance Sheet ArrangementsThe Company’s off-balance sheet firm commitments, which include outstanding letters of credit and minimum fundingcommitments to investees, amounted to approximately $21 million as of April 3, 2010. The Company does not maintain any other off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have amaterial current or future effect on its financial condition or results of operations.MARKET RISK MANAGEMENTThe Company is exposed to a variety of risks, including changes in foreign currency exchange rates relating to certain anticipatedcash flows from its international operations and possible declines in the fair value of reported net assets of certain of its foreignoperations, as well as changes in the fair value of its fixed-rate debt relating to changes in interest rates. Consequently, in the normalcourse of business the Company employs established policies and57Table of Contentsprocedures, including the use of derivative financial instruments, to manage such risks. The Company does not enter into derivativetransactions for speculative or trading purposes.As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts willfail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of only entering into contractswith carefully selected financial institutions based upon their credit ratings and other financial factors. The Company’s establishedpolicies and procedures for mitigating credit risk on derivative transactions include reviewing and assessing the creditworthiness ofcounterparties. As a result of the above considerations, the Company does not believe it is exposed to any undue concentration ofcounterparty risk with respect to its derivative contracts as of April 3, 2010.Foreign Currency Risk ManagementThe Company manages its exposure to changes in foreign currency exchange rates through the use of foreign currency exchangecontracts. Refer to Note 16 to the audited consolidated financial statements for a summarization of the notional amounts and fair values ofthe Company’s foreign currency exchange contracts outstanding as of April 3, 2010.Forward Foreign Currency Exchange ContractsFrom time to time, the Company may enter into forward foreign currency exchange contracts as hedges to reduce its risk fromexchange rate fluctuations on inventory purchases, intercompany royalty payments made by certain of its international operations,intercompany contributions made to fund certain marketing efforts of its international operations, interest payments made in connectionwith outstanding debt, other foreign currency-denominated operational obligations including payroll, rent, insurance and benefitpayments, and foreign currency-denominated revenues. As part of our overall strategy to manage the level of exposure to the risk of foreigncurrency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the Swiss Franc, and the BritishPound Sterling, the Company hedges a portion of its foreign currency exposures anticipated over the ensuing twelve-month to two-yearperiods. In doing so, the Company uses foreign currency exchange contracts that generally have maturities of three months to two years toprovide continuing coverage throughout the hedging period.The Company’s foreign exchange risk management activities are governed by policies and procedures approved by its AuditCommittee. Our policies and procedures provide a framework that allows for the management of currency exposures while ensuring theactivities are conducted within established Company guidelines. Our policies include guidelines for the organizational structure of ourrisk management function and for internal controls over foreign exchange risk management activities, including but not limited toauthorization levels, transactional limits, and credit quality controls, as well as various measurements for monitoring compliance. Wemonitor foreign exchange risk using different techniques including a periodic review of market value and sensitivity analyses.The Company records its foreign currency exchange contracts at fair value in its consolidated balance sheets. To the extent foreigncurrency exchange contracts designated as cash flow hedges at hedge inception are highly effective in offsetting the change in the value ofthe hedged item, the related gains (losses) are deferred in equity as a component of accumulated other comprehensive income. Thesedeferred gains (losses) are then recognized in our consolidated statements of operations as follows: • Forecasted Inventory Purchases — Recognized as part of the cost of the inventory being hedged within cost of goods sold whenthe related inventory is sold. • Intercompany Royalty Payments and Marketing Contributions — Recognized within foreign currency gains (losses) in theperiod in which the related royalties or marketing contributions being hedged are received or paid. • Operational Obligations — Recognized primarily within SG&A expenses in the period in which the hedged forecastedtransaction affects earnings.58Table of Contents • Interest Payments on Euro Debt — Recognized within foreign currency gains (losses) in the period in which the recordedliability impacts earnings due to foreign currency exchange remeasurement.The Company recognized net gains on foreign currency exchange contracts in earnings of approximately $13 million for Fiscal2010, and net losses of approximately $6 million for Fiscal 2009 and $8 million for Fiscal 2008.SensitivityThe Company performs a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of theCompany’s derivative financial instruments. To perform the sensitivity analysis, the Company assesses the risk of loss in fair valuesfrom the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by all foreigncurrencies in our hedge portfolio against the U.S. dollar. Based on all foreign currency exchange contracts outstanding as of April 3, 2010,a 10% devaluation of the U.S. dollar as compared to the level of foreign currency exchange rates for currencies under contract as ofApril 3, 2010 would result in approximately $1 million of net unrealized losses. Conversely, a 10% appreciation of the U.S. dollar wouldresult in approximately $1 million of net unrealized gains. As the Company’s outstanding foreign currency exchange contracts areprimarily designated as cash flow hedges of forecasted transactions, the unrealized loss or gain as a result of a 10% devaluation orappreciation would be largely offset by changes in the underlying hedged items.Hedge of a Net Investment in Certain European SubsidiariesThe Company designated the entire principal amount of its outstanding Euro Debt as a hedge of its net investment in certain of itsEuropean subsidiaries. The changes in fair value of a derivative instrument or changes in a non-derivative financial instrument (such asdebt) that is designated as a hedge of a net investment in a foreign operation are reported in the same manner as a translation adjustment,to the extent it is effective as a hedge. As such, changes in the Euro Debt resulting from changes in the Euro exchange rate have been, andcontinue to be, reported in equity as a component of accumulated other comprehensive income. The Company recorded within othercomprehensive income the translation effects of the Euro Debt to U.S. dollars, resulting in a loss of $1.8 million for Fiscal 2010, a gainof $66.6 million for Fiscal 2009 and a loss of $73.8 million for Fiscal 2008.Interest Rate Risk ManagementSensitivityAs of April 3, 2010, the Company had no variable-rate debt outstanding. As such, the Company’s exposure to changes in interestrates primarily related to its fixed rate Euro Debt. As of April 3, 2010, the carrying value of the Euro Debt was $282.1 million and the fairvalue was $291.7 million. A 25 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase thefair value of the Euro Debt by approximately $2 million. Such potential increases or decreases are based on certain simplifyingassumptions, including no changes in Euro currency exchange rates and an immediate across-the-board increase or decrease in the level ofinterest rates with no other subsequent changes for the remainder of the period.Investment Risk ManagementAs of April 3, 2010, the Company had cash and cash equivalents on-hand of $563.1 million, primarily invested in money marketfunds, time deposits and treasury bills with original maturities of 90 days or less. The Company’s other significant investments included$584.1 million of short-term investments, primarily in treasury bills, municipal bonds, time deposits and variable rate municipalsecurities with original maturities greater than 90 days; $75.4 million of restricted cash placed in escrow with certain banks as collateralprimarily to secure guarantees in connection with certain international tax matters; $67.8 million of deposits with maturities greater thanone year; $2.3 million of auction rate securities issued through a municipality and $5.4 million of other securities.The Company evaluates investments held in unrealized loss positions for other-than-temporary impairment on a quarterly basis.Such evaluation involves a variety of considerations, including assessments of risks and59Table of Contentsuncertainties associated with general economic conditions and distinct conditions affecting specific issuers. Factors considered by theCompany include (i) the length of time and the extent to which the fair value has been below cost, (ii) the financial condition, creditworthiness and near-term prospects of the issuer, (iii) the length of time to maturity, (iv) future economic conditions and market forecasts,(v) the Company’s intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value, and(vi) an assessment of whether it is more-likely-than-not that the Company will be required to sell its investment before recovery of marketvalue.CRITICAL ACCOUNTING POLICIESThe SEC’s Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies”(“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical.FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations andrequires significant judgment and estimates on the part of management in its application. The Company’s estimates are often based oncomplex judgments, probabilities and assumptions that management believes to be reasonable, but that are inherently uncertain andunpredictable. It is also possible that other professionals, applying reasonable judgment to the same facts and circumstances, coulddevelop and support a range of alternative estimated amounts. The Company believes that the following list represents its criticalaccounting policies as contemplated by FRR 60. For a discussion of all of the Company’s significant accounting policies, see Notes 3 and4 to the accompanying audited consolidated financial statements.Sales Reserves and Uncollectible AccountsA significant area of judgment affecting reported revenue and net income is estimating sales reserves, which represent that portion ofgross revenues not expected to be realized. In particular, wholesale revenue is reduced by estimates of returns, discounts, end-of-seasonmarkdowns and operational chargebacks. Retail revenue, including e-commerce sales, also is reduced by estimates of returns.In determining estimates of returns, discounts, end-of-season markdowns and operational chargebacks, management analyzeshistorical trends, seasonal results, current economic and market conditions and retailer performance. The Company reviews and refinesthese estimates on a quarterly basis. The Company’s historical estimates of these costs have not differed materially from actual results.Similarly, management evaluates accounts receivables to determine if they will ultimately be collected. Significant judgments andestimates are involved in this evaluation, including an analysis of specific risks on a customer-by-customer basis for larger accounts andcustomers, and a receivables aging analysis that determines the percentage of receivables that has historically been uncollected by agedcategory. Based on this information, management provides a reserve for the estimated amounts believed to be uncollectible. Althoughmanagement believes that it has adequately provided for those risks as part of its bad debt reserve, a severe and prolonged adverse impacton its major customers’ business operations could have a corresponding material adverse effect on the Company’s net sales, cash flowsand/or financial condition.See “Accounts Receivable” in Note 3 to the accompanying audited consolidated financial statements for an analysis of the activity inthe Company’s sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.InventoriesThe Company holds inventory that is sold through wholesale distribution channels to major department stores and specialty retailstores, including its own retail stores. The Company also holds retail inventory that is sold in its own stores directly to consumers.Wholesale and retail inventories are stated at the lower of cost or estimated realizable value with cost primarily determined on a weighted-average cost basis.The Company continually evaluates the composition of its inventories, assessing slow-turning product and fashion product.Estimated realizable value of inventory is determined based on an analysis of historical sales trends of the Company’s individual productlines, the impact of market trends and economic conditions, and the value of60Table of Contentscurrent orders in-house relating to the future sales of inventory. Estimates may differ from actual results due to quantity, quality and mixof products in inventory, consumer and retailer preferences and market conditions. The Company’s historical estimates of these costs andits provisions have not differed materially from actual results.Reserves for inventory shrinkage, representing the risk over physical loss of inventory, are estimated based on historical experienceand are adjusted based upon physical inventory counts.Business CombinationsIn December 2007, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) topic805, “Business Combinations” (“ASC 805”) (formerly referred to as Statement of Financial Accounting Standards (“FAS”) No. 141R,“Business Combinations,” as amended, which replaces FAS No. 141). ASC 805 establishes principles and requirements for how anacquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilitiesassumed, and any noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes resulting from ASC 805include the need for the acquirer to record 100% of all assets and liabilities of the acquired business, including goodwill, generally at fairvalue for all business combinations (whether partial, full or step acquisitions); the need to recognize contingent consideration at fair valueon the acquisition date and, for certain arrangements, to recognize changes in fair value in earnings until settlement; and the need foracquisition- related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. These fairvalue determinations require management’s judgment and may involve the use of significant estimates and assumptions, includingassumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items. TheCompany adopted the provisions of ASC 805 as of the beginning of Fiscal 2010 (March 29, 2009). See Note 5 to the accompanyingaudited consolidated financial statements for further discussion of the effect of this accounting change on the Company’s consolidatedfinancial statements.In addition, in connection with its business acquisitions, the Company evaluates the terms of any pre-existing relationships todetermine if a settlement of the pre-existing relationship exists. These pre-existing relationships primarily relate to licensing agreements. Ifthe terms of the pre-existing relationships were determined to not be reflective of market, a settlement gain or loss would be recognized inearnings, measured by the amount in which the contract is favorable or unfavorable to the Company when compared with pricing forcurrent market transactions for the same or similar items. The Company allocates the aggregate consideration exchanged in thesetransactions between the value of the business acquired and the value of the settlement of any pre-existing relationships in proportion toestimates of their respective fair values. Accordingly, significant judgment is required to determine the respective fair values of thebusiness acquired and the value of the settlement of the pre-existing relationship. The Company may utilize independent valuation firmsto assist in the determination of fair value.Fair Value MeasurementsIn September 2006, the Financial Accounting Standards Board (“FASB”) issued ASC topic 820, “Fair Value Measurements andDisclosures” (“ASC 820”) (formerly referred to as FAS No. 157, “Fair Value Measurements,” as amended). ASC 820 defines “fairvalue” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurement date within an identified principal or most advantageous market, establishes a framework for measuringfair value in accordance with US GAAP and expands disclosures regarding fair value measurements through a three-level valuationhierarchy. The Company adopted the provisions of ASC 820 for all of its financial assets and liabilities within scope as of the beginningof Fiscal 2009 (March 30, 2008). In addition, the Company adopted the provisions of ASC 820 for all of its nonfinancial assets andliabilities within scope as of the beginning of Fiscal 2010 (March 29, 2009). The Company uses judgment in the determination of theapplicable level within the hierarchy of a particular asset or liability when evaluating the inputs used in valuation as of the measurementdate, notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). See Notes 4 and 15 to theaccompanying audited consolidated financial statements for further discussion of the effect of this accounting change on the Company’sconsolidated financial statements.61Table of ContentsImpairment of Goodwill and Other Intangible AssetsGoodwill, including any goodwill included in the carrying value of investments accounted for using the equity method ofaccounting, and certain other intangible assets deemed to have indefinite useful lives, are not amortized. Rather, goodwill and suchindefinite-lived intangible assets are assessed for impairment at least annually based on comparisons of their respective fair values to theircarrying values. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-livedassets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying amountsmay not be recoverable.Goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is to identify potentialimpairment by comparing the fair value of a reporting unit with its net book value (or carrying amount), including goodwill. If the fairvalue of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired and performance ofthe second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step ofthe goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairmenttest compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount ofthe reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to thatexcess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a businesscombination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including anyunrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value was the purchaseprice paid to acquire the reporting unit.Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value ofindividual assets and liabilities of a reporting unit (including unrecognized intangible assets) under the second step of the goodwillimpairment test is judgmental in nature and often involves the use of significant estimates and assumptions. Similarly, estimates andassumptions are used in determining the fair value of other intangible assets. These estimates and assumptions could have a significantimpact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the processof determining goodwill impairment, the Company reviews and considers appraisals from independent valuation firms. Estimates of fairvalue are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches usesignificant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risksinherent in future cash flows, perpetual growth rates and determination of appropriate market comparables.The impairment test for other indefinite-lived intangible assets consists of a comparison of the fair value of the intangible asset withits carrying value. If the carrying value of the indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognizedequal to the excess. In addition, in evaluating finite-lived intangible assets for recoverability, the Company uses its best estimate of futurecash flows expected to result from the use of the asset and eventual disposition. To the extent that estimated future undiscounted net cashflows attributable to the asset are less than the carrying amount, an impairment loss is recognized equal to the difference between thecarrying value of such asset and its fair value.The Company performed its annual impairment assessment of goodwill during the second quarter of Fiscal 2010. Based on theresults of the impairment assessment as of June 28, 2009, the Company confirmed that the fair value of its reporting units exceeded theirrespective carrying values and that there were no reporting units that were at risk of impairment. Additionally, there have been noimpairment losses recorded in connection with the assessment of the recoverability of goodwill or other intangible assets during any of thethree fiscal years presented.Impairment of Other Long-Lived AssetsProperty and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes incircumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for recoverability, theCompany uses its best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. To the extentthat estimated future undiscounted net62Table of Contentscash flows attributable to the asset are less than the carrying amount, an impairment loss is recognized equal to the difference between thecarrying value of such asset and its fair value. Assets to be disposed of and for which there is a committed plan of disposal are reportedat the lower of carrying value or fair value less costs to sell.In determining future cash flows, the Company takes various factors into account, including changes in merchandising strategy, theemphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of moreexperienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of futureperformance, there may be future impairments in the event that future cash flows do not meet expectations.During Fiscal 2010, Fiscal 2009 and Fiscal 2008, the Company recorded non-cash impairment charges of $6.6 million,$55.4 million and $5.0 million, respectively, to reduce the net carrying value of certain long-lived assets primarily in its Retail segment totheir estimated fair value. See Note 11 to the accompanying audited consolidated financial statements for further discussion.Income TaxesIncome taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets andliabilities, current taxes payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the currentyear and include the results of any difference between US GAAP and tax reporting. Deferred income taxes reflect the tax effect of certainnet operating loss, capital loss and general business credit carryforwards and the net tax effects of temporary differences between thecarrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates.The Company accounts for the financial effect of changes in tax laws or rates in the period of enactment.In addition, valuation allowances are established when management determines that it is more-likely-than-not that some portion or allof a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur, orcircumstances change, that warrant adjustments to those balances.In determining the income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain taxpositions. If the Company considers that a tax position is “more-likely-than-not” of being sustained upon audit, based solely on thetechnical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount thatis greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxingauthority that has full knowledge of all relevant information. These assessments can be complex and require significant judgment, andthe Company often obtains assistance from external advisors. To the extent that the Company’s estimates change or the final tax outcomeof these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which suchdeterminations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly monitors itsposition and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise thelikelihood of prevailing on the technical merits of the position to more-likely-than-not, (ii) the statute of limitations expires, or (iii) there isa completion of an audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax positions are classified ascurrent only when the Company expects to pay cash within the next twelve months. Interest and penalties, if any, are recorded within theprovision for income taxes in the Company’s consolidated statements of operations and are classified on the consolidated balance sheetswith the related liability for unrecognized tax benefits.See Note 13 to the accompanying audited consolidated financial statements for further discussion of the Company’s income taxes.ContingenciesThe Company periodically is exposed to various contingencies in the ordinary course of conducting its business, including certainlitigations, alleged information system security breach matters, contractual disputes, employee relation matters, various tax audits, andtrademark and intellectual property matters and disputes. The Company records a liability for such contingencies to the extent that itconcludes their occurrence is probable and63Table of Contentsthe related losses are estimable. In addition, if it is reasonably possible that an unfavorable settlement of a contingency could exceed theestablished liability, the Company discloses the estimated impact on its liquidity, financial condition and results of operations.Management considers many factors in making these assessments. As the ultimate resolution of contingencies is inherently unpredictable,these assessments can involve a series of complex judgments about future events including, but not limited to, court rulings, negotiationsbetween affected parties and governmental actions. As a result, the accounting for loss contingencies relies heavily on estimates andassumptions.Stock-Based CompensationThe Company expenses all share-based payments to employees and non-employee directors based on the grant date fair value of theawards over the requisite service period, adjusted for estimated forfeitures.Stock OptionsStock options are granted to employees and non-employee directors with exercise prices equal to fair market value at the date of grant.The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted, which requires the input ofsubjective assumptions. Certain key assumptions involve estimating future uncertain events. The key factors influencing the estimationprocess include the expected term of the option, the expected stock price volatility factor, the expected dividend yield and risk-free interestrate, among others. Generally, once stock option values are determined, current accounting practices do not permit them to be changed,even if the estimates used are different from the actuals.Determining the fair value of stock-based compensation at the date of grant requires significant judgment by management, includingestimates of the above Black-Scholes assumptions. In addition, judgment is required in estimating the number of stock-based awards thatare expected to be forfeited. If actual results differ significantly from these estimates, if management changes its assumptions for futurestock-based award grants, or if there are changes in market conditions, stock-based compensation expense and the Company’s results ofoperations could be materially impacted.Restricted Stock and Restricted Stock Units (“RSUs”)The Company grants restricted shares of Class A common stock and service-based RSUs to certain of its senior executives and non-employee directors. In addition, the Company grants performance-based RSUs to such senior executives and other key executives, andcertain other employees of the Company. The fair values of restricted stock shares and RSUs are based on the fair value of unrestrictedClass A common stock, as adjusted to reflect the absence of dividends for those restricted securities that are not entitled to dividendequivalents. Compensation expense for performance-based RSUs is recognized over the related service period when attainment of theperformance goals is deemed probable, which involves judgment on the part of management.RECENTLY ISSUED ACCOUNTING STANDARDSSee Note 4 to the accompanying audited consolidated financial statements for a discussion of a description of certain recently issuedaccounting standards which may impact the Company’s results of operations and/or financial condition in future reporting periods.Item 7A. Quantitative and Qualitative Disclosures about Market Risk.For a discussion of the Company’s exposure to market risk, see “Market Risk Management” in Item 7 included elsewhere in thisAnnual Report on Form 10-K.Item 8. Financial Statements and Supplementary Data.See the “Index to Consolidated Financial Statements” appearing at the end of this Annual Report on Form 10-K.64Table of ContentsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Not applicable.Item 9A. Controls and Procedures.(a) Evaluation of Disclosure Controls and ProceduresDisclosure controls and procedures are the controls and other procedures of an issuer that are designed to provide reasonableassurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Actof 1934 is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’srules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that materialinformation required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 isaccumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or personsperforming similar functions, as appropriate to allow timely decisions regarding required disclosure.We have evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer andChief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of theSecurities Exchange Act of 1934, as of the end of the fiscal year covered by this annual report. Based on that evaluation, our ChiefExecutive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at thereasonable assurance level, as of the fiscal year end covered by this Annual Report on Form 10-K.(b) Management’s Report of Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined inSecurities Exchange Act Rule 13a-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. Generally AcceptedAccounting Principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairlyreflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financialstatements; providing reasonable assurance that receipts and expenditures of the Company’s assets are made in accordance withmanagement authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Company’s assetsthat could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherentlimitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financialstatements would be prevented or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was madeas of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because ofchanges in conditions or that the degree of compliance with the policies and procedures may decline.Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief FinancialOfficer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the fiscal yearcovered by this report based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission(“COSO”) in Internal Control-Integrated Framework. Based on this evaluation, management concluded that the Company’s internalcontrols over financial reporting were effective at the reasonable assurance level as of the fiscal year end covered by this Annual Report onForm 10-K.During the fourth quarter of Fiscal 2010, the Company acquired control of the Polo-branded apparel business in Asia-Pacific(excluding Japan) from Dickson that was formerly conducted under a licensed arrangement (the “Asia-Pacific Licensed OperationsAcquisition,” as discussed in Note 5 to the accompanying audited consolidated financial statements). The Company is in the process ofevaluating Dickson’s internal controls. However, as permitted by related SEC Staff interpretive guidance for newly acquired businesses,the Company excluded Dickson from management’s annual assessment of the effectiveness of the Company’s internal control over65Table of Contentsfinancial reporting as of April 3, 2010. In the aggregate, Dickson represented 2.8% of the total consolidated assets and 0.6% of totalconsolidated revenues of the Company as of and for the fiscal year ended April 3, 2010.Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on theCompany’s internal control over financial reporting as included elsewhere herein.(c) Changes in Internal Controls over Financial ReportingExcept as discussed below, there has been no change in the Company’s internal control over financial reporting during the fourthquarter of Fiscal 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control overfinancial reporting.Asia-Pacific Licensed Operations AcquisitionIn connection with the Asia-Pacific Licensed Operations Acquisition, the Company has developed a supporting infrastructurecovering all critical operations, including but not limited to, merchandising, sales, inventory management, customer service, distribution,store operations, real estate management, finance and other administrative areas. As part of the development of this infrastructure, theCompany has implemented various processes, systems, and internal controls to support the business.Item 9B. Other Information.Not applicable.PART IIIItem 10. Directors, Executive Officers and Corporate Governance.Information relating to our directors and corporate governance will be set forth in the Company’s proxy statement for its 2010 annualmeeting of stockholders to be filed within 120 days after April 3, 2010 (the “Proxy Statement”) and is incorporated by reference herein.Information relating to our executive officers is set forth in Item I of this Annual Report on Form 10-K under the caption “ExecutiveOfficers.”The Company has a Code of Ethics for Principal Executive Officers and Senior Financial Officers that applies to our principalexecutive officer, our principal operating officer, our principal financial officer, our principal accounting officer and our controller. Youcan find our Code of Ethics for Principal Executive Officers and Senior Financial Officers on our internet site,http://investor.ralphlauren.com. We will post any amendments to the Code of Ethics for Principal Executive Officers and Senior FinancialOfficers and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE on our internet site.Item 11. Executive Compensation.Information relating to executive and director compensation will be set forth in the Proxy Statement and such information isincorporated by reference herein.66Table of ContentsItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Equity Compensation Plan Information as of April 3, 2010The following table sets forth information as of April 3, 2010 regarding compensation plans under which the Company’s equitysecurities are authorized for issuance: (a) (b) (c) Numbers of Number of Securities Securities Remaining Available for to be Issued upon Future Issuance Under Exercise of Equity Compensation Outstanding Weighted-Average Plans (Excluding Options, Warrants Exercise Price of Securities Reflected in Plan Category and Rights Outstanding Options ($) Column (a)) Equity compensation plans approved by securityholders 7,142,858(1) $50.55(2) 2,526,731(3)Equity compensation plans not approved by securityholders — — — Total 7,142,858 $50.55 2,526,731 (1)Consists of 5,054,838 options to purchase shares of our Class A common stock and 2,088,020 restricted stock units (including 266,667 ofservice-based restricted stock units that have fully vested but have not yet been issued as of April 3, 2010) that are payable solely in shares of Class Acommon stock. Does not include 11,438 outstanding restricted shares that are subject to forfeiture.(2)Represents the weighted average exercise price of the outstanding stock options. No exercise price is payable with respect to the outstanding restrictedstock units.(3)All of the securities remaining available for future issuance set forth in column (c) may be in the form of options, stock appreciation rights, restrictedstock, restricted stock units, performance awards or other stock-based awards under the Company’s Amended and Restated 1997 Long-Term StockIncentive Plan. An additional 11,438 outstanding shares of restricted stock granted under the Company’s Amended and Restated 1997 Long-TermStock Incentive Plan that remain subject to forfeiture are not reflected in column (c).Other information relating to security ownership of certain beneficial owners and management will be set forth in the Proxy Statementand such information is incorporated by reference herein.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required to be included by Item 13 of Form 10-K will be included in the Proxy Statement and such information isincorporated by reference herein.Item 14. Principal Accounting Fees and Services.The information required to be included by Item 14 of Form 10-K will be included in the Proxy Statement and such information isincorporated by reference herein.67Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules. (a) 1., 2. Financial Statements and Financial Statement Schedules. See index on Page F-1.3. ExhibitsExhibit Number Description 3.1 Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company’s RegistrationStatement on Form S-1 (File No. 333-24733) (the “S-1”))* 3.2 Second Amended and Restated By-laws of the Company (filed as Exhibit 10.2 to the Form 10-Q for the quarterly periodended September 29, 2007)* 10.1 Registration Rights Agreement dated as of June 9, 1997 by and among Ralph Lauren, GS Capital Partners, L.P., GSCapital Partner PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P., Stone Street Fund 1994, L.P., StoneStreet 1994 Subsidiary Corp., Bridge Street Fund 1994, L.P., and Polo Ralph Lauren Corporation (filed as Exhibit 10.3to the S-1)* 10.2 U.S.A. Design and Consulting Agreement, dated January 1, 1985, between Ralph Lauren, individually and d/b/a RalphLauren Design Studio, and Cosmair, Inc., and letter Agreement related thereto dated January 1, 1985** (filed asExhibit 10.4 to the S-1)* 10.3 Restated U.S.A. License Agreement, dated January 1, 1985, between Ricky Lauren and Mark N. Kaplan, as Licensor,and Cosmair, Inc., as Licensee, and letter Agreement related thereto dated January 1, 1985** (filed as Exhibit 10.5 to theS-1)* 10.4 Foreign Design and Consulting Agreement, dated January 1, 1985, between Ralph Lauren, individually and d/b/a RalphLauren Design Studio, as Licensor, and L’Oreal S.A., as Licensee, and letter Agreements related thereto dated January 1,1985, September 16, 1994 and October 25, 1994** (filed as Exhibit 10.6 to the S-1)* 10.5 Restated Foreign License Agreement, dated January 1, 1985, between The Polo/Lauren Company, as Licensor, andL’Oreal S.A., as Licensee, Letter Agreement related thereto dated January 1, 1985, and Supplementary Agreement thereto,dated October 1, 1991** (filed as Exhibit 10.7 to the S-1)* 10.6 Amendment, dated November 27, 1992, to Foreign Design and Consulting Agreement and Restated Foreign LicenseAgreement** (filed as Exhibit 10.8 to the S-1)* 10.7 Agency Agreement dated October 5, 2006, between Polo Ralph Lauren Corporation and Deutsche Bank AG, LondonBranch and Deutsche Bank Luxemburg S.A., as fiscal and principal paying agent (filed as Exhibit 10.2 to theForm 10-Q for the quarterly period ended December 30, 2006)* 10.8 Form of Indemnification Agreement between Polo Ralph Lauren Corporation and its Directors and Executive Officers (filedas Exhibit 10.26 to the S-1)* 10.9 Amended and Restated Employment Agreement, effective as of October 14, 2009, between Polo Ralph Lauren Corporationand Roger N. Farah (filed as Exhibit 10.1 to the Form 8-K dated October 14, 2009)*† 10.10 Amended and Restated Employment Agreement, dated as of June 17, 2003, between Polo Ralph Lauren Corporation andRalph Lauren (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended June 28, 2003)*† 10.11 Non-Qualified Stock Option Agreement, dated as of June 8, 2004, between Polo Ralph Lauren Corporation and RalphLauren (filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended April 2, 2005 (the“Fiscal 2006 10-K”))*† 10.12 Restricted Stock Unit Award Agreement, dated as of June 8, 2004, between Polo Ralph Lauren Corporation and RalphLauren (filed as Exhibit 10.15 to the Fiscal 2006 10-K)*† 10.13 Polo Ralph Lauren Corporation Executive Officer Annual Incentive Plan, as amended as of August 9, 2007 (filed asExhibit 10.1 to the Form 10-Q for the quarterly period ended December 29, 2007)*† 10.14 Amendment No. 1, dated March 29, 2010, to the Amended and Restated Employment Agreement between Polo RalphLauren Corporation and Roger N. Farah 10.15 Restricted Stock Unit Award Agreement, dated as of July 1, 2004, between Polo Ralph Lauren Corporation and Roger N.Farah (filed as Exhibit 10.18 to the Fiscal 2006 10-K)*† 10.16 Amendment No. 1, dated as of December 23, 2008, to the Restricted Stock Unit Award Agreement between Polo RalphLauren Corporation and Roger N. Farah (filed as Exhibit 10.2 to the Form 10-Q for the quarterly period endedDecember 27, 2008)*†68Table of ContentsExhibit Number Description 10.17 Restricted Stock Award Agreement, dated as of July 23, 2002, between Polo Ralph Lauren Corporation and Roger N.Farah (filed as Exhibit 10.19 to the Fiscal 2006 10-K)*† 10.18 Non-Qualified Stock Option Agreement, dated as of July 23, 2002, between Polo Ralph Lauren Corporation and Roger N.Farah (filed as Exhibit 10.20 to the Fiscal 2006 10-K)*† 10.19 Deferred Compensation Agreement, dated as of September 19, 2002, between Polo Ralph Lauren Corporation and RogerN. Farah (filed as Exhibit 10.21 to the Fiscal 2006 10-K)*† 10.20 Asset Purchase Agreement by and among Polo Ralph Lauren Corporation, RL Childrenswear Company, LLC and TheSeller Affiliate Group (as defined therein) dated March 25, 2004 (filed as Exhibit 10.1 to the Form 10-Q for the quarterlyperiod ended July 3, 2004)* 10.21 Amendment No. 1, dated as of July 2, 2004, to Asset Purchase Agreement by and among Polo Ralph Lauren Corporation,RL Childrenswear Company, LLC and The Seller Affiliate Group (as defined therein) (filed as Exhibit 10.2 to theForm 10-Q for the quarterly period ended July 3, 2004)* 10.22 Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan, as Amended and Restated as of August 12, 2004(filed as Exhibit 99.1 to the Form 8-K dated August 12, 2004)*† 10.23 Amendment, dated as of June 30, 2006, to the Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan, asAmended and Restated as of August 12, 2004 (filed as Exhibit 10.4 to the Form 10-Q for the quarterly period endedJuly 1, 2006)*† 10.24 Amendment No. 2, dated as of May 21, 2009, to the Polo Ralph Lauren Corporation 1997 Long-Term Stock IncentivePlan, as Amended and Restated as of August 12, 2004 (filed as Exhibit 10.26 to the Fiscal 2009 10-K)*† 10.25 Cliff Restricted Performance Share Unit Award Overview containing the standard terms of restricted performance shareawards under the Stock Incentive Plan (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended July 1,2006)*† 10.26 Pro-Rata Restricted Performance Share Unit Award Overview containing the standard terms of restriction performanceshare awards under the Stock Incentive Plan (filed as Exhibit 10.3 to the Form 10-Q for the quarterly period ended July 1,2006)*† 10.27 Stock Option Award Overview — U.S. containing the standard terms of stock option award under the Stock IncentivePlan (filed as Exhibit 10.2 to the Form 10-Q for the quarterly period ended July 1, 2006)*† 10.28 Definitive Agreement, dated April 13, 2007, among Polo Ralph Lauren Corporation, PRL Japan Kabushiki Kaisha,Onward Kashiyama Co., Ltd and Impact 21 Co., Ltd.(filed as Exhibit 10.27 to the Fiscal 2008 10-K)* 10.29 Amended and Restated Credit Agreement as of May 22, 2007 to the Credit Agreement, dated as of November 28, 2006,among Polo Ralph Lauren Corporation, Polo JP Acqui B.V., the lenders party thereto, and JPMorgan Chase Bank, N.A.,as administrative agent (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended June 30, 2007)* 10.30 Amendment and Restatement Agreement, dated as of May 22, 2007, among Polo Ralph Lauren Corporation, Polo JPAcqui B.V., the lenders party thereto, The Bank of New York, Citibank, N.A., Bank of America, N.A. and WachoviaBank National Association, as syndication agents, Sumitomo Mitsui Banking Corporation and Deutsche BankSecurities, s co-agents and JPMorgan Chase Bank, N.A., as administrative agent under the Credit Agreement dated as ofNovember 28, 2006 among Polo Ralph Lauren Corporation, the lenders from time to time party thereto and the agentsparty thereto (filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended June 30, 2007)* 10.31 Employment Agreement, effective as of October 14, 2009, between Polo Ralph Lauren Corporation and Jackwyn Nemerov(filed as Exhibit 10.2 to the Form 8-K dated October 14, 2009)*† 10.32 Employment Agreement, effective as of September 28, 2009, between Polo Ralph Lauren Corporation and Tracey T.Travis (filed as Exhibit 10.1 to the Form 8-K dated September 28, 2009)*† 10.33 Employment Agreement, effective as of October 14, 2009, between Polo Ralph Lauren Corporation and Mitchell A. Kosh(filed as Exhibit 10.3 to the Form 8-K dated October 14, 2009)*† 10.34 Cross Default and Term Extension Agreement, dated May 11, 1998, among PRL USA, Inc., The Polo/LaurenCompany, L.P., Polo Ralph Lauren Corporation, Jones Apparel Group, Inc. and Jones Investment Co., Inc. (filed asExhibit 10.1 to the Form 10-Q for the quarterly period ended December 28, 2002)* 10.35 Amended and Restated Polo Ralph Lauren Supplemental Executive Retirement Plan (filed as Exhibit 10.1 to theCompany’s Form 10-Q for the quarterly period ended December 31, 2005)*† 14.1 Code of Ethics for Principal Executive Officers and Senior Financial Officers (filed as Exhibit 14.1 to the Fiscal 2003Form 10-K)*69Table of ContentsExhibit Number Description 21.1 List of Significant Subsidiaries of the Company 23.1 Consent of Ernst & Young LLP 23.2 Consent of Deloitte & Touche LLP 31.1 Certification of Ralph Lauren required by 17 CFR 240.13a-14(a) 31.2 Certification of Tracey T. Travis required by 17 CFR 240.13a-14(a) 32.1 Certification of Ralph Lauren Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Tracey T. Travis Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwisesubject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Actof 1933 or Securities Exchange Act of 1934.*Incorporated herein by reference.†Management contract or compensatory plan or arrangement.**Portions of Exhibits 10.2-10.6 have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities andExchange Commission.70Table of ContentsSIGNATURESPursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto duly authorized, on June 2, 2010.POLO RALPH LAUREN CORPORATION By: /s/ TRACEY T. TRAVISTracey T. TravisSenior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated:Signature Title Date /s/ RALPH LAURENRalph Lauren Chairman of the Board, ChiefExecutive Officer and Director(Principal Executive Officer) June 2, 2010 /s/ ROGER N. FARAHRoger N. Farah President, Chief Operating Officerand Director June 2, 2010 /s/ JACKWYN L. NEMEROVJackwyn L. Nemerov Executive Vice President and Director June 2, 2010 /s/ TRACEY T. TRAVISTracey T. Travis Senior Vice President and Chief Financial Officer(Principal Financialand Accounting Officer) June 2, 2010 /s/ JOHN R. ALCHINJohn R. Alchin Director June 2, 2010 /s/ ARNOLD H. ARONSONArnold H. Aronson Director June 2, 2010 /s/ FRANK A. BENNACK, JR.Frank A. Bennack, Jr. Director June 2, 2010 /s/ DR. JOYCE F. BROWNDr. Joyce F. Brown Director June 2, 2010 /s/ JOEL L. FLEISHMANJoel L. Fleishman Director June 2, 201071Table of ContentsSignature Title Date /s/ HUBERT JOLYHubert Joly Director June 2, 2010 /s/ STEVEN P. MURPHYSteven P. Murphy Director June 2, 2010 /s/ ROBERT C. WRIGHTRobert C. Wright Director June 2, 201072 POLO RALPH LAUREN CORPORATIONINDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION PageConsolidated Financial Statements: Consolidated Balance Sheets F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Cash Flows F-4 Consolidated Statements of Equity F-5 Notes to Consolidated Financial Statements F-6 Management’s Report on Responsibility for Financial Statements F-50 Reports of Independent Registered Public Accounting Firms F-51 Supplementary Information: Selected Financial Information F-54 Quarterly Financial Information F-56 EX-10.14 EX-21.1 EX-23.1 EX-23.2 EX-31.1 EX-31.2 EX-32.1 EX-32.2All schedules are omitted because they are not applicable or the required information is shown in the consolidated financialstatements or notes thereto.F-1Table of ContentsPOLO RALPH LAUREN CORPORATIONCONSOLIDATED BALANCE SHEETS April 3, March 28, 2010 2009 (millions) ASSETSCurrent assets: Cash and cash equivalents $563.1 $481.2 Short-term investments 584.1 338.7 Accounts receivable, net of allowances of $206.1 million and $190.9 million 381.9 474.9 Inventories 504.0 525.1 Deferred tax assets 103.0 101.8 Prepaid expenses and other 139.7 135.0 Total current assets 2,275.8 2,056.7 Non-current investments 75.5 29.7 Property and equipment, net 697.2 651.6 Deferred tax assets 101.9 102.8 Goodwill 986.6 966.4 Intangible assets, net 363.2 348.9 Other assets 148.7 200.4 Total assets $4,648.9 $4,356.5 LIABILITIES AND EQUITYCurrent liabilities: Accounts payable $149.8 $165.9 Income tax payable 37.8 35.9 Accrued expenses and other 559.7 472.3 Total current liabilities 747.3 674.1 Long-term debt 282.1 406.4 Non-current liability for unrecognized tax benefits 126.0 154.8 Other non-current liabilities 376.9 386.1 Commitments and contingencies (Note 17) Total liabilities 1,532.3 1,621.4 Equity: Class A common stock, par value $.01 per share; 75.7 million and 72.3 million shares issued;56.1 million and 55.9 million shares outstanding 0.8 0.7 Class B common stock, par value $.01 per share; 42.1 million and 43.3 million shares issued andoutstanding 0.4 0.4 Additional paid-in-capital 1,243.8 1,108.4 Retained earnings 2,915.3 2,465.5 Treasury stock, Class A, at cost (19.6 million and 16.4 million shares) (1,197.7) (966.7)Accumulated other comprehensive income 154.0 126.8 Total equity 3,116.6 2,735.1 Total liabilities and equity $4,648.9 $4,356.5 See accompanying notes.F-2Table of ContentsPOLO RALPH LAUREN CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions, except per share data) Net sales $4,795.5 $4,823.7 $4,670.7 Licensing revenue 183.4 195.2 209.4 Net revenues 4,978.9 5,018.9 4,880.1 Cost of goods sold(a) (2,079.8) (2,288.2) (2,242.0)Gross profit 2,899.1 2,730.7 2,638.1 Other costs and expenses: Selling, general and administrative expenses(a) (2,157.0) (2,036.0) (1,932.5)Amortization of intangible assets (21.7) (20.2) (47.2)Impairments of assets (6.6) (55.4) (5.0)Restructuring charges (6.9) (23.6) — Total other costs and expenses (2,192.2) (2,135.2) (1,984.7)Operating income 706.9 595.5 653.4 Foreign currency gains (losses) (2.2) 1.6 (6.4)Interest expense (22.2) (26.6) (25.7)Interest and other income, net 12.4 22.0 24.7 Equity in income (loss) of equity-method investees (5.6) (5.0) (1.8)Income before provision for income taxes 689.3 587.5 644.2 Provision for income taxes (209.8) (181.5) (222.3)Net income $479.5 $406.0 $421.9 Less: Net income attributable to noncontrolling interest — — 2.1 Net income attributable to PRLC $479.5 $406.0 $419.8 Net income per common share attributable to PRLC: Basic $4.85 $4.09 $4.10 Diluted $4.73 $4.01 $3.99 Weighted average common shares outstanding: Basic 98.9 99.2 102.3 Diluted 101.3 101.3 105.2 Dividends declared per share $0.30 $0.20 $0.20 (a) Includes total depreciation expense of: $(159.5) $(164.2) $(154.1)See accompanying notes.F-3Table of ContentsPOLO RALPH LAUREN CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Cash flows from operating activities: Net income $479.5 $406.0 $421.9 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization expense 181.2 184.4 201.3 Deferred income tax expense (benefit) (0.2) (35.1) (7.7)Equity in loss (income) of equity-method investees, net of dividends received 5.6 5.0 1.8 Non-cash stock-based compensation expense 59.7 49.7 70.7 Non-cash impairments of assets 6.6 55.4 5.0 Non-cash provision for bad debt expense 4.7 13.9 2.6 Non-cash foreign currency (gains) losses 2.5 2.3 (1.3)Non-cash restructuring charges 1.9 1.6 — Non-cash litigation-related charges (reversals of excess reserves), net (1.7) 5.6 (4.1)Gain on extinguishment of debt 4.1 — — Changes in operating assets and liabilities: Accounts receivable 92.2 1.1 10.0 Inventories 29.1 (10.5) 81.8 Accounts payable and accrued liabilities 41.3 55.2 (10.8)Deferred income liabilities (19.3) (25.7) (2.7)Other balance sheet changes 19.3 65.3 (73.1)Net cash provided by operating activities 906.5 774.2 695.4 Cash flows from investing activities: Acquisitions and ventures, net of cash acquired and purchase price settlements (30.8) (46.3) (188.7)Purchases of investments (1,350.9) (623.1) (96.8)Proceeds from sales and maturities of investments 1,072.4 369.5 12.7 Capital expenditures (201.3) (185.0) (217.1)Change in restricted cash deposits 6.2 26.9 (15.1)Net cash used in investing activities (504.4) (458.0) (505.0) Cash flows from financing activities: Proceeds from issuance of debt — — 168.9 Repayment of debt (121.0) (196.8) — Debt issuance costs — — (0.3)Payments of capital lease obligations (6.7) (6.7) (7.7)Payments of dividends (24.7) (19.9) (20.5)Repurchases of common stock, including shares surrendered for tax withholdings (231.0) (169.8) (475.4)Proceeds from exercise of stock options 50.5 29.0 40.1 Excess tax benefits from stock-based compensation arrangements 25.2 12.1 34.4 Other financing activities 1.3 — — Net cash used in financing activities (306.4) (352.1) (260.5) Effect of exchange rate changes on cash and cash equivalents (13.8) (34.4) 57.7 Net increase (decrease) in cash and cash equivalents 81.9 (70.3) (12.4)Cash and cash equivalents at beginning of period 481.2 551.5 563.9 Cash and cash equivalents at end of period $563.1 $481.2 $551.5 See accompanying notes.F-4Table of ContentsPOLO RALPH LAUREN CORPORATIONCONSOLIDATED STATEMENTS OF EQUITY Additional Treasury Stock Total Non- Common Stock(a) Paid-In Retained at Cost Equity of Controlling Total Shares Amount Capital Earnings Shares Amount AOCI(b) PRLC Interest Equity (millions) Balance at March 31, 2007 111.9 $1.1 $872.5 $1,742.3 7.9 $(321.5) $40.5 $2,334.9 $4.0 $2,338.9 Cumulative effect of adopting FIN 48 (Note 13) (62.5) (62.5) (62.5)Comprehensive income: Net income 419.8 2.1 Foreign currency translation adjustments 135.8 Net realized and unrealized gains (losses) on derivativefinancial instruments (63.3) Net unrealized gains (losses) on available- for-saleinvestments (0.2) Net unrealized gains (losses) on defined benefit plans (0.2) Total comprehensive income 491.9 2.1 494.0 Noncontrolling interest transactions (0.6) (0.6)Cash dividends declared (20.3) (20.3) (20.3)Repurchases of common stock 6.4 (499.4) (499.4) (499.4)Shares issued and equity grants made pursuant to stock-based compensation plans(c) 1.9 145.1 145.1 145.1 Balance at March 29, 2008 113.8 $1.1 $1,017.6 $2,079.3 14.3 $(820.9) $112.6 $2,389.7 $5.5 $2,395.2 Comprehensive income: Net income 406.0 Foreign currency translation adjustments (69.7) Net realized and unrealized gains (losses) on derivativefinancial instruments 84.1 Net unrealized gains (losses) on available- for-saleinvestments 0.3 Net unrealized gains (losses) on defined benefit plans (0.5) Total comprehensive income 420.2 420.2 Noncontrolling interest transactions (5.5) (5.5)Cash dividends declared (19.8) (19.8) (19.8)Repurchases of common stock 2.1 (145.8) (145.8) (145.8)Shares issued and equity grants made pursuant to stock-based compensation plans(c) 1.8 90.8 90.8 90.8 Balance at March 28, 2009 115.6 $1.1 $1,108.4 $2,465.5 16.4 $(966.7) $126.8 $2,735.1 $— $2,735.1 Comprehensive income: Net income 479.5 Foreign currency translation adjustments 37.5 Net realized and unrealized gains (losses) on derivativefinancial instruments (11.0) Net unrealized gains (losses) on available- for-saleinvestments — Net unrealized gains (losses) on defined benefit plans 0.7 Total comprehensive income 506.7 506.7 Cash dividends declared (29.7) (29.7) (29.7)Repurchases of common stock 3.2 (231.0) (231.0) (231.0)Shares issued and equity grants made pursuant to stock-based compensation plans(c) 2.2 0.1 135.4 135.5 135.5 Balance at April 3, 2010 117.8 $1.2 $1,243.8 $2,915.3 19.6 $(1,197.7) $154.0 $3,116.6 $— $3,116.6 (a)Includes Class A and Class B common stock. In Fiscal 2010, 1.2 million shares of Class B common stock was converted into an equal number ofshares of Class A common stock pursuant to the terms of the security (see Note 18).(b)Accumulated other comprehensive income (loss).(c)Includes income tax benefits relating to the stock-based compensation arrangements of approximately $25 million in Fiscal 2010, $12 million in Fiscal2009 and $34 million in Fiscal 2008.See accompanying notes.F-5Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. Description of BusinessPolo Ralph Lauren Corporation (“PRLC”) is a global leader in the design, marketing and distribution of premium lifestyle products,including men’s, women’s and children’s apparel, accessories, fragrances and home furnishings. PRLC’s long-standing reputation anddistinctive image have been consistently developed across an expanding number of products, brands and international markets. PRLC’sbrand names include Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren Women’s Collection, Black Label, BlueLabel, Lauren by Ralph Lauren, RRL, RLX, Rugby, Ralph Lauren Childrenswear, American Living, Chaps and Club Monaco,among others. PRLC and its subsidiaries are collectively referred to herein as the “Company,” “we,” “us,” “our” and “ourselves,” unlessthe context indicates otherwise.The Company classifies its businesses into three segments: Wholesale, Retail and Licensing. The Company’s wholesale sales aremade principally to major department and specialty stores located throughout the U.S., Europe and Asia. The Company also sellsdirectly to consumers through full-price and factory retail stores located throughout the U.S., Canada, Europe, South America and Asia,through concessions-based shop-within-shops located primarily in Asia, and through its retail internet sites located atwww.RalphLauren.com and www.Rugby.com. In addition, the Company often licenses the right to unrelated third parties to use itsvarious trademarks in connection with the manufacture and sale of designated products, such as apparel, eyewear and fragrances, inspecified geographical areas for specified periods.2. Basis of PresentationBasis of ConsolidationThe consolidated financial statements present the financial position, results of operations and cash flows of the Company and allentities in which the Company has a controlling voting interest. The consolidated financial statements also include the accounts of anyvariable interest entities in which the Company is considered to be the primary beneficiary and such entities are required to beconsolidated in accordance with accounting principles generally accepted in the U.S. (“US GAAP”).All significant intercompany balances and transactions have been eliminated in consolidation.Fiscal YearThe Company utilizes a 52-53 week fiscal year ending on the Saturday closest to March 31. As such, fiscal year 2010 ended onApril 3, 2010 and reflected a 53-week period (“Fiscal 2010”); fiscal year 2009 ended on March 28, 2009 and reflected a 52-week period(“Fiscal 2009”); and fiscal year 2008 ended on March 29, 2008 and also reflected a 52-week period (“Fiscal 2008”). The inclusion of the53rd week in Fiscal 2010 resulted in incremental revenues of approximately $70 million and increased net income of approximately$13 million.In April 2009, the Company performed an internal legal entity reorganization of certain of its wholly owned Japan subsidiaries. As aresult of the reorganization, the Company’s former Polo Ralph Lauren Japan Corporation and Impact 21 Co., Ltd. subsidiaries weremerged into a new wholly owned subsidiary named Polo Ralph Lauren Kabushiki Kaisha (“PRL KK”). The financial position andoperating results of the Company’s consolidated PRL KK entity are reported on a one-month lag. Accordingly, the Company’s operatingresults for Fiscal 2010, Fiscal 2009 and Fiscal 2008 include the operating results of PRL KK for the twelve-month periods endedFebruary 28, 2010, February 28, 2009 and February 29, 2008, respectively. The net effect of this reporting lag is not material to theconsolidated financial statements.Use of EstimatesThe preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions thataffect the amounts reported in the financial statements and footnotes thereto. Actual results could differ materially from those estimates.F-6Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Significant estimates inherent in the preparation of the consolidated financial statements include reserves for customer returns,discounts, end-of-season markdowns and operational chargebacks; the realizability of inventory; reserves for litigation and othercontingencies; useful lives and impairments of long-lived tangible and intangible assets; accounting for income taxes and related uncertaintax positions; the valuation of stock-based compensation and related expected forfeiture rates; reserves for restructuring; and accountingfor business combinations.ReclassificationsOn December 31, 2009, the Company acquired certain assets from Dickson Concepts International Limited (“Dickson”), its formerlicensee of Polo-branded apparel in Asia-Pacific (excluding Japan), and assumed direct control of its business in that region (the “Asia-Pacific Licensed Operations Acquisition”). Dickson formerly conducted the Company’s business in Asia-Pacific (excluding Japan)through a combination of freestanding owned stores, freestanding licensed stores and shop-within-shops at department stores or malls.The terms of trade for shop-within-shops were largely conducted on a concessions basis, whereby inventory continued to be owned by theCompany (not the department store) until ultimate sale to the end consumer and the salespeople involved in the sales transaction wereemployees of the Company. As management believes that this concessions-based sales model possesses more attributes of a retail modelthan a wholesale model, it was determined that all concessions-based sales arrangements (including those conducted in Japan) should beclassified within the Company’s Retail segment, in contrast to the historical classification within its Wholesale segment. Accordingly,effective with the closing of the Asia-Pacific Licensed Operations Acquisition at the beginning of the fourth quarter of Fiscal 2010, theCompany restated its segment presentation to reclassify concessions-based sales arrangements to its Retail segment from its Wholesalesegment. There have been no changes in total revenue, total operating income or total assets as a result of this change. Segment informationfor Fiscal 2009 has been recast to conform to the current period’s presentation. In periods prior to Fiscal 2009, segment information hasnot been recast to conform to the current period’s presentation, as it is impracticable to do so. See Note 22 for further discussion of theCompany’s segment information.Certain other reclassifications have been made to the prior years’ financial information in order to conform to the current year’spresentation, including to reflect the adoption of recent accounting guidance related to noncontrolling interests.3. Summary of Significant Accounting PoliciesRevenue RecognitionRevenue is recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery hasoccurred, price has been fixed or is determinable, and collectibility is reasonably assured.Revenue within the Company’s Wholesale segment is recognized at the time title passes and risk of loss is transferred to customers.Wholesale revenue is recorded net of estimates of returns, discounts, end-of-season markdowns, operational chargebacks and certaincooperative advertising allowances. Returns and allowances require pre-approval from management and discounts are based on tradeterms. Estimates for end-of-season markdown reserves are based on historical trends, seasonal results, an evaluation of current economicand market conditions and retailer performance. Estimates for operational chargebacks are based on actual notifications of orderfulfillment discrepancies and historical trends. The Company reviews and refines these estimates on a quarterly basis. The Company’shistorical estimates of these costs have not differed materially from actual results.Retail store and concessions-based shop-within-shop revenue is recognized net of estimated returns at the time of sale to consumers.E-commerce revenue from sales of products ordered through the Company’s retail internet sites at RalphLauren.com and Rugby.com isrecognized upon delivery and receipt of the shipment by its customers. Such revenue also is reduced by an estimate of returns.Gift cards issued by the Company are recorded as a liability until they are redeemed, at which point revenue is recognized. TheCompany recognizes income for unredeemed gift cards when the likelihood of a gift card beingF-7Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)redeemed by a customer is remote and the Company determines that it does not have a legal obligation to remit the value of the unredeemedgift card to the relevant jurisdiction as unclaimed or abandoned property.Revenue from licensing arrangements is recognized when earned in accordance with the terms of the underlying agreements, generallybased upon the higher of (a) contractually guaranteed minimum royalty levels or (b) actual sales and royalty data, or estimates thereof,received from the Company’s licensees.The Company accounts for sales and other related taxes on a net basis, excluding such taxes from revenue.Cost of Goods Sold and Selling ExpensesCost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight-in andimport costs, as well as changes in reserves for shrinkage and inventory realizability. Gains and losses associated with foreign currencyexchange contracts related to the hedging of inventory purchases also are recognized within cost of goods sold when the inventory beinghedged is sold. The costs of selling merchandise, including those associated with preparing the merchandise for sale, such as picking,packing, warehousing and order charges, are included in selling, general and administrative (“SG&A”) expenses.Shipping and Handling CostsThe costs associated with shipping goods to customers are reflected as a component of SG&A expenses in the consolidatedstatements of operations. Shipping and handling costs incurred approximated $83 million in Fiscal 2010, $95 million in Fiscal 2009and $108 million in Fiscal 2008. Shipping and handling charges billed to customers are included in revenue.Advertising CostsAdvertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Costs ofout-of-store advertising paid to wholesale customers under cooperative advertising programs are expensed as an advertising cost if both theidentified advertising benefit is sufficiently separable from the purchase of the Company’s products by customers and the fair value ofsuch benefit is measurable. Otherwise, such costs are reflected as a reduction of revenue. Costs of in-store advertising paid to wholesalecustomers under cooperative advertising programs are not included in advertising costs, but are reflected as a reduction of revenues sincethe benefits are not sufficiently separable from the purchases of the Company’s products by customers.Advertising expense amounted to approximately $157 million for Fiscal 2010, $171 million for Fiscal 2009 and $188 million forFiscal 2008. Deferred advertising costs, which principally relate to advertisements that have not yet been exhibited or services that havenot yet been received, were approximately $4 million and $6 million at the end of Fiscal 2010 and Fiscal 2009, respectively.Foreign Currency Translation and TransactionsThe financial position and operating results of foreign operations are primarily consolidated using the local currency as thefunctional currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and localcurrency revenue and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses areincluded in the consolidated statements of equity as a component of accumulated other comprehensive income (loss). Gains and losses ontranslation of intercompany loans with foreign subsidiaries of a long-term investment nature also are included within this component ofequity.The Company also recognizes gains and losses on transactions that are denominated in a currency other than the respective entity’sfunctional currency. Foreign currency transaction gains and losses also include amounts realized on the settlement of intercompany loanswith foreign subsidiaries that are either of a short-term investment nature or were previously of a long-term investment nature and deferredas a component of equity. Foreign currency transaction gains and losses are recognized in earnings and separately disclosed in theconsolidated statements of operations.F-8Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Comprehensive Income (Loss)Comprehensive income (loss), which is reported in the consolidated statements of equity, consists of net income (loss) and othergains and losses affecting equity that, under US GAAP, are excluded from net income (loss). The components of other comprehensiveincome (loss) for the Company primarily consist of foreign currency translation gains and losses; unrealized gains and losses onavailable-for-sale investments; unrealized gains and losses related to the accounting for defined benefit plans; and deferred gains andlosses on hedging instruments, such as forward foreign currency exchange contracts designated as cash flow hedges and foreign currencygains (losses) on the Company’s Euro-denominated debt designated as a hedge of its net investment in certain of its Europeansubsidiaries.Net Income Per Common ShareBasic net income per common share is computed by dividing the net income applicable to common shares after preferred dividendrequirements, if any, by the weighted-average number of common shares outstanding during the period. Weighted-average common sharesinclude shares of the Company’s Class A and Class B common stock. Diluted net income per common share adjusts basic net incomeper common share for the effects of outstanding stock options, restricted stock, restricted stock units and any other potentially dilutivefinancial instruments, only in the periods in which such effect is dilutive under the treasury stock method.The weighted-average number of common shares outstanding used to calculate basic net income per common share is reconciled tothose shares used in calculating diluted net income per common share as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Basic 98.9 99.2 102.3 Dilutive effect of stock options, restricted stock and restricted stock units 2.4 2.1 2.9 Diluted shares 101.3 101.3 105.2 Options to purchase shares of common stock at an exercise price greater than the average market price of the common stock duringthe reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition,the Company has outstanding restricted stock units that are issuable only upon the achievement of certain service and/or performancegoals. Such performance-based restricted stock units are included in the computation of diluted shares only to the extent the underlyingperformance conditions (a) are satisfied prior to the end of the reporting period or (b) would be satisfied if the end of the reporting periodwere the end of the related contingency period and the result would be dilutive under the treasury stock method. As of the end of Fiscal2010, Fiscal 2009 and Fiscal 2008, there was an aggregate of approximately 1.2 million, 3.5 million and 1.5 million, respectively, ofadditional shares issuable upon the exercise of anti-dilutive options and the contingent vesting of restricted stock and performance-basedrestricted stock units that were excluded from the diluted share calculations.Stock-Based CompensationThe Company expenses all share-based payments to employees and non-employee directors based on the grant date fair value of theawards over the requisite service period, adjusted for estimated forfeitures. The Company uses the Black-Scholes valuation method todetermine the grant date fair value of its stock option awards.See Note 20 for further discussion of the Company’s stock-based compensation.F-9Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Cash and Cash EquivalentsCash and cash equivalents include all highly liquid investments with original maturities of 90 days or less, including investmentsin debt securities. Investments in debt securities are diversified among high-credit quality securities in accordance with the Company’srisk-management policies, and primarily include commercial paper and money market funds.Restricted CashFrom time to time, the Company is required to place cash in escrow with various banks as collateral, primarily to secure guaranteesof corresponding amounts made by the banks to international tax authorities on behalf of the Company, such as to secure refunds ofvalue-added tax payments in certain international tax jurisdictions or in the case of certain international tax audits. Such cash has beenclassified as restricted cash and reported as a component of either other current assets or non-current assets in the Company’sconsolidated balance sheets.Short-term InvestmentsShort-term investments consist of investments which the Company expects to convert into cash within one year, including timedeposits which have a maturity greater than three months. Short-term investments classified as available-for-sale are reported at fair value.Short-term investments classified as held-to-maturity are reported at cost, which approximates market value. Cash inflows and outflowsrelated to the sale and purchase of short-term investments are classified as investing activities within the Company’s consolidatedstatements of cash flows.Accounts ReceivableIn the normal course of business, the Company extends credit to customers that satisfy defined credit criteria. Accounts receivable,net, as shown in the Company’s consolidated balance sheets, is net of certain reserves and allowances. These reserves and allowancesconsist of (a) reserves for returns, discounts, end-of-season markdowns and operational chargebacks and (b) allowances for doubtfulaccounts. These reserves and allowances are discussed in further detail below.A reserve for sales returns is determined based on an evaluation of current market conditions and historical returns experience.Charges to increase the reserve are treated as reductions of revenue.A reserve for trade discounts is determined based on open invoices where trade discounts have been extended to customers, andcharges to increase the reserve are treated as reductions of revenue.Estimated end-of-season markdown charges are included as reductions of revenue. The related markdown provisions are based onretail sales performance, seasonal negotiations with customers, historical deduction trends and an evaluation of current marketconditions.A reserve for operational chargebacks represents various deductions by customers relating to individual shipments. Charges toincrease this reserve, net of expected recoveries, are included as reductions of revenue. The reserve is based on actual notifications of orderfulfillment discrepancies and past experience.F-10Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A rollforward of the activity in the Company’s reserves for returns, discounts, end-of-season markdowns and operationalchargebacks is presented below: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Beginning reserve balance $170.4 $161.1 $129.4 Amount charged against revenue to increase reserve 460.1 480.2 496.7 Amount credited against customer accounts to decrease reserve (443.7) (461.0) (473.4)Foreign currency translation (0.8) (9.9) 8.4 Ending reserve balance $186.0 $170.4 $161.1 An allowance for doubtful accounts is determined through analysis of periodic aging of accounts receivable, assessments ofcollectibility based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and anevaluation of the impact of economic conditions. A rollforward of the activity in the Company’s allowance for doubtful accounts ispresented below: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Beginning reserve balance $20.5 $10.9 $8.7 Amount charged to expense to increase reserve(a) 4.7 13.9 2.6 Amount written off against customer accounts to decrease reserve (5.1) (3.0) (1.6)Foreign currency translation — (1.3) 1.2 Ending reserve balance $20.1 $20.5 $10.9 (a)Amounts charged to bad debt expense are included within SG&A expense in the consolidated statements of operations.Concentration of Credit RiskThe Company sells its wholesale merchandise primarily to major department and specialty stores across the U.S., Canada, Europeand Asia and extends credit based on an evaluation of each customer’s financial capacity and condition, usually without requiringcollateral. In its wholesale business, concentration of credit risk is relatively limited due to the large number of customers and theirdispersion across many geographic areas. However, the Company has five key department-store customers that generate significant salesvolume. For Fiscal 2010, these customers in the aggregate contributed approximately 45% of all wholesale revenues. Further, as of April 3,2010, the Company’s five key department-store customers represented approximately 30% of gross accounts receivable.InventoriesThe Company holds inventory that is sold through wholesale distribution channels to major department stores and specialty retailstores, including its own retail stores. The Company also holds retail inventory that is sold in its own stores directly to consumers.Wholesale and retail inventories are stated at the lower of cost or estimated realizable value with cost primarily determined on a weighted-average cost basis.The Company continually evaluates the composition of its inventories, assessing slow-turning product and all fashion product.Estimated realizable value of inventory is determined based on an analysis of historical sales trends of the Company’s individual productlines, the impact of market trends and economic conditions, and the value of current orders in-house relating to future sales of inventory.Estimates may differ from actual results due to quantity,F-11Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)quality and mix of products in inventory, consumer and retailer preferences and market conditions. The Company’s historical estimatesof these costs and its provisions have not differed materially from actual results.Reserves for inventory shrinkage, representing the risk over physical loss of inventory, are estimated based on historical experienceand are adjusted based upon physical inventory counts.InvestmentsInvestments in companies in which the Company has significant influence, but less than a controlling voting interest, are accountedfor using the equity method. This is generally presumed to exist when the Company owns between 20% and 50% of the investee.However, as a matter of policy, if the Company had a greater than 50% ownership interest in an investee and the noncontrollingshareholders held certain rights that allowed them to participate in the day-to-day operations of the business, the Company would alsogenerally use the equity method of accounting.Under the equity method, only the Company’s investment in and amounts due to and from the equity investee are included in theconsolidated balance sheets; only the Company’s share of the investee’s earnings (losses) is included in the consolidated operating results;and only the dividends, cash distributions, loans or other cash received from the investee and additional cash investments, loanrepayments or other cash paid to the investee are included in the consolidated cash flows.Investments in companies in which the Company does not have a controlling interest, or is unable to exert significant influence, areaccounted for as available-for-sale investments and, if the investments are publicly traded and there are no resale restrictions greater thanone year, recorded at fair value. If resale restrictions greater than one year exist, or if the investment is not publicly traded, the investmentis accounted for at cost.Investments in debt securities are recorded at cost, adjusted for the amortization of premiums and discounts, which approximatesfair value. Investments in debt securities that the Company has the intent and ability to retain until maturity are classified asheld-to-maturity.The Company evaluates investments held in unrealized loss positions for other-than-temporary impairment on a quarterly basis.Such evaluation involves a variety of considerations, including assessments of risks and uncertainties associated with general economicconditions and distinct conditions affecting specific issuers. Factors considered by the Company include (i) the length of time and theextent to which the fair value has been below cost, (ii) the financial condition, credit worthiness and near-term prospects of the issuer,(iii) the length of time to maturity, (iv) future economic conditions and market forecasts, (v) the Company’s intent and ability to retain itsinvestment for a period of time sufficient to allow for recovery of market value, and (vi) an assessment of whether it is more-likely-than-not that the Company will be required to sell its investment before recovery of market value. The Company has not recognized anysignificant other-than-temporary impairment charges in any of the fiscal years presented.Equity-method InvestmentsThe Company’s investments include a joint venture named the Ralph Lauren Watch and Jewelry Company, S.A.R.L. (the “RLWatch Company”), formed with Financiere Richemont SA (“Richemont”), the Swiss Luxury Goods Group, in March 2007. The jointventure is a Swiss corporation, whose purpose is to design, develop, manufacture, sell and distribute luxury watches and fine jewelrythrough Ralph Lauren boutiques, as well as through fine independent jewelry and luxury watch retailers throughout the world. TheCompany accounts for its 50% interest in the RL Watch Company under the equity method of accounting, and such investment isclassified in other non-current assets in the consolidated balance sheets. Royalty payments due to the Company under the related licenseagreement for use of certain of the Company’s trademarks are reflected as licensing revenue within the consolidated statements ofoperations.F-12Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Property and Equipment, NetProperty and equipment, net, is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line methodbased upon the estimated useful lives of depreciable assets, which range from three to seven years for furniture, fixtures, computersoftware and computer equipment; from three to ten years for machinery and equipment; and from ten to forty years for buildings andimprovements. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the respective assets or the life ofthe lease.Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes incircumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for recoverability,including finite-lived intangibles as described below, the Company uses its best estimate of future cash flows expected to result from theuse of the asset and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset areless than the carrying amount, an impairment loss is recognized equal to the difference between the carrying value of such asset and itsfair value. Assets to be disposed of and for which there is a committed plan of disposal are reported at the lower of carrying value or fairvalue less costs to sell.Goodwill and Other Intangible AssetsAt acquisition, the Company estimates and records the fair value of purchased intangible assets, which primarily consist of licenseagreements, customer relationships, non-compete agreements and order backlog. The fair value of these intangible assets is estimatedbased on management’s assessment, considering independent third party appraisals, when necessary. The excess of the purchaseconsideration over the fair value of net assets acquired is recorded as goodwill. Goodwill, including any goodwill included in the carryingvalue of investments accounted for using the equity method of accounting, and certain other intangible assets deemed to have indefiniteuseful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annuallybased on comparisons of their respective fair values to their carrying values. Finite-lived intangible assets are amortized over theirrespective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodicallywhenever events or changes in circumstances indicate that their related carrying amounts may not be recoverable. See discussion of theCompany’s accounting policy for long-lived asset impairment as described earlier under the caption “Property and Equipment, Net.”Officers’ Life Insurance PoliciesThe Company maintains certain split-dollar life insurance policies for select senior executives. These policies are recorded at thelesser of their cash-surrender value or aggregate premiums paid-to-date in the consolidated balance sheets. As of the end of both Fiscal2010 and Fiscal 2009, amounts of approximately $33 million relating to officers’ split-dollar life insurance policies held by the Companywere classified within other non-current assets in the consolidated balance sheets.In May 2009, the Company liquidated all of its whole-life insurance policies held at cash-surrender value. As of the end of Fiscal2009, the related asset balance of approximately $16 million was classified within short-term investments in the consolidated balancesheet.Income TaxesIncome taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets andliabilities, current taxes payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the currentyear and include the results of any difference between US GAAP and tax reporting. Deferred income taxes reflect the tax effect of certainnet operating loss, capital loss and general business credit carryforwards and the net tax effects of temporary differences between thecarrying amount of assets andF-13Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. The Company accounts forthe financial effect of changes in tax laws or rates in the period of enactment.In addition, valuation allowances are established when management determines that it is more-likely-than-not that some portion or allof a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur, orcircumstances change, that warrant adjustments to those balances.In determining the income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain taxpositions. If the Company considers that a tax position is “more-likely-than-not” of being sustained upon audit, based solely on thetechnical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount thatis greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxingauthority that has full knowledge of all relevant information. These assessments can be complex and the Company often obtainsassistance from external advisors. To the extent that the Company’s estimates change or the final tax outcome of these matters is differentthan the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. Ifthe initial assessment fails to result in the recognition of a tax benefit, the Company regularly monitors its position and subsequentlyrecognizes the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on thetechnical merits of the position to “more-likely-than-not,” (ii) the statute of limitations expires, or (iii) there is a completion of an auditresulting in a settlement of that tax year with the appropriate agency. Uncertain tax positions are classified as current only when theCompany expects to pay cash within the next twelve months. Interest and penalties, if any, are recorded within the provision for incometaxes in the Company’s consolidated statements of operations and are classified on the consolidated balance sheets with the related liabilityfor unrecognized tax benefits.See Note 13 for further discussion of the Company’s income taxes.LeasesThe Company leases certain facilities and equipment, including its retail stores. Certain of the Company’s leases contain renewaloptions, rent escalation clauses and/or landlord incentives. Rent expense for noncancelable operating leases with scheduled rent increasesand/or landlord incentives is recognized on a straight-line basis over the lease term, beginning with the effective lease commencement date.The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred rent liability.As of the end of Fiscal 2010 and Fiscal 2009, deferred rent obligations of approximately $148 million and $137 million, respectively,were classified within other non-current liabilities in the Company’s consolidated balance sheets.In certain lease arrangements the Company is involved with the construction of the building (generally on land owned by thelandlord). If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property andtherefore is deemed the owner of the project for accounting purposes, it records an asset and related financing obligation for the amount oftotal project costs related to construction-in-progress and the pre-existing building. Once construction is complete, the Company considersthe requirements for sale-leaseback treatment, including the transfer back of all risks of ownership and whether the Company has anycontinuing involvement in the leased property. If the arrangement does not qualify for sale-leaseback treatment, the Company continues toamortize the financing obligation and depreciate the building over the lease term.Financial Instruments (including Derivatives)The Company records all derivative instruments on the balance sheet at fair value. In addition, for derivative instruments thatqualify for hedge accounting, the effective portion of changes in the fair value is either (a) offset against the changes in fair value of thehedged assets, liabilities, or firm commitments through earnings or (b) recognized in equity as a component of accumulated othercomprehensive income until the hedged item isF-14Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)recognized in earnings, depending on whether the derivative is being used to hedge changes in fair value or cash flows, respectively.Each derivative instrument entered into by the Company which qualifies for hedge accounting is considered highly effective atreducing the risk associated with the exposure being hedged. For each derivative designated as a hedge, the Company formally documentsthe risk management objective and strategy, including the identification of the hedging instrument, the hedged item and the risk exposure,as well as how effectiveness is to be assessed prospectively and retrospectively. To assess effectiveness, the Company uses non-statisticalmethods, including the dollar-offset method, which compare the change in the fair value of the derivative to the change in the fair value orcash flows of the hedged item. The extent to which a hedging instrument has been and is expected to continue to be effective at achievingoffsetting changes in fair value or cash flows is assessed and documented by the Company at least on a quarterly basis. To the extent thata derivative contract designated as a hedge is not considered to be effective, any changes in fair value relating to the ineffective portion isimmediately recognized in earnings within foreign currency gains (losses). If it is determined that a derivative has not been highlyeffective, and will continue not to be highly effective at hedging the designated exposure, hedge accounting is discontinued. If a hedgerelationship is terminated, the change in fair value of the derivative previously recorded in accumulated other comprehensive income isrealized when the hedged item affects earnings consistent with the original hedging strategy, unless the forecasted transaction is no longerprobable of occurring in which case the accumulated amount is immediately recognized in earnings.The Company does not enter into derivative transactions for speculative or trading purposes. All undesignated hedges of theCompany are entered into to hedge specific economic risks, such as foreign currency exchange and interest rate risk. Changes in fairvalue relating to undesignated derivative instruments are immediately recognized in earnings.As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts willfail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of only entering into contractswith carefully selected financial institutions based upon their credit ratings and certain other financial factors, adhering to establishedlimits for credit exposure. The Company’s established policies and procedures for mitigating credit risk on derivative transactions includecontinually reviewing and assessing the creditworthiness of counterparties.For cash flow reporting purposes, the Company classifies proceeds received or amounts paid upon the settlement of a derivativeinstrument in the same manner as the related item being hedged.The carrying value of the Company’s financial instruments approximates fair value, except for certain differences relating to fixed-rate debt, investments in other entities accounted for using the equity method of accounting and certain other financial instruments.However, other than differences in the fair value of fixed-rate debt as disclosed in Note 14, these differences were not significant as ofApril 3, 2010 or March 28, 2009. The fair value of financial instruments generally is determined by reference to fair market valuesresulting from the trading of the instruments on a national securities exchange or an over-the-counter market. In cases where quoted marketprices are not available, fair value is based on estimates derived through the use of present value or other valuation techniques.See Note 16 for further discussion of the Company’s financial instruments, including derivatives.4. Recently Issued Accounting StandardsConsolidation of Variable Interest EntitiesIn June 2009, the Financial Accounting Standards Board (“FASB”) issued revised guidance for accounting for a variable interestentity (“VIE”) (formerly referred to as Statement of Financial Accounting Standards (“FAS”) No. 167, “Amendments to FASBInterpretation No. 46(R)”), which has been codified within Accounting Standards Codification (“ASC”) topic 810, “Consolidation”(“ASC 810”). The revised guidance within ASC 810 changes theF-15Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)approach to determining the primary beneficiary of a VIE, replacing the quantitative-based risks and rewards approach with a qualitativeapproach that focuses on identifying which enterprise has (i) the power to direct the activities of a VIE that most significantly impact theentity’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the entity that could potentially besignificant to the VIE. ASC 810 also now requires ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE, aswell as additional disclosures about an enterprise’s involvement in VIEs. The revised accounting guidance within ASC 810 is effective forthe Company as of the beginning of fiscal year 2011 and its adoption is not expected to have a material effect on the Company’sconsolidated financial statements.Fair Value MeasurementsIn September 2006, the FASB issued ASC topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) (formerly referredto as FAS No. 157, “Fair Value Measurements,” as amended). ASC 820 defines “fair value” as the price that would be received to sell anasset or paid to transfer a liability in an orderly transaction between market participants at the measurement date within an identifiedprincipal or most advantageous market, establishes a framework for measuring fair value in accordance with US GAAP and expandsdisclosures regarding fair value measurements. The Company adopted the provisions of ASC 820 for all of its financial assets andliabilities within scope as of the beginning of Fiscal 2009 (March 30, 2008). In addition, the Company adopted the provisions ofASC 820 for all of its nonfinancial assets and liabilities within scope as of the beginning of Fiscal 2010 (March 29, 2009). The adoptionof the provisions of ASC 820 did not have a significant impact on the Company’s consolidated financial statements. See Note 15 forfurther discussion of the impact of adoption on the Company’s consolidated financial statements.Business Combinations and Noncontrolling InterestsIn December 2007, the FASB issued ASC topic 805, “Business Combinations” (“ASC 805”) (formerly referred to asFAS No. 141(R), “Business Combinations,” as amended, which replaces FAS No. 141). ASC 805 was issued to create greaterconsistency in the accounting and financial reporting of business combinations, resulting in more complete, comparable and relevantinformation for investors and other users of financial statements. ASC 805 establishes principles and requirements for how an acquirerin a business combination recognizes and measures in its financial statements the identifiable assets acquired, liabilities assumed, andany noncontrolling interests in the acquiree, as well as the goodwill acquired. Significant changes resulting from ASC 805 include theneed for the acquirer to record 100% of all assets and liabilities of the acquired business, including goodwill, generally at fair value for allbusiness combinations (whether partial, full or step acquisitions); the need to recognize contingent consideration at fair value on theacquisition date and, for certain arrangements, to recognize changes in fair value in earnings until settlement; and the need for acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. ASC 805 alsoestablishes disclosure requirements to enable users to evaluate the nature and financial effects of the business combination. The Companyadopted the provisions of ASC 805 as of the beginning of Fiscal 2010 (March 29, 2009). The adoption of the provisions of ASC 805 didnot have a significant impact on the Company’s consolidated financial statements. See Note 5 for further discussion of the businesscombination entered into by the Company during Fiscal 2010.In December 2007, the FASB issued revised guidance for accounting for noncontrolling interests (formerly referred to asFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51”), which has beencodified within ASC 810. The revised guidance within ASC 810 establishes accounting and reporting standards for noncontrollinginterests in a subsidiary (previously referred to as “minority interests”) and for the deconsolidation of a subsidiary, to ensure consistencywith the requirements of ASC 805. ASC 810 states that noncontrolling interests should be classified as a separate component of equity,and establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of theparent and the interests of the noncontrolling owners. The Company adopted the revised accounting guidance for noncontrolling interestswithin ASC 810 as of the beginning of Fiscal 2010 (March 29, 2009). The new guidanceF-16Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)is being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. Theadoption did not have a significant impact on the Company’s consolidated financial statements, but could impact the accounting forfuture acquisitions in which the Company does not acquire 100% of an entity, the future deconsolidation of a subsidiary and a futurechange in the Company’s ownership percentage of a subsidiary.Accounting for Uncertainty in Income TaxesIn July 2006, the FASB issued revised guidance for the accounting for uncertainty in income tax positions (formerly referred to asFASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — An Interpretation of FAS No. 109” (“FIN 48”)), which hasbeen codified within ASC topic 740, “Income Taxes” (“ASC 740”). The revised guidance within ASC 740 prescribes a recognitionthreshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to betaken in a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition. The Company adopted the revised accounting guidance for uncertainty in income taxes withinASC 740 as of the beginning of Fiscal 2008 and recorded a related $62.5 million reduction in retained earnings as the cumulative effect toadjust its net liability for unrecognized tax benefits as of April 1, 2007. This adjustment consisted of a $99.9 million increase to theCompany’s liabilities for unrecognized tax benefits, offset in part by a $37.4 million increase to the Company’s deferred tax assetsprincipally representing the value of future tax benefits that could be realized at the U.S. federal level if the related liabilities forunrecognized tax benefits at the state and local levels ultimately are required to be settled. See Note 13 for further discussion of theCompany’s income taxes.5. Acquisitions and Joint VenturesFiscal 2010 TransactionsAsia-Pacific Licensed Operations AcquisitionOn December 31, 2009, in connection with the transition of the Polo-branded apparel business in Asia-Pacific (excluding Japan)from a licensed to a wholly owned operation, the Company acquired certain net assets from Dickson in exchange for an initial payment ofapproximately $20 million and other consideration of approximately $17 million (the “Asia-Pacific Licensed Operations Acquisition”).Dickson was the Company’s licensee for Polo-branded apparel in the Asia-Pacific region (excluding Japan), which is comprised of China,Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand. The Company funded the Asia-Pacific LicensedOperations Acquisition with available cash on-hand.The Company accounted for the Asia-Pacific Licensed Operations Acquisition as a business combination during the fourth quarterof Fiscal 2010. The acquisition cost of $37 million (excluding transaction costs) has been allocated on a preliminary basis to the netassets acquired based on their respective fair values as follows: inventory of $2 million; customer relationship intangible asset of$29 million; tax-deductible goodwill of $1 million and other net assets of $5 million. Goodwill represents the excess of the purchase priceover the fair value of the net tangible and identifiable intangible assets acquired. Transaction costs of $4 million were expensed asincurred and classified within SG&A expense in the consolidated statement of operations.The customer relationship intangible asset was valued using the excess earnings method. This approach discounts the estimatedafter tax cash flows associated with the existing base of customers as of the acquisition date, factoring in expected attrition of the existingcustomer base. The customer relationship intangible asset is being amortized over its estimated useful life of ten years.The results of operations for the Polo-branded apparel business in Asia-Pacific have been consolidated in the Company’s results ofoperations commencing January 1, 2010.F-17Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Fiscal 2009 TransactionsJapanese Childrenswear and Golf AcquisitionOn August 1, 2008, in connection with the transition of the Polo-branded childrenswear and golf apparel businesses in Japan from alicensed to a wholly owned operation, the Company acquired certain net assets (including inventory) from Naigai Co. Ltd. (“Naigai”) inexchange for a payment of approximately ¥2.8 billion (approximately $26 million as of the acquisition date) and certain otherconsideration (the “Japanese Childrenswear and Golf Acquisition”). The Company funded the Japanese Childrenswear and GolfAcquisition with available cash on-hand. Naigai was the Company’s licensee for childrenswear, golf apparel and hosiery under the Poloby Ralph Lauren and Ralph Lauren brands in Japan. In conjunction with the Japanese Childrenswear and Golf Acquisition, theCompany also entered into an additional 5-year licensing and design-related agreement with Naigai for Polo and Chaps-branded hosiery inJapan and a transition services agreement for the provision of a variety of operational, human resources and information systems-relatedservices over a period of up to eighteen months from the date of the closing of the transaction.The Company accounted for the Japanese Childrenswear and Golf Acquisition as an asset purchase during the second quarter ofFiscal 2009. Based on the results of valuation analyses performed, the Company allocated all of the consideration exchanged in theJapanese Childrenswear and Golf Acquisition to the net assets acquired in connection with the transaction. No settlement loss associatedwith any pre-existing relationships was recognized. The acquisition cost of $28 million (including transaction costs of approximately$2 million) has been allocated to the net assets acquired based on their respective fair values as follows: inventory of $16 million;customer relationship intangible asset of $13 million; and other net liabilities of $1 million.The results of operations for the Polo-branded childrenswear and golf apparel businesses in Japan have been consolidated in theCompany’s results of operations commencing August 2, 2008.Fiscal 2008 TransactionsJapanese Business AcquisitionsOn May 29, 2007, the Company acquired control of certain of its Japanese businesses that were formerly conducted under licensedarrangements, consistent with the Company’s long-term strategy of international expansion. In particular, the Company acquiredapproximately 77% of the outstanding shares of Impact 21 that it did not previously own in a cash tender offer (the “Impact 21Acquisition”), thereby increasing its ownership in Impact 21 from approximately 20% to approximately 97%. Impact 21 previouslyconducted the Company’s men’s, women’s and jeans apparel and accessories business in Japan under a pre-existing, sub-licensearrangement. In addition, the Company acquired the remaining 50% interest in PRL Japan, which holds the master license to conductPolo’s business in Japan, from Onward Kashiyama and Seibu (the “PRL Japan Minority Interest Acquisition”). Collectively, the Impact21 Acquisition and the PRL Japan Minority Interest Acquisition are herein referred to as the “Japanese Business Acquisitions.”The purchase price initially paid in connection with the Japanese Business Acquisitions was approximately $360 million, includingtransaction costs of approximately $12 million. In February 2008, the Company acquired approximately 1% of the remaining Impact21 shares outstanding at an aggregate cost of $5 million. During the first quarter of Fiscal 2009, the Company acquired the remaining2% of Impact 21 shares outstanding at an aggregate cost of approximately $9 million and completed the process of acquiring theremaining outstanding shares not exchanged as of the close of the tender offer period (the “minority squeeze-out”). As a result of thesetransactions, Impact 21 is a 100%-owned subsidiary of the Company.The Company funded the Japanese Business Acquisitions with available cash on-hand and ¥20.5 billion of borrowings under aone-year term loan agreement pursuant to an amendment and restatement to the Company’sF-18Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)existing credit facility. The Company repaid the borrowing by its maturity date on May 22, 2008 using $196.8 million of Impact 21’scash on-hand acquired as part of the acquisition.Based on the results of valuation analyses performed, the Company allocated all of the consideration exchanged to the purchase ofthe Japanese businesses. The acquisition cost of approximately $374 million has been allocated to the net assets acquired based on theirrespective fair values as follows: cash of $189 million; trade receivables of $26 million; inventory of $38 million; finite-lived intangibleassets of $75 million (consisting of the re-acquired licenses of $21 million and customer relationships of $54 million); non-tax-deductible goodwill of $140 million; assumed pension liabilities of $5 million; net deferred tax liabilities of $31 million; and other netliabilities of $58 million.The results of operations for Impact 21, which were previously accounted for using the equity method of accounting, have beenconsolidated in the Company’s results of operations commencing April 1, 2007. Accordingly, the Company presented the amount ofImpact 21’s net income allocable to the holders of the approximate 80% of the Impact 21 shares not owned by the Company prior to theclosing date of the tender offer within net income attributable to noncontrolling interest in the consolidated statement of operations. Theresults of operations for PRL Japan had already been consolidated by the Company in all prior periods.Acquisition of Small Leathergoods BusinessOn April 13, 2007, the Company acquired from Kellwood Company (“Kellwood”) substantially all of the assets of New Campaign,Inc., the Company’s licensee for men’s and women’s belts and other small leather goods under the Ralph Lauren, Lauren and Chapsbrands in the U.S. (the “Small Leathergoods Business Acquisition”). The assets acquired from Kellwood are operated under the name of“Polo Ralph Lauren Leathergoods” and allowed the Company to further expand its accessories business. The acquisition cost was$10.4 million.The Company determined that the terms of the pre-existing licensing relationship were reflective of market. As such, the Companyallocated all of the consideration exchanged to the Small Leathergoods Business Acquisition and no settlement gain or loss was recognizedin connection with the transaction. The results of operations for the Polo Ralph Lauren Leathergoods business have been consolidated inthe Company’s results of operations commencing April 1, 2007. In addition, the acquisition cost has been allocated as follows: inventoryof $7.0 million; finite-lived intangible assets of $2.1 million (consisting of the re-acquired license of $1.3 million, customer relationshipsof $0.7 million and order backlog of $0.1 million); other net assets of $0.7 million; and tax-deductible goodwill of $0.6 million.6. InventoriesInventories consist of the following: April 3, March 28, 2010 2009 (millions) Raw materials $5.9 $5.4 Work-in-process 1.3 1.7 Finished goods 496.8 518.0 Total inventories $504.0 $525.1 F-19Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)7. Property and EquipmentProperty and equipment, net, consist of the following: April 3, March 28, 2010 2009 (millions) Land and improvements $9.9 $9.9 Buildings and improvements 113.8 112.6 Furniture and fixtures 515.0 491.1 Machinery and equipment 339.3 305.0 Leasehold improvements 700.0 643.3 Construction in progress 102.5 49.6 1,780.5 1,611.5 Less: accumulated depreciation (1,083.3) (959.9)Property and equipment, net $697.2 $651.6 8. Goodwill and Other Intangible AssetsAs discussed in Note 3, goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather,goodwill and such indefinite-lived intangible assets are subject to annual impairment testing. Finite-lived intangible assets continue to beamortized over their respective estimated useful lives. Based on the results of the Company’s annual impairment testing of goodwill andindefinite-lived intangible assets in Fiscal 2010, Fiscal 2009 and Fiscal 2008, no impairment charges were deemed necessary.GoodwillThe following analysis details the changes in goodwill for each reportable segment during Fiscal 2010 and Fiscal 2009: Wholesale Retail Licensing Total (millions) Balance at March 29, 2008 $684.8 $152.1 $138.2 $975.1 Acquisition-related activity(a) 4.8 — — 4.8 Other adjustments(b) (15.5) (1.3) 3.3 (13.5)Balance at March 28, 2009 674.1 150.8 141.5 966.4 Acquisition-related activity(a) — — 1.0 1.0 Other adjustments(b) (45.8) 65.0 — 19.2 Balance at April 3, 2010 $628.3 $215.8 $142.5 $986.6 (a)Fiscal 2010 acquisition-related activity primarily includes the Asia-Pacific Licensed Operations Acquisition. Fiscal 2009 acquisition-related activityprimarily includes the minority squeeze-out related to the Japanese Business Acquisitions. See Note 5 for further discussion of the Company’sacquisitions.(b)Fiscal 2010 other adjustments include the reallocation of approximately $65 million of goodwill in connection with the Company’s reclassification of itsconcessions-based sales arrangements to the Retail segment from the Wholesale segment at the beginning of the fourth quarter (see Note 2), as well aschanges in foreign currency exchange rates. Fiscal 2009 other adjustments primarily include changes in foreign currency exchange rates.F-20Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Other Intangible AssetsOther intangible assets consist of the following: April 3, 2010 March 28, 2009 Gross Gross Carrying Accum. Carrying Accum. Amount Amort. Net Amount Amort. Net (millions) Intangible assets subject to amortization: Re-acquired licensed trademarks $229.4 $(70.6) $158.8 $226.0 $(58.7) $167.3 Customer relationships/lists 244.7 (49.3) 195.4 206.7 (34.1) 172.6 Other 7.4 (7.2) 0.2 7.4 (7.1) 0.3 Total intangible assets subject to amortization 481.5 (127.1) 354.4 440.1 (99.9) 340.2 Intangible assets not subject to amortization: Trademarks and brands 8.8 — 8.8 8.7 — 8.7 Total intangible assets $490.3 $(127.1) $363.2 $448.8 $(99.9) $348.9 AmortizationBased on the amount of intangible assets subject to amortization as of April 3, 2010, the expected amortization for each of the nextfive fiscal years and thereafter is as follows: Amortization Expense (millions) Fiscal 2011 $23.6 Fiscal 2012 23.3 Fiscal 2013 22.6 Fiscal 2014 22.6 Fiscal 2015 22.6 Fiscal 2016 and thereafter 239.7 Total $354.4 The expected future amortization expense above reflects weighted-average estimated useful lives of 19.3 years for re-acquired licensedtrademarks, 14.5 years for customer relationships/lists and 16.6 years for the Company’s finite-lived intangible assets in total.F-21Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)9. Other Current and Non-Current AssetsPrepaid expenses and other current assets consist of the following: April 3, March 28, 2010 2009 (millions) Prepaid rent expense $23.5 $17.6 Restricted cash 21.8 — Derivative financial instruments 15.5 26.4 Other prepaid expenses and current assets 78.9 91.0 Total prepaid expenses and other current assets $139.7 $135.0 Other non-current assets consist of the following: April 3, March 28, 2010 2009 (millions) Equity-method investments $4.8 $4.2 Officers’ life insurance policies 33.1 32.9 Restricted cash 53.6 71.4 Other non-current assets 57.2 91.9 Total other non-current assets $148.7 $200.4 10. Other Current and Non-Current LiabilitiesAccrued expenses and other current liabilities consist of the following: April 3, March 28, 2010 2009 (millions) Accrued operating expenses $237.6 $200.3 Accrued payroll and benefits 187.1 130.6 Accrued inventory 43.8 44.6 Deferred income 50.5 47.6 Other 40.7 49.2 Total accrued expenses and other current liabilities $559.7 $472.3 Other non-current liabilities consist of the following: April 3, March 28, 2010 2009 (millions) Capital lease obligations $38.2 $38.4 Deferred rent obligations 147.9 136.7 Deferred income 123.3 145.6 Other 67.5 65.4 Total other non-current liabilities $376.9 $386.1 F-22Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)11. Impairments of AssetsProperty and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes incircumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for recoverability, theCompany uses its best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. To the extentthat estimated future undiscounted net cash flows attributable to the asset are less than the carrying amount, an impairment loss isrecognized equal to the difference between the carrying value of such asset and its fair value.Fiscal 2010 ImpairmentDuring Fiscal 2010, the Company recorded a non-cash impairment charge of $6.6 million to reduce the net carrying value of certainlong-lived assets primarily in its Retail segment to their estimated fair value, which was determined based on discounted expected cashflows. This impairment charge was primarily related to the lower-than-expected operating performance of certain retail stores, largelyrelated to the Company’s Club Monaco retail business.Fiscal 2009 ImpairmentDuring Fiscal 2009, the Company recorded total non-cash impairment charges of $55.4 million to reduce the net carrying value ofcertain long-lived assets to their estimated fair value, which was determined based on discounted expected cash flows. These impairmentcharges included a $52.0 million write-down of Retail store assets and a $3.4 million write-down of certain capitalized software costs(primarily in the Wholesale segment) that were determined to no longer be used over the intended service period. The Retail store assetimpairment was associated with lower-than-expected operating performance for the fiscal year for certain Ralph Lauren, Club Monacoand Rugby full-price stores primarily located in the U.S. due in part to the significant contraction in consumer spending experiencedduring the latter half of the fiscal year and which is expected to continue to negatively impact such stores’ future operating performance.Fiscal 2008 ImpairmentDuring Fiscal 2008, the Company recorded non-cash impairment charges of $5.0 million to reduce the carrying value of certainlong-lived assets in its Retail segment to their estimated fair value. These impairment charges were primarily recorded as a result oflower-than-expected operating cash flow performance for certain stores that, along with projections of future performance, indicated thatthe carrying values of the related fixed assets were not recoverable.12. RestructuringThe Company has recorded restructuring liabilities in recent years relating to various cost-savings initiatives, as well as certain of itsacquisitions. Through Fiscal 2009, in accordance with then applicable US GAAP, restructuring costs incurred in connection withacquisitions were capitalized as part of the purchase accounting for the transaction. As of the beginning of Fiscal 2010, restructuring costsincurred in connection with acquisitions that are not obligations of the acquiree as of the acquisition date are expensed. Such acquisition-related restructuring costs were not material in any period. Liabilities for costs associated with non-acquisition-related restructuringinitiatives are expensed and initially measured at fair value when incurred. A description of the nature of significant non-acquisition-related restructuring activities and related costs is presented below.Fiscal 2010 RestructuringDuring Fiscal 2010, the Company recognized $6.9 million of net restructuring charges primarily related to employee terminationcosts, as well as the write-down of an asset associated with exiting a retail store in Japan.F-23Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Fiscal 2009 RestructuringDuring the fourth quarter of Fiscal 2009, the Company initiated a restructuring plan designed to better align its cost base with theslowdown in consumer spending that has been negatively affecting sales and operating margins and to improve overall operatingeffectiveness (the “Fiscal 2009 Restructuring Plan”). The Fiscal 2009 Restructuring Plan included the termination of approximately500 employees and the closure of certain underperforming retail stores.In connection with the Fiscal 2009 Restructuring Plan, the Company recorded $20.8 million in restructuring charges during thefourth quarter of Fiscal 2009. A summary of the activity in the related liability is as follows: Severance Lease and Benefits Termination Other Costs Costs Costs(a) Total (millions) Balance at March 29, 2008 $— $— $— $— Additions (reductions) charged to expense 13.4 5.8 1.6 20.8 Cash payments charged against reserve (0.8) (0.9) — (1.7)Non-cash adjustments — — (1.6) (1.6)Balance at March 28, 2009 12.6 4.9 — 17.5 Additions (reductions) charged to expense (2.8) (0.1) — (2.9)Cash payments charged against reserve (9.5) (4.0) — (13.5)Balance at April 3, 2010 $0.3 $0.8 $— $1.1 (a)Primarily related to write-downs of certain fixed assets.In addition to those restructuring charges incurred in connection with the Fiscal 2009 Restructuring Plan implemented during thefourth quarter as discussed above, the Company recognized $2.8 million of other restructuring charges earlier in the fiscal year,primarily related to severance costs associated with the transition of certain sourcing and production facilities in Asia-Pacific duringFiscal 2009.There were no significant restructuring charges recognized by the Company during Fiscal 2008.13. Income TaxesTaxes on IncomeDomestic and foreign pretax income are as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Domestic $448.3 $351.1 $473.7 Foreign 241.0 236.4 170.5 Total income before provision for income taxes $689.3 $587.5 $644.2 F-24Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Current and deferred income taxes (tax benefits) provided are as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Current: Federal(a) $138.0 $126.6 $157.5 State and local(a) 16.3 25.6 15.4 Foreign 55.7 64.4 57.1 210.0 216.6 230.0 Deferred: Federal 12.0 (15.3) 10.0 State and local (1.4) (7.4) 3.9 Foreign (10.8) (12.4) (21.6) (0.2) (35.1) (7.7)Total provision for income taxes $209.8 $181.5 $222.3 (a)Excludes federal, state and local tax benefits of approximately $25 million in Fiscal 2010, $12 million in Fiscal 2009 and $34 million in Fiscal 2008resulting from the stock-based compensation arrangements. Such amounts were credited to equity.Tax Rate ReconciliationThe differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes provided are asset forth below: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Provision for income taxes at the U.S. federal statutory rate $241.3 $205.6 $224.7 Increase (decrease) due to: State and local income taxes, net of federal benefit 5.7 11.9 12.2 Foreign income taxed at different rates, net of U.S. foreign tax credits (45.6) (40.1) (22.3)Other 8.4 4.1 7.7 Total provision for income taxes $209.8 $181.5 $222.3 The Company’s effective tax rate is lower than the statutory rate principally as a result of the proportion of earnings generated inlower taxed foreign jurisdictions versus the U.S.F-25Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Deferred TaxesSignificant components of the Company’s net deferred tax assets (liabilities) are as follows: April 3, March 28, 2010 2009 (millions) Current deferred tax assets (liabilities): Receivable allowances and reserves $49.6 $40.2 Inventory basis difference 23.8 21.5 Other 27.2 36.4 Net operating losses and other tax attributed carryforwards — 0.1 Net current deferred tax assets (liabilities)(a) 100.6 98.2 Non-current deferred tax assets (liabilities): Property, plant and equipment 71.1 62.1 Goodwill and other intangible assets (169.2) (153.8)Net operating losses carry for wards 30.2 29.3 Cumulative translation adjustment and hedges 1.1 0.6 Deferred compensation 55.0 56.4 Deferred income 48.3 56.4 Unrecogized tax benefits 26.4 37.7 Other 29.3 16.7 Valuation allowance (20.8) (25.2)Net non-current deferred tax assets (liabilities)(b) 71.4 80.2 Net deferred tax assets (liabilities) $172.0 $178.4 (a)Net current deferred tax balance as of April 3, 2010 and March 28, 2009 included current deferred tax liabilities of $2.4 million and $3.6 million,respectively, included within accrued expenses and other in the consolidated balance sheet.(b)Net non-current deferred tax balances as of April 3, 2010 and March 28, 2009 were comprised of non-current deferred tax assets of $101.9 millionand $102.8 million, respectively, included within deferred tax assets, and non-current deferred tax liabilities of $30.5 million and $22.6 million,respectively, included within other non-current liabilities in the consolidated balance sheets.The Company has available state and foreign net operating loss carryforwards of $6.3 million and $27.5 million, respectively, fortax purposes to offset future taxable income. The net operating loss carryforwards expire beginning in Fiscal 2011.Also, the Company has available state and foreign net operating loss carryforwards of $4.2 million and $66.0 million, respectively,for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded since management does not believethat the Company will more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent recognitionof these deferred tax assets would result in an income tax benefit in the year of such recognition. The valuation allowance decreased by$4.4 million in Fiscal 2010 as a result of the ability to utilize certain foreign net operating loss carryforwards.Provision has not been made for U.S. or additional foreign taxes on $1.118 billion of undistributed earnings of foreign subsidiaries.Those earnings have been and are expected to continue to be reinvested. These earnings could become subject to tax if they were remitted asdividends, if foreign earnings were lent to PRLC, a subsidiary or a 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. Management believes thatthe amount of the additional taxes that might be payable on the earnings of foreign subsidiaries, if remitted, would be partially offset byU.S. foreign tax credits.F-26Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Uncertain Income Tax BenefitsFiscal 2010 and Fiscal 2009 ActivityA reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for Fiscal 2010and Fiscal 2009 is presented below: Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Unrecognized tax benefits beginning balance $113.7 $117.5 Additions related to current period tax positions 6.1 5.4 Additions related to prior period tax positions 5.1 19.4 Reductions related to prior period tax positions (13.4) (17.8)Reductions related to settlements with taxing authorities (15.5) (5.8)Additions (reductions) charged to foreign currency translation 0.2 (5.0)Unrecognized tax benefits ending balance $96.2 $113.7 The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. Areconciliation of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits for Fiscal 2010and Fiscal 2009 is presented below: Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Accrued interest and penalties beginning balance $41.1 $48.0 Net reductions charged to expense (3.3) (0.8)Reductions related to settlements with taxing authorities (8.0) (5.1)Reductions charged to foreign currency translation — (1.0)Accrued interest and penalties ending balance $29.8 $41.1 The total amount of unrecognized tax benefits, including interest and penalties, was $126.0 million as of April 3, 2010 and$154.8 million as of March 28, 2009 and was included within non-current liability for unrecognized tax benefits in the consolidatedbalance sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate was$99.6 million as of April 3, 2010 and $117.1 million as of March 28, 2009.Future Changes in Unrecognized Tax BenefitsThe total amount of unrecognized tax benefits relating to the Company’s tax positions is subject to change based on future eventsincluding, but not limited to, the settlements of ongoing audits and/or the expiration of applicable statutes of limitations. Although theoutcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized taxbenefits, excluding interest and penalties, will change significantly during the next 12 months. However, changes in the occurrence,expected outcomes and timing of those events could cause the Company’s current estimate to change materially in the future.The Company files tax returns in the U.S. federal and various state, local and foreign jurisdictions. With few exceptions for thosetax returns, the Company is no longer subject to examinations by the relevant tax authorities for years prior to Fiscal 2004.F-27Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)14. DebtDebt consists of the following: April 3, March 28, 2010 2009 (millions) Revolving credit facility $— $— 4.5% Euro-denominated notes due October 2013 282.1 406.4 Total long-term debt $282.1 $406.4 Euro DebtAs of April 3, 2010, the Company had outstanding €209.2 million principal amount of 4.5% notes due October 4, 2013 (the “EuroDebt”). The Company has the option to redeem all of the outstanding Euro Debt at any time at a redemption price equal to the principalamount plus a premium. The Company also has the option to redeem all of the outstanding Euro Debt at any time at par plus accruedinterest in the event of certain developments involving U.S. tax law. Partial redemption of the Euro Debt is not permitted in either instance.In the event of a change of control of the Company, each holder of the Euro Debt has the option to require the Company to redeem the EuroDebt at its principal amount plus accrued interest. The indenture governing the Euro Debt (the “Indenture”) contains certain limitedcovenants that restrict the Company’s ability, subject to specified exceptions, to incur liens or enter into a sale and leaseback transactionfor any principal property. The Indenture does not contain any financial covenants.In July 2009, the Company completed a cash tender offer and used $121.0 million to repurchase €90.8 million of principal amountof its then outstanding €300 million principal amount of 4.5% notes due October 4, 2013 at a discounted purchase price of approximately95%. A net pretax gain of $4.1 million related to this extinguishment of debt was recorded during the second quarter of Fiscal 2010 andhas been classified as a component of interest and other income, net, in the Company’s consolidated statement of operations. TheCompany used its cash on hand to fund the debt extinguishment.Refer to Note 16 for discussion of the designation of the Company’s Euro Debt as a hedge of its net investment in certain of itsEuropean subsidiaries.Revolving Credit Facility and Term LoanThe Company has a credit facility that provides for a $450 million unsecured revolving line of credit through November 2011 (the“Credit Facility”). The Credit Facility also is used to support the issuance of letters of credit. As of April 3, 2010, there were noborrowings outstanding under the Credit Facility and the Company was contingently liable for $13.9 million of outstanding letters ofcredit (primarily relating to inventory purchase commitments). The Company has the ability to expand its borrowing availability to$600 million subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are nomandatory reductions in borrowing ability throughout the term of the Credit Facility.Borrowings under the Credit Facility bear interest, at the Company’s option, either at (a) a base rate determined by reference to thehigher of (i) the prime commercial lending rate of JP Morgan Chase Bank, N.A. in effect from time to time and (ii) the weighted-averageovernight Federal funds rate (as published by the Federal Reserve Bank of New York) plus 50 basis points or (b) a LIBOR rate in effectfrom time to time, as adjusted for the Federal Reserve Board’s Euro currency liabilities maximum reserve percentage plus a margindefined in the Credit Facility (“the applicable margin”). The applicable margin of 35 basis points is subject to adjustment based on theCompany’s credit ratings.F-28Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In addition to paying interest on any outstanding borrowings under the Credit Facility, the Company is required to pay acommitment fee to the lenders under the Credit Facility in respect of the unutilized commitments. The commitment fee rate of 8 basispoints under the terms of the Credit Facility also is subject to adjustment based on the Company’s credit ratings.The Credit Facility contains a number of covenants that, among other things, restrict the Company’s ability, subject to specifiedexceptions, to incur additional debt; incur liens and contingent liabilities; sell or dispose of assets, including equity interests; merge withor acquire other companies; liquidate or dissolve itself; engage in businesses that are not in a related line of business; make loans,advances or guarantees; engage in transactions with affiliates; and make investments. The Credit Facility also requires the Company tomaintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the “leverage ratio”) of no greater than 3.75 as of the date ofmeasurement for four consecutive quarters. Adjusted Debt is defined generally as consolidated debt outstanding plus 8 times consolidatedrent expense for the last twelve months. EBITDAR is defined generally as consolidated net income plus (i) income tax expense, (ii) netinterest expense, (iii) depreciation and amortization expense and (iv) consolidated rent expense. As of April 3, 2010, no Event of Default(as such term is defined pursuant to the Credit Facility) has occurred under the Company’s Credit Facility.Upon the occurrence of an Event of Default under the Credit Facility, the lenders may cease making loans, terminate the CreditFacility, and declare all amounts outstanding to be immediately due and payable. The Credit Facility specifies a number of events ofdefault (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal and interestpayments or to satisfy the covenants, including the financial covenant described above. Additionally, the Credit Facility provides that anEvent of Default will occur if Mr. Ralph Lauren, the Company’s Chairman and Chief Executive Officer, and entities controlled by theLauren family fail to maintain a specified minimum percentage of the voting power of the Company’s common stock.The Credit Facility was amended and restated as of May 22, 2007 to provide for the addition of a ¥20.5 billion loan (the “TermLoan”), made to Polo JP Acqui B.V., a wholly owned subsidiary of the Company. The proceeds of the Term Loan were used to financethe Company’s acquisition of certain of its formerly-licensed Japanese businesses. The Company repaid the Term Loan by its maturitydate on May 22, 2008 using $196.8 million of the cash on-hand acquired as part of the acquisition. See Note 5 for further discussion ofthe Japanese Business Acquisitions.Fair Value of DebtBased on the prevailing level of market interest rates as of April 3, 2010, the fair value of the Company’s Euro Debt exceeded itscarrying value by approximately $10 million. As of March 28, 2009, the carrying value of the Euro Debt exceeded its fair value byapproximately $86 million. Unrealized gains or losses on debt do not result in the realization or expenditure of cash, unless the debt isretired prior to its maturity.15. Fair Value MeasurementsUS GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of theapplicable level within the hierarchy of a particular asset or liability depends on the inputs used in valuation as of the measurement date,notably the extent to which the inputs are market-based (observable) or internally derived (unobservable). The three levels are defined asfollows: • Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in activemarkets. • Level 2 — inputs to the valuation methodology based on quoted prices for similar assets and liabilities in active markets forsubstantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are notactive for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant valuedrivers are observable.F-29Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) • Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to thefair value measurement.A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to thefair value measurement.The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis: April 3, March 28, 2010 2009 (millions) Financial assets carried at fair value: Variable rate municipal securities(a) $66.5 $— Auction rate securities(b) 2.3 2.3 Derivative financial instruments(b) 16.6 27.7 Total $85.4 $30.0 Financial liabilities carried at fair value: Derivative financial instruments(b) $4.2 $3.4 Total $4.2 $3.4 (a)Based on Level 1 measurements.(b)Based on Level 2 measurements.Derivative financial instruments are recorded at fair value in the Company’s consolidated balance sheets. To the extent theseinstruments are designated as cash flow hedges and highly effective at reducing the risk associated with the exposure being hedged, therelated unrealized gains or losses are deferred in equity as a component of accumulated other comprehensive income. The Company’sderivative financial instruments are valued using a pricing model, primarily based on market observable external inputs includingforward and spot rates for foreign currencies, which considers the impact of the Company’s own credit risk, if any. The Companymitigates the impact of counterparty credit risk by entering into contracts with select financial institutions based on credit ratings andother factors, adhering to established limits for credit exposure and continually assessing the creditworthiness of its counterparties.Changes in counterparty credit risk are considered in the valuation of derivative financial instruments.The Company’s variable rate municipal securities (“VRMS”) are classified as available-for-sale securities and are recorded at fairvalue in the Company’s consolidated balance sheet based upon quoted market prices, with unrealized gains or losses deferred in equity asa component of accumulated other comprehensive income.The Company’s auction rate securities are classified as available-for-sale securities and are recorded at fair value in the Company’sconsolidated balance sheets, with unrealized gains or losses deferred in equity as a component of accumulated other comprehensiveincome. Third-party pricing institutions may value auction rate securities at par, which may not necessarily reflect prices that would beobtained in the current market. When quoted market prices are unobservable, fair value is estimated based on a number of known factorsand external pricing data, including known maturity dates, the coupon rate based upon the most recent reset market clearing rate, theprice/yield representing the average rate of recently successful traded securities, and the total principal balance of each security.Cash and cash equivalents, restricted cash, short-term and non-current investments held-to-maturity, and accounts receivable arerecorded at carrying value, which approximates fair value. The Company’s Euro Debt, which is adjusted for foreign currencyfluctuations, is also reported at carrying value.F-30Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The Company’s non-financial instruments, which primarily consist of goodwill, intangible assets, and property and equipment, arenot required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis wheneverevents or changes in circumstances indicate that their carrying value may not be recoverable (and at least annually for goodwill), non-financial instruments are assessed for impairment and, if applicable, written-down to and recorded at fair value.16. Financial InstrumentsDerivative Financial InstrumentsThe Company primarily has exposure to changes in foreign currency exchange rates relating to certain anticipated cash flows fromits international operations and possible declines in the fair value of reported net assets of certain of its foreign operations, as well aschanges in the fair value of its fixed-rate debt relating to changes in interest rates. Consequently, the Company periodically uses derivativefinancial instruments to manage such risks.The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded in the consolidatedbalance sheets as of April 3, 2010 and March 28, 2009: Notional Amounts Derivative Assets Derivative Liabilities Balance Balance Balance Balance April 3, March 28, Sheet Fair Sheet Fair Sheet Fair Sheet Fair Derivative Instrument(a) 2010 2009 Line(b) Value Line(b) Value Line(b) Value Line(b) Value April 3, 2010 March 28, 2009 April 3, 2010 March 28, 2009 (millions) Designated Hedges: FC — Inventory purchases $294.0 $239.4 PP $14.5 PP $22.5 AE $(2.4) AE $(0.7)FC — I/C royalty payments 84.4 89.9 (c) 2.1 (d) 3.9 ONCL (0.1) AE (1.2)FC — Interest payments 13.9 17.9 — — PP 0.1 AE (1.2) — — FC — Other 2.8 3.7 — — PP 0.1 AE (0.1) AE (0.4)NI — Euro Debt 282.1 406.4 — — — — LTD (291.7) LTD (320.0)(e)Total Designated Hedges $677.2 $757.3 $16.6 $26.6 $(295.5) $(322.3)Undesignated Hedges: FC — Inventory purchases $— $16.9 — $— PP $0.5 — $— AE $(0.3)FC — Other 13.6 15.5 — — PP 0.6 AE (0.4) AE (0.8)Total Undesignated Hedges $13.6 $32.4 $— $1.1 $(0.4) $(1.1)Total Hedges $690.8 $789.7 $16.6 $27.7 $(295.9) $(323.4)(a)FC = Forward exchange contracts for the sale or purchase of foreign currencies; NI = Net Investment; Euro Debt = Euro-denominated 4.5% notesdue October 2013.(b)PP = Prepaid expenses and other; OA = Other assets; AE = Accrued expenses and other; ONCL = Other non-current liabilities; LTD = Long-termdebt.(c)$1.1 million included within PP and $1.0 million included within OA.(d)$2.6 million included within PP and $1.3 million included within OA.(e)The Company’s Euro Debt is reported at carrying value in the Company’s consolidated balance sheets. The carrying value of the Euro Debt was$282.1 million as of April 3, 2010 and $406.4 million as of March 28, 2009.F-31Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The following tables summarize the impact of the Company’s derivative instruments on its consolidated financial statements for thefiscal years presented: Gains (Losses) Gains (Losses) Recognized in Reclassified from OCI(b) AOCI(b)to Earnings Fiscal Years Ended Fiscal Years Ended Location of Gains (Losses) April 3, March 28, March 29, April 3, March 28, March 29, Reclassified from AOCI(b)Derivative Instrument(a) 2010 2009 2008 2010 2009 2008 to Earnings (millions) Designated Cash Flow Hedges: FC — Inventory purchases $(8.4) $38.5 $(25.5) $12.6 $(3.8) $(8.4) Cost of goods soldFC — I/C royalty payments (1.3) 3.8 (1.0) (2.0) (1.0) (1.0) Foreign currency gains (losses)FC — Interest payments (0.8) (1.2) 1.5 1.2 (0.7) 1.8 Foreign currency gains (losses)FC — Other 0.2 (0.9) 0.6 0.2 0.2 0.2 (c) $(10.3) $40.2 $(24.4) $12.0 $(5.3) $(7.4) Designated Hedge of Net Investment: Euro Debt $(1.8) $66.6 $(73.8) $— $— $— (d)Total Designated Hedges $(12.1) $106.8 $(98.2) $12.0 $(5.3) $(7.4) Gains (Losses) Recognized in Earning Fiscal Years Ended Location of Gains (Losses) Derivative Instrument(a) April 3, 2010 March 28, 2009 March 29, 2008 Recognized in Earnings (millions) Undesignated Hedges: FC — Inventory purchases $0.5 $0.5 $(0.2) Foreign currency gains (losses)FC — Other 0.2 (0.8) 0.1 Foreign currency gains (losses)Total Undesignated Hedges $0.7 $(0.3) $(0.1) (a)FC = Forward exchange contracts for the sale or purchase of foreign currencies; Euro Debt = Euro-denominated 4.5% notes due October 2013.(b)Accumulated other comprehensive income (“AOCI”), including the respective fiscal year’s other comprehensive income (“OCI”), is classified as acomponent of total equity.(c)Principally recorded within foreign currency gains (losses).(d)To the extent applicable, to be recognized as a gain (loss) on the sale or liquidation of the hedged net investment.Over the next twelve months, it is expected that approximately $12 million of net gains deferred in accumulated other comprehensiveincome related to derivative financial instruments outstanding as of April 3, 2010 will be recognized in earnings. No material gains orlosses relating to ineffective hedges were recognized during any of the fiscal years presented.The following is a summary of the Company’s risk management strategies and the effect of those strategies on the consolidatedfinancial statements.Foreign Currency Risk ManagementForward Foreign Currency Exchange ContractsThe Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risk from exchange ratefluctuations on inventory purchases, intercompany royalty payments made by certain of its international operations, intercompanycontributions made to fund certain marketing efforts of its international operations, interest payments made in connection withoutstanding debt, other foreign currency-denominatedF-32Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)operational obligations including payroll, rent, insurance and benefit payments, and foreign currency-denominated revenues. As part ofits overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in thevalue of the Euro, the Japanese Yen, the Swiss Franc, and the British Pound Sterling, the Company hedges a portion of its foreigncurrency exposures anticipated over the ensuing twelve-month to two-year periods. In doing so, the Company uses foreign currencyexchange forward contracts that generally have maturities of three months to two years to provide continuing coverage throughout thehedging period.The Company records its foreign currency exchange contracts at fair value in its consolidated balance sheets. To the extent foreigncurrency exchange contracts designated as cash flow hedges at hedge inception are highly effective in offsetting the change in the value ofthe hedged item, the related gains (losses) are deferred in equity as a component of accumulated other comprehensive income. Thesedeferred gains (losses) are then recognized in our consolidated statements of operations as follows: • Forecasted Inventory Purchases — Recognized as part of the cost of the inventory being hedged within cost of goods sold whenthe related inventory is sold. • Intercompany Royalty Payments and Marketing Contributions — Recognized within foreign currency gains (losses) in theperiod in which the related royalties or marketing contributions being hedged are received or paid. • Operational Obligations — Recognized primarily within SG&A expenses in the period in which the hedged forecastedtransaction affects earnings. • Interest Payments on Euro Debt — Recognized within foreign currency gains (losses) in the period in which the recordedliability impacts earnings due to foreign currency exchange remeasurement.During the first quarter of Fiscal 2010, the Company entered into two foreign currency exchange contracts to mitigate the foreignexchange cash flow variability associated with the then forecasted repurchase of a portion of the Company’s outstanding Euro-denominated 4.5% notes in July 2009. The exchange contracts had an aggregate notional value of $123.0 million and were designated ascash flow hedges. Refer to Note 14 for further discussion of the Company’s partial repurchase of its Euro-denominated 4.5% notes.Hedge of a Net Investment in Certain European SubsidiariesThe Company designated the entire principal amount of its outstanding Euro Debt as a hedge of its net investment in certain of itsEuropean subsidiaries. The changes in fair value of a derivative instrument or changes in a non-derivative financial instrument (such asdebt) that is designated as a hedge of a net investment in a foreign operation are reported in the same manner as a translation adjustment,to the extent it is effective as a hedge. As such, changes in the fair value of the Euro Debt resulting from changes in the Euro exchange ratehave been, and continue to be, reported in equity as a component of accumulated other comprehensive income.In assessing effectiveness, the Company uses the spot rate method of accounting to value foreign currency exchange rate changes inboth its foreign subsidiaries and the derivative designated as a hedge of a net investment. If the notional amount of the derivativedesignated as a hedge of a net investment is greater than the portion of the net investment being hedged, hedge ineffectiveness is recognizedimmediately in earnings. Changes in the fair value of the hedging instrument are recorded in equity as a component of accumulated othercomprehensive income until the sale or liquidation of the hedged net investment.InvestmentsThe Company classifies its investments in securities at the time of purchase as either held-to-maturity, available-for-sale or trading,and re-evaluates such classifications on a quarterly basis.F-33Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Held-to-maturity investments consist of debt securities that the Company has the intent and ability to retain until maturity. Thesesecurities are recorded at cost, adjusted for the amortization of premiums and discounts, which approximates fair value.Available-for-sale investments primarily consist of VRMS and auction rate securities. VRMS represent long-term municipal bondswith interest rates that reset at pre-determined short-term intervals, and can typically be put to the issuer and redeemed for cash upondemand, or shortly thereafter. Auction rate securities also have characteristics similar to short-term investments. However, the Companyhas classified these securities as non-current investments in its consolidated balance sheet as current market conditions call into questionits ability to redeem these investments for cash within the next twelve months. Available-for-sale investments are recorded at fair valuewith unrealized gains or losses classified as a component of accumulated other comprehensive income (loss) in the consolidated balancesheets, and related realized gains or losses classified as a component of interest and other income, net, in the consolidated statements ofoperations. No material unrealized or realized gains or losses on available-for-sale investments were recognized during any of the fiscalyears presented.Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in the Company’sconsolidated statements of cash flows.The following table summarizes the Company’s short-term and non-current investments recorded in the consolidated balance sheetsas of April 3, 2010 and March 28, 2009: April 3, 2010 March 28, 2009 Short-term Non-current Short-term Non-current Type of Investment < 1 year 1 - 3 years Total < 1 year 1 - 3 years Total (millions) Held-to-Maturity: Treasury bills $126.6 $— $126.6 $101.2 $— $101.2 Municipal bonds 102.2 67.8 170.0 14.8 11.6 26.4 Commercial paper 2.0 — 2.0 — — — Other securities — 5.0 5.0 — — — Total held-to-maturity investments $230.8 $72.8 $303.6 $116.0 $11.6 $127.6 Available-for-Sale: VRMS $66.5 $— $66.5 $— $— $— Auction rate securities — 2.3 2.3 — 2.3 2.3 Other securities — 0.4 0.4 — 0.4 0.4 Total available-for-sale investments $66.5 $2.7 $69.2 $— $2.7 $2.7 Other: Time deposits and other $286.8 $— $286.8 $222.7 $15.4 $238.1 Total Investments $584.1 $75.5 $659.6 $338.7 $29.7 $368.4 17. Commitments and ContingenciesLeasesThe Company operates its retail stores under various leasing arrangements. The Company also occupies various office andwarehouse facilities and uses certain equipment under numerous lease agreements. Such leasing arrangements are accounted for as eitheroperating leases or capital leases. In this context, capital leases include leases whereby the Company is considered to have the substantiverisks of ownership during construction of a leased property. Information on the Company’s operating and capital leasing activities is setforth below.F-34Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Operating LeasesThe Company is typically required to make minimum rental payments, and often contingent rental payments, under its operatingleases. Substantially all factory and full-price retail store leases provide for contingent rentals based upon sales, and certain rentalagreements require payment based solely on a percentage of sales. Terms of the Company’s leases generally contain renewal options, rentescalation clauses and landlord incentives. Rent expense, net of sublease income which was not significant, was approximately$267 million in Fiscal 2010, $237 million in Fiscal 2009 and $208 million in Fiscal 2008. Such amounts include contingent rentalcharges of approximately $39 million for Fiscal 2010, $33 million for Fiscal 2009 and $14 million for Fiscal 2008. In addition to suchamounts, the Company is normally required to pay taxes, insurance and occupancy costs relating to the leased real estate properties.As of April 3, 2010, future minimum rental payments under noncancelable operating leases with lease terms in excess of one yearwere as follows: Minimum Operating Lease Payments(a) (millions) Fiscal 2011 $205.6 Fiscal 2012 198.2 Fiscal 2013 196.0 Fiscal 2014 184.4 Fiscal 2015 169.8 Fiscal 2016 and thereafter 877.3 Total $1,831.3 (a)Net of sublease income, which is not significant in any period.Capital LeasesAssets under capital leases amounted to approximately $39 million at the end of Fiscal 2010 and $38 million at the end of Fiscal2009. Such assets are classified within property and equipment in the consolidated balance sheets. As of April 3, 2010, future minimumrental payments under noncancelable capital leases with lease terms in excess of one year were as follows: Minimum Capital Lease Payments(a) (millions) Fiscal 2011 $9.9 Fiscal 2012 7.7 Fiscal 2013 6.2 Fiscal 2014 6.2 Fiscal 2015 6.2 Fiscal 2016 and thereafter 46.0 Total $82.2 (a)Net of sublease income, which is not significant in any period.F-35Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Employment AgreementsThe Company has employment agreements with certain executives in the normal course of business which provide for compensationand certain other benefits. These agreements also provide for severance payments under certain circumstances.Other CommitmentsOther off-balance sheet firm commitments, which include inventory purchase commitments, outstanding letters of credit andminimum funding commitments to investees, amounted to approximately $776 million as of April 3, 2010.LitigationCalifornia Class Action LitigationOn October 11, 2007 and November 2, 2007, two class action lawsuits were filed by two customers in state court in Californiaasserting that while they were shopping at certain of the Company’s factory stores in California, the Company allegedly required them toprovide certain personal information at the point-of-sale in order to complete a credit card purchase. The plaintiffs purported to represent aclass of customers in California who allegedly were injured by being forced to provide their address and telephone numbers in order to usetheir credit cards to purchase items from the Company’s stores, which allegedly violated Section 1747.08 of California’s Song-BeverlyAct. The complaints sought an unspecified amount of statutory penalties, attorneys’ fees and injunctive relief. The Companysubsequently had the actions moved to the United States District Court for the Eastern and Central Districts of California. The Companycommenced mediation proceedings with respect to these lawsuits and on October 17, 2008, the Company agreed in principle to settle theseclaims by agreeing to issue $20 merchandise discount coupons with six month expiration dates to eligible parties and paying theplaintiffs’ attorneys’ fees. The court granted preliminary approval of the settlement terms on July 17, 2009. In connection with thissettlement, the Company recorded a $5 million reserve against its expected loss exposure during the second quarter of Fiscal 2009. Aspart of the required settlement process, the Company notified the relevant attorneys general regarding the potential settlement, and noobjections were registered. At a hearing on December 7, 2009, the Court held that the terms of the settlement were fair, just and reasonableand provided fair compensation for class members. In addition, the Court overruled an objection that had been filed by a single customer.The Court then denied the objector’s subsequent motion for the Court to reconsider its order on the fairness of the settlement. The periodwithin which the objector had to appeal or otherwise seek relief from the Court’s orders expired in February 2010 without an appeal andthe settlement is effective. Accordingly, the coupons were issued in February with an expiration date of August 16, 2010. Based oncoupon redemption experience to date, the Company reversed $1.7 million of its original $5 million reserve into income during the fourthquarter of Fiscal 2010.Wathne Imports LitigationOn August 19, 2005, Wathne Imports, Ltd. (“Wathne”), our then domestic licensee for luggage and handbags, filed a complaint inthe U.S. District Court in the Southern District of New York against the Company and Ralph Lauren, our Chairman and ChiefExecutive Officer, asserting, among other things, federal trademark law violations, breach of contract, breach of obligations of good faithand fair dealing, fraud and negligent misrepresentation. The complaint sought, among other relief, injunctive relief, compensatorydamages in excess of $250 million and punitive damages of not less than $750 million. On September 13, 2005, Wathne withdrew thiscomplaint from the U.S. District Court and filed a complaint in the Supreme Court of the State of New York, New York County, makingsubstantially the same allegations and claims (excluding the federal trademark claims), and seeking similar relief. On February 1, 2006,the court granted our motion to dismiss all of the causes of action, including the cause of action against Mr. Lauren, except for breach ofcontract related claims, and denied Wathne’s motion for a preliminary injunction. Following some discovery, we moved for summaryjudgment on the remainingF-36Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)claims. Wathne cross-moved for partial summary judgment. In an April 11, 2008 Decision and Order, the court granted Polo’s summaryjudgment motion to dismiss most of the claims against the Company, and denied Wathne’s cross-motion for summary judgment. Wathneappealed the dismissal of its claims to the Appellate Division of the Supreme Court. Following a hearing on May 19, 2009, the AppellateDivision issued a Decision and Order on June 9, 2009 which, in large part, affirmed the lower court’s ruling. Discovery on those claimsthat were not dismissed is ongoing and a trial date has not yet been set. We intend to continue to contest the remaining claims in thislawsuit vigorously. Management does not expect that the ultimate resolution of this matter will have a material adverse effect on theCompany’s liquidity or financial position.California Labor LitigationOn May 30, 2006, four former employees of our Ralph Lauren stores in Palo Alto and San Francisco, California filed a lawsuit inthe San Francisco Superior Court alleging violations of California wage and hour laws. The plaintiffs purported to represent a class ofemployees who allegedly had been injured by not properly being paid commission earnings, not being paid overtime, not receiving restbreaks, being forced to work off of the clock while waiting to enter or leave stores and being falsely imprisoned while waiting to leavestores. The complaint sought an unspecified amount of compensatory damages, damages for emotional distress, disgorgement of profits,punitive damages, attorneys’ fees and injunctive and declaratory relief. Subsequent to answering the complaint, we had the action movedto the United States District Court for the Northern District of California. On July 8, 2008, the United States District Court for theNorthern District of California granted plaintiffs’ motion for class certification and subsequently denied our motion to decertify the class.On November 5, 2008, the District Court stayed litigation of the rest break claims pending the resolution of a separate CaliforniaSupreme Court case on the standards of class treatment for rest break claims. On January 25, 2010, the District Court granted plaintiffs’motion to sever the rest break claims from the rest of the case and denied our motion to decertify the waiting time claims. The DistrictCourt also ordered that a trial be held on the waiting time and overtime claims, which commenced on March 8, 2010. During trial, theparties reached an agreement to settle all of the claims in the litigation, including the rest break claims, for $4 million. The District Courtheld a hearing on May 14, 2010 and advised the parties that it would grant preliminary approval of the settlement. Once the Court entersan order granting preliminary approval of the settlement, the members of the class will have 60 days from the date of preliminaryapproval to submit claims or object to the settlement. A hearing has been scheduled for August 20, 2010 for the District Court to determineif final approval of the settlement should be granted. In connection with this settlement, the Company recorded a $4 million reserveagainst its expected loss exposure during the fourth quarter of Fiscal 2010.Other MattersWe are otherwise involved, from time to time, in litigation, other legal claims and proceedings involving matters associated with orincidental to our business, including, among other things, matters involving credit card fraud, trademark and other intellectual property,licensing, and employee relations. We believe that the resolution of currently pending matters will not individually or in the aggregate havea material adverse effect on our financial condition or results of operations. However, our assessment of the current litigation or other legalclaims could change in light of the discovery of facts not presently known to us or determinations by judges, juries or other finders offact which are not in accord with management’s evaluation of the possible liability or outcome of such litigation or claims.18. EquityCapital StockThe Company’s capital stock consists of two classes of common stock. There are 500 million shares of Class A common stock and100 million shares of Class B common stock authorized to be issued. Shares of Class A and Class B common stock have substantiallyidentical rights, except with respect to voting rights. Holders of Class AF-37Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)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 bothclasses of stock vote together as a single class on all matters presented to the stockholders for their approval, except with respect to theelection and removal of directors or as otherwise required by applicable law. All outstanding shares of Class B common stock are ownedby Mr. Ralph Lauren, Chairman of the Board and Chief Executive Officer, and entities controlled by the Lauren family and areconvertible at any time into shares of Class A common stock on a one-for-one basis.Class B Common Stock ConversionDuring Fiscal 2010, Mr. Ralph Lauren converted 1.2 million shares of Class B common stock into an equal number of shares ofClass A common stock pursuant to the terms of the security. This transaction resulted in a reclassification within equity, and had no neteffect on the Company’s consolidated balance sheet for the fiscal year ended April 3, 2010.Common Stock Repurchase ProgramOn November 4, 2009, the Company’s Board of Directors approved an expansion of the Company’s existing common stockrepurchase program that allows the Company to repurchase up to an additional $225 million of Class A common stock. Repurchases ofshares of Class A common stock are subject to overall business and market conditions.In Fiscal 2010, 2.9 million shares of Class A common stock were repurchased by the Company at a cost of $215.9 million underits repurchase program. The remaining availability under the Company’s common stock repurchase program was approximately$275 million as of April 3, 2010. In addition, in Fiscal 2010, 0.3 million shares of Class A common stock at a cost of $15.1 millionwere surrendered to, or withheld by, the Company in satisfaction of withholding taxes in connection with the vesting of awards under theCompany’s 1997 Long-Term Stock Incentive Plan, as amended (the “1997 Plan”).In Fiscal 2009, 1.8 million shares of Class A common stock were repurchased by the Company at a cost of $126.2 million. Also,during the first quarter of Fiscal 2009, 0.4 million shares traded prior to the end of Fiscal 2008 were settled at a cost of $24.0 million. Inaddition, in Fiscal 2009, 0.3 million shares of Class A common stock at a cost of $19.6 million were surrendered to, or withheld by, theCompany in satisfaction of withholding taxes in connection with the vesting of awards under the 1997 Plan.In Fiscal 2008, share repurchases amounted to 6.1 million shares of Class A common stock at a cost of $476.4 million, including$24.0 million (0.4 million shares) that was traded prior to the end of the fiscal year for which settlement occurred in April 2008. Inaddition, in Fiscal 2008, 0.3 million shares of Class A common stock at a cost of $23.0 million were surrendered to, or withheld by, theCompany in satisfaction of withholding taxes in connection with the vesting of awards under the 1997 Plan.Repurchased and surrendered shares are accounted for as treasury stock at cost and will be held in treasury for future use.On May 18, 2010, the Company’s Board of Directors approved a further expansion of the Company’s existing common stockrepurchase program that allows the Company to repurchase up to an additional $275 million of Class A common stock.DividendsSince 2003, the Company has maintained a regular quarterly cash dividend program on its common stock. On November 4, 2009,the Company’s Board of Directors approved an increase to the Company’s quarterly cash dividend on its common stock from $0.05 pershare to $0.10 per share. Dividends paid amounted to $24.7 million in Fiscal 2010, $19.9 million in Fiscal 2009 and $20.5 million inFiscal 2008.F-38Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)19. Accumulated Other Comprehensive IncomeThe following summary sets forth the components of other comprehensive income (loss), net of tax, accumulated in equity: Net Foreign Net Unrealized Net Unrealized Unrealized Total Currency Gains (Losses) Gains (Losses) Gains Accumulated Translation on Derivative on Available- (Losses) on Other Gains Financial for-Sale Defined Comprehensive (Losses) Instruments(a) Investments Benefit Plans Income (Loss) (millions) Balance at March 31, 2007 $115.3 $(74.8) $— $— $40.5 Fiscal 2008 pretax activity(b) 144.7 (90.8) (0.4) (0.2) 53.3 Fiscal 2008 tax benefit (provision)(b) (8.9) 27.5 0.2 — 18.8 Balance at March 29, 2008 251.1 (138.1) (0.2) (0.2) 112.6 Fiscal 2009 pretax activity(c) (75.5) 112.1 0.4 (0.6) 36.4 Fiscal 2009 tax benefit (provision)(c) 5.8 (28.0) (0.1) 0.1 (22.2)Balance at March 28, 2009 181.4 (54.0) 0.1 (0.7) 126.8 Fiscal 2010 pretax activity(d) 36.0 (13.0) — 1.2 24.2 Fiscal 2010 tax benefit (provision)(d) 1.5 2.0 — (0.5) 3.0 Balance at April 3, 2010 $218.9 $(65.0) $0.1 $— $154.0 (a)Includes deferred gains and losses on hedging instruments, such as foreign currency exchange contracts designated as cash flow hedges and changes in thefair value of the Company’s Euro-denominated debt designated as a hedge of changes in the fair value of the Company’s net investment in certain of itsEuropean subsidiaries.(b)Includes a net reclassification adjustment of $6.6 million (net of $1.2 million tax effect) for realized derivative financial instrument losses in the current periodthat were included as an unrealized loss in comprehensive income in a prior period.(c)Includes a net reclassification adjustment of $20.3 million (net of $1.1 million tax effect) for realized derivative financial instrument losses in the currentperiod that were included as an unrealized loss in comprehensive income in a prior period.(d)Includes a net reclassification adjustment of $22.6 million (net of $2.3 million tax effect) for realized derivative financial instrument gains in the currentperiod that were included as an unrealized gain in comprehensive income in a prior period.20. Stock-Based CompensationLong-term Stock Incentive PlanThe Company’s 1997 Plan authorizes the grant of awards to participants with respect to a maximum of 26.0 million shares of theCompany’s Class A common stock; however, there are limits as to the number of shares available for certain awards and to any oneparticipant. Equity awards that may be made under the 1997 Plan include (a) stock options, (b) restricted stock and (c) restricted stockunits (“RSUs”).F-39Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Impact on ResultsA summary of the total compensation expense recorded within SG&A expense and associated income tax benefits recognized relatedto stock-based compensation arrangements is as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Compensation expense $(59.7) $(49.7) $(70.7)Income tax benefit $21.8 $18.5 $20.2 Stock OptionsStock options are granted to employees and non-employee directors with exercise prices equal to fair market value at the date of grant.Generally, the options become exercisable ratably (a graded-vesting schedule), over a three-year vesting period. Stock options generallyexpire seven years from the date of grant. The Company recognizes compensation expense for share-based awards that have gradedvesting and no performance conditions on an accelerated basis. The Company uses the Black-Scholes option-pricing model to estimate thefair value of stock options granted, which requires the input of both subjective and objective assumptions as follows:Expected Term — The estimate of expected term is based on the historical exercise behavior of employees and non-employeedirectors, as well as the contractual life of the option grants.Expected Volatility — The expected volatility factor is based on the historical volatility of the Company’s common stock for aperiod equal to the stock option’s expected term.Expected Dividend Yield — The expected dividend yield is based on the Company’s quarterly cash dividend of (a) $0.05 per sharefor grants made prior to the third quarter of Fiscal 2010 and (b) $0.10 per share for grants made during and after the third quarter ofFiscal 2010.Risk-free Interest Rate — The risk-free interest rate is determined using the implied yield for a traded zero-coupon U.S. Treasurybond with a term equal to the option’s expected term.The Company’s weighted-average assumptions used to estimate the fair value of stock options granted during the fiscal yearspresented were as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008Expected term (years) 4.6 4.3 4.8 Expected volatility 43.3% 32.1% 29.9% Expected dividend yield 0.46% 0.29% 0.26% Risk-free interest rate 2.2% 3.0% 4.6% Weighted-average option grant date fair value $21.77 $17.27 $32.65 F-40Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A summary of the stock option activity under all plans during Fiscal 2010 is as follows: Weighted- Weighted- Average Average Remaining Aggregate Number of Exercise Contractual Intrinsic Shares Price Term Value(a) (thousands) (years) (millions) Options outstanding at March 28, 2009 5,698 $44.22 4.8 $50.0 Granted 1,055 58.58 Exercised (1,578) 31.99 Cancelled/Forfeited (120) 65.50 Options outstanding at April 3, 2010 5,055 $50.55 4.6 $188.6 Options vested and expected to vest at April 3, 2010(b) 4,978 $50.46 4.6 $186.3 Options exercisable at April 3, 2010 3,340 $44.51 3.9 $144.9 (a)The intrinsic value is the amount by which the market price at the end of the period of the underlying share of stock exceeds the exercise price of the stockoption.(b)The number of options expected to vest takes into consideration estimated expected forfeitures.Additional information pertaining to the Company’s stock option plans is as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions)Aggregate intrinsic value of stock options exercised(a) $67.6 $33.2 $67.0 Cash received from the exercise of stock options 50.5 29.0 40.1 Tax benefits realized on exercise 26.1 12.1 34.4 (a)The intrinsic value is the amount by which the average market price during the period exceeded the exercise price of the stock option exercised.As of April 3, 2010, there was $16.0 million of total unrecognized compensation expense related to nonvested stock options granted,expected to be recognized over a weighted-average period of 1.5 years.Restricted Stock and RSUsThe Company grants restricted shares of Class A common stock and service-based RSUs to certain of its senior executives and non-employee directors. In addition, the Company grants performance-based RSUs to such senior executives and other key executives, andcertain other employees of the Company.Restricted shares of Class A common stock, which entitle the holder to receive a specified number of shares of Class A commonstock at the end of a vesting period, are accounted for at fair value at the date of grant. In addition, holders of restricted shares are entitledto receive cash dividends in connection with the payments of dividends on the Company’s Class A common stock. Generally, restrictedstock grants vest over a five-year period of time, subject to the executive’s continuing employment. Restricted stock shares granted to non-employee directors vest over a three-year period of time.RSUs entitle the grantee to receive shares of Class A common stock at the end of a vesting period. Service-based RSUs are payablein shares of Class A common stock and generally vest over a five-year period of time, subject to the executive’s continuing employment.Performance-based RSUs also are payable in shares of Class A common stock and generally vest (a) upon the completion of a three-yearperiod of time (cliff vesting), subject to theF-41Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)employee’s continuing employment and the Company’s achievement of certain performance goals over the three-year period or (b) ratably,over a three-year period of time (graded vesting), subject to the employee’s continuing employment during the applicable vesting periodand the achievement by the Company of certain performance goals either (i) in each year of the three-year vesting period for grants madeprior to Fiscal 2008 or (ii) solely in the initial year of the three-year vesting period for grants made during and after Fiscal 2008. Inaddition, holders of certain RSUs are entitled to receive dividend equivalents in the form of additional RSUs in connection with thepayment of dividends on the Company’s Class A common stock. RSUs, including shares resulting from dividend equivalents paid onsuch units, are accounted for at fair value at the date of grant. The fair value of a restricted security is based on the fair value ofunrestricted Class A common stock, as adjusted to reflect the absence of dividends for those restricted securities that are not entitled todividend equivalents. Compensation expense for performance-based RSUs is recognized over the related service period when attainment ofthe performance goals is deemed probable.A summary of the restricted stock and RSU activity during Fiscal 2010 is as follows: Restricted Service-based Performance-based Stock RSUs RSUs Weighted- Weighted- Weighted- Average Average Average Number of Grant Date Number of Grant Date Number of Grant Date Shares Fair Value Shares Fair Value Shares Fair Value (thousands) (thousands) (thousands) Nonvested at March 28, 2009 23 $47.58 659 $57.15 1,168 $71.67 Granted 13 55.93 7 82.47 805 58.16 Vested (23) 45.44 (204) 38.33 (578) 59.22 Cancelled (2) 51.41 — — (36) 66.81 Nonvested at April 3, 2010 11 $61.15 462 $65.82 1,359 $69.09 Restricted Service-based Performance-based Stock RSUs RSUsTotal unrecognized compensation at April 3, 2010 (millions) $0.5 $6.1 $43.3 Weighted-average years expected to be recognized over (years) 1.8 2.6 1.8 Additional information pertaining to the restricted stock and RSU activity is as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008Restricted Stock Weighted-average grant date fair value of awards granted $55.93 $59.22 $87.85 Total fair value of awards vested (millions) 1.7 1.1 7.1 Service-based RSUs Weighted-average grant date fair value of awards granted $82.47 $64.12 $100.56 Total fair value of awards vested (millions) 14.2 10.2 4.8 Performance-based RSUs Weighted-average grant date fair value of awards granted $58.16 $57.48 $86.98 Total fair value of awards vested (millions) 32.6 40.8 43.4 F-42Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)21. Employee Benefit PlansProfit Sharing Retirement Savings PlansThe Company sponsors two defined contribution benefit plans covering substantially all eligible U.S. employees not covered by acollective bargaining agreement. The plans include a savings plan feature under Section 401(k) of the Internal Revenue Code. TheCompany makes discretionary contributions to the plans and contributes an amount equal to 50% of the first 6% of salary contributedby an employee.Under the terms of the plans, a participant is 100% vested in Company matching and discretionary contributions after five years ofcredited service. Contributions made by the Company under these plans approximated $6 million in each of the three fiscal yearspresented.Supplemental Retirement PlanThe Company has a non-qualified supplemental retirement plan for certain highly compensated employees whose benefits under the401(k) profit sharing retirement savings plans are expected to be constrained by the operation of certain Internal Revenue Code limitations.These supplemental benefits vest over time and the related compensation expense is recognized over the vesting period.In August 2008, the Company amended its non-qualified supplemental retirement plan. The amendments included a suspension ofthe annual contributions for substantially all plan participants effective for Fiscal 2009. Further, affected participants were provided witha one-time election to either withdraw all benefits vested in the plan in a lump sum amount or remain in the plan and receive futuredistributions of benefits vested over a 5-year period. In connection with this one-time election, the Company paid out approximately$18 million to affected participants during the first quarter of Fiscal 2010.Notwithstanding amounts accrued for the one-time withdrawal payout noted above, amounts accrued under this plan totaled$11 million as of March 28, 2009 and were classified within other non-current liabilities in the consolidated balance sheet. The amountsaccrued under this plan totaled $10 million as of April 3, 2010 and were classified within other non-current liabilities in the consolidatedbalance sheet. Total compensation expense recognized related to these benefits was $0.2 million, $2 million and $4 million in Fiscal 2010,Fiscal 2009 and Fiscal 2008, respectively.Deferred Compensation PlansThe Company has deferred compensation arrangements for certain key executives which generally provide for payments uponretirement, death or termination of employment. The amounts accrued under these plans were approximately $1 million as of April 3,2010 and $2 million as of March 28, 2009, and were classified within other non-current liabilities in the consolidated balance sheets.Total compensation expense related to these compensation arrangements was $0.3 million in each of the three fiscal years presented. TheCompany funds a portion of these obligations through the establishment of trust accounts on behalf of the executives participating in theplans. The trust accounts are classified within other assets in the consolidated balance sheets.Union Pension PlanThe Company participates in a multi-employer pension plan and is required to make contributions to the UNITE HERE (which waspreviously known as the Union of Needletrades, Industrial and Textile Employees, prior to its merger with the Hotel Employees andRestaurant Employees International Union) (“Union”) for dues based on wages paid to union employees. A portion of these dues isallocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers. The Company doesnot participate in the management of the plan and has not been furnished with information with respect to the type of benefits provided,vested and non-vested benefits or assets.F-43Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or termination of amulti-employer plan, is required to continue funding its proportionate share of the plan’s unfunded vested benefits. Such withdrawalliability was assumed in conjunction with the acquisition of certain assets from a non-affiliated licensee. The Company has no currentintention of withdrawing from the plan.International Defined Benefit PlansThe Company sponsors certain single-employer defined benefit plans at international locations which are not considered to bematerial individually or in the aggregate. Pension benefits under these plans are based on formulas that reflect the employees’ years ofservice and compensation levels during their employment period. The aggregate funded status of the single-employer defined benefit planswere net liabilities of $5.1 million and $7.3 million as of April 3, 2010 and March 28, 2009, respectively, primarily recorded withinother non-current liabilities in the Company’s consolidated balance sheets. These single-employer defined benefit plans had aggregateprojected benefit obligations of $25.4 million and aggregate fair values of plan assets of $22.5 million as of April 3, 2010, compared toprojected benefit obligations of $26.9 million and aggregate fair values of plan assets of $22.9 million as of March 28, 2009. The assetportfolio of the single-employer defined benefit plans primarily consists of debt securities, which have been measured at fair value largelyusing Level 2 inputs, as defined in Note 15. Pension expense for these plans, recorded within SG&A expenses in the Company’sconsolidated statements of operations, was $4.2 million in Fiscal 2010, $4.0 million in Fiscal 2009 and $3.6 million in Fiscal 2008.On March 31, 2009, the Company withdrew from the remaining multi-employer defined benefit plan assumed in the JapaneseBusiness Acquisitions. A related withdrawal liability of approximately $4 million was classified within other non-current liabilities in theCompany’s consolidated balance sheet as of March 28, 2009. Total contributions to the multi-employer plan were $0.1 million in Fiscal2010, $0.6 million in Fiscal 2009 and $0.5 million in Fiscal 2008.On April 1, 2009, the Company integrated all of its Japanese single-employer defined benefit plans into one defined contribution andcash balance plan (the “Integrated Japan Pension Plan”). As a result of this integration, certain of the Company’s pre-existing Japanesesingle-employer defined benefit plans were settled. The Company recorded a related settlement charge of approximately $0.2 million in theconsolidated statement of operations during Fiscal 2010.22. Segment InformationThe Company has three reportable segments based on its business activities and organization: Wholesale, Retail and Licensing.Such segments offer a variety of products through different channels of distribution. The Wholesale segment consists of women’s, men’sand children’s apparel, accessories and related products which are sold to major department stores, specialty stores, golf and pro shopsand the Company’s owned and licensed retail stores in the U.S. and overseas. The Retail segment consists of the Company’s worldwideretail operations, which sell products through its full-price and factory stores, its concessions-based shop-within-shops, as well asRalphLauren.com and Rugby.com, its e-commerce websites. The stores, concessions-based shop-within-shops and websites sell productspurchased from the Company’s licensees, suppliers and Wholesale segment. The Licensing segment generates revenues from royaltiesearned on the sale of the Company’s apparel, home and other products internationally and domestically through licensing alliances. Thelicensing agreements grant the licensees rights to use the Company’s various trademarks in connection with the manufacture and sale ofdesignated products in specified geographical areas for specified periods.The accounting policies of the Company’s segments are consistent with those described in Note 2 and Note 3. Sales and transfersbetween segments generally are recorded at cost and treated as transfers of inventory. All intercompany revenues are eliminated inconsolidation and are not reviewed when evaluating segment performance. Each segment’s performance is evaluated based upon operatingincome before restructuring charges and certain other one-time items, such as legal charges, if any. Corporate overhead expenses (exclusiveof certainF-44Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)expenses for senior management, overall branding-related expenses and certain other corporate-related expenses) are allocated to thesegments based upon specific usage or other allocation methods.Due to changes in the Company’s segment presentation as discussed in Note 2, segment information for Fiscal 2009 has been recastto conform to the current period’s presentation. These changes entirely related to reclassifications between the Company’s Wholesale andRetail segments, and had no impact on total net revenues, total operating income or total assets. In addition, these changes had no impacton net revenues by geographic location. Segment information for Fiscal 2008 has not been recast to conform to the current period’spresentation, as it is impracticable to do so.Net revenues and operating income for each segment under the Company’s new (recasted) basis of reporting are as follows: Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Net revenues: Wholesale $2,532.4 $2,749.5 Retail 2,263.1 2,074.2 Licensing 183.4 195.2 Total net revenues $4,978.9 $5,018.9 Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Operating income: Wholesale(a) $585.3 $619.9 Retail(a) 254.1 101.6 Licensing 107.4 103.6 946.8 825.1 Less: Unallocated corporate expenses(a) (229.9) (206.5)Unallocated legal and restructuring charges(b) (10.0) (23.1)Total operating income $706.9 $595.5 Net revenues and operating income for each segment under the Company’s historical basis of reporting are as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Net revenues: Wholesale $2,730.2 $2,887.2 $2,758.1 Retail 2,065.3 1,936.5 1,912.6 Licensing 183.4 195.2 209.4 Total net revenues $4,978.9 $5,018.9 $4,880.1 F-45Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Operating income: Wholesale(a) $593.2 $613.3 $565.4 Retail(a) 246.2 108.2 204.2 Licensing 107.4 103.6 96.7 946.8 825.1 866.3 Less: Unallocated corporate expenses(a) (229.9) (206.5) (217.0)Unallocated legal and restructuring charges(b) (10.0) (23.1) 4.1 Total operating income $706.9 $595.5 $653.4 (a)Fiscal years presented included certain asset impairment charges. Fiscal 2010 included asset impairment charges of $6.6 million related to the write-down ofcertain long-lived assets, primarily in the Retail segment. Fiscal 2009 included asset impairment charges of $55.4 million, of which $52.0 million related to thewrite-down of certain Retail store assets, and $2.8 million in the Wholesale segment and $0.6 million in the Corporate office related to the write-down ofcertain capitalized software costs. Fiscal 2008 included asset impairment charges of $5.0 million related to the write-down of certain Retail store assets (seeNote 11).(b)Fiscal years presented included certain unallocated restructuring charges and legal-related activity. Restructuring charges, net for Fiscal 2010 consisted of$6.9 million, of which $5.4 million related to the Wholesale segment, $2.0 million related to the Retail segment and $0.5 million represented the reversal of anexcess reserve related to Corporate operations. Restructuring charges for Fiscal 2009 consisted of $23.6 million, of which $12.7 million related to the Retailsegment, $7.3 million related to the Wholesale segment and $3.6 million related to Corporate operations (see Note 12). Legal-related activity for Fiscal 2010consisted of legal charges of $4.8 million primarily related to the Company’s California Labor Litigation matter, offset in part by the reversal of an excess legalreserve of $1.7 million (see Note 17). Legal-related activity for Fiscal 2009 and Fiscal 2008 consisted of the reversal of excess legal reserves in the amounts of$0.5 million and $4.1 million, respectively.Depreciation and amortization expense and capital expenditures for each segment under the Company’s new (recasted) basis ofreporting are as follows: Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Depreciation and amortization: Wholesale $51.0 $51.1 Retail 83.7 85.1 Licensing 1.7 2.4 Unallocated corporate expenses 44.8 45.8 Total depreciation and amortization $181.2 $184.4 F-46Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Capital expenditures: Wholesale $29.2 $31.8 Retail 125.3 114.5 Licensing — 1.1 Corporate 46.8 37.6 Total capital expenditures $201.3 $185.0 Depreciation and amortization expense and capital expenditures for each segment under the Company’s historical basis of reportingare as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Depreciation and amortization: Wholesale $56.2 $55.5 $63.9 Retail 78.5 80.7 73.4 Licensing 1.7 2.4 19.7 Unallocated corporate expenses 44.8 45.8 44.3 Total depreciation and amortization $181.2 $184.4 $201.3 Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Capital expenditures: Wholesale $34.4 $35.5 $46.0 Retail 120.1 110.8 116.1 Licensing — 1.1 2.4 Corporate 46.8 37.6 52.6 Total capital expenditures $201.3 $185.0 $217.1 Total assets for each segment under the Company’s new (recasted) basis of reporting are as follows: Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Total assets: Wholesale $2,650.0 $2,691.1 Retail 1,255.6 1,009.2 Licensing 155.7 207.9 Corporate 587.6 448.3 Total assets $4,648.9 $4,356.5 F-47Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Net revenues and long-lived assets by geographic location of the reporting subsidiary are as follows: Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions) Net revenues: United States and Canada $3,462.3 $3,589.3 $3,653.1 Europe 1,052.6 1,028.4 944.7 Asia(a) 459.7 392.6 272.4 Other regions 4.3 8.6 9.9 Total net revenues $4,978.9 $5,018.9 $4,880.1 Fiscal Years Ended April 3, March 28, 2010 2009 (millions) Long-lived assets: United States and Canada $441.6 $452.8 Europe 166.4 132.7 Asia(a) 84.1 60.9 Other regions 5.1 5.2 Total long-lived assets $697.2 $651.6 (a)Includes Japan, China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, Taiwan and Thailand.23. Related Party TransactionsIn the ordinary course of conducting its business, the Company periodically enters into transactions with other entities or people thatare considered related parties.In connection with the launch of the RL Watch Company business, the Company receives royalty payments pursuant to a relatedlicensing agreement that allows the RL Watch Company to sell luxury watches and fine jewelry throughout the world using certain of theCompany’s trademarks. The Company has a 50% interest in the RL Watch Company, which is accounted for under the equity methodof accounting. Royalty payments received under this arrangement were approximately $0.1 million in Fiscal 2010. No related paymentswere received in Fiscal 2009 or Fiscal 2008. See Note 3 for further discussion of the Company’s investment in the RL Watch Company.In addition, during Fiscal 2008, Mr. Ralph Lauren, Chairman of the Board and Chief Executive Officer, sometimes used theservices of certain employees of the Company for non-Company related purposes. Mr. Lauren reimbursed the Company for the directexpenses incurred in connection with those services, including an allocation of such employees’ salaries and benefits. Such aggregatecosts and related reimbursements were less than $1 million in Fiscal 2008. No related services were provided by the Company toMr. Lauren in Fiscal 2010 or Fiscal 2009.F-48Table of ContentsPOLO RALPH LAUREN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)24. Additional Financial InformationCash Interest and Taxes Fiscal Years Ended April 3, March 28, March 29, 2010 2009 2008 (millions)Cash paid for interest $24.4 $25.1 $22.9 Cash paid for income taxes $196.4 $165.0 $248.8 Non-cash TransactionsSignificant non-cash investing activities included the capitalization of fixed assets and recognition of related obligations in the netamount of $22.5 million for Fiscal 2010 and $13.0 million for Fiscal 2009. Significant non-cash investing activities also included thenon-cash allocation of the fair value of the net assets acquired in connection with the Asia-Pacific Licensed Operations Acquisition inFiscal 2010, the Japanese Childrenswear and Golf Acquisition in Fiscal 2009, and the Japanese Business Acquisitions and the SmallLeathergoods Business Acquisition in Fiscal 2008. See Note 5 for further discussion of the Company’s acquisitions.In Fiscal 2010, significant non-cash financing activities included the conversion of 1.2 million shares of Class B common stockinto an equal number of shares of Class A common stock, as described further in Note 18. In Fiscal 2008, significant non-cashfinancing activities included the repurchase of 0.4 million shares of Class A common stock at a cost of $24.0 million that was tradedprior to the end of the fiscal year for which settlement occurred in April 2008. In addition, as a result of the adoption of FIN 48, theCompany recognized a non-cash reduction in retained earnings of $62.5 million as the cumulative effect to adjust its net liability forunrecognized tax benefits as of April 1, 2007.There were no other significant non-cash investing or financing activities for the three fiscal years presented.F-49Table of ContentsMANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTSThe management of Polo Ralph Lauren Corporation is responsible for the preparation, objectivity and integrity of the consolidatedfinancial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United States and include some amounts that are based on management’sinformed judgments and best estimates.These consolidated financial statements have been audited by Ernst & Young LLP in Fiscal 2010 and Fiscal 2009 and byDeloitte & Touche LLP in Fiscal 2008, both of which are independent registered public accounting firms. They conducted their audits inaccordance with the standards of the Public Company Accounting Oversight Board (United States) and have expressed herein theirunqualified opinions on those financial statements.The Audit Committee of the Board of Directors, which oversees all of the Company’s financial reporting process on behalf of theBoard of Directors, consists solely of independent directors, meets with the independent registered accountants, internal auditors andmanagement periodically to review their respective activities and the discharge of their respective responsibilities. Both the independentregistered public accountants and the internal auditors have unrestricted access to the Audit Committee, with or without management, todiscuss the scope and results of their audits and any recommendations regarding the system of internal controls.June 2, 2010/S/ RALPH LAUREN /S/ TRACEY T. TRAVISRalph Lauren Tracey T. TravisChairman and Chief Executive Officer Senior Vice President and Chief Financial OfficerF-50Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPolo Ralph Lauren CorporationWe have audited the accompanying consolidated balance sheets of Polo Ralph Lauren Corporation and subsidiaries (the“Company”) as of April 3, 2010 and March 28, 2009, and the related consolidated statements of operations, equity, and cash flows forthe fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on the financial statements based on our audit.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position ofthe Company at April 3, 2010 and March 28, 2009, and the consolidated results of its operations and its cash flows for the fiscal yearsthen ended, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of April 3, 2010, based on the criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 2,2010 expressed an unqualified opinion thereon./s/ ERNST & YOUNG LLPNew York, New YorkJune 2, 2010F-51Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPolo Ralph Lauren CorporationNew York, New YorkWe have audited the accompanying consolidated statements of operations, equity, and cash flows of Polo Ralph Lauren Corporationand subsidiaries (the “Company”) for the fiscal year ended March 29, 2008. These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are freeof material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion, such Fiscal 2008 consolidated financial statements present fairly, in all material respects, the results of theCompany’s operations, its cash flows and its equity for the fiscal year ended March 29, 2008, in conformity with accounting principlesgenerally accepted in the United States of America.As discussed in Note 4 to the consolidated financial statements, the Company adopted ASC 740-10 (formerly referred to as FinancialAccounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”), effective April 1, 2007.As discussed in Note 4 to the consolidated financial statements, the Company changed the manner in which noncontrolling interestsare identified, presented and disclosed./s/ DELOITTE & TOUCHE LLPNew York, New YorkMay 28, 2008(June 2, 2010 as to the effect of the noncontrolling interests as discussed in Note 4)F-52Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofPolo Ralph Lauren CorporationWe have audited Polo Ralph Lauren Corporation and subsidiaries’ (the “Company’s”) internal control over financial reporting as ofApril 3, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the “COSO criteria”). The Company’s management is responsible for maintaining effectiveinternal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included inthe accompanying Management’s Report of Internal Control Over Financial Reporting. Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control overfinancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. Webelieve that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance withauthorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financialstatements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of April 3,2010, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), theconsolidated balance sheets of the Company as of April 3, 2010 and March 28, 2009, and the related consolidated statements ofoperations, equity, and cash flows for the fiscal years then ended and our report dated June 2, 2010 expressed an unqualified opinionthereon./s/ ERNST & YOUNG LLPNew York, New YorkJune 2, 2010F-53Table of ContentsPOLO RALPH LAUREN CORPORATIONSELECTED FINANCIAL INFORMATIONThe following table sets forth selected historical financial information as of the dates and for the periods indicated.The consolidated statement of operations data for each of the three fiscal years in the period ended April 3, 2010 as well as theconsolidated balance sheet data as of April 3, 2010 and March 28, 2009 have been derived from, and should be read in conjunction with,the audited financial statements and other financial information presented elsewhere herein. The consolidated statement of operations datafor each of the two fiscal years in the period ended March 31, 2007 and the consolidated balance sheet data at March 29, 2008,March 31, 2007 and April 1, 2006 have been derived from audited financial statements not included herein. Capitalized terms are asdefined and described in the consolidated financial statements or elsewhere herein. The historical results are not necessarily indicative ofthe results to be expected in any future period.The selected financial information for the fiscal year ended April 3, 2010 reflects the Asia-Pacific Licensed Operations Acquisitioneffective in January 2010. The selected financial information for the fiscal year ended March 28, 2009 reflects the JapaneseChildrenswear and Golf Acquisition effective in August 2008. The selected financial information for the fiscal year ended March 29,2008 reflects the acquisition of the Small Leathergoods Business effective in April 2007, the Japanese Business Acquisitions effective inMay 2007, and the adoption of FIN 48. The selected financial information for the fiscal year ended March 31, 2007 reflects theacquisition of the remaining 50% equity interest of Ralph Lauren Media, LLC effective in March 2007 and the adoption ofFAS No. 123R, “Share-Based Payment.” The selected financial information for the fiscal year ended April 1, 2006 reflects theacquisition of the formerly-licensed Polo Jeans business effective in February 2006 and the acquisition of the formerly-licensed footwearbusiness effective in July 2005. Fiscal Years Ended(a) April 3, March 28, March 29, March 31, April 1, 2010 2009 2008 2007 2006 (millions, except per share data) Statement of Operations Data: Net revenues: Net sales $4,795.5 $4,823.7 $4,670.7 $4,059.1 $3,501.1 Licensing revenues 183.4 195.2 209.4 236.3 245.2 Net revenues 4,978.9 5,018.9 4,880.1 4,295.4 3,746.3 Gross profit 2,899.1 2,730.7 2,638.1 2,336.2 2,022.4 Depreciation and amortization expense (181.2) (184.4) (201.3) (144.7) (127.0)Impairments of assets (6.6) (55.4) (5.0) — (10.8)Restructuring charges (6.9) (23.6) — (4.6) (9.0)Operating income(b) 706.9 595.5 653.4 652.6 516.6 Interest income/(expense), net (9.8) (4.6) (1.0) 4.5 1.2 Net income attributable to PRLC $479.5 $406.0 $419.8 $400.9 $308.0 Net income per common share attributable to PRLC: Basic $4.85 $4.09 $4.10 $3.84 $2.96 Diluted $4.73 $4.01 $3.99 $3.73 $2.87 Average common shares: Basic 98.9 99.2 102.3 104.4 104.2 Diluted 101.3 101.3 105.2 107.6 107.2 Dividends declared per common share $0.30 $0.20 $0.20 $0.20 $0.20 (a)Fiscal 2010 consisted of 53 weeks. All other fiscal years presented consisted of 52 weeks.(b)Operating income included legal-related charges, net of approximately $3 million in Fiscal 2010; reversals of excess legal reserves in the amounts of$0.5 million in Fiscal 2009 and approximately $4 million in Fiscal 2008; and litigation and credit card contingency-related charges of approximately $3 millionin Fiscal 2007 and $7 million in Fiscal 2006.F-54Table of ContentsPOLO RALPH LAUREN CORPORATION SELECTED FINANCIAL INFORMATION — (Continued) Fiscal Years Ended April 3, March 28, March 29, March 31, April 1, 2010 2009 2008 2007 2006 (millions) Balance Sheet Data: Cash and cash equivalents $563.1 $481.2 $551.5 $563.9 $285.7 Short-term investments 584.1 338.7 74.3 — — Non-current investments 75.5 29.7 28.7 — — Working capital 1,528.5 1,382.6 984.9 1,045.6 535.0 Total assets 4,648.9 4,356.5 4,365.5 3,758.0 3,088.7 Total debt (including current maturities of debt) 282.1 406.4 679.2 398.8 280.4 Equity attributable to PRLC 3,116.6 2,735.1 2,389.7 2,334.9 2,049.6 F-55Table of ContentsPOLO RALPH LAUREN CORPORATIONQUARTERLY FINANCIAL INFORMATION (UNAUDITED)The following table sets forth the quarterly financial information of the Company: Quarterly Periods Ended(a) June 27, September 26, December 26, April 3,Fiscal 2010 2009 2009 2009 2010(c) (millions, except per share data)Net revenues $1,023.7 $1,374.2 $1,243.9 $1,337.1 Gross profit 601.2 784.8 723.7 789.4 Net income attributable to PRLC 76.8 177.5 111.1 114.1 Net income per common share attributable to PRLC:(b) Basic $0.77 $1.79 $1.12 $1.16 Diluted $0.76 $1.75 $1.10 $1.13 Dividends declared per common share $0.05 $0.05 $0.10 $0.10 Quarterly Periods Ended(a) June 28, September 27, December 27, March 28,Fiscal 2009 2008 2008 2008 2009(d) (millions, except per share data)Net revenues $1,113.6 $1,428.9 $1,252.0 $1,224.4 Gross profit 638.4 788.2 669.7 634.4 Net income attributable to PRLC 95.2 161.0 105.3 44.5 Net income per common share attributable to PRLC:(b) Basic $0.96 $1.62 $1.07 $0.45 Diluted $0.93 $1.58 $1.05 $0.44 Dividends declared per common share $0.05 $0.05 $0.05 $0.05 (a)Fourth quarter of Fiscal 2010 consisted of 14 weeks. All other fiscal quarters presented consisted of 13 weeks.(b)Per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amounts may not add to the annualamount because of differences in the average common shares outstanding during each period.(c)The inclusion of the 14th week in the fourth quarter of Fiscal 2010 resulted in incremental revenues of approximately $70 million and increased net income ofapproximately $13 million.(d)Net income and net income per common share for the fourth quarter of Fiscal 2009 have been affected by approximately $69 million of pretax charges relatedto asset impairments and restructurings.F-56EXHIBIT 10.14FIRST AMENDMENT TOAMENDED AND RESTATEDEMPLOYMENT AGREEMENT FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Amendment”) made effective as of the 29th day ofMarch, 2010, by and between Polo Ralph Lauren Corporation, a Delaware corporation (the “Corporation”), and Roger N. Farah (the “Executive”). WHEREAS, the Corporation and the Executive entered into an Amended and Restated Employment Agreement effective as of October 14, 2009 (the“Agreement”); and WHEREAS, the Corporation and the Executive wish to clarify the Agreement in certain respects. NOW, THEREFORE, intending to be bound, the parties hereby agree that the Agreement shall be amended as follows: 1. Section 6(a)(i)(1)(y) of the Agreement is hereby amended in its entirety to read as follows:“the sum of (I) the Executive’s salary at the rate in effect on such date (unless employment is terminated by the Executive for Good Reason pursuant toSection 5(b) hereof as a result of a Salary reduction, in which case, at the rate in effect prior to such reduction), plus (II) $6 million; plus” 2. Section 6(a)(v) of the Agreement is hereby amended by deleting the words “Salary and Target Annual Incentive Bonus” contained in clause(A) thereof. 3. The second sentence of Section 6(e) of the Agreement is hereby amended by deleting the words “the Target Annual Incentive Bonus” in clause(y) thereof and by substituting therefor the words “$6 million”. IN WITNESS WHEREOF, the Corporation has caused this Amendment to be duly executed and the Executive has hereunto set his hand, effective as ofthe first day written above. POLO RALPH LAUREN CORPORATION By: /s/ Ralph Lauren Name: Ralph Lauren Title: Chairman and CEO Date: March 29, 2010 By: /s/ Roger N. Farah /s/ ROGER N. FARAH Executive: ROGER N. FARAH Date: March 29, 2010 EXHIBIT 21.1SUBSIDIARIES OF THE COMPANY(Excludes inactive subsidiaries)Entity Name Jurisdiction of FormationAcqui Polo CV NetherlandsAcqui Polo Espana SpainAcqui Polo GP, LLC DelawareAcqui Polo SAS FranceClub Monaco (Hong Kong) Limited Hong KongClub Monaco Corp. Nova ScotiaClub Monaco S.A.M. Principality of MonacoClub Monaco U.S., LLC DelawareFashion Development Corp. DelawareFashions Outlet of America, Inc. DelawareL&S UK Ltd. United KingdomMountain Rose (USA), LLC DelawareNational Polo Retailers, Inc. DelawarePFO Retail Management SAS FrancePolo Apparel, LLC (f/k/a Polo Apparel of Texas, Ltd.) DelawarePolo Fin BV NetherlandsPolo Hold BV NetherlandsPolo International Assignments Service Corp. DelawarePolo Jeans Co. (Europe) Ltd. United KingdomPolo Jeans Company, LLC (f/k/a Polo Jeans Company of Texas, Inc.) DelawarePolo JP Acqui B.V. NetherlandsPolo Management Services, LLC (f/k/a Polo Management Services, Inc.) DelawarePolo Moden Gmbh GermanyPolo Players, Ltd GP DelawarePolo Ralph Lauren Asia Pacific, Limited Hong KongPolo Ralph Lauren Asia Pacific, Limited Hong KongPolo Ralph Lauren Aviation, LLC DelawarePolo Ralph Lauren Colombia Ltda. ColombiaPolo Ralph Lauren Europe Sàrl SwitzerlandPolo Ralph Lauren Denmark ApS DenmarkPolo Ralph Lauren Home Collection Showroom, LLC DelawarePolo Ralph Lauren Kabushiki Kaisha JapanPolo Ralph Lauren Korea, Ltd. KoreaPolo Ralph Lauren Milan S.r.l. ItalyPolo Ralph Lauren (Macau) Limited MacauPolo Ralph Lauren SAS (St. Barthelemy) FrancePolo Ralph Lauren Sourcing Americas, LLC DelawarePolo Ralph Lauren Sourcing Company, Ltd. Hong KongPolo Ralph Lauren Sourcing Italy S.r.l. ItalyPolo Ralph Lauren Sourcing PTE, Ltd. SingaporePolo Ralph Lauren Sweden AB SwedenPolo Ralph Lauren UK Limited United KingdomPolo Ralph Lauren Womenswear, LLC DelawarePolo Retail Europe Limited (f/k/a Acqui Polo UK) United Kingdom Entity Name Jurisdiction of FormationPolo Shirts Limited United KingdomPolo UK Ltd. (f/k/a Polo Factory Outlet Ltd.) United KingdomPolo Wings II, Inc. DelawarePoloco Belgium S.p.r.l. BelgiumPoloco Espana SL SpainPoloco Ltd. United KingdomPoloco Netherlands BV NetherlandsPoloco SAS FrancePoloco Scandinavia AB SwedenPRL Australia Pty Ltd. AustraliaPRL CMI, LLC DelawarePRL Fashions of Europe S.r.l. ItalyPRL Fashions, Inc. DelawarePRL Financial Corporation DelawarePRL France SAS FrancePRL International, Inc. DelawarePRL Japan Kabushiki Kaisha JapanPRL Japan Partnership NK JapanPRL Netherlands Limited, LLC (f/k/a Acqui Polo Limited, LLC) DelawarePRL Restaurant Concepts of Illinois, LLC DelawarePRL Sample Development Center Srl ItalyPRL S.R.L. ArgentinaPRL Textil Gmbh AustriaPRL USA Holdings, Inc. DelawarePRL USA, Inc. DelawareRalph Lauren Footwear Co., Inc. MassachusettsRalph Lauren Home Collection, Inc. DelawareRalph Lauren Ireland Limited IrelandRalph Lauren Italy S.r.L. ItalyRalph Lauren Limited. United KingdomRalph Lauren Media, LLC DelawareRalph Lauren Spain SL SpainRalph Lauren Switzerland Sagl SwitzerlandRalph Lauren Watch & Jewelry Sàrl (50% ownership) SwitzerlandRL Fragrances, LLC DelawareRLPR, Inc. DelawareRLWW, LLC (f/k/a RLWW, Inc.) DelawareSun Apparel, LLC (f/k/a Sun Apparel, Inc.) DelawareThe Polo/Lauren Company L.P. New YorkThe Ralph Lauren Womenswear Company, L.P. DelawareWestern Polo Retailers, LLC DelawareWSH, LLC DelawareEXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1997 Long-Term StockIncentive Plan (Registration No. 333-141298), Form S-8 pertaining to the 1997 Long-Term Stock Incentive Plan (RegistrationNo. 333-46808), and Form S-8 pertaining to the 1997 Long-Term Stock Incentive Plan and 1997 Stock Option Plan for Non-EmployeeDirectors (Registration No. 333-29023), of Polo Ralph Lauren Corporation, of our reports dated June 2, 2010, with respect to theconsolidated financial statements of Polo Ralph Lauren Corporation and the effectiveness of internal control over financial reporting ofPolo Ralph Lauren Corporation included in this Annual Report (Form 10-K) for the year ended April 3, 2010./s/ ERNST & YOUNG LLPNew York, New YorkJune 2, 2010EXHIBIT 23.2CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-141298, No. 333-46808 and No. 333-29023 onForm S-8 of our report dated May 28, 2008 (June 2, 2010 as to the effect of the noncontrolling interests as discussed in Note 4), relatingto the Fiscal 2008 consolidated financial statements of Polo Ralph Lauren Corporation and subsidiaries (the “Company”), whichexpresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s adoption of ASC 740-10 (formerlyreferred to as Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”), effectiveApril 1, 2007, and an explanatory paragraph relating to the Company’s retrospective adjustment of the presentation and disclosures for achange in accounting for noncontrolling interests appearing in this Annual Report on Form 10-K of Polo Ralph Lauren Corporation andsubsidiaries for the year ended April 3, 2010./s/ DELOITTE & TOUCHE LLPNew York, New YorkJune 2, 2010EXHIBIT 31.1CERTIFICATIONI, Ralph Lauren, certify that:1. I have reviewed this annual report on Form 10-K of Polo Ralph Lauren Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing theequivalent function):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting./s/ RALPH LAURENRalph LaurenChairman of the Board and Chief Executive Officer(Principal Executive Officer)Date: June 2, 2010EXHIBIT 31.2CERTIFICATIONI, Tracey T. Travis, certify that:1. I have reviewed this annual report on Form 10-K of Polo Ralph Lauren Corporation;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in thisreport;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined inExchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the period in which this report is being prepared;b) designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance with generally accepted accounting principles;c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusionsabout the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on suchevaluation; andd) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materiallyaffected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing theequivalent function):a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; andb) any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting./s/ TRACEY T. TRAVISTracey T. TravisSenior Vice President and Chief Financial Officer(Principal Financial Officer)Date: June 2, 2010EXHIBIT 32.1Certification of Ralph Lauren Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of Polo Ralph Lauren Corporation (the “Company”) on Form 10-K for the period endedApril 3, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ralph Lauren, Chief ExecutiveOfficer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and result ofoperations of the Company./s/ RALPH LAURENRalph LaurenJune 2, 2010A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwiseadopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has beenprovided to Polo Ralph Lauren Corporation and will be retained by Polo Ralph Lauren Corporation and furnished to the Securities andExchange Commission or its staff upon request.EXHIBIT 32.2Certification of Tracey T. Travis Pursuant to 18 U.S.C. Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report of Polo Ralph Lauren Corporation (the “Company”) on Form 10-K for the period endedApril 3, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Tracey T. Travis, ChiefFinancial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and2. The information contained in the Report fairly presents, in all material respects, the financial condition and result ofoperations of the Company./s/ TRACEY T. TRAVISTracey T. TravisJune 2, 2010A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwiseadopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has beenprovided to Polo Ralph Lauren Corporation and will be retained by Polo Ralph Lauren Corporation and furnished to the Securities andExchange Commission or its staff upon request.

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