UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 2014
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File Number: 001-13057
RALPH LAUREN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
650 Madison Avenue, New York, New York
(Address of principal executive offices)
13-2622036
(I.R.S. Employer Identification No.)
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
Class A Common Stock, $.01 par value
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
No
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter)
is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the registrant's voting common stock held by non-affiliates of the registrant was approximately
$9,952,987,112 as of September 27, 2013, the last business day of the registrant's most recently completed second fiscal quarter based on the
closing price of the common stock on the New York Stock Exchange.
Accelerated filer
Smaller reporting company
No
(Do not check if a smaller reporting company)
Yes
At May 9, 2014, 61,846,655 shares of the registrant's Class A common stock, $.01 par value and 26,881,276 shares of the registrant's
Class B common stock, $.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 Commission within 120 days after the fiscal year end of March 29, 2014.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the
Securities and Exchange Commission (the "SEC"), in our press releases, and in oral statements made from time to time by us or
on our behalf constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "estimate,"
"expect," "project," "we believe," "is or remains optimistic," "currently envisions," and similar words or phrases and involve
known and unknown risks, uncertainties, and other factors which may cause actual results, performance, or achievements to be
materially different from the future results, performance, or achievements expressed in or implied by such forward-looking
statements. These risks, uncertainties, and other factors include, among others:
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the loss of key personnel, including Mr. Ralph Lauren;
our ability to successfully implement our anticipated growth strategies and to capitalize on our repositioning initiatives
in certain regions and merchandise categories;
our ability to secure our facilities and systems and those of our third-party service providers from, among other
things, cybersecurity breaches, acts of vandalism, computer viruses, or similar Internet or email events;
our ability to continue to maintain our brand image and reputation and protect our trademarks;
the impact of global economic conditions on us, our customers, our suppliers, and our vendors, and on our ability
and their ability to access sources of liquidity;
the impact of the volatile state of the global economy or consumer preferences on purchases of premium lifestyle
products that we offer for sale and our ability to forecast consumer demand, which could result in a build-up of
inventory;
changes in the competitive marketplace, including the introduction of new products or pricing changes by our
competitors, and consolidations, liquidations, restructurings, and other ownership changes in the retail industry;
a variety of legal, regulatory, tax, political, and economic risks, including risks related to the importation and
exportation of products, tariffs, and other trade barriers which our international operations are subject to and other
risks associated with our international operations, such as compliance with the Foreign Corrupt Practices Act or
violations of other anti-bribery and corruption laws prohibiting improper payments, and the burdens of complying
with a variety of foreign laws and regulations, including tax laws, trade and labor restrictions, and related laws that
may reduce the flexibility of our business;
our ability to continue to expand or grow our business internationally, and the impact of related changes in our
customer, channel, and geographic sales mix as a result;
our exposure to domestic and foreign currency fluctuations and risks associated with increases in the costs of raw
materials, transportation, and labor;
changes to our effective tax rates in future years;
changes in our relationships with department store customers and licensing partners;
our efforts to improve the efficiency of our distribution system and to continue to enhance and upgrade our global
information technology systems;
our intention to introduce new products or enter into or renew alliances and exclusive relationships;
our ability to access sources of liquidity to provide for our cash needs, including our debt obligations, payment of
dividends, capital expenditures, and potential repurchase of our Class A common stock;
our ability to open new retail stores, concession shops, and e-commerce sites in an effort to expand our direct-to-
consumer presence;
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our ability to make certain strategic acquisitions of selected licenses held by our licensees and successfully integrate
the acquired businesses into our existing operations;
our ability to maintain our credit profile and ratings within the financial community;
the potential impact on our operations and on our customers resulting from natural or man-made disasters; and
the impact to our business of events of unrest and instability that are currently taking place in certain parts of the
world, as well as from any terrorist action, retaliation, and the threat of further action or retaliation.
These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks
and uncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of significant risk factors that
have the potential 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 new information, future events, or otherwise.
WEBSITE ACCESS TO COMPANY REPORTS AND OTHER INFORMATION
Our 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 reports filed 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 our investor website under the caption "SEC Filings" promptly after we electronically file such materials
with or furnish such materials to the SEC. Information relating to corporate governance at Ralph Lauren Corporation, including
our Corporate Governance Policies, our Code of Business Conduct and Ethics for all directors, officers, and employees, our Code
of Ethics for Principal Executive Officers and Senior Financial Officers, and information concerning our directors, Committees
of the Board, including Committee charters, and transactions in 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 to stockholders without charge by written request to Investor Relations, Ralph
Lauren Corporation, 625 Madison Avenue, New York, New York 10022.
In this Form 10-K, references to "Ralph Lauren," "ourselves," "we," "our," "us," and the "Company" refer to Ralph Lauren
Corporation and its subsidiaries ("RLC"), unless the context indicates otherwise. Due to the collaborative and ongoing nature of
our relationships with our licensees, such licensees are sometimes referred to in this Form 10-K as "licensing alliances." Our fiscal
year ends on the Saturday closest to March 31. All references to "Fiscal 2015" represent the 52-week fiscal year ending March
28, 2015. All references to "Fiscal 2014" represent the 52-week fiscal year ended March 29, 2014. All references to "Fiscal 2013"
represent the 52-week fiscal year ended March 30, 2013. All references to "Fiscal 2012" represent the 52-week fiscal year ended
March 31, 2012. All references to "Fiscal 2011" represent the 52-week fiscal year ended April 2, 2011.
Item 1. Business.
PART I
General
Founded in 1967 by Mr. Ralph Lauren, we are 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. Our long-standing
reputation and distinctive image have been consistently developed across an expanding number of products, brands, sales channels,
and international markets. We believe that our global reach, breadth of product offerings, and multi-channel distribution are unique
among luxury and apparel companies.
We operate in three distinct but integrated segments: Wholesale, Retail, and Licensing. Our Wholesale business, representing
approximately 47% of our Fiscal 2014 net revenues, consists of sales made principally to major department stores and specialty
stores around the world. Our Retail business, representing approximately 51% of our Fiscal 2014 net revenues, consists of sales
made directly to consumers through our retail stores around the world; through concession-based shop-within-shops located
primarily in Asia, Australia, and Europe; and through our retail e-commerce channel in North America, Europe, and Asia. Our
Licensing business, representing approximately 2% of our Fiscal 2014 net revenues, consists of royalty-based arrangements under
which we license to unrelated third parties the right to operate retail stores and/or to use our various trademarks in connection with
the manufacture and sale of designated products, such as apparel, eyewear, and fragrances, in specified geographic areas for
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specified periods. Approximately 36% of our Fiscal 2014 net revenues were earned in international regions outside of the U.S.
See Note 22 to the accompanying audited consolidated financial statements for a summary of net revenues by reportable segment
and by geographic location.
Over the past five fiscal years, our sales have grown by 50% to $7.450 billion in Fiscal 2014 from $4.979 billion in the
fiscal year ended April 3, 2010. This growth has been attributable to both our acquisitions and organic growth. We have diversified
our business by channels of distribution, price point, and target consumer, as well as by geography. Our global reach is extensive,
with Ralph Lauren-branded merchandise available through our wholesale distribution channels at over 11,000 different retail
locations worldwide. We also sell directly to customers throughout the world via our 433 retail stores, our 503 concession-based
shop-within-shops, and our eight e-commerce sites. In addition to our directly-operated stores and shops, our international licensing
partners operate 64 Ralph Lauren Stores, 9 Ralph Lauren concession shops, and 106 Club Monaco stores and shops.
We continue to invest in our business. In the past five fiscal years, we have invested approximately $1.570 billion for
acquisitions and capital improvements, primarily funded through strong operating cash flow. We intend to continue to execute our
long-term strategy, which includes expanding our presence internationally, extending our direct-to-consumer reach, expanding
our accessories and other product and brand offerings, and investing in our operational infrastructure. See "Objectives and
Opportunities" for further discussion of our long-term strategy.
We have been controlled by the Lauren family since the founding of our Company. As of March 29, 2014, Mr. Ralph Lauren,
or entities controlled by the Lauren family, held approximately 81% of the voting power of the outstanding common stock of the
Company.
Seasonality of Business
Our business is typically affected by seasonal trends, with higher levels of wholesale sales in our second and fourth quarters
and higher retail sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale
shipments and key vacation travel, back-to-school, and holiday shopping periods in our Retail segment. As a result of 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 our future performance. In addition,
fluctuations in sales, operating income, and cash flows in any fiscal quarter may be affected by other events affecting retail sales,
such as changes in weather patterns.
Working capital requirements vary throughout the year. Working capital requirements typically increase during the first
half of the fiscal year as inventory builds to support peak shipping/selling periods and, accordingly, typically decrease during the
second half of the fiscal year as inventory is shipped/sold. Cash provided by operating activities is typically higher in the second
half of the fiscal year due to reduced working capital requirements during that period.
Objectives and Opportunities
Our core strengths include a portfolio of global premium lifestyle brands, a proven ability to develop and extend our brands
distributed through multiple channels in global markets, a disciplined investment philosophy supported by a strong balance sheet,
and an experienced management team. Despite the various risks and uncertainties associated with the current global economic
environment, as discussed further in Item 7 – "Management's Discussion and Analysis of Financial Condition and Results of
Operations — Current Trends and Outlook," we believe our core strengths will allow us the opportunity to execute our strategy
for long-term sustainable growth in revenue, net income, and 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.-
centric menswear 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 mix positions us for ongoing growth, allowing us to offer our customers a range of products, price points,
and channels of distribution. We operate our retail business using an omni-channel retailing strategy to deliver a seamless and
integrated shopping experience to our customers. We believe that our size and global operations favorably position us to take
advantage of synergies in design, sourcing, and distribution across our different businesses.
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While balancing our key long-term strategic objectives with our near-term priorities, we intend to continue to pursue select
opportunities for growth during the course of Fiscal 2015 and beyond. These opportunities and continued investment initiatives
include:
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Product Innovation and Brand Extension Growth;
Investment in Operational Infrastructure;
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Strong Financial Management and Cash Flow Reinvestment.
Australia and New Zealand Licensed Operations Acquisition
Recent Developments
In July 2013, in connection with the transition of the Ralph Lauren-branded apparel and accessories business in Australia
and New Zealand (the "Australia and New Zealand Business") from a licensed to a wholly-owned operation, we acquired certain
net assets from Oroton Group/PRL Australia ("Oroton") in exchange for an aggregate payment of approximately $15 million (the
"Australia and New Zealand Licensed Operations Acquisition"). Oroton was our licensee for the Australia and New Zealand
Business. The operating results of the acquired business have been consolidated in our operating results beginning on July 1, 2013.
Chaps Menswear License Acquisition
In April 2013, in connection with the transition of the North American Chaps-branded men's sportswear business (the
"Chaps Menswear Business") from a licensed to a wholly-owned operation, we entered into an agreement with The Warnaco
Group, Inc. ("Warnaco"), a subsidiary of PVH Corp., to acquire certain net assets in exchange for an aggregate payment of
approximately $18 million (the "Chaps Menswear License Acquisition"). Warnaco was our licensee for the Chaps Menswear
Business. The operating results of the Chaps Menswear Business have been consolidated in our operating results beginning on
April 10, 2013.
Rugby Closure Plan
In October 2012, we approved a plan to wind-down our Rugby brand retail operations (the "Rugby Closure Plan"). This
decision was primarily based on the results of an analysis of the brand concept, as well as an opportunity to reallocate our resources
related to these operations to support other high-growth business opportunities and initiatives. In connection with the Rugby
Closure Plan, 13 of our 14 global freestanding Rugby stores and our related domestic e-commerce site located at Rugby.com were
closed during the second half of Fiscal 2013. The one remaining Rugby store was closed during Fiscal 2014. The Rugby Closure
Plan also resulted in a reduction in our workforce of approximately 160 employees. See Notes 11 and 12 to our consolidated
financial statements for detailed discussions of impairment and restructuring charges recorded during Fiscal 2013 in connection
with the Rugby Closure Plan.
Discontinuance of American Living at JCPenney
During the fourth quarter of Fiscal 2012, we decided, along with our wholesale partner J.C. Penney Company, Inc.
("JCPenney"), to discontinue the majority of the products sold under the American Living brand created for and exclusively sold
to JCPenney, effective for the Fall 2012 wholesale selling season. The discontinuance of these American Living product lines did
not have a material impact on our consolidated or segment results.
Since 1967, our distinctive brand image has been consistently developed across an expanding number of products, price
tiers, and markets. Our products, which include apparel, accessories, and fragrance collections for men and women, as well as
Our Brands and Products
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childrenswear and home furnishings, comprise one of the world's most widely recognized families of consumer brands. Reflecting
a distinctive American perspective, we have been an innovator in aspirational lifestyle branding and believe that, under the direction
of internationally renowned designer Mr. Ralph Lauren, we have had a considerable influence on the way people dress and the
way that fashion is advertised throughout the world.
We combine consumer insight with our design, marketing, and imaging skills to offer, along with our licensing alliances,
broad lifestyle 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, fine jewelry, hats, belts,
and leathergoods, including handbags and luggage;
• Home — Coordinated home products include bedding and bath products, furniture, fabric and wallpaper, lighting,
paint, tabletop, and giftware; and
• Fragrance — Fragrance products are sold under our Big Pony, Romance, Midnight Romance, Polo, Lauren, Safari,
Ralph, Black Label, and Purple Label brands, among others.
Our lifestyle brand image is reinforced by our stores and concession shop-within-shops, our wholesale channels of
distribution, and our e-commerce sites, including our North American Ralph Lauren and Club Monaco e-commerce sites; and our
Ralph Lauren e-commerce sites in Europe, Japan, and South Korea.
Ralph Lauren Women's Collection
Each runway season, Ralph Lauren's most dramatic vision of women's fashion is presented to the world. Timeless and
sophisticated, Women's Collection reflects Ralph Lauren's definitive design philosophy in its juxtapositions of feminine glamour
with fine tailoring once found only in menswear. From exquisite hand-embroidered evening gowns worn on the red carpet to
luxurious hand-finished cashmere tweed suitings to chic vintage denim inspired by rustic Americana, we believe that our Women's
Collection is the epitome of modern, rarefied fashion. Ralph Lauren Women's Collection is available in Ralph Lauren stores around
the world, in an exclusive selection of fine specialty stores, and online at our Ralph Lauren e-commerce sites, including
RalphLauren.com.
Ralph Lauren Purple Label
In the time-honored tradition of bespoke clothing and haberdashery, Ralph Lauren Purple Label presents a level of sartorial
craftsmanship we believe to be unparalleled today. Refined suitings are hand-tailored from a selection of fine fabrics. Custom-
tailored Made-to-Measure suits are hand-constructed by artisans trained in the art of handmade clothing. Sophisticated sportswear
and dandy-inspired dress furnishings are designed with meticulous attention to every detail. Dedicated to the highest level of
quality and elegance, Ralph Lauren Purple Label is the ultimate expression of luxury for the modern gentleman. Ralph Lauren
Purple Label also offers benchmade footwear and made-to-order dress furnishings, accessories, and luggage, as well as hand
monogramming and custom engraving services. Ralph Lauren Purple Label is available in Ralph Lauren stores around the world,
in an exclusive selection of fine specialty stores, and online at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Accessories
Ralph Lauren accessories for men and women reflect the distinctive design philosophies known throughout the world of
Ralph Lauren and represent a continuous dedication to impeccable craftsmanship and iconic beauty. Ralph Lauren accessories for
women capture a wide array of timeless styles, from a glamorous handmade alligator Ricky Bag that takes up to 12 hours to craft
to weathered canvas saddle bags with authentic equestrian hardware to vintage luggage-inspired handbags that recall the golden
age of travel. Ralph Lauren's signature motifs can be found throughout — from jockey-print scarves, riding boots with equestrian
hardware, and vintage aviator sunglasses to striking diamante evening shoes, romantic ruffled scarves, and antique, one-of-a-kind
belts and jewelry. Ralph Lauren accessories and dress furnishings are a man's most refined finishing touch. Iconic and innovative
neckties, which launched the Polo brand in 1967, are woven from the finest silks. Footwear ranges from velvet monogrammed
slippers and benchmade dress shoes to hand-sewn penny loafers and rugged suede and shearling duck boots. Handcrafted luggage
and leathergoods combine handsome sophistication with functionality. Each accessory is meticulously designed to complement
Ralph Lauren's menswear collections — from vintage-inspired eyewear and Savile Row-inspired haberdashery to sleek silver
engraved cuff links and engine-turned belt buckles to luxe cashmere scarves and hand-sewn shearling gloves. Ralph Lauren
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accessories are available in Ralph Lauren stores around the world, select specialty stores, and online at our Ralph Lauren e-
commerce sites, including RalphLauren.com.
Ralph Lauren Watches
In 2008, Ralph Lauren launched his premier collection of timepieces in partnership with internationally renowned luxury
group Compagnie Financière Richemont SA ("Richemont"). The three pillar collections — the iconic Ralph Lauren Stirrup, the
refined Ralph Lauren Slim Classique, and the Ralph Lauren Sporting, which features classic sport, automotive, and safari
inspirations — embody Ralph Lauren's passion for impeccable quality and exquisite design. Ralph Lauren timepieces feature the
finest in Swiss Made manufacture movements and some of the world's most luxurious materials — from pure platinum and polished
18-carat gold cases to enamel dials, traditional guilloché patterns, and full-cut diamonds. Each year, Ralph Lauren Watches debuts
new designs that continue this legacy of authentic, high-end watchmaking. Ralph Lauren Watches are available at select Ralph
Lauren stores and flagship locations around the world, and the finest watch retailers.
Ralph Lauren Fine Jewelry
In 2010, Ralph Lauren Watch & Jewelry Co. introduced the premier collections of Ralph Lauren Fine Jewelry. Inspired by
brilliance, movement, and the alluring tradition of fine jewelry, this debut unveiled several collections, including the Ralph Lauren
Diamond Link Collection, the Ralph Lauren Equestrian Collection, and the Ralph Lauren Chunky Chains Collection — all
capturing the glamour and craftsmanship of Ralph Lauren's most luxurious designs. The fine jewelry collections include elegantly
set pavé diamond links, classic equestrian motifs stylized in shimmering diamonds, chic chunky chains, and romantic chandelier
earrings. Each piece is handcrafted using precious materials and intricate finishing techniques, highlighting a unique beauty and
graceful silhouette that is signature Ralph Lauren. Ralph Lauren Fine Jewelry is available in select Ralph Lauren stores and flagship
locations around the world.
Ralph Lauren Women's Black Label
Black 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 edge. Black Label is offered in select
Ralph Lauren stores around the world, designer boutiques, fine specialty stores, better department stores, and online at our Ralph
Lauren e-commerce sites, including RalphLauren.com.
Ralph Lauren Men's Black Label
With a sharp, modern attitude, Ralph Lauren Black Label is the essence of sophisticated dressing for men. Classic suitings
feature razor-sharp tailoring and dramatically lean silhouettes. Luxe, racy sportswear is crafted from fine fabrics and designed
with subtle references to technical performance wear. Ultra-stylish yet timeless, the Black Label collection is sleek, bold, and
masculine. Ralph Lauren Black Label is available in Ralph Lauren stores around the world, a limited selection of specialty stores
and better department stores, and online at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Ralph Lauren Women's Black Label Denim
The Ralph Lauren Women's Black Label Denim collection possesses the ultramodern appeal with sexy fashion-forward fits,
cool innovative treatments, and an elevated mix of rugged and luxury fabrics. Black Label Denim is offered at select Ralph Lauren
stores around the world, designer boutiques, fine specialty stores, better department stores, and online at our Ralph Lauren e-
commerce sites, including RalphLauren.com.
Ralph Lauren Men's Black Label Denim
Introduced in 2011, Ralph Lauren Men's Black Label Denim represents the next evolution of luxe, ultramodern denim for
men, with fashion-forward fits, chic signature details, and a focus on authentic, innovative treatments. With a renegade edge and
international appeal, Black Label Denim redefines iconic pieces in luxury and rugged fabrics, with accents that capture Ralph
Lauren's unique sensibility, from utility and leather to western and automotive. Confident and masculine, Ralph Lauren combines
state-of-the-art denim and superfine sportswear to create the ultimate in cool sophistication. Black Label Denim is available in
Ralph Lauren stores around the world, a limited selection of specialty stores and better department stores, and online at our Ralph
Lauren e-commerce sites, including RalphLauren.com.
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Women's Polo Ralph Lauren
Polo for women is the new symbol of personal expression for the young modern girl. A romantic bohemian with a cool
sportiness, the Polo girl mixes iconic all-American style with an eclectic downtown edge, all put together with individual flair.
From sophisticated tweeds and simple black dresses to rugged outdoorsy looks and city-worn leather, Polo represents easy, energetic
style — free-spirited and cool. This collection will be launched in Fall 2014 at the new Polo store at 711 Fifth Avenue in New
York City, and will be sold at Polo stores around the world, better department stores, and online at our Ralph Lauren e-commerce
sites, including RalphLauren.com and RalphLauren.com/WorldofPolo launching in Fall 2014.
Men's Polo Ralph Lauren
Authentic and iconic, Polo is the original symbol of the modern, preppy lifestyle. Combining Ivy League classics and time-
honored English haberdashery with downtown styles and All-American sporting looks, Polo sportswear and tailored clothing
present a one-of-a-kind vision of menswear that is stylish and timeless, and appeals to all generations of men. Polo's signature
aesthetic — along with our renowned polo player logo — is recognized worldwide as a mark of contemporary heritage excellence.
Polo is available in Ralph Lauren and Polo stores around the world, better department stores, select specialty stores, and online
at our Ralph Lauren e-commerce sites, including RalphLauren.com and RalphLauren.com/WorldofPolo launching in Fall 2014.
Ralph Lauren Blue Label
Modern and eclectic with a sexy, youthful spirit, Blue Label embodies the iconic Ralph Lauren sensibility in its mix of
vintage Ivy League prep, equestrian heritage, romantic bohemian, and rugged Western inspirations. Blue Label is offered in Ralph
Lauren stores around the world, better department stores, and online at our Ralph Lauren e-commerce sites, including
RalphLauren.com. We plan to transition from the Ralph Lauren Blue Label brand subsequent to launching Women's Polo Ralph
Lauren in Fall 2014.
RRL
RRL captures an authentic American spirit with a focus on integrity, character, and timeworn charm. Founded in 1993 and
named after Ralph and Ricky Lauren's "Double RL" ranch in Colorado, RRL for men and women offers a mix of selvage denim,
vintage apparel and accessories, and cool, rugged sportswear with roots in workwear and military gear. With denim at the heart
of the brand, RRL is dedicated to time-honored details and the highest quality workmanship — from ring-spun long-staple cotton
yarns to traditional dyeing techniques and hand-applied artisanal finishes that result in one-of-a-kind, exceptionally durable pieces.
RRL is available at RRL stores, at select Ralph Lauren stores, and an exclusive selection of the finest specialty stores around the
world, as well as online at our Ralph Lauren e-commerce sites, including RalphLauren.com.
RLX Ralph Lauren
Created to answer the demand for superior, high-performance outfitting, RLX Ralph Lauren for men and women unites the
highest standards of luxury, technology, and style. From cutting-edge functional gear for professional athletes to exceptionally
luxe lifestyle apparel for modern living, RLX Ralph Lauren defines the next evolution of design with a philosophy focused on
purity of form, unique construction techniques, and innovative fabrications. The RLX Ralph Lauren line is available at select
Ralph Lauren stores around the world, top specialty and department stores, and online at our Ralph Lauren e-commerce sites,
including RalphLauren.com.
Lauren Ralph Lauren
Lauren translates the sophisticated luxury of Ralph Lauren womenswear into an affordable wardrobe for every occasion.
From timeless essentials with special finishing touches to polished silhouettes with a chic, modern spirit, Lauren maintains an
elegant, feminine heritage while making strong seasonal fashion statements. Lauren Active infuses a fashion sensibility into
practical sports apparel for golf, tennis, yoga, and weekend wear. Lauren Jeans Co. presents a fresh perspective on denim with a
breadth of styles and a complementary collection of sportswear items. Lauren Handbags, first introduced for the Fall 2010 season,
add to a wide range of accessories offerings from Lauren, including belts, scarves, gloves, footwear, and jewelry. Lauren offers a
range of fits from Petites to Women's sizes. Lauren is sold in select department stores in North America and Europe, with plans
to expand to Japan and South Korea in Fiscal 2015, and is also available online at our Ralph Lauren e-commerce sites, including
RalphLauren.com.
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Ralph Lauren Childrenswear
Ralph Lauren Childrenswear is designed to reflect the timeless heritage and modern spirit of Ralph Lauren's collections
for men and women. Signature classics, including iconic polo knit shirts and luxurious cashmere cable sweaters, are interpreted
in the most sophisticated and vibrant colors. Fashionable styles are inspired by Ralph Lauren's unique vision each season — from
All-American sportswear with preppy and equestrian inspirations to tailored and elegant ensembles for special occasions. Ralph
Lauren Childrenswear is available in a full range of sizes for children, from baby, infant, and toddler to girls size 16 and boys size
20. Ralph Lauren Childrenswear can be found in select Ralph Lauren stores around the world, better department stores, and online
at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Denim & Supply Ralph Lauren
Introduced in Fall 2011 with a young bohemian attitude, Denim & Supply Ralph Lauren captures the unique, effortless
style of clothes that live and breathe individuality. Eclectic and carefree — from destructed premium denim to sexy, romantic free-
spirited clothes to rugged, weathered American utility — Denim & Supply is the next generation of down-to-earth dressing. Denim
& Supply Ralph Lauren opened its first freestanding U.S. stores in New York and Boston in Summer 2013. Denim & Supply
Ralph Lauren is available at our Denim & Supply stores around the world, at Macy's and Hudson's Bay in North America and
select department stores in Europe and Asia, and in specialty stores and concession shops in Asia. In addition, Denim & Supply
Ralph Lauren is available online at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Golf
Tested and worn by top-ranked professional golfers, Polo Golf for men and Ralph Lauren Golf for women define heritage
excellence in the world of golf. With a sharpened focus on the needs of the modern player but always rooted in the rich design
tradition of Ralph Lauren, the Golf collections combine state-of-the-art performance wear with luxurious finishing touches for
collections that travel effortlessly between the course and the clubhouse. The RLX Golf collection is ultramodern, graphic, and
dedicated to performance-driven design. From progressive fits and sophisticated styles to the technologically advanced fabrics,
RLX golf is the ultimate in functional luxury. Ralph Lauren is proud to sponsor professional golfers, including Tom Watson, Davis
Love III, Jonathan Byrd, Luke Donald, Matteo Manassero, Billy Horschel, and Morgan Hoffman. The Polo, Ralph Lauren, and
RLX Golf collections are available at select Ralph Lauren stores around the world, exclusive private clubs and resorts, and online
at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Pink Pony
Established in 2000, Pink Pony is our worldwide initiative in the fight against cancer. Pink Pony supports programs for
early diagnosis, education, treatment, and research, and is dedicated to bringing patient navigation and quality cancer care to
medically underserved communities. A percentage of sales from all Pink Pony products benefits the Pink Pony Fund of the Polo
Ralph Lauren Foundation and other major cancer charities around the world. Pink Pony primarily consists of feminine, slim-fitting
women's sportswear and accessories crafted in luxurious fabrics. From hooded sweatshirts and cotton mesh polos to canvas tote
bags and cashmere yoga pants, all Pink Pony items feature our iconic pink Polo Player — a symbol of our commitment to the
fight against cancer. Pink Pony is available at select Ralph Lauren stores and online at our Ralph Lauren e-commerce sites, including
RalphLauren.com. During the month of October, Pink Pony is also available at select Macy's stores and Macys.com. To learn
more about Pink Pony and our Company's other philanthropic efforts, please visit RalphLauren.com/Philanthropy.
Ralph Lauren Home
As the first American fashion designer to create an all-encompassing collection for the home, Ralph Lauren presents home
furnishings 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 fine materials and great attention to detail for the ultimate in artisanal luxury. The
collections include furniture, bed and bath linens, china, crystal, silver, decorative accessories and gifts, as well as lighting, fabric,
wallcovering, and floorcovering. Ralph Lauren Home offers exclusive luxury goods at select Ralph Lauren stores, home specialty
stores, trade showrooms, and online at our Ralph Lauren e-commerce sites, including RalphLauren.com. The complete world of
Ralph Lauren Home can be explored online at RalphLaurenHome.com.
9
Ralph Lauren Paint
Introduced in 1995, Ralph Lauren Paint offers exceptional quality and beauty in the Ralph Lauren tradition. Drawing on
over four decades of iconic design, Ralph Lauren paint is meticulously crafted from some of the finest materials in the industry
to achieve from fine coverage to long-lasting brilliance. In addition to a signature palette of over 400 one-of-a-kind colors, Ralph
Lauren Paint brings the texture and appearance of some of Ralph Lauren's most celebrated lifestyles to the home with a distinctive
collection of faux techniques and unique specialty finishes. Ralph Lauren Paint is offered at select specialty stores in the U.S. The
complete color palette, paint how-to's, and a guide to professional painters can be explored online at RalphLaurenPaint.com.
Fragrance
In 1978, Mr. Ralph Lauren expanded his lifestyle brand to encompass the world of fragrance, launching Lauren for women
and Polo for men. Since then, Ralph Lauren Fragrance has captured the essence of Ralph Lauren's men's and women's brands,
from the timeless heritage of Lauren and Polo to the sophisticated beauty of Polo Black for men and Romance for women to the
modern, fresh Ralph fragrances for her, designed to appeal to a younger audience. Women's fragrances include Romance, Midnight
Romance, Lauren, Safari, the Ralph Collection, Ralph Lauren Blue, and the Big Pony collection. Men's fragrances include Polo,
Polo Red, Polo Blue, Polo Blue Sport, Polo Black, Double Black, Polo Sport, Romance for Men, Safari, Purple Label, and the
Big Pony collection. Ralph Lauren fragrances are available in department stores, specialty and duty free stores, perfumeries, select
Ralph Lauren stores around the world, and online at our Ralph Lauren e-commerce sites, including RalphLauren.com.
Lauren for Men
Classic and polished, Lauren for Men conveys a spirit of tradition with a contemporary attitude. A complete collection of
men's tailored clothing, including suits, sport coats, dress shirts, dress pants, tuxedos, topcoats, and ties, the Lauren men's line
offers the sophisticated spirit and preppy heritage of Ralph Lauren menswear at a more accessible price point. A soft, natural
shoulder and modern construction details ensure elegant styling with superior comfort and the integrity of a well-made garment.
Lauren for Men is available at select department stores in North America and Europe.
Ralph by Ralph Lauren
Superior fabrics and a precise, impeccable construction define the distinguished aesthetic of the Ralph by Ralph Lauren
collection for men. Suit separates, sport coats, vests, and topcoats are all fashioned with the hallmarks of better men's suitings,
from half-canvas jacket constructions and high-quality Bemberg linings to hand-finished seams, felled cuffs, and hems and
reinforcements at natural points of wear. Timeless and unmistakably Ralph Lauren, the Ralph by Ralph Lauren collection offers
refined luxury at an excellent value. Ralph by Ralph Lauren is available exclusively at Dillard's stores and Dillards.com.
Chaps
Chaps translates the classic heritage and timeless aesthetic of Ralph Lauren into an accessible line for men, women, children,
and the home. From casual basics designed for versatility and ease of wear to smart, finely tailored silhouettes perfect for business
and more formal occasions, Chaps creates interchangeable classics that are both enduring and affordable. The Chaps men's
collection is available at select department and specialty stores in the U.S. and Canada, and in department stores and Chaps retail
stores in Mexico. The Chaps collections for women, children, and home are offered in the U.S. by Kohl's Corporation ("Kohl's")
at their stores and Kohls.com. The Chaps collections for women and children are also offered in Canada at Hudson's Bay stores
and thebay.com, and in Mexico at Chaps retail stores. The launch of the Chaps store concept in the U.S. and expansion of the
Chaps brand to certain international locations is planned for Fiscal 2015.
Club Monaco
Founded in 1985, Club Monaco is an international destination for affordable, stylish luxury. Each season, Club Monaco
designs and markets its own clothing and accessories for men and women, offering key fashion pieces with modern, urban
sophistication and a selection of updated classics — from the versatile white shirt and black pencil skirt to refined suiting and
Italian cashmere. The brand's signature aesthetic is defined by clean, contemporary design and a palette of versatile neutrals infused
with pops of vibrant colors. Club Monaco apparel and accessories are available at Club Monaco stores around the world, as well
as online at our Club Monaco domestic e-commerce site at ClubMonaco.com. In April 2012, Club Monaco further expanded its
e-commerce presence in North America by launching ClubMonaco.ca in Canada. Club Monaco is currently also available in
Europe at Club Monaco stores, department stores and specialty shops, and in Asia through our licensing arrangements.
10
Our Wholesale Segment
Our Wholesale segment sells our products to leading upscale and certain mid-tier department stores, specialty stores, and
golf and pro shops, both domestically and internationally. We have continued to focus on elevating our brand by improving in-
store product assortment and presentation, as well as full-price sell-throughs to consumers. As of the end of Fiscal 2014, our Ralph
Lauren-branded products were sold through over 11,000 doors worldwide and we invested $53 million of capital in related shop-
within-shops primarily in domestic and international department and specialty stores. Our products are also sold through the e-
commerce sites of certain of our wholesale customers.
The primary product offerings sold through our wholesale channels of distribution include menswear, womenswear,
childrenswear, accessories, and home furnishings. Our collection brands — Ralph Lauren Women's Collection and Black Label
and Men's Purple Label and Black Label — are distributed worldwide through a limited number of premier fashion retailers.
Department stores are our major wholesale customers in North America. In Latin America, our wholesale products are sold in
department stores and specialty stores. In Europe, our wholesale sales are a varying mix of sales to both department stores and
specialty stores, depending on the country. In Japan, our wholesale products are distributed primarily through shop-within-shops
at premier and top-tier department stores, and the mix of business is weighted to Men's and Women's Blue Label. In the Greater
China and Southeast Asia region and Australia, our wholesale products are sold mainly at mid and top-tier department stores, and
the mix of business is primarily weighted to Men's and Women's Blue Label. We also distribute product to certain licensed stores
operated by our partners in Latin America, Europe, and Asia. In addition, our Club Monaco products are distributed through select
department stores and specialty stores in Europe.
We sell the majority of our excess and out-of-season products through secondary distribution channels worldwide, including
our retail factory stores.
Worldwide Distribution Channels
The following table presents the number of doors by geographic location in which Ralph Lauren-branded products distributed
by our Wholesale segment were sold to consumers in our primary channels of distribution as of March 29, 2014:
Location
The Americas(a)..............................................................................................................................
Europe............................................................................................................................................
Asia(b).............................................................................................................................................
Total.............................................................................................................................................
Number of Doors
6,459
4,864
130
11,453
(a)
Includes the U.S., Canada, and Latin America.
(b) Includes Australia, China, Japan, the Philippines, and Thailand.
In addition, Chaps-branded products distributed by our Wholesale segment were sold domestically through approximately
2,800 doors as of March 29, 2014.
We have three key wholesale customers that generate significant sales volume. For Fiscal 2014, these customers in the
aggregate accounted for approximately 50% of our total Wholesale revenues, with Macy's, Inc. ("Macy's") representing
approximately 25% of our total Wholesale revenues.
Our products are sold primarily through our own sales forces. Our Wholesale segment maintains its primary showrooms
in New York City. In addition, we maintain regional showrooms in Milan, Paris, London, Munich, Madrid, Stockholm, and Panama.
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 to differentiate the presentation of our products.
As of March 29, 2014, we had approximately 22,000 shop-within-shops in our primary channels of distribution dedicated
to our Ralph Lauren-branded wholesale products worldwide. The size of our shop-within-shops ranges from approximately 100
to 9,200 square feet. Shop-within-shop fixed assets primarily include items such as customized freestanding fixtures, wall cases
11
and components, decorative items, and flooring. We normally share in the cost of building out these shop-within-shops with our
wholesale customers.
Basic Stock Replenishment Program. Basic products such as knit shirts, chino pants, oxford cloth shirts, selected
accessories, and Home products can be ordered by our wholesale customers at any time through our basic stock replenishment
programs. We generally ship these products within two to five days of order receipt.
Our Retail Segment
As of March 29, 2014, our Retail segment consisted of 433 directly-operated freestanding stores worldwide, totaling
approximately 3 million square feet, 503 concession-based shop-within-shops, and eight e-commerce websites. The extension of
our direct-to-consumer reach is one of our primary long-term strategic goals. We operate our retail business using an omni-channel
retailing strategy to deliver a seamless and integrated shopping experience with a consistent message of our brands and products
to our customers, regardless of whether they are shopping for our products in one of our physical stores or online.
Ralph Lauren Stores
Our Ralph Lauren stores feature a broad range of apparel, accessories, home, watch and jewelry, and fragrance product
assortments in an atmosphere reflecting the distinctive attitude and image of the Ralph Lauren, Polo, RRL, and Denim & Supply
brands, including exclusive merchandise that is not sold in department stores. During Fiscal 2014, we opened 17 new Ralph Lauren
stores, acquired eight previously licensed stores in Australia and New Zealand, converted three stores from concession-based
shop-within-shops, and closed five stores. Our Ralph Lauren stores are primarily situated in major upscale street locations and
upscale regional malls, generally in large urban markets.
We operated the following Ralph Lauren stores as of March 29, 2014:
Location
The Americas.................................................................................................................................
Europe............................................................................................................................................
Asia(a).............................................................................................................................................
Total.............................................................................................................................................
Ralph Lauren Stores
57
27
54
138
(a) Includes Australia, China, Hong Kong, Japan, Macau, Malaysia, New Zealand, Singapore, South Korea, and Vietnam.
Our seven flagship Ralph Lauren store locations showcase our upper-end luxury styles and products and demonstrate our
most refined merchandising techniques. In addition to generating sales of our products, our worldwide Ralph Lauren stores
establish, reinforce, and capitalize on the image of our brands. Our Ralph Lauren stores range in size from approximately 700 to
38,000 square feet.
Club Monaco Stores
Our Club Monaco stores feature fashion apparel and accessories for both men and women. The brand's clean and
contemporary signature style forms the foundation of a modern wardrobe. As of March 29, 2014, we operated 60 Club Monaco
retail stores in North America and Europe. Our Club Monaco stores range in size from approximately 900 to 17,400 square feet.
Factory Stores
We extend our reach to additional consumer groups through our 235 factory stores worldwide, generally located in outlet
centers. During Fiscal 2014, we added 24 new factory stores, acquired five previously licensed stores in Australia, and closed
seven factory stores.
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We operated the following factory stores as of March 29, 2014:
Location
The Americas ...............................................................................................................................
Europe ..........................................................................................................................................
Asia(a) ...........................................................................................................................................
Total...........................................................................................................................................
Factory Stores
150
50
35
235
(a) Includes Australia, China, Hong Kong, Japan, Malaysia, South Korea, and Taiwan.
Our factory stores in the Americas offer selections of our menswear, womenswear, childrenswear, accessories, home
furnishings, and fragrances. Ranging in size from approximately 2,700 to 20,000 square feet, with an average of approximately
10,400 square feet, these stores are principally located in major outlet centers in 40 states in the U.S., Canada, and Puerto Rico.
Our factory stores in Europe offer selections of our menswear, womenswear, childrenswear, accessories, home furnishings,
and fragrances. Ranging in size from approximately 1,400 to 19,700 square feet, with an average of approximately 7,000 square
feet, these stores are located in 12 countries, principally in major outlet centers.
Our factory stores in Asia offer selections of our menswear, womenswear, childrenswear, accessories, and fragrances.
Ranging in size from approximately 1,100 to 11,800 square feet, with an average of approximately 6,200 square feet, these stores
are primarily located throughout China and Japan, in Hong Kong, and in or near other major cities in Asia and Australia. Our
factory stores are principally located in major outlet centers.
Factory stores obtain products from our suppliers, our product licensing partners, and our other retail stores and e-commerce
operations, and also serve as a secondary distribution channel for our excess and out-of-season products.
Concession-based Shop-within-Shops
The terms of trade for shop-within-shops are largely conducted on a concession basis, whereby inventory continues to be
owned by us (not the department store) until ultimate sale to the end consumer. The salespeople involved in the sales transactions
are generally our employees and not those of the department store.
As of March 29, 2014, we had 503 concession-based shop-within-shops at 243 retail locations dedicated to our products,
which were located in Asia, Australia, New Zealand, and Europe. The size of our concession-based shop-within-shops ranges from
approximately 140 to 7,400 square feet. We may share in the cost of building-out certain of these shop-within-shops with our
department store partners.
E-commerce Websites
In addition to our stores, our Retail segment sells products online through our e-commerce channel, which includes:
• Our North American e-commerce sites located at www.RalphLauren.com and www.ClubMonaco.com, as well as
our Club Monaco site in Canada located at www.ClubMonaco.ca;
• Our Ralph Lauren e-commerce sites in Europe, including www.RalphLauren.co.uk (servicing the United Kingdom),
www.RalphLauren.fr (servicing Belgium, France, Italy, Luxembourg, the Netherlands, Portugal, and Spain), and
www.RalphLauren.de (servicing Germany and Austria); and
• Our Ralph Lauren e-commerce sites in Asia, including www.RalphLauren.co.jp servicing Japan and
www.RalphLauren.co.kr servicing South Korea.
Our Ralph Lauren e-commerce sites in the U.S., Europe, and Asia offer our customers access to a broad array of Ralph
Lauren, RRL, Polo, and Denim & Supply apparel, accessories, fragrance, and home products, and reinforce the luxury image of
our brands. While investing in e-commerce operations remains a primary focus, it is an extension of our investment in the integrated
omni-channel strategy used to operate our overall retail business, in which our e-commerce operations are interdependent with
our physical stores.
Our Club Monaco e-commerce sites in the U.S. and Canada offer our domestic and Canadian customers access to our Club
Monaco global assortment of womenswear, menswear, and accessories product lines, as well as select online exclusives.
13
Our Licensing Segment
Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product or
geographic 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 of our trademarks. We grant our international geographic area licensing partners exclusive rights to distribute certain brands
or classes of our products and operate retail stores in specific international territories. These geographic area licensees source
products from us, our product licensing partners, and independent sources. Each licensing partner pays us royalties based upon
its sales of our products, generally subject to a minimum royalty requirement for the right to use our trademarks and design services.
In addition, licensing partners may be required to allocate a portion of their revenues to advertising our products and sharing in
the creative costs associated with these products. Larger allocations are required in connection with launches of new products or
in new territories. Our licenses generally have one to five-year terms and may grant the licensees conditional renewal options.
We work closely with all of our licensing partners to ensure that their products are developed, marketed, and distributed to
reach the intended consumer and are presented consistently across product categories and international markets to convey the
distinctive identity and lifestyle associated with our brands. Virtually all aspects of the design, production quality, packaging,
merchandising, distribution, advertising, and promotion of Ralph Lauren products are subject to our prior approval and continuing
oversight. We perform a broader range of services for our Ralph Lauren Home licensing partners than we do for our other licensing
partners, including design, operating showrooms, marketing, advertising, and, in some cases, sales. In general, our Home licensing
partners manufacture and own the inventory, and ship the products.
Approximately 45% of our licensing revenue for Fiscal 2014 was earned from four of our largest licensing partners: Luxottica
Group, S.p.A., L'Oreal S.A., Peerless, Inc., and Hanesbrands Inc. The following table lists our largest licensing agreements as of
March 29, 2014. Except as noted in the table, these product licenses cover the U.S. or North America only.
Category
Men's Apparel
Licensed Products
Licensing Partners
Underwear and Sleepwear
Chaps, Lauren, and Ralph Tailored Clothing
Hanesbrands, Inc.
Peerless, Inc.
Beauty Products
Fragrances, Cosmetics, Color, and Skin Care
L'Oreal S.A. (global)
Accessories
Eyewear
Luxottica Group, S.p.A. (global)
Home(a)
Bedding and Bath
Utility and Blankets
Fabric and Wallpaper
Furniture
Ichida (Japan) and Kohl's Department Stores, Inc.
Hollander Sleep Products LLC and Kohl's Department
Stores, Inc.
Designers Guild Limited and P. Kaufmann Inc.
EJ Victor, Inc.
(a) Our Home products are sold under our Ralph Lauren Home, Lauren by Ralph Lauren, and Chaps brands. As of March 29,
2014, we had agreements with ten domestic and three international Home product licensing partners.
In July 2013, our international licensing agreements with Oroton in Australia and New Zealand and Comercial Madison,
S.A. in Chile expired, and we assumed control over the related product distribution in these regions. We believe that international
markets will continue to offer us additional growth opportunities for our quintessential American design and lifestyle image through
both international licensing arrangements and our directly owned operations.
Our products reflect a timeless and innovative interpretation of American style with a strong international appeal. Our
consistent emphasis on new and distinctive design has been an important contributor to the prominence, strength, and reputation
of the Ralph Lauren brands.
Product Design
14
Our Ralph Lauren products are designed by and under the direction of Mr. Ralph Lauren and our design staff. We form
design teams around our brands and product categories to develop concepts, themes, and products for each brand and category.
Through close collaboration with merchandising, sales, and production staff, these teams support all three segments of our
business — Wholesale, Retail, and Licensing — in order to gain market information and other valuable input.
Marketing and Advertising
Our marketing and advertising programs communicate the themes and images of our brands and are integral to our product
offerings. The majority of our advertising program is created and executed on a centralized basis through our in-house creative
and advertising organization to ensure consistency of presentation, which is complemented by our marketing experts in each region
who help to execute our international strategies.
We create distinctive image advertising for our brands, conveying the particular message of each one within the context of
the overall Ralph Lauren aesthetic. Advertisements generally portray a lifestyle rather than a specific item and include a variety
of products offered by ourselves and, in some cases, our licensing partners. Our primary advertising medium is print, with multiple
page advertisements appearing regularly in a range of fashion, lifestyle, and general interest magazines. Major print advertising
campaigns are conducted during the fall and spring retail seasons, with additions throughout the year to coincide with product
deliveries. In addition to print, we utilize television and outdoor media in certain of our marketing programs. We also market our
brand through direct-to-consumer marketing, special events, and interactive digital activities. We use our consumer database and
consumer knowledge to guide these activities.
Our digital advertising programs focus on high impact and innovative digital media outlets, which allow us to convey our
key brand messages and lifestyle positioning. We also develop digital editorial initiatives that allow for deeper education and
engagement around the Ralph Lauren lifestyle, including the Ralph Lauren magazine, style guides, and videos. We deploy these
marketing and advertising initiatives through online, mobile, email, and social media. Our e-commerce sites present the Ralph
Lauren lifestyle online, while offering a broad array of our apparel, accessories, and Home product lines.
We advertise in consumer and trade print and digital media, and participate in cooperative advertising on a shared cost basis
with some of our retail and licensing partners. We also provide point-of-sale fixtures and signage to our wholesale customers to
enhance the presentation of our products at their retail locations. In addition, when our licensing partners are required to spend an
amount equal to a percentage of their licensed product sales on advertising, we coordinate the advertising placement on their
behalf. We believe our investments in shop-within-shop environments and retail stores, including our flagship locations worldwide,
contribute to and enhance the themes of our brands to consumers. We expensed approximately $256 million related to the
advertising, marketing, and promotion of our products in Fiscal 2014.
We also conduct a variety of public relations activities. Each of our spring and fall womenswear Collections are presented
at major fashion shows in New York City, which typically generate extensive domestic and international media coverage. In
addition, in Fiscal 2014, we also showcased our Resort and Pre-Fall Collections in fashion shows at our Women's flagship store
in New York City. We introduce each of the spring and fall menswear collections at press presentations in major cities such as
New York City and Milan. In addition, we organize in-store events, including appearances by our models, certain athletes, and
other public interest figures.
We continue to be the exclusive outfitter for all on-court officials at the Wimbledon tennis tournament and the official
outfitter of all on-court officials at the U.S. Open tennis tournament. Both tournaments provide worldwide exposure for our brand
in a relevant lifestyle environment. We also continue to be the exclusive Official Parade Outfitter for the U.S. Olympic and
Paralympic Teams, with the right to manufacture, distribute, advertise, promote, and sell products in the U.S. which replicate the
Parade Outfits and associated leisure wear. Most recently, we dressed the team for the 2014 Winter Olympic Games in Sochi and
preparations have already started to dress the team for the 2016 Olympic Games in Rio. As part of our involvement with Team
U.S.A., we have established a partnership with athletes serving as brand ambassadors and as the faces of our advertising, marketing,
and public relations campaigns.
Under our agreement with the United States Golf Association ("USGA"), we continue to be the official apparel outfitter
for the USGA and the U.S. Open Championships and serve as the championship's largest on-site apparel supplier. Additionally,
under our agreement with The Royal & Ancient, we are an Official Patron of The Open Championship that is played annually on
British links golf courses. As part of this agreement, we are outfitting all officials and staff members at The Open Championship
and are serving as the championship's largest on-site apparel retailer. We believe our partnerships with prestigious global
tournaments reinforce our brand's sporting heritage.
15
Sourcing, Production and Quality
We contract for the manufacture of our products and do not own or operate any production facilities. Over 700 different
manufacturers worldwide produce our apparel, footwear, accessories, and home products, with no one manufacturer providing
more than approximately 4% of our total production during Fiscal 2014. We source both finished products and raw materials. Raw
materials include fabric, buttons, and other trim. Finished products consist of manufactured and fully assembled products ready
for shipment to our customers. In Fiscal 2014, less than 2% of our products (by dollar value) were produced in the U.S., and over
98% of our products (by dollar value) were produced outside the U.S., primarily in Asia, Europe, and Latin America. See "Import
Restrictions and other Government Regulations" and Item 1A — "Risk Factors — Risks Related to Our Business — Our business
is subject to risks associated with importing products and could suffer as a result of increases in the price of raw materials, freight,
or labor, or a manufacturer's inability to produce our goods on time and to our specifications."
Most of our businesses must commit to the manufacturing of our garments before we sell finished goods, whether to wholly-
owned retail stores or to wholesale customers. We also must commit to purchase fabric from mills well in advance of our sales.
If we overestimate our primary customers' demand for a particular product or the need for a particular fabric or yarn, we may sell
the excess products or garments made from such fabric or yarn in our factory stores or through other secondary distribution
channels.
Suppliers operate under the close supervision of our global manufacturing division and buying agents headquartered in
Asia, the Americas, the Middle East, and Europe. All products are produced according to our specifications. Production and quality
control staff in Asia, the Americas, the Middle East, 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 reviewed early in the production process, allowing merchandise to be received at the
distribution facilities and shipped to customers with minimal interruption.
Competition
Competition is very strong in the segments of the fashion and consumer product industries in which we operate. We compete
with numerous designers and manufacturers of apparel and accessories, fragrances, and home furnishing products, both domestic
and international. Some of our competitors may be significantly larger and have substantially greater resources than us. We compete
primarily on the basis of fashion, quality, value, and service, which depend on our ability to:
•
anticipate and respond to changing consumer demands in a timely manner;
• maintain favorable brand recognition, loyalty, and reputation for quality;
•
•
•
•
•
•
develop and produce high quality products that appeal to consumers;
appropriately source raw materials at cost-effective prices;
appropriately price our products;
provide strong and effective marketing support;
ensure product availability; and
obtain additional points of distribution and 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
worldwide in the markets in which we operate."
16
To facilitate global distribution, our products are shipped from manufacturers to a network of distribution centers around
the world for inspection, sorting, packing, and delivery to retail and wholesale customers. This network includes the following
primary distribution facilities:
Distribution
Geographic Region
Facility Type
Facility Location
U.S.
Canada
Europe
Japan
South Korea
Greater China and
Southeast Asia(e)
Latin America
E-commerce distribution center
Wholesale and Retail distribution center Greensboro, North Carolina
High Point, North Carolina
Wholesale distribution center
High Point, North Carolina(a)
Chino Hills, California
Miami, Florida
Toronto, Ontario
Parma, Italy(b)
Yokohama, Japan(c)
Bugok, South Korea(d)
Hong Kong, China, Singapore,
Malaysia, and Taiwan
Colón, Panama
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Distribution center
Distribution centers
Distribution center
Facility
Ownership
Owned
Leased
Owned
Third-party
Third-party
Third-party
Third-party
Third-party
Leased
Third-party
Third-party
(a) This distribution center performs customer order fulfillment for RalphLauren.com and ClubMonaco.com.
(b) This distribution center performs customer order fulfillment for our European businesses, including our e-commerce
operations in Europe.
(c) This distribution center performs customer order fulfillment for our Japanese businesses, including our e-commerce operations
in Japan.
(d) This distribution center performs customer order fulfillment for our businesses in South Korea, including our e-commerce
operations.
(e)
Includes China, Hong Kong, Macau, Malaysia, the Philippines, Singapore, Taiwan, Thailand, and Vietnam. Our distribution
center in Hong Kong also performs customer order fulfillment for our businesses in Australia and New Zealand.
All facilities are designed to allow for high-density cube storage and value-added services, and utilize unit and carton
tracking technology to facilitate process control and inventory management. The distribution network is managed through globally
integrated information technology systems.
Our management information systems make the design, marketing, manufacturing, importing, and distribution of our
products more efficient by providing, among other things:
Management Information Systems
•
•
•
•
comprehensive order processing;
production and design information;
accounting information; and
an enterprise view of information for our design, 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 sale on a real-time basis. We believe our merchandising and financial systems, coupled with our point-of-sale registers
and software programs, allow for efficient stock replenishment, effective merchandise planning, and real-time inventory and sales
accounting.
17
In the U.S. and Europe, we utilize an automated replenishment system to facilitate the processing of basic replenishment
orders from our Retail segment and wholesale customers, the movement of goods through distribution channels, and the collection
of information for planning and forecasting. In the U.S. and Europe, we also utilize an automated allocation system to facilitate
the flow of inventory for our Retail segment.
We are in the process of implementing a new global operating and financial reporting information technology system, SAP,
as part of a multi-year plan to integrate and upgrade our systems and processes. The implementation of this global system is
scheduled to occur in phases over the next several years. During Fiscal 2014, we continued to migrate certain areas of our business
to SAP, including global merchandise procurement and customer order management and record-to-report for our North American
wholesale operations, which is scheduled to be completed in Fiscal 2015. During Fiscal 2015, we will also begin planning the
migration of our European operations to SAP, which will be completed in stages over the next several years.
See Item 1A — "Risk Factors — Risks Related to Our Business — Implementation of management information systems
may negatively impact our business" and "Risk Factors — Risks Related to Our Business — Our business could suffer if our
computer systems and websites are disrupted or cease to operate effectively."
Wholesale Credit Control
We manage our own credit function. We sell our merchandise principally to major department stores and extend credit
based on an evaluation of the wholesale customer's financial capacity and condition, usually without requiring collateral. We
monitor credit levels and the financial condition of our wholesale customers on a continuing basis to minimize credit risk. We do
not factor or underwrite our accounts receivables, or maintain credit insurance to manage the risk of bad debts. In North America,
collection and deduction transactional activities are provided through a third-party service provider. See Item 1A — "Risk
Factors — Risks Related to Our Business — Our business could be negatively impacted by any financial instability of our
customers."
Wholesale Backlog
We generally receive wholesale orders approximately three to five months prior to the time the products are delivered to
customers. Such orders are generally subject to broad cancellation rights. Our total backlog was approximately $1.5 billion and
$1.4 billion as of March 29, 2014 and March 30, 2013, respectively. We expect that substantially all of our backlog orders as of
March 29, 2014 will be filled within the next fiscal year.
The size of our order backlog depends upon a number of factors, including the timing of the market weeks for our particular
lines during which a significant percentage of our orders are received and the timing of shipments, which varies from year-to-year
with consideration for holidays, consumer trends, concept plans, and the basic stock replenishment programs usage. As a
consequence, a comparison of the size of our order backlog from period to period may not be meaningful, nor may it be indicative
of eventual shipments.
We own the RALPH LAUREN, POLO, POLO BY RALPH LAUREN DESIGN, and the famous polo player astride a horse
trademarks in the U.S. and approximately 120 countries worldwide. Other trademarks that we own include:
Trademarks
•
PURPLE LABEL;
• BLACK LABEL;
• BLUE LABEL;
• RRL;
• RLX;
• LAUREN RALPH LAUREN;
18
• DENIM & SUPPLY RALPH LAUREN;
•
PINK PONY;
• LAUREN;
• RALPH;
• CHAPS;
• CLUB MONACO;
• RUGBY;
• 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
in connection with, among other things, beef and living animals. The trademarks DOUBLE RL and RRL are currently used by
the Double RL Company, an entity wholly-owned by Mr. Lauren. In addition, Mr. Lauren has the right to engage in personal
projects involving film or theatrical productions (not including or relating to our business) through RRL Productions, Inc., a
company wholly-owned by Mr. Lauren. Any activity by these companies has no impact on us.
Our trademarks are the subject of registrations and pending applications throughout the world for use on a variety of items
of apparel, apparel-related products, home furnishings, restaurant and café services, online services and online publications, and
beauty products, as well as in connection with retail services, and we continue to expand our worldwide usage and registration of
related trademarks. In general, trademarks remain valid and enforceable as long as the marks are used in connection with the
related products and services and the required registration renewals are filed. We regard the license to use the trademarks and our
other proprietary rights in and to the trademarks as extremely valuable assets in marketing our products and, on a worldwide basis,
vigorously seek to protect them against infringement. As a result of the appeal of our trademarks, our products have been the object
of counterfeiting. While we have a broad enforcement program which has been generally effective in protecting our intellectual
property rights and limiting the sale of counterfeit products in the U.S. and in most major markets abroad, we face greater challenges
with respect to enforcing our rights against trademark infringement in certain parts of Asia.
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
our international expansion, we have experienced conflicts with various third parties who have acquired ownership rights in certain
trademarks, including POLO and/or a representation of a Polo Player Design, which impede our use and registration of our principal
trademarks. While such conflicts are common and may arise again from time to time as we continue our international expansion,
we have, in general, successfully resolved such conflicts in the past through both legal action and negotiated settlements with
third-party owners of the conflicting marks (see Item 1A — "Risk Factors — Risks Related to Our Business — Our trademarks
and other intellectual property rights may not be adequately protected outside the U.S." and Item 3 — "Legal Proceedings" for
further discussion). Although we have not in the past suffered any material restraints or restrictions on doing business in desirable
markets, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce
trademarks to new markets.
Import Restrictions and Other Government Regulations
Virtually all of our merchandise imported into the Americas, Europe, Asia, Australia, and New Zealand is subject to duties.
In addition, most of the countries to which we ship could impose safeguard quotas and duties to protect their local industries from
import surges that threaten to create market disruption. The U.S. and other countries may also unilaterally impose additional duties
in response to a particular product being imported (from China or other countries) at unfairly traded prices in such increased
quantities that would cause (or threaten) injury to the relevant domestic industry (generally known as "anti-dumping" actions). If
dumping is suspected in the U.S., the U.S. government may self-initiate a dumping case on behalf of the U.S. textile industry
which could significantly affect our costs. Furthermore, additional duties, generally known as countervailing duties, can also be
imposed by the U.S. government to offset subsidies provided by a foreign government to foreign manufacturers if the importation
of such subsidized merchandise injures or threatens to injure a U.S. industry. Legislative proposals have been introduced which,
19
if adopted, would treat a manipulation by China of the value of its currency as actionable under the anti-dumping or countervailing
duty laws.
We are also subject to other international trade agreements and regulations, such as the North American Free Trade
Agreement, the Central American Free Trade Agreement, the Caribbean Basin Initiative, and other special trade programs. A
portion of our imported products are eligible for certain of these duty-advantaged programs. In addition, each of the countries in
which our products are sold has laws and regulations covering imports. Because the U.S. and the other countries in which our
products are manufactured and sold may, from time to time, impose new duties, tariffs, surcharges, or other import controls or
restrictions, including the imposition of a "safeguard quota," or adjust presently prevailing duty or tariff rates or levels, we maintain
a program of intensive monitoring of import restrictions 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, and through geographical diversification of our sources of supply.
As almost all our products are manufactured by foreign suppliers, the enactment of new legislation or the administration
of current international trade regulations, executive action affecting textile agreements, or changes in sourcing patterns resulting
from the elimination of quotas could adversely affect our operations. On January 1, 2005, the World Trade Organization's 148
member nations lifted all quotas on apparel and textiles. As a result, all textiles and apparel manufactured in each member nation
and exported after January 1, 2005 are no longer subject to quota restrictions. Although we generally expect that the 2005 elimination
of quotas will result, over the long term, in an overall reduction in the cost of apparel produced abroad, the implementation of any
"safeguard quota provisions," any "anti-dumping" or "countervailing duty" actions, or any other actions impacting international
trade may result, in the near term, in cost increases and in disruption of the supply chain for certain product categories. See
Item 1A — "Risk Factors — Risks Related to Our Business — Our ability to conduct business in international markets may be
affected by legal, regulatory, political, and economic risks" and "Risk Factors — Risks Related to Our Business — Our business
is subject to risks associated with importing products and could suffer as a result of increases in the price of raw materials, freight,
or labor, or a manufacturer's inability to produce our goods on time and to our specifications."
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 Consumer Product Safety Improvement Act, which imposes limitations on the permissible amounts
of lead and phthalates allowed in children's products. These regulations relate principally to product labeling, licensing
requirements, flammability testing, and product safety, particularly with respect to products used by children. We believe that we
are in substantial compliance with these regulations, as well as applicable federal, state, local, and foreign rules and regulations
governing the discharge of materials hazardous to the environment. We do not estimate any significant capital expenditures for
environmental control matters either in the next fiscal year or in the near future. Our licensed products, licensing partners, buying/
sourcing agents, and the vendors and factories with which we contract for the manufacture and distribution of our products are
also subject to regulation. Our agreements require our licensing partners, buying/sourcing agents, vendors, and factories to operate
in compliance with all laws and regulations, and we are not aware of any violations which could reasonably be expected to have
a material adverse effect on our business or operating results.
We are also subject to new disclosure and reporting requirements, established under existing or new federal or state laws,
such as the requirements to identify the origin and existence of certain "conflict minerals" under the Dodd-Frank Wall Street
Reform and Consumer Protection Act, and disclosures of abusive labor practices in portions of our supply chain under the California
Transparency in Supply Chains Act, which could increase the cost of doing business, adversely affecting our results of operations.
Although we have not suffered any material restriction from doing business in desirable markets in the past, we cannot
assure that significant impediments will not arise in the future as we expand product offerings and introduce additional trademarks
to new markets.
Employees
As of March 29, 2014, we had approximately 23,000 employees, including approximately 14,000 full-time and
approximately 9,000 part-time employees. Approximately 14,000 of our employees are located in the U.S. and approximately
9,000 are located in foreign countries. Approximately 30 of our U.S. production and distribution employees in the womenswear
business are members of Workers United (which was previously known as UNITE HERE) under an industry association collective
bargaining agreement, which our womenswear subsidiary has adopted. We consider our relations with both our union and non-
union employees to be good.
20
The following are our current executive officers and their principal recent business experience:
Executive Officers
Ralph Lauren ...................................................
Age 74
Roger N. Farah(a) .............................................
Age 61
Jackwyn L. Nemerov.......................................
Age 62
Christopher H. Peterson .................................
Age 47
Mitchell A. Kosh ..............................................
Age 64
Mr. Lauren has been our Chairman, Chief Executive Officer and
director since prior to our initial public offering in 1997, and
was a member of the Advisory Board of the Board of Directors
of our predecessors since their organization. He founded our
business in 1967. For over four decades, Mr. Lauren has
cultivated the iconography of America into a global lifestyle
brand.
Mr. Farah has been Executive Vice Chairman of the Company
since November 2013 and a director of the Company since April
2000. He was the Company's President and Chief Operating
Officer from April 2000 through October 2013. Mr. Farah was
Chairman of the board of directors of Venator Group, Inc. (now
Foot Locker, Inc.) from December 1994 until April 2000, and
was Chief Executive Officer of Venator Group, Inc. from
December 1994 to August 1999. He is Chairman of the Finance
Committee and a member of the Executive Committee of the
National Retail Federation and is currently a member of the
board of directors of Aetna, Inc., The Progressive Corporation,
and Metro Bank.
Ms. Nemerov has been our President & Chief Operating Officer
since November 2013 and a director of the Company since
February 2007. She served as Executive Vice President of the
Company from September 2004 through October 2013. Ms.
Nemerov was President & Chief Operating Officer of Jones
Apparel Group, Inc. from January 1998 until March 2002. Prior
to that, Ms. Nemerov was affiliated with Allied Stores, Bernard
Chaus and Gloria Vanderbilt for Murjani. Ms. Nemerov
currently serves as a member of the board of governors of The
New School University's Parsons School of Design.
Mr. Peterson has been our Executive Vice President, Chief
Administrative Officer and Chief Financial Officer since
November 2013. He served as Senior Vice President and Chief
Financial Officer of the Company from September 2012 through
November 2013. From 1992 to 2012, Mr. Peterson held various
positions with The Procter & Gamble Company, most recently
serving as Vice President and Chief Financial Officer of its
Global Household Care division.
Mr. Kosh has served as our Executive Vice President of Human
Resources since March 2014. He was Senior Vice President of
Human Resources of the Company from July 2000 through
February 2014. Mr. Kosh was Senior Vice President of Human
Resources of Conseco, Inc. from February 2000 to July 2000.
Prior to that time, Mr. Kosh held executive human resource
positions with the Venator Group, Inc. starting in 1996.
(a) On May 8, 2014, Roger N. Farah notified us of his resignation from the Company as Executive Vice Chairman, effective
as of May 31, 2014. Mr. Farah will remain on our Board of Directors until our 2014 Annual Meeting of Stockholders in
August 2014.
21
Item 1A. Risk Factors
There are risks associated with an investment in our securities. The following risk factors should be read carefully in
connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any
of the following risk factors could materially adversely affect our business, our prospects, our results of operations, our financial
condition, our liquidity, the trading price of our securities, and/or the actual outcome of matters as to which forward-looking
statements are made in this report. Additional risks and uncertainties not currently known to us or that we currently view as
immaterial may also materially adversely affect our business, results of operations, and financial condition in future periods or
if circumstances change.
Risks Related to Our Business
The loss of the services of Mr. Ralph Lauren, members of our executive management team, 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 our success since the inception of our Company. Mr. Lauren is instrumental to, and closely identified with, our brand that bears
his name. Our ability to maintain our brand image and leverage the goodwill associated with Mr. Lauren's name may be damaged
if we were to lose his services. We depend on the service and management experience of Mr. Lauren and other key executive
officers, who have substantial experience and expertise in our industry and our business. The death or disability of Mr. Lauren or
other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from
his loss, could have a material adverse effect on our business, results of operations, and financial condition. Our other executive
officers and other members of senior management have substantial experience and expertise in our business and have made
significant contributions to our growth and success. The loss of the services of any of the key members of senior management,
including members of the Office of the Chairman, or one or more of our other key personnel, or the concurrent loss of several of
these individuals or any negative public perception with respect to these individuals, could also have a material adverse effect on
our business, results of operations, and financial condition. We are not protected by a material amount of key-man or similar life
insurance covering Mr. Lauren, our other executive officers, or other members of senior management. We have entered into
employment agreements with Mr. Lauren and certain other executive officers, but competition for experienced executives in our
industry is intense and the non-compete period with respect to Mr. Lauren and certain other executive officers could, in some
circumstances in the event of their termination of employment with our Company, end prior to the employment term set forth in
their employment agreements.
We cannot assure the successful implementation of our growth strategy.
As part of our growth strategy, we seek to extend our brands and merchandise categories, expand our geographic coverage,
and increase direct management of our brands by opening more of our own stores, strategically acquiring or integrating into our
existing operations select businesses previously held by our licensees, and enhancing our operations. Implementation of our strategy
involves the continued expansion of our business in North America, Asia, Europe, Latin America, and other international areas.
For example, as discussed in Item 1 — "Business — Recent Developments," we completed the Chaps Menswear License
Acquisition in April 2013 and the Australia and New Zealand Licensed Operations Acquisition in July 2013.
We may have difficulty integrating acquired businesses into our operations, hiring and retaining qualified key employees,
or otherwise successfully managing such expansion. Furthermore, we may not be able to successfully integrate the business of
any licensee that we acquire into our own business, we may incur additional costs, and we may fail to 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 on a global
basis, including our e-commerce operations, which is subject to many factors beyond our control. We may not be able to procure,
purchase, or lease desirable freestanding or department store locations, renew and maintain existing freestanding store leases and
department store locations on acceptable terms, or secure suitable replacement locations. The lease negotiation, as well as the
number and timing of new stores and shop-within-shop locations actually opened 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 to us from our landlords in order
to commence build-out construction activities; (iii) our ability and our 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 or environmental problems with the leased premises;
(vi) adverse weather conditions during the construction period; and (vii) the hiring and training of qualified operating personnel
22
in the local market. In addition, the success of our e-commerce operations depends on our ability to maintain and upgrade our e-
commerce platform to provide our customers with a seamless shopping experience. While we continue to explore new markets
and are always evaluating new potential locations, any of the above factors could have an adverse impact on our business, results
of operations, and financial condition. Further, as we continue to expand and increase the global presence of our e-commerce
business, sales from our brick and mortar stores and wholesale channels of distribution in areas where e-commerce sites are
introduced may decline due to changes in consumer shopping habits and cannibalization.
In Europe, we lack the large wholesale distribution channels we have in the U.S., and we may have difficulty developing
and maintaining successful distribution strategies and alliances in certain major European countries. In Asia, our primary mode
of distribution is via a network of shops located within leading department stores. As we operate a direct-to-consumer business
in this region and face established competitors, who in some cases maintain licensing relationships with such department stores,
we may have difficulty in successfully retaining this network and expanding into alternate distribution channels. In addition, certain
of the international countries in which we operate, particularly in Asia, have unique operational characteristics that vary from the
U.S., including but not limited to employment and labor, transportation, logistics, acquiring store locations, and legal requirements,
which may pose challenges to the execution and success of our related growth strategies. Further, macroeconomic trends may not
be favorable and could limit our ability to implement our growth strategies in select geographies where we have foreign operations,
such as Europe, Asia, Australia, New Zealand, and Latin America.
Achievement of our growth strategy requires investment in new capabilities, distribution channels, and technologies
worldwide. These investments may result in short-term costs without accompanying current revenues and, therefore, may be
dilutive to our earnings in the short term. In addition, we may continue to incur costs in connection with repositioning our business
in certain geographic areas, including in Asia. Although we believe that our strategy will lead to long-term growth in revenue and
profitability, the anticipated benefits may not be fully realized.
Our 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 our current level of operations in our
existing international markets is subject to certain risks associated with operating in various international locations. These include,
but are not limited to:
•
•
•
•
•
the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions;
compliance with U.S. and other country laws relating to foreign operations, including, but not limited to, the Foreign
Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the
purpose of obtaining or retaining business, and the U.K. Bribery Act, which prohibits U.K. and related companies
from any form of bribery;
unexpected changes in laws, judicial processes, or regulatory requirements;
adapting to local customs and culture; and
new tariffs or other barriers in certain 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, including sanctions resulting from the current political situation in
Russia and Ukraine; 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, if any, on our business, results of operations, and financial condition. Changes in regulatory, geopolitical, social, or economic
policies and other factors may have a material adverse effect on our business in the future, or may require us to exit a particular
market or significantly modify our current business practices.
23
A data security or privacy breach could damage our reputation and our relationships with our customers, expose us to
litigation risk, and adversely affect our business.
We are dependent on information technology systems and networks, including the Internet, for a significant portion of our
direct-to-consumer sales, including our e-commerce operations and retail business credit card transaction authorization and
processing. We are also responsible for storing data relating to our customers and employees and rely on third parties for the
operation of our e-commerce websites and for the various social media tools and websites we use as part of our marketing strategy.
In our normal course of business, we often collect, retain, and transmit certain sensitive and confidential customer information,
including credit card information, over public networks. There is significant concern by consumers and employees over the security
of personal information transmitted over the Internet, consumer identity theft, and user privacy. Despite the security measures we
currently have in place, our facilities and systems and those of our third-party service providers may be vulnerable to security
breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other Internet or email
events. Any perceived or actual electronic or physical security breach involving the misappropriation, loss, or other unauthorized
disclosure of confidential or personally identifiable information, including penetration of our network security, whether by us or
by a third-party, could disrupt our business, severely damage our reputation and our relationships with our customers, expose us
to risks of litigation, fines and penalties, and liability, and result in deterioration in our employees' and customers' confidence in
us, and adversely affect our business, results of operations, and financial condition. Since we do not control third-party service
providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future,
any perceived or actual unauthorized disclosure of personally identifiable information regarding our customers or website visitors
could harm our reputation and credibility, reduce our e-commerce net sales, impair our ability to attract website visitors, and reduce
our ability to attract and retain customers. As these threats develop and grow, we may find it necessary to make significant further
investments to protect data and infrastructure. In addition, as the regulatory environment relating to information security and
privacy is becoming increasingly demanding, we may also incur significant costs in complying with the various applicable state,
federal, and foreign laws regarding protection of, and unauthorized disclosure of, personal information.
Implementation of management information systems may negatively impact our business.
We are continually improving and upgrading our computer systems and software. For example, we are in the process of
implementing a new global operating and financial reporting information technology system, SAP, as part of a multi-year plan to
integrate and upgrade our operational and financial systems and processes, which began in Fiscal 2011. During Fiscal 2014, we
continued to migrate certain areas of our business to SAP, including global merchandise procurement, customer order management,
and record-to-report for our North American wholesale operations, which is scheduled to be completed in Fiscal 2015. During
Fiscal 2015, we will also begin planning the migration of our European operations to SAP, which will be completed in stages over
the next several years. We have an orderly plan to transition a number of our existing legacy systems to the new system over the
next few years.
Implementation of a new management information system involves risks and uncertainties. Any disruptions, delays, or
deficiencies in the design or implementation of a new system, such as the new global operating and financial reporting system
currently being implemented, could result in increased costs, disruptions in the sourcing and shipment of our product, and delays
in the collection of cash from our customers, as well as have an adverse effect on our ability to timely report our financial results,
all of which could materially adversely affect our business, results of operations, and financial condition.
Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively.
We are dependent on our computer systems to record and process transactions and manage and operate our business,
including in designing, marketing, manufacturing, importing, tracking, and distributing our products, processing payments, and
accounting for and reporting results. We also utilize an automated replenishment system to facilitate the processing of basic
replenishment orders from our Retail segment and our wholesale customers, the movement of goods through distribution channels,
and the collection of information for planning and forecasting. In addition, we have e-commerce and other Internet websites in
North America, Europe, Japan, and South Korea, and have plans for additional e-commerce sites in Asia and other parts of the
world. Given the complexity of our business and the significant number of transactions that we engage in on a daily basis, it is
imperative that we maintain uninterrupted operation of our computer hardware and software systems. Despite our preventative
efforts, our systems are vulnerable to damage or interruption from, among other things, security breaches, computer viruses,
malfunctions, or power outages. Any material disruptions in our information technology systems could have a material adverse
effect on our business, results of operations, and financial condition.
24
The success of our business depends on our ability to retain the value of our Ralph Lauren brands, to continue to develop
products that resonate with our existing customers and attract new customers, and to provide a seamless shopping
experience to our customers.
Our success depends on the value of our brands and our ability to consistently anticipate and respond to customers' demands,
preferences, and fashion trends in the design, pricing, and production of our products, including the preference for certain products
to be manufactured in the U.S. Any failure on our part to anticipate, identify, and respond effectively to these consumer demands,
preferences, and trends could adversely affect acceptance of our products. The Ralph Lauren name is integral to our business and
our business could be adversely affected if Mr. Lauren's public image or reputation were to be tarnished. Merchandise missteps
or unfavorable publicity, especially through social media which accelerates and increases the potential scope of negative publicity,
could negatively impact the image of our brands with our customers and could result in diminished loyalty to our brands, which
could adversely impact our business, results of operations, and financial condition.
The success of our business also depends on our ability to continue to develop and maintain a reliable omni-channel
experience for our customers. Our business has evolved from an in-store experience to a shopping experience through multiple
technologies, including computers, mobile phones, tablets, and other devices, as our customers have become increasingly
technologically savvy. We strive to offer an omni-channel shopping experience to our customers and use social media to interact
with our customers and enhance their shopping experience. If we are unable to develop and continuously improve our customer-
facing technologies, we may not be able to provide a convenient and consistent experience to our customers regardless of the sales
channel. This could negatively affect our ability to compete with other retailers and result in diminished loyalty to our brands,
which could adversely impact our business, results of operations, and financial condition.
Our business is subject to risks associated with importing products and could suffer as a result of increases in the price of
raw materials, freight, or labor; or a manufacturer's inability to produce our goods 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 our products. Our products are manufactured to our specifications through arrangements with over 700 foreign
manufacturers in various countries. In Fiscal 2014, over 98% of our products (by dollar value) were produced outside the U.S.,
primarily in Asia, Europe, and Latin America. Risks inherent in importing our products include:
•
•
•
•
•
•
•
•
•
changes in social, political, and economic conditions or terrorist acts that could result in the disruption of trade from
the countries in which our manufacturers or suppliers are located;
the imposition of additional regulations relating to imports or exports, and costs of complying with laws relating to
the identification and reporting of the sources of minerals used in the Company's products;
the imposition of additional duties, taxes, and other charges on imports or exports;
significant fluctuations in the cost of raw materials;
increases in the cost of labor, fuel, travel, and transportation;
disruptions of shipping and international trade caused by natural and man-made disasters;
significant delays in the delivery of cargo due to security considerations;
the imposition of anti-dumping or countervailing duty proceedings resulting in the potential assessment of special
anti-dumping or countervailing duties; and
the imposition of sanctions in the form of additional duties either by the U.S. or its trading partners to remedy
perceived illegal actions by national governments.
Any one of these factors could have a material adverse effect on our business, results of operations, and financial condition.
In addition, the inability of a manufacturer to ship orders of our products in a timely manner or to meet our strict quality
standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation
of orders, refusal to accept deliveries, or a substantial reduction in purchase prices, any of which could have a material adverse
effect on our business, results of operations, and financial condition. Prices of raw materials used to manufacture our products
may also fluctuate, and increases in prices of such raw materials could have a material adverse effect on our cost of sales.
Furthermore, the cost of labor at many of our third-party manufacturers has been increasing significantly and, as the middle class
in developing countries such as China continues to grow, it is unlikely that such cost pressure will abate. The cost of transportation
25
remains high as well, and it is unlikely that such cost pressure will abate if oil prices remain elevated or rise. We may not be able
to offset such increases in raw materials, freight, or labor costs through pricing actions or other means.
Our business could suffer if we fail to comply with labor laws or if one of our manufacturers fails to use acceptable labor
or environmental practices.
We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime,
working conditions, and citizenship requirements. Compliance with these laws may lead to increased costs and operational
complexity and may increase our exposure to governmental investigations or litigation.
In addition, 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 employees
periodically visit and monitor the operations of our independent manufacturers, we do not control these manufacturers or their
labor practices. The violation of labor, environmental, or other laws by an independent manufacturer used by us or one of our
licensing partners, or the divergence of an independent manufacturer's or licensing partner's labor or environmental 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 events, in turn, could have a material adverse effect on our business, results of
operations, and financial condition.
Our business could be negatively impacted by any financial instability of our customers.
We sell our wholesale merchandise primarily to major department stores across North America, Europe, Asia, Australia,
and Latin America and extend credit based on an evaluation of each wholesale customer's financial condition, usually without
requiring collateral. However, the financial difficulties of a wholesale customer could cause us to limit or eliminate our business
with that customer. We may also assume more credit risk relating to that customer's receivables. During Fiscal 2014, sales to our
largest wholesale customer, Macy's, accounted for approximately 12% of total net revenues. Further, sales to our three largest
wholesale customers, including Macy's, comprised approximately 25% of total net revenues for Fiscal 2014, and constituted
approximately 35% of our gross trade accounts receivable outstanding as of March 29, 2014. Our inability to collect on our trade
accounts receivable from any one of these customers could have a material adverse effect on our business, results of operations,
and financial condition. See Item 1 — "Business — Wholesale Credit Control."
Uncertain economic conditions could have a negative impact on our major customers, suppliers, and lenders, which in
turn could materially adversely affect our business, results of operations, and financial condition.
The uncertain state of the global economy continues to impact businesses around the world. The current global political
and economic environments have resulted in continued economic unpredictability in the U.S., Europe, and Asia. Although we
believe that our cash provided by operations and available borrowing capacity under our credit facilities will provide us with
sufficient liquidity through the current global economic uncertainty, the impact of economic conditions on our major customers,
suppliers, and lenders and their ability to access global capital markets cannot be predicted. The inability of major manufacturers
to ship our products could impair our ability to meet the delivery date requirements of our customers. Deterioration in global
financial markets could affect our ability to access sources of liquidity to provide for our future cash needs, increase the cost of
any future financing, or cause our lenders to be unable to meet their funding commitments under our credit facilities. A disruption
in the ability of our significant customers to access liquidity could cause serious disruptions or an overall deterioration of their
businesses which could lead to a significant reduction in their future orders of our products and the inability or failure on their
part to meet their payment obligations to us, any of which could have a material adverse effect on our business, results of operations,
and financial condition.
Our profitability may decline as a result of increasing pressure on margins.
Our industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly
promotional environment, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes
in consumer spending patterns. These factors may cause us to reduce our sales prices to retailers and consumers, which could
cause our gross margin to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions
with comparable reductions in our costs. If our sales prices decline and we fail to sufficiently reduce our product costs or operating
expenses, our profitability will decline. This could have a material adverse effect on our business, results of operations, and financial
condition. In addition, changes in our customer, channel, and geographic sales mix could have a negative impact on our profitability.
26
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 of these products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may
also affect the U.S. Dollar value of the foreign currency denominated prices at which our international businesses sell products.
These foreign currencies primarily include the Euro, the Japanese Yen, the Hong Kong Dollar, the South Korean Won, the Canadian
Dollar, the Swiss Franc, the British Pound Sterling, and the Australian Dollar. Our international expansion will increase our
exposure to foreign currency fluctuations. Although we hedge certain exposures to changes in foreign currency exchange rates
arising in the ordinary course of business, we cannot fully anticipate all of our currency exposures and therefore foreign currency
fluctuations may have a material adverse impact on our business, results of operations, and financial condition. In addition, factors
that could impact the effectiveness of our hedging activities include the volatility of currency markets, the accuracy of forecasted
transactions, and the availability of hedging instruments. As such, our hedging activities may not completely mitigate the impact
of foreign currency fluctuations on our results of operations. See Item 7 — "Management's Discussion and Analysis of Financial
Condition and Results of Operations — Market Risk Management."
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 our competitive position. We devote substantial resources to the establishment and protection of our trademarks and anti-
counterfeiting activities worldwide. However, significant counterfeiting of our products continues, and in the course of our
international expansion we have experienced conflicts with various third parties that have acquired or claimed ownership rights
to some trademarks that include Polo and/or a representation of a polo player astride a horse, or otherwise have contested our
rights to our trademarks. We have in the past resolved certain of these conflicts through both legal action and negotiated settlements,
none of which, we believe, has had a material impact on our results of operations or financial condition. We cannot guarantee that
the actions we have taken to establish and protect our trademarks and other proprietary rights will be adequate to prevent
counterfeiting or a material adverse effect on our business or brands arising from imitation of our products by others or to prevent
others from seeking to block sales of our products as a violation of the 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 or at all. In addition, the laws of certain foreign
countries do not protect trademarks or other proprietary rights to the same extent as do the laws of the U.S. and, as a result, our
intellectual property may be more vulnerable and difficult to protect in such countries. See Item 1 — "Business — Trademarks,"
and Item 3 — "Legal Proceedings."
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results.
We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense based on our estimates
of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions. At any one time, multiple tax
years are subject to audit by various taxing authorities. The results of these audits and negotiations with taxing authorities may
affect the ultimate settlement of these issues. In addition, the tax laws and regulations in the countries where we operate may
change or there may be changes in interpretation and enforcement of existing tax laws, which could materially affect our income
tax expense in our consolidated financial statements. As a result, we expect that throughout the year there could be ongoing
variability in our quarterly tax rates as events occur and exposures are evaluated. In addition, our effective tax rate in a given
financial statement period may be materially impacted by changes in the mix and level of earnings by jurisdiction or by changes
to existing accounting rules or regulations.
We have significant undistributed earnings held by our subsidiaries outside the U.S. Most of our cash and cash equivalents
and short-term investments are held outside of the U.S. and are considered to be permanently reinvested. We currently intend to
reinvest these funds in order to fund strategic initiatives, working capital requirements, and debt repayments (both third-party and
intercompany) of such foreign subsidiaries. Any future repatriation of such amounts to the U.S. could result in a significant
incremental tax liability in the period in which the decision to repatriate is made.
Our Company has an exclusive relationship with certain customers for some of our products. The loss or significant decline
in business of these customers could negatively impact our business.
We have exclusive relationships with certain customers for the distribution of some of our products. Our arrangement with
these companies makes us dependent on those companies' financial and operational health for the sale of such products. The loss
of these relationships could have an adverse effect on our Wholesale business.
27
Our business could suffer as a result of consolidations, liquidations, restructurings, and other ownership changes in the
retail industry.
Several of our department store customers, including some under common ownership, account for a significant portion of
our wholesale net sales. A substantial portion of sales of our licensed products by our domestic licensing partners are also made
to our largest department store customers. During Fiscal 2014, sales to our largest wholesale customer, Macy's, accounted for
approximately 12% of total net revenues. Further, sales to our three largest wholesale customers, including Macy's, comprised
approximately 25% of total net revenues for Fiscal 2014, and constituted approximately 35% of our gross trade accounts receivable
outstanding as of March 29, 2014. There can be no assurance that consolidations, restructurings, reorganizations, or other ownership
changes in the department store sector will not have a material adverse 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 order
commitments with our customers for each of our product lines every season. A decision by the controlling owner of a group of
stores or any other significant customer, whether motivated by competitive conditions, financial difficulties, or otherwise, to
decrease or eliminate the amount of merchandise purchased from us or our licensing partners or to change their manner of doing
business with us or our licensing partners 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, results of operations,
and financial condition.
Certain legal proceedings, regulatory matters, and accounting changes could adversely impact our results of operations.
We are involved in certain legal proceedings and regulatory matters and are subject from time to time to various claims
involving alleged breach of contract claims, intellectual property and other related claims, escheatment and unclaimed property,
credit card fraud, security breaches in certain of our retail store information systems, employment issues, consumer matters, and
other litigation. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability
to our Company or have a negative impact on our reputation or relations with our employees, 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 our Company to devote substantial time and resources to defend itself. Further, changes in governmental
regulations both in the U.S. and in other countries where we conduct business operations could have an adverse impact on our
business, results of operations, and financial condition. See Item 3 — "Legal Proceedings" for further discussion of our Company's
legal matters.
In addition, we are subject to changes in accounting rules and interpretations. The Financial Accounting Standards Board
is currently in the process of amending a number of existing accounting standards governing a variety of areas. Certain of these
proposed standards, particularly the proposed standard governing accounting for leases, if and when effective, would likely have
a material impact on our consolidated financial statements. See Note 4 to the accompanying audited consolidated financial
statements for further discussion of proposed amendments to current accounting standards.
Our results of operations could be affected by natural events in the locations in which we or our customers or suppliers
operate.
We have operations, including retail, distribution, and warehousing operations, in locations subject to natural disasters, such
as severe weather and geological events, that could disrupt our operations. In addition, our suppliers and customers also have
operations in these locations and could experience similar disruptions. The occurrence of natural events may result in sudden
disruptions in the business operations of the local economies affected, as well as of the regional and global economies. In addition,
our business is affected by unseasonable weather conditions, such as extended periods of unseasonably warm temperatures in the
winter or unseasonably cold temperatures in the summer. Such natural events, including unseasonable weather conditions, could
result in decreased demand for our products and disruptions in our sales channels and manufacturing and distribution networks,
which could have a material adverse effect on our business, results of operations, and financial condition.
Our business could suffer if we need to replace manufacturers or distribution centers.
We compete with other companies for the production capacity of our manufacturers. Some of these competitors have greater
financial and other resources than we have, and thus may have an advantage in securing production capacity. If we experience a
significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party
manufacturing capacity. We cannot guarantee that this additional capacity will be available when required on terms that are
acceptable to us. See Item 1 — "Business — Sourcing, Production and Quality." We enter into a number of purchase order
commitments each season specifying a time for delivery, method of payment, design and quality specifications, and other standard
28
industry provisions, but do not have long-term contracts with any manufacturer. None of the manufacturers we use produce our
products exclusively.
In addition, we rely on a number of owned and independently-operated distribution facilities around the world to warehouse
and ship products to our customers and perform other related logistic services. As such, our ability to meet the needs of our
customers depends on the proper operation of these distribution centers. If any of our distribution centers were closed or were to
become inoperable for any reason, we could experience a substantial loss of inventory, disruption of deliveries to our customers
and our retail stores, increased costs, and longer lead times associated with the distribution of products during the period that
would be required to reopen or replace the facility. These disruptions could have a material adverse effect on our business, results
of operations, and financial condition.
The voting shares of our Company's stock are concentrated in one majority stockholder.
As of March 29, 2014, Mr. Ralph Lauren, or entities controlled by the Lauren family, held approximately 81% of the voting
power of the outstanding common stock of our Company. Mr. Lauren also serves as our Chairman of the Board and Chief Executive
Officer, David Lauren is a director on our Board, and we employ other members of the Lauren family. From time to time, we may
have other business dealings with Mr. Lauren, members of the Lauren family, or entities affiliated with Mr. Lauren or the Lauren
family. As a result of his stock ownership and position in our Company, Mr. Lauren has the ability to exercise significant control
over our business, including, without limitation, (i) the election of our 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 the approval 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
other financial performance.
Our business planning process is designed to maximize our long-term strength, growth, and profitability, and not to achieve
an earnings target in any particular fiscal quarter. We believe that this longer-term focus is in the best interests of our 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 quarterly and annual forecast of net sales and earnings. While we generally expect to provide updates to our
guidance when we report our results each fiscal quarter, we assume no responsibility to update any of our forward-looking statements
at such times or otherwise. If, and when, we announce actual results that differ from those that have been predicted by us, outside
analysts, or others, the market price of our securities could be adversely affected. Investors who rely on these predictions when
making investment decisions with respect to our securities do so at their own risk. We take no responsibility for any losses suffered
as a result of such changes in the prices of our securities.
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
specific to a licensing partner's business, including 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 our licensing partners from entering into licensing arrangements
with our competitors, our licensing partners generally are not precluded from offering, under other non-competitor brands, the
types of products covered by their license agreements with us. A substantial portion of sales of our products by our domestic
licensing partners are also made to our largest customers. While we have significant control over our licensing partners' products
and advertising, we rely on our licensing partners for, among other things, operational and financial control over their businesses.
Changes in management, reduced sales of licensed products, poor execution, or financial difficulties with respect to any of our
licensing partners could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from
reduced sales of our other products. See Item 1 — "Business — Our Licensing Segment."
29
Failure to maintain licensing partners could harm our business.
Although we believe that we could replace our existing licensing partners in most circumstances, if necessary, our inability
to do so for any period of time could adversely affect our revenues, both directly from reduced licensing revenue received and
indirectly from reduced sales of our other products. See Item 1 — "Business — Our Licensing Segment."
Risks Relating to the Industry in Which We Compete
The downturn in the global economy may continue to affect consumer purchases of discretionary items and luxury retail
products, which could adversely affect our business, results of operations, and financial condition.
The industries in which we operate are cyclical. Many economic factors outside of our control affect the level of consumer
spending in the apparel, cosmetic, fragrance, accessory, jewelry, watch, and home product industries, including, among others:
•
•
•
•
•
•
•
•
•
•
•
general business conditions;
economic downturns;
employment levels;
downturns in the stock market;
interest rates;
the housing market;
consumer debt levels;
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, tend to decline during
recessionary periods and at other times when disposable income is lower. A downturn or an uncertain outlook in the economies
in which we, or our licensing partners, sell our products may materially adversely affect our business, results of operations, and
financial condition. See Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of
Operations — Global Economic Developments" 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, results of operations, and financial condition.
We face intense competition worldwide in the markets in which we operate.
We face intense competition from other domestic and foreign fashion-oriented apparel, footwear, accessory, and casual
apparel producers, some of which may be significantly larger and more diversified and may have greater financial and marketing
resources than us. We compete with these companies primarily on the basis of:
•
•
•
•
•
anticipating and responding to changing consumer demands in a timely manner;
creating and maintaining favorable brand recognition, loyalty, and a reputation for quality;
developing and maintaining innovative, high-quality products in sizes, colors, and styles that appeal to consumers;
appropriately sourcing raw materials at cost-effective prices;
appropriately pricing products;
30
•
•
•
•
•
anticipating and maintaining proper inventory levels;
providing strong and effective marketing support;
retaining and recruiting key employees;
creating an acceptable value proposition for retail customers;
ensuring product availability and optimizing supply chain and distribution efficiencies with manufacturers and
retailers;
•
obtaining sufficient retail floor space and effective presentation of our products at retail stores;
• maintaining and growing market share; and
•
protecting our intellectual property.
We also face increasing competition from companies selling apparel, accessories, home, and other of our product categories
through the Internet. Although we sell our products through the Internet, increased competition and promotional activity in the
worldwide apparel, accessory, and home product industries from Internet-based competitors could reduce our sales, prices, and
margins and adversely affect our business, results of operations, and financial condition.
Any increased competition, or our failure to adequately address any of these competitive factors, could result in reduced
market share or sales, which could adversely affect our business, results of operations, and financial condition.
The success of our business depends on our ability to respond to constantly changing fashion and retail trends and consumer
demands in a timely manner.
The industries in which we operate have historically been subject to rapidly changing fashion trends and consumer
preferences. Our success depends in large part on our ability to originate and define fashion product and home product trends, as
well as to anticipate, gauge, and react to changing consumer demands in a timely manner. Our products must appeal to a broad
range of consumers worldwide whose preferences cannot be predicted with certainty and are subject to rapid change, influenced
by fashion trends, current economic conditions, and weather conditions, among other factors. We cannot assure that we will be
able to continue to develop appealing styles or successfully meet constantly changing consumer demands in the future. In addition,
we cannot assure that any new products or brands that we introduce will be successfully received by consumers. Any failure on
our part to anticipate, identify, and respond effectively to changing consumer demands and fashion trends could adversely affect
retail and consumer acceptance of our products and leave us with a substantial amount of unsold inventory or missed opportunities.
If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which
may harm our business and impair the image of our brands. Conversely, if we underestimate consumer demand for our products
or if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which may result
in unfilled orders, negatively impact customer relationships, diminish brand loyalty, and result in lost revenues. Any of these
outcomes could have a material adverse effect on our business, results of operations, and financial condition. See
Item 1 — "Business — Sourcing, Production and Quality."
Item 1B. Unresolved Staff Comments.
Not applicable.
31
Item 2.
Properties.
We lease space for our retail stores, showrooms, warehouses, and offices in various domestic and international locations.
We do not own any real property except for our distribution facilities in Greensboro and High Point, North Carolina and a parcel
of land adjacent to the Greensboro facility, as well as retail stores in Southampton and Easthampton, 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 of operations.
The following table sets forth information relating to our key properties as of March 29, 2014:
Location
Use
Approximate
Sq. Ft.
Current Lease Term
Expiration
Greensboro, NC .................................... Wholesale and retail distribution
1,500,000
N/A - Owned
North Pendleton Street, High Point,
NC .........................................................
facility
Retail e-commerce call center and
distribution facility
805,000
N/A - Owned
Eagle Hill Drive, High Point, NC ......... Wholesale distribution facility
625 Madison Avenue, NYC.................. Corporate offices and showrooms
650 Madison Avenue, NYC.................. Executive and corporate offices,
343,000
412,000
270,000
December 31, 2022
December 31, 2019
December 31, 2024
design studio, and showrooms
Lyndhurst, NJ........................................ Corporate and retail administrative
178,000
December 31, 2019
offices
550 7th Avenue, NYC........................... Corporate offices, design studio,
104,000
December 31, 2018
and Women's showrooms
Geneva, Switzerland ............................. European corporate offices
Gateway Office, Hong Kong................. Asia corporate offices
Manhattan Place, Hong Kong ............... Asia corporate and sourcing offices
London, UK .......................................... Retail flagship store
711 5th Avenue, NYC(a) ........................ Retail flagship store
888 Madison Avenue, NYC.................. Retail flagship store
750 N. Michigan Avenue, Chicago....... Retail flagship store
867 Madison Avenue, NYC.................. Retail flagship store
Paris, France.......................................... Retail flagship store
Tokyo, Japan ......................................... Retail flagship store
Lee Gardens, Hong Kong(a)................... Retail flagship store
444 N. Rodeo Drive, Beverly Hills....... Retail flagship store
107,000
56,000
46,000
40,000
38,000
37,900
37,500
27,700
25,700
25,000
20,200
19,400
June 22, 2027
October 31, 2015
October 31, 2016
July 4, 2021
June 30, 2029
August 31, 2027
November 14, 2017
December 31, 2023
May 31, 2018
December 31, 2020
August 16, 2022
September 30, 2033
(a) Expected to open in Fall 2014.
As of March 29, 2014, we operated 433 retail stores, totaling approximately 3 million square feet. We anticipate that we
will be able to extend our retail store leases, as well as those leases for our non-retail facilities, which expire in the near future on
satisfactory terms or relocate to desirable alternate locations. We generally lease our freestanding retail stores for initial periods
ranging from 5 to 15 years, with renewal options.
32
Item 3.
Legal Proceedings.
Wathne Imports Litigation
On August 19, 2005, Wathne Imports, Ltd. ("Wathne"), our then domestic licensee for luggage and handbags, filed a
complaint in the U.S. District Court in the Southern District of New York against the Company and Mr. Ralph Lauren, our Chairman
and Chief Executive Officer, asserting, among other things, federal trademark law violations, breach of contract, breach of
obligations of good faith and fair dealing, fraud, and negligent misrepresentation. The complaint originally sought, among other
relief, injunctive relief, compensatory damages in excess of $250 million, and punitive damages of not less than $750 million. On
September 13, 2005, Wathne withdrew this complaint from the U.S. District Court and filed a complaint in the Supreme Court of
the State of New York, New York County, making substantially 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 of contract related claims, and denied Wathne's motion for a
preliminary injunction. Following some discovery, we moved for summary judgment on the remaining claims and Wathne cross-
moved for partial summary judgment. In an April 11, 2008 Decision and Order, the Court granted our summary judgment motion
to dismiss most of the claims against us, and denied Wathne's cross-motion for summary judgment. Wathne appealed the dismissal
of its claims to the Appellate Division of the Supreme Court. Following a hearing on May 19, 2009, the Appellate Division issued
a Decision and Order on June 9, 2009 which, in large part, affirmed the lower Court's ruling. Since then, Wathne has made various
attempts to expand the scope of its claim and the damages sought by making various motions and pursuing several intermediate
appeals.
At this time, Wathne's principle remaining claim is that we required that Wathne discontinue the use of the Polo Sport brand
on handbags in violation of its contract. A trial date has not been scheduled and we intend to continue to contest the remaining
claims and dispute any alleged damages in this lawsuit vigorously. Management does not expect that the ultimate resolution of
this matter will have a material adverse effect on our consolidated financial statements.
Other Matters
From time to time, we are involved in litigation, other legal claims, and proceedings involving matters associated with or
incidental 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 have a material adverse effect on our consolidated financial statements. However, our assessment of the current
litigation or other legal claims could change in light of the discovery of facts not presently known or determinations by judges,
juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such
litigation or claims.
Item 4. Mine Safety Disclosures.
Not applicable.
33
PART II
Item 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 sets forth the high and low sales prices per share of our Class A common stock, as reported on the NYSE Composite Tape,
and the cash dividends per common share declared for each quarterly period in our two most recent fiscal years:
Market Price of
Class A
Common Stock
High
Low
Dividends
Declared per
Common Share
Fiscal 2014:
First Quarter ..........................................................................
Second Quarter......................................................................
Third Quarter.........................................................................
Fourth Quarter.......................................................................
Fiscal 2013:
First Quarter ..........................................................................
Second Quarter......................................................................
Third Quarter.........................................................................
Fourth Quarter.......................................................................
$
$
$
$
192.03
189.80
181.07
178.59
179.00
164.28
165.41
179.90
$
$
165.33
161.98
157.01
146.00
134.48
134.29
144.14
146.58
0.40
0.40
0.45
0.45
0.40
0.40
0.40
0.40
Since 2003, we have maintained a regular quarterly cash dividend program on our common stock. On May 21, 2012, our
Board of Directors approved an increase to our quarterly cash dividend on our common stock from $0.20 per share to $0.40 per
share. On November 5, 2013, our Board of Directors approved an additional increase to the Company's quarterly cash dividend
on its common stock from $0.40 per share to $0.45 per share. Approximately $153 million was recorded as a reduction to retained
earnings during Fiscal 2014 in connection with dividends declared.
As of May 9, 2014, there were 819 holders of record of our Class A common stock and 6 holders of record of our Class B
common stock. All of our outstanding shares of Class B common stock are owned by Mr. Ralph Lauren, Chairman of the Board
of Directors and Chief Executive Officer, and entities controlled by the Lauren family, and are convertible at any time into shares
of Class A common stock on a one-for-one basis. During the fourth quarter of Fiscal 2014, Mr. Lauren converted 3.0 million shares
of Class B common stock into an equal number of shares of Class A common stock pursuant to the terms of the security, which
were subsequently sold in a block trade. During Fiscal 2013, the Lauren Family, L.L.C., a limited liability company managed by
the children of Mr. Lauren, converted 950,000 shares of Class B common stock into an equal number of shares of Class A common
stock pursuant to the terms of the security, which were subsequently sold on the open market as part of a predetermined, systematic
trading plan.
The following table sets forth repurchases of shares of our Class A common stock during the fiscal quarter ended March 29,
2014:
December 29, 2013 to January 25, 2014
January 26, 2014 to February 22, 2014
February 23, 2014 to March 29, 2014
Total
Number of
Shares
Purchased
Average
Price
Paid per
Share
— $
513,364
437,655
951,019
—
155.83
159.76
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares
That May Yet be
Purchased Under the
Plans or Programs(1)
(millions)
— $
513,364
437,655
951,019
230
650
580
(1) As of March 29, 2014, the remaining availability under our Class A common stock repurchase program was
approximately $580 million, reflecting the February 4, 2014 approval by our Board of Directors to expand the program
by up to an additional $500 million of Class A common stock repurchases. Repurchases of shares of Class A common
stock are subject to overall business and market conditions.
34
The following graph compares the cumulative total stockholder return (stock price appreciation plus dividends) on our
Class A common stock to the cumulative total return of the Standard & Poor's 500 Index and a peer group index of companies that
we believe are closest to ours (the "Peer Group") for the period from March 27, 2009, the last trading day of our 2009 fiscal year,
through March 29, 2014, the last trading day of our 2014 fiscal year. Our Peer Group consists of Burberry Group PLC, Coach,
Inc., Compagnie Financière Richemont SA, The Estée Lauder Companies Inc., Hermes International, The Jones Group Inc., Kering,
Luxottica Group, LVMH, PVH Corp., Tiffany & Co., Tod's S.p.A., and V.F. Corporation. All calculations for foreign companies
in our Peer Group are performed using the local foreign issue of such companies. The returns are calculated by assuming an
investment in the Class A common stock and each index of $100 on March 28, 2009, with all dividends reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Ralph Lauren Corporation, the S&P 500 Index, and a Peer Group
*$100 invested on 3/28/09 in stock or 3/31/09 in an index, including reinvestment of dividends. Index calculated on a month-
end basis.
Item 6.
Selected Financial Data
See the "Index to Consolidated Financial Statements and Supplementary Information," and specifically "Selected Financial
Information" appearing at the end of this Annual Report on Form 10-K. This selected financial data should be read in conjunction
with Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 — "Financial
Statements and Supplementary Data" included in this Annual Report on Form 10-K. Historical results may not be indicative of
future results.
35
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
read together with our audited consolidated financial statements and footnotes, which are included in this Annual Report on
Form 10-K. We utilize a 52-53 week fiscal year ending on the Saturday closest to March 31. As such, Fiscal 2014 ended on
March 29, 2014 and was a 52-week period; Fiscal 2013 ended on March 30, 2013 and was a 52-week period; and Fiscal 2012
ended on March 31, 2012 and was a 52-week period. Fiscal 2015 will end on March 28, 2015 and will also be a 52-week period.
INTRODUCTION
MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help
provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:
• Overview. This section provides a general description of our business, current trends and outlook, and a summary
of our financial performance for Fiscal 2014. In addition, this section includes a discussion of recent developments
and transactions affecting comparability that we believe are important in understanding our results of operations and
financial condition, and in anticipating future trends.
• Results of operations. This section provides an analysis of our results of operations for Fiscal 2014 as compared
to Fiscal 2013 and Fiscal 2013 as compared to Fiscal 2012.
• Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of
March 29, 2014, which includes (i) an analysis of our financial condition compared to the prior fiscal year-end; (ii) an
analysis of changes in our cash flows for Fiscal 2014 and Fiscal 2013 as compared to the respective prior fiscal year;
(iii) an analysis of our liquidity, including common stock repurchases, payments of dividends, our outstanding debt
and covenant compliance, and the availability under our credit facilities; and (iv) a summary of our contractual and
other obligations as of March 29, 2014.
• Market risk management. This section discusses how we manage our risk exposures related to foreign currency
exchange rates, interest rates, and our investments as of March 29, 2014.
• Critical accounting policies. This section discusses accounting policies considered to be important to our results
of operations and financial condition, which require significant judgment and estimation in their application. In
addition, our significant accounting policies are summarized in Note 3 to the accompanying audited consolidated
financial statements.
• Recently issued accounting standards. This section discusses the potential impact on our reported results of
operations and financial condition of certain accounting standards that have been recently issued or proposed.
OVERVIEW
Our Business
Our Company 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. Our long-standing reputation and distinctive image
have been consistently developed across an expanding number of products, brands, sales channels, and international markets. Our
brand names include Ralph Lauren, Ralph Lauren Collection, Purple Label, Black Label, Polo, Polo Ralph Lauren, Blue Label,
RRL, RLX Ralph Lauren, Lauren Ralph Lauren, Ralph Lauren Childrenswear, Denim & Supply Ralph Lauren, Chaps, and Club
Monaco, among others.
We classify our businesses into three segments: Wholesale, Retail, and Licensing. Our Wholesale business, which
represented approximately 47% of our Fiscal 2014 net revenues, consists of sales made principally to major department stores
and specialty stores around the world. Our Retail business, which represented approximately 51% of our Fiscal 2014 net revenues,
consists of sales made directly to consumers through our integrated retail channel, which includes our retail stores around the
world; concession-based shop-within-shops located in Asia, Australia, and Europe; and our retail e-commerce channel in North
America, Europe, and Asia. Our Licensing business, which represented approximately 2% of our Fiscal 2014 net revenues, consists
of royalty-based arrangements under which we license to unrelated third parties the right to use our various trademarks in connection
36
with the manufacture and sale of designated products, such as apparel, eyewear, and fragrances, in specified geographic areas for
specified periods. Approximately 36% of our Fiscal 2014 net revenues were earned in international regions outside of the U.S.
See Note 22 to the accompanying audited consolidated financial statements for a summary of net revenues by reportable segment
and geographic location.
Our business is typically seasonal, with higher levels of wholesale sales in our second and fourth quarters and higher retail
sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments and key
vacation travel, back-to-school, and holiday shopping periods in our Retail segment.
Current Trends and Outlook
Although the global economy has shown signs of improvement, expectations of modest growth reflect sustained
uncertainty. The global economic environment continues to negatively impact consumer confidence, which in turn influences the
level of spending on discretionary items. Additionally, adverse weather conditions, particularly in the U.S., have resulted in a
challenging spring selling season for many retailers. As a result of these factors, consumer retail traffic remains relatively weak
and inconsistent, which has led to a more promotional environment due to increased competition and a desire to offset traffic
declines with increased levels of conversion. Certain of our retail operations have experienced similar dynamics, which vary across
the geographic regions and businesses in which we operate. If the global macroeconomic environment remains volatile or worsens,
the constrained level of worldwide consumer spending and modified consumption behavior may continue to have a negative effect
on our sales, inventory levels, and operating margin in Fiscal 2015.
We will continue to monitor these risks and evaluate and adjust our operating strategies and cost management opportunities
to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and
protecting the value of our brand.
For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially
from our expectations, see Part I, Item 1A — "Risk Factors" included in this Annual Report on Form 10-K.
Summary of Financial Performance
Results of Operations
In Fiscal 2014, we reported net revenues of $7.450 billion, net income of $776 million, and net income per diluted share
of $8.43. This compares to net revenues of $6.945 billion, net income of $750 million, and net income per diluted share of $8.00
in Fiscal 2013.
Our operating performance for Fiscal 2014 reflected revenue growth of 7.3% on a reported basis and 7.9% on a constant
currency basis, as increased revenues from our wholesale business in the Americas and our retail businesses across all of our major
geographies were partially offset by lower revenues from our wholesale businesses in Europe and Asia, as well as net unfavorable
foreign currency effects. Our revenue growth for Fiscal 2014 also reflected several changes to our business, including revenues
from the previously licensed Chaps Menswear Business and Australia and New Zealand Business (see "Recent Developments"
for further discussion), and incremental revenues from certain previously licensed businesses in Latin America that were acquired
in June 2012. These increases in revenue were partially offset by the wind-down of our Rugby-branded retail operations, largely
during the second half of Fiscal 2013. Our gross margin declined 190 basis points basis points to 57.9% during Fiscal 2014,
primarily due to the inclusion of the Chaps Menswear Business and the unfavorable impact of foreign currency. SG&A expenses
increased during Fiscal 2014 due to incremental costs associated with newly transitioned operations, including the Chaps Menswear
Business and the Australia and New Zealand Business, and costs to support our business growth and continued investments in our
strategic growth initiatives and infrastructure.
Net income increased by $26 million in Fiscal 2014 as compared to Fiscal 2013, primarily reflecting a $19 million decline
in our provision for income taxes, a $3 million increase in operating income, and lower other non-operating charges. The lower
income tax provision for Fiscal 2014 was driven by a decline in our reported effective tax rate of 190 basis points, partially offset
by slightly higher pretax income. The decline in our reported effective tax rate was primarily attributable to income tax benefits
recorded during Fiscal 2014 in connection with the settlement of a tax examination and legal entity restructuring of certain of our
foreign operations. Net income per diluted share increased during Fiscal 2014, as compared to Fiscal 2013, due to higher net
income and lower weighted-average diluted shares, driven by our share repurchases over the last twelve months.
37
Financial Condition and Liquidity
We ended Fiscal 2014 in a net cash and investments position (cash and cash equivalents plus short-term and non-current
investments, less total debt) of $987 million, compared to $1.113 billion as of the end of Fiscal 2013. The decline in our net cash
and investments position was primarily due to our use of cash to support $390 million in capital expenditures associated with our
global retail store expansion, department store renovations, investments in our facilities, and upgrades to our global information
technology systems, as well as to support Class A common stock repurchases of $558 million, and to make cash dividend payments
of $149 million. The decline in our net cash and investments position was largely offset by our operating cash flows and proceeds
from stock-based compensation arrangements.
We generated $907 million of cash from operations during Fiscal 2014, compared to $1.019 billion during Fiscal 2013.
The decline in our operating cash flows primarily relates to a net unfavorable change in our working capital during Fiscal 2014,
compared to the prior fiscal year.
Our equity increased to $4.034 billion as of March 29, 2014, compared to $3.785 billion as of March 30, 2013, primarily
due to our net income and the impact of stock-based compensation arrangements, partially offset by our repurchases of common
stock and dividends declared during Fiscal 2014.
Recent Developments
Australia and New Zealand Licensed Operations Acquisition
In July 2013, in connection with the transition of the Ralph Lauren-branded apparel and accessories business in Australia
and New Zealand (the "Australia and New Zealand Business") from a licensed to a wholly-owned operation, we acquired certain
net assets from Oroton Group/PRL Australia ("Oroton") in exchange for an aggregate payment of approximately $15 million (the
"Australia and New Zealand Licensed Operations Acquisition"). Oroton was our licensee for the Australia and New Zealand
Business. The operating results of the acquired business have been consolidated in our operating results beginning on July 1, 2013.
Chaps Menswear License Acquisition
In April 2013, in connection with the transition of the North American Chaps-branded men's sportswear business (the
"Chaps Menswear Business") from a licensed to a wholly-owned operation, we entered into an agreement with The Warnaco
Group, Inc. ("Warnaco"), a subsidiary of PVH Corp., to acquire certain net assets in exchange for an aggregate payment of
approximately $18 million (the "Chaps Menswear License Acquisition"). Warnaco was our licensee for the Chaps Menswear
Business. The operating results of the Chaps Menswear Business have been consolidated in our operating results beginning on
April 10, 2013.
Rugby Closure Plan
In October 2012, we approved a plan to wind-down our Rugby brand retail operations (the "Rugby Closure Plan"). This
decision was primarily based on the results of an analysis of the brand concept, as well as an opportunity to reallocate our resources
related to these operations to support other high-growth business opportunities and initiatives. In connection with the Rugby
Closure Plan, 13 of our 14 global freestanding Rugby stores and our related domestic e-commerce site located at Rugby.com were
closed during the second half of Fiscal 2013. The one remaining Rugby store was closed during Fiscal 2014. The Rugby Closure
Plan also resulted in a reduction in our workforce of approximately 160 employees.
Discontinuance of American Living at JCPenney
During the fourth quarter of Fiscal 2012, we decided, along with our wholesale partner J.C. Penney Company, Inc.
("JCPenney"), to discontinue the majority of the products sold under the American Living brand created for and exclusively sold
to JCPenney, effective for the Fall 2012 wholesale selling season. The discontinuance of these American Living product lines did
not have a material impact on the Company's consolidated or segment results.
38
Transactions Affecting Comparability of Results of Operations and Financial Condition
The comparability of our operating results for the three fiscal years presented herein has been affected by certain events,
including:
•
certain pretax asset impairment and restructuring and other charges recorded during the periods presented. A summary
of the effect of these items on pretax income for each fiscal year is summarized below (references to "Notes" are to
the notes to the accompanying audited consolidated financial statements):
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Impairments of assets (see Note 11) ............................
$
Restructuring and other charges (see Note 12) ............
(1) $
(18)
(19) $
(12)
(2)
(12)
•
•
•
our acquisitions of previously licensed businesses, including the Chaps Menswear License Acquisition in April 2013,
which resulted in a $16 million gain recorded during the first quarter of Fiscal 2014; the Australia and New Zealand
Licensed Operations Acquisition in July 2013; and our acquisition of the Ralph Lauren-branded business in Latin
America in June 2012;
discrete income tax benefits of $10 million and $15 million recognized within our provision for income taxes during
Fiscal 2014 and Fiscal 2013, respectively, in connection with the settlements of two separate tax examinations.
During Fiscal 2013, the tax benefit from the tax examination settlement was more than offset by a discrete income
tax reserve of $16 million for an interest assessment on a prior year withholding tax; and
the wind-down of our Rugby brand operations during the second half of Fiscal 2013 and the discontinuance of
products sold under the American Living brand at JCPenney primarily effective for the Fall 2012 selling season.
Our "Results of Operations" discussion that follows includes the significant changes in operating results arising from these
items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other
financial statement users should consider the types of events and transactions that have affected operating trends.
39
RESULTS OF OPERATIONS
Fiscal 2014 Compared to Fiscal 2013
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain
financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using
unrounded numbers.
Fiscal Years Ended
March 29,
2014
March 30,
2013
$
Change
% / bps
Change
(millions, except per share data)
Net revenues ...................................................................
Cost of goods sold(a) .........................................................
Gross profit.....................................................................
Gross profit as % of net revenues................................
Selling, general, and administrative expenses(a) ..............
SG&A expenses as % of net revenues .........................
Amortization of intangible assets.....................................
Gain on acquisition of Chaps...........................................
Impairment of assets ........................................................
Restructuring and other charges.......................................
Operating income...........................................................
Operating income as % of net revenues......................
Foreign currency losses....................................................
Interest expense................................................................
Interest and other income, net..........................................
Equity in losses of equity-method investees....................
Income before provision for income taxes ...................
Provision for income taxes...............................................
Effective tax rate(b) ......................................................
Net income ......................................................................
Net income per common share:
Basic ..............................................................................
Diluted...........................................................................
$
$
$
$
$
7,450
(3,140)
4,310
57.9%
(3,142)
42.2%
(35)
16
(1)
(18)
1,130
15.2%
(8)
(20)
3
(9)
1,096
(320)
29.2%
$
6,945
(2,789)
4,156
59.8%
(2,971)
42.8%
(27)
—
(19)
(12)
1,127
16.2%
(12)
(22)
6
(10)
1,089
(339)
31.1%
776
8.55
8.43
$
$
$
750
8.21
8.00
$
$
$
505
(351)
154
(171)
(8)
16
18
(6)
3
4
2
(3)
1
7
19
26
0.34
0.43
7.3%
12.6%
3.7%
(190 bps)
5.7%
(60 bps)
30.7%
NM
(93.1%)
52.9%
0.3%
(100 bps)
(30.1%)
(8.7%)
(38.2%)
(1.0%)
0.6%
(5.6%)
(190 bps)
3.4%
4.1%
5.4%
(a)
(b)
Includes total depreciation expense of $223 million and $206 million for Fiscal 2014 and Fiscal 2013, respectively.
Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income
taxes.
NM = Not meaningful.
Net Revenues. Net revenues increased by $505 million, or 7.3%, to $7.450 billion in Fiscal 2014 from $6.945 billion in
Fiscal 2013. Excluding the effect of foreign currency, net revenues increased by $552 million, or 7.9%.
40
Net revenues for our three business segments, as well as a discussion of the changes in each segment's net revenues from
the prior fiscal year, are provided below:
Fiscal Years Ended
March 29,
2014
March 30,
2013
(millions)
$
Change
%
Change
Net Revenues:
Wholesale................................................
Retail .......................................................
Licensing .................................................
Total net revenues...............................
$
$
3,486
$
3,138
$
3,798
166
3,625
182
7,450
$
6,945
$
348
173
(16)
505
11.1%
4.8%
(9.0%)
7.3%
Wholesale net revenues — The net increase primarily reflects:
•
•
a $382 million net increase related to our business in the Americas on a constant currency basis, largely due to $210
million of incremental revenues contributed by previously licensed businesses, including the Chaps Menswear
Business acquired in April 2013 and certain businesses in Latin America acquired in June 2012. The increase in net
revenues also reflected higher domestic revenues from our menswear, womenswear, and childrenswear product lines,
as well as increased revenues from our accessories business. These increases were partially offset by lower Home
product revenues primarily due to the rebranding of certain of our home products; and
a $7 million net increase in revenues due to the net favorable foreign currency effects, primarily related to the
strengthening of the Euro, partially offset by the weakening of the Japanese Yen and the Canadian Dollar against the
U.S. Dollar during Fiscal 2014.
This net increase was partially offset by:
•
•
a $16 million net decrease related to our European business on a constant currency basis, driven by our planned
reduction in shipments across our menswear, womenswear, and childrenswear product lines due to the challenging
European retail environment and softness in the specialty store business; and
a $23 million net decrease related to our Japanese business on a constant currency basis, primarily reflecting lower
sell-throughs and the impact of a business model shift to the retail concessions-based channel.
Retail net revenues — Our total reported comparable store sales were flat in Fiscal 2014 compared to the prior fiscal year,
but increased approximately 1% on a constant currency basis. Comparable store sales refer to the growth of sales in stores that
are open for at least one full fiscal year. Sales for stores that are closed during a fiscal year are excluded from the calculation of
comparable 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 until such stores have been in their new location or in their newly renovated state for at least one full fiscal year. Sales
from our e-commerce sites are included within comparable store sales for those geographies that have been serviced by the related
e-commerce site for at least one full fiscal year. Consolidated comparable store sales information includes our Ralph Lauren stores
(including concession-based shop-within-shops), factory stores, Club Monaco stores and e-commerce sites, and certain of our
Ralph Lauren e-commerce sites. Sales from our Rugby stores and related e-commerce site, Rugby.com, are no longer included in
comparable store sales due to the wind-down of our Rugby brand retail operations in Fiscal 2013. We use an integrated omni-
channel strategy to operate our retail business, in which our e-commerce operations are interdependent with our physical stores.
The net increase in Retail net revenues primarily reflects:
•
a $29 million, or a 1%, net increase in consolidated comparable store sales on a constant currency basis, primarily
driven by an increase from our Ralph Lauren e-commerce operations, partially offset by decreases in comparable
store sales from our concession shops and our domestic factory stores. Comparable store sales related to our e-
commerce operations increased by approximately 14% on a reported basis and 13% on a constant currency basis
over the related prior fiscal year, and had a favorable impact on our total comparable store sales of approximately
2% to 3% on a reported basis and approximately 1% to 2% on a constant currency basis. Our consolidated comparable
store sales excluding e-commerce decreased approximately 2% to 3% on a reported basis and were flat to down by
1% on a constant currency basis; and
41
•
a $197 million, or a 40%, net increase in non-comparable store sales on a constant currency basis, primarily driven
by new store openings within the past twelve months, including store openings in Asia, new stores and concession
shops assumed in connection with the Australia and New Zealand Licensed Operations Acquisition, other new global
store openings, and the expansion of our e-commerce operations, which more than offset the impact of store closings,
including those closed in connection with the Rugby Closure Plan.
These increases were partially offset by:
•
a $53 million net decrease in revenues due to unfavorable foreign currency effects, comprised of unfavorable effects
of $43 million and $10 million related to our comparable and non-comparable store sales, respectively. The
unfavorable currency effects primarily related to the weakening of the Japanese Yen, partially offset by the
strengthening of the Euro against the U.S. Dollar during Fiscal 2014 compared to the prior fiscal year.
Our global average store count increased by 47 stores and concession shops during Fiscal 2014 compared with the prior
fiscal year, primarily due to new store and concession shop openings in Asia and Europe, and stores and concession shops assumed
in connection with the Australia and New Zealand Licensed Operations Acquisition, partially offset by store closures, including
those associated with the Rugby Closure Plan. The following table details our retail store and e-commerce presence as of the
periods presented:
Stores:
Freestanding stores ...............................................................................................
Concession shops .................................................................................................
Total stores.......................................................................................................
E-commerce Sites:
North American sites(a) .........................................................................................
European sites(b) ...................................................................................................
Asian sites(c) ..........................................................................................................
Total e-commerce sites....................................................................................
March 29,
2014
March 30,
2013
433
503
936
3
3
2
8
388
494
882
3
3
1
7
(a)
(b)
(c)
Includes www.RalphLauren.com, www.ClubMonaco.com, and www.ClubMonaco.ca, which collectively service the
U.S. and Canada.
Includes www.RalphLauren.co.uk (servicing the United Kingdom), www.RalphLauren.fr (servicing Belgium, France,
Italy, Luxembourg, the Netherlands, Portugal, and Spain), and www.RalphLauren.de (servicing Germany and Austria).
Includes www.RalphLauren.co.jp, which services Japan and, as of March 29, 2014, our new e-commerce site at
www.RalphLauren.co.kr, which services South Korea.
Licensing revenues — The $16 million net decrease in revenues primarily reflects the transition of certain licensing
arrangements, including the Chaps Menswear Business and the Australia and New Zealand Business, to wholly-owned operations
and the discontinuance of certain Home licensing arrangements, partially offset by higher apparel and fragrance-related royalties.
Gross Profit. Gross profit increased by $154 million, or 3.7%, to $4.310 billion in Fiscal 2014 from $4.156 billion in
Fiscal 2013. Gross profit as a percentage of net revenues decreased by 190 basis points to 57.9% in Fiscal 2014 from 59.8% in
Fiscal 2013. The gross margin decline was primarily attributable to the inclusion of the Chaps Menswear Business and the
unfavorable effects of foreign currency.
Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales
mix among distribution 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 from year to year.
Selling, General, and Administrative Expenses. SG&A expenses increased by $171 million, or 5.7%, to $3.142 billion in
Fiscal 2014 from $2.971 billion in Fiscal 2013. This increase included a net favorable foreign currency effect of approximately
42
$29 million, primarily related to the weakening of the Japanese Yen, partially offset by the strengthening of the Euro against the
U.S. Dollar during Fiscal 2014 as compared to the prior fiscal year. SG&A expenses as a percentage of net revenues declined to
42.2% in Fiscal 2014 from 42.8% in Fiscal 2013. The 60 basis point improvement was primarily due to operating leverage on
higher net revenues and our operational discipline, which more than offset the increase in operating expenses attributable to our
recent acquisitions and new business initiatives, as well as increased investments in our facilities, infrastructure, and information
technology.
The $171 million net increase in SG&A expenses by functional category is as follows:
SG&A expense category:
Compensation-related expenses(a)................................................................................................
Marketing, advertising, and promotional expenses .....................................................................
Shipping, warehousing, and distribution expenses ......................................................................
Rent and occupancy expenses......................................................................................................
Depreciation expense ...................................................................................................................
Acquisition-related costs(b) ..........................................................................................................
Other ............................................................................................................................................
Total change in SG&A expenses(c)..........................................................................................
$
$
Fiscal 2014
Compared to
Fiscal 2013
(millions)
44
39
28
27
17
7
9
171
(a) Primarily due to increased salaries and related expenses to support business growth.
(b) Comprised of acquisition-related costs for the Chaps Menswear License Acquisition in April 2013 and for the Australia
and New Zealand Licensed Operations Acquisition in July 2013 (see Note 5 to the accompanying audited consolidated
financial statements).
(c)
Includes $62 million of incremental expenses associated with the aforementioned newly acquired businesses and $13
million of incremental expenses incurred in connection with the implementation of our global operating and financial
reporting system.
During Fiscal 2015, we anticipate a certain amount of operating expense de-leverage due to continued investment in our
long-term strategic growth initiatives, including global retail store expansion, the introduction of the Polo store concept around
the world, department store renovations, and continued investment in our infrastructure.
Amortization of Intangible Assets. Amortization of intangible assets increased by $8 million, or 30.7%, to $35 million in
Fiscal 2014 from $27 million in Fiscal 2013. This increase was primarily due to the full amortization of the licensed trademark
intangible asset acquired in connection with the Chaps Menswear License Acquisition during Fiscal 2014 (see Note 5 to the
accompanying audited consolidated financial statements).
Gain on Acquisition of Chaps. During Fiscal 2014, we recorded a $16 million gain on the Chaps Menswear License
Acquisition, representing the difference between the acquisition date fair value of net assets acquired and the contractually-defined
purchase price under our license agreement with Warnaco, which granted us the right to early-terminate the license upon PVH's
acquisition of Warnaco in February 2013 (see Note 5 to the accompanying audited consolidated financial statements).
Impairments of Assets. During Fiscal 2014, we recorded non-cash impairment charges of $1 million, to write-off certain
long-lived assets relating to our European operations. During Fiscal 2013, we recognized non-cash impairment charges of $19
million, which included charges of $11 million to write-off certain Rugby brand-related long-lived assets in connection with the
Rugby Closure Plan and charges of $8 million to reduce the carrying values of long-lived assets of certain underperforming
European stores to their fair values, as well as to write-off the fixed assets of certain wholesale locations in Europe that were
expected to close (see Note 11 to the accompanying audited consolidated financial statements).
Restructuring and Other Charges. Restructuring and other charges increased by $6 million to $18 million in Fiscal 2014
from $12 million in Fiscal 2013. During Fiscal 2014, we recorded restructuring charges of $8 million, primarily related to severance
43
and benefit costs associated with our corporate operations. In addition, during Fiscal 2014, we recorded $10 million of accelerated
stock-based compensation expense associated with certain new executive employment agreement provisions. Restructuring and
other charges of $12 million recorded during Fiscal 2013 included $7 million of severance and lease termination costs associated
with the Rugby Closure Plan and $5 million of other net restructuring charges, which primarily related to the suspension of the
Company's operations in Argentina, severance and lease termination costs associated with our European operations, and other
severance-related costs primarily within our corporate operations, partially offset by reversals of reserves deemed no longer
necessary in connection with our Fiscal 2012 restructuring plan in the Asia-Pacific region (see Note 12 to the accompanying
audited consolidated financial statements).
Operating Income. Operating income slightly increased by $3 million, or 0.3%, to $1.130 billion in Fiscal 2014 from
$1.127 billion in Fiscal 2013. Operating income as a percentage of net revenues declined 100 basis points, to 15.2% in Fiscal 2014
from 16.2% in Fiscal 2013. The decrease in operating income as a percentage of net revenues primarily reflected the decline in
our gross profit margin, partially offset by an improvement in SG&A and other operating expenses as a percentage of net revenues,
as previously discussed.
During the fourth quarter of Fiscal 2014, we changed the manner in which we allocate certain costs for management reporting
due to strategic changes we implemented to globalize certain functions that will position us for future growth. These changes
included realigning certain costs between segments and retaining other costs at the corporate level for certain of our global functions.
We believe that these changes allow for a better representation of segment operations and are aligned with how segment performance
is assessed. As a result of these changes, we determined that it is more appropriate to retain certain previously allocated corporate
expenses within our unallocated corporate expenses. This expense realignment did not result in a change to our reportable segments.
All prior period segment information has been recast to reflect the change in our segment measurement on a comparable basis,
including the operating income analyses that follow. This recast had no impact on our segment net revenues or on our consolidated
financial statements in any fiscal period.
Operating income and margin for each of our three reportable segments, which have been recast to reflect the fourth quarter
change in segment measurement, are provided below:
Fiscal Years Ended
March 29, 2014
March 30, 2013
Operating
Income
(millions)
Operating
Margin
Operating
Income
(millions)
Operating
Margin
$
Change
(millions)
Margin
Change
Segment:
Wholesale ......................................................
Retail..............................................................
Licensing .......................................................
$
Unallocated corporate expenses ....................
Gain on acquisition of Chaps ........................
Unallocated restructuring and
other charges ..............................................
28.7% $
17.0%
83.6%
963
572
150
1,685
(553)
16
(18)
27.6% $
15.1%
90.2%
903
615
152
1,670
(531)
—
(12)
(110 bps)
(190 bps)
660 bps
60
(43)
(2)
15
(22)
16
(6)
Total operating income .............................
$
1,130
15.2% $
1,127
16.2% $
3
(100 bps)
Wholesale operating margin declined by 110 basis points, primarily due to a decline in gross profit margin reflecting the
inclusion of the Chaps Menswear Business, a less favorable geographic mix, and the net negative effects related to foreign currency.
The decline in Wholesale operating margin was partially offset by improved operating leverage of SG&A expenses on higher
wholesale revenues.
Retail operating margin declined by 190 basis points, largely due to a lower gross profit margin, primarily reflecting elevated
promotional activity within certain of our retail businesses during the fourth quarter of Fiscal 2014 and the unfavorable effect of
foreign currency. The decline in Retail operating margin was also due to an increase in SG&A expenses as a percentage of net
revenues, primarily driven by incremental operating expenses associated with the Australia and New Zealand Business, and
expenses associated with our global store and e-commerce development efforts.
44
Licensing operating margin improvement was primarily due to reduced operating expenses reflecting the transition of
certain licensing arrangements to wholly-owned operations, partially offset by lower net revenues.
Unallocated corporate expenses increased by $22 million, reflecting higher advertising, marketing, and promotional costs,
acquisition-related costs, and increased global information technology-related costs.
Gain on Acquisition of Chaps was $16 million for Fiscal 2014, as previously described above and in Note 5 to the
accompanying audited consolidated financial statements.
Unallocated restructuring and other charges increased by $6 million to $18 million in Fiscal 2014, from $12 million in
Fiscal 2013, as previously described above and in Note 12 to the accompanying audited consolidated financial statements.
Foreign Currency Losses. The effect of foreign currency exchange rate fluctuations resulted in losses of $8 million in
Fiscal 2014, compared to losses of $12 million in Fiscal 2013. The net decline in foreign currency losses was primarily related to
the revaluation and settlement of foreign currency-denominated third-party and intercompany receivables and payables, and net
gains related to foreign currency hedge contracts. Foreign currency gains and losses do not result from the translation of the
operating results of our foreign subsidiaries to U.S. dollars.
Interest Expense. Interest expense includes the borrowing costs related to our outstanding debt, including amortization
of debt issuance costs, and interest related to our capital lease obligations. Interest expense declined by $2 million to $20 million
in Fiscal 2014, from $22 million in Fiscal 2013, primarily due to the lower interest rate on the 2.125% unsecured senior notes due
2018 (the "Senior Notes") issued in September 2013, as compared to the 4.5% interest rate on the previously outstanding Euro
Debt, as defined below (see Note 14 to the accompanying audited consolidated financial statements). This decline was partially
offset by additional interest on our increased capital lease obligations.
Interest and Other Income, net. Interest and other income, net decreased by $3 million to $3 million in Fiscal 2014, from
$6 million in Fiscal 2013, reflecting lower interest income primarily due to changes in our investment portfolio mix.
Equity in Losses of Equity-Method Investees. The equity in losses of equity-method investees of $9 million and $10 million
in Fiscal 2014 and Fiscal 2013, respectively, reflect our share of losses from our joint venture, the Ralph Lauren Watch and Jewelry
Company Sárl (the "RL Watch 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. The
provision for income taxes decreased by $19 million, or 5.6%, to $320 million in Fiscal 2014 from $339 million in Fiscal 2013.
The decrease in the provision for income taxes was primarily due to a decrease in our reported effective tax rate of 190 basis points
to 29.2% in Fiscal 2014 from 31.1% in Fiscal 2013, slightly offset by the increase in the overall level of our pretax income. The
lower effective tax rate for Fiscal 2014 was primarily due to tax reserve reductions associated with the conclusion of a tax
examination during the third quarter of Fiscal 2014, and an income tax benefit resulting from legal entity restructuring of certain
of our foreign operations during Fiscal 2014. The effective tax rate for Fiscal 2013 reflected tax reserve reductions associated with
the conclusion of a separate tax examination during the third quarter of Fiscal 2013, which were offset by the inclusion of a reserve
for an interest assessment on a prior year withholding tax. The effective tax rate differs from statutory rates due to the effect of
state and local taxes, tax rates in foreign jurisdictions, and certain nondeductible expenses. Our effective tax rate will change from
period to period based on various factors including, but not limited to, the geographic mix of earnings, the timing and amount of
foreign dividends, enacted tax legislation, state and local taxes, tax audit findings and settlements, and the interaction of various
global tax strategies.
Net Income. Net income increased by $26 million, or 3.4%, to $776 million in Fiscal 2014, from $750 million in Fiscal
2013, due to the $19 million reduction in our provision for income taxes, lower non-operating charges of $4 million, and a $3
million increase in operating income, all as previously discussed.
Net Income per Diluted Share. Net income per diluted share increased by $0.43, or 5.4%, to $8.43 per share in Fiscal
2014 from $8.00 per share in Fiscal 2013. The increase was primarily attributable to higher net income, as previously discussed,
and lower weighted-average diluted shares outstanding during Fiscal 2014, driven by our share repurchases over the last twelve
months.
45
Fiscal 2013 Compared to Fiscal 2012
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain
financial statement captions:
Fiscal Years Ended
March 30,
2013
March 31,
2012
$
Change
% / bps
Change
(millions, except per share data)
Net revenues ...............................................................
Cost of goods sold(a) .....................................................
Gross profit.................................................................
Gross profit as % of net revenues............................
Selling, general, and administrative expenses(a) ..........
SG&A expenses as % of net revenues .....................
Amortization of intangible assets.................................
Impairments of assets...................................................
Restructuring and other charges...................................
Operating income.......................................................
Operating income as % of net revenues..................
Foreign currency losses................................................
Interest expense............................................................
Interest and other income, net......................................
Equity in losses of equity-method investees................
Income before provision for income taxes ...............
Provision for income taxes...........................................
Effective tax rate (b) .............................................
Net income ..................................................................
Net income per common share:
Basic ..........................................................................
Diluted.......................................................................
$
$
$
$
6,945
(2,789)
4,156
59.8%
(2,971)
42.8%
(27)
(19)
(12)
1,127
16.2%
(12)
(22)
6
(10)
1,089
(339)
31.1%
750
8.21
8.00
$
$
$
$
6,860
(2,862)
3,998
58.3%
(2,916)
42.5%
(29)
(2)
(12)
1,039
15.2%
(2)
(24)
11
(9)
1,015
(334)
32.9%
681
7.35
7.13
$
$
$
$
85
73
158
(55)
2
(17)
—
88
(10)
2
(5)
(1)
74
(5)
69
1.2%
(2.5%)
3.9%
150 bps
1.9%
30 bps
(7.3%)
NM
(5.6%)
8.4%
100 bps
NM
(9.8%)
(48.2%)
2.2%
7.3%
1.6%
(180 bps)
10.1%
0.86
0.87
11.7%
12.2%
(a)
(b)
Includes total depreciation expense of $206 million and $196 million for Fiscal 2013 and Fiscal 2012, respectively.
Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income
taxes.
NM = Not meaningful.
Net Revenues. Net revenues increased by $85 million, or 1.2%, to $6.945 billion in Fiscal 2013 from $6.860 billion in
Fiscal 2012. The increase was primarily due to higher revenues from our retail businesses, which were partially offset by lower
revenues from our wholesale businesses and net unfavorable foreign currency effects. Excluding the effect of foreign currency,
net revenues increased by $183 million, or 2.7%.
46
Net revenues for our three reportable business segments are provided below:
Fiscal Years Ended
March 30,
2013
March 31,
2012
(millions)
$
Change
%
Change
Net Revenues:
Wholesale................................................
Retail .......................................................
Licensing .................................................
Total net revenues...............................
$
$
3,138
3,625
182
6,945
$
$
3,247
3,432
181
6,860
$
$
(109)
193
1
85
(3.3%)
5.6%
0.7%
1.2%
Wholesale net revenues — The net decrease primarily reflects:
•
•
•
a $78 million net decrease related to our European businesses on a constant currency basis driven by reduced shipments
across our core menswear, womenswear, and childrenswear product lines, reflecting the challenging European retail
environment and softness in the specialty store business, particularly in Southern Europe. These decreases were
partially offset by increased sales from our accessories product lines, driven by new product offerings and an increased
department store presence;
a $15 million net decrease related to our Japanese businesses on a constant currency basis, primarily due to the impact
of our business model shift to the retail concession-based channel and the softness in the department store business;
and
a $50 million net decrease in revenues due to net unfavorable foreign currency effects, primarily related to the
weakening of the Euro against the U.S. Dollar during Fiscal 2013.
These decreases were partially offset by:
•
a $33 million net increase related to our businesses in the Americas, reflecting higher menswear and womenswear
revenues due in part to additional product line offerings, partially offset by declines due to the discontinuance of the
majority of product categories under the American Living brand sold to JCPenney. The increase in net revenues was
also due to incremental Home product revenues related to our assumption of control over the distribution of the
previously licensed bedding and bath business on May 1, 2011, which was partially offset by lower revenues from
our childrenswear product line.
Retail net revenues — Our total reported comparable store sales increased approximately 3% in Fiscal 2013 compared to
Fiscal 2012, but increased approximately 4% on a constant currency basis. The net increase in Retail net revenues primarily
reflected:
•
•
a $119 million, or a 4%, net increase in consolidated comparable store sales on a constant currency basis, primarily
driven by increases from our North American and European factory stores and our Ralph Lauren e-commerce
operations, partially offset by decreases in comparable store sales from certain of our Ralph Lauren stores and our
concession shops in Asia. Comparable store sales related to our e-commerce operations increased by approximately
18% on both a reported and constant currency basis over Fiscal 2012, and had a favorable impact on our total
comparable store sales of 1% to 2% on both a reported and constant currency basis. Our consolidated comparable
store sales excluding e-commerce increased between 1% and 2% on a reported basis and between 2% and 3% on a
constant currency basis; and
a $120 million, or a 22%, net increase in non-comparable store sales on a constant currency basis, driven by new
store openings over the past twelve months and the growth of our e-commerce operations through our recently
launched Ralph Lauren e-commerce sites in Germany and Japan and Club Monaco e-commerce sites in North
America. The effect of these new openings and launches more than offset the impact of store closings in the Asia-
Pacific region due to our network repositioning initiative.
47
These increases were partially offset by:
•
a $46 million net decrease in revenues due to unfavorable foreign currency effects, comprised of unfavorable effects
of $36 million and $10 million related to our comparable and non-comparable store sales, respectively, primarily
related to the weakening of the Euro and the Yen against the U.S. Dollar during Fiscal 2013.
Our global average store count declined by three stores and concession shops during Fiscal 2013, as store closures associated
with the Asia-Pacific Restructuring Plan at the end of Fiscal 2012 and the Rugby Closure Plan in Fiscal 2013 were largely offset
by new store openings, primarily in Asia and Europe. The following table details our retail store and e-commerce presence as of
the periods presented:
Stores:
Freestanding stores ...............................................................................................
Concession shops .................................................................................................
Total stores.......................................................................................................
E-commerce Sites:
North American sites(a) .........................................................................................
European sites(b) ...................................................................................................
Asian site(c) ...........................................................................................................
Total e-commerce sites....................................................................................
March 30,
2013
March 31,
2012
388
494
882
3
3
1
7
379
474
853
3
3
—
6
(a) Our North American e-commerce sites as of March 30, 2013 include www.RalphLauren.com, www.ClubMonaco.com,
and www.ClubMonaco.ca, which collectively service the U.S. and Canada. As of March 31, 2012, our North American
e-commerce sites included www.RalphLauren.com, www.ClubMonaco.com, and www.Rugby.com.
(b)
(c)
Includes www.RalphLauren.co.uk (servicing the United Kingdom), www.RalphLauren.fr (servicing Belgium, France,
Italy, Luxembourg, the Netherlands, Portugal, and Spain), and www.RalphLauren.de (servicing Germany and Austria).
Includes www.RalphLauren.co.jp servicing Japan, which was launched in Fiscal 2013.
Licensing revenues — The $1 million net increase in licensing revenues reflects an approximate $5 million increase in
product licensing royalties, primarily driven by higher apparel and fragrance-related royalties, largely offset by an approximate
$4 million decline in Home licensing revenues due to the discontinuance of certain licensing arrangements.
Gross Profit. Gross profit increased by $158 million, or 3.9%, to $4.156 billion in Fiscal 2013 from $3.998 billion in
Fiscal 2012. Gross profit as a percentage of net revenues increased by 150 basis points to 59.8% in Fiscal 2013 from 58.3% in
Fiscal 2012, primarily reflecting lower sourcing costs compared to higher cost benchmarks in the prior year period across most
of our global businesses, favorable product mix across most of our wholesale businesses, and the growth of our retail businesses,
which generally carry higher gross margins. The improvement in our gross profit margin was partially offset by a less favorable
geographic mix and elevated promotional activity across certain of our North American retail businesses.
Selling, General, and Administrative Expenses. SG&A expenses increased by $55 million, or 1.9%, to $2.971 billion in
Fiscal 2013 from $2.916 billion in Fiscal 2012. This increase included a net favorable foreign currency effect of approximately
$43 million, primarily related to the weakening of the Euro and the Japanese Yen against the U.S. Dollar during Fiscal 2013.
Excluding the effect of foreign currency, SG&A expenses increased by $98 million, or 3.4%. SG&A expenses as a percentage of
net revenues increased to 42.8% in Fiscal 2013 from 42.5% in Fiscal 2012. The 30 basis point increase was primarily due to an
increase in operating expenses attributable to the growth in our retail businesses (which typically carry higher operating expense
margins), our new business initiatives, and our repositioning efforts in the Asia-Pacific region, partially offset by our operating
leverage on higher net revenues.
48
The $55 million net increase in SG&A expenses by functional category is as follows:
SG&A expense category:
Compensation-related expenses(a) .....................................................................................................
Selling expenses ................................................................................................................................
Depreciation expense ........................................................................................................................
Shipping, warehousing, and distribution expenses ...........................................................................
Rent and occupancy-related expenses...............................................................................................
Marketing, advertising, and promotional expenses ..........................................................................
Total change in SG&A expenses..................................................................................................
$
$
Fiscal 2013
Compared to
Fiscal 2012
(millions)
26
7
7
6
5
4
55
(a) Primarily related to increased salaries to support retail growth and higher stock-based compensation expenses.
Amortization of Intangible Assets. Amortization of intangible assets decreased by $2 million, or 7.3%, to $27 million in
Fiscal 2013 from $29 million in Fiscal 2012. This decrease reflects the absence of expense in Fiscal 2013 related to certain customer
relationship intangible assets that were fully amortized as of the end of Fiscal 2012.
Impairments of Assets. Asset impairment charges increased by $17 million to $19 million in Fiscal 2013 from $2 million
in Fiscal 2012. The non-cash impairment charges of $19 million recognized in Fiscal 2013 included charges of $11 million to
write-off certain Rugby brand-related long-lived assets in connection with the Rugby Closure Plan and charges of $8 million to
reduce the carrying values of long-lived assets of certain underperforming European stores to their fair values, as well as to write-
off the fixed assets of certain wholesale locations in Europe that were expected to close. During Fiscal 2012, we recorded non-
cash impairment charges of $2 million, primarily to reduce the carrying value of the long-lived assets of certain underperforming
European retail stores to their estimated fair values. See Note 11 to the accompanying audited consolidated financial statements
for further discussion.
Restructuring and Other Charges. Restructuring and other charges were $12 million in each of Fiscal 2013 and Fiscal
2012. Net restructuring charges of $12 million recorded in Fiscal 2013 included $7 million of severance and lease termination
costs associated with the Rugby Closure Plan and $5 million of other net restructuring charges, which primarily related to the
suspension of the Company's operations in Argentina, severance and lease termination costs associated with our European
operations, and other severance-related costs primarily within our corporate operations, partially offset by reversals of reserves
deemed no longer necessary in connection with our Fiscal 2012 restructuring plan in the Asia-Pacific region. Net restructuring
charges of $12 million recorded during Fiscal 2012 primarily related to employee termination costs and costs associated with the
closure of certain retail stores and concession shops in connection with our restructuring plan in the Asia-Pacific region, as well
as severance related to the planned discontinuance of the majority of the products sold under the American Living brand at JCPenney.
See Note 12 to the accompanying audited consolidated financial statements for further discussion.
Operating Income. Operating income increased by $88 million, or 8.4%, to $1.127 billion in Fiscal 2013 from $1.039
billion in Fiscal 2012. Operating income as a percentage of net revenues increased 100 basis points, to 16.2% in Fiscal 2013 from
15.2% in Fiscal 2012. The increase in operating income as a percentage of net revenues primarily reflects the improvement in
gross profit margin, partially offset by higher SG&A expenses and impairment charges as a percentage of revenue, as previously
discussed.
49
Operating income and margin for our three business segments, which have been recast to reflect the fourth quarter Fiscal
2014 change in segment measurement, are as follows:
Fiscal Years Ended
March 30, 2013
March 31, 2012
Operating
Income
(millions)
Operating
Margin
Operating
Income
(millions)
Operating
Margin
$
Change
(millions)
Margin
Change
Segment:
Wholesale..........................................
Retail .................................................
Licensing ...........................................
$
Unallocated corporate expenses........
Unallocated restructuring and
other charges, net...........................
Total operating income.................
28.7% $
17.0%
83.6%
903
615
152
1,670
(531)
(12)
$
1,127
16.2% $
835
553
149
1,537
(486)
(12)
1,039
25.7% $
16.1%
82.6%
15.2% $
68
62
3
133
(45)
—
88
300 bps
90 bps
100 bps
100 bps
Wholesale operating margin increased by 300 basis points, primarily due to increased global gross margins, reflecting lower
sourcing costs compared to higher cost benchmarks in the prior year period and a favorable product mix across most of our global
wholesale businesses.
Retail operating margin increased by 90 basis points, including an unfavorable impact of 20 basis points related to asset
impairment charges associated with the Rugby Closure Plan. The increase in the Retail operating margin was primarily due to
improved operating leverage of SG&A expenses, including rent and occupancy and compensation-related costs, on higher retail
revenues. This increase was partially offset by the lower gross profit margin, primarily reflecting elevated promotional activity
across certain of our North American retail businesses.
Licensing operating margin increased by 100 basis points, primarily due to reduced operating expenses reflecting the
discontinuance of certain licensing arrangements, as well as slightly higher licensing revenues.
Unallocated corporate expenses increased by $45 million, primarily due to increased compensation-related costs, including
stock-based compensation, higher advertising, marketing, and promotional costs, and higher rent and occupancy related expenses.
Unallocated restructuring and other charges were $12 million in each of Fiscal 2013 and Fiscal 2012. See Notes 12 and
22 to the accompanying audited consolidated financial statements for further discussion of the related charges.
Foreign Currency Losses. The effect of foreign currency exchange rate fluctuations resulted in losses of $12 million in
Fiscal 2013, compared to losses of $2 million in Fiscal 2012. The higher foreign currency losses were primarily attributable to the
weakening of the Euro during Fiscal 2013, and were primarily related to the settlement of foreign currency-denominated third-
party and intercompany receivables and payables.
Interest Expense. Interest expense decreased by $2 million, or 9.8%, to $22 million in Fiscal 2013 from $24 million in
Fiscal 2012. The decrease in interest expense was primarily due to favorable foreign currency effects related to the weakening of
the Euro during Fiscal 2013, which reduced interest expense related to our Euro Debt (as defined below). The decline in interest
expense was also attributable to the absence of interest incurred on Fiscal 2012 borrowings under our Global Credit Facility (as
defined in Note 14 to the accompanying audited consolidated financial statements).
Interest and Other Income, net. Interest and other income, net decreased by $5 million, or 48.2%, to $6 million in Fiscal
2013 from $11 million in Fiscal 2012. The decline was principally due to lower rates of interest and lower investment balances
within our European investment portfolio, as well as the absence of pretax income of approximately $1 million recorded in Fiscal
2012 in connection with the change in fiscal year of our Japanese subsidiary to conform to our consolidated fiscal year basis.
Equity in Losses of Equity-Method Investees. The equity in losses of equity-method investees of $10 million and $9 million
in Fiscal 2013 and Fiscal 2012, respectively, is related to our share of losses from the RL Watch Company.
50
Provision for Income Taxes. The provision for income taxes increased by $5 million, or 1.6%, to $339 million in Fiscal
2013 from $334 million in Fiscal 2012. The increase in our provision for income taxes was primarily due to an increase in the
overall level of our pretax income, largely offset by a decrease in our effective tax rate of 180 basis points, to 31.1% in Fiscal 2013
from 32.9% in Fiscal 2012. Our lower effective tax rate was primarily due to a greater proportion of earnings generated in lower-
taxed jurisdictions, as well as tax reserve reductions associated with the conclusion of a tax examination and other net favorable
discrete tax items, partially offset by the inclusion of a reserve for an interest assessment on a prior year withholding tax.
Net Income. Net income increased by $69 million, or 10.1%, to $750 million in Fiscal 2013 from $681 million in Fiscal
2012. The higher net income was primarily driven by the $88 million increase in operating income, partially offset by higher
foreign currency losses of $10 million and the increase in our provision for income taxes of $5 million, as previously discussed.
Fiscal 2013 results were negatively impacted by $19 million of pretax charges related to asset impairments and restructuring in
connection with the Rugby Closure Plan, which had an after-tax effect of reducing net income by $12 million.
Net Income per Diluted Share. Net income per diluted share increased by $0.87, or 12.2%, to $8.00 per share in Fiscal
2013 from $7.13 per share in Fiscal 2012. The increase was due to the higher level of net income, as previously discussed, and
lower weighted-average diluted shares outstanding during Fiscal 2013, primarily driven by our share repurchases over the last
twelve months. Fiscal 2013 results were negatively impacted by $19 million of pretax charges related to asset impairments and
restructurings in connection with the Rugby Closure Plan, which had an after-tax effect of reducing net income per diluted share
by $0.13.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The following table presents our financial condition as of March 29, 2014 and March 30, 2013.
March 29,
2014
March 30,
2013
(millions)
$
Change
Cash and cash equivalents .......................................................
Short-term investments............................................................
Non-current investments .........................................................
Current portion of long-term debt(a) ........................................
Long-term debt ........................................................................
Net cash and investments(b) .................................................
Equity ......................................................................................
$
$
$
$
797
488
2
—
(300)
987
4,034
$
$
$
974
325
81
(267)
—
1,113
3,785
$
$
(177)
163
(79)
267
(300)
(126)
249
(a) Represents our Euro Debt, which was repaid upon maturity on October 4, 2013.
(b)
"Net cash and investments" is defined as cash and cash equivalents, plus short-term and non-current investments, less
total debt.
The decline in our net cash and investments position at March 29, 2014 as compared to March 30, 2013 was primarily due
to our use of cash to support our Class A common stock repurchases of $558 million, to invest in our business through $390 million
in capital expenditures, and to make cash dividend payments of $149 million during Fiscal 2014, partially offset by our operating
cash flows of $907 million and proceeds from stock-based compensation arrangements of $86 million.
The increase in equity was primarily attributable to our net income and the impact of stock-based compensation arrangements,
largely offset by our share repurchase activity and dividends declared during Fiscal 2014.
51
Cash Flows
Fiscal 2014 Compared to Fiscal 2013
Fiscal Years Ended
March 29,
2014
March 30,
2013
(millions)
$
Change
Net cash provided by operating activities ...............................
Net cash used in investing activities........................................
Net cash used in financing activities .......................................
Effect of exchange rate changes on cash and cash
equivalents ...........................................................................
Net increase (decrease) in cash and cash equivalents .............
$
$
$
907
(488)
(599)
3
(177) $
$
1,019
(113)
(595)
(9)
302
$
(112)
(375)
(4)
12
(479)
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $907 million during
Fiscal 2014, from $1.019 billion during Fiscal 2013. The net decrease in cash provided by operating activities was primarily due
to the net unfavorable change related to our working capital, including:
•
•
an increase associated with the changes in our accounts receivable balance, resulting from higher revenues at the
end of Fiscal 2014 and the timing of cash collections; and
an increase in prepaid expenses and other current assets, primarily attributable to an increase in non-income tax
receivables related to our foreign operations and the timing of related payments.
These declines in cash from operating activities were partially offset by:
•
increases related to accounts payable and accrued liabilities and income taxes, primarily due to the timing of the
related payments.
Net Cash Used in Investing Activities. Net cash used in investing activities was $488 million during Fiscal 2014, as
compared to $113 million during Fiscal 2013. The $375 million net increase in cash used in investing activities was primarily
driven by:
•
•
•
a $238 million increase in cash used to purchase investments, less proceeds from sales and maturities of investments.
During Fiscal 2014, we made net investment purchases of $56 million, as compared to net investment sales of $182
million during Fiscal 2013;
a $114 million increase in cash used for capital expenditures. During Fiscal 2014, we spent $390 million on capital
expenditures, as compared to $276 million during Fiscal 2013. Our capital expenditures were primarily associated
with global retail store expansion, department store renovations, the purchase and expansion of a distribution facility
in High Point, North Carolina, and enhancements to our global information technology systems, including the
continued implementation of our new global operating and financial reporting information technology system, SAP.
In Fiscal 2015, we expect to spend between $400 million and $500 million in capital expenditures, primarily to
support our global retail store expansion, including the opening of our first Polo flagship store in New York City, the
introduction of the Polo store concept around the world, new store openings in Asia, including the opening of our
first flagship store in Hong Kong, and the expansion of the Chaps brand. Our capital expenditures will also be focused
on department store renovations, the continued implementation of SAP and other systems, and further development
of our infrastructure, including investment in a new global e-commerce platform; and
an $18 million increase in cash used to fund our acquisitions and ventures. During Fiscal 2014, we used $40 million
of cash to fund our acquisitions and ventures, including $18 million to fund the Chaps Menswear License Acquisition,
$15 million to fund the Australia and New Zealand Licensed Operations Acquisition, as well as amounts to support
the continued funding of our joint venture, the RL Watch Company. During Fiscal 2013, we used $22 million of
cash, primarily in connection with our acquisition of the previously licensed business in Latin America, and to fund
the operations of the RL Watch Company.
52
Net Cash Used in Financing Activities. Net cash used in financing activities was $599 million during Fiscal 2014, as
compared to $595 million during Fiscal 2013. The net increase in cash used in financing activities was primarily driven by:
•
•
a $21 million increase in cash used to pay dividends. During Fiscal 2014, we used $149 million to pay dividends,
as compared to $128 million during Fiscal 2013, primarily due to the increase in the quarterly cash dividend from
$0.40 per share to $0.45 per share, effective in November 2013; and
an $11 million increase in cash used to repurchase shares of our Class A common stock. During Fiscal 2014, we used
$498 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and
an additional $60 million in shares of Class A common stock were surrendered or withheld in satisfaction of
withholding taxes in connection with the vesting of awards under our 1997 Long-Term Stock Incentive Plan, as
amended (the "1997 Incentive Plan") and our 2010 Long-Term Stock Incentive Plan, as amended (the "2010 Incentive
Plan"). On a comparative basis, during Fiscal 2013, we used $450 million to repurchase shares of Class A common
stock pursuant to our common stock repurchase program, and an additional $47 million in shares of Class A common
stock were surrendered or withheld for taxes. In addition, during Fiscal 2013, we made a $50 million payment in
connection with our prepaid share repurchase program.
These increases in cash used in financing activities were partially offset by:
•
$31 million in proceeds from the issuance of long-term debt, net of repayments. During Fiscal 2014, we received
$300 million in proceeds from our issuance of 2.125% unsecured Senior Notes in September 2013. A portion of these
proceeds was used to repay the $269 million principal amount outstanding of the 4.5% Euro-denominated notes upon
their maturity on October 4, 2013.
Fiscal 2013 Compared to Fiscal 2012
Fiscal Years Ended
March 30,
2013
March 31,
2012
(millions)
$
Change
Net cash provided by operating activities ...............................
Net cash used in investing activities........................................
Net cash used in financing activities .......................................
Effect of exchange rate changes on cash and cash
equivalents ...........................................................................
Net increase in cash and cash equivalents...............................
$
$
$
1,019
(113)
(595)
(9)
302
$
$
885
(249)
(408)
(9)
219
$
134
136
(187)
—
83
Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $1.019 billion during
Fiscal 2013, as compared to $885 million during Fiscal 2012. This net increase in cash provided by operating activities was
primarily driven by:
•
•
an increase in net income before depreciation and amortization, stock-based compensation, impairment charges, and
other non-cash items; and
a net improvement in our working capital, primarily reflecting a smaller increase in inventories than in the prior
fiscal year, as increased inventory levels to support our new product offerings, store openings, and new e-commerce
sites were partially offset by the timing of inventory receipts, inventory management initiatives, and lower sourcing
costs in Fiscal 2013. In addition, accounts receivable declined due to lower wholesale revenues and higher cash
collections in Fiscal 2013, resulting in an improvement in days sales outstanding of approximately three days. These
increases in cash were largely offset by declines related to income taxes and accounts payable and accrued expenses,
primarily related to the timing of payments.
53
Net Cash Used in Investing Activities. Net cash used in investing activities decreased to $113 million during Fiscal 2013,
as compared to $249 million during Fiscal 2012. The net decrease in cash used in investing activities was primarily driven by:
•
an increase in proceeds from sales and maturities of investments, less cash used to purchase investments. During
Fiscal 2013, we received net proceeds of $182 million on our investments, as compared to net proceeds of $34 million
in Fiscal 2012.
The above increase in cash was partially offset by:
•
•
a $10 million increase in net cash used to fund our acquisitions and ventures. In Fiscal 2013, we used $22 million
of cash to fund the acquisitions of certain previously licensed businesses and to provide continued funding to our
joint venture, the RL Watch Company. In Fiscal 2012, we used $12 million, primarily to fund the RL Watch Company's
operations; and
an increase in cash used for capital expenditures. In Fiscal 2013, we spent $276 million for capital expenditures, as
compared to $272 million in Fiscal 2012. Our capital expenditures were primarily associated with global retail store
expansion and construction, our renovation of department store shop-within-shops, investments in our facilities, and
enhancements to our global information technology systems.
Net Cash Used in Financing Activities. Net cash used in financing activities was $595 million during Fiscal 2013, as
compared to $408 million during Fiscal 2012. The net increase in cash used in financing activities was primarily driven by:
•
•
•
an increase in cash used in connection with repurchases of our Class A common stock. During Fiscal 2013, we
repurchased 3.0 million shares of Class A common stock at a cost of $450 million pursuant to our common stock
repurchase program, and 0.4 million shares of Class A common stock at a cost of $47 million were surrendered or
withheld in satisfaction of withholding taxes in connection with the vesting of awards under our 1997 Incentive Plan
and our 2010 Incentive Plan. In addition, during Fiscal 2013, we made a $50 million payment in connection with
our prepaid share repurchase program. On a comparative basis, during Fiscal 2012, 3.2 million shares of Class A
common stock at a cost of $395 million were repurchased pursuant to our common stock repurchase program, and
0.2 million shares of Class A common stock at a cost of $24 million were withheld in satisfaction of withholding
taxes in connection with the vesting of awards under our 1997 Incentive Plan and our 2010 Incentive Plan;
an increase in cash used to pay dividends. During Fiscal 2013, we used $128 million to pay dividends, as compared
to $74 million during Fiscal 2012; and
a decrease in cash received from stock option exercises. In Fiscal 2013, we received $49 million from the exercise
of employee stock options, as compared to $61 million in Fiscal 2012.
Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, $500 million of availability under our
Global Credit Facility (as defined below), the availability under our Pan-Asia Credit Facilities (as defined below), our available
cash and cash equivalents and short-term investments, and our other available financing options. Most of our cash and short-term
investments are held outside the U.S. in jurisdictions where we intend to permanently reinvest any undistributed earnings to support
our continued growth. However, we are not dependent on foreign cash to fund our domestic operations and do not expect to
repatriate these balances to meet our domestic cash needs. Our sources of liquidity are used to fund our ongoing cash requirements,
including working capital requirements, global retail store and e-commerce development and expansion, construction and
renovation of shop-within-shops, investment in infrastructure, including technology, acquisitions, joint ventures, payment of
dividends, debt repayments, common stock repurchases, settlement of contingent liabilities (including uncertain tax positions),
and other corporate activities. We believe that our existing sources of cash, as well as our ability to access capital markets, will be
sufficient to support our operating, capital, and debt service requirements for the foreseeable future, the ongoing development of
our businesses, and our plans for further business expansion.
As discussed in the "Debt and Covenant Compliance" section below, we had no revolving credit facility borrowings
outstanding under our Global Credit Facility or our Pan-Asia Credit Facilities as of March 29, 2014. We may elect to draw on our
credit facilities or other potential sources of financing for, among other things, a material acquisition, settlement of a material
contingency (including uncertain tax positions), or a material adverse business or macroeconomic development, as well as for
other general corporate business purposes.
54
We believe that our Global Credit Facility is adequately diversified with no undue concentration in any one financial
institution. In particular, as of March 29, 2014, there were ten financial institutions participating in the Global Credit Facility, with
no one participant maintaining a maximum commitment percentage in excess of 16%. We have no reason to believe that the
participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Global
Credit Facility and the Pan-Asia Credit Facilities in the event of our election to draw funds in the foreseeable future.
Common Stock Repurchase Program
A summary of our repurchases of Class A common stock under our common stock repurchase program is presented below:
Cost of shares repurchased.................................................................................. $
Number of shares repurchased ............................................................................
(in millions)
548 (a) $
3.2 (a)
$
450
3.0
395
3.2
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
(a) Includes a $50 million prepayment made in March 2013 under our share repurchase program with a third-party financial
institution, in exchange for the right to receive shares of our Class A common stock at the conclusion of the 93-day repurchase
term. The $50 million prepayment was recorded as a reduction to additional paid-in capital in our consolidated balance sheet
as of March 30, 2013. The related 0.3 million shares were delivered to us during Fiscal 2014, based on the volume-weighted
average market price of our Class A common stock over the 93-day repurchase term, less a discount.
As of March 29, 2014, the remaining availability under our Class A common stock repurchase program was approximately
$580 million, reflecting the February 4, 2014 approval by our Board of Directors to expand the program by up to an additional
$500 million of Class A common stock repurchases. Repurchases of shares of Class A common stock are subject to overall
business and market conditions.
In addition, during Fiscal 2014, Fiscal 2013, and Fiscal 2012, 0.4 million, 0.4 million, and 0.2 million shares of Class A
common stock, respectively, at a cost of $60 million, $47 million, and $24 million, respectively, were surrendered or withheld in
satisfaction of withholding taxes in connection with the vesting of awards under our 1997 Incentive Plan and our 2010 Incentive
Plan.
Repurchased and surrendered shares are accounted for as treasury stock at cost and held in treasury for future use.
Dividends
Since 2003, we have maintained a regular quarterly cash dividend program on our common stock. On May 21, 2012, our
Board of Directors approved an increase in the quarterly cash dividend on our common stock from $0.20 per share to $0.40 per
share. On November 5, 2013, our Board of Directors approved a further increase to the quarterly cash dividend on our common
stock from $0.40 to $0.45 per share. Dividends paid amounted to $149 million, $128 million, and $74 million in Fiscal 2014,
Fiscal 2013, and Fiscal 2012, respectively.
We intend to continue to pay regular quarterly dividends on our outstanding common stock. However, any decision to
declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on, among other
things, our results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem
relevant.
Debt and Covenant Compliance
Senior Notes
In September 2013, we completed a registered public debt offering and issued $300 million aggregate principal amount of
Senior Notes due September 26, 2018 at a price equal to 99.896% of their principal amount. The Senior Notes bear interest at a
fixed rate of 2.125%, payable semi-annually. The proceeds from this offering were used for general corporate purposes, including
the repayment of our €209 million principal amount outstanding of 4.5% Euro-denominated notes (the "Euro Debt"), which matured
on October 4, 2013.
55
The Indenture governing the Senior Notes (the "Indenture") contains certain covenants that restrict our ability, subject to
specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or
sell, lease, or convey all or substantially all of our property or assets to another party. However, the Indenture does not contain
any financial covenants.
Revolving Credit Facilities
Global Credit Facility
We have a credit facility that provides for a $500 million senior unsecured revolving line of credit through March 2016,
which may also be used to support the issuance of letters of credit and the initiation and maintenance of a commercial paper
program (the "Global Credit Facility"). Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and
other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. We have the ability to expand our borrowing availability
under the Global Credit Facility to $750 million, subject to the agreement of one or more new or existing lenders under the facility
to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit
Facility. As of March 29, 2014, there were no borrowings outstanding under the Global Credit Facility and we were contingently
liable for $8 million of outstanding letters of credit.
The Global Credit Facility contains a number of covenants that, among other things, restrict our ability, subject to specified
exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with or 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 certain investments. The Global Credit Facility also requires us to maintain a maximum ratio
of Adjusted Debt to Consolidated EBITDAR (the "leverage ratio") of no greater than 3.75 as of the date of measurement for the
four most recent consecutive fiscal quarters. Adjusted Debt is defined generally as consolidated debt outstanding plus eight times
consolidated rent expense for the last four consecutive fiscal quarters. Consolidated EBITDAR is defined generally as consolidated
net income plus (i) income tax expense, (ii) net interest expense, (iii) depreciation and amortization expense, and (iv) consolidated
rent expense. As of March 29, 2014, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has
occurred under the Company's Global Credit Facility.
Upon the occurrence of an Event of Default under the Global Credit Facility, the lenders may cease making loans, terminate
the Global Credit Facility, and declare all amounts outstanding to be immediately due and payable. The Global Credit Facility
specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the
failure to make timely principal, interest, and fee payments or to satisfy the covenants, including the financial covenant described
above. Additionally, the Global Credit Facility provides that an Event of Default will occur if Mr. Ralph Lauren, our Chairman of
the Board and Chief Executive Officer, and entities controlled by the Lauren family fail to maintain a specified minimum percentage
of the voting power of our common stock.
Pan-Asia Credit Facilities
Certain of our subsidiaries in Asia have uncommitted credit facilities with regional branches of JPMorgan Chase (the
"Banks") in China, Malaysia, South Korea, and Taiwan (the "Pan-Asia Credit Facilities"). These credit facilities are subject to
annual renewal and may be used to fund general working capital and corporate needs of our operations in the respective regions.
Our subsidiaries' borrowings under the Pan-Asia Credit Facilities are guaranteed by the parent company. The Pan-Asia Credit
Facilities do not contain any financial covenants. As of March 29, 2014, the Pan-Asia Credit Facilities provided for revolving lines
of credit of up to $33 million, granted at the sole discretion of the Banks, subject to availability of the Banks' funds and satisfaction
of certain regulatory requirements. As of March 29, 2014, there were no borrowings outstanding under any of the Pan-Asia Credit
Facilities.
See Note 14 to the accompanying audited consolidated financial statements for additional information relating to our credit
facilities.
56
Contractual and Other Obligations
Firm Commitments
The following table summarizes certain of our aggregate contractual obligations as of March 29, 2014, and the estimated
timing and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund
these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability
under our credit facilities or other accessible sources of financing.
Fiscal
2015
Fiscal
2016-2017
Fiscal
2018-2019
(millions)
Fiscal
2020 and
Thereafter
Total
Senior Notes ............................................
Interest payments on Senior Notes ..........
Capital leases ...........................................
Operating leases.......................................
Inventory purchase commitments............
Other commitments .................................
Total.......................................................
$
$
— $
6
24
336
1,106
81
1,553
$
— $
13
48
605
—
58
724
$
300
10
46
518
—
43
917
$
$
— $
—
98
927
—
55
1,080
$
300
29
216
2,386
1,106
237
4,274
The following is a description of our material, firmly committed obligations as of March 29, 2014:
•
•
•
Senior Notes represents the principal amount of our outstanding unsecured senior notes due September 26, 2018.
Amount does not include any fair value adjustments, call premiums, or interest payments (see below);
Interest payments on Senior Notes represent the semi-annual contractual interest payments due on our Senior Notes,
which bear interest at a fixed annual rate of 2.125%;
Lease obligations represent the minimum lease rental payments due under noncancelable leases for our real estate
and operating equipment in various locations around the world. In addition to such amounts, we are normally required
to pay taxes, insurance, and occupancy costs relating to our leased real estate properties, which are not included in
the table above. Approximately 70% of these lease obligations relate to our retail operations. Information has been
presented separately for operating and capital leases. In Fiscal 2014, we entered into a build-to-suit lease agreement
for a new Polo flagship store on Fifth Avenue in New York City. The total commitment related to this lease is $235
million, comprised of a $74 million operating lease obligation related to the land portion of the lease (included in
the operating lease obligations above) and a $161 million obligation related to the building portion of the lease
(included in the capital lease obligations above);
•
Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities
of goods at determinable prices; and
• Other commitments primarily represent our legally-binding obligations under sponsorship, licensing, and other
marketing and advertising agreements; distribution-related agreements; information technology-related service
agreements; and pension-related obligations.
Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $132
million as of March 29, 2014, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The
above table also excludes the following: (i) amounts recorded in current liabilities in our consolidated balance sheet as of March 29,
2014, which 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 used herein (e.g., deferred taxes and other miscellaneous items).
We also have certain contractual arrangements that would require us to make payments if certain events or circumstances
occur. See Note 17 to the accompanying audited consolidated financial statements for a description of our contingent commitments
not included in the above table.
57
Off-Balance Sheet Arrangements
In addition to the commitments included in the above table, our other off-balance sheet firm commitments relating to our
outstanding letters of credit amounted to approximately $9 million as of March 29, 2014. We do not maintain any other off-balance
sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have
a material current or future effect on our consolidated financial statements.
MARKET RISK MANAGEMENT
As discussed in Note 16 to the accompanying audited consolidated financial statements, we are exposed to a variety of
risks, including changes in foreign currency exchange rates relating to certain anticipated cash flows from our international
operations and possible declines in the value of reported net assets of certain of our foreign operations, as well as changes in the
fair value of our fixed-rate debt relating to changes in interest rates. Consequently, at times, in the normal course of business, we
employ established policies and procedures, including the use of derivative financial instruments, to manage such risks. We do
not enter into derivative transactions for speculative or trading purposes.
As a result of the use of derivative instruments, we are exposed to the risk that counterparties to our derivative contracts
will fail to meet their contractual obligations. To mitigate such counterparty credit risk, we have a policy of only entering into
contracts with carefully selected financial institutions based upon evaluation of their credit ratings and other financial factors. Our
established policies and procedures for mitigating credit risk from derivative transactions include ongoing review and assessment
of the creditworthiness of our counterparties. We also enter into master netting arrangements with counterparties when possible
to mitigate credit risk associated with our derivative instruments. As a result of the above considerations, we do not believe that
we are exposed to any undue concentration of counterparty risk with respect to our derivative contracts as of March 29, 2014.
However, we do have in aggregate approximately $7 million of derivative instruments in net asset positions with two creditworthy
financial institutions.
Foreign Currency Risk Management
We manage our exposure to changes in foreign currency exchange rates through the use of forward foreign currency exchange
contracts. Refer to Note 16 to the accompanying audited consolidated financial statements for a summary of the notional amounts
and fair values of our forward foreign currency exchange contracts outstanding as of March 29, 2014.
Forward Foreign Currency Exchange Contracts
We enter into forward foreign currency exchange derivative contracts as hedges to reduce our risk related to exchange rate
fluctuations on inventory purchases, intercompany royalty payments made by certain of our international operations, intercompany
contributions made to fund certain marketing efforts of our international operations, and other foreign currency-denominated
operational cash flows. As part of our overall strategy to manage the level of exposure to the risk of foreign currency exchange
rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the Hong Kong Dollar, the South Korean Won,
and the Australian Dollar, we generally hedge a portion of our foreign currency exposures anticipated over a two-year period. In
doing so, we use forward foreign currency exchange contracts that generally have maturities of three months to two years to
provide continuing coverage throughout the hedging period.
Our foreign exchange risk management activities are governed by our Company's established policies and procedures.
These policies and procedures provide a framework that allows for the management of currency exposures while ensuring the
activities are conducted within our established guidelines. Our policies include guidelines for the organizational structure of our
risk management function and for internal controls over foreign exchange risk management activities, including, but not limited
to, authorization levels, transaction limits, and credit quality controls, as well as various measurements for monitoring compliance.
We monitor foreign exchange risk using different techniques, including a periodic review of market values and sensitivity analyses.
We record our forward foreign currency exchange contracts at fair value in our consolidated balance sheets. To the extent
forward foreign currency exchange contracts designated as cash flow hedges at hedge inception are highly effective in offsetting
changes in the value of the hedged item, the related gains or losses are initially deferred in equity as a component of accumulated
other comprehensive income ("AOCI") and are subsequently recognized in our consolidated statements of income as follows:
• Forecasted Inventory Purchases — Recognized as part of the cost of the inventory being hedged within cost of goods
sold when the related inventory is sold to a third party.
58
•
Intercompany Royalty Payments and Marketing Contributions — Recognized within foreign currency gains (losses)
in the period in which the related royalties or marketing contributions being hedged are received or paid.
We recognized net gains on forward foreign currency exchange contracts in earnings of approximately $30 million and $32
million during Fiscal 2014 and Fiscal 2013, respectively, and net losses of approximately $4 million during Fiscal 2012.
Sensitivity
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our
forward foreign currency exchange contracts. To perform the sensitivity analysis, we assess the risk of loss in fair values from the
effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies
in our hedge portfolio against the U.S. Dollar. As of March 29, 2014, a 10% appreciation or depreciation of the U.S. Dollar against
the exchange rates for foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value
of our derivative portfolio of approximately $52 million. As our outstanding forward foreign currency exchange contracts are
primarily designated as cash flow hedges of forecasted transactions, this hypothetical net change in fair value would be largely
offset by the net change in the fair values of the underlying hedged items.
Interest Rate Risk Management
Sensitivity
As of March 29, 2014, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily
relates to a change in the fair value of our fixed-rate Senior Notes. As of March 29, 2014, both the carrying value and the fair value
of our Senior Notes was $300 million. A 25 basis point increase or decrease in the level of interest rates would decrease or increase,
respectively, the fair value of our Senior Notes by approximately $3 million. Such potential increases or decreases in the fair value
of our debt would only be relevant if we were to retire all or a portion of the debt prior to its maturity, and are based on certain
simplifying assumptions, including an immediate across-the-board increase or decrease in the level of interest rates with no other
subsequent changes for the remainder of the period.
Investment Risk Management
As of March 29, 2014, we had cash and cash equivalents on-hand of $797 million, primarily on deposit in interest bearing
accounts and invested in money market funds and time deposits with original maturities of 90 days or less. Our other significant
investments included $488 million of short-term investments, primarily in time deposits with original maturities greater than
90 days, and $46 million of restricted cash placed in escrow with certain banks as collateral, primarily to secure guarantees in
connection with certain international tax matters.
We actively monitor our exposure to changes in the fair value of our global investment portfolio in accordance with our
established policies and procedures, which include monitoring both general and issuer-specific economic conditions. Our
investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit
risk, and achievement of maximum returns within the guidelines set forth in our investment policy. See Note 16 to the accompanying
audited consolidated financial statements for further detail of the composition of our investment portfolio as of March 29, 2014.
We evaluate investments held in unrealized loss positions for other-than-temporary impairment on a quarterly basis. This
evaluation involves a variety of considerations, including assessments of risks and uncertainties associated with general economic
conditions and distinct conditions affecting specific issuers. We consider the following factors: (i) the length of time and the extent
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) our intent and ability to retain our
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 we will be required to sell our investment before recovery of market value. No significant realized or unrealized
gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded in any of the fiscal
years presented.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash
flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based
on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are
59
inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same set
of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that the following list
represents our critical accounting policies. For a discussion of all of our significant accounting policies, see Note 3 to the
accompanying audited consolidated financial statements.
Sales Reserves and Uncollectible Accounts
A significant area of judgment affecting reported revenue and net income involves estimating sales reserves, which represent
the portion of gross revenues not expected to be realized. In particular, wholesale revenue is reduced by estimates of returns,
discounts, end-of-season markdowns, and operational chargebacks. Retail revenue, including e-commerce sales, is also reduced
by an estimate of returns.
In determining estimates of returns, discounts, end-of-season markdowns, and operational chargebacks, we analyze historical
trends, seasonal results, current economic and market conditions, and retailer performance. We review and refine these estimates
on a quarterly basis. Our historical estimates of these costs have not differed materially from actual results. A hypothetical 1%
increase in our reserves for returns, discounts, end-of-season markdowns, and operational chargebacks as of March 29, 2014 would
have decreased our Fiscal 2014 net revenues by approximately $3 million.
Similarly, we evaluate accounts receivable to determine if they will ultimately be collected. Significant judgments and
estimates are involved in this evaluation, including an analysis of specific risks on a customer-by-customer basis for larger accounts
and customers, and a receivables aging analysis that determines the percentage of receivables that has historically been uncollected
by aged category. Based on this information, we provide a reserve for the estimated amounts believed to be uncollectible. Although
we believe that we have adequately provided for those risks as part of our bad debt reserve, a severe and prolonged adverse impact
on our major customers' business operations could have a corresponding material adverse effect on our net sales, cash flows, and/
or financial condition.
See "Accounts Receivable" in Note 3 to the accompanying audited consolidated financial statements for an analysis of the
activity in our sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.
Inventories
We hold inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores,
including our own retail stores. We also hold retail inventory that is sold in our own stores and e-commerce sites directly to
consumers. Wholesale and retail inventories are stated at the lower of cost or estimated net realizable value, with cost primarily
determined on a weighted-average basis.
We continuously evaluate the composition of our inventories, assessing slow-turning product and fashion product. Estimated
net realizable value of inventory is determined based on an analysis of historical sales trends of our individual product lines, the
impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current
orders in-house relating to future sales of inventory, as well as plans to sell inventory through our factory stores. Estimates may
differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and
market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on
historical experience and are adjusted based upon physical inventory counts. Our historical estimates of these costs and the
provisions have not differed materially from actual results.
A hypothetical 1% increase in the level of our inventory reserves as of March 29, 2014 would have decreased our Fiscal
2014 gross profit by approximately $1 million.
Business Combinations
In connection with our business combinations, we are required to record all of the assets and liabilities of the acquired
business at their acquisition date fair value; recognize contingent consideration at fair value on the acquisition date; and, for certain
arrangements, recognize changes in fair value in earnings until settlement. These fair value determinations require our judgment
and may involve the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and
outflows, discount rates, asset lives, and market multiples, among other items. We may utilize independent valuation firms to assist
in making these fair value determinations.
In addition, in connection with our business acquisitions, we evaluate the terms of any pre-existing relationships to determine
whether a gain or loss on settlement of the pre-existing relationship exists. These pre-existing relationships primarily relate to
60
licensing agreements. If the terms of the pre-existing relationships were determined to not be reflective of market, a settlement
gain or loss would be recognized in earnings, measured by the amount by which the contract is favorable or unfavorable to us
when compared with pricing for current market transactions for the same or similar items. We allocate the aggregate consideration
exchanged in these transactions between the value of the business acquired and the value of the settlement of any pre-existing
relationships in proportion to estimates of their respective fair values. Accordingly, significant judgment is required to determine
the respective fair values of the business acquired and the value of the settlement of the pre-existing relationship. We may utilize
independent valuation firms to assist in the determination of fair value.
See Note 5 to the accompanying audited consolidated financial statements for detailed disclosures related to our acquisitions.
Fair Value Measurements
We use judgment when evaluating the inputs used to measure the fair value of a particular asset or liability, notably the
extent to which the inputs are market-based (observable) or internally-derived (unobservable). See Note 15 to the accompanying
audited consolidated financial statements for further discussion of our fair value measurements.
The fair values of derivative assets and liabilities are determined using a pricing model, which is primarily based on market
observable external inputs, including forward and spot currency exchange rates, and considers the impact of our own credit risk,
if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments. Refer to "Market
Risk Management" for a discussion of the sensitivity of our derivative financial instruments' fair values to changes in foreign
currency exchange rates.
Our Senior Notes are recorded at carrying value in our consolidated balance sheets, adjusted for any unamortized discount,
and may differ from its fair value. The fair value of our Senior Notes is estimated based on external pricing data, including available
quoted market prices of the Senior Notes and of comparable debt instruments with similar interest rates, credit ratings, and trading
frequency, among other factors. Refer to "Market Risk Management" for a discussion of the sensitivity of our Senior Notes' fair
value to changes in interest rates.
Impairment of Goodwill and Other Intangible Assets
Goodwill and certain other intangible assets deemed to have indefinite useful lives, are not amortized. Rather, goodwill
and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized
over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically
whenever events or changes in circumstances indicate that their carrying amounts may not be fully recoverable.
We perform our annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. Performance of the qualitative assessment requires
judgment in identifying and considering the significance of relevant key factors, events, and circumstances that affect the fair
values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and
market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give
consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date a fair value
measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair
value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.
The quantitative goodwill impairment test, if necessary, is a two-step process. The first step is to identify the existence of
potential impairment by comparing the fair value of a reporting unit with its net book value (or carrying value), including goodwill.
If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and
performance of the second step of the quantitative goodwill impairment test is unnecessary. However, if the carrying value of a
reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the
amount of impairment loss to be recorded, if any. The second step of the quantitative goodwill impairment test compares the
implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the reporting
unit's goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess. The implied
fair value of goodwill is determined using the same approach as employed when determining the amount of goodwill that would
be recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of its assets and liabilities
(including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair
value was the purchase price paid to acquire the reporting unit.
Determining the fair value of a reporting unit under the first step of the quantitative goodwill impairment test and determining
the fair values of individual assets and liabilities of a reporting unit (including any unrecognized intangible assets) under the second
61
step of the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and
assumptions. Similarly, estimates and assumptions are used when determining the fair values of other indefinite-lived intangible
assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized
and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment,
we may review and consider appraisals from independent valuation firms. Estimates of fair value are primarily determined using
discounted cash flows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions,
including projected future cash flows (including timing), discount rates reflecting the risks inherent in future cash flows, perpetual
growth rates, and determination of appropriate market comparables.
We performed our annual goodwill impairment assessment during the second quarter of Fiscal 2014 using the qualitative
approach discussed above, and giving consideration to our most recent quantitative goodwill impairment test (the results of which
indicated that the fair values of its reporting units significantly exceeded their respective carrying values). Based on the results of
the qualitative impairment assessment performed as of July 1, 2013, we concluded that it is more likely than not that the fair values
of our reporting units significantly exceeded their respective carrying values and there were no reporting units at risk of impairment.
Additionally, no goodwill impairment charges have been recorded during any of the three fiscal years presented.
In evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash flows expected to result
from the use of the asset and its eventual disposition where probable. To the extent that estimated future undiscounted net cash
flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between
the carrying value of such asset and its fair value.
In Fiscal 2013, we recorded aggregate impairment charges of $2 million related to the write-off of certain finite-lived and
indefinite-lived intangible assets in connection with the Rugby Closure Plan. There were no other intangible asset impairment
charges recorded during any of the three fiscal years presented.
Impairment of Other Long-Lived Assets
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or
changes in circumstances indicate that their related carrying amounts may not be recoverable. In evaluating long-lived assets for
recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition,
where applicable. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying
amount, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value,
considering external market participant assumptions. Assets to be disposed of and for which there is a committed plan of disposal
are reported at the lower of carrying value or fair value, less costs to sell.
In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the
emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more
experienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of
future performance, future impairments may arise in the event that future cash flows do not meet expectations.
During Fiscal 2014, Fiscal 2013, and Fiscal 2012, we recorded non-cash impairment charges of $1 million, $19 million
(including the $2 million of previously discussed charges related to the write-off of certain intangible assets in connection with
the Rugby Closure Plan), and $2 million, respectively, to reduce the net carrying value of certain long-lived assets, primarily in
our Retail segment, to their estimated fair values. See Note 11 to the accompanying audited consolidated financial statements for
further discussion.
Income Taxes
In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions.
If we consider that a tax position is "more likely than not" of being sustained upon audit, based solely on the technical merits of
the position, we recognize the tax benefit. We measure the tax benefit by determining the largest amount that is greater than 50%
likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has
full knowledge of all relevant information. These assessments can be complex and require significant judgment, and we often
obtain assistance from external advisors. To the extent that our estimates change or the final tax outcome of these matters is different
from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are
made. If the initial assessment fails to result in the recognition of a tax benefit, we regularly monitor our position and subsequently
recognize the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing
on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion
of an audit resulting in a settlement of that tax year with the appropriate agency.
62
Deferred income taxes reflect the tax effect of certain net operating loss, capital loss, general business credit carryforwards,
and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and
income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management
determines that it is "more likely than not" that some portion or all of a deferred tax asset will not be realized. Tax valuation
allowances are analyzed periodically by assessing the adequacy of future expected taxable income, which typically involves the
significant use of estimates. Such allowances are adjusted as events occur, or circumstances change, that warrant adjustments to
those balances.
See Note 13 to the accompanying audited consolidated financial statements for further discussion of income taxes.
Contingencies
We are periodically exposed to various contingencies in the ordinary course of conducting our business, including certain
litigation, alleged information system security breach matters, contractual disputes, employee relation matters, various tax or other
governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies
to the extent that we conclude their occurrence is probable and the related losses are estimable. In addition, if it is reasonably
possible that an unfavorable settlement of a contingency could exceed the established liability, we disclose the estimated impact
on our liquidity, financial condition, and results of operations, if practicable. 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, negotiations between affected parties, and
governmental actions. As a result, the accounting for loss contingencies relies heavily on management's judgment in developing
the related estimates and assumptions.
Stock-Based Compensation
We expense all stock-based compensation awarded to employees and non-employee directors based on the grant date fair
value of the awards over the requisite service period, adjusted for estimated forfeitures.
Stock Options
Stock options are granted to employees and non-employee directors with exercise prices equal to the fair market value of
our common stock on the date of grant. We use the Black-Scholes option-pricing model to estimate the grant date fair value of
stock options, which requires the use of subjective assumptions. Certain key assumptions involve estimating future uncertain
events. The key factors influencing the estimation process include the expected term of the option, expected volatility of our stock
price, our expected dividend yield, and the risk-free interest rate, among others. Generally, once stock option values are determined,
accounting practices do not permit them to be changed, even if the estimates used are different from actual results.
Restricted Stock and Restricted Stock Units ("RSUs")
We grant restricted shares of Class A common stock and service-based RSUs to certain of our senior executives and non-
employee directors. In addition, we grant performance-based RSUs to such senior executives, to other key executives, and to
certain of our other employees. The fair values of restricted stock shares and RSUs are based on the fair value of our unrestricted
Class A common stock, adjusted to reflect the absence of dividends for those restricted securities that are not entitled to dividend
equivalents. Compensation expense for performance-based RSUs is recognized over the employees' requisite service period when
attainment of the performance goals is deemed probable, which involves judgment as to achievement of certain performance
metrics.
Our performance-based RSU awards with a market condition in the form of a total shareholder return ("TSR") modifier
are valued based on the expected attainment of performance at the end of a three-year performance period and TSR achieved
relative to the S&P 500 index over the performance period. The fair value of these awards is estimated using a Monte Carlo
simulation valuation model prepared by an independent third party. This model utilizes multiple input variables that determine
the probability of satisfying each market condition stipulated in the terms of the award to estimate the fair value of these awards.
Compensation expense, net of forfeitures, is updated for the expected net income performance level against the related goal at the
end of each reporting period.
Sensitivity
The assumptions used in calculating the grant date fair values of stock-based compensation awards represent our best
estimates. In addition, judgment is required in estimating the number of stock-based awards that are expected to be forfeited. If
63
actual results differ significantly from our estimates and assumptions, if we change the assumptions used to estimate the grant
date fair value for future stock-based award grants, or if there are changes in market conditions, stock-based compensation expense
and, therefore, our results of operations could be materially impacted. A hypothetical 10% change in our stock-based compensation
expense would have affected our Fiscal 2014 net income by approximately $6 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4 to the accompanying audited consolidated financial statements for a description of certain recently issued or
proposed accounting standards which may impact our consolidated financial statements in future reporting periods.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
For a discussion of our exposure to market risk, see "Market Risk Management" in Item 7 included elsewhere in this Annual
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
64
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures of an issuer that are designed to provide reasonable
assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed
to ensure that material information required to be disclosed by an issuer in the reports that it files or submits under the Securities
Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated, under the supervision and with the participation of management, including our Chief Executive Officer
and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15
(e) of the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this annual report. Based on that evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures
were effective at the reasonable assurance level, as of the fiscal year-end covered by this Annual Report on Form 10-K.
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined
in Securities Exchange Act Rule 13a-15(f). Internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with
U.S. Generally Accepted Accounting Principles. Internal control over financial reporting includes maintaining records that in
reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of the
Company's assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized
acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements would be
prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended
to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Further, the evaluation
of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future
periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies and procedures may decline.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the fiscal
year covered by this report based on the framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (1992 Framework). Based on this evaluation, management concluded that
the Company's internal controls over financial reporting were effective at the reasonable assurance level as of the fiscal year-end
covered by this Annual Report on Form 10-K.
Ernst & Young LLP, the Company's independent registered public accounting firm, has issued an attestation report on the
Company's internal control over financial reporting as included elsewhere herein.
(c) Changes in Internal Controls over Financial Reporting
Except as discussed below, there has been no change in our internal control over financial reporting during the fourth quarter
of Fiscal 2014 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial
reporting.
Global Operating and Financial Reporting System Implementation
We are in the process of implementing a new global operating and financial reporting information technology system, SAP,
as part of a multi-year plan to integrate and upgrade our systems and processes, which we began in Fiscal 2011. The implementation
of this global system is scheduled to occur in phases over the next several years. During the fourth quarter of Fiscal 2014, we
continued to migrate certain areas of our business to SAP, including global merchandise procurement and customer order
management and record-to-report for our North American wholesale operations, which is scheduled to be completed in Fiscal
2015. During Fiscal 2015, we will also begin planning the migration of our European operations to SAP, which will be completed
in stages over the next several years.
65
As the phased implementation of this new system occurs, we are experiencing certain changes to our processes and procedures
which, in turn, result in changes to our internal control over financial reporting. While we expect SAP to strengthen our internal
financial controls by automating manual processes and standardizing business processes and reporting across our organization,
management will continue to evaluate and monitor our internal controls as processes and procedures in each of the affected areas
evolve. For a discussion of risks related to the implementation of new systems, see Item 1A — "Risk Factors — Risks Related to
Our Business — Implementation of management information systems may negatively impact our business."
Chaps Menswear License Acquisition
In April 2013, we acquired control of the North American Chaps-branded men's sportswear business from The Warnaco
Group, Inc., a subsidiary of PVH Corp., which was formerly conducted under a licensed arrangement (the "Chaps Menswear
License Acquisition," as discussed in Note 5 to the accompanying audited consolidated financial statements). During Fiscal 2014,
we fully integrated this business into our operations, which did not result in any material changes to our existing internal controls.
Australia and New Zealand Licensed Operations Acquisition
In July 2013, we acquired control of the Ralph Lauren-branded apparel and accessories business in Australia and New
Zealand from Oroton Group/PRL Australia, which was formerly conducted under a licensed arrangement (the "Australia and New
Zealand Licensed Operations Acquisition," as discussed in Note 5 to the accompanying audited consolidated financial statements).
During Fiscal 2014, we fully integrated this business into our operations, which did not result in any material changes to our
existing internal controls.
Item 9B. Other Information.
Not applicable.
66
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Information relating to our directors and corporate governance will be set forth in the Company's proxy statement for its
2014 annual meeting of stockholders to be filed within 120 days after March 29, 2014 (the "Proxy Statement") and is incorporated
by reference herein. Information relating to our executive officers is set forth in Item 1 of this Annual Report on Form 10-K under
the caption "Executive Officers."
The Company has a Code of Ethics for Principal Executive Officers and Senior Financial Officers that applies to our
principal executive officer, our principal operating officer, our principal financial officer, our principal accounting officer, and our
controller. You can 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
Financial Officers and any waivers that are required to be disclosed by the rules of either the Securities and Exchange Commission
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 is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information as of March 29, 2014
The following table sets forth information as of March 29, 2014 regarding compensation plans under which the Company's
equity securities are authorized for issuance:
Plan Category
Equity compensation plans approved by
security holders........................................
Equity compensation plans not approved by
security holders........................................
Total.........................................................
(a)
(b)
(c)
Numbers of
Securities to be
Issued upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding Options ($)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
4,515,469 (1) $
116.66 (2)
3,843,843 (3)
—
4,515,469
$
—
116.66
—
3,843,843
(1) Consists of 3,026,335 options to purchase shares of our Class A common stock and 1,489,134 restricted stock units
that are payable solely in shares of Class A common stock (including 539,284 service-based restricted stock units that
have fully vested but for which the underlying shares have not yet been delivered as of March 29, 2014). Does not
include 5,185 outstanding restricted shares that are subject to forfeiture.
(2) Represents the weighted average exercise price of outstanding stock options.
(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, restricted stock, restricted stock units, performance awards, or other stock-based awards under the
Company's 1997 Stock Incentive Plan and 2010 Stock Incentive Plan (the "Plans"). An additional 5,185 outstanding
shares of restricted stock granted under the Company's Plans 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
Statement and such information is incorporated by reference herein.
67
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 is incorporated 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 is incorporated by reference herein.
68
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) 1., 2. Financial Statements and Financial Statement Schedules. See index on Page F-1.
3. Exhibits
Exhibit
Number
3.1
3.2
3.3
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6*
10.7
10.8*
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
Description
Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (File No. 333-24733) (the "S-1"))
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (filed
as Exhibit 3.1 to the Form 8-K filed August 16, 2011)
Third Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Form 8-K dated February
4, 2014)
Indenture, dated as of September 26, 2013, by and between the Company and Wells Fargo Bank, National
Association (including the form of Note) (filed as Exhibit 4.1 to the Form 8-K dated September 23, 2013)
First Supplemental Indenture, dated as of September 26, 2013, by and between the Company and Wells
Fargo Bank, National Association (filed as Exhibit 4.2 to the Form 8-K dated September 23, 2013)
Registration Rights Agreement dated as of June 9, 1997 by and among Ralph Lauren, GS Capital Partners,
L.P., GS Capital Partner PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P., Stone Street
Fund 1994, L.P., Stone Street 1994 Subsidiary Corp., Bridge Street Fund 1994, L.P., and the Company (filed
as Exhibit 10.3 to the S-1)
Form of Indemnification Agreement between the Company and its Directors and Executive Officers (filed
as Exhibit 10.26 to the S-1)
Amended and Restated Employment Agreement, made effective as of June 26, 2012, between the Company
and Ralph Lauren (filed as Exhibit 10.1 to the Form 8-K filed July 2, 2012)†
Amended and Restated Employment Agreement, effective as of November 1, 2013, between the Company
and Roger N. Farah (filed as Exhibit 10.1 to the Form 8-K dated September 18, 2013)†
Amended and Restated Employment Agreement, effective as of November 1, 2013, between the Company
and Jackwyn Nemerov (filed as Exhibit 10.2 to the Form 8-K dated September 18, 2013)†
Amendment No. 1 to the Amended and Restated Employment Agreement, made effective as of March 30,
2014, between the Company and Jackwyn Nemerov†
Amended and Restated Employment Agreement, effective as of November 1, 2013, between the Company
and Christopher H. Peterson (filed as Exhibit 10.3 to the Form 8-K dated September 18, 2013)†
Amendment No. 1 to the Amended and Restated Employment Agreement, made effective as of March 30,
2014, between the Company and Christopher Peterson†
Amended and Restated Employment Agreement, effective as of March 1, 2014, between the Company and
Mitchell A. Kosh (filed as Exhibit 10.1 to the Form 8-K dated February 11, 2014)†
Non-Qualified Stock Option Agreement, dated as of June 8, 2004, between the Company and Ralph Lauren
(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 2005 10-K"))†
Restricted Stock Unit Award Agreement, dated as of June 8, 2004, between the Company and Ralph Lauren
(filed as Exhibit 10.15 to the Fiscal 2005 10-K)†
Executive Officer Annual Incentive Plan, as amended as of August 9, 2012 (filed as Appendix B to the
Company's Definitive Proxy Statement dated July 2, 2012)†
Restricted Stock Unit Award Agreement, dated as of July 1, 2004, between the Company and
Roger N. Farah (filed as Exhibit 10.18 to the Fiscal 2005 10-K)†
Amendment No. 1, dated as of December 23, 2008, to the Restricted Stock Unit Award Agreement between
the Company and Roger N. Farah (filed as Exhibit 10.2 to the Form 10-Q for the quarterly period ended
December 27, 2008)†
Restricted Stock Award Agreement, dated as of July 23, 2002, between the Company and Roger N. Farah
(filed as Exhibit 10.19 to the Fiscal 2005 10-K)†
Non-Qualified Stock Option Agreement, dated as of July 23, 2002, between the Company and
Roger N. Farah (filed as Exhibit 10.20 to the Fiscal 2005 10-K)†
69
Exhibit
Number
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25*
10.26*
10.27*
10.28*
10.29
10.30
12.1*
14.1
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
Description
Deferred Compensation Agreement, dated as of September 19, 2002, between the Company and Roger N.
Farah (filed as Exhibit 10.21 to the Fiscal 2005 10-K)†
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)†
Amendment, as of June 30, 2006, to the 1997 Long-Term Stock Incentive Plan, as Amended and Restated as
of August 12, 2004 (filed as Exhibit 10.4 to the Form 10-Q for the quarterly period ended July 1, 2006)†
Amendment No. 2, dated as of May 21, 2009, to the 1997 Long-Term Stock Incentive Plan, as Amended
and Restated as of August 12, 2004 (filed as Exhibit 10.26 to the Company’s Annual Report on Form 10-K
for the fiscal year ended March 28, 2009)†
Amended and Restated 2010 Long-Term Incentive Plan, amended as of August 8, 2013 (filed as Exhibit
10.1 to the Form 10-Q for the quarterly period ended June 29, 2013)†
Cliff Restricted Performance Share Unit Award Overview containing the standard terms of restricted
performance share awards under the 1997 Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to the
Form 10-Q for the quarterly period ended July 1, 2006)†
Pro-Rata Restricted Performance Share Unit Award Overview containing the standard terms of restricted
performance share awards under the 1997 Long-Term Stock Incentive Plan (filed as Exhibit 10.3 to the
Form 10-Q for the quarterly period ended July 1, 2006)†
Stock Option Award Overview - U.S. containing the standard terms of stock option awards under the 1997
Long-Term Stock Incentive Plan (filed as Exhibit 10.2 to the Form 10-Q for the quarterly period ended
July 1, 2006)†
Cliff Restricted Performance Share Unit Award Overview containing the standard terms of cliff restricted
performance share unit awards under the Amended and Restated 2010 Long-Term Stock Incentive Plan†
Pro-Rata Restricted Performance Share Unit Award Overview containing the standard terms of restricted
performance share unit awards under the Amended and Restated 2010 Long-Term Stock Incentive Plan†
Stock Option Award Overview containing the standard terms of stock option awards under the Amended
and Restated 2010 Long-Term Stock Incentive Plan†
Cliff Restricted Performance Share Unit with TSR Modifier Award Overview containing the standard terms
of cliff restricted performance share unit awards under the Amended and Restated 2010 Long-Term Stock
Incentive Plan†
Credit Agreement, dated March 10, 2011, among the Company, Polo JP Acqui C.V., Polo Ralph Lauren
Kabushiki Kaisha and Polo Ralph Lauren Asia Pacific Limited, as the borrowers, the lenders party thereto,
and JPMorgan Chase Bank, N.A., as administrative agent (filed as Exhibit 10.1 to the Form 10-Q for the
quarterly period ended October 1, 2011)
Amended and Restated Polo Ralph Lauren Supplemental Executive Retirement Plan (filed as Exhibit 10.1
to the Company’s Form 10-Q for the quarterly period ended December 31, 2005)†
Computation of Ratio of Earnings to Fixed Charges
Code of Ethics for Principal Executive Officers and Senior Financial Officers (filed as Exhibit 14.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 29, 2003)
List of Significant Subsidiaries of the Company
Consent of Ernst & Young LLP
Certification of Ralph Lauren required by 17 CFR 240.13a-14(a)
Certification of Christopher H. Peterson required by 17 CFR 240.13a-14(a)
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
Certification of Christopher H. Peterson Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
70
Exhibit
Number
101*
Description
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at March
29, 2014 and March 30, 2013, (ii) the Consolidated Statements of Income for the fiscal years ended March
29, 2014, March 30, 2013, and March 31, 2012, (iii) the Consolidated Statements of Comprehensive
Income for the fiscal years ended March 29, 2014, March 30, 2013, and March 31, 2012, (iv) the
Consolidated Statements of Cash Flows for the fiscal years ended March 29, 2014, March 30, 2013, and
March 31, 2012, (v) the Consolidated Statements of Equity for the fiscal years ended March 29,
2014, March 30, 2013, and March 31, 2012, and (vi) the Notes to the Consolidated Financial Statements.
Exhibits 32.1 and 32.2 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or
otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing
under the Securities Act of 1933 or Securities Exchange Act of 1934.
*
Filed herewith.
† Management contract or compensatory plan or arrangement.
71
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
RALPH LAUREN CORPORATION
By:
/S/ CHRISTOPHER H. PETERSON
Christopher H. Peterson
Executive Vice President, Chief Administrative Officer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/S/ RALPH LAUREN
Ralph Lauren
Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)
May 15, 2014
/S/ ROGER N. FARAH
Executive Vice Chairman and Director
May 15, 2014
Roger N. Farah
/S/ JACKWYN L. NEMEROV
President & Chief Operating Officer and Director
May 15, 2014
Jackwyn L. Nemerov
/S/ CHRISTOPHER H. PETERSON
Christopher H. Peterson
Executive Vice President, Chief Administrative
Officer and Chief Financial Officer
(Principal Financial and Accounting Officer)
/S/ JOHN R. ALCHIN
Director
John R. Alchin
/S/ ARNOLD H. ARONSON
Director
Arnold H. Aronson
/S/ FRANK A. BENNACK, JR.
Director
Frank A. Bennack, Jr.
/S/ DR. JOYCE F. BROWN
Director
Dr. Joyce F. Brown
/S/ JOEL L. FLEISHMAN
Director
Joel L. Fleishman
/S/ HUBERT JOLY
Director
Hubert Joly
72
May 15, 2014
May 15, 2014
May 15, 2014
May 15, 2014
May 15, 2014
May 15, 2014
May 15, 2014
Signature
Title
/S/ DAVID LAUREN
David Lauren
/S/ JUDITH A. MCHALE
Judith A. McHale
/S/ STEVEN P. MURPHY
Steven P. Murphy
/S/ ROBERT C. WRIGHT
Robert C. Wright
Director
Director
Director
Director
Date
May 15, 2014
May 15, 2014
May 15, 2014
May 15, 2014
73
RALPH LAUREN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-49
F-50
F-52
F-54
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Equity
Notes to Consolidated Financial Statements
Management's Report on Responsibility For Financial Statements
Report of Independent Registered Public Accounting Firm
Supplementary Information:
Selected Financial Information
Quarterly Financial Information
EX-10.6
EX-10.8
EX-10.25
EX-10.26
EX-10.27
EX-10.28
EX-12.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101
EX-101
EX-101
EX-101
EX-101
EX-101
INSTANCE DOCUMENT
SCHEMA DOCUMENT
CALCULATION LINKBASE DOCUMENT
LABELS LINKBASE DOCUMENT
PRESENTATION LINKBASE DOCUMENT
DEFINITION LINKBASE DOCUMENT
F-1
$
$
$
RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents ..............................................................................................
Short-term investments...................................................................................................
Accounts receivable, net of allowances of $270 million and $245 million....................
Inventories ......................................................................................................................
Income tax receivable .....................................................................................................
Deferred tax assets..........................................................................................................
Prepaid expenses and other current assets ......................................................................
Total current assets..................................................................................................
Non-current investments ...................................................................................................
Property and equipment, net .............................................................................................
Deferred tax assets ............................................................................................................
Goodwill............................................................................................................................
Intangible assets, net .........................................................................................................
Other non-current assets....................................................................................................
Total assets.......................................................................................................................
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt...................................................................................
Accounts payable............................................................................................................
Income tax payable .........................................................................................................
Accrued expenses and other current liabilities ...............................................................
Total current liabilities ............................................................................................
Long-term debt..................................................................................................................
Non-current liability for unrecognized tax benefits ..........................................................
Other non-current liabilities ..............................................................................................
Commitments and contingencies (Note 17)
Total liabilities .................................................................................................................
Equity:
Class A common stock, par value $.01 per share; 98.0 million and 93.6 million
shares issued; 61.8 million and 61.0 million shares outstanding ................................
Class B common stock, par value $.01 per share; 26.9 million and 29.9 million
shares issued and outstanding .....................................................................................
Additional paid-in-capital...............................................................................................
Retained earnings............................................................................................................
Treasury stock, Class A, at cost (36.2 million and 32.6 million shares).........................
Accumulated other comprehensive income....................................................................
Total equity ......................................................................................................................
Total liabilities and equity ..............................................................................................
See accompanying notes.
F-2
March 29,
2014
March 30,
2013
(millions)
$
797
488
588
1,020
62
150
224
3,329
2
1,322
39
964
299
135
974
325
458
896
29
120
161
2,963
81
932
22
968
328
124
6,090
$
5,418
— $
203
77
690
970
300
132
654
2,056
1
—
1,979
5,257
(3,317)
114
4,034
267
147
43
664
1,121
—
150
362
1,633
1
—
1,752
4,647
(2,709)
94
3,785
5,418
$
6,090
$
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
Net sales.............................................................................................
Licensing revenue..............................................................................
Net revenues .....................................................................................
Cost of goods sold(a) ..........................................................................
Gross profit ......................................................................................
Other costs and expenses:
Selling, general, and administrative expenses(a) ................................
Amortization of intangible assets ......................................................
Gain on acquisition of Chaps ............................................................
Impairments of assets ........................................................................
Restructuring and other charges ........................................................
Total other costs and expenses, net............................................
Operating income ............................................................................
Foreign currency losses .....................................................................
Interest expense .................................................................................
Interest and other income, net ...........................................................
Equity in losses of equity-method investees .....................................
Income before provision for income taxes.....................................
Provision for income taxes ................................................................
Net income........................................................................................
Net income per common share:
Basic................................................................................................
Diluted.............................................................................................
Weighted average common shares outstanding:
Basic................................................................................................
Diluted.............................................................................................
Dividends declared per share.............................................................
(a) Includes total depreciation expense of: .........................................
(millions, except per share data)
$
7,284
$
6,763
$
166
7,450
(3,140)
4,310
(3,142)
(35)
16
(1)
(18)
(3,180)
1,130
(8)
(20)
3
(9)
1,096
(320)
776
8.55
8.43
90.7
92.0
$
$
$
182
6,945
(2,789)
4,156
(2,971)
(27)
—
(19)
(12)
(3,029)
1,127
(12)
(22)
6
(10)
1,089
(339)
750
8.21
8.00
91.3
93.7
$
$
$
1.70
$
(223) $
1.60
$
(206) $
$
$
$
$
$
See accompanying notes.
6,679
181
6,860
(2,862)
3,998
(2,916)
(29)
—
(2)
(12)
(2,959)
1,039
(2)
(24)
11
(9)
1,015
(334)
681
7.35
7.13
92.7
95.5
0.80
(196)
F-3
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Net income..........................................................................................................
$
776
$
750
$
681
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments............................................................
Net realized and unrealized gains (losses) on derivatives ...................................
Net realized and unrealized gains (losses) on available-for-sale investments.....
Net realized and unrealized losses on defined benefit plans ...............................
Other comprehensive income (loss), net of tax...........................................
52
(27)
(5)
—
20
(93)
(13)
4
(1)
(103)
Total comprehensive income.............................................................................
$
796
$
647
$
(50)
32
1
(2)
(19)
662
See accompanying notes.
F-4
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income ......................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense ........................................................................
Deferred income tax expense (benefit) .........................................................................
Equity in losses of equity-method investees .................................................................
Non-cash stock-based compensation expense ...............................................................
Gain on acquisition of Chaps ........................................................................................
Non-cash impairment of assets .....................................................................................
Other non-cash charges, net ..........................................................................................
Excess tax benefits from stock-based compensation arrangements ..............................
Changes in operating assets and liabilities:
Accounts receivable .................................................................................................
Inventories ...............................................................................................................
Prepaid expenses and other current assets ...............................................................
Accounts payable and accrued liabilities .................................................................
Income tax receivables and payables .......................................................................
Deferred income ......................................................................................................
Other balance sheet changes, net .............................................................................
Net cash provided by operating activities ....................................................................
Cash flows from investing activities:
Capital expenditures .....................................................................................................
Purchases of investments ..............................................................................................
Proceeds from sales and maturities of investments .......................................................
Acquisitions and ventures, net of cash acquired ...........................................................
Change in restricted cash deposits ................................................................................
Net cash used in investing activities .............................................................................
Cash flows from financing activities:
Proceeds from issuance of debt .....................................................................................
Repayment of debt ........................................................................................................
Payments of capital lease obligations ...........................................................................
Payments of dividends ..................................................................................................
Repurchases of common stock, including shares surrendered for tax withholdings .....
Prepayments of common stock repurchases .................................................................
Proceeds from exercise of stock options .......................................................................
Excess tax benefits from stock-based compensation arrangements ..............................
Payment on interest rate swap termination ...................................................................
Other financing activities ..............................................................................................
Net cash used in financing activities ............................................................................
Effect of exchange rate changes on cash and cash equivalents .......................................
Net increase (decrease) in cash and cash equivalents ......................................................
Cash and cash equivalents at beginning of period ...........................................................
Cash and cash equivalents at end of period .....................................................................
See accompanying notes.
F-5
Fiscal Years Ended
March 29,
2014
March 30,
2013
(millions)
March 31,
2012
$
776
$
750
$
681
258
1
9
93
(16)
1
6
(34)
(104)
(77)
(56)
43
59
(18)
(34)
907
(390)
(1,067)
1,011
(40)
(2)
(488)
300
(269)
(9)
(149)
(558)
—
52
34
—
—
(599)
3
(177)
974
797
$
233
14
10
88
—
19
3
(41)
82
(68)
4
(57)
(13)
(30)
25
1,019
(276)
(876)
1,058
(22)
3
(113)
—
—
(9)
(128)
(497)
(50)
49
41
—
(1)
(595)
(9)
302
672
974
$
225
(15)
9
78
—
2
3
(40)
(114)
(148)
(39)
33
122
(19)
107
885
(272)
(1,360)
1,394
(12)
1
(249)
108
(108)
(8)
(74)
(419)
—
61
40
(8)
—
(408)
(9)
219
453
672
$
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
Common Stock(a)
Amount
Shares
Additional
Paid-in
Capital
Treasury Stock
Retained
at Cost
Earnings
Shares
Amount
AOCI(b)
Total
Equity
(millions)
Balance at April 2, 2011.........................................
120.3
$
1
$
1,445
$ 3,436
25.8
$ (1,793) $ 216
$ 3,305
Comprehensive income:
Net income ............................................................
Other comprehensive loss .....................................
Total comprehensive income..............................
Cash dividends declared ..........................................
Repurchases of common stock ................................
Stock-based compensation.......................................
Shares issued and tax benefits recognized
681
(74)
78
3.4
(419)
pursuant to stock-based compensation plans(d) .....
1.6
—
101
(19)
662
(74)
(419)
78
101
Balance at March 31, 2012....................................
121.9
$
1
$
1,624
$ 4,043
29.2
$ (2,212) $ 197
$ 3,653
Comprehensive income:
Net income ............................................................
Other comprehensive loss .....................................
Total comprehensive income..............................
Cash dividends declared ..........................................
Repurchases of common stock ................................
Stock-based compensation.......................................
Shares issued and tax benefits recognized
750
(146)
(50) (c)
88
3.4
(497)
pursuant to stock-based compensation plans(d) .....
1.6
—
90
(103)
647
(146)
(547)
88
90
Balance at March 30, 2013....................................
123.5
$
1
$
1,752
$ 4,647
32.6
$ (2,709) $
94
$ 3,785
Comprehensive income:
Net income ............................................................
Other comprehensive income................................
Total comprehensive income..............................
Cash dividends declared ..........................................
Repurchases of common stock ................................
Stock-based compensation.......................................
Shares issued and tax benefits recognized
pursuant to stock-based compensation plans(d) .....
Conversion of stock-based compensation awards(e)
1.4
—
776
(153)
(13)
50 (c)
93
86
(2)
3.6
(608)
20
796
(153)
(558)
93
86
(15)
Balance at March 29, 2014....................................
124.9
$
1
$
1,979
$ 5,257
36.2
$ (3,317) $ 114
$ 4,034
(a)
(b)
(c)
(d)
(e)
Includes Class A and Class B common stock. In Fiscal 2014 and Fiscal 2013, 3.0 million and 1.0 million shares, respectively, of
Class B common stock were converted into an equal number of shares of Class A common stock pursuant to the terms of the Class
B common stock (see Note 18).
Accumulated other comprehensive income (loss).
Relates to a $50 million payment made in March 2013 under a prepaid share repurchase repurchase program, which resulted in
the delivery of the related shares at the conclusion of the repurchase term in Fiscal 2014 (see Note 18).
Includes excess tax benefits relating to stock-based compensation arrangements of approximately $34 million, $41 million, and
$40 million in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively.
Includes the conversion of certain fully-vested and expensed stock-based compensation awards to a cash contribution into a
deferred compensation account (see Note 18).
See accompanying notes.
F-6
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Ralph Lauren Corporation ("RLC") 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. RLC's long-standing reputation
and distinctive brands have been consistently developed across an expanding number of products, brands, sales channels, and
international markets. RLC's brand names include Ralph Lauren, Ralph Lauren Collection, Purple Label, Black Label, Polo, Polo
Ralph Lauren, Blue Label, RRL, RLX Ralph Lauren, Lauren Ralph Lauren, Ralph Lauren Childrenswear, Denim & Supply Ralph
Lauren, Chaps, and Club Monaco, among others. RLC and its subsidiaries are collectively referred to herein as the "Company,"
"we," "us," "our," and "ourselves," unless the context indicates otherwise.
The Company classifies its businesses into three segments: Wholesale, Retail, and Licensing. The Company's wholesale
sales are made principally to major department stores and specialty stores around the world. The Company also sells directly to
consumers through its integrated retail channel, which includes retail stores around the world; concession-based shop-within-
shops located in Asia, Australia, New Zealand, and Europe; and retail e-commerce operations in North America, Europe, and Asia.
The Company also licenses to unrelated third parties for specified periods the right to operate retail stores and to use its various
trademarks in connection with the manufacture and sale of designated products, such as apparel, eyewear, and fragrances.
2.
Basis of Presentation
Basis of Consolidation
These consolidated financial statements are prepared in accordance with accounting principles generally accepted in the
U.S. ("U.S. GAAP") and present the consolidated financial position, income, comprehensive income, and cash flows of the
Company, including all entities in which the Company has a controlling financial interest and is determined to be the primary
beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest to March 31. As such, Fiscal 2014 ended on
March 29, 2014 and was a 52-week period; Fiscal 2013 ended on March 30, 2013 and was a 52-week period; and Fiscal 2012
ended on March 31, 2012 and was also a 52-week period.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and footnotes thereto. Actual results could differ materially
from those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include reserves for bad debt,
customer returns, discounts, end-of-season markdowns, and operational chargebacks; the realizability of inventory; reserves for
litigation and other contingencies; useful lives and impairments of long-lived tangible and intangible assets; accounting for income
taxes and related uncertain tax positions; the valuation of stock-based compensation and related expected forfeiture rates; reserves
for restructuring; and accounting for business combinations, among others.
Reclassifications
Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's
presentation, including a change in the manner in which the Company allocates certain costs to its reportable segments, as further
described in Note 22.
F-7
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3.
Summary of Significant Accounting Policies
Revenue Recognition
Revenue is recognized across all segments of the business when there is persuasive evidence of an arrangement, delivery
has occurred, the price has been fixed or is determinable, and collectability 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 markdown reserves, operational
chargebacks, and certain cooperative advertising allowances. Returns and allowances require pre-approval from management and
discounts are based on trade terms. Estimates for end-of-season markdown reserves are based on historical trends, actual and
forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases,
contractual terms. Estimates for operational chargebacks are based on actual notifications of order fulfillment discrepancies and
historical trends. The Company reviews and refines these estimates on at least a quarterly basis. The Company's historical estimates
of these costs have not differed materially from actual results.
Retail store and concession-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 e-commerce sites is recognized
upon delivery of the shipment to its customers. Such revenue is also 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.
The Company recognizes income for unredeemed gift cards when the likelihood of redemption by a customer is remote and the
Company determines that it does not have a legal obligation to remit the value of the unredeemed gift 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,
generally based upon the higher of (i) contractually guaranteed minimum royalty levels or (ii) actual sales and royalty data, or
initial estimates thereof, received from the Company's licensees.
The Company accounts for sales taxes and other related taxes on a net basis, excluding such taxes from revenue.
Cost of Goods Sold and Selling Expenses
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. Gains and losses associated with
forward foreign currency exchange contracts that are designated as cash flow hedges of inventory purchases are also recognized
within cost of goods sold when the hedged inventory is sold. The costs of selling merchandise, including those associated with
preparing the merchandise for sale, such as picking, packing, warehousing, and order charges ("handling costs"), are included in
selling, general, and administrative ("SG&A") expenses in the consolidated statements of income.
Shipping and Handling Costs
The costs associated with shipping goods to customers are reflected as a component of SG&A expenses in the consolidated
statements of income. Shipping costs were approximately $37 million in each of Fiscal 2014, Fiscal 2013, and Fiscal 2012. Handling
costs (described above), also included within SG&A expenses, were approximately $179 million, $150 million, and $144 million
in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively. Shipping and handling costs billed to customers are included in revenue.
Advertising, Marketing, and Promotional Costs
Advertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Out-
of-store advertising costs paid to wholesale customers under cooperative advertising programs are expensed as an advertising cost
within SG&A expenses if both the identified advertising benefit is sufficiently separable from the purchase of the Company's
products by customers and the fair value of such benefit is measurable. Otherwise, such costs are reflected as a reduction of revenue.
Costs of in-store advertising paid to wholesale customers under cooperative advertising programs are not included in advertising
costs, but are reflected as a reduction of revenue since the benefits are not sufficiently separable from the purchases of the Company's
products by customers. Costs associated with the marketing and promotion of the Company's products are included within SG&A
expenses.
F-8
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising, marketing, and promotional expenses amounted to approximately $256 million, $217 million, and $213 million
in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively. Deferred advertising, marketing, and promotional costs, which principally
relate to advertisements that have not yet been exhibited or services that have not yet been received, were approximately $9 million
and $8 million at the end of Fiscal 2014 and Fiscal 2013, respectively, and were recorded within prepaid expenses and other current
assets in the Company's consolidated balance sheets.
Foreign Currency Translation and Transactions
The financial position and operating results of foreign operations are primarily consolidated using their respective local
currency as the functional currency. Local currency assets and liabilities are translated to U.S. Dollars at the rates of exchange in
effect on the balance sheet date, and local currency revenues and expenses are translated to U.S. Dollars at average rates of exchange
in effect during the period. The resulting translation gains or losses are included in the consolidated statements of comprehensive
income as a component of other comprehensive income (loss) ("OCI") and in the consolidated statements of equity within
accumulated other comprehensive income (loss) ("AOCI"). Gains and losses on the translation of intercompany loans made to
foreign subsidiaries that are of a long-term investment nature also are included within this component of equity.
The Company also recognizes gains and losses on transactions that are denominated in a currency other than the respective
entity's functional currency. Foreign currency transaction gains and losses also include amounts realized on the settlement of certain
intercompany loans with foreign subsidiaries. Foreign currency transaction gains and losses are recognized in earnings and
separately disclosed in the consolidated statements of income.
Comprehensive Income (Loss)
Comprehensive income (loss), which is reported in the consolidated statements of comprehensive income and consolidated
statements of equity, consists of net income and other gains and losses affecting equity that, under U.S. GAAP, are excluded from
net income. The components of OCI for the Company primarily consist of foreign currency translation gains (losses); net realized
and unrealized gains (losses) on designated hedging instruments, such as forward foreign currency exchange contracts; net realized
and unrealized gains (losses) on available-for-sale investments; and net realized and unrealized gains (losses) related to the
Company's defined benefit plans.
Net Income per Common Share
Basic net income per common share is computed by dividing net income applicable to common shares by the weighted-
average number of common shares outstanding during the period. Weighted-average common shares include shares of the
Company's Class A and Class B common stock. Diluted net income per common share adjusts basic net income per common share
for the effects of outstanding stock options, restricted stock, restricted stock units ("RSUs"), and any other potentially dilutive
instruments, only in the periods in which such effects are 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 to shares used to calculate diluted net income per common share as follows:
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
Basic shares ...........................................................................................................
Dilutive effect of stock options, restricted stock, and RSUs.................................
Diluted shares ...................................................................................................
90.7
1.3
92.0
91.3
2.4
93.7
92.7
2.8
95.5
All earnings per share amounts have been calculated based on unrounded numbers. Options to purchase shares of the
Company's common stock at an exercise price greater than the average market price of the common stock during the reporting
period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, the
Company has outstanding RSUs that are issuable only upon the achievement of certain service and/or performance goals.
Performance-based RSUs are included in the computation of diluted shares only to the extent that the underlying performance
conditions (and any applicable market condition modifiers) (i) are satisfied as of the end of the reporting period or (ii) would be
considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive
F-9
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
under the treasury stock method. As of the end of Fiscal 2014, Fiscal 2013, and Fiscal 2012, there were approximately 1.2 million,
0.5 million, and 0.4 million, respectively, additional shares issuable upon exercise of anti-dilutive options and contingent vesting
of performance-based RSUs, which were excluded from the diluted share calculations.
Stock-Based Compensation
The Company recognizes expense for all stock-based compensation awards granted to employees and non-employee
directors based on the grant date fair value of the awards over the requisite service period, adjusted for estimated forfeitures. The
Company uses the Black-Scholes valuation model to estimate the grant date fair value of its stock option awards. For performance-
based RSUs awards that include a market condition in the form of a total shareholder return ("TSR") modifier, the Company uses
a Monte Carlo simulation valuation model to estimate the grant date fair value. The fair values of restricted stock awards, service-
based RSUs, and performance-based RSUs that are not subject to a TSR modifier are determined based on the fair value of the
Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for those awards that are not
entitled to dividend equivalents. Compensation expense for all performance-based RSUs is recognized over the requisite service
period when attainment of performance goals is deemed probable, net of estimated forfeitures. The Company recognizes
compensation expense on an accelerated basis for all awards with graded vesting terms, including stock options, restricted stock,
and RSUs. For RSU awards with cliff vesting terms, compensation expense is recognized on a straight-line basis. See Note 20 for
further discussion of the Company's stock-based compensation plans.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less, including
investments in debt securities. Investments in debt securities are diversified among high-credit quality securities in accordance
with the Company's risk-management policies, and primarily include money market funds.
Restricted Cash
From time to time, the Company is required to place cash in escrow with various banks as collateral, primarily to secure
guarantees of corresponding amounts made by the banks to international tax authorities on behalf of the Company, such as to
secure refunds of value-added tax payments in certain international tax jurisdictions or in the case of certain international tax
audits. Such cash has been classified as restricted cash and reported as a component of either prepaid expenses and other current
assets or other non-current assets in the Company's consolidated balance sheets. The cash inflows and outflows related to restricted
cash are classified as investing activities in the Company's consolidated statements of cash flows.
Investments
The Company's investment objectives include capital preservation, maintaining adequate liquidity, diversification to
minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in the Company's investment
policy.
Short-term investments consist of investments which the Company expects to convert into cash within one year, including
time deposits, which have original maturities greater than 90 days. Non-current investments consist of those investments which
the Company does not expect to convert into cash within one year.
The Company classifies all of its investments in securities at the time of purchase as available-for-sale. These investments
are recorded at fair value with unrealized gains or losses classified as a component of AOCI in the consolidated balance sheets,
and related realized gains or losses classified as a component of interest and other income, net, in the consolidated statements of
income. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in the
Company's consolidated statements of cash flows.
Equity-method Investments
Investments in companies in which the Company has significant influence, but less than a controlling financial interest, are
accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns between
20% and 50% of the investee. However, if the Company had a greater than 50% ownership interest in an investee and the
noncontrolling shareholders held certain rights that allowed them to participate in the day-to-day operations of the business, the
Company would also generally use the equity method of accounting.
F-10
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the equity method of accounting, the following amounts are recorded in the Company's consolidated financial
statements: the Company's investment in and amounts due to and from the investee are included in the consolidated balance sheets;
the Company's share of the investee's earnings (losses) is included in the consolidated statements of income; and dividends, cash
distributions, loans, or other cash received from the investee and additional cash investments, loan repayments, or other cash paid
to the investee are included in the consolidated statements of cash flows.
The Company's investments include a joint venture named the Ralph Lauren Watch and Jewelry Company, Sárl (the "RL
Watch Company"), formed with Compagnie Financière Richemont SA ("Richemont"), the Swiss luxury goods group, in March
2007. This joint venture is a Swiss corporation whose purpose is to design, develop, manufacture, sell, and distribute luxury watches
and fine jewelry through Ralph Lauren stores, as well as through fine independent jewelry and luxury watch retailers around the
world. The Company accounts for its 50% interest in the RL Watch Company under the equity method of accounting. Royalty
payments due to the Company under the related license agreement for use of certain of its trademarks are reflected as licensing
revenue within the consolidated statements of income.
Impairment Assessment
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 the risks and uncertainties associated with
general economic conditions and distinct conditions affecting specific issuers. Factors considered by the Company include (i) the
length of time and the extent 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 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 market value. See Note 16 for further information relating to the Company's investments.
Accounts Receivable
In the normal course of business, the Company extends credit to wholesale customers that satisfy defined credit criteria.
Accounts receivable, net is recorded at carrying value, which approximates fair value, and is presented in the Company's
consolidated balance sheets net of certain reserves and allowances. These reserves and allowances consist of (i) reserves for returns,
discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances (see Revenue
Recognition for further discussion of related accounting policies) and (ii) allowances for doubtful accounts.
A rollforward of the activity in the Company's reserves for returns, discounts, end-of-season markdowns, operational
chargebacks, and certain cooperative advertising allowances is presented below:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Beginning reserve balance......................................................................
Amount charged against revenue to increase reserve.............................
Amount credited against customer accounts to decrease reserve...........
Foreign currency translation ...................................................................
Ending reserve balance ......................................................................
$
$
230
$
247
$
783
(764)
5
254
$
707
(718)
(6)
230
$
213
650
(611)
(5)
247
An allowance for doubtful accounts is determined through analysis of periodic aging of accounts receivable, assessments
of collectability based on an evaluation of historical and anticipated trends, the financial condition of the Company's customers,
and an evaluation of the impact of economic conditions, among other factors.
F-11
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A rollforward of the activity in the Company's allowance for doubtful accounts is presented below:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Beginning reserve balance......................................................................
Amount recorded to expense to increase reserve(a) ................................
Amount written-off against customer accounts to decrease reserve.......
Foreign currency translation ...................................................................
Ending reserve balance ......................................................................
$
$
15
$
3
(3)
1
16
$
16
3
(3)
(1)
15
$
$
18
2
(3)
(1)
16
(a) Amounts recorded to bad debt expense are included within SG&A expenses in the consolidated statements of income.
Concentration of Credit Risk
The Company sells its wholesale merchandise primarily to major department and specialty stores around the world, and
extends credit based on an evaluation of each customer's financial capacity and condition, usually without requiring collateral. In
the Company's wholesale business, concentration of credit risk is relatively limited due to the large number of customers and their
dispersion across many geographic areas. However, the Company has three key wholesale customers that generate significant
sales volume. During Fiscal 2014, the Company's sales to its largest wholesale customer, Macy's, Inc. ("Macy's"), accounted for
approximately 12% of its total net revenues, and the Company's sales to its three largest wholesale customers (including Macy's)
represented approximately 25% of total net revenues. As of March 29, 2014, these three key wholesale customers represented
approximately 35% of gross accounts receivable.
Inventories
The Company holds inventory that is sold through wholesale distribution channels to major department stores and specialty
retail stores, including the Company's own retail stores. The Company also holds retail inventory that is sold in its own stores and
e-commerce sites 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 continuously 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 product lines, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration
to the value of current in-house orders for future sales of inventory, as well as plans to sell inventory through the Company's factory
stores. Estimates may differ from actual results due to the quantity, quality, and mix of products in inventory, consumer and retailer
preferences, and market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are
estimated based on historical experience and are adjusted based upon physical inventory counts. The Company's historical estimates
of these costs and its related provisions have not differed materially from actual results.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-
line method based upon the estimated useful lives of depreciable assets, which range from three to seven years for furniture,
fixtures, machinery and equipment, and computer software and equipment; and from ten to forty years for buildings and
improvements. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the respective assets or
the term of the related lease.
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or
changes in circumstances indicate that their related carrying values may not be fully 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 the use of the asset and its eventual disposition. To the extent that estimated future undiscounted net cash
flows attributable to the asset are less than the carrying value, an impairment loss is recognized equal to the difference between
F-12
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the carrying value of such asset and its fair value, considering external market participant assumptions. Assets to be disposed of
and for which there is a committed plan for disposal are reported at the lower of carrying value or fair value less costs to sell.
Goodwill and Other Intangible Assets
At acquisition, the Company estimates and records the fair value of purchased intangible assets, which typically consist of
reacquired license agreements, customer relationships, non-compete agreements, and/or order backlog. The fair values of these
intangible assets are estimated based on management's assessment, considering independent third-party appraisals when necessary.
The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as
goodwill. Goodwill, including any goodwill included in the carrying value of investments accounted for using the equity method
of accounting, and certain other intangible assets deemed to have indefinite useful lives, are not amortized. Rather, goodwill and
such indefinite-lived intangible assets are assessed for impairment, at least annually, initially using a qualitative approach to
determine whether it is more likely than not that the fair value of the assets is less than their respective carrying value. If, based
on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the intangible
asset is greater than its carrying value, a quantitative test is performed. Under the quantitative test, if the carrying value of the asset
exceeds its fair value, an impairment loss is recognized in the amount of the excess. Finite-lived intangible assets are amortized
over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment
periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable.
See discussion of the Company's accounting policy for long-lived asset impairment as previously described under the caption
"Property and Equipment, Net."
Officers' Life Insurance Policies
The Company maintains certain split-dollar life insurance policies for select senior executives. These policies are recorded
at the lesser of their cash-surrender value or aggregate premiums paid to date in the consolidated balance sheets. As of the end of
Fiscal 2014 and Fiscal 2013, approximately $4 million and $23 million, respectively, were classified within other non-current
assets in the consolidated balance sheets, primarily relating to officers' split-dollar life insurance policies held by the Company, a
portion of which were redeemed during Fiscal 2014.
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets
and liabilities, current taxes payable/refunds receivable, and tax expense) are recorded based on amounts refundable or payable
in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect
the tax effect of certain net operating loss, capital loss, and general business credit carryforwards and the net tax effects of temporary
differences between the carrying 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 all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events
occur or circumstances change that warrant adjustments.
In determining the income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain
tax positions. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on
the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest
amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the
appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and the Company
often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of
these matters is different than the amounts recorded, such differences will impact the income tax provision in the period in which
such determinations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly
monitors its position and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that
sufficiently raise the likelihood of prevailing on the technical merits of the position to "more likely than not"; (ii) the statute of
limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.
Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest
and penalties, if any, are recorded within the provision for income taxes in the Company's consolidated statements of income and
are classified on the consolidated balance sheets together with the related liability for unrecognized tax benefits.
F-13
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
See Note 13 for further discussion of the Company's income taxes.
Leases
The Company leases certain facilities and equipment, including the vast majority of its retail stores. Certain of the Company's
lease agreements contain renewal options, rent escalation clauses, and/or landlord incentives. Renewal terms generally reflect
market rates at the time of renewal. Rent expense for noncancelable operating leases with scheduled rent increases and/or landlord
incentives is recognized on a straight-line basis over the lease term, including any applicable rent holidays, beginning with the
lease commencement date, or the date the Company takes control of the leased space, whichever is sooner. The excess of straight-
line rent expense over the scheduled payment amounts and landlord incentives is recorded as a deferred rent liability. As of the
end of Fiscal 2014 and Fiscal 2013, deferred rent obligations of approximately $252 million and $208 million, respectively, were
classified primarily 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 or leasehold improvements
(generally on land owned by the landlord). If the Company concludes that it has substantively all of the risks of ownership during
construction of a leased property and therefore is deemed the owner of the project for accounting purposes, it records an asset and
related financing obligation for the amount of the total project costs related to construction-in-progress and the pre-existing building.
Once construction is complete, the Company considers the requirements for sale-leaseback treatment, including the transfer back
of all risks of ownership and whether the Company has any continuing involvement in the leased property. If the arrangement does
not qualify for sale-leaseback treatment, the Company continues to amortize the financing obligation and depreciate the building
over the lease term.
Derivative Financial Instruments
The Company records all derivative financial instruments on its consolidated balance sheets at fair value. For derivative
instruments that qualify for hedge accounting, the effective portion of changes in the fair value of these instruments is either
(i) offset against the changes in fair value of the hedged assets or liabilities through earnings or (ii) recognized in equity as a
component of AOCI until the hedged item is 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 that qualifies for hedge accounting is expected to be highly effective
at reducing the risk associated with the exposure being hedged. For each derivative instrument that is designated as a hedge, the
Company formally documents the related risk management objective and strategy, including identification of the hedging
instrument, the hedged item, and the risk exposure, as well as how hedge effectiveness will be assessed prospectively and
retrospectively over the term of the instrument. To assess the effectiveness of derivative instruments that are designated as hedges,
the Company uses regression analysis, a statistical method, to compare the change in the fair value of the derivative instrument to
the change in the fair value or cash flows of the related hedged item. The extent to which a hedging instrument has been and is
expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the
Company on at least a quarterly basis.
To the extent that a derivative instrument designated as a cash flow hedge is not considered to be effective, any change in
its fair value relating to such ineffectiveness is immediately recognized in earnings within foreign currency gains (losses). If it is
determined that a derivative instrument has not been highly effective, and will continue not to be highly effective in hedging the
designated exposure, hedge accounting is discontinued and further gains (losses) are recognized in earnings within foreign currency
gains (losses). Upon discontinuance of hedge accounting, the cumulative change in fair value of the derivative instrument previously
recorded in AOCI is recognized in earnings when the related hedged item affects earnings, consistent with the original hedging
strategy, unless the forecasted transaction is no longer probable of occurring, in which case the accumulated amount is immediately
recognized in earnings within foreign currency gains (losses).
As a result of the use of derivative instruments, the Company is exposed to the risk that the counterparties to such contracts
will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a policy of only entering
into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings and certain other factors,
adhering to established limits for credit exposure. The Company's established policies and procedures for mitigating credit risk
from derivative transactions include ongoing review and assessment of the creditworthiness of counterparties. The Company also
enters into master netting arrangements with counterparties, when possible, to mitigate credit risk associated with its derivative
instruments. In the event of default or termination (as such terms are defined within the respective master netting arrangement),
these arrangements allow the Company to net-settle amounts payable and receivable related to multiple derivative transactions
F-14
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with the same counterparty. The master netting arrangements specify a number of events of default and termination, including,
among others, the failure to make timely payments.
The fair values of the Company's derivative instruments are recorded on its consolidated balance sheets on a gross basis.
For cash flow reporting purposes, the Company classifies proceeds received or amounts paid upon the settlement of a derivative
instrument in the same manner as the related item being hedged, primarily within cash from operating activities.
Forward Foreign Currency Exchange Contracts
The Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risks related to
exchange 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, and other foreign currency-
denominated operational cash flows. To the extent forward foreign currency exchange contracts designated as cash flow hedges
are highly effective in offsetting changes in the value of the hedged items, the related gains (losses) are initially deferred in equity
as a component of AOCI and subsequently recognized in the consolidated statements of income as follows:
• Forecasted Inventory Purchases — Recognized as part of the cost of the inventory purchases being hedged within
cost of goods sold when the related inventory is sold to a third party.
•
Intercompany Royalty Payments and Marketing Contributions — Recognized within foreign currency gains (losses)
generally in the period in which the related payments or contributions being hedged are received or paid.
Undesignated Hedges
All of the Company's undesignated hedges are entered into to hedge specific economic risks, such as foreign currency
exchange rate risk. Changes in the fair value of undesignated derivative instruments are immediately recognized in earnings within
foreign currency gains (losses).
See Note 16 for further discussion of the Company's derivative financial instruments.
4.
Recently Issued Accounting Standards
Disclosure of Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued new, expanded disclosure requirements for
financial instruments surrounding an entity's rights of offset and related counterparty arrangements as Accounting Standards Update
("ASU") No. 2011-11, "Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). ASU 2011-11 requires disclosure
of both "gross" and "net" information for recognized financial instruments (including derivatives) that are (i) eligible for offset
and presented "net" in the balance sheet or (ii) subject to enforceable master netting agreements, irrespective of whether an entity
actually offsets and "net presents" such instruments in the balance sheet. ASU 2011-11 also requires disclosure of any collateral
received or posted in connection with master netting agreements or similar arrangements. In January 2013, the FASB issued ASU
No. 2013-01, "Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities," which limited the scope of ASU 2011-11
to derivatives accounted for in accordance with Accounting Standards Codification ("ASC") topic 815, "Derivatives and Hedging,"
and securities borrowing and lending transactions. The Company adopted the provisions of ASU 2011-11 as of the beginning of
the first quarter of Fiscal 2014, which resulted in expanded financial instrument disclosures (see Note 16), but did not have an
impact on the Company's consolidated financial statements.
Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other
Comprehensive Income" ("ASU 2013-02"). ASU 2013-02 requires disclosure of significant amounts reclassified out of AOCI by
component. If the amounts are required to be reclassified from AOCI to net income in their entirety in the same reporting period,
the effect of such reclassifications on the relevant line items of net income must be presented either on the face of the financial
statements or in the notes. For amounts that are not required to be reclassified to net income in their entirety in the same reporting
period, cross-references to other disclosures that provide additional details about such reclassifications are required. ASU 2013-02
did not change the requirements for determining or reporting net income or OCI. The Company adopted the provisions of ASU
F-15
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2013-02 as of the beginning of the first quarter of Fiscal 2014, which resulted in expanded OCI-related disclosures (see Note 19),
but did not have an impact on the Company's consolidated financial statements.
Proposed Amendments to Current Accounting Standards
The FASB is currently working on amendments to existing accounting standards governing a number of areas including,
but not limited to, accounting for leases. In May 2013, the FASB issued an exposure draft, "Leases" (the "Exposure Draft"), which
would replace the existing guidance in ASC topic 840, "Leases." Under the Exposure Draft, among other changes in practice, a
lessee's rights and obligations under most leases, including existing and new arrangements, would be recognized as assets and
liabilities, respectively, on the balance sheet. The comment period for the Exposure Draft ended in September 2013. The FASB is
currently considering feedback received and is redeliberating all significant issues to determine next steps. If and when effective,
this proposed standard will likely have a significant impact on the Company's consolidated financial statements. However, as the
standard-setting process is still ongoing, the Company is unable at this time to determine the impact this proposed change in
accounting would have on its consolidated financial statements.
5.
Acquisitions
Australia and New Zealand Licensed Operations Acquisition
On July 1, 2013, in connection with the transition of the Ralph Lauren-branded apparel and accessories business in Australia
and New Zealand (the "Australia and New Zealand Business") from a licensed to a wholly-owned operation, the Company acquired
certain net assets from Oroton Group/PRL Australia ("Oroton") in exchange for an aggregate payment of approximately $15
million (the "Australia and New Zealand Licensed Operations Acquisition"). Oroton was the Company's licensee for the Australia
and New Zealand Business. The Company funded the Australia and New Zealand Licensed Operations Acquisition with available
cash on-hand.
The Company accounted for the Australia and New Zealand Licensed Operations Acquisition as a business combination
during the second quarter of Fiscal 2014, with the operating results of the Australia and New Zealand Business consolidated into
the Company's operating results beginning on July 1, 2013. Transaction costs associated with the Australia and New Zealand
Licensed Operations Acquisition were not material. The acquisition cost of $15 million was preliminarily allocated to the assets
acquired and liabilities assumed based on an assessment of their respective fair values, as follows (in millions):
Assets acquired and liabilities assumed:
Inventory................................................................................................................................................
Fixed assets............................................................................................................................................
Customer relationship intangible asset..................................................................................................
Other assets............................................................................................................................................
Other liabilities ......................................................................................................................................
Fair value of net assets acquired ..........................................................................................................
$
$
9
4
3
2
(3)
15
The customer relationship intangible asset was valued using the excess earnings method, which discounts the estimated
after-tax cash flows associated with the existing base of customers as of the acquisition date, factoring in expected attrition of the
existing customer base. The customer relationship intangible asset is being amortized over an estimated useful life of nine years.
Chaps Menswear License Acquisition
On April 10, 2013, in connection with the transition of the North American Chaps-branded men's sportswear business
("Chaps Menswear Business") from a licensed to a wholly-owned operation, the Company entered into an agreement with The
Warnaco Group, Inc. ("Warnaco"), a subsidiary of PVH Corp. ("PVH"), to acquire certain net assets in exchange for an aggregate
payment of approximately $18 million (the "Chaps Menswear License Acquisition"). Warnaco was the Company's licensee for
the Chaps Menswear Business. The Company funded the Chaps Menswear License Acquisition during the first quarter of Fiscal
2014 with available cash on-hand.
F-16
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company accounted for the Chaps Menswear License Acquisition as a business combination during the first quarter
of Fiscal 2014. The acquisition cost was allocated to the assets acquired and liabilities assumed based on an assessment of their
respective fair values, as follows (in millions):
Assets acquired:
Inventory................................................................................................................................................
Accounts receivable...............................................................................................................................
Licensed trademark intangible asset......................................................................................................
Total assets acquired...........................................................................................................................
Liabilities assumed:
Accounts payable...................................................................................................................................
Other net liabilities ................................................................................................................................
Total net liabilities assumed................................................................................................................
Fair value of net assets acquired ..........................................................................................................
Consideration paid...................................................................................................................................
Gain on acquisition(a).............................................................................................................................
$
$
30
19
9
58
(22)
(2)
(24)
34
18
16
(a) Represents the difference between the acquisition date fair value of net assets acquired and the contractually-defined
purchase price under the Company's license agreement with Warnaco, which granted the Company the right to early-
terminate the license upon PVH's acquisition of Warnaco in February 2013.
The licensed trademark intangible asset was valued using the excess earnings method, discounting the estimated after-tax
cash flows associated with the Chaps-branded men's sportswear licensed trademark as of the acquisition date, factoring in market
participant-based operating and cash flow assumptions. The reacquired licensed trademark intangible asset was amortized over a
nine-month period through December 31, 2013, representing the remaining term of the prior license agreement that was terminated
in connection with this acquisition.
The operating results of the Chaps Menswear Business have been consolidated into the Company's operating results
beginning on April 10, 2013. Transaction costs of $3 million were expensed as incurred and classified within SG&A expenses in
the consolidated statement of income for Fiscal 2014.
6.
Inventories
Inventories consist of the following:
Raw materials ........................................................................................................
Work-in-process.....................................................................................................
Finished goods.......................................................................................................
Total inventories ...............................................................................................
$
$
March 29,
2014
March 30,
2013
(millions)
3
2
1,015
1,020
$
$
5
1
890
896
F-17
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.
Property and Equipment
Property and equipment, net consists of the following:
March 29,
2014
March 30,
2013
Land and improvements ........................................................................................
Buildings and improvements.................................................................................
Furniture and fixtures ............................................................................................
Machinery and equipment .....................................................................................
Capitalized software ..............................................................................................
Leasehold improvements.......................................................................................
Construction in progress........................................................................................
Less: accumulated depreciation.............................................................................
Property and equipment, net .............................................................................
$
8.
Goodwill and Other Intangible Assets
Goodwill
$
(millions)
17
$
183
661
245
366
1,064
312
2,848
(1,526)
1,322
$
10
130
601
189
252
934
137
2,253
(1,321)
932
The following table details the changes in goodwill for each of the Company's reportable segments during Fiscal 2014 and
Fiscal 2013:
Wholesale
Retail
Licensing
Total
Balance at March 31, 2012....................................................
Foreign currency translation .................................................
Balance at March 30, 2013....................................................
Foreign currency translation .................................................
Balance at March 29, 2014....................................................
$
$
$
635
(21)
614
3
617
$
(millions)
223
(9)
214
(4)
210
$
$
146
(6)
140
(3)
137
$
$
1,004
(36)
968
(4)
964
Based on the results of the Company's annual goodwill impairment testing in Fiscal 2014, Fiscal 2013, and Fiscal 2012,
no impairment charges were recorded.
F-18
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Intangible Assets
Other intangible assets consist of the following:
March 29, 2014
March 30, 2013
Gross
Carrying
Amount
Accum.
Amort.
Net
Gross
Carrying
Amount
Accum.
Amort.
Net
(millions)
Intangible assets subject to amortization:
Re-acquired licensed trademarks....................
Customer relationships ...................................
$
Other ...............................................................
Total intangible assets subject to
amortization.............................................
Intangible assets not subject to amortization:
234
261
29
524
$ (109) $
(112)
(11)
(232)
125
149
18
292
$
228
265
30
523
$
(94) $
(99)
(9)
(202)
Trademarks and brands ................................
7
N/A
7
7
N/A
134
166
21
321
(a)
(a)
7
Total intangible assets...............................
$
531
$ (232) $
299
$
530
$ (202) $
328
(a)
Includes $2 million of impairment charges related to the write-off of certain intangible assets in connection with the
Rugby Closure Plan (see Notes 11 and 12).
Amortization
Based on the balance of the Company's intangible assets subject to amortization as of March 29, 2014, the expected
amortization for each of the next five fiscal years and thereafter is as follows:
Fiscal 2015...........................................................................................................................................
Fiscal 2016...........................................................................................................................................
Fiscal 2017...........................................................................................................................................
Fiscal 2018...........................................................................................................................................
Fiscal 2019...........................................................................................................................................
Fiscal 2020 and thereafter ...................................................................................................................
Total...................................................................................................................................................
$
$
Amortization
Expense
(millions)
26
26
25
25
24
166
292
The expected future amortization expense above reflects weighted-average estimated useful lives of 15.5 years for re-
acquired licensed trademarks, 10.8 years for customer relationships, and 13.0 years for the Company's finite-lived intangible assets
in total.
F-19
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.
Other Current and Non-Current Assets
Prepaid expenses and other current assets consist of the following:
Other taxes receivable ...........................................................................................
Prepaid rent expense..............................................................................................
Tenant allowances receivable................................................................................
Fixed asset advance ...............................................................................................
Prepaid samples .....................................................................................................
Derivative financial instruments............................................................................
Other prepaid expenses and current assets ............................................................
Total prepaid expenses and other current assets...............................................
Other non-current assets consist of the following:
Restricted cash.......................................................................................................
Security deposits....................................................................................................
Assets held under deferred compensation arrangements.......................................
Officers' life insurance policies .............................................................................
Other non-current assets ........................................................................................
Total other non-current assets...........................................................................
10. Other Current and Non-Current Liabilities
Accrued expenses and other current liabilities consist of the following:
Accrued payroll and benefits.................................................................................
Accrued operating expenses ..................................................................................
Accrued inventory .................................................................................................
Other taxes payable ...............................................................................................
Accrued capital expenditures ................................................................................
Deferred income ....................................................................................................
Dividends payable .................................................................................................
Capital lease obligations........................................................................................
Other accrued expenses and current liabilities ......................................................
Total accrued expenses and other current liabilities.........................................
$
$
$
$
$
March 29,
2014
March 30,
2013
(millions)
$
77
31
22
19
13
3
59
31
28
17
—
14
15
56
224
$
161
March 29,
2014
March 30,
2013
(millions)
$
42
27
20
4
42
135
$
March 29,
2014
March 30,
2013
(millions)
$
190
183
84
76
45
41
40
16
15
40
23
3
23
35
124
199
169
93
51
53
40
36
4
19
$
690
$
664
F-20
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other non-current liabilities consist of the following:
Capital lease obligations........................................................................................
Deferred rent obligations.......................................................................................
Deferred income ....................................................................................................
Deferred tax liabilities ...........................................................................................
Deferred compensation..........................................................................................
Other non-current liabilities ..................................................................................
Total other non-current liabilities .....................................................................
$
$
March 29,
2014
March 30,
2013
(millions)
$
255
224
39
81
29
26
654
$
38
189
58
30
12
35
362
11.
Impairments of Assets
During Fiscal 2014, the Company recorded non-cash impairment charges of $1 million, primarily to write-off certain fixed
assets related to its European operations.
During Fiscal 2013, the Company recorded non-cash impairment charges of $19 million, which included $11 million of
impairment charges to reduce the carrying values of certain long-lived assets related to its 14 global freestanding retail Rugby
stores to their estimated fair values in connection with their closure in Fiscal 2013 and Fiscal 2014. In addition, during Fiscal 2013,
the Company recorded non-cash impairment charges of $8 million to reduce the carrying values of long-lived assets of certain
underperforming European stores to their fair values, as well as to write-off the fixed assets of certain wholesale locations in Europe
that were expected to close.
During Fiscal 2012, the Company recorded non-cash impairment charges of $2 million, primarily to reduce the carrying
values of long-lived assets of certain underperforming European retail stores to their estimated fair values.
12. Restructuring and Other Charges
A description of significant restructuring and other activities and related costs is included below.
Fiscal 2014
Restructuring charges recorded during Fiscal 2014 were approximately $8 million, and were primarily related to severance
and benefit costs associated with restructuring of the Company's corporate operations. As of March 29, 2014, the aggregate
remaining restructuring liability was approximately $6 million, which is expected to be paid by the end of Fiscal 2015.
In addition, in connection with the formation of the new Office of the Chairman, the Company entered into employment
agreements with certain of its executive officers, which became effective in November 2013. As a result of the new employment
agreement provisions, the Company recorded $10 million of accelerated stock-based compensation expense during Fiscal 2014.
Fiscal 2013
Rugby Closure Plan
On October 30, 2012, the Company approved a plan to wind-down its Rugby brand retail operations (the "Rugby Closure
Plan"). This decision was primarily based on the results of an analysis of the brand concept, as well as an opportunity for the
Company to reallocate its resources related to these operations to support other high-growth business opportunities and initiatives.
In connection with the Rugby Closure Plan, all of the Company's 14 global freestanding Rugby stores (certain of which have been
converted to other Ralph Lauren brand concepts) and its related domestic e-commerce site located at Rugby.com have been closed
as of June 2013. The Rugby Closure Plan resulted in a reduction in workforce of approximately 160 employees.
F-21
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the Rugby Closure Plan, the Company recorded $7 million in restructuring charges during Fiscal 2013,
including $2 million of severance and benefits costs, $4 million of lease termination costs, and $1 million of other costs, of which
$4 million remained payable as of March 30, 2013. There were no additional restructuring charges recognized by the Company
in connection with the Rugby Closure Plan during Fiscal 2014. As of March 29, 2014, the remaining restructuring liability related
to this plan was not material.
Other Restructuring Charges
In addition to the restructuring charges incurred in connection with the Rugby Closure Plan, the Company recorded $5
million of other net restructuring charges during Fiscal 2013, including $3 million of severance and lease termination costs associated
with the suspension of the Company's operations in Argentina, $3 million of severance and lease termination costs associated with
the Company's European operations, and $2 million of severance costs primarily associated with the Company's corporate
operations, partially offset by $3 million of reversals of reserves deemed no longer necessary in connection with the Company's
Fiscal 2012 Asia-Pacific Restructuring Plan, as defined below. As of March 30, 2013, the aggregate remaining liability related to
these actions was $4 million. As of March 29, 2014, the remaining restructuring liability related to this plan was not material.
Fiscal 2012
During Fiscal 2012, the Company initiated a plan to reposition and upgrade its existing distribution network and
merchandising operations in the Asia-Pacific region, which includes mainland China, Macau, Hong Kong, Taiwan, Malaysia,
Singapore, Japan, and South Korea (the "Asia-Pacific Restructuring Plan"). The Asia-Pacific Restructuring Plan included a
reduction in workforce of approximately 280 employees and the closure of approximately 95 stores and concession shops that did
not support the new merchandising strategy. In connection with the Asia-Pacific Restructuring Plan, the Company recorded $5
million in restructuring charges during Fiscal 2012, which were settled during Fiscal 2013.
In addition to the restructuring charges incurred in connection with the Asia-Pacific Restructuring Plan, the Company
recognized $7 million of other restructuring charges during Fiscal 2012, including $3 million of costs associated with the
discontinuance of the majority of the products sold under the American Living brand at J.C. Penney Company, Inc., primarily
related to severance, which were settled during Fiscal 2013.
13.
Income Taxes
Taxes on Income
Domestic and foreign pretax income are as follows:
Domestic......................................................................................................
Foreign.........................................................................................................
Total income before provision for income taxes.......................................
$
$
710
386
1,096
$
$
672
417
1,089
$
$
618
397
1,015
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
F-22
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Provisions (benefits) for current and deferred income taxes are as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Current:
Federal(a)....................................................................................................
State and local(a) ........................................................................................
Foreign ......................................................................................................
Deferred:
Federal.......................................................................................................
State and local ...........................................................................................
Foreign ......................................................................................................
Total provision for income taxes ............................................................
$
$
211
$
189
$
51
57
319
(4)
1
4
1
320
$
42
94
325
9
5
—
14
339
$
203
51
95
349
4
(2)
(17)
(15)
334
(a) Excludes federal, state, and local tax benefits of approximately $34 million, $41 million, and $40 million in Fiscal
2014, Fiscal 2013, and Fiscal 2012, respectively, resulting from stock-based compensation arrangements. Such amounts
were recorded within equity.
Tax Rate Reconciliation
The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes
provided are as set forth below:
Provision for income taxes at the U.S. federal statutory rate......................
Increase (decrease) due to:
State and local income taxes, net of federal benefit .................................
Foreign income taxed at different rates, net of U.S. foreign tax credits...
Unrecognized tax benefits and settlements of tax examinations ..............
Other .........................................................................................................
Total provision for income taxes............................................................
Effective tax rate(a) .................................................................................
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
$
384
$
381
$
355
29
(89)
(5)
1
28
(75)
6
(1)
$
320
$
339
$
28
(56)
12
(5)
334
29.2%
31.1%
32.9%
(a) Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income
taxes.
The Company's effective tax rate is lower than the statutory rate principally as a result of the proportion of earnings generated
in lower taxed foreign jurisdictions versus the U.S. In addition, during Fiscal 2014, the effective tax rate was favorably impacted
by tax reserve reductions associated with the conclusion of a tax examination and an income tax benefit resulting from the legal
entity restructuring of certain of the Company's foreign operations during Fiscal 2014. The Company's effective tax rate for Fiscal
2013 reflected tax reserve reductions associated with a conclusion of a tax examination, offset by the inclusion of a reserve for an
interest assessment on a prior year withholding tax.
F-23
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Taxes
Significant components of the Company's net deferred tax assets (liabilities) are as follows:
Current deferred tax assets:
Receivable allowances and reserves ............................................................................
Deferred compensation ................................................................................................
Inventory basis difference ............................................................................................
Other.............................................................................................................................
Valuation allowance .....................................................................................................
Net current deferred tax assets(a)................................................................................
$
Non-current deferred tax assets (liabilities):
Goodwill and other intangible assets ...........................................................................
Property and equipment ...............................................................................................
Cumulative translation adjustment and hedges ............................................................
Lease obligations..........................................................................................................
Deferred compensation ................................................................................................
Unrecognized tax benefits ............................................................................................
Deferred rent ................................................................................................................
Deferred income ...........................................................................................................
Net operating loss carryforwards .................................................................................
Transfer pricing ............................................................................................................
Other.............................................................................................................................
Valuation allowance .....................................................................................................
Net non-current deferred tax liabilities(b)...................................................................
Net deferred tax assets.............................................................................................
$
March 29,
2014
March 30,
2013
(millions)
70
31
30
20
(1)
150
(219)
(90)
(8)
92
79
46
19
18
17
16
(1)
(11)
(42)
108
$
$
69
21
19
11
(1)
119
(211)
27
(4)
—
68
35
20
33
16
20
—
(12)
(8)
111
(a) The net current deferred tax balance as of March 30, 2013 included current deferred tax liabilities of $1 million recorded
within accrued expenses and other current liabilities in the consolidated balance sheets.
(b) The net non-current deferred tax balances as of March 29, 2014 and March 30, 2013 were comprised of non-current
deferred tax assets of $39 million and $22 million, respectively, recorded within deferred tax assets, and non-current
deferred tax liabilities of $81 million and $30 million, respectively, recorded within other non-current liabilities in the
consolidated balance sheets.
The Company has available state and foreign net operating loss carryforwards of $4 million and $30 million, respectively,
for tax purposes to offset future taxable income. The net operating loss carryforwards expire beginning in Fiscal 2015.
Also, the Company has available state and foreign net operating loss carryforwards of $10 million and $51 million,
respectively, for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded against these
carryforwards since management does not believe that the Company will more likely than not be able to utilize these carryforwards
to offset future taxable income. Subsequent recognition of these deferred tax assets would result in an income tax benefit in the
year of such recognition. The valuation allowance relating to state net operating loss carryforwards decreased $1 million primarily
due to the Company's ability to utilize certain state net operating loss carryforwards. The valuation allowance relating to foreign
net operating loss carryforwards decreased $2 million as a result of the Company's ability to utilize certain foreign net operating
loss carryforwards.
Provision has not been made for U.S. or additional foreign taxes on $2.176 billion of undistributed earnings of foreign
subsidiaries. Those historical earnings have been and are expected to continue to be permanently reinvested. These earnings could
F-24
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
become subject to tax if they were remitted as dividends, if foreign earnings were lent to RLC, a subsidiary or a U.S. affiliate of
RLC, 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 that the amount of the additional taxes that might be payable on the earnings
of foreign subsidiaries, if remitted, would be partially offset by U.S. foreign tax credits.
In September 2013, the Internal Revenue Service released final tangible property regulations that clarified and expanded
Sections 162(a) and 263(a) of the Internal Revenue Code which relate to the deduction and capitalization of expenditures associated
with tangible property as well as dispositions of tangible property. The regulations will be effective for the Company’s fiscal year
ending March 28, 2015. The Company is currently evaluating the expected impact of these new regulations and believes that they
will not have a material impact on the Company’s consolidated financial statements.
Uncertain Income Tax Benefits
Fiscal 2014, Fiscal 2013, and Fiscal 2012 Activity
Reconciliations of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for
Fiscal 2014, Fiscal 2013, and Fiscal 2012 are presented below:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Unrecognized tax benefits beginning balance................................
Additions related to current period tax positions.........................
Additions related to prior period tax positions ............................
Reductions related to prior period tax positions ..........................
Reductions related to expiration of statutes of limitations...........
Reductions related to settlements with taxing authorities............
Additions (reductions) related to foreign currency translation ....
Unrecognized tax benefits ending balance.....................................
$
$
100
6
12
(13) (a)
(2)
(23) (a)
3
$
83
$
129
4
12
(32) (b)
(1)
(10) (b)
(2)
100
$
$
125
4
8
(4)
(2)
—
(2)
129
(a) Includes a $29 million decline in unrecognized tax benefits as a result of the Company's tax settlement agreement
reached in Fiscal 2014 for the taxable years ended April 3, 2004 and April 2, 2005.
(b) Includes a $34 million decline in unrecognized tax benefits as a result of the Company's tax settlement agreement
reached in Fiscal 2013 in connection with a tax examination for the taxable years ended March 29, 2008 through April
3, 2010.
The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes.
Reconciliations of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits for
Fiscal 2014, Fiscal 2013, and Fiscal 2012 are presented below:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Accrued interest and penalties beginning balance .........................
Net additions charged to expense ................................................
Reductions related to prior period tax positions ..........................
Reductions related to settlements with taxing authorities............
Additions related to foreign currency translation ........................
Accrued interest and penalties ending balance ..............................
$
$
50 $
6
(4)
(5)
2
$
39
22 (a)
(10)
(1)
—
49 $
50
$
31
8
—
—
—
39
F-25
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)
Includes a reserve of $17 million for an interest assessment on a prior year withholding tax. No underlying tax exposure
exists. The interest assessed was not material to the Company's consolidated financial statements in any period.
The total amount of unrecognized tax benefits, including interest and penalties, was $132 million and $150 million as of
March 29, 2014 and March 30, 2013, respectively, and is included within the non-current liability for unrecognized tax benefits
in the consolidated balance sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company's
effective tax rate was $86 million and $115 million as of March 29, 2014 and March 30, 2013, respectively.
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future
events including, but not limited to, the settlements of ongoing tax audits and assessments and the expiration of applicable statutes
of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the
balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve
months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current
estimate to change materially in the future.
The Company files tax returns in the U.S. federal and various state, local, and foreign jurisdictions. With few exceptions
for those tax returns, the Company is no longer subject to examinations by the relevant tax authorities for years prior to fiscal year
2006.
14. Debt
Debt consists of the following:
March 29,
2014
March 30,
2013
2.125% Senior Notes due September 26, 2018 ...............................................................
4.5% Euro-denominated notes due October 4, 2013(a)....................................................
Total debt.........................................................................................................................
Less: current portion of long-term debt...........................................................................
Long-term debt..............................................................................................................
$
$
(a) Principal amount was repaid upon maturity.
Senior Notes
$
(millions)
300
—
300
—
300
$
—
267
267
267
—
In September 2013, the Company completed a registered public debt offering and issued $300 million aggregate principal
amount of unsecured senior notes due September 26, 2018 (the "Senior Notes") at a price equal to 99.896% of their principal
amount. The Senior Notes bear interest at a fixed rate of 2.125%, payable semi-annually. The proceeds from this offering were
used for general corporate purposes, including the repayment of the Company's €209 million principal amount outstanding of
4.5% Euro-denominated notes (the "Euro Debt"), which matured on October 4, 2013.
The Company has the option to redeem the Senior Notes, in whole or in part, at any time at a price equal to accrued interest
on the redemption date, plus the greater of (i) 100% of the principal amount of Senior Notes to be redeemed or (ii) the sum of the
present value of Remaining Scheduled Payments, as defined in the indenture governing the Senior Notes (the "Indenture"). The
Indenture contains certain covenants that restrict the Company’s ability, subject to specified exceptions, to incur certain liens; enter
into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of
the Company's property or assets to another party. However, the Indenture does not contain any financial covenants.
F-26
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revolving Credit Facilities
Global Credit Facility
The Company has a credit facility that provides for a $500 million senior unsecured revolving line of credit through March
2016, which may also be used to support the issuance of letters of credit and the initiation and maintenance of a commercial paper
program (the "Global Credit Facility"). Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and other
currencies, including Euros, Hong Kong Dollars, and Japanese Yen. The Company has the ability to expand its borrowing availability
under the Global Credit Facility to $750 million, subject to the agreement of one or more new or existing lenders under the facility
to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit
Facility. As of March 29, 2014, there were no borrowings outstanding under the Global Credit Facility and the Company was
contingently liable for $8 million of outstanding letters of credit.
U.S. Dollar-denominated borrowings under the Global Credit Facility bear interest, at the Company's option, either at (a) a
base rate, by reference to the greatest of: (i) the annual prime commercial lending rate of JPMorgan Chase Bank, N.A. in effect
from time to time, (ii) the weighted-average overnight Federal funds rate plus 50 basis points, or (iii) the one-month London
Interbank Offered Rate ("LIBOR") plus 100 basis points; or (b) LIBOR, adjusted for the Federal Reserve Board's Eurocurrency
liabilities maximum reserve percentage, plus a spread of 87.5 basis points, subject to adjustment based on the Company's credit
ratings ("Adjusted LIBOR"). Foreign currency-denominated borrowings bear interest at Adjusted LIBOR.
In addition to paying interest on any outstanding borrowings under the Global Credit Facility, the Company is required to
pay a commitment fee to the lenders under the Global Credit Facility with respect to the unutilized commitments. The commitment
fee rate of 12.5 basis points under the terms of the Global Credit Facility is subject to adjustment based on the Company's credit
ratings.
The Global Credit Facility contains a number of covenants that, among other things, restrict the Company's ability, subject
to specified exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with or 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 certain investments. The Global Credit Facility also requires the Company to
maintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the "leverage ratio") of no greater than 3.75 as of the
date of measurement for the four most recent consecutive fiscal quarters. Adjusted Debt is defined generally as consolidated debt
outstanding plus eight times consolidated rent expense for the last four consecutive fiscal quarters. Consolidated EBITDAR is
defined generally as consolidated net income plus (i) income tax expense, (ii) net interest expense, (iii) depreciation and
amortization expense, and (iv) consolidated rent expense. As of March 29, 2014, no Event of Default (as such term is defined
pursuant to the Global Credit Facility) has occurred under the Company's Global Credit Facility.
Upon the occurrence of an Event of Default under the Global Credit Facility, the lenders may cease making loans, terminate
the Global Credit Facility, and declare all amounts outstanding to be immediately due and payable. The Global Credit Facility
specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the failure
to make timely principal, interest, and fee payments or to satisfy the covenants, including the financial covenant described above.
Additionally, the Global Credit Facility provides that an Event of Default will occur if Mr. Ralph Lauren, the Company's Chairman
of the Board and Chief Executive Officer, and entities controlled by the Lauren family fail to maintain a specified minimum
percentage of the voting power of the Company's common stock.
Pan-Asia Credit Facilities
Certain of the Company's subsidiaries in Asia have uncommitted credit facilities with regional branches of JPMorgan Chase
(the "Banks") in China, Malaysia, South Korea, and Taiwan (the "Pan-Asia Credit Facilities"). These credit facilities are subject
to annual renewal and may be used to fund general working capital and corporate needs of the Company's operations in the
respective regions. Borrowings under the Pan-Asia Credit Facilities are guaranteed by the parent company and are granted at the
sole discretion of the Banks, subject to availability of the Banks' funds and satisfaction of certain regulatory requirements. The
Pan-Asia Credit Facilities do not contain any financial covenants. The Company's Pan-Asia Credit Facilities by country are as
follows:
• China Credit Facility - provides Ralph Lauren Trading (Shanghai) Co., Ltd. with a revolving line of credit of up to
100 million Chinese Renminbi (approximately $16 million) through April 8, 2015, and may also be used to support
bank guarantees.
F-27
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
• Malaysia Credit Facility - provides Ralph Lauren (Malaysia) Sdn Bhd with a revolving line of credit of up to 16
million Malaysian Ringgit (approximately $5 million) through September 17, 2014.
•
South Korea Credit Facility - provides Ralph Lauren (Korea) Ltd. with a revolving line of credit of up to 11 billion
South Korean Won (approximately $10 million) through October 31, 2014.
• Taiwan Credit Facility - provides Ralph Lauren (Hong Kong) Retail Company Limited, Taiwan Branch with a
revolving line of credit of up to 59 million New Taiwan Dollars (approximately $2 million) through October 15,
2014.
As of March 29, 2014, there were no borrowings outstanding under any of the Pan-Asia Credit Facilities.
15. Fair Value Measurements
U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of
the applicable level within the hierarchy of a particular asset or liability depends on the inputs used in its valuation as of the
measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A
financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the
fair value measurement. The three levels are defined as follows:
• Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities
in active markets.
• Level 2 — inputs to the valuation methodology based on quoted prices for similar assets and liabilities in active
markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments
in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations
whose inputs or significant value drivers are observable.
• Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are
significant to the fair value measurement.
The following table summarizes the Company's financial assets and liabilities that are measured and recorded at fair value
on a recurring basis:
Financial assets recorded at fair value(a):
Government bonds — U.S. .................................................................................
Government bonds — non-U.S...........................................................................
Corporate bonds — non-U.S...............................................................................
Variable rate municipal securities — U.S...........................................................
Auction rate securities.........................................................................................
Derivative financial instruments .........................................................................
Total................................................................................................................
Financial liabilities recorded at fair value(b):
Derivative financial instruments .........................................................................
Total................................................................................................................
$
$
$
$
March 29,
2014
March 30,
2013
(millions)
$
1
—
—
—
2
8
29
92
82
17
2
15
11
$
237
7
7
$
$
5
5
(a) Based on Level 1 measurements, except for auction rate securities and derivative financial instruments, which are based
on Level 2 measurements.
(b) Based on Level 2 measurements.
F-28
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
To the extent the Company invests in government bonds, corporate bonds, or variable rate municipal securities, such
investments are classified as available-for-sale securities and are recorded at fair value in its consolidated balance sheets based
upon quoted prices in active markets.
The Company's auction rate securities are classified as available-for-sale securities and are recorded at fair value in the
Company's consolidated balance sheets. Third-party pricing institutions may value auction rate securities at par, which may not
necessarily reflect prices that would be obtained if sold in the current market. When quoted market prices are unobservable, fair
value is estimated based on a number of known factors and external pricing data, including known maturity dates, the coupon rate
based upon the most recent reset market clearing rate, the price/yield representing the average rate of recent successfully traded
securities, and the total principal balance of each security.
The Company's derivative financial instruments are recorded at fair value in the Company's consolidated balance sheets
and are valued using a pricing model, which is primarily based on market observable external inputs, including forward and spot
exchange rates for foreign currencies, and considers the impact of the Company's own credit risk, if any. Changes in counterparty
credit risk are also considered in the valuation of derivative financial instruments.
The Company's cash and cash equivalents, restricted cash, and time deposits are recorded at carrying value, which
approximates fair value based on Level 1 measurements.
The Company's debt obligations are recorded at carrying value in its consolidated balance sheets, which may differ from
their fair values. The carrying value of the Senior Notes is adjusted for any unamortized discount, which is not material. The
carrying value of the Euro Debt, which was repaid upon its maturity in October 2013, was adjusted for any foreign currency
fluctuations, any unamortized discount, and the unamortized fair value adjustment associated with the early termination of an
interest rate swap that was designated as a fair value hedge. The fair values of the Company's debt obligations are estimated based
on external pricing data, including available quoted market prices of these debt instruments, and of comparable debt instruments
with similar interest rates, credit ratings, and trading frequency, among other factors. The following table summarizes the carrying
values and the estimated fair values of the Company's debt obligations:
March 29, 2014
March 30, 2013
Carrying Value
Fair Value(a)
Carrying Value
Fair Value(a)
2.125% Senior Notes........................................
Euro Debt .........................................................
$
300
$
N/A
(millions)
300
N/A $
N/A
267
$
N/A
272
(a) Based on Level 2 measurements.
Unrealized gains or losses on the Company's debt do not result in the realization or expenditure of cash, unless the debt is
retired prior to its maturity.
Non-financial Assets and Liabilities
The Company's non-financial assets, which primarily consist of goodwill, other intangible assets, and property and
equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a
periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and
at least annually for goodwill and indefinite-lived intangible assets), non-financial instruments are assessed for impairment and,
if applicable, written-down to and recorded at fair value, considering external market participant assumptions.
During Fiscal 2014, Fiscal 2013, and Fiscal 2012, the Company recorded non-cash impairment charges to reduce the carrying
values of certain long-lived store assets to their fair values. The fair values of these assets were determined based on Level 3
measurements. Inputs to these fair value measurements included estimates of the amount and timing of the stores' net future
discounted cash flows based on historical experience, current trends, and market conditions. The following table summarizes the
impairment charges recorded during Fiscal 2014, Fiscal 2013, and Fiscal 2012:
F-29
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Aggregate carrying value of long-lived assets written down to
fair value ....................................................................................
Impairment charges(a) ......................................................................
$
$
1
(1)
$
19
(19)
3
(2)
(a) See Note 11 for details of impairment charges recorded in Fiscal 2014, Fiscal 2013, and Fiscal 2012.
No goodwill impairment charges were recorded during any of the fiscal years presented. In Fiscal 2014, the Company
performed its annual goodwill impairment assessment using a qualitative approach as of the beginning of the second quarter of
the fiscal year. In performing the assessment, the Company identified and considered the significance of relevant key factors,
events, and circumstances that affected the fair values and/or carrying amounts of its reporting units. These factors included external
factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as the Company's actual
and planned financial performance. Additionally, the results of the Company's most recent quantitative goodwill impairment test
were also considered, which indicated that the fair values of its reporting units significantly exceeded their respective carrying
values. Based on the results of its qualitative goodwill impairment assessment, the Company concluded that it is not more likely
than not that the fair values of its reporting units are less than their respective carrying values, and there were no reporting units
at risk of impairment.
16. Financial Instruments
Derivative Financial Instruments
The Company is exposed to changes in foreign currency exchange rates relating to certain anticipated cash flows from its
international operations and potential changes in the value of reported net assets of certain of its foreign operations. Consequently,
the Company periodically uses derivative financial instruments to manage such risks. The Company does not enter into derivative
transactions for speculative or trading purposes.
The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded in the
consolidated balance sheets as of March 29, 2014 and March 30, 2013:
Derivative Instrument(a)
March 29,
2014
March 30,
2013
March 29,
2014
March 30,
2013
March 29,
2014
March 30,
2013
Notional Amounts
Derivative Assets
Derivative Liabilities
Balance
Sheet
Line(b)
Fair
Value
Balance
Sheet
Line(b)
Fair
Value
Balance
Sheet
Line(b)
Fair
Value
Balance
Sheet
Line(b)
Fair
Value
(millions)
Designated Hedges:
FC — Inventory purchases ............
FC — Other(d) ................................
NI — Euro Debt.............................
Total Designated Hedges .........
Undesignated Hedges:
FC — Other(f) .................................
Total Hedges ............................
$
$
$
$
476
223
—
699
280
979
$
$
$
$
366
25
140
531
270
801
(c)
—
—
(g)
$
$
$
$
2
—
N/A
2
6
8
PP
—
—
PP
$
$
$
$
(e)
14
—
14
1
15
AE
AE
—
$
$
(5)
(2)
N/A
(7)
AE
AE
—
—
$ —
AE
$
(7)
$
$
$
$
(e)
(2)
(1)
(3)
(2)
(5)
(a) FC = Forward foreign currency exchange contracts; NI = Net Investment Hedge; Euro Debt = Euro-denominated 4.5% notes
that matured on October 4, 2013.
(b) PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities.
(c) $1 million included within prepaid expenses and other current assets and $1 million included within other non-current assets.
F-30
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(d) Primarily designated hedges of foreign currency-denominated intercompany royalty payments, marketing contributions, and
other net operational exposures.
(e) As of March 30, 2013, a portion of the previously outstanding Euro Debt's €209 million principal amount was designated as
a hedge of the Company's net investment in certain of its European subsidiaries. The entire principal amount of this hedge
was de-designated prior to the Euro Debt's maturity on October 4, 2013. See Note 15 for a summary of the carrying value and
the estimated fair value of the Euro Debt as of March 30, 2013.
(f) Primarily undesignated hedges of foreign currency-denominated intercompany loans.
(g) $2 million included within prepaid expenses and other current assets and $4 million included within other non-current assets.
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance
sheets on a gross basis, even though they are subject to master netting arrangements. However, if the Company were to offset and
record the asset and liability balances of all of its forward foreign currency exchange contracts on a net basis in accordance with
the terms of each of its master netting arrangements, spread across eight separate counterparties, the amounts presented in the
consolidated balance sheets as of March 29, 2014 and March 30, 2013 would be adjusted from the current gross presentation as
detailed in the following table:
March 29, 2014
Gross Amounts
not Offset in the
Consolidated
Balance Sheet
that are Subject
to Master
Netting
Agreements
Gross Amounts
Presented in
the
Consolidated
Balance Sheet
Gross Amounts
Presented in
the
Consolidated
Balance Sheet
Net
Amount
March 30, 2013
Gross Amounts
not Offset in the
Consolidated
Balance Sheet that
are Subject to
Master Netting
Agreements
Net
Amount
Derivative Instrument
FC — Derivative assets ..............
FC — Derivative liabilities.........
$
$
8
$
(7) $
(1) $
1
$
(millions)
7
$
(6) $
15
$
(5) $
(3) $
3
$
12
(2)
The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties.
Refer to Note 3 for further discussion of the Company's master netting arrangements.
The following tables summarize the pretax impact of the effective portion of gains and losses from the Company's derivative
instruments on its consolidated financial statements for the fiscal years presented:
Gains (Losses)
Recognized in OCI
Fiscal Years Ended
Gains (Losses) Reclassified
from AOCI to Earnings
Fiscal Years Ended
Derivative Instrument
March 29,
2014
March 30,
2013
March 31,
2012
March 29,
2014
March 30,
2013
March 31,
2012
Location of Gains (Losses)
Reclassified from
AOCI to Earnings
Designated Cash Flow Hedges:
FC — Inventory purchases.......
FC — Other ..............................
Designated Hedge of Net
Investment:
Euro Debt(a) ..............................
Total Designated Hedges.......
$
$
$
$
(10) $
—
(10) $
— $
(10) $
21
(1)
20
11
31
$
$
$
$
(millions)
29
5
34
16
50
$
$
$
$
10
—
10
$
$
32
4
36
$
$
— $
10
$
— $
36
$
(2) Cost of goods sold
(3) Foreign currency gains (losses)
(5)
—
(5)
(a) Amounts recognized in OCI relate to remeasurement of the Euro Debt, which was repaid in October 2013, and would be
recognized in earnings only upon the sale or liquidation of the hedged net investment.
During Fiscal 2014, the Company also recorded a foreign currency gain of $2 million associated with the discontinuance
of certain cash flow hedges, as the related forecasted transactions were no longer probable of occurring.
F-31
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of March 29, 2014, it is expected that approximately $5 million of net losses deferred in AOCI related to derivative
financial instruments will be recognized in earnings over the next twelve months. No material gains or losses relating to ineffective
hedges were recognized during any of the fiscal years presented.
The following table summarizes the impact of gains and losses from the Company's undesignated hedge contracts on its
consolidated financial statements for the fiscal years presented:
Derivative Instrument
Undesignated Hedges:
Gains (Losses)
Recognized in Earnings
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
Location of Gains (Losses)
Recognized in Earnings
(millions)
FC — Other.......................................................................................................
Total Undesignated Hedges ...........................................................................
$
$
20
20
$
$
(4) $
(4) $
1
1
Foreign currency gains (losses)
The following is a summary of the Company's risk management strategies and the effect of those strategies on the consolidated
financial statements.
Foreign Currency Risk Management
Forward Foreign Currency Exchange Contracts
The Company primarily enters into forward foreign currency exchange contracts as hedges to reduce its risk from exchange
rate fluctuations on inventory purchases made in an entity's non-functional currency, intercompany royalty payments made by
certain of its international operations, intercompany contributions to fund certain marketing efforts of its international operations,
and other foreign currency-denominated operational cash flows. As part of its overall strategy to manage the level of exposure to
the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the Hong
Kong Dollar, the South Korean Won, and the Australian Dollar, the Company hedges a portion of its foreign currency exposures
anticipated over a two-year period. In doing so, the Company uses foreign currency exchange forward contracts that generally
have maturities of three months to two years to provide continuing coverage throughout the hedging period.
Hedge of Net Investment in Certain European Subsidiaries
Historically, the Company designated the principal amount of its outstanding Euro Debt as a hedge of its net investment in
certain of its European subsidiaries. To the extent designated as a net investment hedge, changes in the Euro Debt's carrying value
resulting from fluctuations in the Euro exchange rate were reported in equity within foreign currency translation gains (losses), a
component of AOCI, as the debt was a highly effective hedge. The Euro Debt was repaid upon its maturity in October 2013.
See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.
F-32
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Investments
The following table summarizes the Company's short-term and non-current investments recorded in the consolidated balance
sheets as of March 29, 2014 and March 30, 2013:
Type of Investment
Available-for-sale:
March 29, 2014
March 30, 2013
Short-term
< 1 year
Non-current
1 - 3 years
Total
Short-term
< 1 year
Non-current
1 - 3 years
Total
(millions)
Government bonds — U.S. ..........................
$
Government bonds — non-U.S....................
Corporate bonds — non-U.S........................
Variable rate municipal securities — U.S....
Auction rate securities(a)...............................
Total available-for-sale investments.......
Other:
Time deposits ...............................................
Total investments ..........................................
$
$
$
1
—
—
—
—
1
487
488
$
$
$
$
— $
—
—
—
2
2
$
— $
2
$
487
490
1
—
—
—
2
3
$
$
$
$
21
67
36
17
—
141
184
325
$
$
$
$
8
25
46
—
2
81
$
29
92
82
17
2
$
222
— $
81
$
184
406
(a) Auction rate securities have characteristics similar to short-term investments. However, the Company has classified
these securities as non-current investments in its consolidated balance sheets as current market conditions call into
question its ability to redeem these investments for cash within the next twelve months.
No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment
charges were recorded in any of the fiscal periods presented. Refer to Note 19 for further detail.
See Note 3 for further discussion of the Company's accounting policies relating to its investments.
17. Commitments and Contingencies
Leases
The Company operates most of its retail stores under various leasing arrangements. The Company also occupies various
office and warehouse facilities and uses certain equipment under numerous lease agreements. Such leasing arrangements are
accounted for as either operating leases or capital leases. In this context, capital leases include leases whereby the Company is
considered to have the substantive risks of ownership during construction of a leased property. Information on the Company's
operating and capital leasing activities is set forth below.
Operating Leases
The Company is typically required to make minimum rental payments, and often contingent rental payments, under its
operating leases. Many of the Company's retail store leases provide for contingent rental payments based upon sales, and certain
rental agreements require payment based solely on a percentage of sales. Terms of the Company's leases generally contain renewal
options, rent escalation clauses, and landlord incentives. Rent expense, net of sublease income, was approximately $455 million,
$430 million, and $427 million in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively. Such amounts include contingent rental
charges of approximately $176 million, $174 million, and $182 million in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively.
In addition to such amounts, the Company is normally required to pay taxes, insurance, and certain occupancy costs relating to
the leased real estate properties.
F-33
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As of March 29, 2014, future minimum rental payments under noncancelable operating leases with lease terms in excess
of one year were as follows:
Minimum Operating
Lease Payments(a)(b)
(millions)
Fiscal 2015...........................................................................................................................................
Fiscal 2016...........................................................................................................................................
Fiscal 2017...........................................................................................................................................
Fiscal 2018...........................................................................................................................................
Fiscal 2019...........................................................................................................................................
Fiscal 2020 and thereafter ...................................................................................................................
Total minimum rental payments........................................................................................................
$
$
336
315
290
271
247
927
2,386
(a) Net of sublease income, which is not significant in any period.
(b)
Includes a $74 million operating lease obligation related to the land portion of the build-to-suit lease agreement for a
new Polo flagship store on Fifth Avenue in New York City entered into in Fiscal 2014, as further described below.
Capital Leases
Assets under capital leases, including build-to-suit leases, amounted to approximately $259 million and $33 million at the
end of Fiscal 2014 and Fiscal 2013, respectively, net of accumulated amortization of approximately $19 million and $16 million,
respectively. Such assets are classified within property and equipment, net in the consolidated balance sheets based on their nature.
As of March 29, 2014, future minimum rental payments under noncancelable capital leases, including build-to-suit leases, with
lease terms in excess of one year were as follows:
Minimum Capital
Lease Payments(a)(b)
(millions)
Fiscal 2015...........................................................................................................................................
Fiscal 2016...........................................................................................................................................
Fiscal 2017...........................................................................................................................................
Fiscal 2018...........................................................................................................................................
Fiscal 2019...........................................................................................................................................
Fiscal 2020 and thereafter ...................................................................................................................
Total...................................................................................................................................................
Less: amount representing interest ......................................................................................................
Present value of net minimum rental payments ................................................................................
$
$
24
24
24
23
23
98
216
(46)
170
(a) Net of sublease income, which is not significant in any period.
(b)
Includes lease payments related to the Company's build-to-suit lease agreement for a new Polo flagship store on Fifth
Avenue in New York City entered into in Fiscal 2014. The total commitment related to this lease is $235 million,
comprised of a $74 million operating lease obligation related to the land portion of the lease (included in the minimum
operating lease payments table above) and a $161 million obligation related to the building portion of the lease (included
in the minimum capital lease payments table above).
Employee Agreements
The Company has employment agreements with certain executives in the normal course of business which provide for
compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances.
F-34
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Commitments
Other off-balance sheet firm commitments amounted to approximately $1.381 billion as of March 29, 2014, including
inventory purchase commitments of approximately $1.106 billion, outstanding letters of credit of approximately $9 million, interest
payments related to the Company's 2.125% Senior Notes of approximately $29 million, and other commitments of approximately
$237 million, comprised of the Company's legally-binding obligations under sponsorship, licensing, and other marketing and
advertising agreements, distribution-related agreements, information technology-related service agreements, and pension-related
obligations.
Litigation
Wathne Imports Litigation
On August 19, 2005, Wathne Imports, Ltd. ("Wathne"), the Company's then domestic licensee for luggage and handbags,
filed a complaint in the U.S. District Court in the Southern District of New York against the Company and Mr. Ralph Lauren, its
Chairman and Chief Executive Officer, asserting, among other things, federal trademark law violations, breach of contract, breach
of obligations of good faith and fair dealing, fraud, and negligent misrepresentation. The complaint originally sought, among other
relief, injunctive relief, compensatory damages in excess of $250 million, and punitive damages of not less than $750 million. On
September 13, 2005, Wathne withdrew this complaint from the U.S. District Court and filed a complaint in the Supreme Court of
the State of New York, New York County, making substantially the same allegations and claims (excluding the federal trademark
claims), and seeking similar relief. On February 1, 2006, the Court granted the Company's motion to dismiss all of the causes of
action, including the cause of action against Mr. Lauren, except for breach of contract related claims, and denied Wathne's motion
for a preliminary injunction. Following some discovery, the Company moved for summary judgment on the remaining claims and
Wathne cross-moved for partial summary judgment. In an April 11, 2008 Decision and Order, the Court granted the Company's
summary judgment motion to dismiss most of the claims against the Company, and denied Wathne's cross-motion for summary
judgment. Wathne appealed the dismissal of its claims to the Appellate Division of the Supreme Court. Following a hearing on
May 19, 2009, the Appellate Division issued a Decision and Order on June 9, 2009 which, in large part, affirmed the lower Court's
ruling. Since then, Wathne has made various attempts to expand the scope of its claim and the damages sought by making various
motions and pursuing several intermediate appeals.
At this time, Wathne's principle remaining claim is that the Company required that Wathne discontinue the use of the Polo
Sport brand on handbags in violation of its contract. A trial date has not been scheduled and the Company intends to continue to
contest the remaining claims and dispute any alleged damages in this lawsuit vigorously. Management does not expect that the
ultimate resolution of this matter will have a material adverse effect on the Company's consolidated financial statements.
Other Matters
The Company is otherwise involved, from time to time, in litigation, other legal claims, and proceedings involving matters
associated with or incidental to its business, including, among other things, matters involving credit card fraud, trademark and
other intellectual property, licensing, and employee relations. The Company believes that the resolution of currently pending
matters will not individually or in the aggregate have a material adverse effect on its financial statements. However, the Company's
assessment of the current litigation or other legal claims could change in light of the discovery of facts not presently known or
determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible
liability or outcome of such litigation or claims.
In the normal course of business, the Company enters into agreements that provide general indemnifications. The Company
has not made any significant indemnification payments under such agreements in the past, and does not currently anticipate
incurring any material indemnification payments.
18. Equity
Capital Stock
The Company's capital stock consists of two classes of common stock. There are 500 million shares of Class A common
stock and 100 million shares of Class B common stock authorized to be issued. Shares of Class A and Class B common stock have
substantially identical rights, except with respect to voting rights. Holders of Class A common stock are entitled to one vote per
F-35
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
share and holders of Class B common stock are entitled to ten votes per share. Holders of both classes of stock vote together as a
single class on all matters presented to the stockholders for their approval, except with respect to the election and removal of
directors or as otherwise required by applicable law. All outstanding shares of Class B common stock are owned by Mr. Ralph
Lauren, the Company's Chairman of the Board and Chief Executive Officer, and entities controlled by the Lauren family, and are
convertible at any time into shares of Class A common stock on a one-for-one basis.
Class B Common Stock Conversions
During the fourth quarter of Fiscal 2014, Mr. Lauren converted 3.0 million shares of Class B common stock into an equal
number of shares of Class A common stock pursuant to the terms of the security, which were subsequently sold in a block trade.
During the third quarter of Fiscal 2013, the Lauren Family, L.L.C., a limited liability company managed by the children of
Mr. Lauren, converted 950,000 shares of Class B common stock into an equal number of shares of Class A common stock pursuant
to the terms of the security, which were subsequently sold on the open market as part of a pre-determined, systematic trading plan.
These transactions resulted in reclassifications within equity, and had no other effect on the Company's consolidated balance
sheets.
Common Stock Repurchase Program
A summary of the Company's repurchases of Class A common stock under our common stock repurchase program is
presented below:
Cost of shares repurchased................................................................................. $
Number of shares repurchased...........................................................................
(in millions)
548 (a) $
3.2 (a)
450
3.0
$
395
3.2
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
(a) Includes a $50 million payment made in March 2013 under a share repurchase program with a third-party financial
institution, in exchange for the right to receive shares of the Company's Class A common stock at the conclusion of the
93-day repurchase term. The $50 million prepayment was recorded as a reduction to additional paid-in capital in the
Company's consolidated balance sheet as of March 30, 2013. The related 0.3 million shares were delivered to the Company
during Fiscal 2014, based on the volume-weighted average market price of the Company's Class A common stock over
the 93-day repurchase term, less a discount.
As of March 29, 2014, the remaining availability under the Company's Class A common stock repurchase program was
approximately $580 million, reflecting the February 4, 2014 approval by the Company's Board of Directors to expand the program
by up to an additional $500 million of Class A common stock repurchases. Repurchases of shares of Class A common stock are
subject to overall business and market conditions.
In addition, during Fiscal 2014, Fiscal 2013, and Fiscal 2012, 0.4 million, 0.4 million, and 0.2 million shares of Class A
common stock, respectively, at a cost of $60 million, $47 million, and $24 million, respectively, were surrendered to, or withheld
by, 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 Incentive Plan"), and its Amended and Restated 2010 Long-Term Stock Incentive
Plan (the "2010 Incentive Plan").
Repurchased and surrendered shares are accounted for as treasury stock at cost and held in treasury for future use.
Dividends
Since 2003, the Company has maintained a regular quarterly cash dividend program on its common stock. On May 21,
2012, the Company's Board of Directors approved an increase in the Company's quarterly cash dividend on its common stock
from $0.20 per share to $0.40 per share. On November 5, 2013, the Company's Board of Directors approved a further increase to
F-36
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
the Company's quarterly cash dividend on its common stock from $0.40 per share to $0.45 per share. Dividends paid amounted
to $149 million, $128 million, and $74 million in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively.
Conversion of Stock-based Compensation Awards
In connection with the formation of the Office of the Chairman, the Company entered into employment agreements with
certain of its executive officers, which became effective during Fiscal 2014, and converted certain fully-vested and expensed stock-
based compensation awards to a cash contribution into a deferred compensation account. The Company recorded the excess of
these awards' then current redemption value over their original grant-date fair value to retained earnings, with a corresponding
increase to other non-current liabilities in the Company's consolidated balance sheet.
19. Accumulated Other Comprehensive Income
The following table presents the components of other comprehensive income (loss), net of tax, accumulated in equity:
Foreign
Currency
Translation
Gains (Losses)
Net Unrealized
Gains (Losses)
on Derivative
Financial
Instruments (a)
Net Unrealized
Gains (Losses)
on Available-
for-Sale
Investments(b)
Net Unrealized
Gains (Losses)
on Defined
Benefit Plans(b)
Total
Accumulated
Other
Comprehensive
Income (Loss)
(millions)
Balance at April 2, 2011 ................
$
216
$
4
$
— $
(4) $
216
Other comprehensive income
(loss), net of tax: .............................
OCI before reclassifications ..........
Amounts reclassified from AOCI
to earnings .................................
Other comprehensive income
(loss), net of tax .........................
Balance at March 31, 2012............
Other comprehensive income
(loss), net of tax: .............................
OCI before reclassifications ..........
Amounts reclassified from AOCI
to earnings .................................
Other comprehensive income
(loss), net of tax .........................
Balance at March 30, 2013............
Other comprehensive income
(loss), net of tax: .............................
OCI before reclassifications ..........
Amounts reclassified from AOCI
to earnings .................................
Other comprehensive income
(loss), net of tax .........................
Balance at March 29, 2014............
$
(50) (c)
—
(50)
166
(93) (c)
—
(93)
73
52 (c)
—
52
125
29
3
32
36
19
(32)
(13)
23
(20)
(7)
(27)
1
—
1
1
4
—
4
5
(4)
(1)
(5)
(2)
—
(2)
(6)
(1)
—
(1)
(7)
—
—
—
$
(4) $
— $
(7) $
(22)
3
(19)
197
(71)
(32)
(103)
94
28
(8)
20
114
(a) OCI before reclassifications to earnings for Fiscal 2013 and Fiscal 2012 are net of tax provisions of $1 million and $5
million, respectively. The tax effect for Fiscal 2014 activity was not material. The tax effects on amounts reclassified
to earnings are presented in a table below.
(b) All amounts are presented net of taxes, which are not material.
(c) Foreign currency translation gains (losses) include tax provisions of $2 million, $3 million, and $4 million for Fiscal
2014, Fiscal 2013, and Fiscal 2012, respectively.
F-37
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents reclassifications from AOCI to earnings, by component:
Fiscal Year Ended
March 29,
2014
March 30,
2013
(millions)
March 31,
2012
Location of Gains (Losses)
Reclassified from AOCI to Earnings
Gains (losses) on derivative financial
instruments(a):
FC — Inventory purchases ...............................
$
FC — Other ......................................................
Tax effect ..........................................................
$
10
—
(3)
Net of tax .....................................................
$
7
$
Gains on available-for-sale securities:
Sales of available-for-sale securities ................
Tax effect ..........................................................
Net of tax .....................................................
$
$
1
—
1
$
$
(a) FC = Forward foreign currency exchange contracts.
32
4
(4)
32
$
$
— $
—
— $
(2) Cost of goods sold
(3) Foreign currency gains (losses)
2 Provision for income taxes
(3)
— Interest and other income, net
— Provision for income taxes
—
20.
Stock-based Compensation
Long-term Stock Incentive Plans
The Company's stock-based compensation awards are currently issued under the 2010 Incentive Plan, which was approved
by its stockholders on August 5, 2010. However, any prior awards granted under the1997 Incentive Plan remain subject to the
terms of that plan. Any awards that expire, are forfeited, or are surrendered to the Company in satisfaction of taxes are available
for issuance under the 2010 Incentive Plan. On September 24, 2013, the Company registered with the SEC an additional 1.7 million
shares of its Class A common stock for issuance pursuant to the 2010 Incentive Plan. As of March 29, 2014, 3.8 million shares
remained available for future issuance under the Company's incentive plans.
Equity awards that may be made under the Company's incentive plans include, but are not limited to, (i) stock options,
(ii) restricted stock, and (iii) restricted stock units ("RSUs").
Impact on Results
A summary of the total expense and the associated income tax benefits recognized related to stock-based compensation
arrangements is as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Compensation expense .....................................................
Income tax benefit ............................................................
$
$
93 (a) $
(34)
$
$
88
(29) $
78
(26)
(a)
Includes approximately $10 million of accelerated stock-based compensation expense recorded within restructuring
and other charges in the consolidated statement of income for Fiscal 2014 (see Note 12). All other stock-based
compensation expense is recorded within SG&A expenses.
F-38
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options
Stock options are granted to employees and non-employee directors with exercise prices equal to the fair market value of
the Company's Class A common stock on the date of grant. Options generally become exercisable ratably (graded-vesting schedule)
over a three-year vesting period, subject to continuing employment. Stock options expire seven years from 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 of both subjective and objective assumptions including the following:
Expected Term — The estimate of expected term is based on the historical exercise behavior of employees and non-employee
directors, 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 a period 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 (i) $0.20 per
share for grants made during and after the fourth quarter of Fiscal 2011, but prior to the first quarter of Fiscal 2013, (ii) $0.40 per
share for grants made during and after the first quarter of Fiscal 2013, but prior to the third quarter of Fiscal 2014, and (iii) $0.45
per share for grants made during and after the third quarter of Fiscal 2014.
Risk-free Interest Rate — The risk-free interest rate is determined using the implied yield for a traded zero-coupon
U.S. Treasury bond 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
years presented were as follows:
Expected term (years)..............................................................
Expected volatility...................................................................
Expected dividend yield ..........................................................
Risk-free interest rate ..............................................................
Weighted-average option grant date fair value........................
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
4.2
32.9%
0.98%
1.1%
$45.83
4.5
44.3%
1.05%
0.6%
$47.89
4.7
44.7%
0.72%
1.3%
$49.13
A summary of stock option activity during Fiscal 2014 is as follows:
Options outstanding at March 30, 2013 ..................................
Granted..................................................................................
Exercised ...............................................................................
Cancelled/Forfeited ...............................................................
Options outstanding at March 29, 2014 ..................................
Options vested and expected to vest at March 29, 2014(b).........
Options exercisable at March 29, 2014 ...................................
Weighted-
Average
Exercise Price
Number of
Shares
(thousands)
2,954
$
840
(673)
(95)
3,026
2,965
1,804
$
$
$
91.26
179.45
78.18
155.44
116.66
115.49
85.06
Weighted-
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value(a)
(millions)
4.1
$
231
4.1
4.1
3.0
$
$
$
143
143
134
(a) Aggregate intrinsic value is the amount by which the market price of Class A common stock at the end of the period
exceeds the exercise price of the stock option, multiplied by the number of options.
(b) The number of options expected to vest takes into consideration expected forfeitures.
F-39
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Additional information pertaining to the Company's stock option plans is as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Aggregate intrinsic value of stock options exercised(a) ...........
Cash received from the exercise of stock options...................
Tax benefits realized on exercise ............................................
$
$
63
52
24
$
76
49
29
101
61
36
(a) Aggregate intrinsic value is the amount by which the market price of Class A common stock exceeded the stock option's
exercise price when exercised, multiplied by the number of options.
As of March 29, 2014, there was $23 million of total unrecognized compensation expense related to nonvested stock options
granted expected to be recognized over a weighted-average period of 1.4 years.
Service-based RSUs and Restricted Stock Awards
The Company grants service-based RSUs to certain of its senior executives and restricted shares of Class A common stock
to its non-employee directors.
Service-based RSUs granted to executives generally vest over a three to five-year period, subject to the executive's continuing
employment. The fair values of service-based RSUs are based on the fair value of the Company's Class A common stock on the
date of grant, adjusted to reflect the absence of dividends for restricted securities not entitled to dividend equivalents.
Restricted shares granted to non-employee directors vest ratably over a three-year period and are accounted for at fair value
on the date of grant. Holders of restricted shares are entitled to receive cash dividends in connection with the payments of dividends
on the Company's Class A common stock.
A summary of restricted stock and service-based RSU activity during Fiscal 2014 is as follows:
Restricted
Stock
Service-
based RSUs
Number of
Shares
(thousands)
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
(thousands)
Weighted-
Average
Grant Date
Fair Value
Nonvested at March 30, 2013..................................................
Granted..................................................................................
Vested....................................................................................
Forfeited ................................................................................
Nonvested at March 29, 2014..................................................
5
$
3
(3)
—
134.28
164.76
118.57
—
5
$
159.71
98
$
79.52
—
(88)
(3)
7
$
—
71.07
154.55
145.88
Total unrecognized compensation at March 29, 2014 (millions)....................
Weighted-average period expected to be recognized over (years)..................
$
$
0.2
1.5
0.3
1.3
Restricted
Stock
Service-
based RSUs
F-40
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Additional information pertaining to restricted stock and service-based RSU activity is as follows:
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
Restricted Stock:
Weighted-average grant date fair value of awards granted...
Total fair value of awards vested (millions)..........................
Service-based RSUs:
Weighted-average grant date fair value of awards granted...
Total fair value of awards vested (millions)..........................
$
$
$
164.76
1
$
$
173.33
1
N/A $
16
$
150.17
22
$
$
N/A
N/A
140.86
15
Performance-based RSUs
The Company grants performance-based RSUs to senior executives and other key executives, as well as certain of its other
employees. Performance-based RSUs generally vest (i) upon the completion of a three-year period of time (cliff vesting), subject
to the employee's continuing employment and the Company's achievement of certain performance goals established at the beginning
of the three-year performance period or (ii) ratably, over a three-year period of time (graded vesting), subject to the employee's
continuing employment during the applicable vesting period and the achievement by the Company of certain performance goals
in the initial year of the three-year vesting period. For performance-based RSUs subject to cliff vesting, the number of shares that
may be earned ranges between 0% (if the specified threshold performance level is not attained) and 150% (if performance meets
or exceeds the maximum achievement level) of the awards originally granted. If actual performance exceeds the pre-established
threshold, the number of shares earned is calculated based on the relative performance between specified levels of achievement.
Beginning in July 2012, certain of the cliff vesting performance-based RSU awards granted by the Company, in addition
to being subject to continuing employment requirements and the Company's performance goals noted above, are also subject to a
market condition in the form of a total shareholder return ("TSR") modifier. The actual number of shares that vest at the end of
the respective three-year period is determined based on the Company's achievement of the three-year performance goals described
above, as well as its TSR relative to the S&P 500 over the related three-year performance period. At the end of the three-year
performance period, if the performance condition is achieved at or above the pre-established threshold, the number of shares earned
is further adjusted by a TSR modifier payout percentage, which ranges between 75% and 125%, based on the Company's TSR
performance relative to that of the S&P 500 index over the respective three-year period. Depending on the total level of achievement,
the actual number of shares that vest for performance-based RSU awards with a TSR modifier may range from 0% to 187.5% of
the awards originally granted.
The fair value of the Company's performance-based RSUs that are not subject to a TSR modifier is based on the fair value
of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for those securities that
are not entitled to dividend equivalents. The fair value of the Company's performance-based RSUs with a TSR modifier is determined
on the date of grant using a Monte Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate the
probability of the Company achieving various stock price levels to determine its expected TSR performance ranking. The
assumptions used to estimate the fair value of performance-based RSUs with a TSR modifier granted during the fiscal years ended
March 29, 2014 and March 30, 2013 were as follows:
Expected term (years)................................................................................
Expected volatility.....................................................................................
Expected dividend yield ............................................................................
Risk-free interest rate ................................................................................
Weighted-average grant date fair value.....................................................
Fiscal Year Ended
March 29,
2014
March 30,
2013
2.9
32.6%
0.98%
0.4%
$169.14
3.0
34.0%
1.13%
0.3%
$136.16
F-41
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of performance-based RSU without TSR Modifier and performance-based RSU with TSR Modifier activity
during Fiscal 2014 is as follows:
Performance-based
RSUs — without TSR Modifier
Performance-based
RSUs — with TSR Modifier
Number of
Shares
(thousands)
Weighted-
Average
Grant Date
Fair Value
Number of
Shares
(thousands)
Nonvested at March 30, 2013....................................................
Granted....................................................................................
Change due to performance/market condition achievement...
Vested......................................................................................
Forfeited ..................................................................................
Nonvested at March 29, 2014....................................................
1,015
$
307
141
(627)
(38)
798
$
112.80
171.93
76.33
85.79
141.80
148.93
73
78
—
—
(6)
145
Weighted-
Average
Grant Date
Fair Value
$
136.16
169.14
—
—
150.32
$
153.29
Total unrecognized compensation at March 29, 2014 (millions) ...................
Weighted-average period expected to be recognized over (years).................
$
$
41
1.5
9
1.9
Performance-based
RSUs — without TSR
Modifier
Performance-based
RSUs — with TSR
Modifier
Additional information pertaining to performance-based RSU without TSR Modifier and performance-based RSU with
TSR Modifier activity is as follows:
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
Performance-based RSUs — without TSR Modifier:
Weighted-average grant date fair value of awards granted...
Total fair value of awards vested (millions)..........................
Performance-based RSUs — with TSR Modifier:
Weighted-average grant date fair value of awards granted...
Total fair value of awards vested (millions)..........................
$
$
$
$
171.93
109
169.14
$
$
$
— $
137.45
106
$
$
136.16
—
124.43
56
N/A
N/A
21. Employee Benefit Plans
Profit Sharing Retirement Savings Plans
The Company sponsors defined contribution benefit plans covering substantially all eligible employees in the U.S. and
Puerto Rico who are not covered by a collective bargaining agreement. The plans include a savings plan feature under Section
401(k) of the Internal Revenue Code. The Company makes discretionary matching contributions to the plans, which historically
were equal to 50% of the first 6% of salary contributed by an eligible employee. On November 7, 2011, the Company's Board of
Directors approved a supplemental discretionary matching contribution for plan years beginning with Fiscal 2012, whereby if the
Company achieves a "stretch" or a "maximum" performance target based on certain goals established at the beginning of each
fiscal year, the matching contribution will be increased to 75% or 100%, respectively, of the first 6% of salary contributed by
eligible employees, not to exceed the maximum contribution permitted by the plan.
Under the terms of the plans, a participant becomes 100% vested in the Company's matching contributions after five years
of credited service. Contributions made by the Company under these plans were approximately $10 million in each of Fiscal 2014,
Fiscal 2013, and Fiscal 2012.
F-42
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
International Defined Benefit Plans
The Company sponsors certain single-employer defined benefit plans and cash balance plans at international locations
which are not considered to be material individually or in the aggregate to the Company's financial statements. Pension benefits
under these plans are based on formulas that reflect the employees' years of service and compensation levels during their employment
period. The aggregate funded status of the single-employer defined benefit plans reflected net assets of $1 million and net liabilities
of $2 million as of March 29, 2014 and March 30, 2013, respectively, and were primarily recorded within other non-current assets
and other non-current liabilities, respectively, in the Company's consolidated balance sheets. These single-employer defined benefit
plans had aggregate projected benefit obligations of $51 million and aggregate fair values of plan assets of $52 million as of March
29, 2014, compared to aggregate projected benefit obligations of $45 million and aggregate fair values of plan assets of $43 million
as of March 30, 2013. The asset portfolio of the single-employer defined benefit plans primarily consists of fixed income securities,
which have been measured at fair value largely using Level 2 inputs, as described in Note 15. Pension expense for these plans,
recorded within SG&A expenses in the Company's consolidated statements of income, was $5 million, $4 million, and $5 million
in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively.
Union Pension Plan
The Company participates in a multi-employer pension plan and is required to make contributions to the Workers United
union (which was previously known as UNITE HERE) (the "Union") for dues based on wages paid to union employees. A portion
of these dues is allocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers.
The Company does not 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.
Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or
termination of a multi-employer plan, is required to continue funding its proportionate share of the plan's unfunded vested benefits.
Such liability was assumed in conjunction with the acquisition of certain assets from a non-affiliated licensee. The Company has
no current intention of withdrawing from the plan.
Other Compensation Plans
The Company has a non-qualified supplemental retirement plan for certain highly compensated employees whose benefits
under the 401(k) profit sharing retirement savings plans were 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. Effective August 2008, the Company amended this plan, resulting in a suspension of the annual contributions
for substantially all plan participants. Further, affected participants were provided with a one-time election to either withdraw all
benefits vested in the plan in a lump sum amount or remain in the plan and receive future distributions of benefits vested over a
three-year period. As of both March 29, 2014 and March 30, 2013, amounts accrued under this plan totaled approximately $9
million and were classified within other non-current liabilities in the consolidated balance sheets. Total compensation expense
recognized related to these benefits was not material in each of the three fiscal years presented.
Additionally, the Company has deferred compensation arrangements for certain key executives which generally provide
for payments upon retirement, death, or termination of employment. The amounts accrued under these plans were approximately
$20 million and $3 million as of March 29, 2014 and March 30, 2013, respectively, and were classified within other non-current
liabilities in the consolidated balance sheets. The March 29, 2014 balance reflects the conversion of certain executive stock-based
compensation awards to a cash contribution into a deferred compensation account (see Note 18). Total compensation expense
related to these compensation arrangements was not material in each of the three fiscal years presented. The Company funds a
portion of these obligations through the establishment of trust accounts on behalf of the executives participating in the plans. The
trust accounts are classified within other non-current assets in the consolidated balance sheets.
F-43
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22.
Segment Information
The Company has three reportable segments based on its business activities and organization: Wholesale, Retail, and
Licensing. These segments offer a variety of products through different channels of distribution. The Wholesale segment consists
of women's, men's, and children's apparel, accessories, home furnishings, and related products which are sold to major department
stores, specialty stores, golf and pro shops, and the Company's owned, licensed, and franchised retail stores in the U.S. and overseas.
The Retail segment consists of the Company's integrated worldwide retail operations, which sell products through its retail stores,
its concession-based shop-within-shops, and its e-commerce sites, which are purchased from the Company's licensees, suppliers,
and Wholesale segment. The Licensing segment generates revenues from royalties earned on the sale of the Company's apparel,
home, and other products internationally and domestically through licensing alliances. The licensing agreements grant the licensees
rights to use the Company's various trademarks in connection with the manufacture and sale of designated products in specified
geographic areas for specified periods.
The accounting policies of the Company's segments are consistent with those described in Notes 2 and 3. Sales and transfers
between segments are generally recorded at cost and treated as transfers of inventory. All intercompany revenues, including such
sales between segments, are eliminated in consolidation and are not reviewed when evaluating segment performance. Each
segment's performance is evaluated based upon operating income before restructuring charges and certain other one-time items,
such as legal charges, if any. Certain corporate overhead expenses related to global functions (including expenses for senior
management, overall brand-related expenses, and certain other corporate-related expenses) remain at corporate, while others are
allocated to the segments based upon specific usage or other allocation methods, as appropriate.
Net revenues for each of the Company's reportable segments are as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Net revenues:
Wholesale .....................................................................
Retail.............................................................................
Licensing.......................................................................
Total net revenues(a).................................................
$
$
3,486
3,798
166
7,450
$
$
3,138
3,625
182
6,945
$
$
3,247
3,432
181
6,860
(a) The Company's sales to its largest wholesale customer, Macy's, accounted for approximately 12% of its total net revenues
in Fiscal 2014 and Fiscal 2013, and approximately 10% of its total net revenues in Fiscal 2012.
During the fourth quarter of Fiscal 2014, the Company changed the manner in which it allocates certain costs for management
reporting due to strategic changes it implemented to globalize certain functions that will position the Company for future growth.
These changes included realigning certain costs between segments and retaining other costs at the corporate level for certain of
the Company's global functions. Management believes these changes allow for a better representation of segment operations and
are aligned with how segment performance is assessed. As a result of these changes, the Company determined that it is more
appropriate to retain certain previously allocated corporate expenses within its unallocated corporate expenses. This expense
realignment did not result in a change to the Company's reportable segments. All prior period segment information has been recast
to reflect the change in the Company's segment measurement on a comparable basis. This recast had no impact on the Company's
segment net revenues or on its consolidated financial statements in any fiscal period.
F-44
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Operating income for each of the Company's reportable segments, which has been recast to reflect the fourth quarter Fiscal
2014 change in segment measurement, is as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Operating income:
Wholesale(a) ..........................................................................
Retail(b)..................................................................................
Licensing(c)............................................................................
Unallocated corporate expenses ...........................................
Gain on acquisition of Chaps(d) ............................................
Unallocated restructuring and other charges, net(e)...............
Total operating income....................................................
$
$
963
572
150
1,685
(553)
16
(18)
1,130
$
$
903
615
152
1,670
(531)
—
(12)
1,127
$
$
835
553
149
1,537
(486)
—
(12)
1,039
(a) During Fiscal 2014 and Fiscal 2013, the Company recorded non-cash impairment charges of approximately $1 million
and $2 million, respectively, to write-off certain fixed assets related to its European wholesale operations. See Note 11
for additional information.
(b) During Fiscal 2013, the Company recorded non-cash asset impairment charges of $15 million to write down certain
long-lived assets, primarily in connection with the Rugby Closure Plan and certain underperforming stores in Europe.
Fiscal 2012 included asset impairment charges of $2 million primarily to reduce the net carrying values of certain retail
stores' long-lived assets to their estimated fair values. See Notes 11 and 12 for additional information.
(c) During Fiscal 2013, the Company recorded non-cash asset impairment charges of $2 million related to the write-off of
certain intangible assets in connection with the Rugby Closure Plan. See Notes 11 and 12 for additional information.
(d) See Note 5 for further discussion of the gain on acquisition of Chaps.
(e) The fiscal years presented included certain unallocated restructuring and other charges (See Note 12), which are detailed
below:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Restructuring and other charges, net:
Restructuring charges, net:
Wholesale-related...............................................................
Retail-related ......................................................................
Corporate operations-related ..............................................
Unallocated restructuring charges, net..................................
Other charges(a) .....................................................................
Total unallocated restructuring and other charges, net............
$
$
— $
—
(8)
(8)
(10)
(18) $
(1) $
(10)
(1)
(12)
—
(12) $
(5)
(6)
(1)
(12)
—
(12)
(a) See Note 12 for a description of accelerated stock-based compensation expense recorded during Fiscal 2014.
F-45
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the Company's quarterly reportable segment operating income, which has been recast to
reflect the fourth quarter Fiscal 2014 change in segment measurement, for the first three quarters of Fiscal 2014.
Operating income:
Wholesale .............................................................................
Retail.....................................................................................
Licensing...............................................................................
Unallocated corporate expenses ...........................................
Gain on acquisition of Chaps(a).............................................
Unallocated restructuring and other charges, net(b) ..............
Total operating income ....................................................
June 29,
2013
Three Months Ended
September 28,
2013
(millions)
December 28,
2013
207
165
35
407
(147)
16
—
276
243
135
40
418
(121)
—
(2)
295
217
221
40
478
(130)
—
(14)
334
(a) See Note 5 for further discussion of the gain on acquisition of Chaps.
(b) Primarily includes severance and benefit costs associated with restructuring of the Company's corporate operations, as
well as $10 million of accelerated stock-based compensation expense recorded during the three months ended December
28, 2013 (see Note 12).
The following tables summarize the Company's depreciation and amortization expense and capital expenditures for each
of its reportable segments, which have been recast to reflect the fourth quarter Fiscal 2014 change in segment measurement, with
no impact on total costs:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
66
$
67
$
125
—
67
116
2
48
258
$
233
$
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
53
$
39
$
252
1
84
158
—
79
390
$
276
$
64
115
1
45
225
83
135
—
54
272
$
$
$
$
Depreciation and amortization:
Wholesale..............................................................................
Retail .....................................................................................
Licensing ...............................................................................
Unallocated corporate ...........................................................
Total depreciation and amortization...................................
Capital expenditures:
Wholesale..............................................................................
Retail .....................................................................................
Licensing ...............................................................................
Unallocated corporate ...........................................................
Total capital expenditures.................................................
F-46
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes total assets for each of the Company's reportable segments, which have been recast to
reflect the fourth quarter Fiscal 2014 change in segment measurement, with no impact on the Company's total assets:
Total assets:
Wholesale .............................................................................................................
Retail ....................................................................................................................
Licensing ..............................................................................................................
Corporate ..............................................................................................................
Total assets.......................................................................................................
$
$
March 29,
2014
March 30,
2013
(millions)
2,663
$
2,334
198
895
6,090
$
2,166
1,921
229
1,102
5,418
Net revenues and long-lived assets by geographic location of the reporting subsidiary are as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Net revenues:
The Americas(a),(b) ................................................................
Europe(a) ...............................................................................
Asia(c) ...................................................................................
Total net revenues.............................................................
$
$
4,983
$
4,586
$
1,580
887
1,447
912
7,450
$
6,945
$
4,403
1,487
970
6,860
Long-lived assets:
The Americas(a),(b) ................................................................................................
Europe(a) ...............................................................................................................
Asia(c) ...................................................................................................................
Total long-lived assets......................................................................................
$
$
March 29,
2014
March 30,
2013
(millions)
$
966
172
184
1,322
$
582
182
168
932
(a) Net revenues and long-lived assets for certain of the Company's licensed operations are included within the geographic
location of the reporting subsidiary which holds the respective license.
(b)
(c)
Includes the U.S., Canada, and Latin America. Net revenues earned in the U.S. during Fiscal 2014, Fiscal 2013, and
Fiscal 2012 were $4.744 billion, $4.388 billion, and $4.273 billion, respectively. Long-lived assets located in the U.S.
were $948 million and $567 million as of March 29, 2014 and March 30, 2013, respectively.
Includes Australia, China, Hong Kong, Japan, Macau, Malaysia, New Zealand, the Philippines, Singapore, South Korea,
Taiwan, Thailand, and Vietnam.
F-47
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23. Additional Financial Information
Cash Interest and Taxes
Cash paid for interest and income taxes is as follows:
March 29,
2014
Fiscal Years Ended
March 30,
2013
(millions)
March 31,
2012
Cash paid for interest ..............................................................
Cash paid for income taxes .....................................................
$
$
20
302
$
$
18
339
$
$
24
189
Non-cash Transactions
Significant non-cash investing activities included the capitalization of fixed assets and recognition of related obligations in
the net amount of $45 million, $53 million, and $45 million in Fiscal 2014, Fiscal 2013, and Fiscal 2012, respectively. In addition,
the Company recorded an asset as construction in progress and a corresponding capital lease obligation of $230 million within its
consolidated balance sheet in connection with a new lease for a new Polo flagship store in New York City, upon taking possession
of the property in July 2013 (See Note 17).
Significant non-cash activities in Fiscal 2014 also included the $16 million gain recorded in connection with the Chaps
Menswear License Acquisition in April 2013 (See Note 5).
Significant non-cash financing activities included the conversions of 3.0 million shares and 950,000 shares of Class B
common stock into an equal number of shares of Class A common stock during Fiscal 2014 and Fiscal 2013, respectively, as
described further in Note 18.
There were no other significant non-cash investing or financing activities for the fiscal years presented.
F-48
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Ralph Lauren Corporation is responsible for the preparation, objectivity, and integrity of the consolidated
financial statements and other information contained in this Annual Report. The consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States and include some amounts that are
based on management's informed judgments and best estimates.
These consolidated financial statements have been audited by Ernst & Young LLP in Fiscal 2014, Fiscal 2013, and Fiscal
2012, which is an independent registered public accounting firm. They conducted their audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States) and have expressed herein their unqualified 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 the Board of Directors, consists solely of independent directors, meets with the independent registered accountants, internal
auditors, and management periodically to review their respective activities and the discharge of their respective responsibilities.
Both the independent registered public accountants and the internal auditors have unrestricted access to the Audit Committee,
with or without management, to discuss the scope and results of their audits and any recommendations regarding the system of
internal controls.
May 15, 2014
/S/ RALPH LAUREN
Ralph Lauren
Chairman and Chief Executive Officer
/S/ CHRISTOPHER H. PETERSON
Christopher H. Peterson
Executive Vice President, Chief Administrative Officer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
F-49
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ralph Lauren Corporation
We have audited the accompanying consolidated balance sheets of Ralph Lauren Corporation and subsidiaries (the
"Company") as of March 29, 2014 and March 30, 2013, and the related consolidated statements of income, comprehensive income,
equity, and cash flows for each of the three years in the period ended March 29, 2014. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial
position of Ralph Lauren Corporation and subsidiaries at March 29, 2014 and March 30, 2013, and the consolidated results of
their operations and their cash flows for each of the three years in the period ended March 29, 2014, 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), the Company's internal control over financial reporting as of March 29, 2014, based on criteria established in Internal
Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("1992
framework") and our report dated May 15, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
May 15, 2014
F-50
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Ralph Lauren Corporation
We have audited Ralph Lauren Corporation and subsidiaries' (the "Company's") internal control over financial reporting
as of March 29, 2014, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("1992 framework"). The Company's management is responsible for
maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
March 29, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States),
the consolidated balance sheets of the Company as of March 29, 2014 and March 30, 2013, and the related consolidated statements
of income, comprehensive income, equity and cash flows for each of the three years in the period ended March 29, 2014 of the
Company, and our report dated May 15, 2014 expressed an unqualified opinion thereon.
/s/ ERNST & YOUNG LLP
New York, New York
May 15, 2014
F-51
RALPH LAUREN CORPORATION
SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial information as of the dates and for the periods indicated.
The consolidated statement of income data for each of the three fiscal years in the period ended March 29, 2014 as well as
the consolidated balance sheet data as of March 29, 2014 and March 30, 2013 have been derived from, and should be read in
conjunction with, the audited financial statements, footnotes and other financial information presented elsewhere herein. The
consolidated statements of income data for the fiscal years ended April 2, 2011 and April 3, 2010 and the consolidated balance
sheet data at March 31, 2012, April 2, 2011, and April 3, 2010 have been derived from audited financial statements not included
herein. Capitalized terms are as defined and described in the consolidated financial statements or elsewhere herein. The historical
results are not necessarily indicative of the results to be expected in any future period.
Statement of Income Data:
Net revenues:
Net sales ..................................................................
Licensing revenues..................................................
Net revenues ..............................................................
Gross profit................................................................
Depreciation and amortization expense.....................
Impairments of assets ................................................
Restructuring and other charges ................................
Operating income ......................................................
Interest expense, net ..................................................
Net income.................................................................
Net income per common share:
Basic........................................................................
Diluted.....................................................................
Weighted average common shares outstanding:
Basic........................................................................
Diluted.....................................................................
Dividends declared per common share......................
Fiscal Years Ended(a)
March 29,
2014(b)
March 30,
2013(c)
March 31,
2012
April 2,
2011(d)
April 3,
2010(e)
(millions, except per share data)
$
7,284
$
6,763
$
6,679
$
5,482
$
4,796
166
7,450
4,310
(258)
(1)
(18)
1,130
(17)
776
8.55
8.43
90.7
92.0
1.70
$
$
$
$
182
6,945
4,156
(233)
(19)
(12)
1,127
(16)
750
8.21
8.00
91.3
93.7
1.60
$
$
$
$
181
6,860
3,998
(225)
(2)
(12)
1,039
(13)
681
7.35
7.13
92.7
95.5
0.80
$
$
$
$
178
5,660
3,318
(194)
(3)
(3)
845
(11)
568
5.91
5.75
96.0
98.7
0.50
$
$
$
$
183
4,979
2,899
(181)
(7)
(7)
707
(10)
480
4.85
4.73
98.9
101.3
0.30
$
$
$
$
(a) The fiscal year ended April 3, 2010 consisted of 53 weeks. All other fiscal years presented consisted of 52 weeks.
(b) Reflects the Chaps Menswear License Acquisition effective in April 2013, which resulted in the recognition of a $16
million gain on acquisition, as well as the Australia and New Zealand Licensed Operations Acquisition effective in
July 2013 (see Note 5 to the accompanying audited consolidated financial statements).
(c) Reflects the acquisition of the Ralph Lauren-branded business in Latin America effective in June 2012, the
discontinuance of the majority of products sold under the American Living brand effective with the Fall 2012 wholesale
selling season, and the wind down of the Rugby brand operations during the second half of the fiscal year.
(d) Reflects the South Korea Licensed Operations Acquisition effective in January 2011.
(e) Reflects the Asia-Pacific Licensed Operations Acquisition effective in January 2010.
F-52
RALPH LAUREN CORPORATION
SELECTED FINANCIAL INFORMATION (Continued)
March 29,
2014
March 30,
2013
March 31,
2012
(millions)
April 2,
2011
April 3,
2010
Balance Sheet Data:
Cash and cash equivalents .........................................
Investments................................................................
Working capital..........................................................
Total assets.................................................................
Total debt (including current maturities of debt).......
Equity ........................................................................
$
$
797
490
2,359
6,090
300
4,034
$
974
406
1,842
5,418
267
3,785
$
672
616
1,954
5,416
274
3,653
$
453
678
1,646
4,981
292
3,305
563
660
1,529
4,649
282
3,117
F-53
RALPH LAUREN CORPORATION
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth the quarterly financial information of the Company:
Net revenues ....................................................................
Gross profit......................................................................
Net income.......................................................................
Net income per common share:(b)
Basic..............................................................................
Diluted...........................................................................
Dividends declared per common share............................
Net revenues ....................................................................
Gross profit......................................................................
Net income.......................................................................
Net income per common share:(b)
Basic..............................................................................
Diluted...........................................................................
Dividends declared per common share............................
Quarterly Periods Ended(a)
June 29,
2013
September 28,
2013
December 28,
2013
March 29,
2014
(millions, except per share data)
1,653
$
1,915
$
2,015
$
1,004
181
1,084
205
1,172
237
1.98
1.94
0.40
$
$
$
2.26
2.23
0.40
$
$
$
2.61
2.57
0.45
$
$
$
1,867
1,050
153
1.70
1.68
0.45
Quarterly Periods Ended(a)
June 30,
2012
September 29,
2012
December 29,
2012
March 30,
2013
(millions, except per share data)
1,593
$
1,862
$
1,846
$
1,644
992
193
2.10
2.03
0.40
$
$
$
1,095
214
1,094
216
2.34
2.29
0.40
$
$
$
2.37
2.31
0.40
$
$
$
975
127
1.40
1.37
0.40
$
$
$
$
$
$
$
$
(a) All 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 annual amount because of differences in the average number of common shares outstanding
during each period.
F-54
Exhibit 10.6
AMENDMENT NO. 1
to the
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDMENT ("Amendment No. 1"), effective as of the 30th day of March 2014, by and
between Ralph Lauren Corporation, a Delaware corporation (the "Company"), and Jackwyn Nemerov (the
"Executive").
WHEREAS, the Executive serves as the President and Chief Operating Officer of the
Company pursuant to an Amended and Restated Employment Agreement by and between the Company
and the Executive dated November 1, 2013 (the "Employment Agreement"); and
WHEREAS, the Company and the Executive wish to amend the Employment Agreement
in certain respects;
NOW, THEREFORE, intending to be bound, the parties hereby agree as follows.
1.
The first sentence of Section 2.4(a)(i) of the Employment Agreement is amended to
read as follows, effective as of the date set forth above:
"Subject to Section 4.1(a) hereof, the Corporation shall: (a) beginning with the first payroll
period following the forty-fifth (45th) day following the date of termination of Executive's
employment, continue to pay the Executive, in accordance with the Corporation's normal payroll
practice, Executive's Base Compensation, as in effect immediately prior to such termination of
employment, for the longer of the balance of the Term or the one-year period commencing on the
date of such termination, provided that under no circumstances shall Executive be paid her Base
Compensation for a period longer than two years (whichever period is applicable shall be referred
to herein as the "Severance Period"), and provided that the initial payment shall include Base
Compensation amounts for all payroll periods from the date of termination through the date of
such initial payment; and (b) pay to the Executive, on the last business day of the Severance
Period, an amount equal to 300% of Executive's Base Compensation, as in effect immediately
prior to such termination of Executive's employment."
2.
The first sentence of Section 2.4(b)(i) of the Employment Agreement is amended to
read as follows, effective as of the date set forth above:
“The Corporation shall: (a) beginning with the first payroll period following the forty-fifth
(45th) day following the date of termination of Executive's employment, continue to pay the
Executive, in accordance with the Corporation's normal payroll practice, Executive's Base
Compensation, as in effect immediately prior to such termination of employment, for the one-year
period commencing on the date of such termination (the "Special Severance Period"), and
provided that the initial payment shall include Base Compensation amounts for all payroll periods
from the date of termination through the date of such initial payment; and (b) pay to the Executive,
on the last business day of the Special Severance Period, an amount equal to 300% of Executive's
Base Compensation, as in effect immediately prior to such termination of Executive's
employment."
1
3.
The second sentence of Section 2.4(e) of the Employment Agreement is amended to
read as follows, effective as of the date set forth above:
“If the Executive's employment terminates at the end of the Term as a result of the Corporation's
delivery of a NonExtension Notice as contemplated by Section 1.1, the Corporation shall (x)
beginning with the first payroll period following the forty-fifth (45th) day following the date of
termination of Executive's employment, continue to pay the Executive, in accordance with the
Corporation's normal payroll practice, Executive's Base Compensation, as in effect immediately
prior to such termination of employment, for the one-year period commencing on the date of
termination (the "NonExtension Period") and (y) pay the Executive, on the last business day of the
NonExtension Period, an amount equal to 300% of Executive's Base Compensation, as in effect
immediately prior to such termination of Executive's employment (collectively, the
"NonExtension Severance").
4.
The Section entitled "Severance" in Exhibit 1 to the Employment Agreement is
amended to read as follows, effective as of the date set forth above:
"Base salary for remainder of term up to a maximum of two years, or for one year, whichever is
greater, plus a lump sum amount equal to 300% of base salary."
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be duly
executed and the Executive has hereunto set her hand, effective as of the date first set forth above.
RALPH LAUREN CORPORATION
By: /s/ Ralph Lauren
Ralph Lauren
Title: Chairman and Chief Executive Officer
Date: March 26, 2014
EXECUTIVE
/s/ Jackwyn Nemerov
Jackwyn Nemerov
Date: March 27, 2014
2
Exhibit 10.8
AMENDMENT NO. 1
to the
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDMENT ("Amendment No. 1"), effective as of the 30th day of March 2014, by and
between Ralph Lauren Corporation, a Delaware corporation (the "Company"), and Christopher Peterson
(the "Executive").
WHEREAS, the Executive serves as the Executive Vice President, Chief Administrative
Officer and Chief Financial Officer of the Company pursuant to an Amended and Restated Employment
Agreement by and between the Company and the Executive dated November 1, 2013 (the "Employment
Agreement"); and
WHEREAS, the Company and the Executive wish to amend the Employment Agreement
in certain respects;
NOW, THEREFORE, intending to be bound, the parties hereby agree as follows.
1.
The first sentence of Section 2.3(a)(i) of the Employment Agreement is amended to
read as follows, effective as of the date set forth above:
"Subject to Section 2.3(a)(v) and Section 4.1(a) hereof, the Corporation shall: (a) beginning
with the first payroll period following the 30th day following the date of termination of Executive's
employment, continue to pay the Executive, in accordance with the Corporation's normal payroll
practice, his Base Compensation, as in effect immediately prior to such termination of
employment, for the one-year period commencing on the date of such termination (the "Severance
Period"), provided that the initial payment shall include Base Compensation amounts for all
payroll periods from the date of termination through the date of such initial payment; and (b) pay
to the Executive, on the last business day of the Severance Period, an amount equal to 200% of
Executive's Base Compensation, as in effect immediately prior to such termination of Executive's
employment."
1
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be duly executed
and the Executive has hereunto set his hand, effective as of the date first set forth above.
RALPH LAUREN CORPORATION
By:
/s/ Mitchell Kosh
Mitchell Kosh
Title: Executive Vice President, Human
Resources
Date: March 27, 2014
EXECUTIVE
/s/ Christopher Peterson
Christopher Peterson
Date: March 25, 2014
2
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Exhibit 10.25
Cliff Restricted Performance Share Unit Award
Fiscal 2015 – Overview
April 1, 2014
This Overview is qualified in its entirety by reference to the Memorandum to Participants in the Ralph Lauren
Corporation 2010 Long-Term Stock Incentive Plan and to the Plan itself. Copies of the Memorandum and the Plan
are available from your Human Resources Department.
OVERVIEW
The Ralph Lauren Corporation (the “Company”) 2010 Long-Term Stock Incentive Plan (the “Plan”) authorizes the
Compensation & Organizational Development Committee of the Board of Directors (the “Compensation Committee”)
to grant equity awards to officers and other employees of the Company and its Subsidiaries, and Affiliates.
As determined by the Compensation Committee, the Company may grant one or more types of Restricted Performance
Share Unit awards (“RPSUs”). This Overview describes one type of RPSU that has three-year cliff vesting (“Cliff
RPSU”). The term “cliff” vesting is used since all units in a given Cliff RPSU award are eligible to vest at the same
time.
A Cliff RPSU award provides a participant the opportunity to receive shares of the Company’s Class A Common Stock
(traded on the New York Stock Exchange under the symbol RL) at a later date contingent upon achievement of
performance goals over a specified period, generally three fiscal years, and contingent upon continued service with
the Company.
AWARD OBJECTIVES
Objectives of RPSUs, including Cliff RPSUs, are to:
1.
Attract and retain exceptional individuals of superior talent
2. Motivate such individuals to achieve longer-range performance goals
3. Enable such individuals to participate in the long-term growth and financial success of the Company
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
2
PLAN ADMINISTRATION
The Company’s Human Resources Department administers the program and Merrill Lynch Wealth Management
(“Merrill Lynch”) is the record-keeper. Participants must have an open brokerage account at Merrill Lynch in
order to facilitate distribution of shares of the Company’s Class A Common Stock upon the vesting of Cliff
RPSUs. To open a brokerage account, or for questions regarding your account and account transactions, contact Merrill
Lynch at (212) 236-5574 or (800) 937-0526.
The Company’s Board of Directors reserves the right to amend, modify or terminate the Plan, subject to stockholder
approval, if required. No such amendment to the Plan would adversely affect any Cliff RPSU awards then outstanding.
Nothing contained herein may be construed as creating a promise of future benefits or a binding contract with the
Company. Further, an individual’s employment continues to be at will, subject to any applicable employment
agreement.
For questions regarding the Plan and its provisions, contact Human Resources.
ELIGIBILITY FOR GRANT
Equity awards, including Cliff RPSU awards, may be granted annually to designated, key executives who have a
significant impact on the strategic direction and business results of the Company, and who are actively employed on
April 1 of the year when the grant is made.
Guidelines have been established for the number and type of equity awards that eligible participants may receive. The
guidelines reflect a position’s scope, accountability and impact on the organization, and may also reflect changes in
the value of the Company’s Class A Common Stock.
Please note that the guidelines do not constitute a guarantee that any specific individual will receive an equity award
in any given or subsequent year, or guarantee the type or the size of any grant, if a grant is made.
An eligible employee who receives a Below Expectations (B) or Unsatisfactory (U) rating
on his or her annual performance appraisal is not eligible for an equity award
in the fiscal year following that performance appraisal period.
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
3
PERFORMANCE MEASURES FOR CLIFF RPSU VESTING
The Company’s performance measure(s) are set by the Compensation Committee at the time of grant from a list of
performance criteria set forth in the Plan. Such measure(s) may include, for example, one or more of the following:
Net Earnings or Net Income (before or after taxes)
Basic or Diluted Earnings Per Share (before or after taxes)
Net Operating Profit (before or after taxes)
Net Revenue or Net Revenue Growth
Gross Profit or Gross Profit Growth
Return Measures (including but not limited to Return on Assets, Investments, Capital)
Other measures of economic value added or other value creation metrics
STRUCTURE OF GRANTS AND PAYOUT SCHEDULE
A participant is awarded a target number of Cliff RPSUs on grant date. Applicable Threshold, Target and Maximum
levels of Company financial performance are established at the beginning of the performance period.
PERFORMANCE AND PAYOUT SCHEDULE
Performance
Level
% of Goal
Achieved
Threshold
Target
Maximum
70%
100%
110%
% of Target
Cliff RPSUs
Vested
75%
100%
150%
No payout will be earned for performance below Threshold
Note: Cliff RPSU vesting is interpolated for performance between 70% - 110% of target
Once a Cliff RPSU award is granted, the performance measure(s), performance goals, vesting and payout schedule
will not be modified during the term for that particular award. However, in determining performance against the goal,
the Company’s results may be adjusted to exclude the effects of certain events and transactions as specified by the
Compensation Committee at the time of grant. For any future awards, the Compensation Committee may change the
performance measure(s), goals, vesting, and payout schedule(s).
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
4
FISCAL 2015 GRANT PERFORMANCE MEASURE, PERFORMANCE LEVELS AND VESTING
The Company performance measure for fiscal 2015 Cliff RPSU awards is Cumulative Net Earnings for fiscal years
2015-2017. Vesting of Cliff RPSUs, and the distribution of the Company’s Class A Common Stock, will occur after
the end of Fiscal 2017, as soon as administratively practical following certification of achievement of the performance
goals by the Compensation Committee. The vesting date typically occurs in June of each year, but may be earlier or
later.
If Threshold or better performance is achieved, and the participant has had continuous service with the Company
through the vesting date, shares of the Company’s Class A Common Stock will be distributed to participants upon the
vesting of Cliff RPSUs. Upon vesting, the participant will own the shares and as a shareholder of the Company’s Class
A Common Stock, will have voting rights and will receive dividends, if applicable, on such shares. Prior to the vesting
date, dividends are not earned on Cliff RPSUs and the participant does not have voting rights. If performance is below
Threshold at the end of the performance period, all Cliff RPSUs granted for that award will be forfeited.
Cliff RPSUs granted in fiscal 2015 are scheduled to vest after fiscal 2017, subject to the Company’s achievement of
the cumulative performance goals specified, and the participant’s continuous service with the Company.
EXAMPLE OF PERFORMANCE LEVEL, VESTING AND PAYOUT
# Cliff
RPSUs
Granted
Performance
Period
Performance
Level 1
Vested
Percentage1
Vesting
Date2
# Shares
Vested
FY13
(July 2012)
FY14
1,000
FY13 - FY15
110%
150%
(April 2013)
1,000
FY14 - FY16
100%
100%
FY15
(April 2014)
1,000
FY15 - FY17
70%
75%
FY16
(June 2015)
FY17
(June 2016)
FY18
(June 2017)
1,500
1,000
750
1 Example is hypothetical and is not a forecast of future performance and payout percentages
2 Vesting typically occurs in June, but may be earlier or later
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
5
In the U.S. and in many other jurisdictions, vesting of RPSUs and the delivery of shares of Class A Common Stock
is a taxable event. When shares are distributed, a portion of the shares are withheld to satisfy withholding
requirements, and the net shares are delivered to participants in their Merrill Lynch account.
VALUE OF RESTRICTED PERFORMANCE SHARE UNITS
If Threshold or better performance against the applicable goal is achieved, Cliff RPSUs can provide participants with
ownership of the Company’s Class A Common Stock and offer the opportunity to recognize value in several ways:
Receive shares of RL Class A Common Stock without paying any exercise price
The number of Cliff RPSUs vesting can range from 75% (Threshold) to 150% (Maximum) of the target shares
granted
Any increases in the Company’s Class A Common Stock price above the price on the grant date increases the
value of the award
The example below illustrates the opportunity for gains in the value of the award at various Company Class A
Common Stock prices.
EXAMPLE: POTENTIAL VALUE
Award of 1,000 Cliff RPSUs
Value At:
# of Shares
$150
$175
$200
$225
If Stock Price Reaches:
Threshold Performance
750
$112,500
$131,250
$150,000
$168,750
Target Performance
1,000
$150,000
$175,000
$200,000
$225,000
Maximum Performance
1,500
$225,000
$262,500
$300,000
$337,500
Note: Value is before tax and a portion of the shares will be withheld to satisfy required tax withholding.
Example is hypothetical and is not a forecast of growth in the Company’s Class A Common Stock price.
If the performance calculation results in fractional shares, the fractional shares will be paid in cash.
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
6
SALE OF SHARES SUBSEQUENT TO DISTRIBUTION
Shares received from the vesting of a Cliff RPSU award may be sold subject to the Company’s trading restrictions as
set forth in the Company’s Securities Trading policy beginning on page 8. In certain circumstances, certain Executive
Officers may sell shares pursuant to Rule 144 or another applicable exemption under the U.S. Securities Act of 1933,
as amended.
In the U.S. and in many other jurisdictions, the sale of such shares after vesting has tax implications. Contact your
financial advisor for important information about how a subsequent sale of shares impacts you. Once Cliff RPSUs
have vested and you receive shares of the Company’s Class A Common Stock from the vesting of a particular Cliff
RPSU award, you retain all rights to those shares, regardless of employment status with the Company.
IF YOU LEAVE THE COMPANY
Event
Normal Retirement
(Age 65)
Early Retirement
(Age 55 through age 64
with 7 or more years of service
Long-Term Disability (LTD)
Death
Status of Cliff RPSU Awards
• In the case of retirement, LTD or death, a pro-rated1 target
number of outstanding Cliff RPSU grants will be
determined
• These pro-rated Cliff RPSUs will vest2 after the end of the
applicable performance period based on the actual degree
of achievement. If performance against the cumulative
performance goal does not reach the Threshold level,
then the pro-rated Cliff RPSUs will be forfeited.
• All remaining Cliff RPSUs are forfeited
Voluntary Resignation
• All unvested Cliff RPSUs are forfeited
Involuntary Termination
(Without Cause)
• All unvested Cliff RPSUs are forfeited
Dismissal for Cause
(As defined by the Company or,
if applicable, the participant’s
employment agreement)
• All unvested Cliff RPSUs are forfeited
• All vested Cliff RPSUs not yet distributed into shares of
the Company’s Class A Common Stock are forfeited
1 The pro-rata portion will be determined by taking the number of full months worked during the corresponding performance period,
dividing it by the number of months in the performance period, and then multiplying the resulting decimal by the number of Cliff RPSUs
granted for that performance period.
2 Vesting occurs after the end of the performance period following certification of achievement of performance goals by The
Compensation Committee. The vesting date typically occurs in June of each year, but may be earlier or later. Your Merrill Lynch
statement reflects a performance end date, which is different from the actual vesting date.
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
7
SECURITIES TRADING POLICY
INSIDER TRADING
As provided in the Company Employee Handbook, employees are prohibited by law from buying or selling securities
if an employee has or is aware of any material, non-public information about the Company and its subsidiaries. This
is commonly referred to as “insider information.” Material, non-public information is any information that has not
been disclosed to the public that could affect the price of Company Common Stock -- either positively or negatively
-- or affect a person’s decision to buy, hold or sell securities.
Examples of what might be considered “insider information” include but are not limited to the following:
•
•
•
•
•
•
•
Earnings or other financial information
Changes in dividend policy
Stock splits
Mergers and acquisitions
Major new contracts or product-line introductions
Litigation involving substantial amounts of money
Changes in management
These insider-trading rules are applicable to employees of Ralph Lauren and its Subsidiaries and Affiliates,
worldwide.
COMPANY BLACKOUT PERIODS
To avoid even the appearance of “insider trading,” our Company’s Securities Trading policy prohibits members of the
Board of Directors, all employees and their “Related Parties“ (as such term is defined in the Company’s Securities
Trading Policy) from making trades involving stock of the Company during certain “blackout periods.” This prohibition
covers all transactions in the Company’s securities, including buying or selling shares, including shares of Class A
Common Stock received upon the vesting of RPSUs. These blackout periods generally begin two weeks before the
end of each of our fiscal quarters and continue through one trading day after the Company issues its earnings release
for the fiscal quarter or year just ended. If the earnings release is issued before the opening of the market on a trading
day, trading may begin the next day. The blackout periods are announced at the start of each year. The Company may
prohibit trading of the Company’s stock at any time it deems such trading to be inappropriate, even outside the regular
blackout periods. Individuals who receive a specific notification prohibiting them from trading the Company’s stock
should note that such notification takes precedence over pre-announced blackout periods. In addition, members of
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
8
the Board of Directors, Officers (any employee who is a Vice President or above), and all employees in the Finance
and Legal departments must clear all trades with the Corporate Counsel, or their designee, at all times.
ADDITIONAL PROHIBITED TRANSACTIONS
Because we believe it is inappropriate for any Company personnel to engage in short-term or speculative transactions
involving the Company’s Common Stock, it is Company policy that employees do not engage in any of the following
activities with respect to the securities of the Company:
•
“In and out” trading in securities of the Company. Any Company stock purchased in the market must be
held for a minimum of six months, and ideally longer. Note that the Securities and Exchange Commission (SEC)
has a “short-swing profit recapture” rule that effectively prohibits Executive Officers and members of the Board
of Directors from selling any Company stock within six months of a purchase. The Company has extended this
prohibition to all employees. The receipt of shares pursuant to the vesting of Cliff RPSU awards is not considered
a purchase under the SEC’s rule.
•
•
Short sales (i.e., selling stock one does not own and then borrowing the shares to make delivery)
Buying or selling “puts” or “calls” (i.e., making commitments to buy or sell securities at a specified price
for a fixed period of time)
CLEARANCE OF ALL TRADES BY DIRECTORS, OFFICERS AND OTHER KEY PERSONNEL
For employees at the Corporate Vice President and Division Senior Vice President level or above
(“Officers”) and for all employees in the Finance, Legal and Human Resources departments, all
transactions in the Company’s securities (including, but not limited to purchases, sales, transfers, etc.)
must be conducted during an open trading window and pre-cleared with the Corporate Counsel, or their
designee. If contemplating a transaction, please provide a written request via e-mail to
RLTrading@ralphlauren.com, specifying the number of Stock Options you wish to exercise and/or the
number of shares you wish to purchase or sell before contacting Merrill Lynch or any other broker, or
taking any other step to initiate a transaction.
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
9
COMPLIANCE WITH SECTION 409A
To the extent applicable, the Plan shall be interpreted in accordance with Section 409A of the Internal Revenue Code of 1986 and
the Department of Treasury Regulations and other interpretive guidance issued hereunder (“Section 409A”). Notwithstanding
any provision of the Plan to the contrary, it is intended that this Plan comply with Section 409A and all provision of this Plan shall
be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or in respect
of such Participant in connection with this Plan or any other plan maintained by the Company (including any taxes and penalties
under Section 409A), and neither the Company nor any Affiliate shall have any obligation to indemnify or otherwise hold such
Participant (or any beneficiary) harmless from any or all of such taxes or penalties.
_____________________________________________________________________
In the event of any discrepancy between this Cliff RPSU Overview and either the Plan or the provision under which the Plan is
administered by the Compensation Committee, the Plan and the determination of the Compensation Committee will govern, as
applicable. This Overview is qualified in its entirety based on the determinations, interpretations and other decisions made within
the sole discretion of the Compensation Committee.
April 1, 2014
Fiscal 2015 Cliff RPSU Overview
10
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Exhibit 10.26
Pro-Rata Restricted Performance Share Unit Award
Fiscal 2014 – Overview
April 1, 2013
This Overview is qualified in its entirety by reference to the Memorandum to Participants in the Ralph Lauren
Corporation 2010 Long-Term Stock Incentive Plan and to the Plan itself. Copies of the Memorandum and the Plan
are available from your Human Resources Department.
OVERVIEW
The Ralph Lauren Corporation (the “Company”) 2010 Long-Term Stock Incentive Plan (the “Plan”) authorizes the
Compensation & Organizational Development Committee of the Board of Directors (the “Compensation Committee”)
to grant equity awards to officers and other employees of the Company and its Subsidiaries and Affiliates.
As determined by the Compensation Committee, the Company may grant one or more types of Restricted Performance
Share Unit awards (RPSUs). This Overview describes one type of RPSU that has three-year, pro-rata vesting (“Pro-
Rata RPSU”).
A Pro-Rata RPSU award provides the participant with the opportunity to receive shares of the Company’s Class A
Common Stock (traded on the New York Stock Exchange under the symbol RL) at a later date contingent upon
achievement of performance goals and continued service with the Company.
AWARD OBJECTIVES
Objectives of RPSUs, including Pro-Rata RPSUs, are to:
1.
Attract and retain exceptional individuals of superior talent
2. Motivate such individuals to achieve longer-range performance
3.
Enable such individuals to participate in the long-term growth and financial success of the Company
PLAN ADMINISTRATION
The Company’s Human Resources Department administers the program and Merrill Lynch Wealth Management
(“Merrill Lynch”) is the recordkeeper. Participants must have an open brokerage account at Merrill Lynch in
order to facilitate distribution of shares of the Company’s Class A Common Stock upon the vesting of Pro-Rata
RPSUs. To open a brokerage account, or for questions regarding your account and account transactions, contact Merrill
Lynch at (609) 818-8908 or (877) 765-7656.
Fiscal 2014 Pro-Rata RPSU Overview
2
The Company’s Board of Directors reserves the right to amend, modify or terminate the Plan at any time, subject to
stockholder approval, if required. No such amendment to the Plan would adversely affect any Pro-Rata RPSU awards
then outstanding.
Nothing contained herein may be construed as creating a promise of future benefits or a binding contract with the
Company. Further, an individual’s employment continues to be at will, subject to any applicable employment
agreement.
For questions regarding the Plan and its provisions, contact Human Resources.
ELIGIBILITY FOR GRANT
Equity awards, including Pro-Rata RPSU awards, may be granted annually to designated, key executives who have a
significant impact on the strategic direction and business results of the Company, and who are actively employed on
April 1 of the year when the grant is made.
Guidelines have been established for the number and type of equity awards that eligible participants may receive. The
guidelines reflect a position’s scope, accountability and impact on the organization, and may also reflect changes in
the value of the Company’s Class A Common Stock.
Please note that the guidelines do not constitute a guarantee that any specific individual will receive an equity award
in any given or subsequent year, or guarantee the type or the size of any grant, if a grant is made.
An eligible employee who receives a Below Expectations (B) or Unsatisfactory (U) rating
on their annual performance appraisal is not eligible for an equity award
in the fiscal year following that performance appraisal period.
GRANT AMOUNT AND AWARD VESTING
The number of units in a Pro-Rata RPSU award is set as of the grant date. The award will vest in equal, annual
installments (tranches) over a three-year period. One third of the Pro-Rata RPSUs granted in fiscal 2014 will vest
each year after the end of fiscal 2014, fiscal 2015 and fiscal 2016, subject to achievement of the applicable Company
performance goal in the first year and the participant having continuous service through each vesting date (see examples
beginning on page 5).
Fiscal 2014 Pro-Rata RPSU Overview
3
PERFORMANCE MEASURES FOR PRO-RATA RPSU VESTING
The Company’s performance measure(s) are established by the Compensation Committee at the time of the grant from
a list of performance criteria set forth in the Plan. Such measure(s) may include, for example, one or more of the
following:
Net Earnings or Net Income (before or after taxes)
Basic or Diluted Earnings Per Share (before or after taxes)
Net Operating Profit (before or after taxes)
Net Revenue or Net Revenue Growth
Gross Profit or Gross Profit Growth
Return Measures (including but not limited to Return on Assets, Investments, Capital)
Other measures of economic value added or value creation metrics
Once a Pro-Rata RPSU award is granted, the performance measure(s), vesting and payout schedule will not be modified
during the term for that particular award. However, in determining performance against the goal, the Company’s
results may be adjusted to exclude the effects of certain events and transactions as specified by the Compensation
Committee at the time of grant. For any future awards, the Compensation Committee may change the performance
measure(s), goals, vesting and payout schedule(s).
FISCAL 2014 GRANT PERFORMANCE MEASURE AND PERFORMANCE LEVEL FOR VESTING
The Company performance measure for fiscal 2014 Pro-Rata RPSU awards is Corporate Net Income Before Tax
(NIBT). This performance measure is also used for bonus awards under the Executive Incentive Plan (EIP).
The performance level that must be achieved for Pro-Rata RPSU vesting is NIBT at Threshold (80% of Target) or
better and is communicated on your stock notification.
FISCAL 2014 VESTING SCHEDULE
All three tranches of the fiscal 2014 Pro-Rata RPSUs are deemed earned and available for vesting based on
achievement of the fiscal 2014 performance goal as follows:
One-third would vest and be paid out after the end of fiscal 2014 based on achievement of the fiscal 2014
Company performance goal and on the participant’s continuous service with the Company from the grant date
to the vesting date
Fiscal 2014 Pro-Rata RPSU Overview
4
One-third would vest and be paid out after the end of fiscal 2015 (participant must have continuous service
with the Company from the grant date to the vesting date)
One-third would vest and be paid out after the end of fiscal 2016 (participant must have continuous service
with the Company from the grant date to the vesting date)
All three tranches of the fiscal 2014 Pro-Rata RPSU award will be forfeited if the fiscal 2014
performance goal (Corporate NIBT at Threshold or better) is not achieved.
Vesting of the Pro-Rata RPSUs and the distribution of the Company’s Class A Common Stock will occur as soon as
administratively practical following certification of achievement of the Company’s performance goals by the
Compensation Committee. The vesting date typically occurs in June of each year, but may be earlier or later. Once
the Pro-Rata RPSUs are vested and distributed as Company Class A Common Stock, the participant owns the shares
and as a shareholder, will have voting rights and will receive dividends, if applicable, on such shares. Prior to the
vesting date, dividends are not earned on Pro-Rata RPSUs and the participant does not have voting rights.
VESTING EXAMPLES
These examples illustrate how a Pro-Rata RPSU award granted in fiscal 2014 would vest, in equal installments, over
three fiscal years. Vesting is subject to achievement of FY14 performance goal - Corporate Net Income Before Taxes
(NIBT) at Threshold or better - and the participant’s continuous service with the Company from the grant date to each
vesting date.
EXAMPLE 1: 210 FY14 Pro-Rata RPSUs (Granted July 2013)
Performance
Period
# Pro-Rata RPSUs
Eligible to Vest
Performance
Level 1
FY14
FY15
FY16
Total
70
70
70
210
Threshold
N/A
N/A
# Pro-Rata RPSUs
Vested and
Distributed if Vesting
Criteria Met2
70
70
70
210
Vesting
Date3
June 2014
June 2015
June 2016
1 Threshold refers to attaining at least 80% of the fiscal 2014 Corporate NIBT goal. If Threshold or better performance
is not achieved in the first year, all three tranches will be forfeited
2 Vesting criteria includes a minimum of Threshold performance and the participant’s continuous service with the Company
from grant date
3 The vesting date typically occurs in June of each year, but may be earlier or later
Fiscal 2014 Pro-Rata RPSU Overview
5
Additionally, depending on any previous grants received, more than one Pro-Rata RPSU award may be eligible to vest
each year, as shown below:
EXAMPLE 2: MULTIPLE PRIOR GRANTS WITH SHARES ELIGIBLE TO VEST
Year Granted
FY12
(July 2011)
FY13
(July 2012)
FY14
(July 2013)
Total Pro-Rata
RPSUs
# of Pro-Rata
RPSUs Granted
1/3 of Pro-Rata RPSUs Eligible to Vest 1
June 2014
June 2015
June 2016
270
300
210
780
90
100
70
260
-
100
70
170
-
-
70
70
1Assumes that goal measures, performance and service with the Company, applicable to each tranche of each grant are met.
The vesting date typically occurs in June of each year, but may be earlier or later.
In the U.S. and in many other jurisdictions, vesting of RPSUs and delivery of shares of the Company’s Class A Common
Stock is a taxable event. When shares are distributed, a portion of the shares are withheld to satisfy withholding
requirements, and the net shares are delivered to participants in their Merrill Lynch account.
Shares received from the vesting of a Pro-Rata RPSU award may be sold subject to the Company’s trading restrictions
as set forth in the Company’s Securities Trading policy beginning on page 9. In certain circumstances, certain Executive
Officers may sell shares pursuant to Rule 144 or another applicable exemption under the U.S. Securities Act of 1933,
as amended.
In the U.S. and in many other jurisdictions, sale of such shares after vesting has tax implications. Contact your financial
advisor for important information about how a subsequent sale of shares impacts you.
Once Pro-Rata RPSUs have vested and you receive shares of the Company’s Class A Common Stock from the vesting
of a particular Pro-Rata RPSU award, you retain all rights to those shares, regardless of employment status with the
Company.
Fiscal 2014 Pro-Rata RPSU Overview
6
VALUE OF RESTRICTED PERFORMANCE SHARE UNITS
If Threshold or better performance against the fiscal year goal is achieved, Pro-Rata RPSUs can provide participants
with ownership of the Company’s Class A Common Stock and the opportunity to benefit from any appreciation in
price above the price on grant date.
This example illustrates the opportunity for gains in the value of the award at various Company Class A Common
Stock prices.
EXAMPLE: POTENTIAL VALUE
Award of 210 Pro-Rata RPSUs
If Stock Price Reaches:
# of
Shares
$160
$185
$210
$235
Value (assumes shares vest)
210
$33,600
$38,850
$44,100
$49,350
Note: Value is before tax and a portion of the shares awarded would be withheld to satisfy required tax withholding.
Example is hypothetical and is not a forecast of growth in the Company’s Class A Common Stock price.
Fiscal 2014 Pro-Rata RPSU Overview
7
IF YOU LEAVE THE COMPANY
Event
Normal Retirement
(Age 65)1
Early Retirement
(Age 55 through age 64
with 7 or more years of service)1
Status of RPSU Awards
• RPSUs vesting during the fiscal year are pro-rated2 as of the
date of retirement1, LTD, or death. The pro-rated number of
shares will be eligible to vest on their normal vesting date.3
• All remaining Pro-Rata RPSUs (for that fiscal year and
any other fiscal years remaining) are forfeited
Long-Term Disability (LTD)4
Death
Voluntary Resignation
• All unvested Pro-Rata RPSUs are forfeited
Involuntary Termination
• All unvested Pro-Rata RPSUs are forfeited
(Without Cause)
Dismissal for Cause
(As defined by the Company or,
if applicable, the participant’s
employment agreement)
• All unvested Pro-Rata RPSUs are forfeited
• All vested Pro-Rata RPSUs not yet distributed into shares
of the Company’s Class A Common Stock are forfeited
1 Pro-rated RPSUs vest only if retirement date is on or after the last day of the first quarter of the fiscal year.
2 The pro-rated portion is determined by taking the number of full months worked in the fiscal year, dividing by 12, then multiplying
by the number of Pro-Rata RPSUs scheduled to vest for that fiscal year.
3 Vesting occurs after the end of the performance period following certification of achievement of performance goals by The
Compensation Committee. The vesting date typically occurs in June of each year, but may be earlier or later. Your Merrill Lynch
statement reflects a performance end date, which is different from the actual vesting date.
4 For purposes hereof, “disability” shall, unless otherwise determined by the Committee, have the same meaning as such
term or a similar term has under the long-term disability plan or policy maintained by the Company or a Subsidiary under
which the Participant has coverage and which is in effect on the date of the onset of the Participant’s disability.
Fiscal 2014 Pro-Rata RPSU Overview
8
INSIDER TRADING
SECURITIES TRADING POLICY
As provided in the Company Employee Handbook, employees are prohibited by law from buying or selling securities
if an employee has or is aware of any material, non-public information about the Company and its subsidiaries. This
is commonly referred to as “insider information.” Material, non-public information is any information that has not
been disclosed to the public that could affect the price of Company Common Stock -- either positively or negatively
-- or affect a person’s decision to buy, hold or sell securities.
Examples of what might be considered “insider information” include, but are not limited to, the following:
Earnings or other financial information
Changes in dividend policy
Stock splits
Mergers and acquisitions
Major new contracts or product-line introductions
Litigation involving substantial amounts of money
Changes in management
These insider-trading rules are applicable to employees of Ralph Lauren and its Subsidiaries and Affiliates, worldwide.
COMPANY BLACKOUT PERIODS
To avoid even the appearance of “insider trading,” our Company’s Securities Trading policy prohibits members of the
Board of Directors, all employees and their “Related Parties” (as such term is defined in the Company’s Securities
Trading Policy) from making trades involving stock of the Company during certain “blackout periods.” This prohibition
covers all transactions in the Company’s securities, including buying or selling shares, including shares of Class A
Common Stock received upon the vesting of RPSUs. These blackout periods generally begin two weeks before the
end of each of our fiscal quarters and continue through one trading day after the Company issues its earnings release
for the fiscal quarter or year just ended. If the earnings release is issued before the opening of the market on a trading
day, trading may begin the next day. The blackout periods are announced at the start of each year. The Company may
prohibit trading of the Company’s stock at any time it deems such trading to be inappropriate, even outside the regular
blackout periods. Individuals who receive a specific notification prohibiting them from trading the Company’s stock
should note that such notification takes precedence over pre-announced blackout periods. In addition, members of the
Board of Directors, Officers (any employee who is a Corporate Vice President / Division Senior Vice President or
above), and all employees in the Finance, Legal and Human Resources departments must clear all trades with the
Corporate Counsel, or their designee, at all times.
Fiscal 2014 Pro-Rata RPSU Overview
9
ADDITIONAL PROHIBITED TRANSACTIONS
Because we believe it is inappropriate for any Company personnel to engage in short-term or speculative transactions
involving the Company’s Common Stock, it is Company policy that employees do not engage in any of the following
activities with respect to the securities of the Company:
“In and out” trading in securities of the Company. Any Company stock purchased in the market must be
held for a minimum of six months and ideally longer. Note that the Securities and Exchange Commission
(SEC) has a “short-swing profit recapture” rule that effectively prohibits Executive Officers and members of
the Board of Directors from selling any Company stock within six months of a purchase. The Company has
extended this prohibition to all employees. The receipt of shares pursuant to the vesting of Pro-Rata RPSU
awards is not considered a purchase under the SEC’s rule.
Short sales (i.e., selling stock one does not own and then borrowing the shares to make delivery)
Buying or selling “puts” or “calls” (i.e., making commitments to buy or sell securities at a specified price
for a fixed period of time)
CLEARANCE OF ALL TRADES BY DIRECTORS, OFFICERS AND OTHER KEY PERSONNEL
For employees at the Corporate Vice President and Division Senior Vice President level or above
(“Officers”) and for all employees in the Finance, Legal and Human Resources departments, all
transactions in the Company’s securities (including, but not limited to purchases, sales, transfers, etc.)
must be conducted during an open trading window and pre-cleared with the Corporate Counsel, or their
designee. If contemplating a transaction, please provide a written request via e-mail to
RLTrading@ralphlauren.com, specifying the number of Stock Options you wish to exercise and/or the
number of shares you wish to purchase or sell before contacting Merrill Lynch or any other broker, or
taking any other step to initiate a transaction.
Fiscal 2014 Pro-Rata RPSU Overview
10
COMPLIANCE WITH SECTION 409A
To the extent applicable, the Plan shall be interpreted in accordance with Section 409A of the Internal Revenue Code of 1986 and
the Department of Treasury Regulations and other interpretive guidance issued hereunder (“Section 409A”). Notwithstanding
any provision of the Plan to the contrary, it is intended that this Plan comply with Section 409A, and all provision of this Plan
shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section
409A. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or
in respect of such Participant in connection with this Plan or any other plan maintained by the Company (including any taxes and
penalties under Section 409A), and neither the Company nor any Affiliate shall have any obligation to indemnify or otherwise
hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties.
FOREIGN AWARDS AND RIGHTS
Notwithstanding any provision of the Plan to the contrary, to comply with securities, exchange control, labor, tax, or other applicable
laws, rules or regulations in countries outside of the United States in which the Company and its Subsidiaries operate or have
Employees, Consultants, or directors, and/or for the purpose of taking advantage of tax favorable treatment for Awards granted
to Participants in such countries, the Committee, in its sole discretion, shall have the power and authority to (i) amend or modify
the terms and conditions of any Award granted to a Participants; (ii) establish, adopt, interpret, or revise any rules and procedures
to the extent such actions may be necessary or advisable, including adoption of rules or procedures applicable to particular
Subsidiaries or Participants residing in particular locations; and (iii) take any action, before or after an Award is made, that it
deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Without
limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules or procedures with provisions that
limit or modify rights on eligibility to receive an Award under the Plan or on termination of Service, available methods of exercise
or settlement of an Award, payment of Tax-Related items, the shifting of employer tax liability to the Participant, tax withholding
procedures, restrictions on the sale of shares of Class A Common Stock of the Company, and the handling of stock certificates or
other indicia of ownership. Notwithstanding the foregoing, the Committee may not take actions hereunder, and no Awards shall
be granted, that would violate the U.S. Securities Act of 1933, as amended, the Exchange Act, the Code, any securities law or
governing statute.
EXCHANGE RATES
Neither the Company nor any Subsidiary shall be liable to a Participant for any foreign exchange rate fluctuation between the
Participant’s local currency and the U.S. Dollar that may affect the value of the Participant’s Award or of any amounts due to the
Participant pursuant to the settlement of the Award or, if applicable, the subsequent sale of Class A Common Stock acquired upon
settlement.
_____________________________________________________________
In the event of any discrepancy between this Pro-Rata RPSU Overview and either the Plan or the provision under which the Plan
is administered and governed by the Compensation Committee, the Plan and the determination of the Compensation Committee
will govern, as applicable. This Overview is qualified in its entirety based on the determinations, interpretations and other decisions
made within the sole discretion of the Compensation Committee.
Fiscal 2014 Pro-Rata RPSU Overview
11
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Exhibit 10.27
Stock Option Award
Fiscal 2014 – Overview
April 1, 2013
This Overview is qualified in its entirety by reference to the Memorandum to Participants in the Ralph Lauren
Corporation 2010 Long-Term Stock Incentive Plan and to the Plan itself. Copies of the Memorandum and the Plan
are available from your Human Resources Department
OVERVIEW
The Ralph Lauren Corporation (the “Company”) 2010 Long-Term Stock Incentive Plan (the “Plan”) authorizes the
Compensation & Organizational Development Committee of the Board of Directors (the “Compensation Committee”)
to grant equity awards to officers and other employees of the Company and its Subsidiaries and Affiliates.
This Overview explains the Company’s current Stock Option program under the Plan, describes its benefits to you as
a participant, and outlines the various steps needed to be taken in regard to your Stock Option grant.
A Stock Option granted under the Plan provides a participant the opportunity to purchase, within a specified
period of time, a stated number of shares of the Company’s Class A Common Stock (traded on the New York
Stock Exchange under the symbol RL) at a fixed price (the Option grant price)
The Option grant price equals the Fair Market Value (the average of the high and the low sales prices) of a
share of the Company’s Class A Common Stock on the grant date
Stock Options increase in value when the price of the Company’s Class A Common stock moves above the
Option grant price
Unlike actual share ownership, Stock Options do not provide voting rights or earn dividends
AWARD OBJECTIVES
Objectives of the Stock Option program are to:
1.
Attract and retain exceptional individuals of superior talent
2. Motivate such individuals to achieve longer-range performance
3.
Enable such individuals to participate in the long-term growth and financial success of the Company
April 1, 2013
Fiscal 2014 Stock Option Overview
2
PLAN ADMINISTRATION
The Company’s Human Resources Department administers the program and Merrill Lynch Wealth Management
(“Merrill Lynch”) is the recordkeeper. Participants must have an open brokerage account at Merrill Lynch in
order to exercise vested Stock Options. To open a brokerage account, or for questions regarding your account and
account transactions, contact Merrill Lynch at (609) 818-8908 or (877) 765-7656.
The Company’s Board of Directors reserves the right to amend, modify or terminate the Plan at any time, subject to
stockholder approval, if required. No such amendment to the Plan would adversely affect any Stock Options then
outstanding.
Nothing contained herein may be construed as creating a promise of future benefits or a binding contract with the
Company. Further, an individual’s employment continues to be at will.
For questions regarding the Plan and its provisions, contact Human Resources.
ELIGIBILITY FOR STOCK OPTION GRANT
Equity awards, including Stock Option awards, may be granted annually to designated, key executives who have a
significant impact on the strategic direction and business results of the Company, and who are actively employed on
April 1 of the year when the grant is being made.
Guidelines have been established for the number and types of equity awards eligible participants may receive. The
guidelines reflect a position’s scope, accountability and impact on the organization, and may also reflect changes in
the value of the Company’s Class A Common Stock.
Please note that these guidelines do not constitute a guarantee that any specific individual will receive an equity award
in any given or subsequent year, or guarantee the type or size of any grant, if a grant is made.
An eligible employee who receives a Below Expectations (B) or Unsatisfactory (U) rating
on his or her annual performance appraisal is not eligible for an equity award
in the fiscal year following that performance appraisal period.
April 1, 2013
Fiscal 2014 Stock Option Overview
3
OPTION PRICE
The Option grant price, which is equal to the Fair Market Value on the date of grant, is provided on your stock notification
and on your Merrill Lynch statement. Though the stock price may fluctuate over the term of the Option, the Option
grant price does not change, except in the event of a stock split or other similar event.
VESTING PERIOD AND EXPIRATION OF OPTIONS
Stock Options vest in three equal, annual installments beginning on the first anniversary of the grant and are 100%
vested after three years. Vested Stock Options must be exercised by the end of their “contractual term” or else they
will be forfeited. Currently, Stock Options have a seven-year contractual term.
VESTING/EXPIRATION SCHEDULE1
1 Vesting contingent upon continuous service to the respective vesting dates. In addition, Option expiration dates may be accelerated based
on certain employment events such as Retirement. Refer to the If You Leave The Company chart on page 7.
2Stock Options granted prior to June 2006 have a ten-year contractual term.
Although participants have the right to exercise Stock Options once they have vested, they may choose to hold
vested Options in anticipation of future gains from an increase in the stock price.
April 1, 2013
Fiscal 2014 Stock Option Overview
4
VALUE OF STOCK OPTIONS
Stock Options increase in value when the market price of the Company’s Class A Common Stock rises above the Stock
Option grant price. Upon exercise, the difference between the market price and the Option grant price is considered
the gain received from the exercise.
This example demonstrates how the value of the award increases as stock price increases:
EXAMPLE: POTENTIAL VALUE
AWARD OF 600 STOCK OPTIONS
Gain per Share
(assumes all shares granted have vested
and are exercised)
Gain per Share x 600 Shares
Grant
Price
$165
n/a
n/a
If Future Stock Price Reaches:
$190
$215
$240
$25
$50
$75
$15,000
$30,000
$45,000
Example is hypothetical and is not a forecast of growth in the Company’s Class A Common Stock price
STOCK OPTION EXERCISE
All Stock Option exercise transactions and recordkeeping are performed for the Company by Merrill Lynch.
Participants must have an open brokerage account at Merrill Lynch in order to exercise Stock Options.
The exercise of vested Stock Options has tax consequences in most jurisdictions. Contact your financial advisor for
important information about how Stock Option exercises impact you.
For employees at the Corporate Vice President and Division Senior Vice President level or above
(“Officers”) and for all employees in the Finance, Legal and Human Resources departments, all
transactions in the Company’s securities (including, but not limited to purchases, sales, transfers, etc.)
must be conducted during an open trading window and pre-cleared with the Corporate Counsel, or their
designee. If contemplating a transaction, please provide a written request via e-mail to
RLTrading@ralphlauren.com, specifying the number of shares you wish to exercise and/or the number of
shares you wish to purchase or sell before contacting Merrill Lynch or any other broker, or taking any
other step to initiate a transaction.
April 1, 2013
Fiscal 2014 Stock Option Overview
5
Once pre-clearance is received from the Corporate Counsel, or their designee, Officers and all employees in
the Finance, Legal, and Human Resources departments must indicate their intent to exercise by contacting the
Executive Advisory Team at Merrill Lynch at (800) 937-0526 between 8:30 a.m. and 6:00 p.m. (ET) on any
day the New York Stock Exchange is open. Outside the U.S., Puerto Rico or Canada, call (212) 236-5574.
All transactions in the Company’s securities, including cash or cashless exercise of Stock Options and sales
and purchases of the Company’s Class A Common Stock as described below, are prohibited during a Company
trading blackout period as defined in the Company’s Securities Trading policy which is included in this
Overview beginning on page 8.
METHODS OF EXERCISING STOCK OPTION
When exercising Stock Options, participants purchase shares of the Company’s Class A Common Stock at the grant
price set at the time the Option was granted. Stock Options may be exercised as a:
1. Cash Exercise: Paying cash for the shares exercised and retaining the shares
2. Cashless Exercise: Exercising a number of Stock Options and paying for the exercise by
simultaneously selling the stock and retaining the net gain
SALE OF SHARES SUBSEQUENT TO EXERCISE
When shares acquired from the exercise of Stock Options are sold at a later date, participants benefit from any price
appreciation that may have occurred since the date the shares were acquired. As noted above, shares realized from a
Stock Option exercise may be sold at any time, except when such sale would be considered insider trading or during
blackout periods as described in more detail by the Company’s Securities Trading policy beginning on page 8.
April 1, 2013
Fiscal 2014 Stock Option Overview
6
IF YOU LEAVE THE COMPANY
Event
Normal Retirement
(Age 65)
Early Retirement
(Age 55 through Age 64
with 7 or more years of
service)
Long-Term
Disability (LTD)2
Vested Stock Options
• Up to three years to exercise any vested Stock
Options after retirement, provided they do not
expire sooner. If not exercised within the
three years following retirement, the
Options expire.
• Up to one year to exercise any vested Stock
Options after early retirement, provided they
do not expire sooner. If not exercised within
one year following retirement, the Options
expire. However, any vested Options are
forfeited if a participant goes to work for a
competitor1.
• Up to three years to exercise any vested Stock
Options after LTD begins, provided they do
not expire sooner. The Options expire if not
exercised within the three years following
onset of LTD.
Death
• The optionee’s estate has up to three years to
exercise any vested Stock Options, provided
they do not expire sooner. The Options expire
if not exercised within the three years.
Unvested Stock Options
• All unvested Stock Options are
forfeited
• All unvested Stock Options are
forfeited
• Options continue to vest according
to the original vesting schedule
(1/3 each year for 3 years).
However, once Options vest, if
they are not exercised within
three years of the LTD date, the
Options expire.
• Options continue to vest according
to the original vesting schedule
(1/3 each year for 3 years).
However, once Options vest, if
they are not exercised within
three years of the date of death,
the Options expire.
Voluntary Resignation
• All vested Stock Options are forfeited as of
the date of termination
• All unvested Stock Options are
forfeited
Involuntary Termination 3
(Without Cause)
• Up to three months to exercise any vested
Stock Options, provided they do not expire
sooner
• All unvested Stock Options are
forfeited
Dismissal for Cause
(As defined by the Plan or,
if applicable, the
participant’s employment
agreement)
• All Vested Stock Options are forfeited as of
the date of termination
• All unvested Stock Options are
forfeited
1 For purposes hereof, a “competitor” shall mean any business engaged in the designing, marketing or distribution of premium lifestyle products,
including but not limited to apparel, home, accessories and fragrance products, which competes in any material respect with the Company or
any of its Subsidiaries, Affiliates or Licensees
2 For purposes hereof, “disability” shall, unless otherwise determined by the Committee, have the same meaning as such term or a similar term
has under the long-term disability plan or policy maintained by the Company or a Subsidiary under which the Participant has coverage and
which is in effect on the date of the onset of the Participant’s disability
3 Refers to termination by RL without cause, and when the employee has executed a general release with terms satisfactory to the Company. If
the employee does not execute such a release, vested and unvested Stock Options expire as of the date of termination. To the extent any vested
Stock Options are exercised post-termination but prior to the deadline to execute the release, the Company reserves the right to recover the
value of those Stock Options if the release is not executed.
April 1, 2013
Fiscal 2014 Stock Option Overview
7
SECURITIES TRADING POLICY
INSIDER TRADING
As provided in the Company Employee Handbook, employees are prohibited by law from buying or selling securities
if an employee has or is aware of any material, non-public information about the Company and its subsidiaries. This
is commonly referred to as “insider information.” Material, non-public information is any information that has not
been disclosed to the public that could affect the price of the Company’s Common Stock -- either positively or negatively
-- or affect a person’s decision to buy, hold or sell securities. The prohibition on insider trading applies to all transactions
in the Company’s securities, including cash exercises, cashless exercises of Stock Options and sales and purchases of
the Company’s stock.
Examples of what might be considered “insider information” include but are not limited to the following:
•
•
•
•
•
•
•
Earnings or other financial information
Changes in dividend policy
Stock splits
Mergers and acquisitions
Major new contracts or product-line introductions
Litigation involving substantial amounts of money
Changes in management
These insider-trading rules are applicable to employees of Ralph Lauren and its Subsidiaries and Affiliates worldwide.
COMPANY BLACKOUT PERIODS
To avoid even the appearance of “insider trading,” our Company’s Securities Trading policy prohibits members of
the Board of Directors, all employees and their “Related Parties“ (as such term is defined in the Company’s Securities
Trading Policy) from making trades involving stock of the Company during certain “blackout periods.” This prohibition
covers all transactions in the Company’s securities, including buying or selling shares, cashless exercise of Stock
Options and cash exercises of Stock Options. These blackout periods generally begin two weeks before the end of
each of our fiscal quarters and continue through one trading day after the Company issues its earnings release for the
fiscal quarter or year just ended. If the earnings release is issued before the opening of the market on a trading day,
trading may begin the next day. The blackout periods are announced at the start of each year. The Company may
prohibit trading of the Company’s stock at any time it deems such trading to be inappropriate, even outside the regular
blackout periods. Individuals who receive a specific notification prohibiting them from trading the Company’s stock
should note that such notification takes precedence over pre-announced blackout periods. In addition, members of the
Board of Directors, Officers (any employee who is a Corporate Vice President / Division Senior Vice President or
above), and all employees in the Finance, Legal and Human Resources departments must clear all trades with the
Corporate Counsel, or their designee, at all times.
April 1, 2013
Fiscal 2014 Stock Option Overview
8
ADDITIONAL PROHIBITED TRANSACTIONS
Because we believe it is inappropriate for any Company personnel to engage in short-term or speculative transactions
involving the Company’s Common Stock, it is Company policy that employees do not engage in any of the following
activities with respect to the securities of the Company:
•
“In and out” trading in securities of the Company. Any Company stock purchased in the market must be
held for a minimum of six months, and ideally longer. (Note that the Securities and Exchange Commission (SEC)
has a “short-swing profit recapture” rule that effectively prohibits Executive Officers and members of the Board
of Directors from selling any Company stock within six months of a purchase. The Company has extended this
prohibition to all employees. The receipt of shares pursuant to the exercise of Stock Options is not considered
a purchase under the SEC’s rule.)
•
•
Short sales (i.e., selling stock one does not own and then borrowing the shares to make delivery)
Buying or selling “puts” or “calls” (i.e., making commitments to buy or sell securities at a specified price for
a fixed period of time)
CLEARANCE OF ALL TRADES BY OFFICERS AND OTHER KEY PERSONNEL
For employees at the Corporate Vice President and Division Senior Vice President level or above
(“Officers”) and for all employees in the Finance, Legal and Human Resources departments, all
transactions in the Company’s securities (including, but not limited to purchases, sales, transfers, etc.)
must be conducted during an open trading window and pre-cleared with the Corporate Counsel, or their
designee. If contemplating a transaction, please provide a written request via e-mail to
RLTrading@ralphlauren.com, specifying the number of Stock Options you wish to exercise and/or the
number of shares you wish to purchase or sell before contacting Merrill Lynch or any other broker, or
taking any other step to initiate a transaction.
April 1, 2013
Fiscal 2014 Stock Option Overview
9
COMPLIANCE WITH SECTION 409A
To the extent applicable, the Plan shall be interpreted in accordance with Section 409A of the Internal Revenue Code of 1986 and
the Department of Treasury Regulations and other interpretive guidance issued hereunder (“Section 409A”). Notwithstanding
any provision of the Plan to the contrary, it is intended that this Plan comply with Section 409A, and all provision of this Plan
shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes or penalties under Section
409A. Each Participant is solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on or
in respect of such Participant in connection with this Plan or any other plan maintained by the Company (including any taxes and
penalties under Section 409A), and neither the Company nor any Affiliate shall have any obligation to indemnify or otherwise
hold such Participant (or any beneficiary) harmless from any or all of such taxes or penalties.
FOREIGN AWARDS AND RIGHTS
Notwithstanding any provision of the Plan to the contrary, to comply with securities, exchange control, labor, tax, or other applicable
laws, rules or regulations in countries outside of the United States in which the Company and its Subsidiaries operate or have
Employees, Consultants, or directors, and/or for the purpose of taking advantage of tax favorable treatment for Awards granted
to Participants in such countries, the Committee, in its sole discretion, shall have the power and authority to (i) amend or modify
the terms and conditions of any Award granted to a Participants; (ii) establish, adopt, interpret, or revise any rules and procedures
to the extent such actions may be necessary or advisable, including adoption of rules or procedures applicable to particular
Subsidiaries or Participants residing in particular locations; and (iii) take any action, before or after an Award is made, that it
deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals. Without
limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules or procedures with provisions that
limit or modify rights on eligibility to receive an Award under the Plan or on termination of Service, available methods of exercise
or settlement of an Award, payment of Tax-Related items, the shifting of employer tax liability to the Participant, tax withholding
procedures, restrictions on the sale of shares of Class A Common Stock of the Company, and the handling of stock certificates or
other indicia of ownership. Notwithstanding the foregoing, the Committee may not take actions hereunder, and no Awards shall
be granted, that would violate the U.S. Securities Act of 1933, as amended, the Exchange Act, the Code, any securities law or
governing statute.
EXCHANGE RATES
Neither the Company nor any Subsidiary shall be liable to a Participant for any foreign exchange rate fluctuation between the
Participant’s local currency and the U.S. Dollar that may affect the value of the Participant’s Award or of any amounts due to the
Participant pursuant to the settlement of the Award or, if applicable, the subsequent sale of Class A Common Stock acquired upon
settlement.
________________________________________________________________
In the event of any discrepancy between this Stock Option Overview, and either the terms of the Plan or the provisions under which
the Plan is administered and governed by the Compensation Committee, the Plan and the determination of the Compensation
Committee will govern, as applicable. This Overview is qualified in its entirety based on the determinations, interpretations and
other decisions made within the sole discretion of the Compensation Committee.
April 1, 2013
Fiscal 2014 Stock Option Overview
10
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
Exhibit 10.28
Cliff Restricted Performance Share Unit with TSR
Modifier Award
Fiscal 2015 – Overview
April 1, 2014
This Overview is qualified in its entirety by reference to the Memorandum to Participants in the Ralph Lauren
Corporation 2010 Long-Term Stock Incentive Plan and to the Plan itself. Copies of the Memorandum and the
Plan are available from your Human Resources Department.
OVERVIEW
The Ralph Lauren Corporation (the “Company”) 2010 Long-Term Stock Incentive Plan (the “Plan”) authorizes
the Compensation & Organizational Development Committee of the Board of Directors (the “Compensation
Committee”) to grant equity awards to officers and other employees of the Company and its Subsidiaries and
Affiliates.
As determined by the Compensation Committee, the Company may grant one or more types of Restricted
Performance Share Unit awards (“RPSUs”). This Overview describes an additional type of RPSU that has
three-year cliff vesting with a Total Shareholder Return modifier (“Cliff RPSU with TSR Modifier”). The term
“cliff” vesting is used since all units in a given Cliff RPSU with TSR Modifier award are eligible to vest at the
same time
A Cliff RPSU with TSR Modifier award provides a participant the opportunity to receive shares of the Company’s
Class A Common Stock (traded on the New York Stock Exchange under the symbol RL) at a later date contingent
upon achievement of performance goals over a specified period, generally three fiscal years, and contingent
upon continued service with the Company.
AWARD OBJECTIVES
Objectives of RPSUs, including Cliff RPSUs with TSR Modifier, are to:
1.
Attract and retain exceptional individuals of superior talent
2. Motivate such individuals to achieve longer-range performance goals
3.
Enable such individuals to participate in the long-term growth and financial success of the Company
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
2
PLAN ADMINISTRATION
The Company’s Human Resources Department administers the program and Merrill Lynch Wealth Management
(“Merrill Lynch”) is the recordkeeper. Participants must have an open brokerage account at Merrill Lynch
in order to facilitate distribution of shares of the Company’s Class A Common Stock upon the vesting of
Cliff RPSUs with TSR Modifier. To open a brokerage account, or for questions regarding your account and
account transactions, contact Merrill Lynch at (212) 236-5574 or (800) 937-0526.
The Company’s Board of Directors reserves the right to amend, modify or terminate the Plan, subject to
stockholder approval, if required. No such amendment to the Plan would adversely affect any Cliff RPSU with
TSR Modifier awards then outstanding.
Nothing contained herein may be construed as creating a promise of future benefits or a binding contract with
the Company. Further, an individual’s employment continues to be at will, subject to any applicable employment
agreement.
For questions regarding the Plan and its provisions, contact Human Resources.
ELIGIBILITY FOR GRANT
Equity awards, including Cliff RPSU with TSR Modifier awards, may be granted annually to designated, key
executives who have a significant impact on the strategic direction and business results of the Company, and
who are actively employed on April 1 of the year when the grant is made.
Guidelines have been established for the number and type of equity awards that eligible participants may receive.
The guidelines reflect a position’s scope, accountability and impact on the organization, and may also reflect
changes in the value of the Company’s Class A Common Stock.
Please note that the guidelines do not constitute a guarantee that any specific individual will receive an
equity award in any given or subsequent year, or guarantee the type, value, or size of any grant, if a grant is
made.
An eligible employee who receives a Below Expectations (B) or Unsatisfactory (U) rating
on his or her annual performance appraisal is not eligible for an equity award
in the fiscal year following that performance appraisal period.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
3
PERFORMANCE MEASURES FOR CLIFF VESTING
The Company’s performance measure(s) and TSR Modifier are set by the Compensation Committee at the time
of grant from a list of performance criteria set forth in the Plan. Such measure(s) may include, for example,
one or more of the following:
Net Earnings or Net Income (before or after taxes)
Basic or Diluted Earnings Per Share (before or after taxes)
Net Operating Profit (before or after taxes)
Net Revenue or Net Revenue Growth
Gross Profit or Gross Profit Growth
Return Measures (including but not limited to Return on Assets, Investments, Capital)
Other measures of economic value added or other value creation metrics
The TSR Modifier is based on the Company’s total shareholder’s return over the performance period compared
to the TSR of the companies in the S&P 500 index for the same period. TSR shall be measured by share price
appreciation, plus dividends reinvested, with starting and ending share prices being based on the average closing
prices for the 20 trading days ending immediately prior to the beginning and end of the three year performance
period.
STRUCTURE OF GRANTS AND PAYOUT SCHEDULE
A participant is awarded a target number of Cliff RPSUs with TSR Modifier on grant date. Applicable Threshold,
Target and Maximum levels of Company performance are established at the beginning of the performance
period. After the number of shares earned based on the Company performance measure is determined, the
relative TSR modifier may either increase or decrease the number of shares earned from +25% to -25%.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
4
The shares will be modified based on the TSR performance as shown in the charts below.
TSR MODIFIER AND PAYOUT ADJUSTMENT
Relative TSR Performance
> 80th Percentile
> 60th Percentile and < 80th Percentile
> 40th Percentile and < 60th Percentile
> 30th Percentile and < 40th Percentile
< 30th Percentile
TSR Modifier
Payout
Adjustment
+25%
+12.5%
0%
-12.5%
-25%
EFFECT OF TSR MODIFIER ON TOTAL PAYOUT
Company Performance
Relative TSR Performance
Performance
Level
Performance
as % of Target
Payout as % of
Target
TSR Modifier
Total Payout as % of
Target
Maximum
Target
Threshold
110%
100%
70%
150%
100%
75%
-25% to +25%
112.5% - 187.5%
-25% to +25%
75% - 125%
-25% to +25%
56.25% - 93.75%
Vesting is interpolated for performance between 70%-110% of
target and then adjusted based on the TSR modifier. No payout
will be earned for performance below Threshold.
Adjustment for TSR Modifier will not be interpolated between
performance levels.
Once a Cliff RPSU with TSR Modifier award is granted, the performance measure(s), performance goals,
vesting and payout schedule will not be modified during the term for that particular award. However, in
determining performance against the goal, the Company’s results may be adjusted to exclude the effects of
certain events and transactions as specified by the Compensation Committee at the time of grant. The TSR
Modifier will not be subject to any adjustment. For any future awards, the Compensation Committee may
change the performance measure(s), goals, vesting and payout schedule(s).
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
5
FISCAL 2015 GRANT PERFORMANCE MEASURE, PERFORMANCE LEVELS AND VESTING
The Company performance measure for fiscal 2015 Cliff RPSU with TSR Modifier awards is Cumulative
Net Earnings for fiscal years 2015-2017. The TSR Modifier is based on the Company’s TSR over the
2015-2017 fiscal year performance periods. Vesting of Cliff RPSUs with TSR Modifier, and the distribution
of the Company’s Class A Common Stock, will occur after the end of Fiscal 2017, as soon as
administratively practical following certification of achievement of the Company performance goals and
relative TSR performance by the Compensation Committee. The vesting date typically occurs in June of
each year, but may be earlier or later.
If Threshold or better Company performance is achieved, and the participant has had continuous service with
the Company through the vesting date, shares of the Company’s Class A Common Stock will be distributed
to participants upon the vesting of Cliff RPSUs with TSR Modifier. Upon vesting, the participant will own
the shares and as a shareholder of the Company’s Class A Common Stock, will have voting rights and will
receive dividends, if applicable, on such shares. Prior to the vesting date, dividends are not earned on Cliff
RPSUs with TSR Modifier and the participant does not have voting rights. If performance is below
Threshold at the end of the performance period, all Cliff RPSUs with TSR Modifier granted for that award
will be forfeited.
Cliff RPSUs with TSR Modifier granted in fiscal 2015 are scheduled to vest after fiscal 2017, subject to the
Company’s achievement of the cumulative performance goals specified, and the participant’s continuous service
with the Company.
EXAMPLES OF PERFORMANCE LEVEL, VESTING AND PAYOUT OF FY15 GRANT 1
# Cliff
RPSUs with
TSR Modifier
Granted
Net Income
(NI)
Performance
Level 2
% of Target
Award
Earned Based
on NI
Performance1
TSR
Performance
Level 2
TSR
Modifier
Adjustment
Vested
Percentage
with TSR
Modifier
# of
Shares
Vested
1,000
1,000
1,000
115%
100%
80%
150%
100%
83%
84th Percentile
+25%
187.5%
65th Percentile
+12.5%
112.5%
35th Percentile
-12.5%
72.6%
1,875
1,125
726
1 FY15 – FY17 Performance Period; vesting typically occurs in June, but may be earlier or later
2 Examples are hypothetical and not a forecast of future performance or payout percentages
In the U.S. and in many other jurisdictions, vesting of RPSUs and the delivery of shares of Class A Common
Stock is a taxable event. When shares are distributed, a portion of the shares are withheld to satisfy
withholding requirements, and the net shares are delivered to participants in their Merrill Lynch account.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
6
VALUE OF RESTRICTED PERFORMANCE SHARE UNITS
If Threshold or better Company performance against the applicable goal is achieved, Cliff RPSUs with TSR
Modifier offer the opportunity to recognize value in several ways:
Receive shares of RL Class A Common Stock without paying any exercise price
The number of Cliff RPSUs with TSR Modifier vesting can range from 56.25% to 187.5% of the target
shares granted
Any increases in the Company’s Class A Common Stock price above the price on the grant date increases
the value of the award
The example below illustrates the opportunity for gains in the value of the award at various Company Class
A Common Stock prices.
Award of 1,000 Cliff RPSUs with TSR Modifier
Company
Performance At:
Relative TSR
Valued At:
Total Payment
Modifier %
# of Shares
$150
$175
$200
$225
Threshold
< 30th Percentile
56.25%
562
$84,300
$98,350
$112,400
$126,450
If Stock Price Reaches:
Target
40th and < 60th
Percentile
100%
1,000
$150,000
$175,000
$200,000
$225,000
Maximum
> 80th Percentile
187.5%
1,875
$281,250
$328,125
$375,000
$421,875
Note: Value is before tax and a portion of the shares will be withheld to satisfy required tax withholding.
Example is hypothetical and is not a forecast of growth in the Company’s Class A Common Stock price.
If performance calculation results in fractional shares, the fractional shares will be paid in cash.
SALE OF SHARES SUBSEQUENT TO DISTRIBUTION
Shares received from the vesting of a Cliff RPSU with TSR Modifier award may be sold subject to the Company’s
trading restrictions as set forth in the Company’s Securities Trading policy beginning on page 9. In certain
circumstances, certain Executive Officers may sell shares pursuant to Rule 144 or another applicable exemption
under the U.S. Securities Act of 1933, as amended.
In the U.S. and in many other jurisdictions, sale of such shares after vesting has tax implications. Contact your
financial advisor for important information about how a subsequent sale of shares impacts you. Once Cliff
RPSUs with TSR Modifier awards have vested and you receive shares of the Company’s Class A Common
Stock from the vesting of a particular Cliff RPSU with TSR Modifier award, you retain all rights to those shares,
regardless of your employment status with the Company.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
7
IF YOU LEAVE THE COMPANY
Event
Normal Retirement
(Age 65)
Early Retirement
(Age 55 through age 64
with 7 or more years of service)
Long-Term Disability (LTD)
Death
Status of Cliff RPSU with TSR Modifier Awards
• In the case of retirement, LTD or death, a pro-rated1 target
number of outstanding Cliff RPSUs with TSR Modifier
grants will be determined
• These pro-rated Cliff RPSUs with TSR Modifier will be
eligible to vest2 after the end of the applicable performance
period based on the actual degree of achievement, and the
number of shares paid out will be adjusted based on relative
TSR performance. If performance against the Company
performance goal does not reach the Threshold level,
then the pro-rated Cliff RPSUs with TSR Modifier will
be forfeited.
• All remaining Cliff RPSUs with TSR Modifier are
forfeited
Voluntary Resignation
• All unvested Cliff RPSUs with TSR Modifier are forfeited
Involuntary Termination
(Without Cause)
• All unvested Cliff RPSUs with TSR Modifier are forfeited
Dismissal for Cause
(As defined by the Company or,
if applicable, the participant’s
employment agreement)
• All vested Cliff RPSUs with TSR Modifier not yet
distributed into shares of the Company’s Class A Common
Stock are forfeited
• All unvested Cliff RPSUs with TSR Modifier are forfeited
1 The pro-rata portion will be determined by taking the number of full months worked during the corresponding performance period,
dividing it by the number of months in the performance period, and then multiplying the resulting decimal by the number of Cliff
RPSUs with TSR Modifier granted for that performance period.
2 Vesting occurs after the end of the performance period following certification of achievement of performance goals by The
Compensation Committee. The vesting date typically occurs in June of each year, but may be earlier or later. Your Merrill Lynch
statement reflects a performance end date, which is different from the actual vesting date.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
8
SECURITIES TRADING POLICY
INSIDER TRADING
As provided in the Company Employee Handbook, employees are prohibited by law from buying or selling
securities if an employee has or is aware of any material, non-public information about the Company and its
Subsidiaries and Affiliates. This is commonly referred to as “insider information.” Material, non-public
information is any information that has not been disclosed to the public that could affect the price of Company
Common Stock -- either positively or negatively -- or affect a person’s decision to buy, hold or sell securities.
Examples of what might be considered “insider information” include but are not limited to the following:
•
•
•
•
•
•
•
Earnings or other financial information
Changes in dividend policy
Stock splits
Mergers and acquisitions
Major new contracts or product-line introductions
Litigation involving substantial amounts of money
Changes in management
These insider-trading rules are applicable to employees of Ralph Lauren and its Subsidiaries and Affiliates,
worldwide.
COMPANY BLACKOUT PERIODS
To avoid even the appearance of “insider trading,” our Company’s Securities Trading policy prohibits
members of the Board of Directors, all employees and their “Related Parties“ (as such term is defined in the
Company’s Securities Trading Policy) from making trades involving stock of the Company during certain
“blackout periods.” This prohibition covers all transactions in the Company’s securities, including buying or
selling shares, including shares of Class A Common Stock received upon the vesting of RPSUs. These
blackout periods generally begin two weeks before the end of each of our fiscal quarters and continue
through one trading day after the Company issues its earnings release for the fiscal quarter or year just
ended. If the earnings release is issued before the opening of the market on a trading day, trading may begin
the next day. The blackout periods are announced at the start of each year. The Company may prohibit
trading of the Company’s stock at any time it deems such trading to be inappropriate, even outside the
regular blackout periods. Individuals who receive a specific notification prohibiting them from trading the
Company’s stock should note that such notification takes precedence over pre-announced blackout periods.
In addition, members of the Board of Directors, Officers (any employee who is a Vice President or above),
and all employees in the Finance and Legal departments must clear all trades with the Corporate Counsel - or
their designee - at all times.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
9
ADDITIONAL PROHIBITED TRANSACTIONS
Because we believe it is inappropriate for any Company personnel to engage in short-term or speculative
transactions involving the Company’s Common Stock, it is Company policy that employees do not engage in
any of the following activities with respect to the securities of the Company:
•
“In and out” trading in securities of the Company. Any Company stock purchased in the market must
be held for a minimum of six months, and ideally longer. Note that the Securities and Exchange
Commission (SEC) has a “short-swing profit recapture” rule that effectively prohibits Executive Officers
and members of the Board of Directors from selling any Company stock within six months of a purchase.
The Company has extended this prohibition to all employees. The receipt of shares pursuant to the vesting
of Cliff RPSU awards is not considered a purchase under the SEC’s rule.
•
•
Short sales (i.e., selling stock one does not own and then borrowing the shares to make delivery)
Buying or selling “puts” or “calls” (i.e., making commitments to buy or sell securities at a specified
price for a fixed period of time)
CLEARANCE OF ALL TRADES BY DIRECTORS, OFFICERS AND OTHER KEY PERSONNEL
For employees at the Corporate Vice President and Division Senior Vice President level or above
(“Officers”) and for all employees in the Finance, Legal and Human Resources departments, all
transactions in the Company’s securities (including, but not limited to purchases, sales, transfers, etc.)
must be conducted during an open trading window and pre-cleared with the Corporate Counsel, or their
designee. If contemplating a transaction, please provide a written request via e-mail to
RLTrading@ralphlauren.com, specifying the number of Stock Options you wish to exercise and/or the
number of shares you wish to purchase or sell before contacting Merrill Lynch or any other broker, or
taking any other step to initiate a transaction.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
10
COMPLIANCE WITH SECTION 409A
To the extent applicable, the Plan shall be interpreted in accordance with Section 409A of the Internal Revenue Code of
1986 and the Department of Treasury Regulations and other interpretive guidance issued hereunder (“Section 409A”).
Notwithstanding any provision of the Plan to the contrary, it is intended that this Plan comply with Section 409A and all
provision of this Plan shall be construed and interpreted in a manner consistent with the requirements for avoiding taxes
or penalties under Section 409A. Each Participant is solely responsible and liable for the satisfaction of all taxes and
penalties that may be imposed on or in respect of such Participant in connection with this Plan or any other plan maintained
by the Company (including any taxes and penalties under Section 409A), and neither the Company nor any Affiliate shall
have any obligation to indemnify or otherwise hold such Participant (or any beneficiary) harmless from any or all of such
taxes or penalties.
In the event of any discrepancy between this Cliff RPSU with TSR Modifier Overview and either the Plan or the provisions
under which the Plan is administered by the Compensation Committee, the Plan and the determination of the Compensation
Committee will govern, as applicable. This Overview is qualified in its entirety based on the determinations, interpretations
and other decisions made within the sole discretion of the Compensation Committee.
Fiscal 2015 Cliff RPSU with TSR Modifier Overview
11
RALPH LAUREN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Exhibit 12.1
Earnings, as defined:
Income before provision for income taxes .........................
Add:
Equity in losses of equity-method investees .................
Fixed charges.................................................................
Subtract:
Income attributable to noncontrolling interests.............
Earnings available to cover fixed charges........................
Fixed Charges:
Interest expense ..................................................................
Interest component of rent expense....................................
Total fixed charges..............................................................
Ratio of earnings to fixed charges(a)..................................
Fiscal Years Ended
March 29,
2014
March 30,
2013
March 31,
2012
(millions)
April 2, 2011
April 3,
2010
$
1,096
$
1,089
$
1,015
$
825
$
689
9
170
—
1,275
19
151
170
7.5
$
$
$
10
162
1
1,260
19
143
162
7.8
$
$
$
9
164
—
1,188
22
142
164
7.3
$
$
$
$
$
$
8
124
—
957
18
106
124
7.7
$
$
$
6
111
—
806
22
89
111
7.2
(a) All ratios shown in the above table have been calculated using unrounded numbers.
(Excludes inactive subsidiaries)
SUBSIDIARIES OF THE COMPANY
EXHIBIT 21.1
Jurisdiction of Formation
Principality of Monaco
Nova Scotia
Spain
France
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Hong Kong
Netherlands
Netherlands
Entity Name
Acqui Polo CV............................................................................................................................. Netherlands
Acqui Polo Espana SL.................................................................................................................
Acqui Polo GP, LLC....................................................................................................................
Acqui Polo SAS...........................................................................................................................
Club Monaco (Hong Kong) Limited ...........................................................................................
Club Monaco Corp. .....................................................................................................................
Club Monaco S.A.M....................................................................................................................
Club Monaco U.S., LLC..............................................................................................................
Fashion Development Corp.........................................................................................................
Ralph Lauren Retail, Inc. (f/k/a Fashions Outlet of America, Inc.) ............................................
Mountain Rose (USA), LLC .......................................................................................................
Ralph Lauren Jeans Company, LLC (f/k/a Polo Apparel, LLC, Polo Apparel of Texas, Ltd.)...
Polo Fin BV.................................................................................................................................
Ralph Lauren Holding BV (f/k/a Polo Hold BV)........................................................................
RL International Assignments, Inc. (f/k/a Polo International Assignments Service Corp.)........
Polo Jeans Company, LLC (f/k/a Polo Jeans Company of Texas, Inc.)......................................
Polo JP Acqui B.V........................................................................................................................
Ralph Lauren Management Services, LLC (f/k/a Polo Management Services, LLC, Polo
Management Services, Inc.) ........................................................................................................
Polo Players, Ltd .........................................................................................................................
Ralph Lauren Asia Holding Company Limited (f/k/a Polo Ralph Lauren Asia Holding
Company Limited).......................................................................................................................
Ralph Lauren Asia Pacific Limited (f/k/a Polo Ralph Lauren Asia Pacific, Limited)................
Ralph Lauren Aviation, LLC (f/k/a Polo Ralph Lauren Aviation, LLC).....................................
Ralph Lauren Commerce & Trading (Shanghai) Co., Ltd (f/k/a Polo Ralph Lauren
Commerce & Trading (Shanghai) Co., Ltd)................................................................................
Ralph Lauren Europe Sàrl (f/k/a Polo Ralph Lauren Europe Sàrl) .............................................
Ralph Lauren Greece EPE (f/k/a PRL Greece EPE) ...................................................................
Ralph Lauren Garment Technology Consulting (Shenzhen) Co., Ltd (f/k/a Polo Ralph Lauren
Garment Technology Consulting (Shenzhen) Co., Ltd)..............................................................
Ralph Lauren Garment Technology Consulting (Shenzhen) Co., Ltd Shanghai Branch (f/k/a
Polo Ralph Lauren Garment Technology Consulting (Shenzhen) Co., Ltd. Shanghai Branch) .
Ralph Lauren Trading (Shanghai) Co., Ltd (f/k/a Polo Ralph Lauren Trading (Shanghai) Co.,
Ltd) ..............................................................................................................................................
Ralph Lauren Home Collection Showroom, LLC (f/k/a Polo Ralph Lauren Home Collection
Showroom, LLC).........................................................................................................................
Ralph Lauren (Hong Kong) Retail Company Limited (f/k/a Polo Ralph Lauren (Hong Kong)
Retail Company Limited) ............................................................................................................
Ralph Lauren (Hong Kong) Retail Company Limited Taiwan Branch (f/k/a Polo Ralph
Lauren (Hong Kong) Retail Company Limited Taiwan Branch)................................................
Ralph Lauren Corporation India Branch (f/k/a Polo Ralph Lauren Corporation India Branch).
Ralph Lauren Korea Ltd. (f/k/a Polo Ralph Lauren Korea Ltd) .................................................
Ralph Lauren Milan S.r.l (f/k/a Polo Ralph Lauren Milan S.r.l).................................................
Ralph Lauren (Macau) Limited (f/k/a Polo Ralph Lauren (Macau) Limited).............................
Ralph Lauren (Malaysia) Sdn Bhd (f/k/a Polo Ralph Lauren (Malaysia) Sdn Bhd)...................
Netherlands
Switzerland
Hong Kong
Hong Kong
Hong Kong
Delaware
Delaware
Delaware
Delaware
Malaysia
Taiwan
Greece
Macau
Korea
China
China
China
China
India
Italy
Entity Name
Jurisdiction of Formation
United Kingdom
Hong Kong
Italy
Italy
Japan
Japan
Sweden
Australia
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Singapore
New York
Ralph Lauren (Singapore) Private Limited (f/k/a Polo Ralph Lauren (Singapore) Private
Limited).....................................................................................................................................
Ralph Lauren Sourcing Americas, LLC (f/k/a Polo Ralph Lauren Sourcing Americas, LLC)
Ralph Lauren Sourcing Company, Ltd (f/k/a Polo Ralph Lauren Sourcing Company, Ltd)....
Ralph Lauren Sourcing Italy S.r.l. (f/k/a Polo Ralph Lauren Sourcing Italy S.r.l.)..................
Ralph Lauren Womenswear, LLC (f/k/a Polo Ralph Lauren Womenswear, LLC)...................
RL Retail Services Limited (f/k/a Polo Retail Europe Limited)...............................................
RL Travel, Inc (f/k/a Polo Wings II, Inc)..................................................................................
Ralph Lauren Scandinavia AB (f/k/a Poloco Scandinavia AB)................................................
Ralph Lauren Australia Pty Ltd (f/k/a PRL Australia Pty Ltd).................................................
Poloco USA, Inc .......................................................................................................................
PRL CMI, LLC .........................................................................................................................
PRL Fashions Inc. .....................................................................................................................
RL Fashions of Europe S.r.l. (f/k/a PRL Fashions of Europe S.r.l.).........................................
PRL International, Inc...............................................................................................................
Ralph Lauren Corporation Japan (f/k/a Polo Ralph Lauren Kabushiki Kaisha).......................
PRL Japan Kabushiki Kaisha....................................................................................................
PRL Japan Partnership NK .......................................................................................................
PRL Netherlands Limited, LLC (f/k/a Acqui Polo Limited, LLC)...........................................
Ralph Lauren Portugal, Unipessoal LDA (f/k/a PRL Portugal, Unipessoal LDA)...................
Ralph Lauren Lifestyle Concepts LLC (f/k/a PRL Restaurant Concepts of Illinois, LLC)......
Delaware
Ralph Lauren Lifestyle Concepts (NY) LLC............................................................................ New York
RL Services Srl (f/k/a PRL Sample Development Center Srl) .................................................
PRL S.R.L. ................................................................................................................................
Ralph Lauren Austria GmbH (f/k/a PRL Textil Gmbh)............................................................
PRL USA Holdings, Inc............................................................................................................
PRL USA, Inc. ..........................................................................................................................
Ralph Lauren Americas, S.A.....................................................................................................
Ralph Lauren Belgium S.p.r.l. (f/k/a Poloco Belgium S.p.r.l.).................................................
Ralph Lauren Brasil Participacoes Ltda.................................................................................... Brazil
Ralph Lauren Canada Corporation ...........................................................................................
Ralph Lauren Canada LP ..........................................................................................................
Ralph Lauren Denmark ApS (f/k/a Polo Ralph Lauren Denmark ApS)...................................
Ralph Lauren Espana SL (f/k/a Poloco Espana SL) .................................................................
Ralph Lauren Footwear Co., Inc. ..............................................................................................
Ralph Lauren France S.A.S. (f/k/a Poloco S.A.S.) ...................................................................
Ralph Lauren Germany Gmbh (f/k/a Polo Moden Gmbh) .......................................................
Ralph Lauren Home Collection, Inc. ........................................................................................
Ralph Lauren Ireland Limited...................................................................................................
Ralph Lauren Italy S.r.L............................................................................................................
Ralph Lauren Latin American Services, S. de R.L. ..................................................................
Ralph Lauren London Ltd. (f/k/a Ralph Lauren Limited) ........................................................
Ralph Lauren Madrid SL (f/k/a Ralph Lauren Spain SL).........................................................
France
Germany
Delaware
Argentina
Delaware
Delaware
Delaware
Denmark
Belgium
Portugal
Panama
Canada
Canada
Austria
Ireland
Panama
Spain
Spain
Japan
Italy
Italy
Ralph Lauren Media, LLC ........................................................................................................
Ralph Lauren Netherlands BV (f/k/a Poloco Netherlands BV) ................................................
Delaware
Netherlands
.............................................................. Turkey
Massachusetts
United Kingdom
Jurisdiction of Formation
United Kingdom
France
France
Switzerland
Entity Name
Ralph Lauren New Zealand Limited......................................................................................... New Zealand
Ralph Lauren Paris S.A.S. (f/k/a PRL France S.A.S.) ..............................................................
Ralph Lauren Saint Barth S.A.S. (f/k/a Polo Ralph Lauren S.A.S. (St. Barthelemy) ..............
Ralph Lauren Switzerland Sagl.................................................................................................
Ralph Lauren UK Ltd. (f/k/a Polo UK Ltd.).............................................................................
Ralph Lauren Vietnam Limited Liability Company ................................................................. Vietnam
Ralph Lauren Vietnam Limited Liability Company, Ho Chi Minh City Branch...................... Vietnam
Ralph Lauren Watch and Jewelry Company Sàrl (50% ownership).........................................
Rodeo Girl Productions, Inc......................................................................................................
RL Fragrances, LLC..................................................................................................................
RL Hellas Resorts EPE .............................................................................................................
RLPR, Inc..................................................................................................................................
RL Retail France S.A.S. (f/k/a PFO Retail Management S.A.S.).............................................
RLWW, LLC (f/k/a RLWW, Inc.).............................................................................................
Sun Apparel, LLC (f/k/a Sun Apparel, Inc.).............................................................................
The Polo/Lauren Company L.P.................................................................................................
The Ralph Lauren Womenswear Company, L.P.......................................................................
Ralph Lauren Company West, LLC (f/k/a Western Polo Retailers, LLC)................................
WSH, LLC ................................................................................................................................
The RL Trading Company Ltd..................................................................................................
Delaware
New York
Switzerland
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Greece
France
United Kingdom
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1997 Long-Term
Stock Incentive Plan (Registration No. 333-141298), Form S-8 pertaining to the 1997 Long-Term Stock Incentive Plan (Registration
No. 333-46808), Form S-8 pertaining to the 1997 Long-Term Stock Incentive Plan and 1997 Stock Option Plan for Non-Employee
Directors (Registration No. 333-29023), Form S-8 pertaining to the 2010 Long-Term Stock Incentive Plan (Registration No.
333-169619), Form S-8 pertaining to the Amended and Restated 2010 Long-Term Stock Incentive Plan (Registration No.
333-191338), Form S-3 pertaining to the registration of 10,350,000 Class A Common Shares (Registration No. 333-167503) of
Ralph Lauren Corporation, and Form S-3 pertaining to the September 2013 registered public debt offering (Registration No.
333-191302) by Ralph Lauren Corporation, of our reports dated May 15, 2014, with respect to the consolidated financial statements
of Ralph Lauren Corporation and the effectiveness of internal control over financial reporting of Ralph Lauren Corporation included
in this Annual Report (Form 10-K) for the year ended March 29, 2014, filed with the Securities and Exchange commission.
/s/ ERNST & YOUNG LLP
New York, NY
May 15, 2014
EXHIBIT 31.1
I, Ralph Lauren, certify that:
1.
I have reviewed this annual report on Form 10-K of Ralph Lauren Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
/s/ RALPH LAUREN
Ralph Lauren
Chairman of the Board and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2014
EXHIBIT 31.2
I, Christopher H. Peterson, certify that:
1.
I have reviewed this annual report on Form 10-K of Ralph Lauren Corporation;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting.
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize
and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
/s/ CHRISTOPHER H. PETERSON
Christopher H. Peterson
Executive Vice President, Chief Administrative Officer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 2014
EXHIBIT 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
In connection with the Annual Report of Ralph Lauren Corporation (the "Company") on Form 10-K for the period ended
March 29, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ralph Lauren,
Chief Executive 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; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ RALPH LAUREN
Ralph Lauren
May 15, 2014
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Ralph Lauren Corporation and will be retained by Ralph Lauren Corporation and furnished
to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
Certification of Christopher H. Peterson Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of Ralph Lauren Corporation (the "Company") on Form 10-K for the period ended
March 29, 2014, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Christopher H.
Peterson, Chief Financial 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; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of
operations of the Company.
/s/ CHRISTOPHER H. PETERSON
Christopher H. Peterson
May 15, 2014
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by
Section 906, has been provided to Ralph Lauren Corporation and will be retained by Ralph Lauren Corporation and furnished
to the Securities and Exchange Commission or its staff upon request.