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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED APRIL 1, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 001-13057
POLO RALPH LAUREN CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 13-2622036
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
650 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
212-318-7000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE
ON WHICH REGISTERED
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Class A Common Stock, $.01 par value New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 /x/ No / /.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best 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. /x/
The aggregate market value of the registrant's voting stock held by
nonaffiliates of the registrant was approximately $432,098,660 at June 22,
2000.
At June 22, 2000, 31,046,947 shares of the registrant's Class A Common Stock,
$.01 par value, and 43,280,021 shares of the registrant's Class B Common Stock,
$.01 par value and 22,720,979 shares of the registrant's Class C Common Stock,
$.01 par value, were outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENT WHERE INCORPORATED
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Proxy Statement for Annual Meeting of Part III
Stockholders to be held August 17, 2000
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PART I
ITEM 1. BUSINESS.
Unless the context requires otherwise, references to the "Company" or to
"Polo" are to Polo Ralph Lauren Corporation and its subsidiaries. Due to the
collaborative and ongoing nature of the Company's relationships with its
licensees, such licensees are referred to in this Form 10-K as "licensing
partners" and the relationships between the Company and such licensees are
referred to as "licensing alliances." Notwithstanding these references, however,
the legal relationship between the Company and its licensees is one of licensor
and licensee, and not one of partnership.
Polo is a leader in the design, marketing and distribution of premium
lifestyle products. For more than 30 years, Polo's reputation and distinctive
image have been consistently developed across an expanding number of products,
brands and international markets. The Company's brand names, which include
"Polo," "Polo by Ralph Lauren," "Ralph Lauren Purple Label," "Polo Sport,"
"Ralph Lauren," "RALPH," "Lauren," "Polo Jeans Co.," "RL," "Chaps" and "Club
Monaco," among others, constitute one of the world's most widely recognized
families of consumer brands. Directed by Ralph Lauren, the internationally
renowned designer, the Company believes it has influenced the manner in which
people dress and live in contemporary society, reflecting an American
perspective and lifestyle uniquely associated with Polo and Ralph Lauren.
Polo combines its consumer insight and design, marketing and imaging skills
to offer, along with its licensing partners, broad lifestyle product collections
in four categories: apparel, home, accessories and fragrance. Apparel products
include extensive collections of menswear, womenswear and children's clothing.
The Ralph Lauren Home Collection offers coordinated products for the home,
including bedding and bath products, interior decor, furniture and tabletop and
gift items. Accessories encompass a broad range of products such as footwear,
eyewear, jewelry and leather goods (including handbags and luggage). Fragrance
and skin care products are sold under the Company's Polo, Lauren, Romance,
Safari and Polo Sport brands, among others.
On May 3, 1999, the Company completed its acquisition of Club Monaco Corp.
Founded in 1985, Club Monaco is an international specialty retailer of casual
apparel and other accessories for men, women and children under the "Club
Monaco" brand name and a number of associated trademarks.
On January 6, 2000, the Company completed the acquisition of stock and
certain assets of Poloco S.A.S. and certain of its affiliates ("Poloco"), which
hold licenses to sell in Europe men's and boys' Polo apparel, men's and women's
Polo Jeans apparel and certain Polo accessories. In addition to acquiring
Poloco's Wholesale business, the Company acquired from Poloco one flagship store
located on Place de Madeleine in Paris and six outlet stores located in France,
the United Kingdom and Austria. In addition, Poloco sublicenses various of its
rights under its license with Polo with companies in the Middle East and Israel.
The Company will consolidate the results of operations of Poloco commencing in
fiscal 2001. For purposes of the following description of Polo's business, the
activities of Poloco are not included.
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On February 7, 2000, the Company announced the formation of Ralph Lauren
Media, LLC ("RL Media"), a joint venture between the Company and NBC and certain
affiliated companies. RL Media was created to bring the Company's American
lifestyle experience to consumers via multiple media platforms, including the
Internet, broadcast, cable and print. Under the 30-year joint venture agreement,
RL Media will be owned 50% by the Company, 25% by NBC, 12.5% by Value Vision
International, Inc. ("ValueVision"), 10% by NBC Internet, Inc. ("NBCi") and 2.5%
by CNBC.com. In exchange for its 50% interest, the Company will provide
marketing through its annual print advertising campaign, make its merchandise
available at initial cost of inventory, and handle excess inventory through its
outlet stores, among other things. NBC will contribute $110.0 million of
television and online advertising on NBC and CNBC.com properties. NBCi will
contribute $40.0 million in online distribution and promotion and ValueVision
will contribute a cash funding commitment of up to $50.0 million. Under the
arrangement, the Company will not absorb any losses from the joint venture up to
the first $50.0 million incurred and will share proportionately in the net
income or losses thereafter. Additionally, the Company will receive a royalty on
the sale of its products by RL Media based on specified percentages of net sales
over a predetermined threshold, subject to certain limitations. RL Media's
managing board has equal representation from the Company and NBC, including its
affiliated companies.
RL Media's premier initiative will be Polo.com, an internet web site
dedicated to the American lifestyle that will include original content, commerce
and a strong community component. Polo.com is expected to launch in the third
quarter of fiscal 2001 and will initially include an assortment of men's women's
and children's products across the Ralph Lauren family of brands as well as
unique gift items.
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OPERATIONS
Polo's business consists of three integrated operations: wholesale, retail
and licensing. Each is driven by the Company's guiding philosophy of style,
innovation and quality.
Details of the Company's net revenues are shown in the table below.
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FISCAL YEAR
2000(1) 1999 1998
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(IN THOUSANDS)
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Wholesale net sales $ 878,395 $ 845,704 $ 733,065
Retail sales 833,980 659,352 570,751
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Net sales 1,712,375 1,505,056 1,303,816
Licensing revenue 236,302 208,009 167,119
Other income 6,851 13,794 9,609
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Net revenues $1,955,528 $1,726,859 $1,480,544
========== ========== ==========
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(1) On May 3, 1999, a wholly owned subsidiary of the Company completed its
acquisition of Club Monaco. The Company has consolidated the operations
of Club Monaco in its financial statements from the effective date of
the transaction.
WHOLESALE
Polo's wholesale business is divided into two groups: Polo Brands and Ralph
Lauren Collection Brands. In both of these wholesale groups, the Company offers
several discrete brand offerings. Each collection is directed by teams
consisting of design, merchandising, sales and production staff who work
together to conceive, develop and merchandise product groupings organized to
convey a variety of design concepts. In addition, Polo's subsidiary, Club
Monaco, operates a cosmetics business, Club Monaco Cosmetics, which in addition
to distributing its products through Club Monaco stores, sells its products to
domestic and international specialty stores.
POLO BRANDS
The Polo Brands Group sources, markets and distributes products under the
Polo by Ralph Lauren and Polo Sport men's brands, the Ralph Lauren Polo Sport
women's brand and the RLX Polo Sport and Polo Golf brands for men and women.
POLO BY RALPH LAUREN. The Polo by Ralph Lauren menswear collection is a
complete men's wardrobe consisting of products related by theme, style, color
and fabric. Polo by Ralph Lauren menswear is generally priced at a range of
price points within the men's premium ready-to-wear apparel market. This
collection is currently sold through approximately 2,200 department store,
specialty store and Polo store doors in the United States, including
approximately 1,500 department store shop-within-shops.
POLO SPORT. The Polo Sport collection of men's activewear and sportswear is
designed to meet the growing consumer demand for apparel for the active
lifestyle. Polo Sport is offered at a range of price points generally consistent
with prices for the Polo by Ralph Lauren line, and is distributed through the
same channels as Polo by
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Ralph Lauren.
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RALPH LAUREN POLO SPORT. Similar to its menswear counterpart, the Ralph
Lauren Polo Sport collection for women includes activewear, as well as weekend
sportswear. The Ralph Lauren Polo Sport collection is currently carried by
approximately 420 doors in the United States, including approximately 180
shop-within-shops, and sells at a wide range of bridge prices.
RLX POLO SPORT. Introduced in Spring 1999, the RLX Polo Sport collection of
menswear and womenswear consists of functional sport and outdoor apparel for
running, cross-training, skiing, snowboarding and cycling. RLX Polo Sport is
presently sold in the United States through approximately 430 athletic specialty
stores, in addition to limited department and Polo stores, at price points
competitive with those charged by other authentic sports apparel companies.
POLO GOLF. The Polo Golf collection of men's and women's golf apparel is
targeted at the golf and resort markets. Price points are similar to those
charged for products in the Polo Sport line. The Polo Golf collection is
presently sold in the United States through approximately 2,150 leading golf
clubs, pro shops and resorts, in addition to department, specialty and Polo
stores.
COLLECTION BRANDS
The Collection Brands Group sources, markets and distributes products under
the Women's Ralph Lauren Collection and Ralph Lauren Black Label brands and the
Men's Ralph Lauren/Purple Label Collection Brand.
RALPH LAUREN COLLECTION AND RALPH LAUREN BLACK LABEL. The Ralph Lauren
Collection, sold under the Purple Label (the "Collection"), expresses the
Company's up-to-the-moment fashion vision for women. Ralph Lauren Black Label
includes timeless versions of the Company's most successful Collection styles,
as well as newly-designed classic signature styles that are timeless. Collection
and Black Label are offered for limited distribution to premier fashion
retailers and through Polo stores. Price points are at the upper end or luxury
ranges. The lines are currently sold by the Company through 95 doors in the
United States by the Company and over 245 international doors by the Company and
its licensing partners.
RALPH LAUREN/PURPLE LABEL COLLECTION. In Fall 1995, the Company introduced
its Purple Label Collection of men's tailored clothing and, in Fall 1997, to
complement the tailored clothing line, the Company launched its Purple Label
sportswear line. Purple Label Collection tailored clothing is manufactured and
distributed by a licensee, and dress shirts and ties and sportswear are sourced
and distributed by the Company. The Purple Label Collection is sold through a
limited number of premier fashion retailers, currently through approximately 60
doors in the United States and 13 internationally.
CLUB MONACO COSMETICS
Capturing a modern spirit of beauty, Club Monaco Cosmetics' easy-to-apply
and easy-to-wear line of neutral and fashion colors was launched in 1996. The
line consists of makeup and makeup accessories and skin treatments. Club Monaco
Cosmetics are sold through Club Monaco retail stores and currently through
approximately 50 specialty store doors.
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DOMESTIC CUSTOMERS AND SERVICE
GENERAL. Consistent with the appeal and distinctive image of its products
and brands, the Company sells its menswear, womenswear and home furnishings
products primarily to leading upscale department stores, specialty stores, golf
and pro shops and Polo stores located throughout the United States, which have
the reputation and merchandising expertise required for the effective
presentation of Polo products. See " -- Licensing Alliances - Home Collection."
The Company's wholesale and home furnishings products are distributed
through the primary distribution channels in the United States listed in the
table below. In addition, the Company also sells excess and out-of-season
products through secondary distribution channels.
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APPROXIMATE NUMBER OF
DOORS AS OF APRIL 1, 2000
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CLUB MONACO
POLO BRANDS COLLECTION COSMETICS HOME COLLECTION
BRANDS
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Department Stores ....... 1,750 85 -- 1,500
Specialty Stores ........ 845 32 50 20
Polo Stores ............. 35 30 -- 21
Golf & Pro Shops ........ 2,150 -- -- --
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Department stores represent the largest customer group of each wholesale
group and of Home Collection. Major department store customers include Dillard
Department Stores, Inc., Federated Department Stores, Inc. and The May
Department Stores Company. During fiscal 2000, Dillard Department Stores, Inc.,
Federated Department Stores, Inc. and The May Department Stores Company
accounted for 22.9%, 22.2% and 19.5%, respectively, of the Company's wholesale
net sales.
Collection and Polo Brands and Home Collection products are primarily sold
through their respective sales forces aggregating approximately 176 salespersons
employed by Polo. The Polo Brands Group maintains its primary showroom at Polo's
New York City executive headquarters. Regional showrooms for Polo Brands are
located in Atlanta, Chicago, Dallas and Los Angeles. An independent sales
representative promotes sales to U.S. military exchanges. The Collection Brands
Group and Home Collection division maintain their primary showrooms in New York
City. Regional sales representatives for the Home Collection are located in the
Company's showrooms in Atlanta, Chicago, Dallas and Los Angeles. The Company
also operates a separate tabletop showroom in New York City. The Club Monaco
Cosmetics showroom is located in Toronto.
SHOP-WITHIN-SHOPS. As a critical element of its distribution to department
stores, the Company and its licensing partners utilize shop-within-shops to
enhance brand recognition, permit more complete merchandising of the Company's
lines and differentiate the presentation of products. The Company intends to add
approximately 55 shop-within-shops and refurbish approximately 620
shop-within-shops in fiscal 2001. At April 1, 2000, department store customers
in the United States had installed over 2,300 shop-within-shops dedicated to the
Company's products and over 2,300 shop-within-shops dedicated to Polo's licensed
products.
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The size of Polo shop-within-shops (excluding significantly larger
shop-within-shops in key department store locations) typically ranges from
approximately 1,000 to 1,500 square feet for Polo Brands, from approximately 800
to 1,200 square feet for Collection Brands, and from approximately 800 to 1,200
square feet for home furnishings. The Company estimates that, in total,
approximately 2.1 million square feet of department store space in the United
States is dedicated to Polo shop-within-shops. In addition to shop-within-shops,
the Company utilizes exclusively fixtured areas in department stores.
BASIC STOCK REPLENISHMENT PROGRAM. Basic products such as knit shirts,
chino pants and oxford cloth shirts can be ordered at any time through Polo's
basic stock replenishment programs. For customers who reorder basic products,
Polo generally ships these products within one to five days of order receipt.
These products accounted for approximately 13% of wholesale net sales in fiscal
2000. The Company has also implemented a seasonal quick response program to
allow replenishment of products which can be ordered for only a portion of each
year. Certain Home Collection licensing partners also offer a basic stock
replenishment program which includes towels, bedding and tabletop products.
Basic stock products accounted for approximately 75% of net sales of Home
Collection licensing partners in fiscal 2000.
DIRECT RETAILING
The Company operates retail stores dedicated to the sale of its products.
Located in prime retail areas, the Company's 110 full-price stores operate under
the Polo Ralph Lauren, Polo Sport, Polo Jeans Co., Polo Ralph Lauren Children,
Club Monaco and Club Monaco Everyday names. The Company's 116 outlet stores are
generally located in outlet malls and operate under the Polo Ralph Lauren
Factory Store, Polo Jeans Co. Factory Store, Lauren Ralph Lauren Factory Store
and Club Monaco Outlet names.
In addition to its own retail operations, as of April 1, 2000 the Company
had granted licenses to independent parties to operate four stores in the United
States and 111 stores internationally. The Company receives the proceeds from
the sale of its products, which are included in wholesale net sales, to these
stores and also receives royalties, which are included in licensing revenue,
from its licensing partners who sell to these stores. The Company generally does
not receive any other compensation from these licensed store operators. See "-
Licensing Alliances."
FULL-PRICE STORES
In addition to generating sales of the Company's products, full-price
stores set, reinforce and capitalize on the image of the Company's brands.
Polo's five flagship stores, consisting of its two flagship stores located on
Madison Avenue in New York City, one flagship store located on Rodeo Drive in
Beverly Hills, one flagship store located on Michigan Avenue in Chicago and one
flagship store located on New Bond Street in London, showcase Polo products and
demonstrate Polo's most refined merchandising techniques. In addition to its
flagship stores, Polo operates 105 other full-price stores. Ranging in size from
approximately 2,000 to over 20,000 square feet, the non-flagship stores are
situated in upscale regional malls and major high street locations generally in
large urban markets. In aggregate, the Company operates
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22 Polo Ralph Lauren stores, four Polo Sport stores, five flagship stores,
thirteen Polo Jeans Co. stores, one Polo Ralph Lauren Children's store and 65
Club Monaco stores. Stores are generally leased for initial periods ranging from
five to fifteen years with renewal options.
In fiscal 2000, the Company acquired from its licensees Polo Ralph Lauren
stores in Vail and Aspen, Colorado and Ft. Lauderdale, Florida. In addition,
Polo Jeans Co. stores were opened in Mission Viejo, California, Orlando,
Florida, Glendale, California, Burlingame, California, Miami, Florida, McLean,
Virginia, Bellevue, Washington and Beverly Hills, California. Polo Concept
stores were opened in the Soho District of New York City and South Beach, Miami,
Florida. Club Monaco stores were opened in Washington, DC and Troy, Michigan and
Club Monaco Everyday stores were opened in Montreal, Quebec and Toronto,
Ontario. Polo converted its Polo Ralph Lauren store in Roosevelt Field, New
York, to a Polo Jeans Co. store and converted Polo Ralph Lauren stores in
Boston, Massachusetts, Troy, Michigan and London to Polo Concept stores. In
fiscal 2001, the Company plans to convert one Polo Jeans Co. store and one Polo
Ralph Lauren store to Polo Concept stores. In addition, the Company plans to
open approximately eight new Club Monaco stores (net of anticipated store
closings).
The Company is party to a joint venture agreement with a nonaffiliated
partner to acquire real property in New York City. The Company and its partner
are discussing possible development concepts for such location. Concurrent with
the signing of the agreement, the Company made an initial contribution for its
50% interest in the joint venture in the amount of $5.0 million. The Company has
a second joint venture with this nonaffiliated partner, which entered into a
long-term lease of a building located in the Soho District of New York City,
where the Polo Sport Store that opened in fiscal 2000 is located.
OUTLET STORES
Polo extends its reach to additional consumer groups through its 82 Polo
Ralph Lauren Factory Stores, 26 Polo Jeans Co. Factory Stores, two Lauren Ralph
Lauren Factory Stores and six Club Monaco Outlet Stores. Polo Ralph Lauren
Factory Stores offer selections of the Company's menswear, womenswear,
children's apparel, accessories, home furnishings and fragrances. Ranging in
size from 5,000 to 20,000 square feet, with an average of approximately 8,500
square feet, the stores are principally located in major outlet centers in 31
states and Puerto Rico. Polo Jeans Co. Factory Stores carry all classifications
within the Polo Jeans Co. line, including denim, knit and woven tops, sweaters,
outerwear, casual bottoms and accessories. Polo Jeans Co. Factory Stores range
in size from 3,000 to 5,000 square feet, with an average of 3,750 square feet,
and are principally located in major outlet centers in 21 states. Lauren Ralph
Lauren Factory Stores offer both basic key items and fashion items from the
Lauren line with coordinated accessories. Ranging in size from 3,500 to 4,000
square feet, with an average of 3,700 square feet, the Lauren Ralph Lauren
Factory Stores are located in major outlet centers in two states. Club Monaco
Outlet Stores range in size from 4,500 to 18,500 square feet, with an average of
9,600 square feet and offer basic and fashion Club Monaco items.
Outlet stores purchase products from Polo, its licensing partners and its
suppliers and from Polo stores in the United States. Outlet stores purchase
products from Polo
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generally at cost and from Polo's domestic product licensing partners and Polo
stores at negotiated prices. Outlet stores also source basic products and styles
directly from the Company's suppliers. During fiscal 2000, the outlet stores
purchased approximately 29%, 42% and 29% of products from the Company, licensing
partners and other suppliers, respectively.
The Company plans to add approximately 17 new outlet stores (net of
anticipated store closings) over the next three years, including approximately
four factory outlet concept stores (net of anticipated store closings).
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LICENSING ALLIANCES
Through licensing alliances, Polo combines its consumer insight and design,
marketing and imaging skills with the specific product or geographic
competencies of its licensing partners to create and build new businesses. The
Company's licensing partners, who are often leaders in their respective markets,
generally contribute the majority of product development costs, provide the
operational infrastructure required to support the business and own the
inventory.
Product and international licensing partners are granted the right to
manufacture and sell at wholesale specified products under one or more of Polo's
trademarks. International licensing partners produce and source products
independently and in conjunction with the Company and its product licensing
partners. As compensation for the Company's contributions under these
agreements, each licensing partner pays royalties to the Company based upon its
sales of Polo Ralph Lauren products, subject generally, to payment of a minimum
royalty. With the exception of Home Collection licenses, these payments
generally range from five to eight percent of the licensing partners' sales of
the licensed products. See "- Home Collection" for a description of royalty
arrangements for Home Collection products. In addition, licensing partners are
required to allocate between two and four percent of their sales to advertise
Polo products. Larger allocations are required in connection with launches of
new products or in new territories.
Polo works in close collaboration with its licensing partners to ensure
that products are developed, marketed and distributed to address the intended
market opportunity and present consistently to consumers worldwide the
distinctive perspective and lifestyle associated with the Company's brands.
Virtually all aspects of the design, production quality, packaging,
merchandising, distribution, advertising and promotion of Polo products are
subject to the Company's prior approval and ongoing oversight. The result is a
consistent identity for Polo products across product categories and
international markets.
As of April 1, 2000 Polo had 20 product and 10 international licensing
partners. A substantial portion of the Company's net income is derived from
licensing revenue received from its licensing partners. The Company's largest
licensing partners by licensing revenue, Jones Apparel Group, Inc., WestPoint
Stevens, Inc., and Seibu Department Stores, Ltd., accounted for 27.6%, 11.1% and
10.7%, respectively, of licensing revenue in fiscal 2000.
PRODUCT LICENSING ALLIANCES
As of April 1, 2000 Polo had agreements with 20 product licensing partners
relating to men's and women's sportswear, men's tailored clothing, children's
apparel, personalwear, accessories and fragrances. The products offered by the
Company's product licensing partners are listed below.
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LICENSING PARTNER LICENSED PRODUCT CATEGORY
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Warnaco, Inc. Men's Chaps Sportswear
Authentic Fitness Products, Inc. Women's & Girls' Swimwear
(a subsidiary of Warnaco, Inc.)
Jones Apparel Group, Inc. Women's Lauren Better Sportswear
Sun Apparel, Inc. Men's & Women's Polo Jeans Co. Casual
(a subsidiary of Jones Apparel Group, Apparel & Sportswear
Inc.)
Chester Barrie, Ltd. Men's Purple Label Tailored Clothing
Corneliani S.p.A. Men's Polo Tailored Clothing
Peerless Inc. Men's Chaps and Lauren Tailored Clothing
S. Schwab Company, Inc. Children's Apparel
Sara Lee Corporation Men's, Women's & Children's Personal Wear
Apparel
Ralph Lauren Footwear, Inc. (a Men's & Women's Dress,
subsidiary of Reebok International Ltd.) Casual and Performance Athletic Footwear
Wathne, Inc. Handbags & Luggage
Hot Sox, Inc. Men's, Women's, Boys' and Girls' Hosiery
New Campaign, Inc. Belts & other Small Leather Goods
Echo Scarves, Inc. Scarves for Men & Women and Gloves for Women
Carolee, Inc. Jewelry
Swany, Inc. Men's Gloves
L'Oreal S.A./Cosmair, Inc. Men's & Women's Fragrances and Skin Care Products
Safilo USA, Inc. Eyewear
D'Orell Inc. Club Monaco Eyewear
Plum Traders, Inc. Club Monaco Men's & Women's Jewelry
</TABLE>
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RALPH LAUREN HOME
In conjunction with its licensing partners, Polo offers an extensive
collection of home products which both draw upon, and add to, the design themes
of the Company's other product lines, contributing to Polo's complete lifestyle
concept. Products are sold under the Ralph Lauren Home brands in three primary
categories: bedding and bath, home decor and home improvement.
In addition to developing the Home Collection, Polo acts as sales and
marketing agent for its domestic Home licensing partners. Together with its nine
domestic home product licensing partners, representatives of the Company's
design, merchandising, product development and sales staffs collaborate to
conceive, develop and merchandise the various products as a complete home
furnishing collection. Polo's personnel market and sell the products to domestic
customers and certain international accounts. Polo's licensing partners, many of
which are leaders in their particular product category, manufacture, own the
inventory and ship the products. As compared to its other licensing alliances,
Polo performs a broader range of services for its Home licensing partners,
which, in addition to sales and marketing, include operating showrooms and
incurring advertising expenses. Consequently, Polo receives a higher royalty
rate from its Home licensing partners typically ranging from 15% to 20%. Home
licensing alliances generally have three to five-year terms and often grant the
licensee conditional renewal options.
Ralph Lauren Home products are positioned at the upper tiers of their
respective markets and are offered at a range of price levels.
The Company's home furnishings products generally are distributed through
department stores, specialty home furnishings stores, interior design showrooms,
customer direct mail catalogs and home centers. As with its other products, the
use of shop-within-shops is central to the Company's distribution strategy.
Certain licensing partners, including those selling furniture, wall coverings,
blankets, bed pillows, tabletop, flatware, home fragrance and paint, also sell
their products directly through their own staffs to reach additional customer
markets.
The home furnishings products offered by the Company and its domestic licensing
partners are listed below:
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CATEGORY PRODUCT LICENSING PARTNER
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Bedding and Bath Towels, sheets, pillowcases and WestPoint Stevens, Inc.
matching bedding accessories
Blankets, bed pillows, down comforters and Pillowtex Corporation
other decorative bedding accessories
excluding those matched to sheets, and bath
rugs
</TABLE>
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<TABLE>
<S> <C> <C>
Home Decor Fabric and wallpaper P. Kaufmann, Inc
Upholstered furniture Henredon Furniture
Occasional and casegoods Industries, Inc.
Sterling, silverplate and Reed and Barton
stainless steel flatware and picture frames Corporation
Crystal and glass tableware and RJS Scientific, Inc.
giftware, ceramic dinnerware and
giftware and home fragrances
(potpourri, scented candles, etc.)
Placemats, tablecloths, napkins Designers Collection,
Inc.
Home Improvement Broadloom carpets and area rugs Mohawk Carpet Corporation
Interior paints, special The Sherwin-Williams
finishes, and paint applications Company
</TABLE>
The Company's three most significant Home licensing partners based on
aggregate licensing revenue paid to the Company are WestPoint Stevens, Inc.,
Pillowtex Corporation and Henredon Furniture Industries, Inc. WestPoint Stevens,
Inc. accounted for approximately 50% of Ralph Lauren Home licensing revenue in
fiscal 2000.
INTERNATIONAL LICENSING ALLIANCES
The Company believes that international markets offer additional
opportunities for Polo's quintessential American designs and lifestyle image and
is committed to the global development of its businesses. International
expansion opportunities may include the roll out of new products and brands
following their launch in the U.S., the introduction of additional product
lines, the entrance into new international markets and the addition of Polo
stores in these markets. For example, following the successful launch of Polo
Jeans Co. in the U.S. in Fall 1996, the Company launched the line in Canada, the
U.K., Germany, Spain, Japan, Israel, Hong Kong, Singapore and Taiwan. Polo works
with its ten international licensing partners to facilitate this international
expansion. International licensing partners also operate stores, including 69
Polo Ralph Lauren stores, five Polo Sport stores, 11 Polo Jeans Co. stores, one
Polo Ralph Lauren Children's store, five Polo outlets and 20 Club Monaco stores.
In fiscal 2000, the Company added five new Polo Ralph Lauren stores in
international markets, including two in Australia, and one in each of Hong Kong,
Mexico and Japan. In addition, in fiscal 2000, one new Polo Jeans Co. store was
added in each of St. Martin, Mexico and Hong Kong and two factory outlets in
Australia. Additional stores are planned to open in fiscal 2001 including one
Polo Ralph Lauren store in Chile, one Polo Jeans Co. store in Australia and one
Polo Jeans Co. and two factory outlets in Korea.
International licensing partners acquire the right to source, produce,
market and/or sell some or all Polo products in a given geographical area.
Economic arrangements are similar to those of domestic product licensing
partners. Licensed products are designed by the Company, either alone or in
collaboration with its
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domestic licensing partners. Domestic licensees generally provide international
licensing partners with product or patterns, piece goods, manufacturing
locations and other information and assistance necessary to achieve product
uniformity, for which they are, in many cases, compensated.
The most significant international licensing partners by royalties in
fiscal 2000 were Seibu Department Stores, Ltd., which oversees distribution of
virtually all of the Company's products in Japan and L'Oreal S.A., which
distributes fragrances and toiletries outside of the United States. Had the
Company not acquired Poloco during fiscal 2000, Poloco would have been the third
most significant international licensing partner by royalties in fiscal 2000.
The Company's ability to maintain and increase royalties under foreign licenses
is dependent upon certain factors not within the Company's control, including
fluctuating currency rates, currency controls, withholding requirements levied
on royalty payments, governmental restrictions on royalty rates, political
instability and local market conditions. See "-- Certain Risks."
DESIGN
The Company's products reflect a timeless and innovative American style
associated with and defined by Polo and Ralph Lauren. The Company's consistent
emphasis on innovative and distinctive design has been an important contributor
to the prominence, strength and reputation of the Polo Ralph Lauren brands.
Design teams are formed around the Company's brands and product categories
to develop concepts, themes and products for each of Polo's businesses. These
teams work in close collaboration with merchandising, sales and production staff
and licensing partners in order to gain market and other input.
All Polo Ralph Lauren products are designed by or under the direction of
Mr. Ralph Lauren and the Company's design staff, which is divided into five
departments: Menswear, Womenswear, Children's, Accessories and Home Collection.
Club Monaco's design staff is located in Toronto and New York and is divided
into four teams: Menswear, Womenswear (casual and urban), CMX and Home.
The Company operates a research, development and testing facility in
Greensboro, North Carolina, testing labs in New Jersey and Singapore and pattern
rooms in New York, New Jersey and Singapore.
MARKETING
Polo's marketing program communicates the themes and images of the Polo
Ralph Lauren brands and is an integral feature of its product offering.
Worldwide marketing is managed on a centralized basis through the Company's
advertising and public relations departments in order to ensure consistency of
presentation.
The Company creates the distinctive image advertising for all Polo Ralph
Lauren products, conveying the particular message of each brand within the
context of Polo's core themes. Advertisements generally portray a lifestyle
rather than a specific item and often include a variety of Polo products offered
by both the Company and its licensing partners. Polo's primary advertising
medium is print, with multiple page advertisements appearing regularly in a
range of fashion, lifestyle and general interest
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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, certain product categories utilize
television and outdoor media in their marketing programs.
The Company's licensing partners contribute a percentage (usually between
three and four percent) of their sales of Polo products for advertising. The
Company directly coordinates advertising placement for domestic product
licensing partners. During fiscal 2000, Polo and its licensing partners
collectively spent more than $187.9 million worldwide to advertise and promote
Polo products.
Polo conducts a variety of public relations activities. Each of the Spring
and Fall womenswear collections is introduced at major fashion shows in New York
which generate extensive domestic and international media coverage. Each of the
Spring and Fall menswear collections is introduced at presentations organized
for the fashion press. In addition, Polo organizes in-store appearances by its
models and sponsors professional golfers, snowboarders, triathletes and sports
teams.
SOURCING, PRODUCTION AND QUALITY
The Company's apparel products are produced for the Company by
approximately 310 different manufacturers worldwide. The Company contracts for
the manufacture of its products and does not own or operate any production
facilities. During fiscal 2000, approximately 34% (by dollar volume) of men's
and women's products were produced in the United States and its territories and
approximately 66% (by dollar volume) of such products were produced in Hong
Kong, Canada and other foreign countries. Two manufacturers engaged by the
Company each accounted for approximately 12% and 8% of the Company's total
production during fiscal 2000. The primary production facilities of these two
manufacturers are located in: Hong Kong and Saipan, in the case of the
manufacturer that accounted for approximately 12% of the Company's total
production during fiscal 2000; and in Hong Kong, in the case of the manufacturer
that accounted for approximately 8% of the Company's total production during
fiscal 2000. No other manufacturer accounted for more than five percent of the
Company's total production in fiscal 2000.
Production is divided broadly into purchases of finished products, where
the supplier is responsible for the purchasing and carrying of raw materials,
and cut, make and trim ("CMT") purchasing, where the Company is responsible for
the purchasing and movement of raw materials to finished product assemblers
located throughout the world. CMT arrangements typically allow the Company more
latitude to incorporate unique detailing elements and to develop specialty
items. The Company uses a variety of raw materials, principally consisting of
woven and knitted fabrics and yarns.
The Company must commit to manufacture the majority of its garments before
it receives customer orders. In addition, the Company must commit to purchase
fabric from mills well in advance of its sales. If the Company overestimates the
demand for a particular product which it cannot sell to its primary customers,
it may use the excess for distribution in its outlet stores or sell the product
through secondary distribution channels. If the Company overestimates the need
for a particular fabric or yarn, that fabric or yarn can be used in garments
made for subsequent seasons or
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made into past season's styles for distribution in its outlet stores.
The Company has been working closely with suppliers in recent years to
reduce lead times to maximize fulfillment (i.e., shipment) of orders and to
permit re-orders of successful programs. In particular, the Company has
increased the number of deliveries within certain brands each season so that
merchandise is kept fresh at the retail level.
Suppliers operate under the close supervision of Polo's product management
department in the United States, and in the Far East under that of a wholly
owned subsidiary which performs buying agent functions for the Company and third
parties. All garments are produced according to Polo's specifications.
Production and quality control staff in the United States and in the Far East
monitor manufacturing at supplier facilities in order to correct problems prior
to shipment of the final product to Polo. While final quality control is
performed at Polo's distribution centers, procedures have been implemented under
Polo's vendor certification program, so that quality assurance is focused as
early as possible in the production process, allowing merchandise to be received
at the distribution facilities and shipped to customers with minimal
interruption.
The Company retains independent buying agents in Europe and South America
to assist the Company in selecting and overseeing independent third-party
manufacturers, sourcing fabric and other products and materials, monitoring
quota and other trade regulations, as well as performing some quality control
functions.
COMPETITION
Competition is strong in the segments of the fashion and consumer product
industries in which the Company operates. The Company competes with numerous
designers and manufacturers of apparel and accessories, fragrances and home
furnishing products, domestic and foreign, some of which may be significantly
larger and have substantially greater resources than the Company. The Company
competes primarily on the basis of fashion, quality, and service. The Company's
business depends on its ability to shape, stimulate and respond to changing
consumer tastes and demands by producing innovative, attractive, and exciting
products, brands and marketing, as well as on its ability to remain competitive
in the areas of quality and price.
DISTRIBUTION
To facilitate distribution, men's products are shipped from manufacturers
to the Company's distribution center in Greensboro, North Carolina for
inspection, sorting, packing and shipment to retail customers. The Company's
distribution/customer service facility is designed to allow for high density
cube storage and utilizes bar code technology to provide inventory management
and carton controls. Additionally, product traffic management is coordinated
from this facility. During fiscal 2000, womenswear distribution was provided by
a "pick and pack" facility under a warehousing distribution agreement with an
unaffiliated third party. This agreement provides that the warehouse distributor
will perform storage, quality control and shipping services for the Company. In
return, the Company must pay the warehouse distributor a per unit rate and
special processing charges for services such as
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ticketing, bagging and steaming. The initial term of this agreement is through
December 1, 2000 and is thereafter renewable annually. Outlet store distribution
and warehousing is principally handled through the Greensboro distribution
center as well as satellite facilities also located in North Carolina. Polo
store distribution is provided by the facility in Greensboro, North Carolina and
a facility in New Jersey which services the Company's stores in New York City
and East Hampton, New York. During fiscal 2001 the Company plans to complete a
significant expansion of its Greensboro facility to handle increased volume and
reduce reliance upon satellite facilities. Club Monaco utilizes third party
distribution facilities in Mississauga, Ontario and Los Angeles, California. The
Company's licensing partners are responsible for the distribution of licensed
products, including Home Collection products. The Company continually evaluates
the adequacy of its warehousing and distribution facilities.
MANAGEMENT INFORMATION SYSTEM
The Company's management information system is designed to provide, among
other things, comprehensive order processing, production, accounting and
management information for the marketing, manufacturing, importing and
distribution functions of the Company's business. The Company has installed
sophisticated point-of-sale registers in its Polo stores and outlet stores that
enable it to track inventory from store receipt to final sale on a real-time
basis. The Company believes its merchandising and financial system, coupled with
its point-of-sale registers and software programs, allow for rapid stock
replenishment, concise merchandise planning and real-time inventory accounting
practices.
In addition, the Company utilizes an electronic data interchange ("EDI")
system to facilitate the processing of replenishment and fashion orders from its
wholesale customers, the movement of goods through distribution channels, and
the collection of information for planning and forecasting. The Company has EDI
relationships with customers who represent a significant majority of its
wholesale business and is working to expand its EDI capabilities to include most
of its suppliers.
CREDIT CONTROL
The Company manages its own credit and collection functions. The Company
sells its merchandise primarily to major department stores across the United
States and extends credit based on an evaluation of the customer's financial
condition, usually without requiring collateral. The Company monitors credit
levels and the financial condition of its customers on a continuing basis to
minimize credit risk. The Company does not factor its accounts receivables or
maintain credit insurance to manage the risks of bad debts. The Company's bad
debt write-offs were less than 1% of net revenues for fiscal 2000.
BACKLOG
The Company generally receives wholesale orders for apparel products
approximately three to five months prior to the time the products are delivered
to stores. All such orders are subject to cancellation for late delivery. At
April 1, 2000, Summer and Fall backlog was $426.9 million and $16.8 million, as
compared to $379.4 million and $21.1 million at April 3, 1999 for Polo Brands
and Collection
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Brands, respectively. The Company's backlog depends upon a number of factors,
including the timing of the market weeks for its particular lines, during which
a significant percentage of the Company's orders are received, and the timing of
shipments. As a consequence, a comparison of backlog from period to period is
not necessarily meaningful and may not be indicative of eventual shipments.
TRADEMARKS
The Company is the owner of the "Polo," "Ralph Lauren" and the famous polo
player astride a horse trademarks in the United States. Additional trademarks
owned by the Company include, among others, "Chaps," "Polo Sport," "Lauren/Ralph
Lauren," "RALPH," "RRL," "Club Monaco" and certain trademarks pertaining to
fragrances and cosmetics. In connection with the adoption of the "RRL"
trademarks by the Company, pursuant to an agreement with the Company, Mr. Lauren
retained 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
engages in personal projects involving non-Company related film or theatrical
productions through RRL Productions, Inc., a Company wholly owned by Mr. Lauren.
The Company's 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 and beauty products, as well as in
connection with retail services, and the Company continues to expand its
worldwide usage and registration of related trademarks. The Company regards the
license to use the trademarks and its other proprietary rights in and to the
trademarks as valuable assets in the marketing of its products and, on a
worldwide basis, vigorously seeks to protect them against infringement. As a
result of the appeal of its trademarks, Polo's products have been the object of
counterfeiting. The Company has a broad enforcement program which has been
generally effective in controlling the sale of counterfeit products in the
United States and in major markets abroad.
In markets outside of the United States, the Company's rights to some or
all of its trademarks may not be clearly established. In the course of its
international expansion, the Company has experienced conflicts with various
third parties which have acquired ownership rights in certain trademarks which
include "Polo" and/or a representation of a polo player astride a horse which
would have impeded the Company's use and registration of its principal
trademarks. While such conflicts are common and may arise again from time to
time as the Company continues its international expansion, the Company has in
the past successfully resolved such conflicts through both legal action and
negotiated settlements with third-party owners of such conflicting marks.
Two agreements by which the Company resolved conflicts with third-party
owners of other trademarks impose current restrictions or monetary obligations
on the Company. In one, the Company reached an agreement with a third party
which owned competing registrations in numerous European and South American
countries for the trademark "Polo" and a symbol of a polo player astride a
horse. By virtue of the agreement, Polo has acquired that third party's
portfolio of trademark registrations, in consideration of the payment (capped as
set forth below) of 30% of the Company's
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European and Mexican royalties and 50% of its South American royalties (solely
in respect of the Company's use of trademarks which include "Polo" and the polo
player symbol, and not, for example, "Ralph Lauren" alone, "Lauren/Ralph
Lauren," "RRL," etc.). Remittances to this third party are not reflected in
licensing revenue in the Company's financial statements and will cease no later
than 2008, or sooner, when the remittances with respect to Europe and Mexico to
this third party aggregate $15.0 million. As of April 1, 2000, the Company has
paid approximately $14.6 million to this third party. The Company's obligation
to share royalties with respect to Central and South America and parts of the
Caribbean expires in 2013, but the Company also has the right to terminate this
obligation at any time by paying $3.0 million. The second agreement was reached
with a third party which owned conflicting registrations of the trademarks
"Polo" and a polo player astride a horse in the U.K., Hong Kong, and South
Africa. Pursuant to the agreement, the third party retains the right to use its
"Polo" and polo player symbol marks in South Africa and certain other African
countries, and the Company agreed to restrict use of those Polo marks in those
countries to fragrances and cosmetics (as to which the Company's use is
unlimited) and to the use of the Ralph (polo player symbol) Lauren mark on
women's and girls' apparel and accessories. By agreeing to those restrictions,
the Company secured the unlimited right to use its trademarks (without payment
of any kind) in the United Kingdom and Hong Kong, and the third party is
prohibited from distributing products under those trademarks in those countries.
GOVERNMENT REGULATION
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either under
the framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable statutes,
impose quotas on the amounts and types of merchandise which may be imported into
the United States from these countries. These agreements also allow the
signatories to adjust the quantity of imports for categories of merchandise
that, under the terms of the agreements, are not currently subject to specific
limits. The Company's imported products are also subject to United States
customs duties which comprise a material portion of the cost of the merchandise.
Apparel products are subject to regulation by the Federal Trade Commission
in the United States. Regulations relate principally to the labeling of the
Company's products. The Company believes that it is in substantial compliance
with such regulations, as well as applicable federal, state, local, and foreign
rules and regulations governing the discharge of materials hazardous to the
environment. There are no significant capital expenditures for environmental
control matters either estimated in the current year or expected in the near
future. The Company's licensed products and licensing partners are, in addition,
subject to additional regulation. The Company's agreements require its licensing
partners to operate in compliance with all laws and regulations, and the Company
is not aware of any violations which could reasonably be expected to have a
material adverse effect on the Company's business.
Although the Company has not in the past suffered any material inhibition
from doing business in desirable markets, there can be no assurance that
significant impediments will not arise in the future as it expands product
offerings and additional
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trademarks to new markets.
CERTAIN RISKS
The Company believes that its success depends in substantial part on its
ability to originate and define product and fashion trends as well as to
anticipate, gauge and react to changing consumer demands in a timely manner.
There can be no assurance that the Company will continue to be successful in
this regard. If the Company misjudges the market for its products, it may be
faced with significant excess inventories for some products and missed
opportunities with others. In addition, weak sales and resulting markdown
requests from customers could have a material adverse effect on the Company's
business, results of operations and financial condition.
The industries in which the Company operates are cyclical. Purchases of
apparel and related merchandise and home products tend to decline during
recessionary periods and also may decline at other times. There can be no
assurance that the Company will be able to maintain its historical rate of
growth in revenues and earnings, or remain profitable in the future. Further,
uncertainties regarding future economic prospects could affect consumer spending
habits and have an adverse effect on the Company's results of operations.
The Company is dependent on Mr. Ralph Lauren and other key personnel. Mr.
Lauren's leadership in the design, marketing and operational areas has been a
critical element of the Company's success. The loss of the services of Mr.
Lauren and any negative market or industry perception arising from such loss
could have a material adverse effect on the Company. The Company's other
executive officers have substantial experience and expertise in the Company's
business and have made significant contributions to its growth and success. The
unexpected loss of services of one or more of these individuals could adversely
affect the Company. The Company is not protected by a material amount of key-man
or similar life insurance for Mr. Lauren or any of its other executive officers.
In addition to the factors described above, the Company's business,
including its revenues and profitability, is influenced by and subject to a
number of factors including, among others: risks associated with the Company's
dependence on sales to a limited number of large department store customers,
including risks related to extending credit to customers; risks associated with
the Company's dependence on its licensing partners for a substantial portion of
its net income and risks associated with the Company's lack of operational and
financial control over its licensed businesses; risks associated with
consolidations, restructurings and other ownership changes in the retail
industry; risks associated with competition in the segments of the fashion and
consumer product industries in which the Company operates, including the
Company's ability to shape, stimulate and respond to changing consumer tastes
and demands by producing attractive products, brands and marketing, and its
ability to remain competitive in the areas of quality and price; risks
associated with uncertainty relating to the Company's ability to implement its
growth strategies; risks associated with the possible adverse impact of the
Company's unaffiliated manufacturers' inability to manufacture in a timely
manner, to meet quality standards or to use acceptable labor practices; risks
associated with changes in social, political, economic and other conditions
affecting foreign operations and sourcing and the possible adverse impact of
changes in import restrictions; risks related to the Company's
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ability to establish and protect its trademarks and other proprietary rights;
risks related to fluctuations in foreign currency affecting the Company's
foreign subsidiaries' and foreign licensees' results of operations and the
relative prices at which the Company and foreign competitors sell their products
in the same market and the Company's operating and manufacturing costs outside
of the United States; and, risks associated with the Company's control by Lauren
family members and the anti-takeover effect of multiple classes of stock.
The Company from time to time reviews its possible entry into new markets,
either through internal development activities or through acquisitions. The
entry into new markets (including the development and launch of new product
categories), such as the Company's entry into the technical sportswear market,
and the acquisition of businesses, such as the Company's acquisition of Club
Monaco Inc. and Poloco, is accompanied by risks inherent in any new business
venture and may require methods of operations and market strategies different
from those employed in the Company's other businesses. Certain new businesses
may be lower margin businesses and may require the Company to achieve
significant cost efficiencies. In addition, new markets may involve buyers,
store customers and/or competitors different from the Company's historical
buyers, customers and competitors. Furthermore, the Company's acquisition of
other businesses entails the normal risks inherent in such transactions,
including without limitation, possible difficulties, delays and/or unanticipated
costs in integrating the business, operations, personnel, and/or systems of the
acquired entity; risks that projected or satisfactory level of sales, profits
and/or return on investment will not be generated; risks that expenditures
required for capital items or working capital will be higher than anticipated;
risks involving the Company's ability to retain and appropriately motivate key
personnel of the acquired business; and risks associated with unanticipated
events and unknown or uncertain liabilities.
EMPLOYEES
As of April 1, 2000, the Company had approximately 9,500 employees,
including 7,100 in the United States and 2,400 in foreign countries.
Approximately 30 of the Company's United States production and distribution
employees in the womenswear business are members of the Union of Needletrades,
Industrial & Textile Employees under an industry association collective
bargaining agreement which the Company's womenswear subsidiary has adopted. This
contract was extended to May 31, 2001. The Company considers its relations with
both its union and non-union employees to be good.
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ITEM 2. PROPERTIES
The Company does not own any real property except for its distribution
facility in Greensboro, North Carolina, the parcel of land adjacent to its
Greensboro, North Carolina distribution facility (upon which the expansion of
the distribution facility is being constructed) and a 50% joint venture interest
in a 44,000 square foot building located in the Soho district of New York City.
Certain information concerning the Company's principal facilities in excess of
100,000 rentable square feet and of its existing flagship stores of 20,000
rentable square feet or more, all of which are leased, is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE CURRENT LEASE
LOCATION USE SQ. FT. TERM EXPIRATION
-------- --- ----------- ---------------
<S> <C> <C> <C>
650 Madison Avenue, NYC Executive, 206,000 December 31, 2009
corporate office
and design
studio, Polo
Brand showrooms
Lyndhurst, N.J. Corporate and 162,000 February 28, 2008
retail
administrative
offices
Winston-Salem, N.C. Distribution 115,000 June 30, 2000
750 North Michigan Avenue, Direct retail and 36,000 November 15, 2017
Chicago, IL restaurant
867 Madison Avenue, NYC Direct retail 27,000 December 31, 2004
1-5 New Bond Street, London Direct retail and 29,000 July 4, 2021
corporate and
retail
administrative
offices
</TABLE>
The leases for the Company's non-retail facilities (approximately 58 in
all) provide for aggregate annual rentals of $19.7 million in fiscal 2000. The
Company anticipates that it will be able to extend those leases which expire in
the near future on terms satisfactory to the Company or, if necessary, locate
substitute facilities on acceptable terms.
As of April 1, 2000, the Company operated 45 Polo stores, 110 outlet stores
and 71 Club Monaco stores in leased premises. Aggregate annual rentals for
retail space by the Company in fiscal 2000 totaled approximately $48.7 million.
The Company anticipates that it will be able to extend those leases which expire
in the near future on satisfactory terms or to relocate to more desirable
locations.
The Company believes that its existing facilities are well maintained and
in good operating condition.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in a purported national class action lawsuit
filed in the Delaware Supreme Court in July 1997. The plaintiff has brought the
action allegedly on behalf of a class of persons who purchased products at the
Company's outlet stores throughout the United States at any time since July 15,
1991. The complaint alleges that advertising and marketing practices used by the
Company in connection with the sale of its products at its outlet stores violate
guidelines established by the Federal Trade Commission and the consumer
protection statutes of Delaware and other states with statutes similar to
Delaware's Consumer Fraud Act and Delaware's Consumer Contracts Act. The lawsuit
seeks, on behalf of the class, compensatory and punitive damages as well as
attorneys' fees. The Company answered the complaint and filed a motion for
judgment on the pleadings. At a hearing on that motion on March 5, 1999, the
Court ruled that the plaintiff must file an amended complaint within 30 days in
order to avoid dismissal. The plaintiff filed an amended complaint, essentially
containing the same allegations as the initial complaint, which the Company
answered on April 26, 1999. On August 5, 1999, the Company again filed a motion
for judgment on the pleadings and, on September 3, 1999, the plaintiff filed a
brief in opposition to such motion for judgment. On November 19, 1999, the
Company and the plaintiff entered into a Stipulation and Agreement of
Compromise, Settlement and Agreement in which the Company denies all allegations
in the amended complaint. None of the provisions in the proposed settlement will
have a material adverse impact on the business and financial condition of the
Company. On January 10, 2000, the Court granted preliminary approval to the
proposed settlement. Following the preliminary approval of the proposed
settlement by the Court, plaintiffs' counsel conducted informal discovery (by
interviewing Company employees) regarding several of Polo's practices. By
February 1, 2000, notice of the settlement was published in a publication of
national circulation and mailed to persons listed on the Company's outlet
stores' customer list. On April 18, 2000, the Court signed the Final Judgment
and Order Approving Settlement.
In January 1999, two actions were filed in California naming as defendants
more than a dozen United States-based companies that source apparel garments
from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of
Saipan-based factories. The actions assert that the Saipan factories engage in
unlawful practices relating to the recruitment and employment of foreign workers
and that the apparel companies, by virtue of their alleged relationships with
the factories, have violated various Federal and state laws. One action, filed
in California Superior Court in San Francisco by a union and three public
interest groups, alleges unfair competition and false advertising and seeks
equitable relief, unspecified amounts for restitution and disgorgement of
profits, interest and an award of attorney's fees. The second, filed in Federal
court for the Central District of California and subsequently transferred to the
United States District Court for the District of Hawaii, is brought on behalf of
a purported class consisting of the Saipan factory workers. It alleges claims
under the Federal civil RICO statute, Federal peonage and involuntary servitude
laws, the Alien Tort Claims Act, and state tort law, and seeks equitable relief
and unspecified damages, including treble and punitive damages, interest and an
award of attorney's fees. Although the Company was not named as a defendant in
these suits, the Company sources products in Saipan, and counsel for the
plaintiffs in these actions informed the Company that it was a potential
defendant in these or similar actions. The Company has since entered into an
agreement to settle any claims for
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nonmaterial consideration. The settlement agreement is subject to court
approval. The Company has denied any liability and is not at this preliminary
stage in a position to evaluate the likelihood of a favorable or unfavorable
outcome if the settlement is not approved and litigation proceeds against the
Company.
As part of the settlement, the Company has since been named as a defendant,
along with certain other apparel companies in a State Court action in California
styled Union of Needletrades Industrial and Textile Employees, et al. v.
Brylane, L.P., et al., in the San Francisco County Superior Court, and in a
Federal Court action styled Doe I. et al. v. Brylane, L.P., et al. in the United
States District Court for the District of Hawaii, that mirror portions of the
larger State and Federal Court actions but do not include RICO and certain of
the other claims alleged in those actions. The newly filed actions against the
Company are expected to remain inactive unless settlement is not finally
approved by the Federal Court.
The Company is involved from time to time in legal claims involving
trademark and intellectual property, licensing, employee relations and other
matters incidental to its business. See "Item 1. Business - Trademarks." In the
opinion of the Company's management, the resolution of any matter currently
pending will not have a material adverse effect on the Company's financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the quarter
ended April 1, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class A Common Stock is publicly traded on the New York Stock
Exchange under the symbol "RL." The following table sets forth the high and low
closing sales prices for each quarterly period from June 11, 1997 (i.e., the day
the Class A Common Stock was priced in Polo's initial public offering) through
April 1, 2000, as reported on the New York Stock Exchange Composite Tape. The
Company did not declare any cash dividends during fiscal 1998, fiscal 1999 or
fiscal 2000 on its Common Stock other than dividends declared in fiscal 1998 in
the amount of $27.4 million and paid to holders of Class B Common Stock and
Class C Common Stock in connection with the Company's reorganization just prior
to its initial public offering.
<TABLE>
<CAPTION>
Market Price of
Class A Common Stock
--------------------
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 2000:
First Quarter $ 24.625 $ 18.5
Second Quarter 20.5625 17.5
Third Quarter 20.25 16.375
Fourth Quarter 20.25 14.0625
Fiscal 1999:
First Quarter $ 31.00 $26.9375
Second Quarter 29.6875 20.1250
Third Quarter 24.0000 16.000
Fourth Quarter 24.8750 18.1250
Fiscal 1998:
First Quarter (since June 11, 1997) $ 32.375 $ 26
Second Quarter 28.0625 23.0625
Third Quarter 28.75 22.3125
Fourth Quarter 30.8125 21.9375
</TABLE>
The Company anticipates that all of its earnings in the foreseeable future
will be retained to finance the continued growth and expansion of its business
and has no current intention to pay cash dividends on its Common Stock.
As of June 22, 2000, there were approximately 1,228 record holders of Class
A Common Stock, four record holders of Class B Common Stock and five record
holders of Class C Common Stock.
27
<PAGE> 28
ITEM 6. SELECTED FINANCIAL DATA.
The selected historical financial data presented below as of and for each
of the fiscal years in the five-year period ended April 1, 2000 have been
derived from the Company's audited Consolidated Financial Statements. The
following table also includes unaudited pro forma data for fiscal 1998, which
give effect to the reorganization and the initial public offering as if they had
occurred on March 30, 1997. The financial data should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Consolidated Financial Statements and Notes thereto
and other financial data included elsewhere herein.
28
<PAGE> 29
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
APRIL 1, APRIL 3, MARCH 28, MARCH 29, MARCH 30,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME:
Net sales ................. $1,712,375 $1,505,056 $1,303,816 $1,043,330 $ 909,720
Licensing revenue ......... 236,302 208,009 167,119 137,113 110,153
Other income .............. 6,851 13,794 9,609 7,774 6,210
---------- ---------- ---------- ---------- ----------
Net revenues .............. 1,955,528 1,726,859 1,480,544 1,188,217 1,026,083
Cost of goods sold ........ 1,002,390 904,586 759,988 652,000 586,273
---------- ---------- ---------- ---------- ----------
Gross profit .............. 953,138 822,273 720,556 536,217 439,810
Selling, general and
administrative expenses ... 689,227 608,128 520,801 378,854 312,690
Restructuring charge ...... -- 58,560 -- -- --
---------- ---------- ---------- ---------- ----------
Income from operations .... 263,911 155,585 199,755 157,363 127,120
Interest expense .......... 15,025 2,759 159 13,660 16,287
Equity in net loss of
joint venture .......... -- -- -- 3,599 1,101
---------- ---------- ---------- ---------- ----------
Income before income taxes
and change in accounting 248,886 152,826 199,596 140,104 109,732
principle ...................
Provision for income taxes .. 101,422 62,276 52,025 22,804 10,925
---------- ---------- ---------- ---------- ----------
Income before change in
accounting principle ...... 147,464 90,550 147,571 $ 117,300 98,807
Cumulative effect of change
in accounting principle,
net ....................... 3,967 --
---------- ----------
Net income ................ $ 143,497 $ 90,550 $ 147,571 $ 117,300 $ 98,807
========== ========== ========== ========== ==========
Basic and Diluted ...............
Income per share before
change in accounting
principle ....................... $ 1.49 $ 0.91
Cumulative effect of change
in accounting principle, net
per share ....................... 0.04 --
---------- ----------
Net income per share ............ $ 1.45 $ 0.91
========== ==========
Common shares outstanding -
Basic ........................... 98,926,993 99,813,328
========== ==========
Common shares outstanding -
Diluted ......................... 99,035,781 99,972,152
========== ==========
PRO FORMA DATA (UNAUDITED) (1):
Historical income before $ 199,596
taxes ...................................................
Pro forma adjustments other than income
taxes ................................................... 3,162
----------
Pro forma income before income taxes .................... 202,758
Pro forma provision for income taxes .................... 82,631
----------
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
<S> <C>
Net income .............................................. $ 120,127
============
Net income per share
Basic and Diluted ....................................... $ 1.20
============
Common shares outstanding
Basic and Diluted ..................................... $ 100,222,444
============
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
APRIL 1, APRIL 1, MARCH 28, MARCH 29, MARCH 30,
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ........ $ 446,663 $ 331,482 $ 354,206 $ 209,038 $ 262,844
Inventories ............ 390,953 376,860 298,485 222,147 269,113
Total assets ........... 1,620,562 1,104,584 825,130 588,758 563,673
Total debt ............. 428,838 159,717 337 140,900 199,645
Stockholders' equity and partners'
capital ................ 772,437 658,905 584,326 260,685 237,653
</TABLE>
(1) The pro forma data presents the effects on the historical financial
statement of certain transactions as if they had occurred at the beginning
of the period. This data reflects adjustments for: (i) income taxes based
upon pro forma pre-tax income as if the Company had been subject to
additional Federal, state and local income taxes calculated using a pro
forma effective tax rate of approximately 40.8%; and (ii) the reduction of
interest expense resulting from the application of the net proceeds from
the initial public offering to outstanding indebtedness.
31
<PAGE> 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and related notes thereto which are
included herein. The Company utilizes a 52-53 week fiscal year ending on the
Saturday nearest March 31. Accordingly, fiscal years 2000, 1999, 1998, 1997 and
1996 ended on April 1, 2000, April 3, 1999, March 28, 1998, March 29, 1997 and
March 30, 1996, respectively. Fiscal 1999 reflects a 53-week period.
Certain statements in this Form 10-K and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made by or with the approval of authorized personnel
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
based on current expectations and are indicated by words or phrases such as
"anticipate," "estimate," "expect," "project," "we believe," "is or remains
optimistic," "currently envisions" and similar words or phrases and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: risks associated with changes in the competitive marketplace,
including the introduction of new products or pricing changes by the Company's
competitors; changes in global economic conditions; risks associated with the
Company's dependence on sales to a limited number of large department store
customers, including risks related to extending credit to customers; risks
associated with the Company's dependence on its licensing partners for a
substantial portion of its net income and risks associated with a lack of
operational and financial control over licensed businesses; risks associated
with consolidations, restructurings and other ownership changes in the retail
industry; risks associated with competition in the segments of the fashion and
consumer product industries in which the Company operates, including the
Company's ability to shape, stimulate and respond to changing consumer tastes
and demands by producing attractive products, brands and marketing, and its
ability to remain competitive in the areas of quality and price; risks
associated with uncertainty relating to the Company's ability to implement its
growth strategies; risks associated with the Company's entry into new markets
either through internal development activities or through acquisitions; risks
associated with the possible adverse impact of the Company's unaffiliated
manufacturers' inability to manufacture in a timely manner, to meet quality
standards or to use acceptable labor practices; risks associated with changes in
social, political, economic and other conditions affecting foreign operations
and sourcing and the possible adverse impact of changes in import restrictions;
risks related to the Company's ability to establish and protect its trademarks
and other proprietary rights; risks related to fluctuations in foreign currency
affecting the Company's foreign subsidiaries' and foreign licensees' results of
operations and the relative prices at which the Company and foreign competitors
sell their products in the same market and the Company's operating and
manufacturing costs outside of the United States; and, risks associated with the
Company's control by Lauren family members and the anti-
32
<PAGE> 33
takeover effect of multiple classes of stock. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
OVERVIEW
The Company began operations in 1968 as a designer and marketer of premium
quality men's clothing and sportswear. Since inception, the Company, through
internal operations and in conjunction with its licensing partners, has grown
through increased sales of existing product lines, the introduction of new
brands and products, expansion into international markets, development of its
retail operations and acquisitions. Over the last five years, net revenues have
grown to approximately $1.96 billion in fiscal 2000 from approximately $1.03
billion in fiscal 1996, while income from operations has grown to approximately
$263.9 million in fiscal 2000 from approximately $127.1 million in fiscal 1996.
The Company's net revenues are generated from its three integrated operations:
wholesale, retail and licensing. The following table sets forth net revenues for
the last five fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Wholesale sales ........... $ 878,395 $ 845,704 $ 733,065 $ 663,358 $ 606,022
Retail sales (1) .......... 833,980 659,352 570,751 379,972 303,698
---------- ---------- ---------- ---------- ----------
Net sales ................. 1,712,375 1,505,056 1,303,816 1,043,330 909,720
Licensing revenue ......... 236,302 208,009 167,119 137,113 110,153
Other income .............. 6,851 13,794 9,609 7,774 6,210
---------- ---------- ---------- ---------- ------------
Net revenues .............. $1,955,528 $1,726,859 $1,480,544 $1,188,217 $1,026,083
========== ========== ========== ============ ============
</TABLE>
(1) On May 3, 1999, a wholly owned subsidiary of the Company acquired all
of the outstanding shares of Club Monaco Inc. ("Club Monaco"). The
Company consolidated the operations of Club Monaco from the effective
date of the transaction.
Wholesale net sales result from the sale by the Company of men's and
women's apparel to wholesale customers, principally to major department stores,
specialty stores and non-Company operated Polo stores located throughout the
United States. Net sales for the wholesale division increased to $878.4 million
in fiscal 2000 from $606.0 million in fiscal 1996. This increase is primarily a
result of growth in sales of the Company's existing Polo Brands' and Collection
Brands' products and the introduction of new brands.
33
<PAGE> 34
Polo's retail sales are generated from sales at full price Polo stores,
outlet stores and Club Monaco stores operated by the Company. Net sales for the
retail division have grown to $834.0 million in fiscal 2000 from $303.7 million
in fiscal 1996. This increase is primarily a result of the Company's expansion
of its existing retail operations and growth through acquisitions. Since the
beginning of fiscal 1996, the Company has added, net of store closings, 42 full
price Polo stores, 56 outlet stores and 71 Club Monaco stores. This expansion
reflects 21 full price Polo stores acquired in the fiscal 1997 acquisition of
the 50% interest the Company did not own in Polo Retail Corporation and 70
freestanding Club Monaco stores (57 in Canada and 13 in the United States)
acquired in fiscal 2000, as described further below. At April 1, 2000, the
Company operated 45 Polo stores, 110 outlet stores and 71 Club Monaco stores.
As noted above, on May 3, 1999, a wholly owned subsidiary of the Company
completed its acquisition, through a tender offer and subsequent statutory
compulsory acquisition, of all of the outstanding shares of Club Monaco, a
corporation organized under the laws of the Province of Ontario, Canada. Founded
in 1985, Club Monaco is an international specialty retailer of casual apparel
and other accessories which are sold under the "Club Monaco" brand name and
associated trademarks. In addition, Club Monaco franchises three freestanding
stores in Canada, seven freestanding stores and 15 shop-within-shops in Japan
and two freestanding stores and 29 shop-within-shops in Korea and other parts of
Asia. Club Monaco has also granted licenses for the manufacture and distribution
of silver jewelry and eyewear in Canada and the United States. The Company used
the 1999 Credit Facility (as defined) to finance this acquisition. See
"Liquidity and Capital Resources."
Licensing revenue consists of royalties paid to the Company under its
agreements with its licensing partners. In fiscal 2000, Product, International
and Home Collection licensing alliances accounted for 54.4%, 22.4% and 23.2% of
total licensing revenue, respectively. Through these alliances, Polo combines
its core skills with the product or geographic competencies of its licensing
partners to create and develop specific businesses. The growth of existing and
development of new businesses under licensing alliances has resulted in an
increase in licensing revenue to $236.3 million in fiscal 2000 from $110.2
million in fiscal 1996.
On January 6, 2000, the Company completed the acquisition of stock and
certain assets of Poloco S.A.S. and certain of its affiliates ("Poloco"), which
hold licenses to sell men's and boys' Polo apparel, men's and women's Polo Jeans
apparel, and certain Polo accessories in Europe. In addition to acquiring
Poloco's wholesale business, the Company acquired one flagship store in Paris
and six outlet stores located in France, the United Kingdom and Austria. Poloco
had revenues of approximately $187.5 million in calendar year 1999. The Company
used a portion of the net proceeds from the Eurobond Offering (as defined) to
finance this acquisition. See "Liquidity and Capital Resources." The Company
will consolidate the results of operations of Poloco commencing in fiscal 2001.
On February 7, 2000, the Company announced the formation of Ralph Lauren
Media, LLC ("RL Media"), a joint venture between the Company and National
Broadcasting Company, Inc. ("NBC") and certain affiliated companies. RL Media
was created to bring the Company's American lifestyle experience to consumers
via multiple media platforms, including the Internet, broadcast, cable and
print. Under
34
<PAGE> 35
the 30-year joint venture agreement, RL Media will be owned 50% by the Company,
25% by NBC, 12.5% by ValueVision International, Inc. ("ValueVision"), 10% by NBC
Internet, Inc. ("NBCi") and 2.5% by CNBC.com LLC ("CNBC.com"). In exchange for
its 50% interest, the Company will provide marketing through its annual print
advertising campaign, make its merchandise available at initial cost of
inventory and handle excess inventory through its outlet stores, among other
things. NBC will contribute $110.0 million of television and online advertising
on NBC and CNBC.com properties. NBCi will contribute $40.0 million in online
distribution and promotion and ValueVision will contribute a cash funding
commitment up to $50.0 million. Under the arrangement, the Company will not
absorb any losses from the joint venture up to the first $50.0 million incurred
and will share proportionately in the net income or losses thereafter.
Additionally, the Company will receive a royalty on the sale of its products by
RL Media based on specified percentages of net sales over a predetermined
threshold, subject to certain limitations. RL Media's managing board has equal
representation from the Company and NBC, including its affiliated companies. The
joint venture has been accounted for under the equity method from the effective
date of the transaction.
During the fourth quarter of fiscal 1999, the Company formalized its plans
to streamline operations within its wholesale and retail operations and reduce
its overall cost structure (the "Restructuring Plan"). The major initiatives of
the Restructuring Plan included the following: (1) an evaluation of the
Company's retail operations and site locations; (2) the realignment and
operational integration of the Company's wholesale operating units; and (3) the
realignment and consolidation of corporate strategic business functions and
internal processes.
In an effort to improve the overall profitability of its retail operations,
in fiscal 2000 the Company closed three Polo stores and three outlet stores that
were not performing at an acceptable level. Additionally, the Company converted
two Polo stores and five outlet stores to new concepts expected to be more
productive. Costs associated with this aspect of the Restructuring Plan included
lease and contract termination costs, store fixed asset (primarily leasehold
improvements) and intangible asset write downs and severance and termination
benefits.
The Company's wholesale operations were realigned into two new operating
units: Polo Brands and Collection Brands. Aspects of this realignment included:
(i) the reorganization of the sales force and retail development areas; (ii) the
streamlining of the design and development process; and (iii) the consolidation
of the customer service departments. Additionally, the Company integrated the
sourcing and production of its Polo Brands, outlet store and licensees' products
into one consolidated unit. Costs associated with the wholesale realignment
consisted primarily of severance and termination benefits and lease termination
costs.
The Company's review of its corporate business functions and internal
processes resulted in a new management structure designed to better align
businesses with similar functions and the identification and elimination of
duplicative processes. Costs associated with the corporate realignment consisted
primarily of severance and termination benefits and lease termination costs.
In connection with the implementation of the Restructuring Plan, the
Company recorded a restructuring charge of $58.6 million on a pre-tax basis in
its
35
<PAGE> 36
fourth quarter of fiscal 1999. The major components of the restructuring charge
included lease and contract termination costs of $24.7 million, asset write
downs of $17.8 million, severance and termination benefits of $15.3 million and
other restructuring costs of $0.8 million. Total severance and termination
benefits as a result of the Restructuring Plan related to approximately 280
employees, all of which have been terminated through May 2000. The Company has
substantially completed the implementation of the Restructuring Plan as of April
1, 2000.
In connection with the Company's growth strategies, the Company plans to
introduce new products and brands and expand its retail operations.
Implementation of these strategies may require significant investments for
advertising, furniture and fixtures, infrastructure, design and additional
inventory. Notwithstanding the Company's investment, there can be no assurance
that its growth strategies will be successful.
36
<PAGE> 37
RESULTS OF OPERATIONS
The following discussion provides information and analysis of the Company's
results of operations for fiscal 2000 as compared to fiscal 1999 and for fiscal
1999 as compared to fiscal 1998. As a result of the Company's initial public
offering completed on June 17, 1997, and the use of a portion of the net
proceeds therefrom to reduce outstanding indebtedness, the comparison of
interest expense in fiscal 1999 to fiscal 1998 is not discussed below because
such information is not meaningful. Additionally, the comparison of income taxes
in fiscal 1999 to fiscal 1998 is not discussed below because the historical
taxation of the Company is not meaningful with respect to periods preceding the
reorganization.
The table below sets forth the percentage relationship to net revenues of
certain items in the Company's statements of income for fiscal 2000, fiscal 1999
and fiscal 1998:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Netsales .......................................... 87.6% 87.2% 88.1%
Licensing revenue ................................. 12.1 12.0 11.3
Other income ...................................... 0.3 0.8 0.6
----- ----- -----
Net revenues ...................................... 100.0 100.0 100.0
----- ----- -----
Gross profit ...................................... 48.7 47.6 48.7
Selling, general and administrative expenses ...... 35.2 35.2 35.2
Restructuring charge .............................. -- 3.4 --
----- ----- -----
Income from operations ............................ 13.5 9.0 13.5
Interest expense .................................. 0.8 0.2 0.0
----- ----- -----
Income before income taxes and change in accounting
principle ......................................... 12.7% 8.8% 13.5%
===== ===== =====
</TABLE>
FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES. Net sales increased 13.8% to $1.7 billion in fiscal 2000 from
$1.5 billion in fiscal 1999. Wholesale net sales increased 3.9% to $878.4
million in fiscal 2000 from $845.7 million in fiscal 1999. Wholesale growth
primarily reflects increased unit sales of existing Polo and Collection brand
products. These unit increases were partially offset by a decline in average
selling prices resulting from changes in product mix. Retail sales increased by
26.5% to $834.0 million in fiscal 2000 from $659.4 million in fiscal 1999. This
increase is primarily attributable to the $209.9 million benefit from the
following: (a) new store openings in fiscal 2000 (12 Polo full price and 11
outlet stores, net of store closures); (b) a full year impact of new stores
opened in fiscal 1999; and (c) the acquisition of 70 Club Monaco stores in the
quarter ended July 3, 1999. Although the Company's stores remain highly
37
<PAGE> 38
productive, comparable store sales, which represent net sales of stores open in
both reporting periods for the full portion of such periods, decreased by 4.6%,
excluding the unfavorable impact of a 53rd week in fiscal 1999. The decline was
due to a promotionally driven retail environment, an inadequate inventory of
leading products and the effects of a mature and challenging outlet store
environment.
LICENSING REVENUE. Licensing revenue increased 13.6% to $236.3 million in
fiscal 2000 from $208.0 million in fiscal 1999. This increase is primarily
attributable to increases in sales of existing licensed products, particularly
Lauren, Polo Jeans and Home Collection.
GROSS PROFIT. Gross profit as a percentage of net revenues increased to
48.7% in fiscal 2000 from 47.6% in fiscal 1999. This increase was attributable
to an increase in retail gross margins due to a higher concentration of retail
sales to net revenues in the current period as a result of the acquisition of
Club Monaco in fiscal 2000 and lower markdowns taken in fiscal 2000. Retail
gross margins were negatively impacted by higher markdowns in fiscal 1999 as the
Company implemented a strategic initiative in its fourth fiscal quarter of 1999
to reduce inventory levels and move excess product. Additionally, gross profit
was favorably impacted by the increase in licensing revenue in fiscal 2000.
Wholesale gross margins were consistent with prior years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses as a percentage of net revenues were 35.2% in
fiscal 2000 and fiscal 1999. Despite increases in depreciation expense from the
shop-within-shop development program and start-up costs incurred with the
expansion of the Company's retail operations, SG&A expenses as a percentage of
net revenues were consistent with the prior period as the Company was able to
achieve expense leveraging from revenue growth in fiscal 2000.
INTEREST EXPENSE. Interest expense increased to $15.0 million in fiscal
2000 from $2.8 million in fiscal 1999. This increase was due to a higher level
of borrowings incurred during the current period to fund the acquisitions of
Club Monaco and Poloco.
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales increased 15.4% to $1.5 billion in fiscal 1999 from
$1.3 billion in fiscal 1998. Wholesale net sales increased 15.4% to $845.7
million in fiscal 1999 from $733.1 million in fiscal 1998. Wholesale growth
primarily reflects volume-driven sales increases in existing menswear and
womenswear brands and increased menswear and womenswear sales resulting from the
timing of shipments to retailers. These unit increases were offset by decreases
in average selling prices resulting from changes in product mix. Retail sales
increased by 15.5% to $659.4 million in fiscal 1999 from $570.8 million in
fiscal 1998. Of this increase, $90.7 million is attributable to the opening of
four new Polo stores (net of two store closings) and 27 new outlet stores (net
of three store closings) in fiscal 1999, and the benefit of a full year of
operations for three new Polo stores and ten new outlet stores opened in fiscal
1998. Additionally, retail sales were favorably impacted by the inclusion in
fiscal 1999 of a 53rd week as compared to 52 weeks in fiscal 1998. Comparable
store sales for fiscal 1999 decreased by 2.0%, excluding the impact of
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<PAGE> 39
the 53rd week in fiscal 1999, largely due to the following: (i) the effects of a
more challenging economic environment compared to fiscal 1998; (ii) lower
tourism, most notably in the Company's West Coast and Hawaiian stores; (iii)
issues encountered during a conversion of the Company's retail merchandising
systems during its second fiscal quarter; and (iv) unseasonably warm weather
conditions throughout the United States during the fall selling season as well
as other weather issues and store closings.
39
<PAGE> 40
LICENSING REVENUE. Licensing revenue increased 24.5% to $208.0 million in
fiscal 1999 from $167.1 million in fiscal 1998. This increase is primarily
attributable to an overall increase in sales of existing licensed products,
particularly Chaps, Lauren, Polo Jeans and Home Collection, and the Company's
continued expansion and growth in international markets.
GROSS PROFIT. Gross profit as a percentage of net revenues decreased to
47.6% in fiscal 1999 from 48.7% in fiscal 1998. This decrease was primarily
attributable to lower retail gross margins due to higher markdowns. Wholesale
gross margins decreased slightly in fiscal 1999 in comparison to fiscal 1998.
These decreases were offset by an increase in licensing revenue as a percentage
of net revenues to 12.0% in fiscal 1999 from 11.3% in fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased by
$87.3 million to $608.1 million in fiscal 1999 from $520.8 million in fiscal
1998. The increase in SG&A expenses is principally due to increased
volume-related expenses to support revenue growth, increased depreciation
expense associated with the Company's shop-within-shops development program and
start-up costs associated with the expansion of the Company's retail operations.
Despite these increases, SG&A expenses as a percentage of net revenues remained
constant at 35.2%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements primarily derive from working capital
needs, construction and renovation of shop-within-shops, retail expansion and
other corporate activities. The Company's main sources of liquidity are cash
flows from operations and credit facilities.
Net cash provided by operating activities increased to $242.7 million in
fiscal 2000 from $38.5 million in fiscal 1999. This improvement was driven by
favorable changes in inventories as the Company implemented a strategic
initiative in its fourth fiscal quarter of 1999 to reduce inventory levels and
move excess product. This improvement was also impacted by favorable changes in
accounts payable due to timing of payments to vendors. Net cash used in
investing activities increased to $318.3 million in fiscal 2000 from $196.2
million in fiscal 1999. This increase principally reflects cash used for the
acquisition of Poloco offset by a decline in capital expenditures in fiscal
2000. Net cash provided by financing activities increased to $201.6 million in
fiscal 2000 from $143.4 million in fiscal 1999. This increase primarily reflects
the proceeds received by the Company in connection with the Eurobond Offering
(as defined below) offset by the use of a portion of these proceeds to repay
outstanding indebtedness under the Credit Facilities and to repurchase the
Company's common stock in fiscal 2000.
On June 9, 1997, the Company entered into a credit facility with a
syndicate of banks which provides for a $225.0 million revolving line of credit
available for the issuance of letters of credit, acceptances and direct
borrowings and matures on December 31, 2002 (the "Credit Facility"). Borrowings
under the Credit Facility bear interest, at the Company's option, at a Base Rate
equal to the higher of: (i) the Federal Funds Rate, as published by the Federal
Reserve Bank of New York, plus 1/2 of one percent; and (ii) the prime commercial
lending rate of The Chase Manhattan Bank in effect from time to time, or at the
Eurodollar Rate plus an interest margin.
40
<PAGE> 41
On March 30, 1999, in connection with the Company's acquisition of Club
Monaco, the Company entered into a $100.0 million senior credit facility (the
"1999 Credit Facility") with a syndicate of banks consisting of a $20.0 million
revolving line of credit and an $80.0 million term loan (the "Term Loan"). The
revolving line of credit is available for working capital needs and general
corporate purposes and matures on June 30, 2003. The Term Loan was used to
finance the acquisition of all of the outstanding common stock of Club Monaco
and to repay indebtedness of Club Monaco. The Term Loan is repayable on June 30,
2003. Borrowings under the 1999 Credit Facility bear interest, at the Company's
option, at a Base Rate equal to the higher of: (i) the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 1/2 of one percent; and
(ii) the prime commercial lending rate of The Chase Manhattan Bank in effect
from time to time, or at the Eurodollar Rate plus an interest margin. In April
1999, the Company entered into interest rate swap agreements with a notional
amount of $100.0 million to convert the variable interest rate on the 1999
Credit Facility to a fixed rate of 5.5%.
The Credit Facility and 1999 Credit Facility (collectively, the "Credit
Facilities") contain customary representations, warranties, covenants and events
of default, including covenants regarding maintenance of net worth and leverage
ratios, limitations on indebtedness, loans, investments and incurrences of
liens, and restrictions on sales of assets and transactions with affiliates.
Additionally, the agreements provide that an event of default will occur if Mr.
Lauren and related entities fail to maintain a specified minimum percentage of
the voting power of the Company's common stock.
On November 22, 1999, the Company issued euro 275.0 million of 6.125
percent Notes (the "Eurobonds") due November 2006 (the "Eurobond Offering"). The
Eurobonds are listed on the London Stock Exchange. The net proceeds from the
Eurobond Offering were $281.5 million based on the foreign exchange rate on the
issuance date. Interest on the Eurobonds is payable annually. A portion of the
net proceeds from the issuance was used to pay down existing debt under the
Company's Credit Facilities while the remaining proceeds were used to acquire
Poloco. The Company acquired Poloco for an aggregate cash consideration of
approximately $210.0 million, plus the assumption of approximately $10.0 million
in short-term debt. As of April 1, 2000, the Company has paid 90.0% of the
purchase price for Poloco and expects to pay the remaining 10.0%, or
approximately $21.6 million, in its first quarter of fiscal 2001 in accordance
with the terms of the agreement.
As of April 1, 2000, the Company had $86.1 million outstanding in direct
borrowings, $80.0 million outstanding under the Term Loan and $262.7 million
outstanding in Eurobonds based on the year end exchange rate. The Company was
also contingently liable for $46.8 million in outstanding letters of credit
related to commitments for the purchase of inventory and in connection with its
leases under the Credit Facilities. The weighted average interest rate on
borrowings at April 1, 2000, was 6.3%.
Total cash outlays related to the Restructuring Plan are approximately
$39.5 million, $27.2 million of which has been paid through April 1, 2000. The
remaining obligations under the Restructuring Plan approximated $12.3 million at
April 1, 2000 and primarily relate to severance and lease termination
agreements.
41
<PAGE> 42
Capital expenditures were $122.0 million, $141.7 million and $63.1 million
in fiscal 2000, fiscal 1999 and fiscal 1998, respectively. Capital expenditures
primarily reflect costs associated with the following: (i) the Company's
expansion of its distribution facilities; (ii) the shop-within-shops development
program which includes new shops, renovations and expansions; (iii) the
expansion of the Company's retail operations; and (iv) the Company's information
systems. The Company plans to invest approximately $150.0 million, net of
landlord incentives, over the next fiscal year primarily for its retail
concepts, outlet and Club Monaco stores, its European expansion, the
shop-within-shops development program, its information systems and other capital
projects.
In March 1998, the Board of Directors authorized the repurchase, subject to
market conditions, of up to $100.0 million of the Company's Class A Common
Stock. Share repurchases under this plan were made in the open market over the
two-year period which commenced April 1, 1998. On March 2, 2000, the Board of
Directors authorized a two-year extension to the stock repurchase program.
Shares acquired under the repurchase program will be used for stock option
programs and for other corporate purposes. As of April 1, 2000, the Company had
repurchased 2,952,677 shares of its Class A Common Stock at an aggregate cost of
$57.3 million.
The Company extends credit to its customers, including those which have
accounted for significant portions of its net revenues. The Company had three
customers, Dillard Department Stores, Inc., Federated Department Stores, Inc.
and The May Department Stores Company, which in aggregate constituted
approximately 54.0% and 58.0% of trade accounts receivable outstanding at April
1, 2000 and April 3, 1999, respectively. Additionally, the Company had four
licensing partners, Jones Apparel Group, Inc. ("Jones"), WestPoint Stevens, Inc.
("WPS"), Seibu Department Stores, Ltd. ("Seibu") and Warnaco, Inc., which in
aggregate constituted approximately 58.0% and 55.0% of licensing revenue in
fiscal 2000 and fiscal 1999, respectively. WPS, Seibu and Jones constituted, in
aggregate, approximately 35.0% of licensing revenue in fiscal 1998. Accordingly,
the Company may have significant exposure in collecting accounts receivable from
its wholesale customers and licensees. The Company has credit policies and
procedures which it uses to manage its credit risk.
Management believes that cash from ongoing operations and funds available
under the Credit Facilities and from the Eurobond Offering will be sufficient to
satisfy the Company's current level of operations, the Restructuring Plan,
capital requirements, stock repurchase program and other corporate activities
for the next 12 months. The Company does not currently intend to pay dividends
on its Common Stock in the next 12 months
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business is affected by seasonal trends, with higher levels
of wholesale sales in its second and fourth quarters and higher retail sales in
its second and third quarters. These trends result primarily from the timing of
seasonal wholesale shipments to retail customers and key vacation travel and
holiday shopping periods in the retail segment. As a result of growth in the
Company's retail operations and licensing revenue, historical quarterly
operating trends and working capital requirements may not accurately reflect
future performances. In addition,
42
<PAGE> 43
fluctuations in sales and operating income in any fiscal quarter may be affected
by the timing of seasonal wholesale shipments and other events affecting retail.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and measurement of those
instruments at fair value. The accounting for changes in the fair value of a
derivative is dependent upon the intended use of the derivative. In June 1999,
the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133." As a
result, SFAS No. 133 is effective for the Company's first quarter of the fiscal
year ending March 30, 2002, and retroactive application is not permitted. The
Company has not yet determined whether the application of SFAS No. 133 will have
a material impact on its financial position or results of operations.
YEAR 2000 COMPLIANCE UPDATE
The Company has reviewed its operations relating to Year 2000 issues.
Remediation and testing are complete for both information technology ("IT") and
non-IT systems that required attention and resources to be Year 2000 compliant.
Although the change in date has occurred, it is not possible to conclude that
all aspects of the Year 2000 issue that may affect the Company, including those
relating to third parties with whom the Company has material business
relationships (such as customers, licensees, transportation carriers, utility
and other general service providers), have been resolved. To date, the Company
has not experienced any significant disruptions in its operations relating to
Year 2000 issues. The Company has a contingency plan in place to mitigate the
potential effects, if any, that may arise.
The costs to address the Company's Year 2000 issues were approximately $5.3
million. Substantially all of these costs had been incurred as of April 1, 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in the Company's financial instruments represents
the potential loss in fair value, earnings or cash flows arising from adverse
changes in interest rates or foreign currency exchange rates. The Company
manages these exposures through operating and financing activities and, when
appropriate, through the use of derivative financial instruments. The policy of
the Company allows for the use of derivative financial instruments for
identifiable market risk exposures, including interest rate and foreign currency
fluctuations. The Company does not enter into derivative financial contracts for
trading or other speculative purposes. The following quantitative disclosures
were derived using quoted market prices and theoretical pricing models obtained
through independent pricing sources for the same or similar types of financial
instruments, taking into consideration the underlying terms and maturities. The
quantitative disclosures discussed below do not represent
43
<PAGE> 44
the maximum possible loss nor any expected loss that may occur since actual
results may differ from those estimates.
FOREIGN CURRENCY EXCHANGE RATES
Foreign currency exposures arise from transactions, including firm
commitments and anticipated contracts, denominated in a currency other than an
entity's functional currency and from foreign-denominated revenues translated
into U.S. dollars. From time to time, the Company hedges exposures to foreign
currency exchange rate fluctuations with forward foreign exchange contracts.
With respect to foreign operations, substantially all of the Company's foreign
subsidiaries operate in their respective functional currencies, limiting the
Company's exchange risk on their operations. The Company's primary foreign
currency exposures relate to its Eurobond debt and euro investments. The
potential loss in value at April 1, 2000 on the Company's Eurobond debt and euro
investments based on a hypothetical 10.0% adverse change in the euro rate would
have been $26.3 million and $7.3 million, respectively. As of April 1, 2000, a
hypothetical immediate 10.0% adverse change in the euro rate on the Eurobond
debt and euro investments would have a $1.6 million and $0.3 million unfavorable
impact, respectively, on the Company's earnings and cash flows in the fiscal
year ending March 31, 2001.
INTEREST RATES
The Company's primary interest rate exposure relates to its fixed and
variable rate debt. The fair value of the Company's fixed Eurobond debt was
$258.6 million based on its quoted market price as listed on the London Stock
Exchange and using exchange rates in effect as of April 1, 2000. The potential
loss in value at April 1, 2000 on the Company's fixed Eurobond debt based on a
hypothetical 10.0% adverse change in the interest rate would have been $25.9
million. At April 1, 2000, the carrying value of amounts outstanding of $166.1
million under the Company's variable debt borrowing arrangements under the
Credit Facilities approximated its fair value. The Company employs an interest
rate hedging strategy utilizing swaps to effectively fix a portion of its
interest rate exposure on its floating rate financing arrangements. At April 1,
2000, the Company had interest rate swap agreements with a notional amount of
$100.0 million which fixed the interest rate on its variable rate debt at 5.5%.
As of April 1, 2000, a hypothetical immediate 10.0% adverse change in interest
rates relating to the Company's unhedged portion of its variable rate debt would
have a $0.6 million unfavorable impact on the Company's earnings and cash flows
in the fiscal year ending March 31, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item appears beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
44
<PAGE> 45
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The other information required to be included herein by Item 10 of Form 10-K
will be included in the Company's Proxy Statement for the 2000 Annual Meeting of
Stockholders which will be filed within 120 days after the close of the
Company's fiscal year ended April 1, 2000 and such information is incorporated
herein by reference to such Proxy Statement.
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of June 22, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ralph Lauren.......... 60 Chairman, Chief Executive Officer and
Director
F. Lance Isham........ 55 Vice Chairman and Director
Roger N. Farah........ 47 President, Chief Operating Officer and
Director
Richard A. Friedman... 42 Director
Frank A. Bennack, Jr.. 67 Director
Joel L. Fleishman..... 66 Director
Allen Questrom....... 60 Director
Terry S. Semel........ 57 Director
Victor Cohen.......... 46 Executive Vice President, General
Counsel and Secretary
Nancy A. Platoni Poli. 44 Senior Vice President and Chief
Financial Officer
Douglas L. Williams... 35 Group President, Global Business
Development
</TABLE>
RALPH LAUREN has been a director of the Company since prior to the
commencement of the Company's initial public offering and was a member of the
Advisory Board or Board of Directors of the Company's predecessors since their
organization. Mr. Lauren is the Company's Chairman and Chief Executive Officer.
He founded Polo in 1968 and has provided leadership in the design, marketing,
advertising and operational areas since such time.
45
<PAGE> 46
F. LANCE ISHAM has been Vice Chairman and a director of the Company since
April 2000. He was President of the Company from November 1998 to April 2000,
prior to which he served as Group President of the Menswear operations. Mr.
Isham joined Polo in 1982, and has held a variety of sales positions in the
Company including Executive Vice President of Sales and Merchandising.
ROGER N. FARAH has been President, Chief Operating Officer and a director
of the Company since April 2000. Mr. Farah was Chairman of the Board of Venator
Group, Inc. from December 1994 until April 2000 and was Chief Executive Officer
of Venator Group, Inc. from December 1994 until August 1999. Mr. Farah served as
President and Chief Operating Officer of R.H. Macy & Co., Inc. from July 1994 to
October 1994. He also served as Chairman and Chief Executive Officer of
Federated Merchandising Services, the central buying and product development arm
of Federated Department Stores, Inc. from June 1991 to July 1994.
RICHARD A. FRIEDMAN has been a director of the Company since prior to the
commencement of the Company's initial public offering and was a member of the
Advisory Board of the Company's predecessor since 1994. Mr. Friedman is a
Managing Director of Goldman, Sachs & Co., and head of the Principal Investment
Area. He joined Goldman, Sachs & Co. in 1981. Mr. Friedman is a member of the
Board of Directors of AMF Bowling, Inc. and Carmike Cinemas Inc.
FRANK A. BENNACK, JR. has been a director of the Company since January
1998. Mr. Bennack has been the President and Chief Executive Officer of The
Hearst Corporation since 1979. He is a member of the Board of Directors of The
Hearst Corporation, Hearst-Argyle Television, Inc., American Home Products
Corporation, The Chase Manhattan Corporation and The Chase Manhattan Bank.
JOEL L. FLEISHMAN has been a director of the Company since January 1999.
Mr. Fleishman has been a Professor of Law and Public Policy, Terry Sanford
Institute of Public Policy at Duke University since 1971 and the Director of the
Samuel and Ronnie Heyman Center for Ethics, Public Policy and the Professions at
Duke University since 1987. Mr. Fleishman is a member of the Board of Directors
of Boston Scientific Corporation.
ALLEN QUESTROM has been a director of the Company since September 1997. Mr.
Questrom has been the Chairman and Chief Executive Officer of Barneys New York,
Inc. since May 1999 and was the Chairman and Chief Executive Officer of
Federated Department Stores, Inc. from February 1990 to May 1997. He is a member
of the Board of Directors of Barneys New York, Inc.
TERRY S. SEMEL has been a director of the Company since September 1997. Mr.
Semel has been Chairman of Windsor Media, Inc., Los Angeles, a diversified media
company, since October 1999. He was Chairman of the Board and Co-Chief Executive
Officer of the Warner Bros. Division of Time Warner Entertainment LP ("Warner
Brothers"), Los Angeles, from March 1994 until October 1999 and of Warner Music
Group, Los Angeles, from November 1995 until October 1999. For more than ten
years prior to that he was President of Warner Brothers or its predecessor,
Warner Bros. Inc. Mr. Semel is also a director of Revlon, Inc.
VICTOR COHEN has been Executive Vice President, General Counsel and
Secretary of the Company since 2000. Mr. Cohen joined Polo in 1983 as its senior
legal officer responsible for all legal and corporate affairs. Prior to joining
the Company, he was associated with the law firm of Skadden, Arps, Slate,
Meagher & Flom.
NANCY A. PLATONI POLI has been Chief Financial Officer of the Company since
1996 and Senior Vice President since 1997. Ms. Poli was Vice President and
Controller from 1989 to 1996, and assumed responsibility for treasury functions
in
46
<PAGE> 47
addition to her controller functions in 1995. Prior to that, she was Controller
of Retail Finance. Ms. Poli joined the Company in 1984.
DOUGLAS L. WILLIAMS has been corporate Group President, Global Business
Development since April 2000. Mr. Williams began his career with the Company in
1988 as a retail analyst. He has held various sales and merchandising positions
within the Company, including Vice President of Men's Sales from 1993 to 1997
and Senior Vice President of Men's Sales from 1997 to 1998. Mr. Williams was
promoted to Divisional President of Product Licensing in 1998 and in 1999 was
further promoted to President of Global Licensing and New Business Development.
Each executive officer serves for a one-year term ending at the next annual
meeting of the Company's Board of Directors, subject to his or her applicable
employment agreement and his or her earlier death, resignation or removal.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be included herein by Items 11 through 13 of
Form 10-K will be included in the Company's Proxy Statement for the 2000 Annual
Meeting of Stockholders, which will be filed within 120 days after the close of
the Company's fiscal year ended April 1, 2000 and such information is
incorporated herein by reference to such Proxy Statement.
47
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1, 2. Financial Statements and Schedules. See index on Page F-1.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Certificate of Incorporation (filed as
Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (No. 333-24733)) (the "S-1")*
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 3.2 to the S-1)*
10.1 Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive
Plan (filed as Exhibit 10.1 to the S-1)*+
10.2 Polo Ralph Lauren Corporation 1997 Stock Option Plan for
Non-Employee Directors (filed as Exhibit 10.2 to the S-1)*+
10.3 Polo Ralph Lauren Corporation Executive Officer Annual
Incentive Plan+
10.4 Registration Rights Agreement dated as of June 9, 1997 by
and among Ralph Lauren, GS Capital Partners, L.P., GS
Capital Partners 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 Polo Ralph Lauren Corporation (filed as Exhibit 10.3 to
the S-1)*
10.5 U.S.A. Design and Consulting Agreement, dated January 1,
1985, between Ralph Lauren, individually and d/b/a Ralph
Lauren Design Studio, and Cosmair, Inc., and letter
agreement related thereto dated January 1, (filed as Exhibit
10.4 to the S-1)*
10.6 Restated U.S.A. License Agreement, dated January 1, 1985,
between Ricky Lauren and Mark N. Kaplan, as Licensor, and
Cosmair, Inc., as Licensee, and letter agreement related
thereto dated January 1, 1985** (filed as Exhibit 10.5 to
the S-1)*
10.7 Foreign Design and Consulting Agreement, dated January 1,
1985, between Ralph Lauren, individually and d/b/a Ralph
Lauren Design Studio, as Licensor, and L'Oreal S.A., as
Licensee, and letter agreements related thereto dated
January 1, 1985, September 16, 1994 and October 25, 1994**
(filed as Exhibit 10.6 to the S-1)*
10.8 Restated Foreign License Agreement, dated January 1, 1985,
between The Polo/Lauren Company, as Licensor, and L'Oreal
S.A., as Licensee, letter Agreement related thereto dated
January 1, 1985, and Supplementary Agreement thereto, dated
October 1, 1991** (filed as Exhibit 10.7 to the S-1)*
10.9 Amendment, dated November 27, 1992, to Foreign Design And
Consulting Agreement and Restated Foreign License
Agreement** (filed as Exhibit 10.8 to the S-1)*
10.10 License Agreement, made as of January 1, 1998, between Ralph
Lauren Home Collection, Inc. and WestPoint Stevens Inc.**
(filed as Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended March 28, 1998 (the
"Fiscal 1998 10-K")*
10.11 License Agreement, dated March 1, 1998, between The
Polo/Lauren Company, L.P. and Polo Ralph Lauren Japan Co.,
Ltd., and undated letter agreement related thereto** (filed
as Exhibit 10.10 to the S-1)*
10.12 Design Services Agreement, dated March 1, 1998, between Polo
Ralph Lauren Enterprises, L.P. and Polo Ralph Lauren Japan
Co., Ltd.** (filed as Exhibit 10-11 to the S-1)*
10.13 Design Services Agreement, dated as of October 18, 1995, by
and between Polo Ralph Lauren Enterprises, L.P. and Jones
Apparel Group, Inc.** (filed as Exhibit 10.25 to the Fiscal
1998 10-K)*
48
<PAGE> 49
10.14 License Agreement, dated as of October 18, 1995, by and
between Polo Ralph Lauren Enterprises, L.P. and Jones
Apparel Group, Inc.** (filed as Exhibit 10-26 to the Fiscal
1998 10-K)*
10.15 Stockholders Agreement dated as of June 9, 1997 among Polo
Ralph Lauren Corporation, GS Capital Partners, L.P., GS
Capital Partners 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.,
Mr. Ralph Lauren, RL Holding, L.P. and RL Family (filed as
Exhibit 10.22 to the S-1)*
10.16 Form of Credit Agreement between Polo Ralph Lauren
Corporation and The Chase Manhattan Bank (filed as Exhibit
10.24 to the S-1)*
10.17 Form of Guarantee and Collateral Agreement by Polo Ralph
Lauren Corporation in favor of The Chase Manhattan Bank
(filed as Exhibit 10.25 to the S-1)*
10.18 Credit Agreement between Polo Ralph Lauren Corporation and
the Chase Manhattan Bank dated as of March 30, 1999 (filed
as Exhibit 10.20 to the Fiscal 1999 Form 10-K)*
10.19 Fiscal and Paying Agency Agreement dated November 22, 1999
among Polo Ralph Lauren Corporation, its subsidiary
guarantors and The Bank of New York, as fiscal and principal
paying agent (filed as Exhibit 10.1 to the Form 10-Q for the
quarterly period ended January 1, 2000)*
10.20 Stock and Asset Purchase Agreement between Polo Ralph Lauren
Corporation and S.A. Louis Dreyfus, dated November 23, 1999
(filed as Exhibit 2.1 to the Form 8-K filed January 10,
2000)*
10.21 Form of Indemnification Agreement between Polo Ralph Lauren
Corporation and its Directors and Executive Officers (filed
as Exhibit 10.26 to the S-1)*
10.22 Amended and Restated Employment Agreement effective April 4,
1999 between Ralph Lauren and Polo Ralph Lauren Corporation
(filed as Exhibit 10-23 to the Fiscal 1999 Form 10-K)*+
10.23 Deferred Compensation Agreement dated April 2, 1995 between
F. Lance Isham and Polo Ralph Lauren, L.P. (filed as Exhibit
10.14 to the S-1)*+
10.24 Amendment to Deferred Compensation Agreement made as of
November 10, 1998 between F. Lance Isham and Polo Ralph
Lauren Corporation (filed as Exhibit 10.14 to the Fiscal
1999 10-K)*+
10.26 Amended and Restated Employment Agreement effective November
10, 1998 between F. Lance Isham and Polo Ralph Lauren
Corporation (filed as Exhibit 10.16 to the Fiscal 1999
10-K)*+
10.27 Employment Agreement effective April 12, 2000 between Polo
Ralph Lauren Corporation and Roger N. Farah+
10.28 Employment Agreement effective April 1, 2000 between Polo
Ralph Lauren Corporation and Victor Cohen+
10.27 Employment Agreement effective January 1, 2000 between Polo
Ralph Lauren Corporation and Douglas L. Williams+
21.1 List of Significant Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
-----------------------
* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or arrangement.
** Portions of Exhibits 10.5 - 10.14 have been omitted pursuant to a
request for confidential treatment and have been filed separately with
the Securities and Exchange Commission.
(b) During the quarter ended April 1, 2000, a Current Report on Form 8-K
dated January 6, 2000 was filed with the Commission by the Company
announcing the consummation of its acquisition of Poloco, S.A.S. and
certain of its affiliates. In addition, a Current Report on Form 8-K
dated February 7, 2000 was filed with the Commission by the Company
announcing the establishment of a new joint venture limited liability
company called Ralph Lauren Media, LLC by the Company, National
Broadcasting Company, Inc., ValueVision International, Inc., CNBC.com
LLC and NBC Internet, Inc.
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
POLO RALPH LAUREN CORPORATION
(Registrant)
By: /s/ Ralph Lauren
--------------------------------------
Ralph Lauren
Chairman of the Board of Directors and
Chief Executive Officer
Date: June 26, 2000
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Ralph Lauren Chairman of the Board of Directors and June 26, 2000
------------------------------- Chief Executive Officer
Ralph Lauren (Principal Executive Officer)
/s/ F. Lance Isham Vice Chairman of the Board of Directors June 26, 2000
-------------------------------
F. Lance Isham
/s/ Roger N. Farah President, Chief Operating Officer and June 26, 2000
------------------------------- Director
Roger N. Farah
/s/ Nancy A. Platoni Poli Senior Vice President and Chief Financial June 26, 2000
------------------------------- Officer (Principal Financial and Accounting
Nancy A. Platoni Poli Officer)
/s/ Frank A. Bennack, Jr. Director June 26, 2000
-------------------------------
Frank A. Bennack, Jr.
/s/ Joel L. Fleishman Director June 26, 2000
-------------------------------
Joel L. Fleishman
/s/ Richard A. Friedman Director June 26, 2000
-------------------------------
Richard A. Friedman
/s/ Allen Questrom Director June 26, 2000
-------------------------------
Allen Questrom
/s/ Terry S. Semel Director June 26, 2000
-------------------------------
Terry S. Semel
</TABLE>
<PAGE> 51
POLO RALPH LAUREN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE
<S> <C>
Independent Auditors' Report................................................... F-2
Consolidated Balance Sheets as of April 1, 2000 and April 3, 1999.............. F-3
Consolidated Statements of Income for the years ended April 1, 2000, April 3,
1999 and March 28, 1998....................................................... F-4
Consolidated Statements of Stockholders' Equity and Partners' Capital for the
years ended April 1, 2000, April 3, 1999 and March 28, 1998.................... F-5
Consolidated Statements of Cash Flows for the years ended April 1, 2000,
April 3, 1999 and March 28, 1998.............................................. F-6
Notes to Consolidated Financial Statements..................................... F-8
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report.................................................. S-1
Schedule II - Valuation and Qualifying Accounts............................... S-2
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Polo Ralph Lauren Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of Polo Ralph
Lauren Corporation and subsidiaries (the "Company") as of April 1, 2000 and
April 3, 1999 and the related consolidated statements of income, stockholders
equity and cash flows, for each of the three years in the period ended April 1,
2000. These financials statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of April 1, 2000 and April 3,
1999, and the results of their operations and their cash flows for each of the
three years in the period ended April 1, 2000, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, effective
April 4, 1999, the Company changed its method of accounting for the costs of
start-up activities.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
May 19, 2000
F-2
<PAGE> 53
POLO RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 1, APRIL 3,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 164,571 $ 44,458
Accounts receivable, net of allowances of $16,631 and $13,495, respectively 204,447 157,203
Inventories 390,953 376,860
Deferred tax assets 40,378 51,939
Prepaid expenses and other 52,542 48,994
----------- -----------
TOTAL CURRENT ASSETS 852,891 679,454
Property and equipment, net 372,977 261,799
Deferred tax assets 11,068 12,493
Goodwill, net 277,822 27,464
Other assets, net 105,804 79,157
Restricted cash -- 44,217
----------- -----------
$ 1,620,562 $ 1,104,584
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes and acceptances payable - banks $ 86,131 $ 115,500
Accounts payable 151,281 88,898
Income taxes payable -- 17,432
Accrued expenses and other 168,816 126,142
----------- -----------
TOTAL CURRENT LIABILITIES 406,228 347,972
Long-term debt 342,707 44,217
Other noncurrent liabilities 99,190 53,490
Commitments and contingencies (Note 13)
Stockholders' equity
Common Stock
Class A, par value $.01 per share; 500,000,000 shares
authorized; 34,381,653 shares issued 344 344
Class B, par value $.01 per share; 100,000,000 shares
authorized; 43,280,021 shares issued and outstanding 433 433
Class C, par value $.01 per share; 70,000,000 shares
authorized; 22,720,979 shares issued and outstanding 227 227
Additional paid-in-capital 450,030 450,030
Retained earnings 370,785 227,288
Treasury Stock, Class A, at cost (2,952,677 and 603,864 shares) (57,346) (16,084)
Accumulated other comprehensive income 9,655 --
Unearned compensation (1,691) (3,333)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 772,437 658,905
----------- -----------
$ 1,620,562 $ 1,104,584
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 54
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
APRIL 1, APRIL 3, MARCH 28,
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 1,712,375 $ 1,505,056 $ 1,303,816
Licensing revenue 236,302 208,009 167,119
Other income 6,851 13,794 9,609
------------ ------------ ------------
Net revenues 1,955,528 1,726,859 1,480,544
Cost of goods sold 1,002,390 904,586 759,988
------------ ------------ ------------
Gross profit 953,138 822,273 720,556
Selling, general and administrative expenses 689,227 608,128 520,801
Restructuring charge -- 58,560 --
------------ ------------ ------------
Income from operations 263,911 155,585 199,755
Interest expense 15,025 2,759 159
------------ ------------ ------------
Income before income taxes and cumulative effect of change in
accounting principle 248,886 152,826 199,596
Provision for income taxes 101,422 62,276 52,025
------------ ------------ ------------
Income before cumulative effect of change in accounting principle 147,464 90,550 147,571
Cumulative effect of change in accounting principle, net of taxes 3,967 -- --
------------ ------------ ------------
Net income $ 143,497 $ 90,550 $ 147,571
============ ============ ============
PRO FORMA
------------
Historical income before income taxes $ 199,596
Pro forma adjustments other than income taxes 3,162
------------
Pro forma income before income taxes 202,758
Pro forma provision for income taxes 82,631
------------
Pro forma net income $ 120,127
============
Income per share before cumulative effect of change in
accounting principle - Basic and Diluted $ 1.49 $ 0.91 $ 1.20
Cumulative effect of change in accounting principle, net of taxes,
per share - Basic and Diluted 0.04 -- --
------------ ------------ ------------
Net income per share - Basic and Diluted $ 1.45 $ 0.91 $ 1.20
============ ============ ============
Common shares outstanding - Basic 98,926,993 99,813,328 100,222,444
============ ============ ============
Common shares outstanding - Diluted 99,035,781 99,972,152 100,222,444
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 55
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS AND
--------------------- PAID-IN- PARTNERS' TREASURY STOCK, AT COST
SHARES AMOUNT CAPITAL CAPITAL SHARES AMOUNT
----------- ------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 29, 1997 - - - $ 260,685 - -
Net income 147,571
Distributions to partners (45,640)
Reorganization 89,000,000 890 176,537 (177,427)
Dividend and Reorganization Notes paid (48,451)
Common stock issued in public offering, net 11,170,000 112 268,685
Common stock issued in PRC Acquisition 26,803 - 697
Restricted stock grants 76,923 1 1,999
----------- ------- ---------- ------------ --------- ----------
BALANCE AT MARCH 28, 1998 100,273,726 1,003 447,918 136,738 - -
Net income 90,550
Exercise of stock options 4,352 113
Repurchases of common stock 603,864 (16,084)
Restricted stock grants 104,575 1 1,999
----------- ------- ---------- ------------ --------- ----------
BALANCE AT APRIL 3, 1999 100,382,653 1,004 450,030 227,288 603,864 (16,084)
Net income 143,497
Foreign currency translation adjustments
Repurchases of common stock 2,348,813 (41,262)
Restricted stock amortization
----------- ------- ---------- ------------ --------- ----------
BALANCE AT APRIL 1, 2000 100,382,653 $ 1,004 $ 450,030 $ 370,785 2,952,677 ($57,346)
=========== ======= ========== ============ ========= ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE UNEARNED
INCOME COMPENSATION TOTAL
------------- ------------ ----------
<S> <C> <C> <C>
BALANCE AT MARCH 29, 1997 - - $ 260,685
Net income 147,571
Distributions to partners (45,640)
Reorganization -
Dividend and Reorganization Notes paid (48,451)
Common stock issued in public offering, net 268,797
Common stock issued in PRC Acquisition 697
Restricted stock grants (1,333) 667
------------- ------------ ----------
BALANCE AT MARCH 28, 1998 - (1,333) 584,326
Net income 90,550
Exercise of stock options 113
Repurchases of common stock (16,084)
Restricted stock grants (2,000) -
------------- ------------ ----------
BALANCE AT APRIL 3, 1999 - (3,333) 658,905
Net income 143,497
Foreign currency translation adjustments 9,655 9,655
Repurchases of common stock (41,262)
Restricted stock amortization 1,642 1,642
------------- ------------ ----------
BALANCE AT APRIL 1, 2000 $ 9,655 ($ 1,691) $ 772,437
============= ============ ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 56
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
APRIL 1, APRIL 3, MARCH 28,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 143,497 $ 90,550 $ 147,571
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for (benefit from) deferred income taxes 6,761 (25,771) (27,997)
Depreciation and amortization 66,280 46,414 27,402
Cumulative effect of change in accounting principle 3,967 -- --
Provision for losses on accounts receivable 2,734 1,060 1,155
Changes in deferred liabilities 3,155 (4,782) 9,584
Provision for restructuring -- 19,040 --
Other 4,770 2,073 3,198
Changes in assets and liabilities, net of acquisitions
Accounts receivable (32,746) (9,542) (4,352)
Inventories 53,325 (76,396) (48,942)
Prepaid expenses and other 1,216 (25,526) (2,031)
Other assets (9,801) (9,095) (18,922)
Accounts payable 31,281 (13,452) 3,215
Income taxes payable and accrued expenses and other (31,750) 43,950 6,325
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 242,689 38,523 96,206
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment, net (122,010) (141,692) (63,079)
Acquisitions, net of cash acquired (235,144) (6,981) (8,551)
Proceeds from (payments of) restricted cash for Club Monaco acquisition 44,217 (44,217) --
Investments in joint ventures -- -- (5,812)
Cash surrender value - officers' life insurance, net (5,385) (3,339) 2,569
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (318,322) (196,229) (74,873)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock (41,262) (16,084) --
Proceeds from issuance of common stock, net -- 113 268,797
(Repayments of) proceeds from short-term borrowings, net (39,400) 115,500 (26,777)
Repayments of borrowings against officers' life insurance policies -- -- (5,757)
Repayments of long-term debt and subordinated notes (37,358) (337) (135,134)
Proceeds from long-term debt 319,610 44,217 --
Payment of Dividend and Reorganization Notes -- -- (48,451)
Distributions paid to partners -- -- (44,855)
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 201,590 143,409 7,823
--------- --------- ---------
Effect of exchange rate changes on cash (5,844) -- --
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 120,113 (14,297) 29,156
Cash and cash equivalents at beginning of period 44,458 58,755 29,599
--------- --------- ---------
Cash and cash equivalents at end of period $ 164,571 $ 44,458 $ 58,755
========= ========= =========
</TABLE>
F-6
<PAGE> 57
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
APRIL 1, APRIL 3, MARCH 28,
2000 1999 1998
------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 7,713 $ 2,776 $ 4,410
======== ======== ========
Cash paid for income taxes $112,202 $ 77,877 $ 73,873
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Capital obligations for completed shop-within-shops $ 2,463 $ 15,102
======== ========
Fair value of assets acquired, excluding cash $398,737 $ 14,868 $ 69,537
Less:
Cash paid 235,144 6,981 8,551
Acquisition obligation 21,637 -- --
Promissory notes issued -- 5,000 --
Fair market value of common stock issued for acquisition -- -- 697
-------- -------- --------
Liabilities assumed $141,956 $ 2,887 $ 60,289
======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 58
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
1 Basis of Presentation and Organization
(a) BASIS OF PRESENTATION
Polo Ralph Lauren Corporation ("PRLC") was incorporated in Delaware
in March 1997. PRLC and its subsidiaries are collectively referred to
herein as "Polo." On June 9, 1997, the partners and certain of their
affiliates contributed to PRLC all of the outstanding stock of, and
partnership interests in, the entities which comprised the predecessor
group of companies in exchange for common stock of PRLC and promissory
notes (the "Reorganization"). The predecessor group of companies include
Polo Ralph Lauren Enterprises, L.P. ("Enterprises"), Polo Ralph Lauren,
L.P. and subsidiaries (collectively, the "Polo Partnership"), The Ralph
Lauren Womenswear Company, L.P. and subsidiaries (collectively,
"Womenswear") and Polo Retail Corporation and subsidiaries ("PRC," and
together with Enterprises, Polo Partnership and Womenswear, the
"Predecessor Company"). The controlling interests of the Predecessor
Company were held by Mr. Ralph Lauren, with a 28.5% interest held by
certain investment funds affiliated with The Goldman Sachs Group, Inc.,
successor to The Goldman Sachs Group, L.P. (collectively, the "GS Group").
The accompanying consolidated financial statements as of and for the
years ended April 1, 2000 and April 3, 1999, include the results of
operations of Polo. The accompanying consolidated financial statements for
the year ended March 28, 1998, include the combined results of operations
of the Predecessor Company through June 9, 1997, and the consolidated
results of operations of Polo thereafter (Polo, together with the
Predecessor Company, is referred to herein as the "Company"). The
financial statements of PRLC have not been included prior to the
Reorganization as PRLC was a shell company with no business operations.
All intercompany balances and transactions have been eliminated.
The financial statements of the Predecessor Company have been
presented on a combined basis because of their common ownership. The
combined financial statements have been prepared as if the entities had
operated as a single consolidated group since their respective dates of
organization.
(b) INITIAL PUBLIC OFFERING
On June 17, 1997, PRLC completed the sale of 11.17 million shares of
its Class A Common Stock at $26.00 per share in connection with its
initial public offering. The net proceeds from the initial public
offering, after deducting underwriting discounts and commissions and
offering expenses, aggregated $268.8 million. The net proceeds from the
initial public offering were used as follows: (i) to repay borrowings
outstanding under the Company's Credit Facility (as defined see Note 7) in
the amount of $163.5 million; (ii) to pay the Dividend and Reorganization
Notes (as defined - see Note 1 (c)) in the amount of $43.0 million to Mr.
Lauren and related entities and the GS Group; and (iii) to repay
subordinated notes and interest thereon in the amount of $24.3 million to
Mr. Lauren and the GS Group. The remaining $38.0 million was used for
other general corporate purposes.
F-8
<PAGE> 59
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
(c) DIVIDEND AND REORGANIZATION NOTES
On June 9, 1997, in connection with the Reorganization, the Company
declared a dividend and issued reorganization notes aggregating $43.0
million to Mr. Lauren and the GS Group representing estimated
undistributed earnings of the Predecessor Company through the closing of
the Reorganization ("Dividend and Reorganization Notes"). The Dividend and
Reorganization Notes were paid with a portion of the net proceeds of the
initial public offering (see Note 1 (b)). Effective June 9, 1997, the
Company declared a second dividend (the "Second Dividend") to Mr. Lauren
and the GS Group in an amount representing the difference between the
actual amount of undistributed earnings through the closing of the
Reorganization and the estimated amount of the Dividend and Reorganization
Notes. The Second Dividend amounted to $5.4 million and was paid in the
fourth quarter of fiscal 1998.
(d) ACQUISITIONS AND JOINT VENTURE
On February 7, 2000, the Company announced the formation of Ralph
Lauren Media, LLC ("RL Media"), a joint venture between the Company and
National Broadcasting Company, Inc. ("NBC") and certain affiliated
companies. RL Media was created to bring the Company's American lifestyle
experience to consumers via multiple media platforms, including the
Internet, broadcast, cable and print. Under the 30-year joint venture
agreement, RL Media will be owned 50% by the Company, 25% by NBC, 12.5% by
ValueVision International, Inc. ("ValueVision"), 10% by NBC Internet, Inc.
("NBCi") and 2.5% by CNBC.com LLC ("CNBC.com"). In exchange for its 50%
interest, the Company will provide marketing through its annual print
advertising campaign, make its merchandise available at initial cost of
inventory and handle excess inventory through its outlet stores, among
other things. NBC will contribute $110.0 million of television and online
advertising on NBC and CNBC.com properties. NBCi will contribute $40.0
million in online distribution and promotion and ValueVision will
contribute a cash funding commitment up to $50.0 million. Under the
arrangement, the Company will not absorb any losses from the joint venture
up to the first $50.0 million incurred and will share proportionately in
the net income or losses thereafter. Additionally, the Company will
receive a royalty on the sale of its products by RL Media based on
specified percentages of net sales over a predetermined threshold, subject
to certain limitations. RL Media's managing board will have equal
representation from the Company and NBC, including its affiliated
companies. The joint venture has been accounted for under the equity
method from the effective date of the transaction.
On January 6, 2000, the Company completed the acquisition of stock
and certain assets of Poloco S.A.S. and certain of its affiliates
("Poloco"), which hold licenses to sell men's and boys' Polo apparel,
men's and women's Polo Jeans apparel, and certain Polo accessories in
Europe. In addition to acquiring Poloco's wholesale business, the Company
acquired one flagship store in Paris and six outlet stores located in
France, the United Kingdom and Austria. The Company acquired Poloco for an
aggregate cash consideration of approximately $210.0 million, plus the
assumption of approximately $10.0 million in short-term debt. The Company
used a portion of the net proceeds from the Eurobond Offering (as defined
- see Note 7) to finance this acquisition. As of April 1, 2000, the
Company has paid 90.0% of the acquisition price for Poloco and expects to
pay the remaining 10.0%, or approximately $21.6 million, in its first
quarter of fiscal 2001 in
F-9
<PAGE> 60
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
accordance with the terms of the agreement. This acquisition has been
accounted for as a purchase. The January 6, 2000 combined balance sheet of
Poloco has been included in the accompanying April 1, 2000 consolidated
balance sheet and the Company will consolidate the results of operations
of Poloco commencing in fiscal 2001 incorporating Poloco's calendar year
end. The purchase price has been preliminarily allocated based upon fair
values at the date of acquisition, pending final determination of certain
acquired balances. This preliminary allocation resulted in an excess of
purchase price over the estimated fair value of net assets acquired of
approximately $207.3 million, which has been recorded as goodwill and is
being amortized on a straight-line basis over an estimated useful life of
40 years.
The following table sets forth unaudited pro forma combined
statement of income information for fiscal 2000 and fiscal 1999 which
present the effects on the Company's historical results as if the
acquisition of Poloco occurred at the beginning of the period:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999
(UNAUDITED)
<S> <C> <C>
Pro forma net revenues $ 2,135,736 $ 1,900,004
Pro forma net income 162,398 104,970
Pro forma net income per share- Basic and Diluted 1.64 1.05
</TABLE>
The unaudited pro forma information above has been prepared for
comparative purposes only and includes certain adjustments to the
Company's historical statements of income, such as additional amortization
as a result of goodwill and increased interest expense on acquisition
debt. The results do not purport to be indicative of the results of
operations that would have resulted had the acquisition occurred at the
beginning of the period, or of future results of operations of the
consolidated entities.
On April 6, 1999, PRL Acquisition Corp., a Nova Scotia unlimited
liability corporation and a wholly owned subsidiary of the Company,
acquired, through a tender offer, 98.83% of the outstanding shares of Club
Monaco Inc. ("Club Monaco"), a corporation organized under the laws of the
Province of Ontario, Canada. On May 3, 1999, PRL Acquisition Corp.
acquired the remaining outstanding 1.17% shares pursuant to a statutory
compulsory acquisition. The total purchase price was approximately $51.0
million in cash based on foreign exchange rates in effect on the dates
indicated. The Company used funds from its credit facility to finance this
acquisition and to repay in full assumed debt of Club Monaco of
approximately $35.0 million. This acquisition has been accounted for as a
purchase, and the Company has consolidated the operations of Club Monaco
in the accompanying financial statements from the effective date of the
transaction. The purchase price has been allocated based upon the fair
values of the net assets acquired at the date of the acquisition. This
allocation resulted in an excess of purchase price over the estimated fair
value of net assets acquired of approximately $44.5 million, which has
been recorded as goodwill and is being amortized on a straight-line basis
over an estimated useful life of 40 years.
F-10
<PAGE> 61
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
On March 21, 1997, the Company entered into purchase agreements with
its joint venture partners to acquire the remaining 50% interest in PRC,
effective April 3, 1997, for consideration aggregating $10.4 million in
cash and Class A Common Stock of PRLC ("PRC Acquisition"). The PRC
Acquisition was completed simultaneously with the Company's initial public
offering. Effective April 3, 1997, the results of operations of PRC have
been consolidated and the acquisition has been accounted for as a
purchase.
(e) BUSINESS
The Company designs, licenses, contracts for the manufacture of,
markets and distributes men's and women's apparel, accessories,
fragrances, skin care products and home furnishings. The Company's sales
are principally to major department and specialty stores located
throughout the United States. The Company also sells directly to consumers
through Company-owned full price Polo stores, including flagship stores,
outlet and Club Monaco stores located throughout the United States and
Canada.
The Company is party to licensing agreements which grant the
licensee exclusive rights to use the various trademarks owned by the
Company in connection with the manufacture and sale of designated products
in specified geographical areas. The license agreements typically provide
for designated terms with renewal options based on achievement of
specified sales targets. The agreements also require that certain minimum
amounts be spent on advertising for licensed products. Additionally, as
part of the licensing arrangements, each licensee is typically required to
enter into a design services agreement pursuant to which design and other
creative services are provided. The license and design services agreements
provide for payments based on specified percentages of net sales.
Additionally, the Company has granted royalty-free licenses to independent
parties to operate Polo stores to promote the sale of merchandise of the
Company and its licensees both domestically and internationally.
A significant amount of the Company's products are produced in the
Far East, through arrangements with independent contractors. As a result,
the Company's operations could be adversely effected by political
instability resulting in the disruption of trade from the countries in
which these contractors are located, by the imposition of additional
duties or regulations relating to imports, by the contractors' inability
to meet the Company's production requirements or by other factors.
2 SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest to March 31.
All references herein to "2000," "1999" and "1998" represent the 52 or 53
week fiscal years ended April 1, 2000, April 3, 1999 and March 28, 1998,
respectively. Fiscal 1999 reflects a 53-week period and fiscal 2000 and
1998 reflect 52-week periods.
F-11
<PAGE> 62
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with
an original maturity of three months or less.
RESTRICTED CASH
At April 3, 1999, the Company had $44.2 million of cash held in
escrow for the acquisition of Club Monaco. The Company utilized these
funds in the first quarter of fiscal 2000 to consummate the acquisition.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) or market. Effective April 4, 1999, the Company changed its method
of valuing its retail inventories from the retail method to the lower of
cost (first-in, first-out) or market. The impact of this change was not
material and is included in selling, general and administrative expenses
in the accompanying financial statements.
STORE PRE-OPENING COSTS
Effective April 4, 1999, the Company adopted the provisions of
Statement of Position No. 98-5 ("SOP 98-5"), Reporting on the Costs of
Start-up Activities. SOP 98-5 requires that costs of start-up activities,
including store pre-opening costs, be expensed as incurred. Prior to its
adoption of SOP 98-5, the Company's accounting policy was to capitalize
store pre-opening costs as prepaid expenses and amortize such costs over a
twelve-month period following store opening. As a result of adopting SOP
98-5, the Company recorded a charge of $4.0 million, after taxes, as the
cumulative effect of a change in accounting principle in the accompanying
financial statements.
PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over the estimated useful lives of
the related assets on a straight-line basis. The range of useful lives is
as follows: buildings - 39.5 years; furniture and fixtures and machinery
and equipment - 3 to 10 years. Leasehold improvements are amortized using
the straight-line method over the lesser of the term of the related lease
or the estimated useful life. Major additions and betterments are
capitalized, and repairs and maintenance are charged to operations in the
period incurred. Additionally, the Company capitalizes its share of the
cost of constructing shop-within-shops under agreements with retailers and
amortizes such costs using the straight-line method over the lesser of
their estimated useful lives or the life of the underlying agreement.
F-12
<PAGE> 63
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
GOODWILL
Goodwill represents the excess of purchase cost over the fair value
of net assets of businesses acquired. The Company amortizes goodwill on a
straight-line basis over its estimated useful life, ranging from 11 to 40
years.
IMPAIRMENT OF LONG-LIVED AND INTANGIBLE ASSETS
The Company assesses the carrying value of long-lived and intangible
assets as current facts and circumstances suggest that they may be
impaired. In evaluating the fair value and future benefits of such assets,
the Company performs an analysis of the anticipated undiscounted future
net cash flows of the individual assets over the remaining amortization
period and would recognize an impairment loss if the carrying value
exceeded the expected future cash flows. The impairment loss would be
measured based upon the fair value. The Company has determined that its
long-lived and intangible assets presented in the accompanying balance
sheets at April 1, 2000 and April 3, 1999, are not impaired. See Note 3
for long-lived and intangible asset write downs recorded in connection
with the Company's fiscal 1999 Restructuring Plan (as defined see Note 3).
OFFICERS' LIFE INSURANCE
The Company maintains key man life insurance policies on several of
its senior executives, the majority of which contain split dollar
arrangements. The key man policies are recorded at their cash surrender
value, while the policies with split dollar arrangements are recorded at
the lesser of their cash surrender value or premiums paid. Amounts
recorded under these policies aggregated $36.9 million and $31.5 million
at April 1, 2000 and April 3, 1999, respectively, and are included in
other assets in the accompanying balance sheets.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers and, in
the case of sales by Company-owned retail and outlet stores, when goods
are sold to consumers. Allowances for estimated uncollectible accounts and
discounts are provided when sales are recorded. Licensing revenue is
recognized as earned.
CONCENTRATIONS OF CREDIT RISK
The Company sells its merchandise primarily to major upscale
department stores across the United States and extends credit based on an
evaluation of the customer's financial condition generally without
requiring collateral. Credit risk is driven by conditions or occurrences
within the economy and the retail industry and is principally dependent on
each customer's financial condition. A decision by the controlling owner
of a group of stores or any substantial customer to decrease the amount of
merchandise purchased from the Company or to cease carrying its products
could have a material adverse effect on the Company. The Company had three
customers who in aggregate constituted approximately 54.0% and 58.0% of
trade accounts receivable outstanding at April 1, 2000 and April 3, 1999,
respectively.
F-13
<PAGE> 64
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The Company had three significant customers that each accounted for
approximately 12.0%, 11.0% and 10.0% of net sales in fiscal 2000, two
significant customers that each accounted for approximately 10.0% of net
sales in fiscal 1999 and one significant customer that accounted for
approximately 11.0% of net sales in fiscal 1998. Additionally, the Company
had four significant licensees who in aggregate constituted approximately
58.0% and 55.0% of licensing revenue in fiscal 2000 and 1999,
respectively, and three who in aggregate constituted approximately 35.0%
of licensing revenue in fiscal 1998.
The Company monitors credit levels and the financial condition of
its customers on a continuing basis to minimize credit risk. The Company
believes that adequate provision for credit loss has been made in the
accompanying financial statements.
The Company is also subject to concentrations of credit risk with
respect to its cash and cash equivalents which it minimizes by placing
these funds with major banks and financial institutions and investing in
high-quality instruments.
ADVERTISING
The Company expenses the production costs of advertising, marketing
and public relations expenses upon the first showing of the related
advertisement. Total advertising expenses amounted to $73.6 million, $76.2
million and $68.5 million in fiscal 2000, 1999 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes under the liability method.
Deferred tax assets and liabilities are recognized based on differences
between financial statement and tax bases of assets and liabilities using
presently enacted tax rates. A valuation allowance is recorded to reduce a
deferred tax asset to that portion which is expected to more likely than
not be realized.
The entities which comprised the Predecessor Company included
principally partnerships which were not subject to Federal or certain
state income taxes. Therefore, no provision was made in the accompanying
combined financial statements of the Predecessor Company through June 9,
1997, as taxes were the liability of the partners. However, Federal, state
and local taxes have been provided on the income of all domestic C
corporations in the Predecessor Company. Foreign income taxes have also
been provided on the income of the foreign entities in the Predecessor
Company.
DEFERRED RENT OBLIGATIONS
The Company accounts for rent expense under noncancellable operating
leases with scheduled rent increases and landlord incentives on a
straight-line basis over the lease term. The excess of straight-line rent
expense over scheduled payment amounts and landlord incentives are
recorded as a deferred liability. Unamortized deferred rent obligations
amounted to $52.9 million and $40.7 million at April 1, 2000 and April 3,
1999, respectively, and are included in accrued expenses and other, and
other noncurrent liabilities in the accompanying balance sheets.
F-14
<PAGE> 65
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
FINANCIAL INSTRUMENTS
The Company from time to time uses derivative financial instruments
to reduce its exposure to changes in foreign exchange and interest rates.
While these instruments are subject to risk of loss from changes in
exchange or interest rates, those losses would generally be offset by
gains on the related exposure. The Company does not hold or issue
financial instruments for trading or speculative purposes.
FOREIGN CURRENCY TRANSLATION
The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the
functional currency. Assets and liabilities are translated at the exchange
rate in effect at each year end. Results of operations are translated at
the average rate of exchange prevailing throughout the period. Translation
adjustments arising from differences in exchange rates from period to
period are included in the accumulated other comprehensive income -
cumulative translation adjustment account. Gains and losses from foreign
currency transactions are included in operating results and were not
considered by the Company to be material in fiscal 2000, 1999 and 1998.
STOCK OPTIONS
The Company uses the intrinsic value method to account for
stock-based compensation in accordance with Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees and has
adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation.
COMPREHENSIVE INCOME
Effective March 29, 1998, the Company adopted the provisions of SFAS
No. 130, Reporting Comprehensive Income. This Statement establishes
standards for reporting of comprehensive income and its components in the
financial statements. For fiscal 2000, comprehensive income was as
follows:
<TABLE>
<CAPTION>
FISCAL
2000
<S> <C>
Net income $ 143,497
Other comprehensive income, net of taxes:
Foreign currency translation adjustments 9,655
---------
Comprehensive income $ 153,152
=========
</TABLE>
Income tax expense related to foreign currency translation
adjustments was $6.2 million in fiscal 2000.
Comprehensive income was equal to net income in fiscal 1999 and
1998.
F-15
<PAGE> 66
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This Statement establishes accounting and reporting standards
for derivative instruments and hedging activities. It requires the
recognition of all derivatives as either assets or liabilities in the
statement of financial position and measurement of those instruments at
fair value. The accounting for changes in the fair value of a derivative
is dependent upon the intended use of the derivative. In June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and
Hedging Activities Deferral of the Effective Date of FASB Statement No.
133." As a result, SFAS No. 133 is effective for the Company's first
quarter of fiscal year ending March 30, 2002, and retroactive application
is not permitted. The Company has not yet determined whether the
application of SFAS No. 133 will have a material impact on the Company's
financial position or results of operations.
PRO FORMA ADJUSTMENTS (UNAUDITED)
The pro forma statement of income data for fiscal 1998 presents the
effects on the historical financial statements of certain transactions as
if they had occurred at March 30, 1997. The pro forma statement of income
data reflects adjustments for: (i) income taxes based upon pro forma
pre-tax income as if the Company had been subject to additional Federal,
state and local income taxes, calculated using a pro forma effective tax
rate of 40.8% (see Note 8); and (ii) the reduction of interest expense
resulting from the application of a portion of the net proceeds from the
initial public offering to outstanding indebtedness.
NET INCOME PER SHARE
Basic net income per share was calculated by dividing net income by
the weighted average number of shares outstanding during the period,
excluding any potential dilution. Diluted net income per share was
calculated similarly but includes potential dilution from the exercise of
stock options and awards. For comparison purposes only, the weighted
average number of shares outstanding immediately following the completion
of the initial public offering was considered to be outstanding in fiscal
1998. The difference between the basic and diluted weighted average shares
outstanding in fiscal 2000 and 1999 is due to the dilutive effect of stock
options and restricted stock awards issued under the Company's stock
option plans.
RECLASSIFICATIONS
For comparative purposes, certain prior period amounts have been
reclassified to conform to the current period's presentation.
F-16
<PAGE> 67
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
3 RESTRUCTURING CHARGE
During the fourth quarter of fiscal 1999, the Company formalized its
plans to streamline operations within its wholesale and retail operations
and reduce its overall cost structure ("Restructuring Plan"). The major
initiatives of the Restructuring Plan included the following: (1) an
evaluation of the Company's retail operations and site locations; (2) the
realignment and operational integration of the Company's wholesale
operating units; and (3) the realignment and consolidation of corporate
strategic business functions and internal processes.
In an effort to improve the overall profitability of its retail
operations, the Company closed three Polo stores and three outlet stores
that were not performing at an acceptable level. Additionally, the Company
converted two Polo stores and five outlet stores to new concepts expected
to be more productive. Costs associated with this aspect of the
Restructuring Plan included lease and contract termination costs, store
fixed asset (primarily leasehold improvements) and intangible asset write
downs and severance and termination benefits.
The Company's wholesale operations were realigned into two new
operating units: Polo Brands and Collection Brands. Aspects of this
realignment included: (i) the reorganization of the sales force and retail
development areas; (ii) the streamlining of the design and development
process; and (iii) the consolidation of the customer service departments.
Additionally, the Company integrated the sourcing and production of its
Polo Brands, outlet store and licensees' products into one consolidated
unit. Costs associated with the wholesale realignment consisted primarily
of severance and termination benefits and lease termination costs.
The Company's review of its corporate business functions and
internal processes resulted in a new management structure designed to
better align businesses with similar functions and the identification and
elimination of duplicative processes. Costs associated with the corporate
realignment consisted primarily of severance and termination benefits and
lease termination costs.
F-17
<PAGE> 68
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
In connection with the implementation of the Restructuring Plan,
the Company recorded a restructuring charge of $58.6 million on a pre-tax
basis in its fourth quarter of fiscal 1999. The major components of the
restructuring charge and the activity through April 1, 2000 were as
follows:
<TABLE>
<CAPTION>
LEASE AND
SEVERANCE AND ASSET CONTRACT
TERMINATION WRITE TERMINATION OTHER
BENEFITS DOWNS COSTS COSTS TOTAL
<S> <C> <C> <C> <C> <C>
1999 provision............ $15,277 $ 17,788 $ 24,665 $ 830 $ 58,560
1999 activity............. (3,318) (17,788) (1,112) (105) (22,323)
-------- -------- --------- ----- --------
Balance at April 3, 1999.. 11,959 - 23,553 725 36,237
2000 activity............. (4,694) - (18,675) (585) (23,954)
-------- -------- --------- ----- --------
Balance at April 1, 2000.. $ 7,265 $ - $ 4,878 $ 140 $ 12,283
======== ======== ========= ===== ========
</TABLE>
After extensive review of the Restructuring Plan, and changes in
business conditions in certain markets in which the Company operates, the
Company made adjustments to the Restructuring Plan and incurred other
restructuring-related costs in fiscal 2000. These adjustments included the
following: (a) a $0.9 million credit to lease and termination costs
resulting from the overestimation of costs associated with the closure and
conversion of the Company's retail stores due to improved market
conditions; and (b) a $0.9 million charge for the underestimation of
severance and termination benefits recorded in the Restructuring Plan. The
above adjustments had no net impact.
Total severance and termination benefits as a result of the
Restructuring Plan related to approximately 280 employees, all of which
will be terminated by May 2000. Total cash outlays related to the
Restructuring Plan are approximately $39.5 million, $27.2 million of which
has been paid through April 1, 2000. The Company has substantially
completed the implementation of the Restructuring Plan as of April 1,
2000.
4 INVENTORIES
<TABLE>
<CAPTION>
APRIL 1, APRIL 3,
2000 1999
<S> <C> <C>
Raw materials $ 13,649 $ 17,675
Work-in-process 6,337 8,545
Finished goods 370,967 350,640
--------- ---------
$ 390,953 $ 376,860
========= =========
</TABLE>
Merchandise inventories of $196.1 million at April 3, 1999 were
valued utilizing the retail method and are included in finished goods.
F-18
<PAGE> 69
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
5 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
APRIL 1, APRIL 3,
2000 1999
-------- --------
<S> <C> <C>
Land and improvements $ 3,108 $ 3,108
Buildings 10,178 10,079
Furniture and fixtures 192,444 150,103
Machinery and equipment 49,807 32,582
Construction in progress -- 30,294
Leasehold improvements 350,367 187,512
-------- --------
605,904 413,678
Less: accumulated
depreciation and amortization 232,927 151,879
-------- --------
$372,977 $261,799
-------- --------
</TABLE>
6 ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
APRIL 1, APRIL 3,
2000 1999
<S> <C> <C>
Accrued operating expenses $ 90,467 $ 47,094
Accrued payroll and benefits 26,621 27,466
Accrued restructuring charge 12,283 36,237
Accrued acquisition obligation 21,637 --
Accrued shop-within-shops 17,808 15,345
-------- --------
$168,816 $126,142
======== ========
</TABLE>
7 FINANCING AGREEMENTS
On June 9, 1997, the Company entered into a credit facility with a
syndicate of banks which consists of a $225.0 million revolving line of
credit available for the issuance of letters of credit, acceptances and
direct borrowings and matures on December 31, 2002 (the "Credit
Facility"). Borrowings under the Credit Facility bear interest, at the
Company's option, at a Base Rate equal to the higher of: (i) the Federal
Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2
of one percent; and (ii) the prime commercial lending rate of The Chase
Manhattan Bank in effect from time to time, or at the Eurodollar Rate plus
an interest margin.
F-19
<PAGE> 70
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
On March 30, 1999, in connection with the Company's acquisition of
Club Monaco, the Company entered into a $100.0 million senior credit
facility (the "1999 Credit Facility") with a syndicate of banks consisting
of a $20.0 million revolving line of credit and an $80.0 million term loan
(the "Term Loan"). The revolving line of credit is available for working
capital needs and general corporate purposes and matures on June 30, 2003.
The Term Loan was used to finance the acquisition of the stock of Club
Monaco and to repay existing indebtedness of Club Monaco. The Term Loan is
repayable on June 30, 2003. Borrowings under the 1999 Credit Facility bear
interest, at the Company's option, at a Base Rate equal to the higher of:
(i) the Federal Funds Rate, as published by the Federal Reserve Bank of
New York, plus 1/2 of one percent; and (ii) the prime commercial lending
rate of The Chase Manhattan Bank in effect from time to time, or at the
Eurodollar Rate plus an interest margin. In April 1999, the Company
entered into interest rate swap agreements with a notional amount of
$100.0 million to convert the variable interest rate on the 1999 Credit
Facility to a fixed rate of 5.5%.
The Credit Facility and 1999 Credit Facility (the "Credit
Facilities") contain customary representations, warranties, covenants and
events of default, including covenants regarding maintenance of net worth
and leverage ratios, limitations on indebtedness, loans, investments and
incurrences of liens, and restrictions on sales of assets and transactions
with affiliates. Additionally, the agreements provide that an event of
default will occur if Mr. Lauren and related entities fail to maintain a
specified minimum percentage of the voting power of the Company's common
stock.
On November 22, 1999, the Company issued euro 275.0 million of 6.125
percent Notes (the "Eurobonds") due November 2006 (the "Eurobond
Offering"). The Eurobonds are listed on the London Stock Exchange. The net
proceeds from the Eurobond Offering were $281.5 million based on the
foreign exchange rate on the issuance date. A portion of the net proceeds
from the issuance was used to pay down existing debt under the Credit
Facilities and to finance the acquisition of stock and certain assets of
Poloco. The remaining net proceeds will be used to repay existing
indebtedness of Poloco. Interest on the Eurobonds is payable annually.
As discussed in Note 2 (d), in connection with the Poloco
acquisition, the Company assumed borrowings under short-term facilities
which represent overdraft positions on bank accounts. These borrowings
bore interest at .5% to .8% over the Euro Overnight Indexed Average which
was 3.75% at April 1, 2000. The Company expects to repay these borrowings
with proceeds from the Eurobond Offering in fiscal 2001.
At April 1, 2000, the Company had $86.1 million outstanding in
direct borrowings, $80.0 million outstanding under the Term Loan and
$262.7 million outstanding in Eurobonds based on the year end exchange
rate. The Company was also contingently liable for $46.8 million in
outstanding letters of credit related to commitments for the purchase of
inventory and in
F-20
<PAGE> 71
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
connection with its leases under the Credit Facilities. At April 3, 1999,
the Company had $115.5 million outstanding in direct borrowings and $44.2
million outstanding under the Term Loan. The Credit Facilities bore
interest primarily at the institution's prime rate (ranging from 6.9% to
9.0% at April 1, 2000 and 5.25% to 7.75% at April 3, 1999). The weighted
average interest rate on borrowings was 6.1%, 7.4% and 8.0% in fiscal
2000, 1999 and 1998, respectively.
On June 9, 1997 in connection with the Reorganization, borrowings
under the Credit Facility were used to refinance existing debt from the
Polo Partnership credit facility of $104.5 million and to repay in full
$56.7 million of aggregate borrowings outstanding under the Womenswear
credit facility and the PRC credit facility. These borrowings were repaid
from the net proceeds of the initial public offering (see Note 1 (b)).
8 INCOME TAXES
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
<S> <C> <C> <C>
Current:
Federal $ 71,565 $ 68,012 $ 60,265
State and local 17,398 15,080 15,330
Foreign 5,698 4,955 4,427
--------- --------- ---------
94,661 88,047 80,022
--------- --------- ---------
Deferred:
Federal 4,527 (19,654) (22,357)
State and local 2,234 (6,117) (5,640)
--------- --------- ---------
6,761 (25,771) (27,997)
--------- --------- ---------
$ 101,422 $ 62,276 $ 52,025
--------- --------- ---------
</TABLE>
The foreign and domestic components of income before income taxes
were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
<S> <C> <C> <C>
Domestic $215,270 $102,644 $162,529
Foreign 33,616 50,182 37,067
-------- -------- --------
$248,886 $152,826 $199,596
======== ======== ========
</TABLE>
F-21
<PAGE> 72
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Concurrent with the Reorganization and the termination of the
Company's partnership status, the Company became fully subject to Federal,
state and local income taxes. As a result and in accordance with the
provisions of SFAS No. 109, Accounting for Income Taxes, the Company
recorded a deferred tax asset and a corresponding tax benefit in the
amount of $27.4 million in its consolidated financial statements in the
first quarter of fiscal 1998. The deferred tax asset reflects the net tax
effect of temporary differences, primarily accounts receivable, uniform
inventory capitalization, depreciation and other accruals, between the
carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes.
The components of the net deferred tax assets at April 1, 2000 and
April 3, 1999, were as follows:
<TABLE>
<CAPTION>
APRIL 1, APRIL 3,
2000 1999
<S> <C> <C>
DEFERRED TAX ASSETS:
Accounts receivable $20,353 $17,533
Net operating loss carryforwards 15,602 7,475
Uniform inventory capitalization 7,945 8,306
Deferred compensation 6,778 6,546
Restructuring reserves 4,709 20,249
Accrued expenses 3,327 3,238
Accrued royalty income 3,519 --
Other 6,575 3,406
------- -------
68,808 66,753
Less: Valuation allowance 17,362 2,321
------- -------
$51,446 $64,432
======= =======
</TABLE>
The Company has available Federal net operating loss carryforwards
of approximately $13.7 million and state net operating loss carryforwards
of approximately $52.3 million for tax purposes to offset future taxable
income. The net operating loss carryforwards expire beginning in fiscal
2004. The utilization of the Federal net operating loss carryforwards is
subject to the limitations of Internal Revenue Code Section 382 which
applies following certain changes in ownership of the entity generating
the loss carryforward. Management believes that the Company will more
likely than not generate sufficient future taxable income to realize the
entire deferred tax asset prior to expiration of any of these net
operating loss carryforwards.
F-22
<PAGE> 73
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Also, the Company has available additional state and foreign net
operating loss carryforwards of approximately $15.0 million and $16.8
million, respectively, for which no deferred tax asset has been
recognized. A full valuation allowance has been recorded 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 a substantial portion of the deferred tax asset relating to
these net operating loss carryforwards would result in a reduction of
goodwill recorded in connection with the PRC Acquisition and the Club
Monaco acquisition.
Provision has not been made for United States or additional foreign
taxes on approximately $27.0 million of undistributed earnings of foreign
subsidiaries. Those earnings have been and will continue to be reinvested.
These earnings could become subject to tax if they were remitted as
dividends, if foreign earnings were lent to PRLC or a subsidiary or U.S.
affiliate of PRLC, or if the stock of the subsidiaries were sold.
Determination of the amount of unrecognized deferred tax liability with
respect to such earnings is not practical. 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 United
States foreign tax credits.
The pro forma provision for income taxes represents the income tax
provision that would have been reported had the Company been subject to
additional Federal, state and local income taxes for the entire fiscal
year. The pro forma effective tax rate was 40.8% in fiscal 1998 and
consisted of the following:
<TABLE>
<CAPTION>
FISCAL YEAR
1998
(UNAUDITED)
<S> <C>
Current:
Federal $ 63,822
State and local 17,119
Foreign 4,427
--------
85,368
--------
Deferred:
Federal (1,043)
State and local (1,694)
--------
(2,737)
--------
$ 82,631
========
</TABLE>
F-23
<PAGE> 74
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The historical provision for income taxes in fiscal 2000 and 1999
and the pro forma provision for income taxes in fiscal 1998 differs from
the amounts computed by applying the statutory Federal income tax rate to
income before income taxes due to the following:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
(UNAUDITED)
<S> <C> <C> <C>
Provision for income taxes
at statutory Federal rate $ 87,110 $ 53,489 $ 70,965
Increase (decrease) due to:
State and local income taxes,
net of Federal benefit 12,761 5,825 11,280
Foreign income, net 753 1,055 (1,213)
Other 798 1,907 1,599
-------- -------- --------
$101,422 $ 62,276 $ 82,631
======== ======== ========
</TABLE>
9 FINANCIAL INSTRUMENTS
In April 1999, the Company entered into interest rate swap
agreements with commercial banks which expire in 2003 to hedge against
interest rate fluctuations. The swap agreements effectively convert
borrowings under the 1999 Credit Facility from variable rate to fixed rate
obligations. Under the terms of these agreements, the Company makes
payments at a fixed rate of 5.5% and receives payments from the
counterparty based on the notional amount of $100.0 million at a variable
rate based on the London Inter-Bank Offer Rate ("LIBOR"). The net interest
paid or received on this arrangement is included in interest expense. The
fair value of these agreements was $4.4 million at April 1, 2000 based
upon the estimated amount that the Company would pay to terminate the
agreements, as determined by the financial institutions.
The Company from time to time enters into forward foreign exchange
contracts as hedges relating to identifiable currency positions to reduce
the risk from exchange rate fluctuations. Gains and losses on these
contracts are deferred and recognized as adjustments to the basis of those
assets. Such gains and losses were not material in fiscal 2000, 1999 and
1998. At April 1, 2000, the Company had foreign exchange contracts
outstanding as follows: (a) to receive FF75 million in fiscal 2001 in
exchange for 7 million British Pounds; (b) to deliver FF528 million in
fiscal 2001 in exchange for $94 million; and (c) to deliver 8 million
British Pounds in fiscal 2001 in exchange for $12.5 million. The fair
value of these contracts approximated $9.3 million as of April 1, 2000.
The Company is exposed to credit losses in the event of
nonperformance by the counterparties to the interest rate swap agreements
and forward foreign exchange contracts, but it does not expect any
counterparties to fail to meet their obligations.
F-24
<PAGE> 75
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The carrying amounts of financial instruments reported in the
accompanying balance sheets at April 1, 2000 and April 3, 1999,
approximated their estimated fair values, except for the Eurobonds,
primarily due to either the short-term maturity of the instruments or
their adjustable market rate of interest. The fair value of the Eurobonds,
net of discounts, was $258.6 million as of April 1, 2000 based on its
quoted market price as listed on the London Stock Exchange. Considerable
judgment is required in interpreting certain market data to develop
estimated fair values for certain financial instruments. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts
that the Company could realize in a current market exchange.
10 EMPLOYEE BENEFITS
PROFIT SHARING RETIREMENT SAVINGS PLANS
The Company sponsors two defined contribution benefit plans covering
substantially all eligible U.S. employees not covered by a collective
bargaining agreement. The plans include a savings plan feature under
Section 401(k) of the Internal Revenue Code. The Company makes
discretionary contributions to the plans and contributes an amount equal
to 50% of the first 6% of an employee's contribution. Under the terms of
the plans, a participant is 100% vested in the Company's matching and
discretionary contributions after five years of credited service.
Contributions under these plans approximated $4.3 million, $8.7 million
and $6.0 million in fiscal 2000, 1999 and 1998.
UNION PENSION
Womenswear participates in a multi-employer pension plan and is
required to make contributions to the Union of Needletrades Industrial and
Textile Employees (the "Union") for dues based on wages paid to union
employees. A portion of such dues is allocated by the Union to a
Retirement Fund which provides defined benefits to substantially all
unionized workers. Womenswear 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 nonvested 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 withdrawal liability
was assumed in conjunction with the acquisition of certain assets from a
nonaffiliated licensee. Womenswear has no current intention of withdrawing
from the plan.
F-25
<PAGE> 76
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
DEFERRED COMPENSATION
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
$16.7 million and $15.9 million at April 1, 2000 and April 3, 1999,
respectively, and are reflected in other noncurrent liabilities in the
accompanying balance sheets. Total compensation expense recorded was $2.6
million, $2.7 million and $4.9 million in fiscal 2000, 1999 and 1998,
respectively. 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 reflected in other assets in the
accompanying balance sheets.
11 COMMON STOCK
All of Polo's outstanding Class B Common Stock is owned by Mr.
Lauren and related entities and all of its outstanding Class C Common
Stock is owned by the GS Group. Shares of Class B Common Stock are
convertible at any time into shares of Class A Common Stock on a
one-for-one basis and may not be transferred to anyone other than
affiliates of Mr. Lauren. Shares of Class C Common Stock are convertible
at any time into shares of Class A Common Stock on a one-for-one basis and
may not be transferred to anyone other than among members of the GS Group
or, until April 15, 2002, any successor of a member of the GS Group. The
holders of Class A Common Stock generally have rights identical to holders
of Class B Common Stock and Class C Common Stock, except that holders of
Class A Common Stock and Class C Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to ten votes per
share. Holders of all classes of Common Stock (as hereinafter defined)
entitled to vote, will vote together as a single class on all matters
presented to the stockholders for their vote or approval except for the
election and the removal of directors and as otherwise required by
applicable law. Class A Common Stock, Class B Common Stock and Class C
Common Stock are collectively referred to herein as "Common Stock."
12 STOCK INCENTIVE PROGRAM
On June 9, 1997, the Board of Directors adopted the 1997 Long-Term
Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive
Plan authorizes the grant of awards to any officer or other employee,
consultant to, or director of the Company or any of its subsidiaries with
respect to a maximum of 10.0 million shares of the Company's Class A
Common Stock (the "Shares"), subject to adjustment to avoid dilution or
enlargement of intended benefits in the event of certain significant
corporate events, which awards may be made in the form of: (i)
nonqualified stock options; (ii) stock options intended to qualify as
incentive stock options under Section 422 of the Internal Revenue Code;
(iii) stock appreciation rights; (iv) restricted stock and/or restricted
stock units; (v) performance awards; and (vi) other stock-based awards. At
April 1, 2000, the Company had an additional 2.6 million Shares reserved
for issuance under this plan.
F-26
<PAGE> 77
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
On June 9, 1997, the Board of Directors adopted the 1997 Stock
Option Plan for Non- Employee Directors (the "Non-Employee Directors
Plan"). Under the Non-Employee Directors Plan, grants of options to
purchase shares of Class A Common Stock of up to 500,000 shares may be
granted to non-employee directors. Stock options vest in equal
installments over two years and expire ten years from the date of grant.
In fiscal 2000, 1999 and 1998, the Board of Directors granted options to
purchase 12,000, 28,500 and 30,000 shares, respectively, of Class A Common
Stock with exercise prices equal to the stock's fair market value on the
date of grant. At April 1, 2000, the Company had 429,500 options reserved
for issuance under this plan.
Stock options were granted in fiscal 2000, 1999 and 1998 under the
Stock Incentive Plan with an exercise price equal to the stock's fair
market value on the date of grant. These options vest in equal
installments primarily over three years for officers and other key
employees and over two years for all remaining employees. The options
expire ten years from the date of grant. No compensation cost has been
recognized in the accompanying financial statements in accordance with APB
No. 25. If compensation cost had been recognized for stock options granted
under the Stock Incentive Plan based on the fair value of the stock
options at the grant date in accordance with SFAS No. 123, the Company's
historical net income and net income per share in fiscal 2000 and 1999 and
pro forma net income and pro forma net income per share for fiscal 1998
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
<S> <C> <C> <C>
Pro forma net income $128,000 $77,953 $108,985
Pro forma net income per share -
Basic and Diluted $ 1.29 0.78 1.09
</TABLE>
The Company used the Black-Scholes option-pricing model to determine
the fair value of grants made. The weighted average fair value of options
granted was $12.33, $14.02 and $12.62 per share in fiscal 2000, 1999 and
1998, respectively. The following assumptions were applied in determining
the pro forma compensation cost:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
<S> <C> <C> <C>
Risk-free interest rate 5.81% 5.46% 6.45%
Expected dividend yield 0% 0% 0%
Weighted average expected
option life 6.0yrs 6.0yrs 5.45yrs
Expected stock price volatility 65.0% 44.0% 42.0%
</TABLE>
F-27
<PAGE> 78
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
Stock option activity for the Stock Incentive Plan and Non-Employee
Directors Plan in fiscal 2000, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
BALANCE AT MARCH 29, 1997 - $ -
Granted 4,550 26.00
Exercised -- --
Forfeited (466) 26.00
------ --------
BALANCE AT MARCH 28, 1998 4,084 $ 26.00
Granted 1,736 27.70
Exercised (4) 26.00
Forfeited (518) 26.24
------ ---------
BALANCE AT APRIL 3, 1999 5,298 $ 26.53
Granted 2,767 19.07
Exercised -- --
Forfeited (815) 25.64
------ --------
BALANCE AT APRIL 1, 2000 7,250 $ 23.77
======= =========
</TABLE>
At April 1, 2000, the weighted average remaining contractual life of
outstanding options was 8.1 years, and 2.9 million shares were exercisable
at a weighted average exercise price of $26.28 per share. The price range
of options granted and outstanding at April 1, 2000, was $17.13 to $29.91
per share, 61.0% of which were in the range of $26.00 to $28.22 per share
and 36.0% of which were in the range of $17.72 to $19.56 per share.
In March 1998, the Board of Directors authorized the repurchase,
subject to market conditions, of up to $100.0 million of the Company's
Class A Common Stock. Share repurchases were made in the open market over
the two-year period which commenced April 1, 1998. On March 2, 2000, the
Board of Directors authorized a two-year extension to the stock repurchase
program. Shares acquired under the repurchase program will be used for
stock option programs and other corporate purposes. The repurchased shares
have been accounted for as treasury stock at cost. At April 1, 2000, the
Company had repurchased 2,952,677 shares of its Class A Common Stock at an
aggregate cost of $57.3 million.
F-28
<PAGE> 79
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
13 COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office, warehouse and retail space and office
equipment under operating leases which expire through 2021. These leases
typically provide the Company with the option after the initial lease term
to either renew the lease at the current fair market rental value or
purchase the equipment at the current fair market value. The Company
generally expects that leases will be renewed or replaced by other leases
in the normal course of business.
As of April 1, 2000, aggregate minimum annual rental payments under
noncancelable operating leases with lease terms in excess of one year were
payable as follows:
<TABLE>
FISCAL YEAR ENDING
<S> <C>
2001 $ 83,503
2002 74,630
2003 64,981
2004 61,319
2005 58,209
Thereafter 317,717
-------
$660,359
========
</TABLE>
Rent expense charged to operations was $66.7 million, $59.6 million
and $53.9 million, net of sublease income of $1.7 million, $1.6 million
and $1.5 million, in fiscal 2000, 1999 and 1998, respectively.
Substantially all outlet and retail store leases provide for contingent
rentals based upon sales and require the Company to pay taxes, insurance
and occupancy costs. Certain rentals are based solely on a percentage of
sales, and one significant lease requires a fair market value adjustment
at January 1, 2004. Contingent rental charges included in rent expense
were $5.3 million, $4.1 million and $3.2 million in fiscal 2000, 1999 and
1998, respectively.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with certain
executives which provide for compensation and certain other benefits. The
agreements also provide for severance payments under certain
circumstances.
F-29
<PAGE> 80
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
TAXES
The predecessor of Poloco, which was acquired by the Company in
January 2000, has been subject to a tax audit in France for the years
1996, 1997 and 1998. In late December, 1999, the French tax authorities
issued a notification preliminarily advising that additional taxes,
penalties and interest would be due for the years in question. Poloco and
its former parent, S.A. Louis Dreyfus ("Dreyfus") are contesting the
assessment. The Company is indemnified by Dreyfus under the purchase
agreement between them.
LEGAL MATTERS
The Company is a defendant in a purported national class action
lawsuit filed in the Delaware Supreme Court in July 1997. The plaintiff
has brought the action allegedly on behalf of a class of persons who
purchased products at the Company's outlet stores throughout the United
States at any time since July 15, 1991. The complaint alleges that
advertising and marketing practices used by the Company in connection with
the sale of its products at its outlet stores violate guidelines
established by the Federal Trade Commission and the consumer protection
statutes of Delaware and other states with statutes similar to Delaware's
Consumer Fraud Act and Delaware's Consumer Contracts Act. The lawsuit
seeks, on behalf of the class, compensatory and punitive damages as well
as attorneys' fees. The Company answered the complaint and filed a motion
for judgment on the pleadings. At a hearing on that motion on March 5,
1999, the Court ruled that the plaintiff must file an amended complaint
within 30 days in order to avoid dismissal. The plaintiff filed an amended
complaint, essentially containing the same allegations as the initial
complaint, which the Company answered on April 26, 1999. On August 5,
1999, the Company again filed a motion for judgment on the pleadings and,
on September 3, 1999, the plaintiff filed a brief in opposition to such
motion for judgment. On November 19, 1999, the Company and the plaintiff
entered into a Stipulation and Agreement of Compromise, Settlement and
Agreement in which the Company denies all allegations in the amended
complaint. None of the provisions in the proposed settlement will have a
material adverse impact on the business and financial condition of the
Company. On January 10, 2000, the Court granted preliminary approval to
the proposed settlement. Following the preliminary approval of the
proposed settlement by the Court, plaintiffs' counsel conducted informal
discovery (by interviewing Company employees) regarding several of Polo's
practices. By February 1, 2000, notice of the settlement was published in
a publication of national circulation and mailed to persons listed on the
Company's outlet stores' customer list. On April 18, 2000, the Court
signed the Final Judgment and Order Approving Settlement.
F-30
<PAGE> 81
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
In January 1999, two actions were filed in California naming as
defendants more than a dozen United States-based companies that source
apparel garments from Saipan (Commonwealth of the Northern Mariana
Islands) and a large number of Saipan-based factories. The actions assert
that the Saipan factories engage in unlawful practices relating to the
recruitment and employment of foreign workers and that the apparel
companies, by virtue of their alleged relationships with the factories,
have violated various Federal and state laws. One action, filed in
California Superior Court in San Francisco by a union and three public
interest groups, alleges unfair competition and false advertising and
seeks equitable relief, unspecified amounts for restitution and
disgorgement of profits, interest and an award of attorney's fees. The
second, filed in Federal Court for the Central District of California and
subsequently transferred to the United States District Court for the
District of Hawaii, is brought on behalf of a purported class consisting
of the Saipan factory workers. It alleges claims under the Federal civil
RICO statute, Federal peonage and involuntary servitude laws, the Alien
Tort Claims Act, and state tort law, and seeks equitable relief and
unspecified damages, including treble and punitive damages, interest and
an award of attorney's fees. Although the Company was not named as a
defendant in these suits, the Company sources products in Saipan, and
counsel for the plaintiffs in these actions informed the Company that it
is a potential defendant in these or similar actions. The Company has
since entered into an agreement to settle any claims for nonmaterial
consideration. The settlement agreement is subject to court approval. The
Company has denied any liability and is not in a position to evaluate the
likelihood of a favorable or unfavorable outcome if the settlement is not
approved and litigation proceeds against the Company.
As part of the settlement, the Company has since been named as a
defendant, along with certain other apparel companies in a State Court
action in California styled Union of Needletrades Industrial and Textile
Employees, et al. v. Brylane, L.P., et al., in the San Francisco County
Superior Court for the District of Hawaii, that mirror portions of the
larger State and Federal Court actions but do not include RICO and certain
of the other claims alleged in those actions. The newly filed actions
against the Company are expected to remain inactive unless settlement is
not finally approved by the Federal Court.
The Company is from time to time involved in legal claims, involving
trademark and intellectual property, licensing, employee relations and
other matters incidental to its business. In the opinion of the Company's
management, the resolution of any matter currently pending will not have a
material adverse effect on the Company's financial condition or results of
operations.
F-31
<PAGE> 82
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
14 QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of certain unaudited quarterly financial
information for fiscal 2000 and 1999:
<TABLE>
<CAPTION>
JULY 3, OCT. 2, JAN. 1, APRIL 1,
FISCAL 2000 1999 1999 2000 2000
<S> <C> <C> <C> <C>
Net revenues $434,421 $543,885 $510,299 $466,923
Gross profit 216,975 269,415 239,580 227,168
Net income 24,110 55,349 32,268 31,770
Net income per share -
Basic and Diluted $ 0.24 $ 0.56 $ 0.33 $ .32
Shares outstanding - Basic 99,533 99,117 98,808 98,243
Shares outstanding - Diluted 99,704 99,251 98,938 98,347
</TABLE>
<TABLE>
<CAPTION>
JUNE 27, SEPT. 26, DEC. 26, APRIL 3,
FISCAL 1999 1998 1998 1998 1999
<S> <C> <C> <C> <C>
Net revenues $ 358,776 $ 474,806 $ 447,530 $ 445,747
Gross profit 182,614 233,711 206,869 199,079
Net income (loss) 22,711 49,919 25,351 (7,431)
Net income (loss) per share -
Basic and Diluted $ 0.23 $ 0.50 $ 0.25 ($ .07)
Shares outstanding - Basic 100,195 99,827 99,623 99,623
Shares outstanding - Diluted 100,570 99,878 99,674 99,783
</TABLE>
F-32
<PAGE> 83
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
15 SEGMENT REPORTING
The Company has three reportable business segments: wholesale,
retail and licensing. The Company's reportable segments are individual
business units that offer different products and services. They are
managed separately because each segment requires different strategic
initiatives, promotional campaigns, marketing, and advertising, based upon
its own individual positioning in the market. Additionally, these segments
reflect the reporting basis used internally by senior management to
evaluate performance and the allocation of resources.
The Company's wholesale segment consists of two operating units:
Polo Brands and Collection Brands. Each unit designs, sources, markets and
distributes discrete brands. Both units primarily sell products to major
department and specialty stores and to Company-owned and licensed retail
stores.
The retail segment operates two types of stores: outlet and full
price stores, including flagship stores. The stores sell the Company's
products purchased from the Company's wholesale segment, its licensees and
its suppliers.
The licensing segment, which consists of product, international and
home collection, generates revenues from royalties through its licensing
alliances. The licensing agreements grant the licensee rights to use the
various trademarks owned by the Company in connection with the manufacture
and sale of designated products in specified geographical areas.
The accounting policies of the segments are consistent with those
described in Note 2, Significant Accounting Policies. Intersegment sales
and transfers are recorded at cost and treated as a transfer of inventory.
All intercompany revenues and profits or losses are eliminated in
consolidation. Senior management does not review these sales when
evaluating segment performance. The Company's senior management evaluates
each segment's performance based upon income or loss from operations
before interest, nonrecurring gains and losses and income taxes. Corporate
overhead expenses are allocated to each segment based upon each segment's
usage of corporate resources.
F-33
<PAGE> 84
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
The Company's net revenues, income from operations, depreciation and
amortization expense and capital expenditures for fiscal 2000, 1999 and
1998, and total assets as of April 1, 2000, April 3, 1999 and March 28,
1998 for each segment were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
2000 1999 1998
NET REVENUES:
<S> <C> <C> <C>
Wholesale $ 885,246 $ 859,498 $ 742,674
Retail 833,980 659,352 570,751
Licensing 236,302 208,009 167,119
---------- ---------- ----------
$1,955,528 $1,726,859 $1,480,544
---------- ---------- ----------
INCOME FROM OPERATIONS:
Wholesale $ 81,139 $ 59,796 $ 48,889
Retail 26,176 31,840 61,622
Licensing 149,900 122,509 89,244
---------- ---------- ----------
257,215 214,145 199,755
Less: Unallocated restructuring
charge -- 58,560 --
Add: Cumulative effect of
pre-tax accounting change 6,696 -- --
---------- ---------- ----------
$ 263,911 $ 155,585 $ 199,755
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Wholesale $ 23,004 $ 21,111 $ 13,350
Retail 36,393 20,349 10,956
Licensing 6,883 4,954 3,096
---------- ---------- ----------
$ 66,280 $ 46,414 $ 27,402
========== ========== ==========
CAPITAL EXPENDITURES:
Wholesale $ 16,219 $ 32,013 $ 23,470
Retail 60,778 59,568 30,129
Licensing 3,813 7,817 4,178
Corporate 41,200 $ 42,294 5,302
---------- ---------- ----------
$ 122,010 $ 141,692 $ 63,079
========== ========== ==========
</TABLE>
F-34
<PAGE> 85
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
<TABLE>
<CAPTION>
APRIL 1, APRIL 3, MARCH 28,
2000 1999 1998
TOTAL ASSETS:
<S> <C> <C> <C>
Wholesale $ 611,740 $ 376,154 $ 348,687
Retail 614,472 424,203 286,500
Licensing 97,090 73,389 71,531
Corporate 297,260 230,838 118,412
---------- ---------- ----------
$1,620,562 $1,104,584 $ 825,130
========== ========== ==========
</TABLE>
A substantial portion of the Company's net revenues and income from
operations was derived from the United States in fiscal 2000, 1999 and
1998. The Company's long-lived assets by geographic location as of April
1, 2000, April 3, 1999 and March 28, 1998 were as follows:
<TABLE>
<CAPTION>
APRIL 1, APRIL 3, MARCH 28,
2000 1999 1998
LONG-LIVED ASSETS:
<S> <C> <C> <C>
United States $306,439 $233,995 $168,719
Other foreign countries 66,538 27,804 6,629
-------- -------- --------
$372,977 $261,799 $175,348
======== ======== ========
</TABLE>
F-35
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Polo Ralph Lauren Corporation
New York, New York
We have audited the consolidated financial statements of Polo Ralph Lauren
Corporation and subsidiaries (the "Company"), as of April 1, 2000 and April 3,
1999, and for each of the three years in the period ended April 1, 2000, and
have issued our report thereon dated May 19, 2000; such financial statements and
report are included elsewhere in this Form 10-K. Our audits also included the
consolidated financial statement schedule of Polo Ralph Lauren Corporation and
subsidiaries, listed in Item 14. This consolidated financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
New York, New York
May 19, 2000
S-1
<PAGE> 87
SCHEDULE II
POLO RALPH LAUREN CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER END OF
YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR
------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED APRIL 1, 2000
Allowance for doubtful accounts $ 7,147 $ 2,734 $ 0 $121(a) $ 9,760
Allowance for sales discounts 6,348 34,098 0 33,575 6,871
------- ------- ------- ------- -------
$13,495 $36,832 $ 0 $33,696 $16,631
======= ======= ======= ======= =======
YEAR ENDED APRIL 3, 1999
Allowance for doubtful accounts $ 6,647 $ 1,060 $ 0 $560(a) $ 7,147
Allowance for sales discounts 5,800 34,320 0 33,772 6,348
------- ------- ------- ------- -------
$12,447 $35,380 $ 0 $34,332 $13,495
======= ======= ======= ======= =======
YEAR ENDED MARCH 28, 1998
Allowance for doubtful accounts $ 6,289 $ 1,155 $ 0 $797(a) $ 6,647
Allowance for sales discounts 6,556 30,539 0 31,295 5,800
------- ------- ------- ------ -------
$12,845 $31,694 $ 0 $32,092 $12,447
======= ======= ======= ======= =======
</TABLE>
------------------------------
(a) Accounts written-off as uncollectible.
S-2
<PAGE> 88
POWER-OF-ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ralph Lauren, F. Lance Isham, Roger N. Farah and
Nancy A. Platoni Poli, and each of them, such person's true and lawful
attorneys-in-fact and agents, with full power of substitution and revocation,
for such person and in such person's name, place and stead, in any and all
capacities to sign any and all amendments to the Annual Report on Form 10-K for
the fiscal year ended April 1, 2000 of Polo Ralph Lauren Corporation, and to
file the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Ralph Lauren Chairman of the Board of Directors and June 26, 2000
----------------------------------- Chief Executive Officer (Principal
Ralph Lauren Executive Officer)
/s/ F. Lance Isham Vice Chairman of the Board of June 26, 2000
----------------------------------- Directors
F. Lance Isham
/s/ Roger N. Farah President, Chief Operating Officer and June 26, 2000
----------------------------------- Director
Roger N. Farah
/s/ Nancy A. Platoni Poli Senior Vice President and Chief June 26, 2000
----------------------------------- Financial Officer (Principal Financial
Nancy A. Platoni Poli and Accounting Officer)
/s/ Frank A. Bennack, Jr. Director June 26, 2000
-----------------------------------
Frank A. Bennack, Jr.
/s/ Joel L. Fleishman Director June 26, 2000
-----------------------------------
Joel L. Fleishman
/s/ Richard Friedman Director June 26, 2000
-----------------------------------
Richard Friedman
/s/ Allen Questrom Director June 26, 2000
-----------------------------------
Allen Questrom
/s/ Terry S. Semel Director June 26, 2000
-----------------------------------
Terry S. Semel
</TABLE>
<PAGE> 89
POLO RALPH LAUREN CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
NUMBER
<S> <C> <C>
3.1 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'))*
3.2 Amended and Restated By-laws of the Company (filed as Exhibit
3.2 to the S-1)*
10.1 Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive
Plan (filed as Exhibit 10.1 to the S-1)*+
10.2 Polo Ralph Lauren Corporation 1997 Stock Option Plan for
Non-Employee Directors (filed as Exhibit 10.2 to the S-1)*+
10.3 Polo Ralph Lauren Corporation Executive Officer Annual
Incentive Plan+
10.4 Registration Rights Agreement dated as of June 9, 1997 by and
among Ralph Lauren, GS Capital Partners, L.P., GS Capital
Partners 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 Polo
Ralph Lauren Corporation (filed as Exhibit 10.3 to the S-1)*
10.5 U.S.A. Design and Consulting Agreement, dated January 1, 1985,
between Ralph Lauren, individually and d/b/a Ralph Lauren
Design Studio, and Cosmair, Inc., and letter agreement related
thereto dated January 1, 1985** (filed as Exhibit 10.4 to the
S-1)*
10.6 Restated U.S.A. License Agreement, dated January 1, 1985,
between Ricky Lauren and Mark N. Kaplan, as Licensor, and
Cosmair, Inc., as Licensee, and letter agreement related
thereto dated January 1, 1985** (filed as Exhibit 10.5 to the
S-1)*
10.7 Foreign Design and Consulting Agreement, dated January 1,
1985, between Ralph Lauren, individually and d/b/a Ralph
Lauren Design Studio, as Licensor, and L'Oreal S.A., as
Licensee, and letter agreements related thereto dated January
1, 1985, September 16, 1994 and October 25, 1994** (filed as
Exhibit 10.6 to the S-1)*
10.8 Restated Foreign License Agreement, dated January 1, 1985,
between The Polo/Lauren Company, as Licensor, and L'Oreal
S.A., as Licensee, letter Agreement related thereto dated
January 1, 1985, and Supplementary Agreement thereto, dated
October 1, 1991** (filed as Exhibit 10.7 to the S-1)*
10.9 Amendment, dated November 27, 1992, to Foreign Design And
Consulting Agreement and Restated Foreign License Agreement**
(filed as Exhibit 10.8 to the S-1)*
10.10 License Agreement, made as of January 1, 1998, between Ralph
Lauren Home Collection, Inc. and WestPoint Stevens Inc. **
(filed as Exhibit 10.9 to the Company's Annual Report on Form
10-K for the Fiscal Year ended March 28, 1998 (the "Fiscal
1998 10-K"))*
10.11 License Agreement, dated March 1, 1998, between The
Polo/Lauren Company, L.P. and Polo Ralph Lauren Japan Co.,
Ltd., and undated letter agreement related thereto** (filed as
Exhibit 10.10 to the S-1)*
10.12 Design Services Agreement, dated March 1, 1998, between Polo
Ralph Lauren Enterprises, L.P. and Polo Ralph Lauren Japan
Co., Ltd.** (filed as Exhibit 10-11 to the S-1)*
10.13 Design Services Agreement, dated as of October 18, 1995, by
and between Polo Ralph Lauren Enterprises, L.P. and Jones
Apparel Group, Inc. ** (filed as Exhibit 10.25 to the Fiscal
1998 10-K)*
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
10.14 License Agreement, dated as of October 18, 1995, by and
between Polo Ralph Lauren Enterprises, L.P. and Jones Apparel
Group, Inc.** (filed as Exhibit 10.26 to the Fiscal 1998
10-K)*
10.15 Stockholders Agreement dated as of June 9, 1997 among Polo
Ralph Lauren Corporation, GS Capital Partners, L.P., GS
Capital Partners 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., Mr.
Ralph Lauren, RL Holding, L.P. and RL Family (filed as Exhibit
10.22 to the S-1)*
10.16 Form of Credit Agreement between Polo Ralph Lauren Corporation
and The Chase Manhattan Bank (filed as Exhibit 10.24 to the
S-1)*
10.17 Form of Guarantee and Collateral Agreement by Polo Ralph
Lauren Corporation in favor of The Chase Manhattan Bank (filed
as Exhibit 10.25 to the S-1)*
10.18 Credit Agreement between Polo Ralph Lauren Corporation and the
Chase Manhattan Bank dated as of March 30, 1999 (filed as
Exhibit 10.20 to the Fiscal 1999 10-K)*
10.19 Fiscal and Paying Agency Agreement dated November 22, 1999
among Polo Ralph Lauren Corporation, its subsidiary guarantors
and The Bank of New York, as fiscal and principal paying agent
(filed as Exhibit 10.1 to the Form 10-Q for the quarterly
period ended January 1, 2000)*
10.20 Stock and Asset Purchase Agreement between Polo Ralph Lauren
Corporation and S.A. Louis Dreyfus, dated November 23, 1999
(filed as Exhibit 2.1 to the Form 8-K filed January 10, 2000)*
10.21 Form of Indemnification Agreement between Polo Ralph Lauren
Corporation and its Directors and Executive Officers (filed as
Exhibit 10.26 to the S-1)*
10.22 Amended and Restated Employment Agreement effective April 4,
1999 between Ralph Lauren and Polo Ralph Lauren Corporation
(filed as Exhibit 10.23 to the Fiscal 1999 Form 10-K)*+
10.23 Deferred Compensation Agreement dated April 2, 1995 between F.
Lance Isham and Polo Ralph Lauren, L.P.(filed as Exhibit 10.14
to the S-1)*+
10.24 Amendment to Deferred Compensation Agreement made as of
November 10, 1998 between F. Lance Isham and Polo Ralph Lauren
Corporation+ (filed as Exhibit 10.14 to the Fiscal 1999
10-K)*+
10.25 Amended and Restated Employment Agreement effective November
10, 1998 between F. Lance Isham and Polo Ralph Lauren
Corporation (filed as Exhibit 10.16 to the Fiscal 1999 10-K)*+
10.26 Employment Agreement effective April 12, 2000 between Polo
Ralph Lauren Corporation and Roger N. Farah+
10.27 Employment Agreement effective April 1, 2000 between Polo
Ralph Lauren Corporation and Victor Cohen+
10.28 Employment Agreement effective January 1, 2000 between Polo
Ralph Lauren Corporation and Douglas L. Williams+
21.1 List of Significant Subsidiaries of the Company.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
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* Incorporated herein by reference.
+ Exhibit is a management contract or compensatory plan or
arrangement.
** Portions of Exhibits 10.5 - 10.14 have been omitted pursuant
to a request for confidential treatment and have been filed
separately with the Securities and Exchange Commission.
