--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2002
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)
DELAWARE 13-2622036
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
650 MADISON AVENUE, 10022
NEW YORK, NEW YORK (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
212-318-7000
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
registrants were required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
At August 7, 2002 44,567,861 shares of the registrant's Class A Common
Stock, $.01 par value, were outstanding, 43,280,021 shares of the registrant's
Class B Common Stock, $.01 par value, were outstanding and 10,570,979 shares of
the registrant's Class C Common Stock, $.01 par value were outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
POLO RALPH LAUREN CORPORATION
INDEX TO FORM 10-Q
PART 1. FINANCIAL INFORMATION
PAGE
-----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 29, 2002
(Unaudited) and March 30, 2002......................... 2
Consolidated Statements of Operations for the three months
ended June 29, 2002 and June 30, 2001 (Unaudited)...... 3
Consolidated Statements of Cash Flows for the three months
ended June 29, 2002 and June 30, 2001 (Unaudited)...... 4-5
Notes to Consolidated Financial Statements................ 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 12-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk............................................... 19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................... 20
1
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 29, MARCH 30,
2002 2002
------------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
ASSETS
Current assets
Cash and cash equivalents................................. $ 371,623 $ 244,733
Accounts receivable, net of allowances of $7,522 and
$13,175................................................ 208,363 353,608
Inventories............................................... 384,865 349,818
Deferred tax assets....................................... 21,091 17,897
Prepaid expenses and other................................ 52,859 42,001
---------- ----------
TOTAL CURRENT ASSETS................................. 1,038,801 1,008,057
Property and equipment, net................................. 341,519 343,836
Deferred tax assets......................................... 64,076 58,127
Goodwill, net............................................... 289,430 273,348
Other assets, net........................................... 68,797 66,129
---------- ----------
$1,802,623 $1,749,497
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term bank borrowings................................ $ 124,887 $ 32,988
Accounts payable.......................................... 159,952 177,472
Income taxes payable...................................... 58,608 52,819
Accrued expenses and other................................ 148,393 128,492
---------- ----------
TOTAL CURRENT LIABILITIES............................ 491,840 391,771
Long-term debt.............................................. 225,475 285,414
Other noncurrent liabilities................................ 79,090 74,117
Stockholders' equity
Common Stock
Class A, par value $.01 per share; 500,000,000 shares
authorized; 35,688,098 and 34,948,730 shares issued... 363 361
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................................ 494,402 490,337
Retained earnings......................................... 608,584 602,124
Treasury Stock, Class A, at cost (3,887,094 and 3,771,806
shares)................................................ (73,555) (73,246)
Accumulated other comprehensive loss...................... (22,194) (19,799)
Unearned compensation..................................... (2,042) (2,242)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................... 1,006,218 998,195
---------- ----------
$1,802,623 $1,749,497
========== ==========
See accompanying notes to consolidated financial statements.
2
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
-------------------------------
JUNE 29, 2002 JUNE 30, 2001
-------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND
PER SHARE DATA)
Net sales................................................... $ 413,866 $ 461,058
Licensing revenue........................................... 53,134 56,771
----------- -----------
NET REVENUES.............................................. 467,000 517,829
Cost of goods sold.......................................... 234,396 255,468
----------- -----------
GROSS PROFIT.............................................. 232,604 262,361
Selling, general and administrative expenses................ 214,916 208,773
----------- -----------
INCOME FROM OPERATIONS.................................... 17,688 53,588
Foreign currency loss (gain)................................ 3,531 (2,827)
Interest expense, net....................................... 3,984 5,924
----------- -----------
INCOME BEFORE INCOME TAXES................................ 10,173 50,491
Income tax provision........................................ 3,713 19,440
----------- -----------
NET INCOME................................................ $ 6,460 $ 31,051
=========== ===========
Net income per share -- Basic............................... $ 0.07 $ 0.32
=========== ===========
Net income per share -- Diluted............................. $ 0.07 $ 0.32
=========== ===========
Weighted average common shares outstanding -- Basic......... 98,161,220 97,108,788
=========== ===========
Weighted average common shares outstanding -- Diluted....... 99,333,199 98,493,077
=========== ===========
See accompanying notes to consolidated financial statements.
3
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
(IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 6,460 $ 31,051
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 18,462 20,923
Provision for (Benefit from) deferred income taxes........ 3,384 (393)
Provision for losses on accounts receivable............... 446 357
Foreign currency losses (gains)........................... 3,531 (2,827)
Other..................................................... (11,202) (3,363)
Changes in assets and liabilities, net of acquisitions
Accounts receivable.................................... 152,138 28,401
Inventories............................................ (20,251) (23,143)
Prepaid expenses and other............................. (7,116) 59
Other assets........................................... (146) 1,368
Accounts payable....................................... (22,726) 12,967
Income taxes payable (receivable)...................... 5,789 41,985
Accrued expenses and other............................. (469) (23,287)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 128,300 84,098
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment....................... (12,495) (16,237)
Increase (decrease) in cash surrender value -- officers'
life insurance......................................... 775 (837)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (11,720) (17,074)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock............................... (309) --
Proceeds from issuance of common stock.................... 4,067 10,114
Proceeds from (Repayments of) short term borrowings,
net.................................................... 9,314 (48,665)
Repayments of long-term debt.............................. (7,746) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 5,326 (38,551)
Effect of exchange rate changes on cash..................... 4,984 (1,091)
Net increase (decrease) in cash and cash equivalents........ 126,890 27,382
Cash and cash equivalents at beginning of period............ 244,733 102,219
-------- --------
Cash and cash equivalents at end of period.................. $371,623 $129,601
======== ========
See accompanying notes to consolidated financial statements.
4
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
(IN THOUSANDS)
(UNAUDITED)
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ 1,667 $1,848
======= ======
Cash paid for income taxes................................ $11,723 $1,417
======= ======
See accompanying notes to consolidated financial statements.
5
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 29, 2002 AND JUNE 30, 2001 IS UNAUDITED)
(IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)
1. BASIS OF PRESENTATION AND ORGANIZATION
(A) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Polo Ralph Lauren Corporation ("PRLC") and its wholly and majority
owned subsidiaries (collectively referred to as the "Company", "we", "us", and
"our"). The consolidated financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted from this report as is permitted by
such rules and regulations however, the Company believes that the disclosures
are adequate to make the information presented not misleading. The consolidated
balance sheet data for March 30, 2002 is derived from the audited financial
statements which are included in the Company's report on fiscal 2002 Form 10-K,
which should be read in conjunction with these financial statements.
Effective December 30, 2001, for reporting purposes the Company changed the
fiscal year ends of its European subsidiaries as reported in the consolidated
financial statements to the Saturday closest to March 31 to conform with the
fiscal year end of the Company. Previously, certain of the European subsidiaries
were consolidated and reported on a three-month lag with a fiscal year ending
December 31. Accordingly, we have included the June 29, 2002 and March 30, 2002
balance sheets of our wholly owned European subsidiaries in the accompanying
June 29, 2002 and March 30, 2002, consolidated balance sheets. We also have
consolidated the results of operations of our wholly owned European subsidiaries
for the three months ended June 29, 2002 and March 31, 2001 in the three months
ended June 29, 2002 and June 30, 2001 consolidated statements of income and cash
flows. Had certain of the European subsidiaries been consolidated on a
consistent fiscal year basis for the three months ended June 30, 2001, net
revenues would have been $473.3 million and net income would have been $15.7
million.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal and recurring adjustments necessary to
present fairly the consolidated financial condition, results of operations, and
changes in cash flows of the Company for the interim periods presented.
(B) ACQUISITIONS
On October 31, 2001, the Company completed the acquisition of substantially
all of the assets of PRL Fashions of Europe SRL ("PRL Fashions" or "Italian
Licensee") which held licenses to sell our women's Ralph Lauren apparel in
Europe, our men's and boys' Polo Ralph Lauren apparel in Italy and men's and
women's Polo Jeans Co. collections in Italy. The purchase price of this
transaction was approximately $22.0 million in cash plus the assumption of
certain liabilities and earn-out payments based on achieving profitability
targets over the first three years with a guaranteed minimum annual payment of
$3.5 million each year.
The assets acquired of $15.1 million and liabilities assumed of $15.1
million were recorded at estimated fair values as determined by the Company's
management based on information currently available. Goodwill of approximately
$33.5 million has been recognized for the excess of the purchase price over the
preliminary estimate of fair market value of the net assets acquired.
The Company is in the process of obtaining independent appraisals of the
intangible assets acquired. Accordingly, the allocation of the purchase price is
subject to revision, which is not expected to be material, based on the final
determination of appraised and other fair values.
6
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 22, 2001, we acquired the Polo Brussels SA store from one of our
licensees. The purchase price of this transaction was approximately $3.0 million
in cash, which was primarily allocated to goodwill. The sales and total assets
were not material. The proforma effect of these two acquisitions on the
historical results were not material.
Consistent with Statement of Financial Accounting Standards ("SFAS") No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets, these acquisitions were accounted for as purchases and the goodwill
recorded is not being amortized
2. RESTRUCTURING AND SPECIAL CHARGES
(A) 2001 OPERATIONAL PLAN
During the second quarter of fiscal 2001, we completed an internal
operational review and formalized our plans to enhance the growth of our
worldwide luxury retail business, to better manage inventory and to increase
overall profitability (the "Operational Plan"). The major initiatives of the
Operational Plan included: refining our retail strategy; developing efficiencies
in our supply chain; and consolidating corporate strategic business functions
and internal processes.
In connection with refining our retail strategy, we closed all 12 Polo
Jeans Co. full-price retail stores and 11 under-performing Club Monaco retail
stores. Costs associated with this aspect of the Operational Plan included lease
and contract termination costs, store fixed asset write downs (primarily
leasehold improvements of $21.5 million) and severance and termination benefits.
Additionally, as a result of changes in market conditions combined with our
change in retail strategy in certain locations in which we operate full-price
retail stores, we performed an evaluation of the recoverability of the assets of
certain of these stores in accordance with Statements of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of. We concluded from the results of
this evaluation that a significant permanent impairment of long-lived assets had
occurred. Accordingly, we recorded a write down of these assets (primarily
leasehold improvements) to their estimated fair value based on discounted future
cash flows.
In connection with the implementation of the Operational Plan, we recorded
a pretax restructuring charge of $128.6 million in our second quarter of fiscal
2001, subsequently adjusted for a $5.0 million reduction of liabilities in the
fourth quarter of fiscal 2001. After extensive review of the Operational Plan,
and changes in business conditions in certain markets in which we operate, we
made adjustments to the Operational Plan in the fourth quarter of fiscal 2002.
We recorded an additional $16.0 million of lease termination costs associated
with the closure of our retail stores due to market factors that were less
favorable than originally estimated. The major components of the charge and the
activity through for the three months ended June 29, 2002 were as follows:
LEASE AND
SEVERANCE AND CONTRACT
TERMINATION TERMINATION
BENEFITS COSTS TOTAL
------------- ----------- -------
Balance at March 30, 2002.......................... $807 $14,155 $14,962
2003 activity...................................... (628) (1,352) (1,980)
---- ------- -------
Balance at June 29, 2002........................... $179 $12,803 $12,982
==== ======= =======
Total severance and termination benefits as a result of the Operational
Plan related to approximately 550 employees, all of whom have been terminated.
Total cash outlays related to the Operational Plan are expected to be
approximately $40.7 million, $27.7 million of which have been paid through June
29, 2002. We completed the implementation of the Operational Plan in fiscal 2002
and expect to settle the remaining liabilities in fiscal 2003.
7
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(B) 1999 RESTRUCTURING PLAN
During the fourth quarter of fiscal 1999, we formalized our plans to
streamline operations within our wholesale and retail operations and reduce our
overall cost structure (the "Restructuring Plan"). The major initiatives of the
Restructuring Plan included the following: an evaluation of our retail
operations and site locations; the realignment and operational integration of
our wholesale operating units; and the realignment and consolidation of
corporate strategic business functions and internal processes.
In connection with the implementation of the Restructuring Plan, we
recorded a pretax restructuring charge of $58.6 million in our fourth quarter of
fiscal 1999. The major components of the restructuring charge and the activity
for the three months ended June 29, 2002 were as follows:
LEASE AND
SEVERANCE AND CONTRACT
TERMINATION TERMINATION
BENEFITS COSTS TOTAL
------------- ----------- -------
Balance at March 30, 2002.......................... $1,456 $ 1,226 $ 2,682
2003 activity...................................... (527) (1,250) (1,777)
------ ------- -------
Balance at June 29, 2002........................... $ 929 $ (24) $ 905
====== ======= =======
Total severance and termination benefits as a result of the Restructuring
Plan related to approximately 280 employees, all of whom have been terminated.
Total cash outlays related to the Restructuring Plan are approximately $39.5
million, $38.6 million of which have been paid to date. We completed the
implementation of the Restructuring Plan in fiscal 2000 and expect to settle the
remaining liabilities in fiscal 2003.
3. INVENTORIES
Inventories are valued at lower of cost (first-in, first-out, "FIFO") or
market and consist of the following:
JUNE 29, MARCH 30,
2002 2002
-------- ---------
Raw materials............................................... $ 9,066 $ 3,874
Work-in-process............................................. 8,541 5,469
Finished goods.............................................. 367,258 340,475
-------- --------
$384,865 $349,818
======== ========
4. DERIVATIVE INSTRUMENTS
In June 2002, we entered into a cross currency rate swap, which terminates
November 2006. The cross currency rate swap is being used to convert Euro 105.2
million, 6.125% fixed rate borrowings into $100.0 million, LIBOR plus 1.24%
variable rate borrowings. We entered into the cross currency rate swap to
minimize the impact of foreign exchange fluctuations in both principal and
interest payments resulting from the Euro debt; and to minimize the impact of
changes in the fair value of the Euro debt due to changes in LIBOR, the
benchmark interest rate. The swap has been designated as a fair value hedge
under SFAS 133. Hedge ineffectiveness is measured as the difference between the
respective gains or losses recognized in earnings from the changes in the fair
value of the cross currency rate swap and the Euro debt; and was de minimis for
the three months ended June 29, 2002.
8
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. COMPREHENSIVE INCOME
For the three months ended June 29, 2002 and June 30, 2001, comprehensive
income was as follows:
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
Net Income.................................................. $ 6,460 $31,051
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments.................. 18,410 2,421
Cumulative transition adjustment gains, net............... -- 4,028
Unrealized losses on cash flow hedge contracts, net....... (20,805) (156)
-------- -------
Comprehensive Income...................................... $ 4,065 $37,344
======== =======
The income tax effect related to foreign currency translation adjustments,
cumulative transition adjustment gains, net, and unrealized losses on cash flow
hedge contracts, net, was a benefit of $1.4 million in the three months ended
June 29, 2002, and an expense of $3.9 million in the three months ended June 30,
2001.
6. SEGMENT REPORTING
We have three reportable business segments: wholesale, retail and
licensing. Our reportable segments are individual business units that offer
different products and services. The segments are managed separately because
each segment requires different strategic initiatives, promotional campaigns,
marketing and advertising, based upon its own individual positioning in the
market. Additionally, these segments reflect the reporting basis used internally
by senior management to evaluate performance and the allocation of resources.
Our net revenues and income from operations for the three months ended June
29, 2002 and June 30, 2001, by segment were as follows:
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
NET REVENUES:
Wholesale................................................. $186,728 $245,173
Retail.................................................... 227,139 215,885
Licensing................................................. 53,133 56,771
-------- --------
$467,000 $517,829
======== ========
INCOME (LOSS) FROM OPERATIONS:
Wholesale................................................. $(21,930) $ 21,002
Retail.................................................... 15,870 3,923
Licensing................................................. 23,748 28,663
-------- --------
$ 17,688 $ 53,588
======== ========
7. RECENTLY ISSUED PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board, or "FASB", issued
Statement of Financial Accounting Standards, or SFAS No. 141 and SFAS No. 142.
In addition to requiring the use of the purchase method for all business
combinations, SFAS No. 141 requires intangible assets that meet certain criteria
to be
9
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized as assets apart from goodwill. SFAS No. 142 addresses accounting and
reporting standards for the acquisition of intangible assets outside of a
business combination and for goodwill and other intangible assets subsequent to
their acquisition. Intangible assets that have finite lives will continue to be
amortized over their useful lives. SFAS No. 141 and SFAS No. 142 were effective
for the Company's first quarter in the fiscal year ending March 29, 2003 or for
any business combinations initiated after June 30, 2001.
Effective March 31, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. This accounting standard requires that goodwill be
separately disclosed from other intangible assets in the statement of financial
position, and no longer be amortized but tested for impairment on a periodic
basis.
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective March 31, 2002. A reconciliation of previously reported
net income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
(IN MILLIONS)
Reported net income......................................... $6,460 $31,051
------ -------
Goodwill amortization, net of tax........................... 0 1,255
------ -------
Adjusted net income per share............................... $6,460 $32,306
====== =======
Adjusted net income basic and diluted....................... $ 0.07 $ 0.34
------ -------
The provisions of SFAS No. 142 also require the completion of a
transitional impairment test within six months of adoption, with any impairments
treated as a cumulative effect of a change in accounting principle. We expect to
complete the transitional impairment test during the quarter ending September
28, 2002.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Statement requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 is effective for the first
quarter in the fiscal year ending April 3, 2004. The Company does not expect the
adoption of this pronouncement to have a material impact on our consolidated
results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. However, this Statement retains the fundamental
provisions of Statement 121 for (a) recognition and measurement of the
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. Effective March 31, 2002, the
Company adopted the pronouncement and there was no material impact on our
consolidated results of operations.
In April 2002, the FASB, issued SFAS No. 145, Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. In addition to amending and rescinding other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
10
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
describe their applicability under changed conditions, SFAS No. 145 precludes
companies from recording gains and losses from the extinguishment of debt as an
extraordinary item. SFAS No. 145 is effective for our first quarter in the
fiscal year ending April 3, 2004. The Company does not expect the adoption of
this pronouncement to have a material impact on our consolidated results of
operations or financial position.
In April 2001, the FASB's Emerging Issues Task Force (EITF") reached a
consensus on Issue No. 00-25, Vendor Income Statement Characteristics of
Consideration Paid to a Reseller of the Vendor's Products ("EITF No. 00-25"). In
November 2001, EITF No. 00-25 was codified in EITF Issue No. 01-09, Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products). EITF No. 01-09 concluded that consideration from a vendor to
a reseller of the vendor's products is presumed to be a reduction of the selling
prices of the vendor's products and, therefore, should be characterized as a
reduction of revenue when recognized in the vendor's income statement. That
presumption is overcome and the consideration characterized as a cost incurred
if a benefit is or will be received from the recipient of the consideration if
certain conditions are met. The Company adopted this pronouncement in our fourth
quarter in the fiscal year ended March 30, 2002 and there was no impact on our
consolidated results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of this pronouncement to have
a material effect on the consolidated results of operations or financial
position.
8. RECLASSIFICATION
For comparative purposes, certain prior period amounts have been
reclassified to conform to the current period's presentation.
11
POLO RALPH LAUREN CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis is a summary and should be read
together with our consolidated financial statements and related notes thereto
which are included herein. We utilize a 52-53 week fiscal year ending on the
Saturday nearest March 31. Fiscal 2003 and fiscal 2002 end on March 29, 2003 and
March 30, 2002, respectively, and each reflect a 52-week period. Due to the
collaborative and ongoing nature of our relationships with our licensees, such
licensees are referred to herein as "licensing partners" and the relationships
are referred to herein as "licensing alliances." Notwithstanding these
references, however, the legal relationship between our licensees and us is one
of licensor and licensee, and not one of partnership.
Certain statements in this Form 10-Q and in future filings with the
Securities and Exchange Commission, in our press releases and in oral statements
made by or with the approval of authorized personnel constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are based on current expectations and
are indicated by words or phrases such as "anticipate," "estimate," "expect,"
"project," "we believe," "is or remains optimistic," "currently envisions" and
similar words or phrases and involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements 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 a general economic downturn
and other events leading to a reduction in discretionary consumer spending;
risks associated with implementing our plans to enhance our worldwide luxury
retail business, inventory management program and operating efficiency
initiatives; risks associated with changes in the competitive marketplace,
including the introduction of new products or pricing changes by our
competitors; changes in global economic or political conditions; risks
associated with our dependence on sales to a limited number of large department
store customers, including risks related to extending credit to customers; risks
associated with our dependence on our licensing partners for a substantial
portion of our net income and risks associated with a lack of operational and
financial control over licensed businesses; risks associated with financial
distress of licensees, including the impact on our net income and business of
one or more licensee's reorganization; 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 we operate, including our ability to shape, stimulate and
respond to changing consumer tastes and demands by producing attractive
products, brands and marketing, and our ability to remain competitive in the
areas of quality and price; risks associated with uncertainty relating to our
ability to implement our growth strategies; risks associated with our entry into
new markets either through internal development activities or through
acquisitions; risks associated with the possible adverse impact of our
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 or sourcing and the possible adverse impact of changes in import
restrictions; risks related to our ability to establish and protect our
trademarks and other proprietary rights; risks related to fluctuations in
foreign currency affecting our foreign subsidiaries' and foreign licensees'
results of operations and the relative prices at which we and our foreign
competitors sell products in the same market and our operating and manufacturing
costs outside of the United States; and, risks associated with our control by
Lauren family members and the anti-takeover effect of multiple classes of stock.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
OVERVIEW
We began operations in 1968 as a designer and marketer of premium quality
men's clothing and sportswear. Since our inception, we have grown through
increased sales of existing product lines, the introduction of new brands and
products, expansion into international markets, development of our retail
operations and acquisitions. Our net revenues are generated from our three
integrated operations: wholesale, retail and licensing.
12
RESULTS OF OPERATIONS
The table below sets forth the percentage relationship to net revenues of
certain items in our consolidated statements of income for the three months
ended June 29, 2002 and June 30, 2001:
THREE MONTHS ENDED
---------------------
JUNE 29, JUNE 30,
2002 2001
--------- ---------
Net......................................................... 88.6% 89.0%
sales Licensing revenue..................................... 11.4 11.0
----- -----
Net revenues................................................ 100.0 100.0
----- -----
Gross profit................................................ 49.8 50.7
Selling, general and administrative expenses................ 46.0 40.3
----- -----
Income from operations...................................... 3.8 10.4
Foreign currency loss (gain)................................ 0.8 (0.5)
Interest expense, net....................................... 0.9 1.1
----- -----
Income before income taxes.................................. 2.1% 9.8%
===== =====
CONSOLIDATION OF EUROPEAN ENTITIES -- CHANGE IN REPORTING PERIOD
Effective December 30, 2001, for reporting purposes the Company changed the
fiscal year ends of its European subsidiaries as reported in the consolidated
financial statements to the Saturday closest to March 31 to conform with the
fiscal year end of the Company. Previously, certain of the European subsidiaries
were consolidated and reported on a three-month lag with a fiscal year ending
December 31. Accordingly, we have included the June 29, 2002 and March 30, 2002
balance sheets of our wholly owned European subsidiaries in the accompanying
June 29, 2002 and March 30, 2002, consolidated balance sheets. We also have
consolidated the results of operations of our wholly owned European subsidiaries
for the three months ended June 29, 2002 and March 31, 2001 in the three months
ended June 29, 2002 and June 30, 2001 consolidated statements of income and cash
flows. Had certain of the European subsidiaries been consolidated on a
consistent fiscal year basis for the three months ended June 30, 2001, net
revenues would have been $473.3 million and net income would have been $15.7
million.
The impact of consolidating the results of the European subsidiaries for
three months ended June 30, 2001 as compared to a three month lag relates
primarily to their first quarter being included rather then their fourth
quarter. Traditionally, the first quarter for our European subsidiaries is
weaker then their fourth quarter.
THREE MONTHS ENDED JUNE 29, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
Net Sales. Net sales decreased 10.2% to $413.9 million in the three months
ended June 29, 2002, from $461.1 million in the three months ended June 30,
2001. Had certain of the European subsidiaries been reported on a consistent
fiscal year basis for the three months ended June 30, 2001, net sales would have
been $419.6.
Wholesale net sales decreased 23.8% to $186.7 million in the three-month
period, from $245.2 million in the corresponding period of fiscal 2002. Had
certain of the European subsidiaries been reported on a consistent fiscal year
basis for the three months ended June 30, 2001, wholesale net sales would have
been $201.8 million, and the decrease would have been 7.5%. This decrease
primarily reflects a strategical stream lining of the amount of product sold to
the department stores. In addition, the Lauren classification line for men was
discontinued which represented approximately $5.0 million of wholesale net sales
in the first quarter of fiscal 2002. These decreases were offset by a $23.0
million increase, approximately 101.3%, in the European wholesale business which
primarily reflects the acquisition of PRL Fashions of Europe S.R.L in October
2001, which held licenses to sell women's Ralph Lauren apparel in Europe, mens'
and boys' Polo Ralph Lauren apparel in Italy and men's and women's Polo Jeans
Co. collections in Italy.
13
Retail sales increased $11.2 million, 5.2%, to $227.1 million in the three
months ended June 29, 2002, from $215.9 million in the corresponding period in
fiscal 2002. Had certain of the European subsidiaries been reported on a
consistent fiscal year basis for the three months ended June 30, 2001, retail
net sales would have been $217.8 million, and the increase would have been 4.3%.
This increase is primarily driven by the 7.6% increase in comparable outlet
store sales which were offset by a 10.2% decrease in our full price stores.
At June 29, 2002, we operated 237 stores compared to 232 stores in the
first quarter of fiscal 2002. The Company's retail group consisted of 39 Polo
Ralph Lauren stores, 54 Club Monaco stores, 93 full line Outlet stores, 22 Polo
Jeans Co. outlet stores, 19 European Outlet stores and 10 Club Monaco Outlet
stores. During the three months ended June 29, 2002, the Company opened three
European outlet stores, closed one domestic outlet store and one Canadian Club
Monaco stores.
Licensing Revenue. Licensing revenue decreased 6.5% to $53.1 million in
the three months ended June 29, 2002, from $56.8 million in the corresponding
period of fiscal 2002. Had certain of the European subsidiaries been reported on
a consistent fiscal year basis for the three months ended June 30, 2001,
licensing revenue would have been $53.7 million, resulting in a 1.1% decrease.
Gross Profit. Gross profit as a percentage of net revenues decreased to
49.8% in the three months ended June 29, 2002, from 50.7% in the corresponding
period of fiscal 2002. Had certain of the European subsidiaries been reported on
a consistent fiscal year basis for the three months ended June 30, 2001, gross
profit would have been 49.7%. Decreased margins in the wholesale business due to
the sell through of product from the discontinued Lauren classification line for
men and the RL Sport line women were offset by increased domestic retail
merchandise margins.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses as a percentage of net revenues increased to
46.0% in the three months ended June 29, 2002, from 40.3% of net revenues in the
corresponding period of fiscal 2002. Had certain of the European subsidiaries
been reported on a consistent fiscal year basis for the three months ended June
30, 2001, SG&A expenses as a percentage of net revenues would have been 43.6%,
an increase of 2.4%. This increase is primarily due to higher selling salaries
and related costs related to the increase in the European retail business
combined with increased operating expenses from the acquisition of PRL Fashions
of Europe S.R.L in October 2001, which held licenses to sell women's Ralph
Lauren apparel in Europe, mens' and boys' Polo Ralph Lauren apparel in Italy and
men's and women's Polo Jeans Co. collections in Italy.
Interest and Other Expense. Interest expense decreased to $4.0 million in
the three months ended June 29, 2002, from $5.9 million in the comparable period
in fiscal 2002. This decrease was primarily due to significantly increased
levels of cash and cash equivalents during the three months ended June 29, 2002
and decreased borrowings during the current quarter as a result of repurchases
of a portion of our outstanding Euro debt.
Income Taxes. The effective tax rate decreased to 36.5% in the three
months ended June 29, 2002, from 38.5% in the corresponding period in fiscal
2002. This decline is primarily as a result of the implementation of tax
strategies.
LIQUIDITY AND CAPITAL RESOURCES
Our cash requirements primarily derive from working capital needs,
construction and renovation of shop-within-shops, retail expansion,
acquisitions, and other corporate activities. Our main sources of liquidity are
cash flows from operations, credit facilities and other borrowings.
Net cash provided by operating activities increased to $134.3 million in
the three months ended June 29, 2002, from $84.1 million in the comparable
period in fiscal 2002. This increase was primarily due to a significant decrease
in accounts receivable and accounts payable which primarily relates to the
seasonality in the European business from the European subsidiaries being
consolidated on a current basis in the three months ended June 29, 2002 as
compared to a three month lag in the comparable period in fiscal 2002.
14
Net cash used in investing activities decreased to $11.7 million in the
three months ended June 29, 2002 as compared to $17.1 million in the comparable
period in fiscal 2002 primarily due to the decrease in capital expenditures of
approximately $3.7 million compared to the same period in the prior year.
Net cash provided by financing activities was $5.3 million in the three
months ended June 29, 2002 as compared to net cash used in financing activities
of $38.6 million, in the comparable period in fiscal 2002. This change is
primarily due to the proceeds from the issuance of common stock of $4.1 million
and $9.3 of proceeds from short-term borrowings offset by the repurchase of $7.7
million of our Euro debt.
In June 1997, we entered into a credit facility with a syndicate of banks
which provides for a $225.0 million revolving line of credit available for the
issuance of letters of credit, acceptances and direct borrowings and matures on
December 31, 2002. Borrowings under the syndicated bank credit facility bear
interest, at our option, at a base rate equal to the higher of the Federal Funds
Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one
percent, and the prime commercial lending rate of The Chase Manhattan Bank in
effect from time to time, or at the Eurodollar Rate (LIBOR) plus an interest
margin based on the Federal Reserve Boards "Eurocurrency liabilities" reserve
requirements. The margin was 0.875% as of June 29, 2002.
In March 1999, in connection with our acquisition of Club Monaco, we
entered into a $100.0 million senior credit facility with a syndicate of banks
consisting of a $20.0 million revolving line of credit and an $80.0 million term
loan. The revolving line of credit is available for working capital needs and
general corporate purposes and matures on June 30, 2003. The term loan was used
to finance the acquisition of all of the outstanding common stock of Club Monaco
and to repay indebtedness of Club Monaco. The term loan is also repayable on
June 30, 2003. Borrowings under the 1999 senior credit facility bear interest,
at our option, at a Base Rate equal to the higher of the Federal Funds Rate, as
published by the Federal Reserve Bank of New York, plus 1/2 of one percent and
the prime commercial lending rate of The Chase Manhattan Bank in effect from
time to time, or at the Eurodollar Rate (LIBOR) plus an interest margin based on
the Federal Reserve Board's "Eurocurrency liabilities" reserve requirements. The
margin was 0.875% as of June 29, 2002. In April 1999, we entered into interest
rate swap agreements with an aggregate notional amount of $100.0 million to
convert the variable interest rate on our 1999 senior credit facility to a fixed
rate of 5.5%.
Our 1997 bank credit facility and our 1999 senior bank credit facility
require that we maintain:
- a minimum consolidated net worth, and
- a maximum consolidated indebtedness ratio.
Each of these credit facilities also contain covenants that, subject to
specified exceptions, restrict our ability to:
- make capital expenditures,
- sell or dispose of our assets,
- incur additional debt,
- incur contingent liabilities and liens,
- merge with or acquire other companies or be subject to a change of
control,
- make loans or advances or stock repurchases,
- engage in transactions with affiliates, and
- make investments.
Upon the occurrence of an event of default under each of these credit
facilities, the lenders may cease making loans, terminate the credit facility,
and declare all amounts outstanding to be immediately due and payable. The
credit facilities specify a number of events of default, many of which are
subject to applicable grace or cure periods, including, among others, the
failure to make timely principal and interest payments, to satisfy the
covenants, or to maintain the required financial performance requirements
described above.
15
Additionally, the agreements provide that an event of default will occur if
Mr. Ralph Lauren and related entities fail to maintain a specified minimum
percentage of the voting power of our common stock.
In November 1999, we issued Euro 275.0 million of 6.125% notes due November
2006. Our Euro debt is listed on the London Stock Exchange. The net proceeds
from the Euro offering were $281.5 million, based on the Euro exchange rate on
the issuance date. Interest on the Euro debt is payable annually. A portion of
the net proceeds from the issuance was used to acquire Poloco while the
remaining net proceeds were retained for general corporate purposes.
In June 2002, we entered into a cross currency rate swap, which terminates
November 2006. The cross currency rate swap is being used to convert Euro 105.2
million, 6.125% fixed rate borrowings into $100.0 million, LIBOR plus 1.24%
variable rate borrowings. We entered into the cross currency rate swap to
minimize the impact of foreign exchange fluctuations in both principal and
interest payments resulting from the Euro debt; and to minimize the impact of
changes in the fair value of the Euro debt due to changes in LIBOR, the
benchmark interest rate. The swap has been designated as a fair value hedge
under SFAS 133. Hedge ineffectiveness is measured as the difference between the
respective gains or losses recognized in earnings from the changes in the fair
value of the cross currency rate swap and the Euro debt; and was de minimis for
the three months ended June 29, 2002.
In fiscal 2003, we repurchased Euro 8.3 million, or $7.7 million based on
Euro exchange rates, of our outstanding Euro debt.
As of June 29, 2002, we had $44.9 million outstanding in direct borrowings,
$80.0 million outstanding under the term loan and $225.5 million outstanding in
Euro debt based on the quarter end Euro exchange rate. We were also contingently
liable for $26.1 million in outstanding letters of credit primarily related to
commitments for the purchase of inventory. The weighted-average interest rate on
our borrowings at June 29, 2002 was 5.9%.
We recognize foreign currency gains or losses in connection with our Euro
debt based on fluctuations in foreign exchange rates. We recorded $3.5 million
in foreign currency loss in the three months ended June 29, 2002 and $2.8
million in foreign currency gains in the three months ended June 30, 2001.
Total cash outlays related to the fiscal 2001 Operational Plan are expected
to be approximately $40.7 million, $27.7 million of which have been paid through
June 29, 2002. We completed the implementation of the operational plan in fiscal
2002 and expect to settle the remaining liabilities in fiscal 2003.
Total cash outlays related to the 1999 Restructuring Plan are approximately
$39.5 million, $38.6 million of which has been paid through June 29, 2002. We
completed the implementation of the operational plan in fiscal 2002 and expect
to settle the remaining liabilities in fiscal 2003.
Capital expenditures were $12.5 million and $16.2 million in the three
months ended June 29, 2002 and June 30, 2001, respectively. Capital expenditures
primarily reflect costs associated with the following:
- The expansion of our retail operations;
- make the shop-within-shops development program which includes new shops,
renovations and expansions;
- the expansion of our distribution facilities;
- our information systems; and
- other capital projects.
On October 31, 2001, the Company completed the acquisition of substantially
all of the assets of PRL Fashions of Europe S.R.L., which holds licenses to sell
our women's Ralph Lauren apparel in Europe, our men's and boys' Polo Ralph
Lauren apparel in Italy, and our men's and women's Polo Jeans Co. collections in
Italy. The purchase price was approximately $22.0 million in cash plus the
assumption of certain liabilities and earn-out payments based on achieving
profitability targets over the first three years, with a guaranteed minimum
annual payment of $3.5 million each year.
16
In March 1998, the Board of Directors authorized the repurchase, subject to
market conditions, of up to $100.0 million of our Class A common stock. Share
repurchases were to be made in the open market over a two-year period which
commenced April 1, 1998. The Board of Directors has extended the stock
repurchase program through March 31, 2004. Shares acquired under the repurchase
program will be used for stock option programs and for other corporate purposes.
As of June 29, 2002, we repurchased 3,887,094 shares of our Class A common stock
at an aggregate cost of $73.6 million.
We believe that cash from ongoing operations and funds available under our
credit facilities and from our Euro offering will be sufficient to satisfy our
current level of operations, capital requirements, the stock repurchase program
and other corporate activities for the next 12 months. We do not currently
intend to pay dividends on our common stock in the next 12 months.
SEASONALITY OF BUSINESS
Our business is affected by seasonal trends, with higher levels of
wholesale sales in our second and fourth quarters and higher retail sales in our
second and third quarters. These trends result primarily from the timing of
seasonal wholesale shipments to retail customers and key vacation travel and
holiday shopping periods in the retail segment. As a result of the growth in our
retail operations and licensing revenue, historical quarterly operating trends
and working capital requirements may not be indicative of future performances.
In addition, fluctuations in sales and operating income in any fiscal quarter
may be affected by the timing of seasonal wholesale shipments and other events
affecting retail sales.
Effective December 30, 2001, for reporting purposes the Company changed the
fiscal year ends of its European subsidiaries as reported in the consolidated
financial statements to the Saturday closest to March 31 to conform with the
fiscal year end of the Company. Previously, certain of the European subsidiaries
were consolidated and reported on a three-month lag with a fiscal year ending
December 31. Accordingly, we have included the June 29, 2002 and March 30, 2002
balance sheets of our wholly owned European subsidiaries in the accompanying
June 29, 2002 and March 30, 2002, consolidated balance sheets. We also have
consolidated the results of operations of our wholly owned European subsidiaries
for the three months ended June 29, 2002 and March 31, 2001 in the three months
ended June 29, 2002 and June 30, 2001 consolidated statements of income and cash
flows. Had certain of the European subsidiaries been consolidated on a
consistent fiscal year basis for the three months ended June 30, 2001, net
revenues would have been $473.3 million and net income would have been $15.7
million.
NEW ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board, or "FASB", issued
Statement of Financial Accounting Standards, or SFAS No. 141 and SFAS No. 142.
In addition to requiring the use of the purchase method for all business
combinations, SFAS No. 141 requires intangible assets that meet certain criteria
to be recognized as assets apart from goodwill. SFAS No. 142 addresses
accounting and reporting standards for the acquisition of intangible assets
outside of a business combination and for goodwill and other intangible assets
subsequent to their acquisition. Intangible assets that have finite lives will
continue to be amortized over their useful lives. SFAS No. 141 and SFAS No. 142
were effective for the Company's first quarter in the fiscal year ending March
29, 2003 or for any business combinations initiated after June 30, 2001.
Effective March 31, 2002, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets. This accounting standard requires that goodwill be
separately disclosed from other intangible assets in the statement of financial
position, and no longer be amortized but tested for impairment on a periodic
basis.
17
In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill effective March 31, 2002. A reconciliation of previously reported
net income and earnings per share to the amounts adjusted for the exclusion of
goodwill amortization net of the related income tax effect follows:
THREE MONTHS ENDED
-------------------
JUNE 29, JUNE 30,
2002 2001
-------- --------
(IN MILLIONS)
Reported net income......................................... $6,460 $31,051
------ -------
Goodwill amortization, net of tax........................... 0 1,255
------ -------
Adjusted net income......................................... $6,460 $32,306
------ -------
Adjusted net income per share basic and diluted............. $ 0.07 $ 0.34
====== =======
The provisions of SFAS No. 142 also require the completion of a
transitional impairment test within six months of adoption, with any impairments
treated as a cumulative effect of a change in accounting principle. We expect to
complete the transitional impairment test during the quarter ending September
28, 2002.
In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This Statement requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. SFAS No. 143 is effective for the first
quarter in the fiscal year ending April 3, 2004. The Company does not expect the
adoption of this pronouncement to have a material impact on our consolidated
results of operations or financial position.
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of. However, SFAS No. 144 retains the fundamental
provisions of Statement 121 for (a) recognition and measurement of the
impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. Effective March 31, 2002, the
Company adopted this pronouncement and there was no material impact on our
consolidated results of operations.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. In addition to amending and rescinding other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions, SFAS No. 145 precludes
companies from recording gains and losses from the extinguishment of debt as an
extraordinary item. SFAS No. 145 is effective for our first quarter in the
fiscal year ending April 3, 2004. The Company does not expect the adoption of
this pronouncement to have a material impact on our consolidated results of
operations or financial position.
In April 2001, the FASB's Emerging Issues Task Force reached a consensus on
Issue No. 00-25, Vendor Income Statement Characteristics of Consideration Paid
to a Reseller of the Vendor's Products. In November 2001, EITF No. 00-25 was
codified by the Emerging Issues Task Force in EITF Issue No. 01-09, Accounting
for Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor's Products). EITF No. 01-09 concluded that consideration from a vendor to
a reseller of the vendor's products is presumed to be a reduction of the selling
prices of the vendor's products and, therefore, should be characterized as a
reduction of revenue when recognized in the vendor's income statement. That
presumption is overcome and the consideration characterized as a cost incurred
if a benefit is or will be received from the recipient of the consideration if
certain conditions are met. The Company adopted this pronouncement in our fourth
quarter of the fiscal year ended March 30, 2002, and there was no impact on our
consolidated results of operations.
18
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The Company does not expect the adoption of this pronouncement to have
a material effect on the consolidated results of operations or financial
position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The market risk inherent in our financial instruments represents the
potential loss in fair value, earnings or cash flows arising from adverse
changes in interest rates or foreign currency exchange rates. We manage these
exposures through operating and financing activities and, when appropriate,
through the use of derivative financial instruments. Our policy allows for the
use of derivative financial instruments for identifiable market risk exposures,
including interest rate and foreign currency fluctuations. During the three
months ended June 29, 2002, there were significant fluctuations in the value of
the Euro. We entered into a cross currency rate swap in June 2002 to minimize
the impact of foreign exchange fluctuations on the Euro debt and the impact of
fluctuations in the interest rate on the fair value of the Euro debt. Since
March 30, 2002, other then disclosed above, there have been no significant
changes in our interest rate and foreign currency exposures, changes in the
types of derivative instruments used to hedge those exposures, or significant
changes in underlying market conditions.
19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits --
10.1 Amended and Restated Employment Agreement, effective as of July 23,
2002, between Polo Ralph Lauren Corporation and Roger N. Farah.
(b) Reports on Form 8-K --
The Company filed no reports on Form 8-K in the quarter ended June 29,
2002.
20
SIGNATURES
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Polo Ralph Lauren Corporation
(the "Company") on Form 10-Q for the period ended June 29, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Ralph Lauren, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ RALPH LAUREN
--------------------------------------
Ralph Lauren
August 13, 2002
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Polo Ralph Lauren Corporation
(the "Company") on Form 10-Q for the period ended June 29, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gerald M. Chaney, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ GERALD M. CHANEY
--------------------------------------
Gerald M. Chaney
August 13, 2002
21
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POLO RALPH LAUREN CORPORATION
By: /s/ GERALD M. CHANEY
------------------------------------
Gerald M. Chaney
Senior Vice President of Finance
and Chief Financial Officer
Date: August 13, 2002
22