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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION WASHINGTON,
Washington, D.C. 20549-1004 ------------------------


FORM 10-K (MARK ONE) [X]

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

         SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 29, 2003 OR [ ]

For the fiscal year ended April 3, 2004

or

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

         SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER:

Commission File Number: 001-13057

POLO RALPH LAUREN CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

(Exact name of registrant as specified in its charter)
DELAWARE
Delaware
13-2622036 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.
(State or other jurisdiction of
(IRS Employer
incorporation or organization)
Identification No.)
650 MADISON AVENUE, NEW YORK, NEW YORK Madison Avenue, New York, New York
10022
(212) 318-7000 (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(Zip Code)
(Address of principal executive offices)
SECURITIES REGISTERED PURSUANT TO SECTION

Securities registered pursuant to Section 12(b) OF THE ACT: of the Act:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- CLASS
Title of Each ClassName of Each Exchange on Which Registered


Class A COMMON STOCK,Common Stock, $.01 PAR VALUE NEW YORK STOCK EXCHANGE par value
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION

Securities registered pursuant to Section 12(g) OF THE ACT: NONE 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]þ       No [ ] o

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'sregistrant’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] o

Indicate by check mark whether the registrant is an accelerated filer (as described in Rule 12b-2 of the Exchange Act).     Yes [X]þ       No [ ]o

     The aggregate market value of the registrant'sregistrant’s voting stock held by nonaffiliates of the registrant was approximately $920,639,610$1,186,214,066 as of September 27, 2002,26, 2003, the last business day of the registrant'sregistrant’s most recently completed second fiscal quarter.

     At June 13, 2003 44,980,928May 21, 2004 57,356,515 shares of the registrant'sregistrant’s Class A Common Stock, $.01 par value and 43,280,021 shares of the registrant'sregistrant’s Class B Common Stock, $.01 par value and 10,570,979 shares of the registrant's Class C Common Stock, $.01 par value, were outstanding. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------




TABLE OF CONTENTS

PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrants’ Common Equity and Related Stockholders Matters
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
SIGNATURES
POLO RALPH LAUREN CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
7. Other Assets
8. Accrued Expenses and Other
9. Restructuring Charge
21. Quarterly Information (Unaudited)
22. Subsequent Event
LIST OF SIGNIFICANT SUBSIDIARIES
CONSENT OF DELOITTE & TOUCHE LLP
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION


PART I ITEM 1. BUSINESS

Item 1.Business

General

     In this Form 10-K, references to "Polo," "ourselves," "we," "our,"“Polo,” “ourselves,” “we,” “our,” and "us"“us” refer to Polo Ralph Lauren Corporation and its subsidiaries, unless the context requires otherwise. Due to the collaborative and ongoing nature of our relationships with our licensees, such licensees are referred to in this Form 10-K as "licensing partners"“licensing partners” and the relationships between Polo and these licensees are referred to as "licensing“licensing alliances." Notwithstanding these references, however,” However, the legal relationship between ourselves and our licensees is not one of partnership, but of licensor and licensee. Our fiscal year ends on the Saturday nearest to March 31. All references to "2003," "2002"“Fiscal 2004” represent the 53-week fiscal year ended April 3, 2004, while references to “Fiscal 2003” and "2001"“Fiscal 2002” represent the 52-week fiscal years ended March 29, 2003 and March 30, 2002, and March 31, 2001, respectively.

     We are a leader in the design, marketing and distribution of premium lifestyle products. For more than 35 years, our reputation and distinctive image have been consistently developed across an expanding number of products, brands and international markets. Our brand names, which include "Polo," "Polo“Polo,” “Polo by Ralph Lauren," "Ralph” “Ralph Lauren Purple Label," "Polo” “Polo Sport," "Ralph” “Ralph Lauren," "RALPH," "Lauren," "Polo” “ Blue Label,” “Lauren,” “Polo Jeans," "RL," "Chaps"” “RL,” “Chaps” and "Club“Club Monaco," among others, constitute one of the world'sworld’s most widely recognized families of consumer brands. We believe that, under the direction of Ralph Lauren, the internationally renowned designer, we have 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.

     We combine our consumer insight and design, marketing and imaging skills to offer, along with our licensing partners, broad lifestyle product collections in four categories: - Apparel -- Products include extensive collections of men's, women's and children's clothing; - Home -- Coordinated products for the home include bedding and bath products, furniture, fabric and wallpaper, paints, broadloom, tabletop and giftware; - Accessories -- Accessories encompass a broad range of products such as footwear, eyewear, jewelry and leather goods, including handbags and luggage; and - Fragrance -- Fragrance and skin care products are sold under our Glamourous,

• Apparel — Products include extensive collections of men’s, women’s and children’s clothing;
• Home — Coordinated products for the home include bedding and bath products, furniture, fabric and wallpaper, paints, broadloom, tabletop and giftware;
• Accessories — Accessories encompass a broad range of products such as footwear, eyewear, jewelry and leather goods, including handbags and luggage; and
• Fragrance — Fragrance and skin care products are sold under our Glamorous, Romance, Polo, Lauren, Safari and Polo Sport brands, among others.

Our Website

     Our website is http://investor.polo.com. We make available free of charge, through our website, annual reportsOur Annual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q and current reportsCurrent Reports on Form 8-K and any amendments to those reports filed or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available through our website under the caption “SEC Filings”, as soon as reasonably practicable after we electronically file such materials with, or furnish such materials to, the Securities and Exchange Commission. RECENT DEVELOPMENTSInformation relating to corporate governance at Polo, including our Corporate Governance Policies, Code of Business Conduct and Ethics for all of our directors, officers, and employees, Code of Ethics for Principal Executive Officers and Senior Financial Officers; and information concerning our Directors, Board Committees, including Committee charters, and transactions in Polo securities by Directors and executive officers, is available at our website under the captions “Corporate Governance” and “SEC Filings”.

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Recent Developments

     On an ongoing basis, we continueMay 25, 2004, the Company entered into a definitive agreement to evaluate ouracquire certain of the assets and to assume certain of the liabilities of RL Childrenswear Company, LLC, relating to the Childrenswear Licensee’s licensed childrenswear apparel business and growth strategies. In the past year, we have completed several transactions and acquisitions that we believe will enhance our business. During the fourth quarter of fiscal 2003, we acquired, for approximately $24.1 million and $47.6 million, respectively, a 50% interest in the Japanese master licenseUnited States, Canada and an 18% equity interest in the company which holds the sublicensesMexico (the “Childrenswear Business”). The purchase price for the men's, women's and Polo Jeans businessacquisition of the Childrenswear Business will be $232.1 million in Japan. In May 2003, we acquiredcash payable at closing, subject to a working capital adjustment, plus up to an additional 2% equity interest in this company. Also in$20 million of deferred and contingent cash payments. Payment of the past year, wepurchase price will be funded by cash on hand and lines of credit as required. In addition, the Company will assume certain ordinary course trade payables and accrued expenses of the Childrenswear Licensee and accrued vacation obligations for the Childrenswear Licensee’s employees who will become employees of the Company following the closing of the acquisition. The assets of the Childrenswear Licensee being acquired several retail locations fromby the Company include, among other things, the license; all inventories of the Childrenswear Licensee; certain leases; customer lists; supplier lists; and books and records.

     The Childrenswear Licensee and certain of our licensees in Belgium, Germanyits affiliates and Argentinashareholders have agreed to indemnify the Company for all of the liabilities of the Company related to the operation of the Childrenswear Business prior to the closing of the acquisition and have also agreed that they will not compete with the Childrenswear Business for a total purchase priceperiod of approximately $4.6 million. 1 three years after the closing date. In addition, the Childrenswear Licensee and certain of its affiliates will provide information system and accounting services to the above, we completedCompany for a strategic review of our European businesses and formalized our plans to centralize and more efficiently consolidate their business operations.transitional period following the closing.

     The major initiativesclosing of the plan includedproposed transaction is subject to customary conditions, including the following: consolidationreceipt of our headquarters from five cities in three countries to one location, the consolidation of our European logistics to Italycertain third party consents and the migration of all European information systems to a standard global system. We have completed the consultationexpiration or termination of the headquarters and anticipate completionwaiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The closing of the consolidation and migration during fiscaltransaction is anticipated to occur in late June 2004. In connection with the implementation of this plan, we have recorded

     As a $14.4 million restructuring charge. As the result of the failure of Jones Apparel Group, includingInc. (including its subsidiaries, (Jones),“Jones”) to meet the minimum sales volumes for the year ended December 31, 2002 under the license agreements for the sale of products under the "Ralph"“Ralph” trademark between us and Jones dated May 11, 1998, these license agreements will terminateterminated as of December 31, 2003. We have advised Jones that the termination of these licenses willlicense agreements would automatically result in the termination of the licenseslicense agreements between us and Jones with respect to the "Lauren"“Lauren” trademark pursuant to the Cross Default and Term Extension Agreement between usthe Company and Jones dated May 11, 1998. The terms of the Lauren license agreements would otherwise expirehave expired on December 31, 2006.

     On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court of the State of New York alleging, among other things, that we had breached ourthe Lauren license agreements with Jones with respect to the "Lauren" trademark by asserting our rights pursuant to the Cross Default and Term Extension Agreement, and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov'sNemerov’s employment agreement with Jones. Jones has indicatedstated that it willwould treat the Lauren license agreements as terminated as of December 31, 2003. Jones2003, and is seeking compensatory damages of $550.0 million, as well as punitive damages and to enforce the provisionsenforcement of Ms. Nemerov'sNemerov’s agreement. If Jones' lawsuit were to be determined adversely to us, it could have a material adverse effect on our results of operations and financial condition; however, we believe that the lawsuit is without merit and that we will prevail. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Court of the State of New York seeking, among other things, an injunction and a declaratory judgment that the Lauren license agreements would terminate as of December 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. The two lawsuits were consolidated.

     On July 3, 2003, we filed a motion to dismiss Jones’ claims regarding breach of the “Lauren” agreements and a motion to stay the claims regarding Ms. Nemerov pending the arbitration of Jones’ dispute with Ms. Nemerov. On July 23, 2003, Jones has reportedfiled a motion for summary judgment in our action against Jones, and on August 12, 2003, we filed a cross-motion for summary judgment. Oral argument on the motions was heard on September 30, 2003. On

2


March 18, 2004, the Court entered orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granting Jones’ motion for summary judgment in our action for declaratory judgment that net sales ofthe Lauren and Ralph products for the year endedagreements terminated on December 31, 20022003 and dismissing our complaint. The order also stayed Jones’ claim against us relating to Ms. Nemerov pending arbitration regarding the alleged breach of her employment agreement. On April 16, 2004, we moved the Court to reconsider its orders, and a hearing on our motion was held on May 19, 2004. The Court has not yet issued a ruling as a result of this hearing. We have also filed notices of appeal of the orders. If Jones’ lawsuit were $548.0 millionto be determined adversely to us, it could have a material adverse effect on our results of operations and $37.0 million, respectively.financial condition. However, we intend to continue to defend the case vigorously and believe our position is correct on the merits.

     The royalties that we received pursuant to the "Lauren"“Lauren” license agreements and "Ralph"“Ralph” license agreements represented revenues in fiscal 2003 of approximately $23.0 million and $3.9 million, respectively in Fiscal 2004 and $37.4 million and $5.3 million, respectively.respectively, in Fiscal 2003. We will no longer receive these royalties after the third quarter of fiscal 2004, as a result of the termination of the Lauren and Ralph license agreements on December 31, 2003. The Company is preparing to begin production and marketingAlthough the loss of the Lauren and Ralph lines,royalties from Jones and the start up expenses associated with shipments beginningthe Lauren line exceeded the income from our sales of Lauren products in January 2004. Wethe fourth quarter in Fiscal 2004, we expect that the income from our sales of Lauren and Ralph products will at least replace the royalty revenueincome previously attributable to the Lauren and Ralph license agreements. OPERATIONS agreements for Fiscal 2005. In total, royalties received from Jones, including royalties from the “Polo Jeans” license agreements, accounted for 17.2% of our aggregate licensing revenue for Fiscal 2004. The “Polo Jeans” license agreements were not covered under the terms of the Cross Default and Term Extension agreement and continues in effect.

     In June 2003, one of our licensing partners, WestPoint Stevens, Inc., and certain of its affiliates (“WestPoint”) filed a voluntary petition for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. WestPoint produces bedding and bath product in our home collection, and royalties paid by WestPoint accounted for 15.9% of our licensing revenues in Fiscal 2003. On December 19, 2003, the United States Bankruptcy Court approved an amended licensing agreement between WestPoint and us which provides for the same royalty rate and minimums that are not materially less than the previous agreement. As of the end of the fiscal year, Westpoint’s payment status was satisfactory.

Operations

We operate in three integrated business segments: wholesale, retail and licensing. Details of our net revenues by business segment are shown in the tables below. See also Note 1718 to our 2 consolidated financial statements for fiscalFiscal 2004, Fiscal 2003 fiscaland Fiscal 2002 and fiscal 2001 for further segment information.
FISCAL YEAR ENDED -------------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 ---------- ---------- ---------- (IN THOUSANDS) Wholesale sales............................ $1,187,363 $1,198,060 $1,053,842 Retail sales............................... 1,001,958 924,273 928,577 ---------- ---------- ---------- Net sales.................................. 2,189,321 2,122,333 1,982,419 Licensing revenue.......................... 250,019 241,374 243,355 ---------- ---------- ---------- Net revenues............................... $2,439,340 $2,363,707 $2,225,774 ========== ========== ==========
WHOLESALE

             
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



(Dollars in thousands)
Wholesale sales $1,210,397  $1,187,363  $1,198,060 
Retail sales  1,170,447   1,001,958   924,273 
   
   
   
 
Net sales  2,380,844   2,189,321   2,122,333 
Licensing revenue  268,810   250,019   241,374 
   
   
   
 
Net revenues $2,649,654  $2,439,340  $2,363,707 
   
   
   
 

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Wholesale

Our wholesale business is divided primarily into twothree groups: Polo Brands, Lauren, and Collection Brands. In botheach of these wholesale groups, we offer several discrete brand offerings. Each group isofferings, 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. POLO BRANDS

Polo Brands

     Our Polo Brands group sources, markets and distributes products under the following brands: POLO BY RALPH LAUREN.

Polo by Ralph Lauren. The Polo by Ralph Lauren menswear collection is a complete men'smen’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'smen’s premium ready-to-wear apparel market. We currently sell this collection through department stores, specialty stores and Polo Ralph Lauren and outlet stores in the United States. BLUE LABEL.States and abroad.

Blue Label. The Blue Label collection of womenswear reflects a modern interpretation of classic Ralph Lauren styles with a strong weekend focus. Blue Label collection is generally priced at a range of price points within the premium ready-to-wear apparel market. We currently sell the Blue Label collection domestically and internationally through Polo Ralph Lauren stores and through selected wholesale accounts in Europe and Asia. In Japan, our Blue Label line is sold under the Ralph Lauren brand name. POLO GOLF.

Polo Golf. The Polo Golf collection of men'smen’s and women'swomen’s golf apparel is targeted at the golf and resort markets. Price points are similar to those charged for products in the Polo by Ralph Lauren line. We sell the Polo Golf collection in the United States through leading golf clubs, pro shops and resorts, in addition to department stores, specialty stores and Polo Ralph Lauren stores.

RLX POLO SPORT.Polo Sport. The RLX Polo Sport collection of menswear and womenswear consists of functional sport and outdoor apparel for running, cross-training, skiing, snowboarding and cycling. We sell RLX Polo Sport in our Polo Ralph Lauren stores.

Lauren

Lauren Ralph Laurenwomen’s collection is a complete women’s lifestyle brand consisting of products related by theme, style, color and fabric. Lauren Ralph Lauren Women’s is generally priced at a range of price points within the women’s better ready-to-wear apparel market. We currently sell this collection through department stores within the United States through athletic specialty stores, in addition to Polo Ralph Lauren stores, at price points competitive with those charged by other authentic sports apparel companies. 3 COLLECTION BRANDSand Canada.

Collection Brands

     Our Collection Brands group sources, markets and distributes products under the following brands: WOMEN'S RALPH LAUREN COLLECTION AND RALPH LAUREN BLACK LABEL.

Women’s Ralph Lauren Collection and Black Label. The Ralph Lauren Collection expresses our up-to-the-moment fashion vision for women. Ralph Lauren Black Label includes timeless versions of our most successful Collection styles as well as newly-designed classic signature styles. Collection and Black Label are offered forthrough our own stores and limited distribution to premier fashion retailers and through our own stores.retailers. Price points are at the upper end to luxury range. MEN'S RALPH LAUREN AND PURPLE LABEL COLLECTION.

Men’s Purple Label Collection. In fall 1995, we introduced our Purple Label collection of men'smen’s tailored clothing and, in fall 1997, to complement the tailored clothing line, we launched our Purple Label sportswear line. We sell the Purple Label collection through our own stores and a limited number of premier fashion retailers, at price points at the upper end to luxury range. CUSTOMERS AND SERVICE

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Customers and Service

     Consistent with the appeal and distinctive image of our products and brands, we sell our menswear and womenswear products primarily to leading upscale department stores, specialty stores and golf and pro shops located throughout the United States, which have the reputation and merchandising expertise required for the effective presentation of Polo Ralph Lauren products. Collection Brands are distributed through a limited number of premier fashion retailers.

Our wholesale products are distributed through the primary distribution channels throughout the United States, Europe and other regions as listed in the table below. We also distribute our products through Company owned stores as discussed in the “Direct Retailing” section. In addition, we also sell excess and out-of-season products through secondary distribution channels.
APPROXIMATE NUMBER OF DOORS AS OF MARCH 29, 2003 -------------------- POLO COLLECTION BRANDS BRANDS ------ ---------- Department Stores........................................... 3,248 142 Specialty Stores............................................ 2,648 43 Polo Ralph Lauren Stores.................................... 44 4 Golf and Pro Shops.......................................... 2,571 --

             
Approximate Number of Doors
as of April 3, 2004

PoloCollection
BrandsBrandsLauren



Department Stores  2,298   144   850 
Licensed Stores  85   21    
Specialty Stores  2,913   44   113 
Golf and Pro Shops  2,225       

     Department stores represent the largest customer group of our wholesale group. Significant department store customers based on a percentage of worldwide wholesale net sales for the year ended March 29, 2003April 3, 2004 are: - Dillard Department Stores, Inc., which represented 12.45%, - Federated Department Stores, Inc., which represented 9.65%, and - The May Department Stores Company, which represented 8.43%

• Dillard Department Stores, Inc., which represented 14.1%,
• Federated Department Stores, Inc., which represented 13.2%, and
• The May Department Stores Company, which represented 10.4%.

     Collection Brands, and Polo Brands, and Lauren products are primarily sold through their respective sales forces. Our Collection Brands group maintains itsWholesale groups maintain their primary showrooms in New York City, whereasCity. In addition we maintain regional showrooms for the Polo Brands are located in Atlanta, Chicago, Dallas and Los Angeles. SHOP-WITHIN-SHOPS.Angeles and a Lauren regional showroom in Dallas.

Shop-within-Shops. As a critical element of our distribution to department stores, we and our licensing partners utilize shop-within-shops to enhance brand recognition, to permit more complete merchandising of our lines by the department stores and to differentiate the presentation of products. Shop-within-shops fixed assets primarily include items such as customized freestanding fixtures, moveable wall cases and components, decorative items and flooring. We capitalize our share of the cost of these fixed assets and amortize them using the straight-line method over their estimated useful lives of three to five years. 4

     During fiscal 2003,Fiscal 2004, we added approximately 57 shop-within-shops and refurbished approximately 91984 shop-within-shops. At March 29, 2003, in the United StatesApril 3, 2004, we had approximately 1,4962,480 shop-within-shops dedicated to our products and more than 840696 shop-within-shops dedicated to our licensed products.products in the United States. Excluding significantly larger shop-within-shops in key department store locations, the size of our shop-within-shops typically ranges from approximately 600 to 1,500 square feet for Polo Brands, from approximately 600 to 1,200 square feet for our Lauren Brand, from approximately 600 to 1,000 square feet for our Collection Brands, and from approximately 300 to 900 square feet for home furnishings.Home Furnishings. In total, we estimate that approximately 2.63.0 million square feet of department store space in the United States is dedicated to our shop-within-shops. In addition to shop-within-shops, we use exclusively fixtured areas in department stores. BASIC STOCK REPLENISHMENT PROGRAM.

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Basic Stock Replenishment Program. Basic products such as knit shirts, chino pants and oxford cloth shirts can be ordered at any time through our basic stock replenishment programs. For customers who reorder basic products, weWe generally ship these products within one to five days of order receipt. These products accounted for approximately 7.7%6.7% of our wholesale net sales in fiscal 2003.Fiscal 2004. We have also implemented a seasonal quick response program to allow replenishment of products which can be ordered for only a portion of each year. One Ralph Lauren Home licensing partner offers a basic stock replenishment program which includes towels and bedding products. Basic stock products accounted for approximately 81% of net sales of our Ralph Lauren Home licensing partners in fiscal 2003. DIRECT RETAILING

Direct Retailing

We operate retail stores dedicated to the sale of our products. Located in prime retail areas, our 110116 full-price stores operate under the following names:

- - Polo
 Ralph Lauren.................. Polo LaurenRalph Lauren stores feature the full-breadth of the Ralph Lauren apparel, accessory and home product assortments in an atmosphere consistent with the distinctive attitude and luxury positioning of the Ralph Lauren brand. - -
 Club Monaco........................ MonacoClub Monaco stores feature updated fashion apparel and accessories for both men and women. The brand's signature,brand’s clean and updated classic signature style formforms the foundation of a modern wardrobe. - - Club Monaco Caban..................
• CabanCaban home concept stores offer a unique shopping experience by mixing both fashion and interior design in a dynamic retail environment. Caban stores feature a complete range of product in bath, bedding, tabletop, home accessories, furniture and apparel.

     Our 145147 outlet stores are generally located in outlet malls and operate as Polo Ralph Lauren outletFactory stores, Polo Jeans outletFactory stores, Ralph Lauren Home outletFactory stores and Club Monaco outlet stores.

In addition to our own retail operations, as of March 29, 2003,April 3, 2004, we had granted licensesa license to an independent partiesparty to operate two storesone store in the United States and 84 stores internationally.States. We receive the proceeds from the sale of our products to this store, which are included in wholesale net sales, to these stores and also receive royalties, which are included in licensing revenue, from our licensing partners who sellsales to these stores. We generally do not receive any other compensation from thesethis licensed store operators.operator. See "Our“Our Licensing Alliances." FULL-PRICE STORES

Full-Price Stores

In addition to generating sales of our products, our worldwide full-price stores set, reinforce and capitalize on the image of our brands. We have 6 Flagship Polo Ralph Lauren stores, which showcase our upper end luxury styles and products and demonstrate our most refined 5 merchandising techniques. We also operate 41 Polo47 Ralph Lauren stores, 32 RRL stores (to be closed in Fiscal 2005) and 6061 Club Monaco stores. During fiscal 2003,Fiscal 2004, we added 16 store openings,9 full price stores, net of two3 store closings. Our stores range in size from approximately 3,500 to over 27,000 square feet. These full-price stores are situated in upscale regional malls and major upscale street locations generally in large urban markets. OurWe generally lease our stores are generally leased for initial periods ranging from 5 to 10 years with renewal options. OUTLET STORES

Outlet Stores

     We extend our reach to additional consumer groups through our 9396 domestic Polo Ralph Lauren outlet stores, 22 domestic Polo Jeans outlet stores, nine7 Club Monaco outlet stores and 2122 European outlet stores. During fiscal 2003,Fiscal 2004, we added three6 new outlet stores, net of four2 store closings. - Polo Ralph Lauren outlet stores offer selections of our menswear, womenswear, children's apparel, accessories, home furnishings and fragrances. Ranging in size from 3,000 to 20,000 square feet, with an average of approximately 8,900 square feet, the stores are principally located in major outlet centers in 34 states and Puerto Rico. - Polo Jeans outlet stores carry all classifications within the Polo Jeans line, including denim, knit and woven tops, sweaters, outerwear, casual bottoms and accessories. Polo Jeans outlet stores range in size from 2,600 to 5,100 square feet, with an average of 3,900 square feet, and are principally located in major outlet centers in 13 states. - Club Monaco outlet stores range in size from 6,100 to 12,500 square feet, with an average of 8,800 square feet, and offer basic and fashion Club Monaco items. - European outlet stores offer selections of our menswear, womenswear, children's apparel, accessories, home furnishings and fragrances. Ranging in size from 2,500 to 13,200 square feet, with an average of approximately 5,500 square feet, the stores are principally located in major outlet centers in six

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• Polo Ralph Lauren Factory outlet stores offer selections of our menswear, womenswear, children’s apparel, accessories, home furnishings and fragrances. Ranging in size from 3,000 to 20,000 square feet, with an average of approximately 8,900 square feet, these stores are principally located in major outlet centers in 34 states and Puerto Rico.
• Polo Jeans Factoryoutlet stores carry all classifications within the Polo Jeans line, including denim, knit and woven tops, sweaters, outerwear, casual bottoms and accessories. Ranging in size from 2,600 to 5,100 square feet, with an average of 3,900 square feet, these stores are principally located in major outlet centers in 13 states.
• Club Monacooutlet stores offer basic and fashion Club Monaco items. Ranging in size from 6,100 to 12,500 square feet, these stores are principally located in the United States and Canada.
• Europeanoutlet stores offer selections of our menswear, womenswear, children’s apparel, accessories, home furnishings and fragrances. Ranging in size from 2,500 to 13,200 square feet, with an average of approximately 5,500 square feet, these stores are principally located in major outlet centers in 7 countries.

     Outlet stores purchase products directly from us, including our retail stores, our product licensing partners and our suppliers. Outlet stores purchase products from us generally at cost, and from our domestic product licensing partners and our retail stores at negotiated prices. Outlet stores also source basic products and styles directly from our suppliers. In fiscal 2003,Fiscal 2004, our domestic outlet stores purchased approximately 13.1%7.7% of their products from us, 45.8%43.8% from our product licensing partners, and 41.1%48.5% directly from otherour suppliers of products. OUR LICENSING ALLIANCES

Our Licensing Alliances

     Through licensing alliances, we combine our consumer insight, design, and design, marketing and imaging skills with the specific product or geographic competencies of our licensing partners to create and build new businesses. We generally seek out licensing partners who typically: - are leaders in their respective markets, - contribute the majority of our product development costs, - provide the operational infrastructure required to support the business, and - who:

• are leaders in their respective markets,
• contribute the majority of our product development costs,
• provide the operational infrastructure required to support the business, and
• own the inventory.

     We grant product and international licensing partners the right to manufacture and sell at wholesale and international licenses to sell at retail, specified categories of products under one or more of our trademarks. Our international licensing partners produce and source products both independently, as well asand in conjunction with us and our product licensing partners. As compensation for our contributions under these agreements, eachEach licensing partner pays us royalties based upon its sales of our products, subject generally, to payment of a minimum royalty.royalty requirement. Other than our Ralph Lauren Home collection licenses, which are discussed below, these 6 payments generally range from 2.52.5% to 20 percent15.0% of the licensing partners'partners’ sales of the licensed products. In addition, licensing partners are required to allocate between approximately two3% and four percent4% of their sales to advertise our products and share in the creative costs associated with these products. Larger allocations are required in connection with launches of new products or in new territories.

     We work closely with our licensing partners to ensure that their products are developed, marketed and distributed so as to address the intended market opportunity and to present consistently to consumers worldwide the distinctive perspective and lifestyle associated with our brands. Virtually all aspects of the design, production quality, packaging, merchandising, distribution, advertising and promotion of Polo Ralph Lauren products are subject to our prior

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approval and continuing oversight. The result is a consistent identity for Polo Ralph Lauren products across product categories and international markets.

We had 1716 product, 139 international and 1110 home licensing partners as of March 29, 2003.April 3, 2004. We derive a substantial portion of our net income from the licensing revenue we receive from our licensing partners. Approximately 43.8%43.2% of our licensing revenue for fiscal 2003Fiscal 2004 was derived from three product licensing partners.partners: Jones Apparel Group, Inc. and, Westpoint Stevens, Inc. and Impact 21 each accounted for 16.4%17.2%, 14.7% and 15.9%11.3%, respectively. Additionally, Seibu Department Stores, Ltd. accounted for 11.5%respectively, of licensing revenue in fiscal 2003.Fiscal 2004. (See Note 3 to our Consolidated Financial Statements.) PRODUCT LICENSING ALLIANCES

Product Licensing Alliances

As of March 29, 2003,April 3, 2004, we had agreements with 1716 product licensing partners relating to our men'smen’s and women'swomen’s sportswear, men'smen’s tailored clothing, children'schildren’s apparel, personalwear,personal wear, accessories and fragrances. The products offered by our product licensing partners are listed below.

LICENSING PARTNER LICENSED PRODUCT CATEGORY - ----------------- ------------------------- Jones Apparel Group,
Licensing PartnerLicensed Product Category


L’Oreal S.A./ Cosmair, Inc. Women's LaurenMen’s and Ralph Sportswear* L'Oreal S.A./Cosmair, Inc. Men's and Women'sWomen’s Fragrances and Skin Care Products Sun
Jones Apparel Group, Inc. (a subsidiary of Jones Men'sMen’s and Women'sWomen’s Polo Jeans Casual Apparel and Sportswear
Carole Hochman Design
(a subsidiary of Jones Apparel Group, Inc.) Apparel
Women’s Sleepwear, lounge and Sportswear robe
Corneliani S.p.A Men'sS.P.AMen’s Polo Tailored Clothing
Peerless, Inc. Men'sMen’s Chaps and Lauren Tailored Clothing
RL Childrenswear Company, LLC (a subsidiary of S. Schwab Company, Inc. Children's)Children’s Apparel
Sara Lee Corporation Men'sMen’s and Children'sChildren’s Personal Wear Apparel Ralph Lauren Footwear, Inc. (a subsidiary Men's
Reebok International Ltd.Men’s and Women'sWomen’s Dress, Casual and of Reebok International Ltd.) Performance Athletic Footwear
Wathne, Inc.Handbags and Luggage
Hot Sox, Inc. Men's, Women'sMen’s, Women’s and Boys'Boys’ Hosiery
New Campaign, Inc.Belts and Other Small Leather Goods
Echo Scarves, Inc.Scarves and Gloves for Men and Women
Carolee, Inc.Jewelry
Safilo USA, Inc.Eyewear
The Warnaco Group, Inc. Men'sMen’s Chaps Sportswear Authentic Fitness Products, Inc. (a Women's and Girls' Swimwear subsidiary of Warnaco, Inc.)
Apparel Ventures, Inc. Women'sWomen’s and Girl'sGirl’s Swimwear
- --------------- * These licenses will terminate on December 31, 2003. 7 INTERNATIONAL LICENSING ALLIANCES

As described previously under the caption “Recent Developments,” we have entered into an agreement to acquire certain assets and liabilities of RL Childrenswear, LLC, our Childrenswear Licensee for North America.

International Licensing Alliances

     We believe that international markets offer additional opportunities for our quintessential American designs and lifestyle image. We are committed to the global development of our 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 Ralph Lauren or Polo Ralph Lauren stores in these markets. We work with our international licensing partners to facilitate this international expansion. International licensing partners also operate stores, which at March 29, 2003, included 48 Polo Ralph Lauren stores, 3 Polo Sport stores, 19 Polo Jeans stores, 3 Children's stores, 12 Ralph Lauren stores, 1 RRL store, 26 Polo outlet stores, 3 Children's outlet stores and 6 Polo Jeans outlet stores.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 Ralph Lauren or Polo Ralph Lauren stores in these markets.

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     Our international licensing partners acquire the right to source, produce, market and/or sell some or all of our products in a given geographical area. Economic arrangements are similar to those of our domestic product licensing partners. We design licensed products either alone or in collaboration with our 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 often compensated.

     International licensing partners also operate stores, which at April 3, 2004, consisted of 37 Polo Ralph Lauren stores, 3 Polo Sport stores, 21 Polo Jeans stores, 2 Children’s stores, 11 Ralph Lauren stores and 10 Polo outlet stores. Approximately 11.3% of our licensing revenue in Fiscal 2004 was derived from our partner, Impact 21.

     Our ability to maintain and increase royalties under foreign licenses is dependent upon certain factors not within our 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 "Risk“Risk Factors -- Risks Related to Our Business -- Our business is exposed to domestic and foreign currency fluctuations"fluctuations” and "Risk“Risk Factors -- Risks Related to Our Business -- Our business is subject to risks associated with importing products." RALPH LAUREN HOME

Ralph Lauren Home

     Together with our licensing partners, we offer an extensive collection of home products whichthat draw upon, and add to, the design themes of our other product lines, contributing to our complete lifestyle concept. Products are sold under the Ralph Lauren Home and Lauren Ralph Lauren brands in three primary categories: bedding and bath, home decordécor and home improvement. In addition to designing and developing the creative concepts and products,As of April 3, 2004, we manage the marketing and distribution of our brands, and in some cases, the sales of our products for our licensees. Togetherhad agreements with our nineeight domestic and two international home product licensing partners, representatives of our design, merchandising, product development and sales staff collaborate to conceive, develop and merchandise the various products as a complete home furnishing collection. In general, our licensing partners manufacture, own the inventory and ship the products.partners.

     We perform a broader range of services for our Ralph Lauren Home licensing partners as compared tothan we do for our other licensing partners. The services we perform include design, operating showrooms, marketing, advertising and, in some cases, sales. As a result, we receive a higher average royalty rate from our Ralph Lauren Home collection licensing partners, typically ranging from 15% to 17%. In general, the licensing partners manufacture, own the inventory and ship the products. Our Ralph Lauren Home licensing alliances generally have three to five year terms and oftenmay grant the licensee conditional renewal options. 8

     Ralph Lauren Home products are positioned at the upper tiers of their respective markets and are offered at a range of price levels. These products are generally distributed through several channels of distribution, including department stores, specialty home furnishings stores, interior design showrooms, customer direct mail catalogs, home centers and the Internet. As with our other products, the use of shop-within-shops is central to our department store distribution strategy.

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The Ralph Lauren Home and Lauren Ralph Lauren products offered by us and our domestic licensing partners are:

CATEGORY PRODUCT LICENSING PARTNER - -------- ------- -----------------
CategoryProductLicensing Partner



Bedding and Bath.... BathSheets, bedding accessories, WestPoint Stevens, Inc. towels and shower curtains, blankets, down comforters, other decorative bedding and accessoriesWestPoint Stevens, Inc.
Bath rugsLacey Mills
Home Decor.......... DécorFabric and wallpaperP. Kaufmann, Inc.
Designers Guild Ltd.
FurnitureHenredon Furniture Industries, Inc.
Tabletop and giftwareMikasa, Inc. Flatware and frames Reed and Barton Corporation
Table linens, placemats, Brownstone tablecloths and napkinsBrownstone
Home Improvement.... ImprovementInterior paints and exterior paints stainsICI/Glidden Company and stains
Broadloom carpets and area rugsKarastan, a division of rugs Mohawk Carpet Corporation

     WestPoint Stevens, Inc. offers a basic stock replenishment program that includes bath and bedding products and accounted for approximately 84% of their net sales of total Ralph Lauren Home products in Fiscal 2004. WestPoint Stevens, Inc. accounted for approximately 69.7%68.8% of total Ralph Lauren Home licensing revenue in fiscal 2003.Fiscal 2004. See "Risk“Recent Developments” and “Risk Factors -- Risks Related to Our Business -- Our business could suffer as a result of consolidations, restructurings and other ownership changes in the retail industry." DESIGN

Design

     Our products reflect a timeless and innovative American style associated with and defined by Ralph Lauren and the Polo design team and Ralph Lauren.team. Our consistent emphasis on innovative and distinctive design has been an important contributor to the prominence, strength and reputation of the Polo Ralph Lauren brands.

     We form design teams around our brands and product categories to develop concepts, themes and products for each of our 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, Ralph Lauren and our design staff, which is divided into fivesix departments: Menswear, Womenswear, Children's,Lauren, Children’s, Accessories and Home. Club Monaco'sMonaco’s design staff is located in New York and Toronto, Canada and is divided into three teams: Menswear, Womenswear and Home.

     We operate a research and development facility in Greensboro, North Carolina, a testing lab in Singapore and pattern rooms in New York, New Jersey and Singapore. 9 MARKETING

Marketing

     Our marketing program communicates the themes and images of the Polo Ralph Lauren brands and is an integral feature of our product offering. Worldwide marketing is managed on a centralized basis through our advertising and public relations departments in order to ensure consistency of presentation.

     We create the distinctive image advertising for all our Polo Ralph Lauren products, conveying the particular message of each brand within the context of our core themes. Advertisements generally portray a lifestyle rather than a specific item and often include a variety of Polo Ralph

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Lauren products offered by both ourselves and our licensing partners. Our primary advertising medium is print, with multiple page advertisements appearing regularly in a range of fashion, lifestyle and general interest magazines. Major print advertising campaigns are conducted during the fall and spring retail seasons with additions throughout the year to coincide with product deliveries. In addition to print, some product categories we have utilized television and outdoor media in their marketing programs for certain product categories. Our licensing partners typically spend between two and

     In general, three to four percent of theirlicensing related sales of our productsare spent for advertising. We directly coordinate advertising placement for our domestic product licensing partners. Together with our licensing partners, we collectively spent more than $200.0$200 million worldwide to advertise and promote Polo Ralph Lauren products in fiscal 2003.Fiscal 2004.

     We conduct a variety of public relations activities. Each of our spring and fall womenswear collections are presented at major fashion shows in New York, which typically generate extensive domestic and international media coverage. We introduce each of the spring and fall menswear collections at major fashion shows in cities such as New York or Milan, Italy. In addition, we organize in-store appearances by our models and sponsors, professional golfers, snowboarders, triathletes and sports teams. SOURCING, PRODUCTION AND QUALITY

Sourcing, Production and Quality

     Over 290350 different manufacturers worldwide produce our apparel products. We source finished products and piece goods. Piece goodsraw materials. Raw materials include fabric, buttons and similar raw materialsother trim and are sourced primarily with respect to our Collection Brands. Finished products consist of manufactured and fully assembled products ready for shipment to our customers. We contract for the manufacture of our products and do not own or operate any production facilities of our own. As part of our efforts to reduce costs and enhance the efficiency of our sourcing process, we have shifted a substantial portion of our sourcing to foreign suppliers. In fiscal 2003, approximatelyFiscal 2004, less than 5%, by dollar volume, of our products were produced in the United StatesStates; and the Americas; and approximatelyover 95%, by dollar volume, were produced in Hong Kong Canada and other foreign countries. See "Risk“Risk Factors -- Risks Related to Our Business -- Our business is subject to risks associated with importing products."

     Two manufacturers engaged by us accounted for approximately 16% and 12%11% of our total production during fiscal 2003,Fiscal 2004, respectively. The primary production facilities of these two manufacturers are located in Asia. Production is

     Our product purchases are divided broadly into three brand categories: - LDP Purchasing -- purchases of finished products, where the supplier is responsible for the purchasing and carrying of raw materials, including all logistics and inbound duties and arrangements (custom and broker) to selected country port of entry; - FOB Purchasing -- purchases of finished products, where the supplier is responsible for the purchasing and carrying of raw materials; and - CMT Purchasing -- cut, make and trim purchasing, where we are responsible for purchasing and moving raw materials to finished product assemblers located around the world. 10

• LDP Purchasing — purchases of finished products, where the supplier is responsible for the purchasing and carrying of raw materials, including all logistics and inbound duties and arrangements (custom and broker) to selected country port of entry;
• FOB Purchasing — purchases of finished products, where the supplier is responsible for the purchasing and carrying of raw materials; and
• CMT Purchasing — cut, make and trim purchasing, where we are responsible for purchasing and moving raw materials to finished product assemblers located around the world.

     We must commit to manufacture the majority of our garments before we receive customer orders. We also must commit to purchase fabric from mills well in advance of our sales. If we overestimate the demand for a particular product which we cannot sell to our primary customers, we may usesell the excess for distribution in our outlet stores or sell the product through secondary distribution channels. If we overestimate the need for a particular fabric or yarn, that fabric or yarn canmay be used in garments made for subsequent seasons or made into past season'sseason’s styles for distribution in our outlet stores.

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We have been working closely with suppliers in recent years to reduce lead times to maximize fulfillment (e.g.(e.g.,shipment) of orders and to permit re-orders of successful programs. In particular, we have 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 our global manufacturing division and buying agents headquartered in the Far East.Asia and Europe. All garments are produced according to our specifications. Production and quality control staff in the United States, Asia and in the Far EastEurope monitor manufacturing at supplier facilities in order to correct problems prior to shipment of the final product. Procedures have been implemented under our vendor certification and compliance programs, so that quality assurance is focused upon as early as possible in the production process and flow ready merchandise activities, allowing merchandise to be received at the distribution facilities and shipped to customers with minimal interruption. We retain independent buying agents in Europe to assist us 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

     Competition is strong in the segments of the fashion and consumer product industries in which we operate. We compete with numerous designers and manufacturers of apparel and accessories, fragrances and home furnishing products, domestic and foreign, including Liz Claiborne, Inc., Nautica Enterprises, Inc., Jones Apparel Group, Inc., Tommy Hilfiger Corporation, Calvin Klein, Inc. and Giorgio Armani Spa in the branded apparel market sector, and Gucci Group N.V. and LVMH Moet Hennessy Louis Vuitton in the luxury market sector. Some of our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basis of fashion, quality and service, which depend on our ability to: - shape and stimulate consumer tastes and preferences by producing innovative, attractive and exciting products, brands and marketing, - anticipate and respond to changing consumer demands in a timely manner, - maintain favorable brand recognition, - develop and produce high quality products that appeal to consumers, - appropriately price our products, - provide strong and effective marketing support, - ensure product availability, and -

• shape and stimulate consumer tastes and preferences by producing innovative, attractive and exciting products, brands and marketing,
• anticipate and respond to changing consumer demands in a timely manner,
• maintain favorable brand recognition,
• develop and produce high quality products that appeal to consumers,
• appropriately price our products,
• provide strong and effective marketing support,
• ensure product availability, and
• obtain sufficient retail floor space and effectively present our products at retail.

     See "Risk“Risk Factors -- Risks Relating to the Industry in Which we Compete -- We face intense competition in the worldwide apparel industry." 11 DISTRIBUTION We continue to evaluate the adequacy of our distribution and warehousing facilities and related processes.

Distribution

     To facilitate distribution domestically, men'sRalph Lauren men’s and women'swomen’s products are shipped from manufacturers to our distribution center in Greensboro, North Carolina for inspection, sorting, packing and shipment to retail customers. The facility is designed to allow for high density cube storage and utilizes bar code technology to provide inventory management and carton controls. Product traffic management is coordinated from this facility. European distribution and warehousing during fiscal 2003Fiscal 2004 was handled by third party distribution centers, however, with the European restructuring, the majority of the distribution will behas been consolidated into one third party facility located in Parma, Italy.

     Our full-price store and outlet store distribution and warehousing are principally handled through the Greensboro distribution center. During fiscal 2003, weWe also used a facility in New Jersey, which will be was

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closed in June 2003.Fiscal 2004. Club Monaco utilizes third party distributionproducts are distributed from facilities in Ontario, California and New Jersey. The New Jersey facility will be closed in June 2003. MANAGEMENT INFORMATION SYSTEM We implement ourand California.

Management Information System

     Our management information systems to make the marketing, manufacturing, importing and distribution functions of our business operateproducts more efficient by providing, among other things: - comprehensive order processing, - production information, - accounting information, and - enterprise view of information for the marketing, manufacturing, importing and distribution functions of our business.

• comprehensive order processing,
• production information,
• accounting information, and an
• enterprise view of information for our marketing, manufacturing, importing and distribution functions.

     We have installed sophisticateduse point-of-sale registers in our stores that enable us to track inventory from store receipt to final sale on a real-time basis. We believe our merchandising and financial system,systems, coupled with our point-of-sale registers and software programs, allow for rapid stock replenishment, concise merchandise planning and real-time inventory accounting.

     We also utilize a sophisticated automated replenishment system to facilitate the processing of replenishment and fashion orders from our wholesale customers, the movement of goods through distribution channels, and the collection of information for planning and forecasting. We have a collaborative relationship with many of our suppliers that enables the Company to reduce cash to cash cycles in management of our inventory. CREDIT CONTROL

Credit Control

     We manage our own credit function. We sell our merchandise primarily to major department stores across the United States and extend credit based on an evaluation of the customer'scustomer’s financial condition, usually without requiring collateral. We monitor credit levels and the financial condition of our customers on a continuing basis to minimize credit risk. We do not factor our accounts receivables or maintain credit insurance to manage the risks of bad debts. Our bad debt write-offs were $3.8$2.0 million in fiscal 2003,Fiscal 2004, representing less than one percent of net revenues. See "Risk“Risk Factors -- Risks Related to Our Business -- Our business could be negatively impacted by theany financial instability of our customers." 12 BACKLOG

Backlog

     We generally receive 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. As of March 29, 2003,April 3, 2004, our summer and fall backlog, including orders for Lauren was $136.5$215.0 million and $367.9$474.8 million, respectively. Our backlog depends upon a number of factors, including the timing of the market weeks for our particular lines, during which a significant percentage of our orders are received, and the timing of shipments. As a consequence, a comparison of backlog from period to period is not necessarily meaningful and may not be indicative of eventual shipments. TRADEMARKS

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Trademarks

We own the "Polo," "Ralph Lauren"“Polo,” “Ralph Lauren” and the famous polo player astride a horse trademarks in the United States. Other trademarks we own include, among others: include:

- - "Chaps" - "RRL" - - "Polo Sport" - "Club Monaco" - - "Lauren/
• “Chaps”
• “Polo Sport”
• “Lauren/ Ralph Lauren" -Lauren”
• “RALPH”
• “Polo Jeans Co.”
• “RRL”
• “Club Monaco”
 various trademarks pertaining to - - "RALPH" fragrances and cosmetics

     In acquiring the "RRL"“RRL” trademarks, we agreed to allow Mr. Lauren to retain the royalty-free right to use as trademarks "Ralph“Ralph Lauren," "Double RL"” “Double RL” and "RRL"“RRL” in perpetuity in connection with, among other things, beef and living animals. The trademarks "Double RL"“Double RL” and "RRL"“RRL” are currently used by the Double RL Company, an entity wholly owned by Mr. Lauren. In addition, Mr. Lauren has the right to engage in personal projects involving film or theatrical productions (not including or relating to our business) through RRL Productions, Inc., a company wholly owned by Mr. Lauren.

     Our trademarks are the subjects 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 we continue to expand our worldwide usage and registration of related trademarks. In general, trademarks remain valid and enforceable as long as the marks are used in connection with the products and services and the required registration renewals are filed. We regard the license to use the trademarks and our other proprietary rights in and to the trademarks as valuable assets in marketing our products and, on a worldwide basis, vigorously seek to protect them against infringement. See Item 3 -- "Legal— “Legal Proceedings." As a result of the appeal of our trademarks, our products have been the object of counterfeiting. We have 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, our rights to some or all of our trademarks may not be clearly established. In the course of our international expansion, we have experienced conflicts with various third parties which have acquired ownership rights in certain trademarks, including "Polo"“Polo” and/or a representation of a polo player astride a horse, which would have impeded our use and registration of our principal trademarks. While such conflicts are common and may arise again from time to time as we continue our international expansion, we have successfully resolved such conflicts in the past through both legal action and negotiated settlements with third-party owners of the conflicting marks. See "Risk“Risk Factors -- Risks Related to Our Business -- Our trademarks and other intellectual property rights may not be adequately protected outside the United States"States” and Item 3 -- "Legal— “Legal Proceedings." 13

     Two agreements by which we resolved conflicts with third-party owners of other trademarks currently impose restrictions or monetary obligations on us. In one, we reached an agreement with a third party which owned competing registrations in numerous European and South American countries for the trademark "Polo"“Polo” and a symbol of a polo player astride a horse. By virtue of the agreement, we have acquired that third party'sparty’s portfolio of trademark registrations in exchange for the payment of our royalties in Central America and South America and parts of the Caribbean solely in respect of our use of trademarks which include "Polo"“Polo” and the polo player symbol, and not, for example, "Ralph Lauren"“Ralph Lauren” alone, "Lauren/“Lauren/ Ralph Lauren," "RRL,"” “RRL,” and others. This obligation to share royalties with respect to Central and South America and parts of

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the Caribbean expires in 2013, but we also have 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"“Polo” and a polo player astride a horse in the United Kingdom, Hong Kong and South Africa. Under the agreement, the third party retains the right to use the "Polo"“Polo” and polo player symbol marks in South Africa and all other countries that comprise Sub-Saharan Africa, and we agreed to restrict use of those Polo marks in those countries to fragrances and cosmetics solely as part of the composite trademark "Ralph Lauren"“Ralph Lauren” and the polo player symbol, as to which our use is unlimited, and to the use of the polo player symbol mark on women'swomen’s and girls'girls’ apparel and accessories and women'swomen’s and girls'girls’ handkerchiefs. By agreeing to those restrictions, we secured the unlimited right to use our trademarks in the United Kingdom and Hong Kong without payment of any kind, and the third party is prohibited from distributing products under those trademarks in those countries. GOVERNMENT REGULATION

Government Regulation

     Our import operations are currently subject to constraintsquota restrictions imposed by bilateral textile agreements between the United States and a number of foreign countries.countries which continue through December 31, 2004. These agreements which have beenwere negotiated bilaterally either under the framework established by the World Trade Organization (the “WTO”) regarding international trade in textiles, known as the "WTO“WTO Agreement on Textiles and Clothing," or other applicable statutes, impose quotas onstatutes.

     Pursuant to the amounts and types of merchandise which may be imported intoWTO Agreement, effective January 1, 2005, the United States and other WTO member countries are required, with few exceptions, to remove quotas on goods from theseWTO member countries. These agreementsThe complete removal of quotas should benefit the Company by allowing it to source its products without the necessity of purchasing and obtaining quotas. However, the Company’s business may be negatively affected by the limited remaining quotas toward the end of calendar year 2004 and the possibility that the United States may impose safeguard quota on products from China in early 2005. If the elimination of quota results in import surges from certain countries, the possibility also allowexists that other trade actions may be taken by the signatoriesUnited States to adjustprevent imports in injurious quantities which may adversely effect the quantity of imports for categories of merchandise that, under the terms of the agreements, are not currently subjectcompany’s ability to specific limits.import product.

     Our imported products are also subject to U.S. customs duties which comprise a material portion of the cost of the merchandise. See "Risk“Risk Factors -- Risks Related To Our Business -- Our business is subject to risks associated with importing products."

     Exports of certain of our US-manufactured products into the European market are subject to increased duties of five percent starting in March 2004 and increasing at a rate of one percent each month through March 2005 until such time as the extra territorial income tax exclusion act is repealed by Congress in accordance with the WTO’s ruling that it is non-compliant with international law.

     Apparel products and other merchandise sold by Polo may also be subject to regulation in the United States by other governmental agencies, including the Federal Trade Commission, United States Fish and Wildlife Service and the Consumer Products Safety Commission. These regulations relate principally to product labeling, licensing requirements and flammability testing. We believe that we are in substantial compliance with regulations, as well as applicable federal, state, local, and foreign rules and regulations governing the discharge of materials hazardous to the environment. We do not estimate any significant capital expenditures for environmental control matters either in the current year or expected in the near future. Our licensed products and licensing partners are also subject to regulation. Our agreements require our licensing partners to operate in compliance with all laws and regulations, and we are not aware of any violations which could reasonably be expected to have a material adverse effect on our business.

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     Although we have not in the past suffered any material inhibition from doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and additional trademarks to new markets. 14 EMPLOYEES

Employees

     As of March 29, 2003,April 3, 2004, we had approximately 10,80013,000 employees, consisting of approximately 9,00011,000 in the United States and approximately 1,8002,000 in foreign countries. Approximately 2021 of our 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 our womenswear subsidiary has adopted. We consider our relations with both our union and non-union employees to be good.

Executive Officers

The following are our current executive officers and their business experience for the past five years in accordance with SEC rules.

Ralph Lauren
Age 64Chairman and Chief Executive Officer
Roger N. Farah
Age 51President and Chief Operating Officer since April 2000. Chairman of the Board of Venator Group, Inc. from December 1994 to April 2000 and Chief Executive Officer of Venator Group, Inc. from April 1994 to August 1999.
Gerald M. Chaney
Age 57Senior Vice President of Finance and Chief Financial Officer since November 2000. Senior Vice President of Finance and Chief Financial Officer of Kellwood Company from December 1998 to November 2000.
Mitchell A. Kosh
Age 54Senior Vice President of Human Resources since July 2000. Senior Vice President of Human Resources of Conseco, Inc., from February 2000 to July 2000. Prior to that, Mr. Kosh held executive human resource positions with the Venator Group, Inc. starting in 1996.

F. Lance Isham, Age 59, who retired on March 31, 2004, had served as our Vice Chairman since April 2000. He served as our President from 1998 to April 2000.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the SEC, in our press releases and in oral statements made by or with the approval of authorized personnel constitute "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "estimate," "expect," "project," "we“anticipate,” “estimate,” “expect,” “project,” “we believe," "is” “is or remains optimistic," "currently envisions"” “currently envisions” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Some of the factors that could affect our financial performance or cause actual results to differ from our estimates in, or underlying, such forward-looking statements are set forth under the

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heading of "Risk“Risk Factors." Forward-looking statements include statements regarding, among other items: - our anticipated growth strategies, - our intention to introduce new products and enter into new licensing alliances, - our plans to open new retail stores, - anticipated effective tax rates in future years, - future expenditures for capital projects, - our ability to continue to maintain our brand image and reputation, - our ability to continue to initiate cost cutting efforts and improve profitability, - our plans to expand internationally, and -

• our anticipated growth strategies,
• our intention to introduce new products and enter into new licensing alliances,
• our plans to open new retail stores,
• our ability to make strategic acquisitions of selected licensees,
• anticipated effective tax rates in future years,
• future expenditures for capital projects,
• our ability to continue to maintain our brand image and reputation,
• our ability to continue to initiate cost cutting efforts and improve profitability,
• our plans to expand internationally, and
• our efforts to improve the efficiency of our distribution system.

     These forward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of the facts described in "Risk Factors"“Risk Factors” including, among others, changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors, changes in the economy, and other events leading to a reduction in discretionary consumer spending. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, we cannot assure you that the forward-looking information contained in this Form 10-K will in fact transpire.

RISK FACTORS

     The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Form 10-K. Any of the following risks could 15 materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Report. RISKS RELATED TO OUR BUSINESS THE LOSS OF THE SERVICES OF MR. RALPH LAUREN OR OTHER KEY PERSONNEL COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.report.

Risks Related to Our Business

The loss of the services of Mr. Ralph Lauren'sLauren or other key personnel could have a material adverse effect on our business.

     Mr. Ralph Lauren’s leadership in the design, marketing and operational areas of our business has been a critical element of our success. The loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business. Our other executive officers have substantial experience and expertise in our business and have made significant contributions to our growth and success. The unexpected loss of services of one or more of these individuals could also adversely affect us. We are currently not protected by a material amount of key-man or similar life insurance covering Mr. Lauren or any of our other executive officers. We have entered into employment agreements with Mr. Lauren and several other of our executive officers.

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A SUBSTANTIAL PORTION OF OUR NET SALES AND GROSS PROFIT IS DERIVED FROM A SMALL NUMBER OF LARGE CUSTOMERS.substantial portion of our net sales and gross profit is derived from a small number of large customers.

     Several of our department store customers, including some under common ownership, account for significant portions of our wholesale net sales. We believe that a substantial portion of sales of our licensed products by our domestic licensing partners, including sales made by our sales force of Ralph Lauren Home products, are also made to our largest department store customers. Our three significant department store customers accounted for 30.5%37.6% of our wholesale net sales during fiscal 2003,Fiscal 2004, while our ten largest customers accounted for approximately 43.0%46.2% of our wholesale net sales during fiscal 2003.Fiscal 2004.

     We do not enter into long-term agreements with any of our customers. Instead, we enter into a number of purchase order commitments with our customers for each of our lines every season. A decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions, financial difficulties or otherwise, to decrease the amount of merchandise purchased from us or our licensing partners, or to change their manner of doing business with us or our licensing partners, could have a material adverse effect on our financial condition and results of operations. See "Business --“BUSINESS — Operations -- Domestic Customers and Service." OUR BUSINESS COULD BE NEGATIVELY IMPACTED BY THE FINANCIAL INSTABILITY OF OUR CUSTOMERS.

Our business could be negatively impacted by any financial instability of our customers.

     We sell our merchandise primarily to major department stores across the United States and Europe and extend credit based on an evaluation of each customer'scustomer’s financial condition, usually without requiring collateral. However, the financial difficulties of a customer could cause us to curtail business with that customer. We may also assume more credit risk relating to that customer'scustomer’s receivables. We had threeThree of our customers, Dillard Department Stores, Inc., Federated Department Stores, Inc. and The May Department Stores Company, which in aggregate constituted 30.0%40.1% of trade accounts receivable outstanding at March 29, 2003.April 3, 2004. Our inability to collect on our trade accounts receivable from any one of these customers could have a material adverse effect on our business or financial condition. See "Business --“BUSINESS — Credit Control." OUR BUSINESS COULD SUFFER AS A RESULT OF A MANUFACTURER'S INABILITY TO PRODUCE OUR GOODS ON TIME AND TO OUR SPECIFICATIONS.

Our business could suffer as a result of a manufacturer’s inability to produce our goods on time and to our specifications.

     We do not own or operate any manufacturing facilities and therefore depend upon independent third parties for the manufacture of all of our products. Our products are 16 manufactured to our specifications by both domestic and international manufacturers. During fiscal 2003, approximatelyFiscal 2004, less than 5%, by dollar value, of our men'smen’s and women'swomen’s products were manufactured in the United States and approximatelyover 95%, by dollar value, of these products were manufactured in Hong Kong and other foreign countries. The inability of a manufacturer to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect on our financial condition and results of operations. OUR BUSINESS COULD SUFFER IF WE NEED TO REPLACE MANUFACTURERS.

Our business could suffer if we need to replace manufacturers.

     We compete with other companies for the production capacity of our manufacturers and import quota capacity. Some of these competitors have greater financial and other resources than we have, and thus may have an advantage in the competition for production and import quota capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party manufacturing capacity. We cannot assure youguarantee that this additional capacity will be available when required on terms that are acceptable to us. See "Business --“BUSINESS — Sourcing, Production and Quality." We enter into a number

18


of purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications and other standard industry provisions, but do not have long- termlong-term contracts with any manufacturer. None of the manufacturers we use produce our products exclusively. IF A MANUFACTURER OF OURS FAILS TO USE ACCEPTABLE LABOR PRACTICES, OUR BUSINESS COULD SUFFER.

Our business could suffer if one of our manufacturers fails to use acceptable labor practices.

     Two of the manufacturers engaged by us accounted for approximately 16% and 12%11% of our total production during fiscal 2003.Fiscal 2004. The primary production facilities of these two manufacturers are located in Asia. We require our licensing partners and independent manufacturers to operate in compliance with applicable laws and regulations. While our internal and vendor operating guidelines promote ethical business practices and our staff periodically visits and monitors the operations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of labor or other laws by an independent manufacturer of ours,used by us or by one of our licensing partners, or the divergence of an independent manufacturer'smanufacturer’s or licensing partner'spartner’s labor practices from those generally accepted as ethical in the United States, could interrupt, or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these, in turn, could have a material adverse effect on our financial condition and results of operations. OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH IMPORTING PRODUCTS.

Our business is subject to risks associated with importing products.

     As of March 29, 2003,April 3, 2004, we source a significant portion of our products outside the United States through arrangements with 234over 350 foreign manufacturers in 37 differentvarious countries. Approximately 95%, by dollar volume, of our products were produced in Hong Kong, Canada and other foreign countries in fiscal 2003.Fiscal 2004. Risks inherent in importing our products include: - quotas imposed by bilateral textile agreements, - changes in social, political and economic conditions which could result in the disruption of trade from the countries in which our manufacturers or suppliers are located, - the imposition of additional regulations relating to imports, - the imposition of additional duties, taxes and other charges on imports, - significant fluctuations of the value of the dollar against foreign currencies, and - restrictions on the transfer of funds. 17

• quotas imposed by bilateral textile agreements. These agreements limit the amount and type of goods that may be imported annually from these countries. Effective January 1, 2005, the United States, with few exceptions, is obligated to remove quotas applicable to goods from all WTO member countries. However, until January 1, 2005, we could experience potential shortages of goods and increased airfreight costs due to the limited remaining quota supply in calendar 2004, which could have a material adverse effect on our business or results of operations.
• changes in social, political and economic conditions or terrorist acts that could result in the disruption of trade from the countries in which our manufacturers or suppliers are located,
• the imposition of additional regulations relating to imports,
• the imposition of additional duties, taxes and other charges on imports,
• significant fluctuations of the cost of raw materials,
• significant fluctuations of the value of the dollar against foreign currencies, and
• restrictions on the transfer of funds.

     Any one of these factors could have a material adverse effect on our financial condition and results of operations. See "Business --“BUSINESS — Sourcing, Production and Quality." WE ARE DEPENDENT UPON THE REVENUE GENERATED BY OUR LICENSING ALLIANCES.

We are dependent upon the revenue generated by our licensing alliances.

     Approximately 47.9%46.5% of our income from operations for fiscal 2003Fiscal 2004 was derived from licensing revenue received from our licensing partners. Approximately 43.8%43.2% of our licensing revenue for fiscal 2003Fiscal 2004 was derived from three licensing partners. Jones Apparel Group, Inc., WestPoint Stevens, Inc. and Westpoint Stevens, Inc.our international licensing partner Impact 21 each accounted for 16.4%17.2%, 14.7% and 15.9%11.3%, respectively. See “— Risks Related to our Business — An adverse

19


result in the lawsuit that Jones filed against the Company could have a material effect on our results of operations and financial condition.” In June 2003, one of our licensing partners, The WestpointWestPoint Stevens, Inc., and certain of its affiliates filed a voluntary petition for bankruptcy protection under Chapter 11 of the federal bankruptcy laws. We cannot determine what impact, if any, this filing will have onUnited States Bankruptcy code. WestPoint Stevens, Inc. produces bedding and bath products for our financial condition, results of operations or cash flows. Additionally, Seibu Department Stores, Ltd. accountedHome Collection. On December 19, 2003, the United States Bankruptcy Court approved an amended licensing agreement between WestPoint Stevens, Inc. and us. The amended agreement provides for 11.5% of licensing revenue in fiscal 2003. See Note 3 to our Consolidated Financial Statements.the same royalty rate and minimum royalties that are not materially less than the previous agreement.

     We had no other licensing partner which accounted for more than 10.0%10% of our licensing revenue in fiscal 2003.Fiscal 2004. The interruption of the business of any one of our material licensing partners due to any of the factors discussed immediately below could also adversely affect our licensing revenues and net income. WE RELY ON OUR LICENSING PARTNERS TO PRESERVE THE VALUE OF OUR LICENSES.

We rely on our licensing partners to preserve the value of our licenses.

     The risks associated with our own products also apply to our licensed products in addition to any number of possible risks specific to a licensing partner'spartner’s business, including, for example, risks associated with a particular licensing partner'spartner’s ability to: - obtain capital, - manage its labor relations, - maintain relationships with its suppliers, - manage its credit risk effectively, and -

• obtain capital;
• manage its labor relations;
• maintain relationships with its suppliers;
• manage its credit risk effectively; and
• maintain relationships with its customers.

     Although some of our license agreements prohibit licensing partners from entering into licensing arrangements with our competitors, generally our licensing partners generally are not precluded from offering, under other brands, the types of products covered by their license agreements with us. A substantial portion of sales of our products by our domestic licensing partners are also made to our largest customers. While we have significant control over our licensing partners'partners’ products and advertising, we rely on our licensing partners for, among other things, operational and financial control over their businesses. FAILURE TO MAINTAIN LICENSING PARTNERS COULD HARM OUR BUSINESS.

Failure to maintain licensing partners could harm our business.

     Although we believe in most circumstances we could replace existing licensing partners if necessary, our inability to do so for any period of time could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reduced sales of our other products. See "Business --“BUSINESS — Operations -- Our Licensing Alliances." OUR TRADEMARKS AND OTHER INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATELY PROTECTED OUTSIDE THE UNITED STATES.

Our trademarks and other intellectual property rights may not be adequately protected outside the United States.

     We believe that our trademarks and other proprietary rights are important to our success and our competitive position. We devote substantial resources to the establishment and protection of our trademarks on a worldwide basis. In the course of our international expansion, 18 we have, however, experienced conflict with various third parties that have acquired or claimed ownership rights in certainsome trademarks that include Polo and/or a representation of a polo player astride a horse, or otherwise have contested our rights to our trademarks. We have in the past successfully resolved these conflicts through both legal action and negotiated settlements, none of which, we believe, has had a material impact on our financial condition and results of operations. Nevertheless, we cannot assure youguarantee that the actions we have taken to establish and protect our trademarks and other proprietary rights will be adequate to prevent imitation of our

20


products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks and proprietary rights of others. Also, we cannot assure you that others will not assert rights in, or ownership of, trademarks and other proprietary rights of ours or that we will be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. See "Business -- Trademarks." WE CANNOT ASSURE THE SUCCESSFUL IMPLEMENTATION OF OUR GROWTH STRATEGY.“BUSINESS — Trademarks,” and Item 3 — “LEGAL PROCEEDINGS.”

We cannot assure the successful implementation of our growth strategy.

     As part of our growth strategy, we seek to extend our brands, expand our geographic coverage, increase direct management of Polo Ralph Laurenour brands by opening more of our own stores, strategically acquiring select licensees and enhancing our operations. Implementation of our strategy involves the continued expansion of our business in Europe, Asia and other international areas. We may have difficulty hiring and retaining qualified key employees or otherwise successfully managing the required expansion and consolidation of our infrastructure in Europe.such expansion. In addition, Europe, as a whole, lacks the large wholesale distribution channels found in the United States, and we may have difficulty developing successful distribution strategies and alliances in each of the major European countries.

     Implementation of our strategy also involves the continued expansion of our network of retail stores, in both in the United States and abroad. There can be no assurance that we willWe may not be able to purchase or lease desirable store locations or renew existing store leases on acceptable terms. Furthermore, we cannot assure you that we willmay not be able to successfully integrate the business of any licensee that we acquire into our own business or achieve any expected cost savings or synergies from such integration. OUR BUSINESS IS EXPOSED TO DOMESTIC AND FOREIGN CURRENCY FLUCTUATIONS.

Our business is exposed to domestic and foreign currency fluctuations.

     We generally purchase our products in U.S. dollars. However, we source most of our products overseas and, as such,a result, the cost of these products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may also affect the U.S. dollar value of the foreign currency denominated prices at which our international businesses sell products. Furthermore, our international sales and licensing revenue generally is derived from sales in foreign currencies. These foreign currencies include the Japanese Yen, the Euro and the Euro,Pound Sterling, and this revenue could be materially affected by currency fluctuations. Approximately 23.0%32.4% of our licensing revenue was received from international licensing partners in fiscal 2003.Fiscal 2004. Although we hedge some exposures to changes in foreign currency exchange rates arising in the ordinary course of business, we cannot assure you that foreign currency fluctuations will not have a material adverse impact on our financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations --Item 7 — “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources." 19 OUR ABILITY TO CONDUCT BUSINESS IN INTERNATIONAL MARKETS MAY BE AFFECTED BY LEGAL, REGULATORY, POLITICAL AND ECONOMIC RISKS.

Our ability to conduct business in international markets may be affected by legal, regulatory, political and economic risks.

     Our ability to capitalize on growth in new international markets and to maintain the current level of operations in our existing international markets is subject to risks associated with international operations. These include: - the burdens of complying with a variety of foreign laws and regulations, - unexpected changes in regulatory requirements, and - new tariffs or other barriers to some international markets.

• the burdens of complying with a variety of foreign laws and regulations;
• unexpected changes in regulatory requirements; and
• new tariffs or other barriers to some international markets;

21


     We are also subject to general political and economic risks in connection with our international operations, including: - political instability, - changes in diplomatic and trade relationships, and -

• political instability and terrorist attacks;
• changes in diplomatic and trade relationships; and
• general economic fluctuations in specific countries or markets.

     We cannot predict whether quotas, duties, taxes, or other similar restrictions will be imposed by the United States, the European Union, Japan, or other countries upon the import or export of our products in the future, or what effect any of these actions would have on our business, financial condition or results of operations. Changes in regulatory, geopolitical policies and other factors may adversely affect our business in the future or may require us to modify our current business practices. AN ADVERSE RESULT IN THE LAWSUIT THAT JONES FILED AGAINST THE COMPANY COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

An adverse result in the lawsuit that Jones filed against the Company could have a material adverse effect on our results of operations and financial condition.

     As a result of the failure of Jones to meet the minimum sales volumes for the year ended December 31, 2002, under the license agreements for the sale of products under the “Ralph” trademark between us and Jones, these license agreements terminated as of December 31, 2003. We advised Jones that the termination of these licenses would automatically result in the termination of the licenses between us and Jones with respect to the “Lauren” trademark pursuant to the Cross Default and Term Extension Agreement between the Company and Jones dated May 11, 1998. The Lauren license agreements would otherwise have expired on December 31, 2006.

     On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court of the State of New York alleging, among other things, that we breached our agreements with Jones with respect to the "Lauren"“Lauren” trademark by asserting our rights pursuant to the Cross Default and Term Extension Agreement, with Jones and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov'sNemerov’s employment agreement with Jones. Jones stated that it would treat the Lauren license agreements as terminated as of December 31, 2003, and is seeking compensatory damages of $550.0 million, as well as punitive damages and to enforceenforcement of the provisions of Ms. Nemerov'sNemerov’s agreement. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Court of the State of New York seeking, among other things, an injunction and a declaratory judgment that the Lauren license agreements terminated as of December 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. The two lawsuits have been consolidated.

     On July 3, 2003, we filed a motion to dismiss Jones’ claims regarding breach of the “Lauren” agreements and a motion to stay the claims regarding Ms. Nemerov pending the arbitration of Jones’ dispute with Ms. Nemerov. On July 23, 2003, Jones filed a motion for summary judgment in our action against Jones, and on August 12, 2003, we filed a cross-motion for summary judgment. Oral argument on the motions was heard on September 30, 2003. On March 18, 2004, the Court entered orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granted Jones’ motion for summary judgement in our action for declaratory judgement the Lauren Agreements terminated on December 31, 2003 and dismissed our complaint. The order also stayed Jones’ claim against us relating to Ms. Nemerov pending arbitration regarding her alleged breach of her employment agreement. On April 16, 2004, we moved the court to reconsider its orders, and a hearing on our motion was held on May 19, 2004. The Court has not yet issued a ruling as a result of this hearing. We have also filed notices of appeal of the orders. If Jones'Jones’ lawsuit were to be determined adversely to us, it could have a material adverse effect on our results of operations

22


and financial condition. RISKS RELATING TO THE INDUSTRY IN WHICH WE COMPETE WE FACE INTENSE COMPETITION IN THE WORLDWIDE APPAREL INDUSTRY.However, we intend to continue to defend the case vigorously and believe our position is correct on the merits.

     The royalties that we received pursuant to the “Lauren” license agreements and “Ralph” license agreements represented revenues of approximately $23.0 million and $3.9 million, respectively, in Fiscal 2004 and approximately $37.4 million and $5.3 million, respectively, in Fiscal 2003. We no longer receive these royalties as a result of the termination of the Lauren and Ralph license agreements on December 31, 2003. We have begun to produce, market and ship the Lauren line. We expected that the loss of the Lauren and Ralph royalties from Jones and the start up expenses associated with the Lauren line would exceed the anticipated income from our sales of Lauren products in the fourth quarter in Fiscal 2004. In total, royalties received from Jones, including royalties from the “Polo Jeans” license agreements, accounted for 17.2% of our licensing revenue for Fiscal 2004 and 27.2% of our licensing revenue during Fiscal 2003. The “Polo Jeans” license agreements were not covered under the terms of the Cross Default and Term Extension agreement and continue in effect.

Risks Relating to the Industry in Which We Compete

We face intense competition in the worldwide apparel industry.

     We face a variety of competitive challenges from other domestic and foreign fashion-oriented apparel and casual apparel producers, some of which may be significantly larger and more diversified and have greater financial and marketing resources than we have. We compete with these companies primarily on the basis of: - anticipating and responding to changing consumer demands in a timely manner, - maintaining favorable brand recognition, - developing innovative, high-quality products in sizes, colors and styles that appeal to consumers, - appropriately pricing products, - providing strong and effective marketing support, 20 - creating an acceptable value proposition for retail customers, - ensuring product availability and optimizing supply chain efficiencies with manufacturers and retailers, and -

• anticipating and responding to changing consumer demands in a timely manner;
• maintaining favorable brand recognition;
• developing innovative, high-quality products in sizes, colors and styles that appeal to consumers;
• appropriately pricing products;
• providing strong and effective marketing support;
• creating an acceptable value proposition for retail customers;
• ensuring product availability and optimizing supply chain efficiencies with manufacturers and retailers; and
• obtaining sufficient retail floor space and effective presentation of our products at retail.

     We also face competition from companies selling apparel and home products through the Internet. Increased competition in the worldwide apparel, accessories and home product industries, including Internet-based competitors, could reduce our sales, prices and margins and adversely affect our results of operations. THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR ABILITY TO RESPOND TO CONSTANTLY CHANGING FASHION TRENDS AND CONSUMER DEMANDS.

The success of our business depends on our ability to respond to constantly changing fashion trends and consumer demands.

     Our success depends in large part on our ability to originate and define fashion product and home product trends, as well as to anticipate, gauge and react to changing consumer demands in a timely manner. Our products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. We cannot assure you that we will be able to continue to develop appealing styles or successfully meet constantly changing consumer demands in the future. In addition, we cannot assure you that any new products or brands that we introduce will be successfully received by consumers. Any failure on our part to

23


anticipate, identify and respond effectively to changing consumer demands and fashion trends could adversely affect retail and consumer acceptance of our products and leave us with a substantial amount of unsold inventory or missed opportunities. If that occurs, we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may harm our business. At the same time, our focus on tight management of inventory may result, from time to time, in our not having an adequate supply of products to meet consumer demand and cause us to lose sales. See "Business --“BUSINESS — Sourcing, Production and Quality."

A DOWNTURN IN THE ECONOMY MAY AFFECT CONSUMER PURCHASES OF DISCRETIONARY ITEMS AND LUXURY RETAIL PRODUCTS, WHICH COULD ADVERSELY AFFECT OUR SALES.downturn in the economy may affect consumer purchases of discretionary items and luxury retail products, which could adversely affect our sales.

     The industries in which we operate are cyclical. Many factors affect the level of consumer spending in the apparel, cosmetic, fragrance and home products industries, including, among others: - general business conditions, - interest rates, - the availability of consumer credit, - taxation, and - consumer confidence in future economic conditions.

• general business conditions;
• interest rates;
• the availability of consumer credit;
• taxation; and
• consumer confidence in future economic conditions.

Consumer purchases of discretionary items and luxury retail products, including our products, may decline during recessionary periods and also may decline at other times when disposable income is lower. A downturn in the economies in which we, or our licensing partners, sell our products, whether in the United States or abroad, may adversely affect our sales.revenues. The current economic conditions have and may continue to adversely affect consumer spending and sales of our products. OUR BUSINESS COULD SUFFER AS A RESULT OF CONSOLIDATIONS, RESTRUCTURINGS AND OTHER OWNERSHIP CHANGES IN THE RETAIL INDUSTRY.

Our business could suffer as a result of consolidations, restructurings and other ownership changes in the retail industry.

     In recent years, the retail industry has experienced consolidation and other ownership changes. Some of our customers have operated under the protection of the federal bankruptcy 21 laws. In the future, retailers in the United States and in foreign markets may undergo changes that could decrease the number of stores that carry our products or increase the ownership concentration within the retail industry, including: - consolidating their operations, - undergoing restructurings, - undergoing reorganizations, or - realigning their affiliations.

• consolidating their operations;
• undergoing restructurings;
• undergoing reorganizations; or
• realigning their affiliations.

While to date these changes in the retail industry have not had a material adverse effect on our business or financial condition, our business could be materially affected by these changes in the future. See "Risk Factors --“— Risks Related to Our Business -- We are dependent upon the revenue generated by our licensing alliances." ITEM 2. PROPERTIES

Item 2.Properties

     Our distribution and administrative functions are conducted in both leased and owned facilities. We also lease space for our retail and outlet stores, showrooms, and warehouse and office space in various domestic and international locations. We do not own any real property except for our distribution facility in Greensboro, North Carolina and a parcel of land adjacent to

24


the facility, and a Polo Ralph Lauren storestores in Southampton, New York. York and Nantucket, Massachusetts.

The following table sets forth information with respect to our key properties:

APPROXIMATE CURRENT LEASE TERM LOCATION USE SQ. FT. EXPIRATION - -------- --- ----------- ------------------
ApproximateCurrent Lease Term
LocationUseSq. Ft.Expiration




Greensboro, N.C. ............ Distribution Facility1,500,000Owned
650 Madison Avenue, NYC...... NYCExecutive, corporate office 206,000 December 31, 2009 and design studio, Polo Brand showrooms206,000December 31, 2009
Lyndhurst, N.J. ............. Corporate and retail administrative offices162,000February 28, 2008 administrative offices
550 7th Avenue, NYCCorporate office, design studio and Lauren showroom70,000December 31, 2018
Geneva, Switzerland.......... SwitzerlandEuropean corporate offices48,000March 1, 2013

     The leases for our non-retail facilities (approximately 41 in all) provide for aggregate annual rentals of approximately $25.4$28.0 million in fiscal 2003.Fiscal 2004. We anticipate that we will be able to extend those leases which expire in the near future on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms.

As of March 29, 2003,April 3, 2004, the Company operated 255263 retail stores, totaling 1.821.86 million square feet. Aggregate annual rentals for retail space in fiscal 2003Fiscal 2004 totaled approximately $72.8$79.0 million. We anticipate that we will be able to extend those leases which expire in the near future on satisfactory terms or relocate to more desirable locations. ITEM 3. LEGAL PROCEEDINGS

Item 3.Legal Proceedings

     As a result of the failure of Jones Apparel Group, Inc. (including its subsidiaries, “Jones”) to meet the minimum sales volumes for the year ended December 31, 2002 under the license agreements for the sale of products under the “Ralph” trademark between us and Jones dated May 11, 1998, these license agreements terminated as of December 31, 2003. We advised Jones that the termination of these license agreements would automatically result in the termination of the license agreements between us and Jones with respect to the “Lauren” trademark pursuant to the Cross Default and Term Extension Agreement between us and Jones dated May 11, 1998. The terms of the Lauren license agreements would otherwise have expired on December 31, 2006.

     On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court of the State of New York alleging, among other things, that we had breached ourthe Lauren license agreements with Jones with respect to the "Lauren" trademark by asserting our rights pursuant to the Cross Default and Term Extension Agreement, and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov'sNemerov’s employment agreement with Jones. Jones has indicatedstated that it willwould treat the Lauren license agreements as terminated as of December 31, 2003. Jones2003, and is seeking compensatory damages of $550.0 million, as well as punitive damages and to enforce the provisionsenforcement of Ms. Nemerov'sNemerov’s agreement. If Jones' lawsuit were to be determined adversely to us, it could have a material adverse effect on our results of 22 operations and financial condition; however, we believe that the lawsuit is without merit and that we will prevail. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Court of the State of New York seeking, among other things, an injunction and a declaratory judgment that the Lauren license agreements would terminate as of December 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. The partiestwo lawsuits were consolidated.

     On July 3, 2003, we filed a motion to dismiss Jones’ claims regarding breach of the “Lauren” agreements and a motion to stay the claims regarding Ms. Nemerov pending the arbitration of Jones’ dispute with Ms. Nemerov. On July 23, 2003, Jones filed a motion for summary judgment in our action against Jones, and on August 12, 2003, we filed a cross-motion

25


for summary judgment. Oral argument on the motions was heard on September 30, 2003. On March 18, 2004, the Court entered orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granting Jones’ motion for summary judgement in our action for declaratory judgement that the Lauren agreements terminated on December 31, 2003 and dismissing our complaint. The order also stayed Jones’ claim against us relating to Ms. Nemerov pending arbitration regarding her alleged breach of her employment agreement. On April 16, 2004, we moved the court to reconsider its orders, and a hearing on our motion was held on May 19, 2004. The Court has not yet issued a ruling as a result of this hearing. We have stipulatedalso filed notices of appeal of the orders. If Jones’ lawsuit were to consolidatebe determined adversely to us, it could have a material adverse effect on our results of operations and financial condition. However, we intend to continue to defend the two cases.case vigorously and believe our position is correct on the merits.

     On September 18, 2002, an employee at one of the Company'sCompany’s stores filed a lawsuit against us and our Polo Retail, LLC and the Companysubsidiary in the United States District Court for the District of Northern California alleging violations of California antitrust and labor laws. The plaintiff purports to represent a class of employees who have allegedly been injured by a requirement that certain retail employees purchase and wear Company apparel as a condition of their employment. The complaint, as amended, seeks an unspecified amount of actual and punitive damages, disgorgement of profits and injunctive and declaratory relief. The Company answered the amended complaint on November 4, 2002. A hearing on cross motions for summary judgment on the issue of whether the Company'sCompany’s policies violated California law took place on August 14, 2003. The Court granted partial summary judgment with respect to certain of the plaintiff’s claims, but concluded that more discovery was necessary before it could decide the key issue as to whether the Company had maintained for a period of time a dress code policy that violated California law. The Court ordered the parties to conduct limited discovery to that end. Discovery has been scheduled for August 14, 2003, andstayed pending the motions are expected to be filed in June or July 2003.outcome of voluntary mediation between the parties, which commenced on May 12, 2004.

     On April 14, 2003, a second putative class action was filed in the San Francisco Superior Court. This suit, brought by the same attorneys, alleges near identical claims to these in the federal class action. The class representatives consist of former employees and the plaintiff in the federal court action. Defendants in this class action include the Company,us and our Polo Retail, LLC, Fashions Outlet of America, Inc., Polo Retail, Inc., and San Francisco Polo, Ltd. subsidiaries as well as a non-Polonon-affiliated corporate defendant and two current managers. As in the federal action, the complaint seeks an unspecified amount of action and punitive restitution of monies spent, and declaratory relief. The Company intends to file a motion to stay the state court class action has been stayed pending resolution of the federal class action. In January 1999, two actions were filed in California naming as defendants more than a dozen United States-based companies that, at the time, sourced apparel garments from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of Saipan-based factories. The actions asserted that the Saipan factories engaged 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, had violated various Federal and state laws. One action, filed in California Superior Court in San Francisco by a union and three public interest groups, alleged unfair competition and false advertising and equitable relief, unspecified amounts for restitution and disgorgement of profits, interest and an award of attorneys' fees. The second, filed in Federal court for the Central District of California and subsequently transferred first to the United States District Court for the District of Hawaii and then to the United States District Court in Saipan, was brought on behalf of a purported class consisting of the Saipan factory workers. It alleged claims under the Federal civil RICO statute, Federal peonage and involuntary servitude laws, the Alien Tort Claims Act, and state tort law, and sought equitable relief and unspecified damages, including treble and punitive damages, interest and an award of attorney's fees. Although we were not named as a defendant in these suits, we source products in Saipan, and counsel for the plaintiffs in these actions informed us that we were a potential defendant in these or similar actions. Together with some other potential defendants, we entered into an agreement to settle any claims for nonmaterial consideration. As part of the settlement, we were 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 mirrored portions of the larger State and Federal Court actions but did not include RICO and certain of the other claims alleged in those actions. The 23 California action was subsequently dismissed as part of the settlement, and the federal court action was transferred to the United States District Court in Saipan. On April 23, 2003, the Federal Court gave final approval of the settlement and dismissed the claims of the settlement class members against the Company with prejudice.

     On October 1, 1999, we filed a lawsuit against the United States Polo Association Inc., Jordache, Ltd. and certain other entities affiliated with them, alleging that the defendants were infringing on our famous trademarks. This lawsuit continues to proceed as both sides are awaiting the court'scourt’s decision on various motions. In connection with this lawsuit, on July 19, 2001, the United States Polo Association and Jordache filed a lawsuit against us in the United States District Court for the Southern District of New York. This suit, which is effectively a counterclaim by them in connection with the original trademark action, asserts claims related to our actions in connection with our pursuit of claims against the United States Polo Association and Jordache for trademark infringement and other unlawful conduct. Their claims stem from our contacts with the United States Polo Association'sAssociation’s and Jordache'sJordache’s retailers in which we informed these retailers of our position in the original trademark action. TheAll claims and counterclaims have been settled, except for the Company’s claims that the defendants violated the Company’s trademark rights. We did not pay any damages in this settlement. No date has been set for trial yet.

26


     On December 5, 2003, United States Polo Association, USPA Properties, Inc., Global Licensing Sverige and JordacheAtlas Design AB (collectively, “USPA”) filed a Demand for Arbitration against the Company in Sweden under the auspices of the International Centre for Dispute Resolution seeking a declaratory judgement that USPA’s so-called Horseman symbol does not infringe on Polo Ralph Lauren’s trademark and other rights. No claim for damages is stated. On February 19, 2004, we answered the Demand for Arbitration, contesting the arbitrability of USPA’s claim for declaratory relief. We also asserted our own counterclaim, seeking a judgement that the USPA’s Horseman symbol infringes on our trademark and other rights. We also seek $50.0 millioninjunctive relief and damages in compensatory damages and $50.0 million in punitive damages from us. This new suitan unspecified amount. On March 5, 2004, USPA answered our counterclaim, denying the allegations set forth therein. A hearing has been consolidated withset in this matter for June 29, June 30, July 1, August 28 and August 29. We will continue to contest the original trademark actionarbitrability of USPA’s claim for purposesdeclaratory relief and, continue vigorously to pursue our counterclaim and contest the claim lodged against us by USPA.

     In December 2003, we received a demand on behalf of discoverya stockholder to inspect the Company’s books and trial. Werecords relating to the amended and restated employment agreement dated June 23, 2003 between the Company and Ralph Lauren. The demand asserts that the purpose of the inspection is to determine, among other things, whether the directors of the Company breached their fiduciary duties in approving the compensation provided for in the employment agreement. While we have provided certain documents to the stockholder’s counsel pursuant to a confidentiality agreement, we believe that the United States Polo Association's and Jordache's claimsissues asserted by the demand are substantially without merit and intend to pursue our claims and defend against those of the United States Polo Association and Jordache vigorously. merit.

We are otherwise involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and other matters incidental to our business. We believe that the resolution of these other matters currently pending will not individually or in aggregate have a material adverse effect on our financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Item 4.Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended March 29, 2003. April 3, 2004.

PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

Item 5.Market for Registrants’ Common Equity and Related Stockholders Matters

Our Class A common stock is traded on the NYSE under the symbol "RL."“RL.” The following table sets forth, for the periods indicated, the high and low closing prices per share for our Class A common stock for each quarterly period in our two most recent fiscal years as reported on the NYSE Composite Tape.
MARKET PRICE OF CLASS A COMMON STOCK --------------- HIGH LOW ---- --- FISCAL 2003: First Quarter............................................. $30.82 $20.95 Second Quarter............................................ 24.60 17.73 Third Quarter............................................. 25.18 17.20 Fourth Quarter............................................ 23.00 19.30 FISCAL 2002: First Quarter............................................. $30.98 $22.95 Second Quarter............................................ 26.44 18.41 Third Quarter............................................. 27.94 18.56 Fourth Quarter............................................ 29.66 25.59
24 Since our initial public offering, and as of March 29, 2003, we had not declared any cash dividends on our common stock other than dividends paid in 1998 to holders of Class B common stock and Class C common stock in connection with our reorganization and the initial public offering.

          
Market Price
of Class A
Common Stock

HighLow


Fiscal 2004:
        
 First Quarter $27.93  $21.25 
 Second Quarter  30.10   25.06 
 Third Quarter  31.52   25.96 
 Fourth Quarter  35.35   27.28 
Fiscal 2003:
        
 First Quarter $30.82  $20.95 
 Second Quarter  24.60   17.73 
 Third Quarter  25.18   17.20 
 Fourth Quarter  23.00   19.30 

27


     On May 20, 2003 theour Board of Directors institutedinitiated a regular quarterly cash dividend program of $0.05 per share, or $0.20 per share on an annual basis, on Polo Ralph Lauren Commonour Class A common stock. The initial dividend is payableApproximately $19.9 million was recorded as a reduction to shareholders of record at the close of business on June 27, 2003, and will be paid on July 11, 2003.retained earnings during Fiscal 2004 in connection with these dividends.

     As of June 13, 2003,May 21, 2004, there were 1,3201,174 holders of record of our Class A common stock 5and four holders of record of our Class B common stock and 5 holders of recordstock. All of our outstanding shares of Class CB common stock. 25 ITEM 6. SELECTED FINANCIAL DATA stock are owned by Mr. Ralph Lauren and related entities and 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.

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Item 6.Selected Financial Data

The table below provides selected consolidated financial data for theeach of our last five fiscal years in the period ended March 29, 2003.years. We derived the income statement data for theeach of our last three fiscal years in the period ended March 29, 2003April 3, 2004 and the balance sheet data as of April 3, 2004 and March 29, 2003 and March 30, 2002 from our consolidated financial statements and accompanying notes, which are included elsewhere in this Form 10-K, whichand were audited by Deloitte & Touche LLP, independent auditors. We derived the data for the two fiscal years in the period ended March 31, 2001 and April 1, 2000 from the audited consolidated financial statements and accompanying notes of Polo Ralph Lauren Corporation and subsidiaries contained in our annual report on Form 10-K for the years ended April 1, 2000 and April 3, 1999March 31, 2001 which are not included in this Form 10-K. You should read this selected consolidated financial data together with our consolidated financial statements and the notes to those financial statements as well as the discussion in this Form 10-K under the caption "Management'sItem 7 — “Management’s Discussion and Analysis of Financial ConditionConditions and Results of Operations"Operations” included elsewhere in this Form 10-K. elsewhere.

                     
Fiscal Year Ended(1)

April 3,March 29,March 30,March 31,April 1,
20042003200220012000





(In thousands, except per share data)
Statements of Income:
                    
Net sales $2,380,844  $2,189,321  $2,122,333  $1,982,419  $1,719,226 
Licensing revenue  268,810   250,019   241,374   243,355   236,302 
   
   
   
   
   
 
Net revenues  2,649,654   2,439,340   2,363,707   2,225,774   1,955,528 
Cost of goods sold  1,326,335   1,231,739   1,216,904   1,162,727   1,002,390 
   
   
   
   
   
 
Gross profit  1,323,319   1,207,601   1,146,803   1,063,047   953,138 
Selling, general and administrative expenses  1,029,957   904,741   837,591   822,272   689,227 
Restructuring charge  19,566   14,443   16,000   123,554    
   
   
   
   
   
 
Income from operations  273,796   288,417   293,212   117,221   263,911 
Foreign currency losses (gains)  1,864   529   (1,820)  (5,846)   
Interest expense  10,000   13,502   19,033   25,113   15,025 
   
   
   
   
   
 
Income before provision for income taxes and change in accounting principle  261,932   274,386   275,999   97,954   248,886 
Provision for income taxes  95,055   100,151   103,499   38,692   101,422 
   
   
   
   
   
 
Income after tax, before other income and change in accounting principle  166,877   174,235   172,500   59,262   147,464 
Other (Income) expense, net  (4,077)            
Cumulative effect of change in accounting principle, net of taxes              3,967(2)
   
   
   
   
   
 
Net income $170,954  $174,235  $172,500  $59,262  $143,497 
   
   
   
   
   
 
Income per share before change in accounting principle — Basic $1.73  $1.77  $1.77  $0.61  $1.49 
Cumulative effect of change in accounting principle, net per share              0.04 
   
   
   
   
   
 
Net income per share — Basic $1.73  $1.77  $1.77  $0.61  $1.45 
   
   
   
   
   
 
Income per share before change in accounting principle — Diluted $1.69  $1.76  $1.75  $0.61  $1.49 
Cumulative effect of change in accounting principle, net per share              0.04 
   
   
   
   
   
 
Net income per share — Diluted $1.69  $1.76  $1.75  $0.61  $1.45 
   
   
   
   
   
 
Weighted-average common shares outstanding — Basic  98,977   98,331   97,470   96,773   98,927 
   
   
   
   
   
 
Weighted-average common shares outstanding — Diluted  100,960   99,263   98,522   97,446   99,036 
   
   
   
   
   
 

29


                     
Fiscal Year Ended(1)

April 3,March 29,March 30,March 31,April 1,
20042003200220012000





(Dollars in thousands)
Balance Sheet Data:
                    
Cash and cash equivalents $343,477  $343,606  $244,733  $102,219  $164,571 
Working capital  770,189   662,202   616,286   462,144   446,663 
Inventories  363,691   363,771   349,818   425,594   390,953 
Total assets  2,270,241   2,038,822   1,749,497   1,626,093   1,620,562 
Total debt  277,345   349,437   318,402   383,100   428,838 
Stockholders’ equity  1,422,073   1,208,767   998,195   809,309   772,437 


Notes:

FISCAL YEAR ENDED(1) ------------------------------------------------------------------- MARCH 29, MARCH 30, MARCH 31, APRIL 1, APRIL 3, 2003 2002 2001
(1) All periods presented represent a 52-week year, except Fiscal 2004, which represents a 53-week year.
(2) The Fiscal 2000 1999 --------- --------- --------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENTS OF INCOME: Net sales............................ $ 2,189,321 $ 2,122,333 $ 1,982,419 $ 1,719,226 $1,518,850 Licensing revenue.................... 250,019 241,374 243,355 236,302 208,009 ----------- ----------- ----------- ----------- ---------- Net revenues......................... 2,439,340 2,363,707 2,225,774 1,955,528 1,726,859 Cost of goods sold................... 1,231,739 1,216,904 1,162,727 1,002,390 904,586 ----------- ----------- ----------- ----------- ---------- Gross profit......................... 1,207,601 1,146,803 1,063,047 953,138 822,273 Selling, general and administrative expenses........................... 904,741 837,591 822,272 689,227 608,128 Restructuring charge................. 14,443 16,000 123,554 -- 58,560 ----------- ----------- ----------- ----------- ---------- Income from operations............... 288,417 293,212 117,221 263,911 155,585 Foreign currency losses (gains)...... 529 (1,820) (5,846) -- -- Interest expense..................... 13,502 19,033 25,113 15,025 2,759 ----------- ----------- ----------- ----------- ---------- Income before provision for income taxes and change in accounting principle.......................... 274,386 275,999 97,954 248,886 152,826 Provision for income taxes........... 100,151 103,499 38,692 101,422 62,276 ----------- ----------- ----------- ----------- ---------- Income before change in accounting principle.......................... 174,235 172,500 59,262 147,464 90,550 Cumulative effect of change in accounting principle net of taxes.............................. -- -- -- 3,967(2) -- ----------- ----------- ----------- ----------- ---------- Net income........................... $ 174,235 $ 172,500 $ 59,262 $ 143,497 $ 90,550 =========== =========== =========== =========== ========== Income per share beforerelates to the Company’s change in accounting principle -- Basic...... $ 1.77 $ 1.77 $ 0.61 $ 1.49 $ 0.91 Cumulative effectfor start-up activities.

Item 7.Management’s Discussion and Analysis of change in accounting principle, net per share.............................. -- -- -- 0.04 -- ----------- ----------- ----------- ----------- ---------- Net income per share -- Basic........ $ 1.77 $ 1.77 $ 0.61 $ 1.45 $ 0.91 =========== =========== =========== =========== ========== Income per share before change in accounting principle -- Diluted.... $ 1.76 $ 1.75 $ 0.61 $ 1.49 $ 0.91 Cumulative effectFinancial Condition and Results of change in accounting principle, net per share.............................. -- -- -- 0.04 -- ----------- ----------- ----------- ----------- ---------- Net income per share -- Diluted...... $ 1.76 $ 1.75 $ 0.61 $ 1.45 $ 0.91 =========== =========== =========== =========== ========== Weighted-average common shares outstanding -- Basic............... 98,330,626 97,470,342 96,773,282 98,926,993 99,813,328 =========== =========== =========== =========== ========== Weighted-average common shares outstanding -- Diluted............. 99,263,054 98,522,718 97,446,482 99,035,781 99,972,152 =========== =========== =========== =========== ========== Operations
26
FISCAL YEAR ENDED(1) -------------------------------------------------------------- MARCH 29, MARCH 30, MARCH 31, APRIL 1, APRIL 3, 2003 2002 2001 2000 1999 --------- --------- --------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) BALANCE SHEET DATA: Cash and cash equivalents................ $ 343,606 $ 244,733 $ 102,219 $ 164,571 $ 44,458 Working capital.......................... 665,660 616,286 462,144 446,663 331,482 Inventories.............................. 363,771 349,818 425,594 390,953 376,860 Total assets............................. 2,038,822 1,749,497 1,626,093 1,620,562 1,104,584 Total debt............................... 349,437 318,402 383,100 428,838 159,717 Stockholders' equity..................... 1,208,767 998,195 809,309 772,437 658,905
- --------------- Notes: (1) All periods presented represent a 52-week year, except fiscal 1999, which represents a 53-week year. (2) The fiscal 2000 change in accounting principle relates to the Company's change in accounting for start-up activities. ITEM 7. 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 in this Annual Report.Report on Form 10-K. We use a 52-53 week fiscal year ending on the Saturday nearest March 31. All references to "2003," "2002"“Fiscal 2004” represent the 53-week fiscal year ended April 3, 2004, while references to “Fiscal 2003” and "2001"“Fiscal 2002” represent the 52-week fiscal years ended March 29, 2003 and March 30, 2002, and March 31, 2001, respectively. GENERAL

Overview

     We operate in three integrated business operation segments: wholesale, retail and licensing. The following table sets forth net revenues for each business segment for the last three fiscal years. Fiscal 2002 reflects the change in the fiscal year end of certain of our European subsidiaries as reported in our Consolidated Financial Statements. See "Consolidation of European Entities -- Change in Reporting Period."
FISCAL YEAR ENDED -------------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- (DOLLARS IN THOUSANDS) Wholesale sales............................ $1,187,363 $1,198,060 $1,053,842 Retail sales............................... 1,001,958 924,273 928,577 ---------- ---------- ---------- Net sales.................................. 2,189,321 2,122,333 1,982,419 Licensing revenue.......................... 250,019 241,374 243,355 ---------- ---------- ---------- Net revenues............................... $2,439,340 $2,363,707 $2,225,774 ========== ========== ==========

     Wholesale consists of women'swomen’s and men'smen’s apparel designed and marketed worldwide, which are divided primarily into twothree groups: Polo Brands, Lauren and Collection Brands. In botheach of the wholesale groups, we offer discrete brand offerings, each directed by teams comprising design, merchandising, sales and production staff who work together to conceive, develop and merchandise product groupings organized to convey a variety of design concepts. This segment includes the core business Polo Ralph Lauren as well as Lauren, Blue Label, Polo Golf, RLX Polo Sport, Women'sWomen’s Ralph Lauren Collection and Black Label, and Men's Ralph Lauren andMen’s Purple Label Collection.

     Retail consists of our worldwide Polo Ralph Lauren retail operations that sell the product through full-price and outlet stores and Club Monaco full-price and outlet stores. 27 Our licensing business

     Licensing consists of product, international and home licensing alliances, each of which each pay us royalties based upon its sales of our product, and are generally subject to a payment of minimum royalty. Product, international and Ralph Lauren Home licensing alliances accounted for 53.5%, 23.7% and 22.8%, respectively, of total licensing revenue in fiscal 2003 and 51.9%, 25.9% and 22.2%, respectively, of total licensing revenue in fiscal 2002.royalty payments. We work closely with our licensing partners to ensure that products are developed, marketed and distributed in a manner consistent with the distinctive perspective and lifestyle associated with our brand. As

Fiscal 2004 Overall Results

     During Fiscal 2004, overall revenue increased $210.3 million or 8.6% primarily as a result of strong growth in our retail business and the failureintroduction of the Lauren line in our Wholesale business, partially offset primarily by planned sales declines in our Men’s Wholesale business due to a reduction in off price sales. Our licensing revenue increased $18.8 million or 7.5% as a result of growth in the footwear business, as well as the incremental effect of the consolidation

30


of revenues from the Japanese master license, partially offset by the loss of licensing income from the Lauren label, previously operated by Jones Apparel Group, Inc. The inclusion of the 53rd week was responsible for an estimated $39.5 million of the sales increase.

     Gross profit increased $115.7 million or 9.6% and our gross margin as a percentage of sales (gross margin rate) increased to 49.9% from 49.5% in the prior year. The increasing gross profit rate reflects the benefits of advertising, improved product mix and targeted marketing as well as a continued focus on inventory management.

     Operating expenses increased $125.2 million or 13.8% primarily as a result of start up expenses associated with the Lauren line and the increased operating expenses associated with our growth in retail sales.

     During Fiscal 2004, we recorded restructuring charges of $19.6 million. These charges are composed of an additional $10.4 million for lease termination costs associated primarily with two Club Monaco retail properties included in our 2001 operational plan due to real estate market factors that were less favorable than originally estimated, $7.9 million for additional contract termination and severance costs related to the consolidation of our European business operations and $1.3 million related to our decision to close the RRL stores.

     Our international operating results were affected by foreign exchange rate fluctuations. However, the increase in net sales due to the strengthening Euro and Canadian dollar was generally offset by a comparable increase in cost of sales and operating expenses.

Balance Sheet

     Our financial position remains strong. Although our cash and cash equivalents decreased $0.1 million, our cash and cash equivalents net of debt position improved $72.0 million. Cash flow from operations decreased by $59.9 million primarily as a result of increases in inventory and accounts receivable associated with the start up of the Lauren line.

     The strengthening of the Euro has had a significant effect on certain of our balance sheet accounts including its subsidiaries (Jones),Accounts Receivable, Inventory, Accounts Payable and Long Term Debt.

Recent Developments

     On May 25, 2004, the Company entered into a definitive agreement to meetacquire certain of the minimum sales volumesassets and to assume certain of the liabilities of RL Childrenswear Company, LLC relating to the Childrenswear Licensee’s licensed childrenswear apparel business in the United States, Canada and Mexico (the “Childrenswear Business”). The purchase price for the yearacquisition of the Childrenswear Business will be $232.1 million in cash payable at closing, subject to a working capital adjustment, plus up to an additional $20 million of deferred and contingent cash payments. Payment of the purchase price will be funded by cash on hand and lines of credit as required. In addition, the Company will assume certain ordinary course trade payables and accrued expenses of the Childrenswear Licensee and accrued vacation obligations for the Childrenswear Licensee’s employees who will become employees of the Company following the closing of the acquisition. The assets of the Childrenswear Licensee being acquired by the Company include, among other things, the license; all inventories of the Childrenswear Licensee; certain leases; customer lists; supplier lists; and books and records.

     The Childrenswear Licensee and certain of its affiliates and shareholders have agreed to indemnify the Company for all of the liabilities of the Company related to the operation of the Business prior to the closing of the acquisition and have also agreed that they will not compete with the Business for a period of three years after the closing date. In addition, the Childrenswear Licensee and certain of its affiliates will provide information system and accounting services to the Company for a transitional period following the closing.

31


     The closing of the proposed transaction is subject to customary conditions, including the receipt of certain third party consents and the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The closing of the transaction is anticipated to occur in late June 2004.

     Our licensing arrangements with Jones Apparel Group, Inc. (“Jones”) relating to the “Lauren” and “Ralph” lines ended on December 31, 2002, under2003 and we have begun designing, marketing and selling the license agreements for the saleLauren line as part of products under the "Ralph" trademark between usour wholesale business. As discussed in Item 1 — “Business-Recent Developments” and Item 3 — “Legal Proceedings”, we are currently in litigation with Jones dated May 11, 1998, these license agreements will terminate as of December 31, 2003. We have advised Jones that the termination of these licenses will automatically result inover the termination of the licenses between us andLauren licenses. If the Jones with respect to the "Lauren" trademark pursuant to the Cross Default and Term Extension Agreement, between us and Jones dated May 11, 1998. The Lauren license agreements would otherwise expire on December 31, 2006. On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court of the State of New York alleging among other things, that we breached our agreements with Jones with respect to the "Lauren" trademark by asserting our rights pursuant to the Cross Default and Term Extension Agreement and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov's employment agreement with Jones. Jones has indicated that it will treat the Lauren license agreements as terminated as of December 31, 2003. Jones is seeking compensatory damages of $550.0 million as well as punitive damages and to enforce the provisions of Ms. Nemerov's agreement. If Jones' lawsuitlitigation were to be determined adversely to us, it could have a material adverse effect on our results of operations and financial condition; however,position. However, we intend to continue to defend the case vigorously and believe thatour position is correct on the lawsuit is without merit and that we will prevail. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Court of the State of New York seeking among other things an injunction and a declaratory judgment that the Lauren license agreements terminate as of December 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. Jones has reported that net sales of Lauren and Ralph products for the year ended December 31, 2002 were $548.0 million and $37.0 million, respectively.merits.

     The royalties that we received pursuant to the "Lauren"“Lauren” license agreements and "Ralph"“Ralph” license agreements represented revenues in fiscal 2003 of approximately $23.0 million and $3.9 million, respectively, in Fiscal 2004 prior to the termination of these licenses on December 31, 2003 and $37.4 million and $5.3 million respectively. We will no longer receive these royalties after the third quarter of fiscal 2004, as a result of the termination of the Lauren and Ralph license agreements on December 31,respectively during Fiscal 2003. The Company is preparing to begin production and marketing of the Lauren and Ralph lines, with shipments beginning in January 2004. We expect that the income from our sales of Lauren and Ralph products will at least replace the royalty revenueincome previously attributable to the Lauren and Ralph license agreements. RECENT ACQUISITIONSagreements for Fiscal 2005. In total, royalties received from Jones, including royalties from the “Polo Jeans” license agreements, accounted for 17.2% and 27.2% of our aggregate licensing revenue for Fiscal 2004 and Fiscal 2003 respectively. Our “Polo Jeans” license agreements with Jones continue in effect.

     In June 2003, one of our licensing partners, WestPoint Stevens, Inc., and certain of its affiliates (“WestPoint”) filed a voluntary petition for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code. WestPoint produces bedding and bath product in our Home Collection. On December 19, 2003, the United States Bankruptcy Court approved an amended licensing agreement between WestPoint and us, which provides for the same royalty rate and minimum royalties that are not materially lower than under the previous agreement.

Recent Acquisitions

     In February 2003, we acquired a 50% controlling interest in the Japanese master license for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan. The total purchase priceAll of the revenues and expenses for the Japanese master license are included in our consolidated statements of operations, and we record minority interest expense to reflect the share of earnings or losses allocable to the 50% minority interest holder in the Japanese master license was 2.8 billion Yen, or approximately $24.1license. These amounts are included in Other (income) expense, net, in the consolidated statements of operations. We recorded minority interest expense of $1.4 million based onfor the average exchange rateyear ended April 3, 2004.

     Also, in effect on that date. In addition,February 2003, we acquired an 18% equity interest in the company whichthat holds the sublicenses for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan for a purchase price of 5.6 billion Yen, or approximately $47.6 million based on the average exchange rate in effect on that date.Japan. In May 2003, we acquired an additional 2% equity interest in this company. Unaudited pro forma informationFor the year ended April 3, 2004, we recorded $5.5 million of equity investment income related to these acquisitions is not included, asthis 20% investment in Other (income) expense, net in the impactconsolidated statements of operations. Results for our 50% interest in the Japanese master license and the 20% equity interest in the holder of the Japanese sublicenses are reported on a one-month lag.

Restructurings

     During Fiscal 2004, we determined that the two remaining RRL stores would be closed. In connection with this transaction is not material to 28 our consolidated results. Please refer to "Note 3 to Consolidated Financial Statements"decision we recorded a $1.3 million restructuring charge for a discussion of these acquisitions. We have also acquired six retail locationslease termination costs and related assets in Germany and Argentina from certain of our licensees during the third quarter of fiscal 2003. In October 2001, we acquired PRL Fashions of Europe S.R.L., which holds licenses to sell our women's Ralph Lauren apparel in Europe, as well as our men's and boys' Polo Ralph Lauren and our Polo Jeans apparel in Italy, and we acquired the Ralph Lauren store in Brussels from one of our licensees. RESTRUCTURINGS FISCAL 2003 RESTRUCTURING AND SPECIAL CHARGESfixed asset impairments.

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     During the third quarter of fiscalFiscal 2003, we completed a strategic review of our European businesses and formalized our plans to centralize and more efficiently consolidate our business operations. The major initiatives of the plan included the following: consolidation of our headquarters from five cities in three countries to one location, the consolidation of our European logistics operations to Italy and the migration of all European information systems to a standard global system. We have completed the consultation process for consolidation of the headquarters and anticipate completion of the consolidation and migration during fiscal 2004. In connection with the implementation of this plan, the Company has recorded a restructuring charge of $7.9 million during Fiscal 2004 and a $14.4 million restructuring charge during Fiscal 2003, of which $3.8$17.1 million hashad been paid through March 29, 2003. FISCALApril 3, 2004. It is expected that this plan will be completed and the remaining liabilities will be paid in Fiscal 2005.

     During Fiscal 2001, OPERATIONAL PLAN AND FISCAL 1999 RESTRUCTURING PLAN During fiscal 2001 and 1999 we implemented two plans: the 2001 Operational Plan and the 1999 Restructuring Plan. As of March 29, 2003,Due to real estate market factors that were less favorable than originally estimated, we settled all remaining liabilities related to the 1999 Restructuring Plan. In May 2003, we settled $4.6recorded an additional $10.4 million of the remaining $5.2 million liabilities related to the 2001 Operational Plan andcharge during Fiscal 2004. We expect to settle the remaining $0.6 millionliabilities in fiscal 2004. RESULTS OF OPERATIONS Fiscal 2005 or in accordance with contract terms.

Results of Operations

The table below sets forth results in millions of dollars and the percentage relationship to net revenues of certain items in our consolidated statements of income for our last three fiscal years:
FISCAL YEAR ENDED ----------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- Net sales.......................................... 89.8% 89.8% 89.1% Licensing revenue.................................. 10.2 10.2 10.9 ----- ----- ----- Net revenues....................................... 100.0 100.0 100.0 ----- ----- ----- Gross profit....................................... 49.5 48.5 47.8 Selling, general and administrative expenses....... 37.1 35.4 36.9 Restructuring charge............................... 0.6 0.7 5.6 ----- ----- ----- Income from operations............................. 11.8 12.4 5.3 Foreign currency losses (gains).................... -- (0.1) (0.2) Interest expense................................... 0.6 0.8 1.1 ----- ----- ----- Income before provision for income taxes........... 11.2 11.7 4.4 Provision for income taxes......................... 4.1 4.4 1.7 ----- ----- ----- Net Income......................................... 7.1% 7.3% 2.7% ===== ===== =====
29 CONSOLIDATION OF EUROPEAN ENTITIES -- CHANGE IN REPORTING PERIOD

                         
Fiscal Year Ended

April 3,March 29,March 30,April 3,March 29,March 30,
200420032002200420032002






Net sales $2,380.9  $2,189.3  $2,122.3   90.0%  89.8%  89.8%
Licensing revenue  268.8   250.0   241.4   10.0%  10.2%  10.2%
   
   
   
   
   
   
 
Net revenues  2,649.7   2,439.3   2,363.7   100%  100.0%  100.0%
   
   
   
   
   
   
 
Gross profit  1,323.3   1,207.6   1,146.8   49.9%  49.5%  48.5%
Selling, general and administrative expenses  1,030.0   904.8   837.6   38.9%  37.1%  35.4%
Restructuring charge  19.5   14.4   16.0   0.7%  0.6%  0.7%
   
   
   
   
   
   
 
Income from operations  273.8   288.4   293.2   10.3%  11.8%  12.4%
Foreign currency losses (gains)  1.9   0.5   (1.8)        (0.1)%
Interest expense  10.0   13.5   19.0   0.4%  0.6%  0.8%
   
   
   
   
   
   
 
Income before provision for income taxes and other (income) expense, net  261.9   274.4   276.0   9.9%  11.2%  11.7%
Provision for income taxes  95.0   100.2   103.5   3.6%  4.1%  4.4%
Other (income) expense, net  (4.1)        (0.2)%      
   
   
   
   
   
   
 
Net income $171.0  $174.2  $172.5   6.5%  7.1%  7.3%
   
   
   
   
   
   
 

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, the net activity shown below for the three-month period ended December 29, 2001, for those European subsidiaries is reported as an adjustment

33


to retained earnings in the fourth quarter of fiscalFiscal 2002 in the accompanying financial statements:
THREE-MONTHS ENDED DECEMBER 29, 2001: - ------------------------------------- (DOLLARS IN MILLIONS) Net sales................................................... $49.5 Gross profit................................................ 25.5 Loss before benefit from income taxes....................... (0.7) Benefit from income taxes................................... 0.3 Net loss.................................................... $(0.4)
     
Three-months Ended December 29, 2001:

(Dollars in millions)
Net sales $49.5 
Gross profit  25.5 
Loss before benefit from income taxes  (0.7)
Benefit from income taxes  0.3 
Net loss $(0.4)

Net income for the year ended March 30, 2002, for the consolidated Company as if the European subsidiaries remained on a three-month lag would have been $159.7 million. FISCAL

Fiscal 2004 Compared to Fiscal 2003

Net Revenues. Net revenues for Fiscal 2004 were $2.650 billion, an increase of $210.3 million over net revenues for Fiscal 2003. This increase was primarily due to increases in our retail segment as a result of our improved comparable retail store sales, continued store expansion and the favorable impact of the strengthening Euro and Canadian dollar. Also contributing to the sales increase was the 53rd week in Fiscal 2004 compared to 52 weeks in Fiscal 2003. The 53rd week was responsible for an estimated $39.5 million of the sales increase. Further influencing the increase in net revenues were overall increases in licensing revenues driven by the incremental effect of the consolidation of revenues from the Japanese master license and improved results in the footwear business. Additionally, wholesale revenues increased as a result of the sale of Lauren products commencing in the third quarter of fiscal year 2004. These increases were partially offset by decreased sales in our wholesale business primarily driven by planned reductions in off price sales in our men’s, women’s and European business as well as the loss of the Lauren and Ralph royalties from Jones. Net revenues for our business segments are provided below (Dollars in thousands).

                 
Fiscal Year Ended

April 3,March 29,Increase
20042003(Decrease)% Change




Net revenues:                
Wholesale $1,210,397  $1,187,363  $23,034   1.9%
Retail  1,170,447   1,001,958   168,489   16.8%
Licensing  268,810   250,019   18,791   7.5%
   
   
   
     
Total Net Revenue $2,649,654  $2,439,340  $210,314   8.6%
   
   
   
     

Wholesale net sales increased primarily due to the addition of the Lauren line, which accounted for net sales of approximately $109.8 million in the current year partially offset by:

• a $60.4 million decrease in the domestic men’s wholesale business, which resulted from a planned reduction in off-price sales and a reduction in spring sales due to a planned reduction of sales to lower margin customers.
• the elimination of the women’s Ralph Lauren Sport line, which accounted for net sales of approximately $12.3 million in the prior year.
• decreases in the European wholesale business, primarily due to the soft economic conditions in Europe, of approximately $65.4 million on a constant dollar basis, offset by a $45.1 million favorable impact due to a stronger Euro in the current period.

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Retail net sales increased primarily as a result of:

• a $43.7 million, or 14.4%, increase in comparable full-price store sales and a $48.8 million, or 7.6%, increase in comparable outlet store sales on a constant dollar basis. Excluding the extra week in Fiscal 2004, comparable store sales increased 12.2% and 5.7% in full-price and outlet stores, respectively, on a constant dollar basis. Comparable store sales for the 53 weeks increased 18.0% and 8.8% for the full price stores and the outlet stores, respectively, while comparable store sales on a on a 52 week basis increased 15.8% for full price stores and 6.9% for outlet stores. Comparable store sales information includes both Ralph Lauren stores and Club Monaco stores.
• worldwide store expansion. During Fiscal 2004, the Company added 15 stores and closed 7 stores. Our total store count at April 3, 2004 was 263 stores compared to 255 stores at March 29, 2003.
• the stronger Euro and Canadian dollar in the current period, accounted for approximately $27.0 million of the increase in net sales.

Licensing revenue increased primarily as a result of:

• a $27.5 million increase in international licensing primarily due to the incremental effect of the consolidation of revenues from the Japanese master license.
• $3.5 million increase in domestic licensing due to improvements in the footwear business.
• partially offset by the loss of $15.8 million of Lauren and Ralph royalties from Jones compared to the prior year.

Gross Profit. Gross profit increased $115.7 million, or 9.6%, for Fiscal 2004 compared to Fiscal 2003 COMPARED TO FISCALprimarily as a result of the increases discussed above. Gross profit as a percentage of net revenues increased to 49.9% from 49.5%. This increase reflects a change in business mix, with retail sales representing 44.2% of revenues in Fiscal 2004 compared to 41.1% in Fiscal 2003 and improved margins in our Ralph Lauren and Club Monaco retail stores. The increasing gross profit rate also reflects higher realized sales dollars resulting from a combination of improved product mix as well as the benefits of advertising and targeted marketing. The rate improvement also reflects a continued focus on inventory management. Although our inventory balance at April 3, 2004 is approximately the same as it was at March 29, 2003, this primarily reflects the appreciation of the Euro, inventories related to our Lauren wholesale business and increased levels of inventory related to our retail growth offset by decreases in inventory in other lines of business.

Selling, General and Administrative Expenses. SG&A increased $125.2 million, or 13.8%, to $1.030 billion during Fiscal 2004 from $904.8 million during Fiscal 2003. SG&A as a percent of net revenues increased to 38.9% from 37.1%. The increase in SG&A was primarily driven by:

• Higher selling salaries and related costs of $43.4 million, exclusive of the effect of foreign currency exchange rate fluctuations in connection with the increase in retail sales and worldwide store expansion.
• Approximately $30.4 million of the increase in SG&A was due to the impact of foreign currency exchange rate fluctuations, primarily as a result of the strengthening of the Euro and Canadian dollar in Fiscal 2004.
• Expenses of $28.1 million associated with the Lauren wholesale business, exclusive of additional corporate and overhead expenses incurred and reduced royalty revenues received.

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• $19.0 million of increased international licensing SG&A primarily due to the consolidation of incremental expenses in connection with the Japanese master license.

Restructuring Charge. We recorded restructuring charges of $19.6 million during Fiscal 2004 compared to restructuring charges of $14.4 million during Fiscal 2003. The Fiscal 2004 restructuring charge is comprised of an additional $10.4 million for lease termination costs primarily associated with two Club Monaco retail properties included in our 2001 Operational Plan due to real estate market factors that were less favorable than originally estimated, $7.9 million for additional contract termination and severance costs related to the consolidation of our European business operations (approximately $6.7 million for the wholesale business and $1.2 million for the retail business) and $1.3 million for lease termination and asset write-offs associated with the March 2004 decision to close our RRL stores. The Fiscal 2003 restructuring charge of $14.4 million related to severance and contract termination costs in connection with the consolidation of our European business operations.

Income (Loss) from Operations. Income from operations decreased $14.6 million, or 5.1%, in Fiscal 2004 compared to Fiscal 2003. This decrease was primarily driven by a decrease in wholesale operating profits, restructuring charges, the decrease in Lauren and Ralph royalties from Jones following the license termination in December 2003 and the start up expenses associated with the Lauren line. These decreases were partially offset by an increase in the retail segment’s profits. Income from operations was not significantly impacted by the stronger Euro and Canadian dollar period because the increased sales resulting from exchange rate fluctuations were substantially offset by a comparable increase in expenses. Income from operations for our business segments are provided below (Dollars in thousands).

                  
Fiscal Year Ended

April 3,March 29,Increase
20042003(Decrease)% Change




Income (Loss) from operations                
 Wholesale $93,128  $124,476  $(31,348)  (25.2%)
 Retail  72,915   40,366   32,549   80.6%
 Licensing  127,319   138,018   (10,699)  (7.8%)
   
   
   
     
   293,362   302,860  $(9,498)  (3.1%)
   
   
   
     
Less: Restructuring Charge  (19,566)  (14,443)        
   
   
         
Income from operations $273,796  $288,417         
   
   
         

Wholesale operating incomedecreased primarily as a result of decreased net sales in our domestic mens business and European wholesale operations. The incremental effect of Lauren sales in the fourth quarter on our wholesale business’ income from operations was largely offset by start up and ordinary operating expenses associated with the Lauren wholesale business.

Retail operating incomeincreased primarily as a result of increased net sales and improved gross profits as a percentage of net revenues. These increases were partially offset by the increase in selling salaries and related costs in connection with the increase in retail sales and worldwide store expansion.

Licensing incomedecreased primarily due to the loss of the Lauren and Ralph royalties from Jones. This decrease was partially offset by improvements in the footwear business and by the inclusion of the operations of the Japanese Master License.

Foreign Currency (Gains) Losses. The effect of foreign currency exchange rate fluctuations resulted in a loss of $1.9 million during Fiscal 2004, compared to a $0.5 million loss during Fiscal 2003. These losses primarily related to transaction losses on unhedged inventory

36


purchases and royalty payments in Europe resulting from increases in the value of the Euro compared to the dollar. These losses are unrelated to the impact of changes in the value of the dollar when operating results of our foreign subsidiaries are converted to U.S. dollars. In the prior period, these losses primarily related to transaction losses on the unhedged portion of our Euro denominated debt caused by appreciation of the Euro until we entered into the cross currency swap in June 2002, NET SALES. which were partially offset by $1.3 million of gains recorded on the Japanese forward contracts that we entered into in November of 2002.

Interest Expense. Interest expense decreased to $10.0 million in Fiscal 2004 from $13.5 million for Fiscal 2003. This decrease was due to the repayment of approximately $100.0 million of short-term borrowings during Fiscal 2004, as well as decreased interest rates as a result of the May 2003 interest rate swap described in “Liquidity and Capital Resources — Derivative Instruments.”

Provision for Income Taxes. The effective tax rate was 36.3% for Fiscal 2004 compared to 36.5% for Fiscal 2003.

Other (Income) Expense, Net. Other (income) expense, net was $(4.1) million for Fiscal 2004. This reflects $5.5 million of income related to the 20% equity interest in the company that holds the sublicenses for the Polo Ralph Lauren men’s, women’s and jeans business in Japan, net of $1.4 million of minority interest expense associated with our Japanese master license, both of which were acquired in February 2003 (except for the additional 2% equity interest in the entity that holds the sublicenses that we acquired in May 2003).

Net Income. Net income decreased for Fiscal 2004 to $171.0 million from $174.2 million for Fiscal 2003, or 6.5% and 7.1% of net revenues, respectively. Earnings per share on a fully diluted basis decreased by $0.07 to $1.69 per share as a result of the decrease in net income for the reasons previously discussed and an increase in diluted shares outstanding of 1.7 million due to the exercise of stock options, a higher average stock price and the award of restricted stock units to executives.

Fiscal 2003 Compared to Fiscal 2002

Net Sales.Net sales for fiscalFiscal 2003 were $2.189 billion, an increase of $67.0 million, or 3.2%, over net sales for fiscalFiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, net sales would have been $2.094 billion resulting in a current fiscal year increase of 4.6%. Net sales results by segment were as follows (Dollars in thousands):

                  
Fiscal Year Ended

March 29,March 30,Increase
20032002(Decrease)% Change




Net revenues:                
 Wholesale $1,187,363  $1,198,060  $(10,697)  (0.9%)
 Retail  1,001,958   924,273   77,685   8.4%
 Licensing  250,019   241,374   8,645   3.6%
   
   
   
     
Total Net Revenue $2,439,340  $2,363,707  $75,633   3.2%
   
   
   
     

Wholesale net salesdecreased $11.0$10.7 million, or 0.9%, to $1.187 billion for fiscalFiscal 2003 from $1.198 billion in fiscalFiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, wholesale net sales would have

37


been $1.164 billion and the increase would have been 2.0%. Increases inThe increase primarily resulted from the European wholesale business of $105.3 million, which resulted primarily from continued European expansion and the inclusion of PRL Fashions' operations for the full year, as well as the favorable impact of Euro currency fluctuation, were offset by a strategic streamlining of the amount of product sold to the department stores and the elimination of the women's Ralph Lauren Sport and the Lauren for Men lines which contributed a decrease of $70.2 million. following:

• Increases in the European wholesale business of $66.4 million, exclusive of foreign currency exchange rate fluctuations, which resulted primarily from continued European expansion and the inclusion of PRL Fashions’ operations for the full year, as well as;
• $38.9 million from the favorable impact of Euro currency fluctuation, partially offset by a strategic streamlining of the amount of product sold to the department stores and:
• the elimination of the women’s Ralph Lauren Sport and the Lauren for Men lines which contributed a decrease of $70.2 million.

Retail net salesincreased $77.7 million, or 8.4%, to $1.002 billion for fiscalFiscal 2003 from $924.3 million in fiscalFiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, retail net sales would have been $929.4 million, resulting in a $72.5 million increase. This increase was primarily driven by the $49.4 million, or 8.4%, increase in comparable outlet store sales, which was offset by $7.1 million, or 2.3%, decrease in our total full-price stores (comparable store sales information includes both Polo Ralph Lauren stores and Club Monaco stores). The increase also reflected the favorable impact of Euro currency fluctuation. Also impacting this increase is worldwide store expansion. During the year ended March 29, 2003, the Company opened 19 stores, net of closings, ending the period with 255 stores as compared to 236 stores in the prior year, which accounted for approximately $30 million of our increase in net sales. Included in these openings were 11 Polo Ralph Lauren stores, seven Club Monaco stores (including two Club Monaco Caban Home stores), and seven outlet stores (including one full line outlet store, one Polo Jeans outlet store and five European outlet stores). Offsetting these openings were the closings of three outlet stores (including two full line outlet stores and one Polo Jeans outlet store), two Club Monaco stores and one Club Monaco outlet store. 30 LICENSING REVENUE. following:

• a $49.4 million, or 8.4%, increase in comparable outlet store sales, partially offset by $7.1 million, or 2.3%, decrease in our total full-price stores (comparable store sales information includes both Polo Ralph Lauren stores and Club Monaco stores).
• a $9.9 million increase as a result of the favorable impact of Euro currency fluctuation.
• $30 million of the increase was due to worldwide store expansion. The Company opened 19 stores, net of closings during the year, ending the period with 255 stores as compared to 236 stores in the prior year. Included in these openings were 11 Polo Ralph Lauren stores, seven Club Monaco stores (including two Club Monaco Caban Home stores), and seven outlet stores (including one full line outlet store, one Polo Jeans outlet store and five European outlet stores). Offsetting these openings were the closings of three outlet stores (including two full line outlet stores and one Polo Jeans outlet store), two Club Monaco stores and one Club Monaco outlet store.

Licensing Revenue.Licensing revenue increased approximately $8.6 million, or 3.6%, to $250.0 million in fiscalFiscal 2003. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, licensing revenue would have been $237.4 million, resulting in a 5.3%, or $12.6 million, increase primarily driven by increased revenues from our international and product licensing partners of approximately $4.2 million and $8.5 million, respectively. GROSS PROFIT.

Gross Profit. Gross profit dollars increased $60.8 million, or 5.3%, in fiscalFiscal 2003 over fiscalFiscal 2002. Gross profits as a percent of net sales increased to 49.5% in 2003 from 48.5% in 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, gross profit percentage would have been 48.2%. The increase in gross profit rate reflected improved product performance and merchandise margins in the domestic retail businesses, partially offset by a less than 100 basis pointsmall reduction in wholesale. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.wholesale margins.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A)(“SG&A”) increased $67.2 million, or 8.0%, to $904.7$904.8 million in fiscalFiscal 2003 from $837.6 million, as compared to fiscalFiscal 2002. These expenses as a percent of net sales increased to 37.1% in 2003 from 35.4% in 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the year ended March 30, 2002, SG&A expenses would have been $845.0 million, or 36.3% of net revenues. The increase in fiscalFiscal 2003 was primarily due to higher selling salaries and related costs in connection with the incremental increase in retail sales and worldwide store expansion, the expansion of the European wholesale business, the inclusion of PRL Fashions'Fashions’ operations, which was acquired in October 2002, as well as the impact of a stronger Eurodollarforeign currency fluctuation.exchange rate fluctuations, primarily the strengthening of the Euro. These increases were offset by the elimination of goodwill amortization of $9.1 million as a result of the

38


implementation of Statement of Financial Accounting Standards (SFAS)(“SFAS”) No. 142, "Goodwill“Goodwill and Other Intangible Assets," and the recording of a gain of approximately $5.0 million related to an assignment of the sub-lease for one store location. RESTRUCTURING CHARGE.

Restructuring Charge.During fiscalFiscal 2003, we completed a strategic review of our European businesses and formalized our plans to centralize and more efficiently consolidate our operations. The major initiatives of our plan included the following: consolidation of our headquarters from five cities in three countries to one location; the consolidation of our European logistics operations to Italy; and the migration of all European information systems to a standard global system. We have completed the consultation process for consolidation of the headquarters and anticipate completion of the consolidation and migration during fiscalFiscal 2004. In connection with the implementation of this plan, the Company has recorded a total $14.4 million restructuring charge of which $3.8(approximately $12.3 million has been paid through March 29, 2003.for the wholesale business and $2.1 million for the retail business).

     During fiscalFiscal 2002, the Company recorded a $16.0 million restructuring charge for additional lease termination costs associated with the closure of our retail stores due to market factors that were less favorable than originally estimated duringstores.

Operating Income. Operating income decreased $6.4 million or 2.1% from fiscal 2002 as follows (Dollars in thousands):

                  
For the Year Ended

March 29,March 30,Increase
20032002(Decrease)% Change




Income (Loss) from operations:                
 Wholesale $124,476  $158,401  $(33,925)  (21.4%)
 Retail  40,366   18,799   21,567   114.7%
 Licensing  138,018   132,012   6,006   4.6%
   
   
   
     
   302,860   309,212  $(6,352)  (2.1%)
           
     
Less: Restructuring Charge  (14,443)  (16,000)        
   
   
         
Income from operations $288,417  $293,212         
   
   
         

Wholesale operating incomedecreased $33.9 million or 21.4% from fiscal 2002. Had certain of the second quarterEuropean subsidiaries been reported on a consistent fiscal year basis for the year end March 30, 2002, wholesale operating income would have increased as a result of fiscal 2001. FOREIGN CURRENCY LOSES (GAINS)the increases in sales as previously discussed and lower operating expenses.

Retail operating incomeincreased $21.6 million or 114.7% primarily as a result of the sales increases discussed earlier as well as improved gross margin rates.

Licensing incomeincreased $6.0 million or 4.6% primarily as a result of the sales increases discussed previously.

Foreign Currency Losses (Gains). The effect of foreign currency decreased to a loss of $0.5 million in fiscalFiscal 2003, compared to a $1.8 million gain in fiscalFiscal 2002. These gains are unrelated to the impact of changes in the value of the dollar when operating results of our foreign subsidiaries are converted to U.S. dollars. In fiscalFiscal 2003, these losses primarily related to approximately $3.2 million of transaction losses on the unhedged portion of our Euro debt in the first quarter of the fiscal year, which resulted from increases in the Eurodollar rate until we entered into the cross currency swap in June 2002. These losses were partially offset by $2.4 million of gains realized on the Japanese forward contracts, which we further describe in the "Liquidity“Liquidity and Capital Resources"Resources” section. In fiscalFiscal 2002, the gains were derived from transaction gains on the unhedged portion of our Euro debt, which resulted from decreases in the Eurodollar rate. INTEREST EXPENSE, NET.

39


Interest Expense, Net. Interest expense decreased to $13.5 million in fiscalFiscal 2003 from $19.0 million in fiscalFiscal 2002. This decrease was primarily due to decreased short-termshort term borrowings and long-termlong term Euro debt borrowings of $12.0 million and $7.7 million, respectively, during the 31 fiscal year ended March 29,Fiscal 2003. The remaining decrease of approximatelyApproximately $2.9 million of the decrease resulted from reduced interest rates as a result of the cross currency swap, which was entered into in connection with our Euro debt in June 2002 and is further described in the "Liquidity“Liquidity and Capital Resources"Resources” section. The remaining decrease was primarily due to lower interest rates, during the fiscal year ended March 29, 2003. These decreases were partially offset by higher Eurodollar exchange rates, which effectaffect the Euro denominated interest payments on the portion of the Euro debt not covered by the cross currency swap. PROVISION FOR INCOME TAXES.

Provision for Income Taxes.Our tax provision for Fiscal 2003 was $100.2 million as compared to $103.5 million in Fiscal 2002, a 36.5% and 37.5% effective tax rate, respectively. This decline is the result of the implementation of tax strategies. NET INCOME.

Net Income.Net income increased in Fiscal 2003 to $174.2 million from $172.5 million in Fiscal 2002, or 7.1% and 7.3% of net revenues, respectively. Diluted earnings per common share was $1.76 and $1.75 for fiscalFiscal 2003 and fiscalFiscal 2002, respectively. FISCAL 2002 COMPARED TO FISCAL 2001 NET SALES. Net sales increased 7.1% to $2.1 billionThe change in fiscal 2002 from $2.0 billion in fiscal 2001. Wholesale net sales increased 13.7% to $1.2 billion in fiscal 2002 from $1.1 billion in fiscal 2001. Wholesale growth primarily reflects the benefitdiluted earnings per share resulted from the inclusion$1.7 million increase in Net income partially offset by a 0.7 million increase in the number of two strong quarters for the periods January through March 2002 and 2001 for certainshares outstanding primarily as a result of the European entities. See "Consolidationexercise of European Entities -- Change in Reporting Period." The impact of consolidating the European subsidiaries on a March 30 fiscal year resulted in an increase in wholesale revenues of approximately $80.0 million, or 7.1%. Retail sales decreased by less than 1.0% to $924.3 million in fiscal 2002 from $928.6 million in fiscal 2001. Our Polo Ralph Lauren full-price stores decreased $14.3 millionstock options and our Club Monaco stores decreased $8.4 million due to the effects of a promotionally driven and highly competitive retail store environment and the current economic conditions exacerbated by the events of September 11th. Also contributing to the decrease was the closing, in connection with our 2001 Operational Plan, of our Polo Jeans Co. full-price retail stores during fiscal 2001, which had sales of $18.0 million during fiscal 2001. These decreases were offset by significant increases in our outlet business of approximately $29.8 million. In fiscal 2002, the impact of consolidating the European subsidiaries on a March 30 fiscal year resulted in a decrease in retail revenues of approximately $3.0 million, less than 1.0%. See "Consolidation of European Entities -- Change in Reporting Period." Comparable store sales, which represent net sales of stores open in both reporting periods for the full portion of such periods, decreased 3.0%. The comparable store declines were due to the effects of a promotionally driven and highly competitive retail environment. At March 30, 2002, we operated 236 stores: 6 Ralph Lauren stores, 33 Polo Ralph Lauren stores, 55 Club Monaco full-price stores, 94 Polo outlet stores, 22 Polo Jeans Co. outlet stores, 16 European outlet stores and 10 Club Monaco outlet stores. LICENSING REVENUE. Licensing revenue decreased approximately $2.0 million, representing less than a 1% decrease, to $241.4 million in fiscal 2002 from $243.4 million in fiscal 2001. Increases from one licensee within our home collection business and from our international licensed business, particularly in Asia, were offset by decreased royalty revenue from a significant product licensee and decreased royalties from our Italian licensee, the business and certain assets of which we acquired in October 2001. In fiscal 2002, the impact of consolidating the European subsidiaries on a March 30 fiscal year increased licensing revenues by approximately $0.4 million, less than 1%. See "Consolidation of European Entities -- Change in Reporting Period." GROSS PROFIT. Gross profit as a percentage of net revenues increased to 48.5% in fiscal 2002 from 47.8% in fiscal 2001. This increase was mainly attributable to wholesale gross margins 32 in that $41.5 million of inventory writedowns were recorded in fiscal 2001 in connection with the implementation of our operational review and our decision to accelerate the disposition of aged inventory. In addition, retail gross margins decreased 1.4% due to the effects of a promotionally driven and highly competitive retail store environment, resulting in higher markdowns taken. In fiscal 2002, the impact of consolidating the European subsidiaries on a March 30 fiscal year increased gross profit by approximately $41.0 million, representing less than 4% of total gross profit and less than 0.2 gross percentage points. See "Consolidation of European Entities -- Change in Reporting Period." SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses as a percentage of net revenues decreased to 35.4% in fiscal 2002 from 36.9% in fiscal 2001. This decrease in SG&A expenses as a percentage of net revenues was primarily due to a charge of $18.1 million recorded in the second quarter of fiscal 2001 relating to nonrecurring charges associated with targeted opportunities for improvement, including the termination of operating contracts, streamlining of certain corporate and operating functions, and employee-related matters. In addition, the Company has recorded $2.9 million of gain on the sale of our 50% joint venture interest in a 44,000-square-foot building located in the SoHo district of New York City. In fiscal 2002, the impact of consolidating the European subsidiaries on a March 30 fiscal year increased SG&A expenses by approximately $20.0 million, less than 3%. See "Consolidation of European Entities -- Change in Reporting Period." RESTRUCTURING CHARGE. During fiscal 2002, the Company recorded a $16.0 million restructuring charge for lease termination costs associated with the closure of our retail stores due to market factors that were less favorable than originally estimated during the second quarter of fiscal 2001. During fiscal 2001, the Company recorded a $123.6 million restructuring charge related to our 2001 Operational Plan which included lease and contract termination costs, store fixed asset writedowns and severance and termination benefits. FOREIGN CURRENCY LOSSES (GAINS). The effect of foreign currency decreased to a gain of $1.8 million in fiscal 2002, compared to a $5.8 million gain in fiscal 2001. These gains were derived from transaction gains on the unhedged portion of our Euro debt which resulted from decreases in the Eurodollar rate. INTEREST EXPENSE, NET. Interest expense decreased to $19.0 million in fiscal 2002 from $25.1 million in fiscal 2001. This decrease was due to lower levels of borrowings and the repayment of approximately $53.0 million of short-term borrowings during the fiscal year. In addition, we repurchased $10.6 million of our outstanding Euro debt in fiscal 2002. PROVISION FOR INCOME TAXES. The effective tax rate decreased to 37.5% in fiscal 2002 from 39.5% in fiscal 2001, resulting from the implementation of tax strategies. NET INCOME. Net income increased in fiscal 2002 to $172.5 million from $59.3 million in fiscal 2001, or 7.3% and 2.7% of net revenues, respectively. LIQUIDITY AND CAPITAL RESOURCES additional restricted shares.

Liquidity and Capital Resources

Our primary ongoing cash requirements are to fund growth in working capital (primarily accounts receivable and inventory) to support projected sales increases, construction and renovation of shop-within-shops, investment in the technological upgrading of our distribution centers and information systems, expenditures related to retail store expansion, acquisitions, dividends, and other corporate activities, including financing the start-up costs of bringing the "Lauren"“Lauren” and "Ralph"“Ralph” lines in house. Sources of liquidity to fund ongoing and future cash requirements include cash flows from operations, cash and cash equivalents, credit facilities and other borrowings.

Fiscal 2004 Compared to Fiscal 2003

     We ended fiscalFiscal 2004 with $343.5 million in cash and cash equivalents and $277.3 million of debt outstanding compared to $343.6 million and $349.4 million of cash and cash equivalents and debt outstanding, respectively, at March 29, 2003. This represents a $72.0 million increase in our cash net of debt position over the last twelve months which is primarily attributable to the following factors: (i) reduced spending on acquisitions and investments, (ii) increased proceeds received from the exercise of stock options, (iii) partially offset by reduced cash flows from operations and an increase in Euro debt of $28.9 million as a result of the strengthening of the Euro. Additionally, capital expenditures were $123.0 million for Fiscal 2004 compared to $98.7 million in Fiscal 2003.

     As of April 3, 2004, we had $277.3 million outstanding in long-term Euro debt based on the year-end Euro exchange rate, an increase of $28.9 million from Fiscal 2003. The increase was entirely due to changes in the Euro to Dollar exchange rate. We were also contingently liable for $35.3 million in outstanding letters of credit primarily related to commitments for the purchase of inventory. The weighted-average interest rate on our borrowings at April 3, 2004 was 3.8%.

     Accounts receivable increased $65.9 million primarily as a result of the inception of sales under the Lauren label and the strengthening of the Euro. $86.5 million of the increase was due to Lauren and $13.2 million was due to the change in the value of the Euro. These increases were partially offset by decreases in accounts receivable in our other wholesale divisions resulting from sales decreases and the timing of payments.

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     Inventories decreased $0.1 million in Fiscal 2004. The inception of the Lauren line was responsible for a $34.1 million increase and the strengthening of the Euro caused a $14.3 million increase in inventory. These increases were more than offset by reductions in inventory in our Retail and Men’s wholesale business as a result of improvements in our supply chain forecasting and management and reduced inventory requirements in our men’s business as a result of planned reductions in sales.

     Other current assets increased $37.2 million from Fiscal 2003 primarily as a result of increases in European Value Added Tax receivables and the effect of the timing of the Fiscal year end on prepaid items.

     Accounts payable increased $6.0 million compared to Fiscal 2003 primarily as result of the addition of the Lauren line partially offset by reductions in our men’s line due to a decrease in inventory purchases and reductions in Europe due to the timing of year end invoice receipts.

     Accrued expenses increased $71.7 million primarily as a result of the addition of the Lauren label, increases in the European Value Added Tax payable, and increases in Europe due to the timing of year end invoice receipts.

Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $210.6 million during Fiscal 2004 compared to $269.0 million in Fiscal 2003. This $58.4 million decrease in cash flow was driven primarily by the year-over-year changes in working capital described above and the decrease in net income of $3.2 million.

     During Fiscal 2003, we completed a strategic review of our European business and formalized our plans to centralize and more efficiently consolidate its business operations. In connection with the implementation of this plan, we had total cash outlays of approximately $13.3 million during the year ended April 3, 2004. We also had cash outlays of $8.3 million during Fiscal 2004 in connection with our 2001 restructuring plan, primarily related to lease termination costs. It is expected that the remaining liabilities of both plans will be paid throughout Fiscal 2005.

Net Cash Used in Investing Activities. Net cash used in investing activities was $132.7 million in Fiscal 2004 as compared to $166.3 million in Fiscal 2003. Both the Fiscal 2004 and Fiscal 2003 net cash used primarily reflected capital expenditures related to retail expansion and upgrading our systems and facilities, as well as shop-within-shop expenditures. The Fiscal 2004 net cash used also reflects $5.4 million for an additional 2% equity interest in the company that holds the sublicenses for the Polo Ralph Lauren men’s, women’s and jeans business in Japan, an additional $3.5 million primarily for additional transaction costs to acquire a 50% interest in the Japanese master license, $1.0 million for an additional payment on the first earn-out payment calculation in connection with the PRL Fashions of Europe SRL acquisition and $7.5 million for the acquisition of a license for the use of trademarks in November 2003. Fiscal 2003 net cash used, reflects $78 million primarily for the acquisition of a 50% interest in the Japanese Master license and an 18% equity interest in the company holding the sublicenses for the Polo Ralph Lauren men’s, women’s, and jeans business in Japan. Our anticipated capital expenditures for Fiscal 2005 approximate $143.0 million.

Net Cash Used in Financing Activities. Net cash used in financing activities was $76.4 million in Fiscal 2004 compared to $16.7 million in Fiscal 2003. Cash used in financing activities during Fiscal 2004, consisted of the net repayment of short-term borrowings of $100.9 million and the payment of $14.8 million in dividends, partially offset by proceeds of $40.4 million from the exercise of stock options. Cash used during Fiscal 2003 primarily consisted of net borrowings of $19.7 million and repurchases of common stock totaling $4.7 million, partially offset by $7.7 million of proceeds from the exercise of stock options.

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Fiscal 2003 compared to Fiscal 2002

     We ended Fiscal 2003 with $343.6 million in cash and cash equivalents and $349.4 million of debt outstanding compared to $244.7 million and $318.4 million of cash and cash equivalents and debt outstanding, respectively, at March 30, 2002. This represents a $67.8 million improvement in 33 our debt net of cash position over the last twelve months which isand was primarily attributable to the differenceschanges in working capital due to the factors discussed below, partially offset by approximately $73.0 million of purchase price payments connected with our acquisition to acquireof a 50% interest in the Japanese master license and an 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan. Capital expenditures were $98.7 million for fiscalFiscal 2003, compared to $88.0 million in fiscalFiscal 2002. Also, in the past year, we haveWe acquired several retail locations from certain of our licensees in Belgium, Germany and Argentina for a total purchase price of approximately $4.6 million.

     As of March 29, 2003, we had $100.9 million outstanding in short-term bank borrowings, of which $50.0 million was repaid in April 2003 with the remainder anticipated to be repaid in June 2003. Additionally, we had $248.5 million outstanding in long-term Euro debt based on the quarter-end Euro exchange rate. We were also contingently liable for $19.1 million in outstanding letters of credit primarily related to commitments for the purchase of inventory. The weighted-average interest rate on our borrowings at March 29, 2003 was 5.4%.

     Accounts receivable increased to $375.8 million, or 6.3% at March 29, 2003 compared to $353.6 million at March 30, 2002 due to the timing of shipments. TheApproximately $23.0 million of the increase also reflectedresulted from currency exchange rate fluctuations, primarily the favorable impactstrengthening of Euro currency fluctuation.the Euro. Improvements were made in our days sales outstanding;outstanding, however, the incremental effect of these improvements was offset by the additional royalty receivables recorded in fiscalFiscal 2003 compared to fiscalFiscal 2002.

     Inventories increased $14.0 million, or 4.0%, at the end of Fiscal 2003 compared to the end of Fiscal 2002. This increase reflects the build up of certain inventory for European retail stores as part of our continued expansion. TheAdditionally an increase also reflectedof $23.7 million resulted from currency exchange rate fluctuations, primarily the favorable impact of Euro currency fluctuation. In addition, improvements in the managementstrengthening of the Company's supply chain resultingEuro. These increases were partially offset by decreases in better forecasting and distribution have resulted in increased average inventory turnover rates for the year ended March 29, 2003 as compared to the same period in fiscal 2002. other business lines.

Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $269.0 million during 2003 compared to $299.7 million in 2002. This $30.7 million decrease in cash flow was driven primarily by year-over-year changes in accounts receivable, inventories, prepaid expenses and accounts payable.

     During fiscalFiscal 2003, we completed a strategic review of our European businessesbusiness and formalized our plans to centralize and more efficiently consolidate its business operations. In connection with the implementation of this plan, we recorded a restructuring charge of $14.4 million and had total cash outlays of approximately $3.8 million during the year ended March 29, 2003. It is expected that the remaining liabilities will be paid throughout fiscal 2004.

     During fiscalFiscal 2001 and 1999 we implemented two plans: the 2001 Operational Plan and 1999 Restructuring Plan. Total cash outlays related to the 2001 Operational Plan and 1999 Restructuring Plan were $9.8 million and $2.7 million, respectively for, the year ended March 29,Fiscal 2003. As of March 29, 2003, we settled all remaining liabilities related to the 1999 Restructuring Plan. In May 2003, we settled $4.6 million of the remaining $5.2 million in liabilities related to the 2001 Operational Plan, and expect to settle the remaining $0.6 million was settled in fiscalFiscal 2004.

Net Cash Used in Investing Activities. Net cash used in investing activities increased to $166.3 million in fiscalFiscal 2003, as compared to $116.0 million in fiscalFiscal 2002. Both the fiscalFiscal 2003 and fiscalFiscal 2002 net cash used primarily reflected shop-within-shops and other capital expenditures related to retail expansion and upgrading our systems and facilities. Our anticipated capital expenditures for fiscal 2004 approximate $110.0 million. The fiscal 2003 net cash used also reflects $78.0 million primarily for our acquisition to acquireof a 50% interest in the

42


Japanese master license and an 18% equity interest in the company which holds the sublicensessublicense for the Polo Ralph Lauren men's, women'smen’s, women’s, and jeans business in Japan, whereas the fiscalJapan. Fiscal 2002 net cash used reflects $23.7 million for the acquisition of PRL Fashions. 34 Also, in the past year, we have acquired several retail locations from certain of our licensees in Belgium, Germany and Argentina for a total purchase price of approximately $4.6 million. Consistent with SFAS No. 141, "Business Combinations," the acquisition of the 50% interest in the Japanese master license and the several retail locations were accounted for under purchase accounting. In connection with the acquisition of the Japanese master license, the Company recorded tangible assets of $11.0 million, an intangible license valued at $9.9 million and liabilities assumed of $8.5 million based on estimated fair values as determined by management utilizing information available at this time. Goodwill of $13.0 million was recognized for the excess of the purchase price over the preliminary estimate of fair market value of the net assets acquired. In connection with the purchase accounting for the remaining acquisitions, the Company is in the process of evaluating the tangible and intangible assets acquired and liabilities assumed. At March 29, 2003, the Company's accounting for the fiscal 2003 acquisitions was based on preliminary valuation information, which is subject to revision. The sales and total assets related to the acquired entities were not material. The pro forma effect of these acquisitions on the historical results was not material.

Net Cash Used in Financing Activities. Net cash used in financing activities was $16.7 million in fiscalFiscal 2003 compared to $40.3 million in fiscalFiscal 2002. This change is primarily due to the net repayment of short-term debt of $12.0 million, the repurchase of $7.7 million of our Euro debt and the repurchase of our common stock of $4.7 million, offset by the proceeds from the issuance of common stock of $7.7 million for fiscalFiscal 2003; compared to $52.2 million of short-term debt repayment, $10.6 million of Euro debt repurchases, $2.1 million of common stock repurchases offset by the proceeds from the issuance of common stock of $24.5 million in fiscalFiscal 2002.

     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.April 1, 2006. Shares acquired under the repurchase program will be used for stock option programs and for other corporate purposes. As of March 29, 2003,April 3, 2004, we had repurchased 4,105,9324.1 million shares of our Class A common stock at an aggregate cost of $77.9$77.5 million. As of March 29, 2003,April 3, 2004, we had approximately $22.1$21.0 million remaining in our stock repurchase program.

     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 these net proceeds was used to acquire Poloco S.A.S.(our principal European subsidiary) and the remaining net proceeds were retained for general corporate purposes. In fiscal 2003,Through Fiscal 2004, we repurchased Euro 8.447.7 million, or $7.7$43.6 million, based on Euro exchange rates at the time of repurchase of our outstanding Euro debt.

     In November 2002, we terminated both our 1997 bank credit facility and our 1999 senior bank credit facility and entered into a new credit facility. The 1997 bank credit facility provided for a $225.0 million revolving line of credit and matured on December 31, 2002, while the 1999 senior bank credit facility consisted of a $20.0 million revolving line of credit and an $80.0 million term loan, both of which were scheduled to mature on June 30, 2003. The new credit facility is with a syndicate of banks and consists of a $300.0 million revolving line of credit, subject to increase to $375.0 million, which is available for direct borrowings and the issuance of letters of credit. It will mature on November 18, 2005. As of March 29, 2003,April 3, 2004, we had $100.0 millionno debt outstanding under the new facility, which was the aggregate amount outstanding under the old facilities at the time of extinguishment, $50.0 million of which was repaid in April 2003 and the remaining $50.0 million is expected to be repaid in June 2003.facility. Borrowings under this facility bear interest, at our option, 35 at a rate equal to (i) the higher of the Federal Funds Effective Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial lending rate of JP Morgan Chase Bank in effect from time to time, or (ii) the LIBO Rate (as defined) in effect from time to time, as adjusted for the Federal Reserve Board'sBoard’s Eurocurrency Liabilities maximum reserve percentages, and a margin based on our then current credit ratings. As of March 29, 2003, the margin was 0.75%.

     Our 2002 bank credit facility requires that we maintain certain covenants: - a minimum consolidated tangible net worth, and -

• a minimum consolidated tangible net worth, and
• a maximum of Adjusted Debt to EBITDAR (as such terms are defined in the credit facility) ratio.

     The credit facility also contains covenants that, subject to specified exceptions, restrict our ability to: - incur additional debt; - incur liens and contingent liabilities; - sell or dispose of our assets, including equity interests; - merge with or acquire other companies, liquidate or dissolve; - engage in businesses that are not a related line of business; - make loans, advances or guarantees; - engage in transactions with affiliates; and -

• incur additional debt;
• incur liens and contingent liabilities;

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• sell or dispose of our assets, including equity interests;
• merge with or acquire other companies, liquidate or dissolve;
• engage in businesses that are not a related line of business;
• make loans, advances or guarantees;
• engage in transactions with affiliates; and
• make investments.

     Upon the occurrence of an event of default under the credit facility, the lenders may cease making loans, terminate the credit facility, and declare all amounts outstanding to be immediately due and payable. The credit facility specifies 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. Additionally, the agreement provides 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. As of March 29, 2003,April 3, 2004, the Company was in compliance with all financial and non-financial debt covenants. On May 20,

     In Fiscal 2003, the Board of Directors declaredinitiated a regulardividend program consisting of quarterly cash dividenddividends of $0.05 per outstanding share, or $0.20 per outstanding share on an annual basis, on Polo Ralph Laurenour common stock. The dividend is payableDividends of $0.05 per outstanding share declared to shareholdersstockholders of record at the close of business on June 27, 2003, September 26, 2003, December 26, 2003 and will beApril 2, 2004 were paid on July 11, 2003.2003, October 10, 2003, January 9, 2003 and April 16, 2004, respectively.

     We believe that cash from ongoing operations and funds available under our credit facility and from our initial Euro debt offering will be sufficient to fund our current level of operations, capital requirements, the stock repurchase program, cash dividends and other corporate activities for the next twelve months. In January 2003, the Company completed the assignment of the sub-lease for one store location for which the Company received proceeds of approximately $10.0 million and recorded a gain of approximately $5.0 million in the fourth quarter ended March 29, 2003. 36

Commitments

The following table summarizes as of March 29, 2003, the Company'sCompany’s contractual cash obligations by future periods:
LESS THAN 1 YEAR 1-3 YEARS 4-5 YEARS THEREAFTER TOTAL --------- --------- --------- ---------- -------- (DOLLARS IN THOUSANDS) Short-term borrowings............... $100,943 -- -- -- $100,943 Long-term Euro debt................. -- -- $248,494 -- 248,494 Capitalized leases.................. 1,806 $ 3,916 -- -- 5,722 Operating leases.................... 72,654 136,921 114,925 238,052 562,552 Additional acquisition purchase price payments.................... 4,500 7,000 -- -- 11,500 -------- -------- -------- -------- -------- Total............................... $179,903 $147,837 $363,419 $238,052 $929,211 ======== ======== ======== ======== ========
period as of April 3, 2004:

                     
Less than
1 year1-3 years4-5 yearsThereafterTotal





(Dollars in thousands)
Inventory purchase commitments $250,622  $  $  $  $250,622 
Long-term Euro debt     277,345         277,345 
Capitalized leases  1,843   2,367         4,210 
Operating leases  107,736   195,100   168,282   419,361   890,479 
Additional acquisition purchase price payments  7,000            7,000 
   
   
   
   
   
 
Total $367,201  $474,812  $168,282  $419,361  $1,429,656 
   
   
   
   
   
 

Derivative Instruments. In June 2002, we entered into a cross currency rate swap which terminateswas scheduled to terminate in November 2006. The cross currency rate swap is being used to convert Euro converted105.2 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 inon both principal and interest payments resulting from theon our long-term 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 haswas designated as a fair value hedge under SFAS No. 133. Hedge ineffectiveness was measured as the difference between the respective

44


gains or losses recognized in earnings from the changes in the fair value of the cross currency rate swap and the Euro debt.

In May 2003, we terminated the cross currency rate swap and entered into an interest rate swap that will terminate in November 2006. The interest rate swap is being used to convert 105.2 million, 6.125% fixed rate borrowings into105.2 million, EURIBOR minus 1.55% variable rate borrowings. We entered into the interest rate swap to minimize the impact of changes in the fair value of the Euro debt due to changes in EURIBOR, the benchmark interest rate. The swap had been designated as a fair value hedge under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted.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 currencyinterest rate swap and the Euro debt;debt resulting from changes in the benchmark interest rate, and was de minimis for fiscal 2003. Occasionally,Fiscal 2004. In addition, we purchase short-termhave designated the entire principal of the Euro debt as a hedge of our net investment in a foreign subsidiary. As a result, changes in the fair value of the Euro debt resulting from changes in the Euro rate are reported net of income taxes in Accumulated other comprehensive income in the consolidated financial statements as an unrealized gain or loss on foreign currency hedges. On April 6, 2004 we executed an interest rate swap to convert the fixed interest rate on Euro 50 million of the Eurobonds to a floating rate (EURIBOR based). After the execution of this swap, approximately Euro 77 million of the Eurobonds remained at a fixed interest rate.

     We enter into forward foreign exchange contracts as hedges relating to identifiable currency positions to reduce our risk from exchange rate fluctuations on inventory purchasesand intercompany royalty payments. Gains and losses on these contracts are deferred and recognized as adjustments to either the basis of those assets or foreign exchange gains/ losses, as applicable. At April 3, 2004, we had the following foreign exchange contracts outstanding: (i) to neutralize month-end balance sheetdeliver Euro 67.1 million in exchange for $73.9 million through Fiscal 2005 and other expected exposures.(ii) to deliver 8,248 million Japanese Yen in exchange for $71.0 million through Fiscal 2008. At April 3, 2004, the fair value of these contracts resulted in unrealized losses, net of taxes of $6.6 million and $6.3 million, for the Euro forward contracts and Japanese Yen forward contracts, respectively.

     To the extent that theseany derivative instruments do not qualify for hedge accounting under SFAS No. 133, they are recorded at fair value, with all gains or losses recognized immediately in the current period earnings. In November 2002, we entered into forward contracts on 6.2 billion Japanese Yen that terminated in February 2003. While these transactions do not qualify for hedge accounting under SFAS No. 133, we entered into these forward contracts to minimize the impact of foreign exchange fluctuations on the Japanese Yen denominated purchase price described in the agreements related to the purchase of a 50% interest in the Japanese master license and an 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan, which were consummated during the fourth quarter of fiscalFiscal 2003. We recognized $2.4 million of foreign currency gains on this transaction, which are recorded in foreign currency losses(gains) in the Consolidated Statements of Income.

     We recognize foreign currency gains or losses in connection with our Euro debt and certain short-term foreign currency contracts based on fluctuations in foreign exchange rates. In connection with recording these contracts at fair market value, we recognized $3.2$1.9 million in foreign currency losses in fiscal 2003,Fiscal 2004, and $1.8$0.5 million in fiscal 2002,Fiscal 2003 included as a component of foreign currency losses (gains) in the Consolidated Statements of Income.

Off-Balance Sheet Arrangements. The Company does not have any off-balance sheet financing arrangements or unconsolidated special purpose entities. SEASONALITY OF BUSINESS

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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 37 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.

     Fiscal 2002 reflects the change in the fiscal year end of certain of our European subsidiaries as reported in our consolidated financial statements. See "Consolidation“Consolidation of European Entities -- Change in Reporting Period."

     In connection with our acquisition of a 50% interest in the Japanese master license and the 18% (later increased to 20%) equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan, results for these operations will beare reflected in our consolidated financial statements for the three months ended June 28, 2003. CRITICAL ACCOUNTING POLICIES AND ESTIMATESFiscal 2004.

Critical Accounting Policies and Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. EstimatesSignificant accounting policies employed by their naturethe Company, including the use of estimates, are based on judgments and available information and therefore, actual results could differ from those estimates.presented in Note 1 to the Consolidated Financial Statements in this Annual Report of Form 10-K.

     Critical accounting policies are those that are most important to the portrayal of the Company'sCompany’s financial condition and the results of operations, and require management'smanagement’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company'sCompany’s most critical accounting policies, discussed below, pertain to revenue recognition, accounts receivable, inventories, goodwill, other intangibleslong-lived intangible assets, income taxes, accrued expenses and long-lived assets.derivative instruments. In applying such policies, management must use some amounts that are based upon its informed judgments and best estimates. BecauseEstimates, by their nature, are based on judgements and available information. The estimates that we make are based upon historical factors, current circumstances and the experience and judgment of the uncertainty inherentour management. We evaluate our assumptions and estimates on an ongoing basis and may employ outside experts to assist in these estimates, actual results could differ from estimates used in applying the critical accounting policies. our evaluations.

Changes in such estimates, based on more accurate future information, may affect amounts reported in future periods. The Company isWe are not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect itsour financial condition or results of operations. REVENUE RECOGNITION

Revenue Recognition

     Wholesale sales are recognized upon shipment of products to customers sincewhen the title and risk of loss passes upon shipmentto the customer and are recorded net of returns, discounts and allowances. Returns and allowances require pre-approval from management. Discounts are based on trade terms. Estimates for end of season allowances are based on historic trends, seasonal results, an evaluation of current economic conditions and retailer performance. The Company'sCompany’s historical estimates of these costs have not differed materially from actual results. Sales by our retail and outlet stores are recognized when

46


goods are sold to consumers, net of returns. Licensing revenue is recognized based upon shipment of licensed products sold by our licensees, net of allowances. ACCOUNTS RECEIVABLE, NET
Accounts Receivable, Net

In the normal course of business, the Company extendswe extend credit to customers, whichwho satisfy pre-defined credit criteria. Accounts receivable, net, as shown on the Consolidated Balance Sheets, is net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historic trends, the financial condition of our customers and an evaluation of the economic conditions. Costs associated with potential returns of products as well as allowable 38 customer markdowns and operational chargebacks, net of the expected recoveries, are included as a reduction to net sales and are part of the provision for allowances included in accounts receivable, net. These provisions result from divisional seasonal negotiations, as well as historic deduction trends net of expected recoveries and thean evaluation of current market conditions. The Company's historical estimates ofShould circumstances change or economic or distribution channel conditions deteriorate significantly, we may need to increase these costs have not differed materially from actual results. INVENTORIES provisions.

Inventories

Inventories are valued at the lower of cost (first-in, first-out, FIFO, method)First-in, First-out, (“FIFO”), method, or market. The CompanyWe continually evaluatesevaluate the composition of itsour inventories assessing slow-turning, ongoing product as well as prior seasons'seasons’ fashion product. Market value of distressed inventory is determined based on historical sales trends for the category of inventory involved, the impact of market trends and economic conditions. Estimates may differ from actual results due to quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. We review our inventory position on a quarterly basis at a minimum and adjust our estimates based on revised projections and current market conditions. If economic conditions worsen, we incorrectly anticipate trends or unexpected events occur, our estimates could be proven overly optimistic, and required adjustments could materially adversely affect future results of operations. The Company'sCompany’s historical estimates of these costs have not differed materially from actual results. GOODWILL, OTHER INTANGIBLES AND LONG-LIVED ASSETS

Goodwill, Other Intangibles and Long-Lived Assets

     Effective March 31, 2002, the Companywe adopted the provisions of SFASStatement of Financial Accounting Standards (“SFAS”) No. 142.142 “Goodwill and Other Intangible Assets”. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer are to be amortized, but rather be tested at least annually for impairment. This pronouncement also requires that intangible assets with definite lives continue to be amortized over their respective lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets."

     Goodwill represents the excess of purchase cost over the fair value of net assets of businesses acquired. Before adopting the provisions of SFAS No. 142, we amortized goodwill on a straight-line basis over its estimated useful life, ranging from 11 to 40 years. Beginning in fiscalFiscal 2003, consistent with the requirements of SFAS No. 142, we no longer amortize goodwill. The Company reviews goodwill annually for impairment. In addition, trademarks that are owned, that have been deemed to have indefinite lives, are reviewed at least annually for potential value impairment. Trademarks that are licensed by the Company from third parties are amortized over the individual terms of the respective license agreement, which approximates 10 years. Goodwill amortization expense was $9.1 million and $8.0 million in fiscal 2002 and 2001, respectively.Fiscal 2002. Accumulated goodwill amortization was $23.7 million at March 30, 2002.

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We assess the carrying value of long-lived and intangible assets, with finite lives, as current facts and circumstances indicate that they may be impaired. In evaluating the fair value and future benefits of suchall intangible assets, we perform an analysis of the anticipated undiscounted future net cash flows of the individual assets over the remaining amortization period and would recognize an impairment loss if the carrying value exceeded the expected future cash flows. The impairment loss would be measured based upon the difference between the fair value of the asset and its recorded carrying value. See Note 9 of the Notes to Consolidated Financial Statements for long-lived and intangible asset writedowns recorded in connection with our fiscalFiscal 2001 Operational Plan and fiscalFiscal 1999 Restructuring Plan. During fiscal 2003,Fiscal 2004, there were no material impairment losses recorded in connection with this analysis.

Income Taxes

Income taxes are accounted for under SFAS No. 109, “Accounting for Income Taxes.” In accordance with this statement, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. It is our policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. We establish the provisions based upon management’s assessment of exposure associated with permanent tax differences, tax credits and interest expense applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least annually) and adjustments are made as events occur that warrant adjustments to those provisions.

Accrued Expenses

Accrued expenses for employee insurance, workers’ compensation, profit sharing, contracted advertising, professional fees and other outstanding Company obligations are assessed based on claims experience and statistical trends, open contractual obligations, and estimates based on projections and current requirements. If these trends change significantly, then actual results would likely be impacted. Our historical estimates of these costs and our provisions have not differed materially from actual results.

Derivative Instruments

     SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted, requires that each derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability and measured at its fair value. The statement also requires that changes in the derivative’s fair value be recognized currently in earnings in either income (loss) from continuing operations or Accumulated other comprehensive income (loss), depending on whether the derivative qualifies for hedge accounting treatment.

     We use foreign currency forward contracts for the specific purpose of hedging the exposure to variability in forecasted cash flows associated primarily with inventory purchases mainly for our European businesses, royalty payments from our Japanese licensee, and other specific activities. These instruments are designated as cash flow hedges and, in accordance with SFAS No. 133, to the extent the hedges are highly effective, the changes in fair value are included in Accumulated other comprehensive income (loss), net of related tax effects, with the corresponding asset or liability recorded in the balance sheet. The ineffective portion of the cash flow hedge, if any, is recognized in current-period earnings. Amounts recorded in Accumulated

48


other comprehensive income are reflected in current-period earnings when the hedged transaction affects earnings. If the relative values of the currencies involved in the hedging activities were to move dramatically, such movement could have a significant impact on our results of operations. We are not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect our financial condition or results of operations.

     Hedge accounting requires that at the beginning of each hedge period, we justify an expectation that the hedge will be highly effective. This effectiveness assessment involves an estimation of the probability of the occurrence of transactions for cash flow hedges. The use of different assumptions and changing market conditions may impact the results of the effectiveness assessment and ultimately the timing of when changes in derivative fair values and underlying hedged items are recorded in earnings.

We hedge our net investment position in subsidiaries which conduct business in Euros by borrowing directly in foreign currency and designating a portion of our Euro denominated debt as a hedge of net investments. Under SFAS No. 133, changes in the fair value of these instruments are immediately recognized in foreign currency translation, a component of Accumulated other comprehensive income (loss), to offset the change in the value of the net investment being hedged.

Inflation

     The rate of inflation over the past few years has not had a significant impact on our sales or profitability.

Our significant accounting policies are more fully described in Note 1 to Our Consolidated Financial Statements. ALTERNATIVE ACCOUNTING METHODS

Alternative Accounting Methods

     In certain instances, accounting principles generally accepted in the United States allow for the selection of alternative accounting methods. The Company'sCompany’s significant policies that involve the selection of alternative methods are accounting for stock options and inventories. 39 -

• Two alternative methods for accounting for stock options are available, the intrinsic value method and the fair value method. The Company uses the intrinsic value method of accounting for stock options, and accordingly, no compensation expense has been recognized. Under the fair value method, the determination of the pro forma amounts involves several assumptions including option life and future volatility. If the fair value method were used, diluted earnings per share for Fiscal 2004 would decrease approximately 10%. See Note 1 to the Consolidated Financial Statements.
• Two alternative methods for accounting for wholesale inventories are the First-In, First-Out (“FIFO”) method and the Last-in, First-out (“LIFO”) method. The Company accounts for all wholesale inventories under the FIFO method. Two alternative methods for accounting for retail inventories are the retail method and the cost method. The Company accounts for all retail inventories under the cost method.

Recent Accounting Pronouncements

     In December, 2003, The Securities Exchange Commission issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 expands previously issued guidance on the subject of Revenue Recognition and provides specific criteria which must be fulfilled to permit the recognition of revenue from transactions. The Company usesdoes not expect the intrinsic value methodissuance of accounting for stock options, and accordingly, no compensation expense has been recognized. UnderSAB 104 to have a material effect on the fair value method, the determinationconsolidated results of the pro forma amounts involves several assumptions including option life and future volatility. If the fair value method were used, diluted earnings per share for 2003 would decrease approximately 10%. See Note 1 to the Consolidated Financial Statements. - Two alternative methods for accounting for inventories are the FIFO method and the last-in, first-out (LIFO) method. The Company accounts for all inventories under the FIFO method. Two alternative methods for accounting for retail inventories are the retail method and the cost method. The Company accounts for all retail inventories under the cost method. RECENT ACCOUNTING PRONOUNCEMENTSoperations or financial position.

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     In May 2003, the Financial Accounting Standards Board (FASB)(“FASB”) issued SFAS No. 150, "Accounting“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires that certain financial instruments that, under previous guidance, issuers could accountbe accounted for as equity be classified as liabilities in statements of financial position. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of this pronouncement toSFAS No. 150 did not have a material effect on the consolidated results of operations or financial position.

     In April 2003, the FASB issued SFAS No. 149, "Amendment“Amendment of Statement 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, except as for the provisions that relate to SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. The Company does not expect the adoption of this pronouncement todid not have a material effect on the consolidated results of operations or financial position.

     In December 2002, the FASB issued SFAS No. 148, "Accounting“Accounting for Stock-Based Compensation -- Transition and Disclosure." This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements for SFAS No. 123, "Accounting“Accounting for Stock-Based Compensation," to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for fiscal years ending after December 31, 2002. The Company does not intend to expense stock options; therefore the adoption of this statement did not have any impact on the consolidated financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting“Accounting for Costs Associated with Exit or Disposal Activities." This statement required 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 SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company has adopted the provisions of SFAS No. 146. 40

     In January 2003, the FASB issued Financial Interpretation No. (FIN)(“FIN”) 46, "Consolidation“Consolidation of Variable Interest Entities."Entities” which was amended by FIN46R in December, 2003. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Historically, entities generally were not consolidated unless the entity was controlled through voting interests. FIN 4646R changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity'sentity’s activities or entitled to receive a majority of the entity'sentity’s residual returns or both. A company that consolidates a variable interest entity is called the "primary beneficiary"“primary beneficiary” of that entity. FIN 4646R also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 4646R apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 4646R apply to existing entities in the first fiscal year or interim period beginning after JuneDecember 15, 2003. Also, certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity

50


was established. The Company is currently evaluatingadoption of FIN 46R did not have a material impact on the provisionsconsolidated results of operations or financial position of the interpretation and does not expect any material impactcompany. See Note 3 to the financial statements as a result of adopting this interpretation. our Consolidated Financial Statements regarding our interest in Ralph Lauren Media, LLC.

In November 2002, the FASB issued FIN 45, "Guarantor's“Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." FIN 45 requires certain guarantees to be recorded at fair value and requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. Generally, FIN 45 applies to certain types of financial guarantees that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability or an equity security of the guaranteed party; performance guarantees involving contracts which require the guarantor to make payments to the guaranteed party based on another entity'sentity’s failure to perform under an obligatingobligation agreement; indemnification agreements that contingently require the guarantor to make payments to an indemnified party based on changes in an underlying that is related to an asset, liability or an equity security of the indemnified party; or indirect guarantees of the indebtedness of others. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Disclosure requirements under FIN 45 are effective for financial statements ending after December 15, 2002, and are applicable to all guarantees issued by the guarantor subject tounder FIN 45's45’s scope, including guarantees issued prior to FIN 45. The Company adopted the accounting and disclosure provisionsadoption of FIN 45 in its March 29, 2003did not have a material effect on the consolidated results of operations or financial statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKposition.

Item 7A.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 fiscal 2003,Fiscal 2004, there were significant fluctuations in the value of the Euro dollarto Dollar exchange rate. In June 2002, we entered into a cross currency rate swap to minimize the impact of foreign exchange fluctuations on the long-term Euro debt and the impact of fluctuations in the interest rate on the fair value of the long-term Euro debt. In May 2003, we terminated the cross currency rate swap, and entered into an interest rate swap, to minimize the impact of changes in the fair value of the Euro debt due to changes in EURIBOR, the benchmark interest rate. The following quantitative disclosures are based on quoted market prices and theoretical pricing models obtained through independent pricing sources for the same or similar types of financial instruments, taking into consideration 41 the underlying terms and maturities. These quantitative disclosures do not represent the maximum possible loss or any expected loss that may occur, since actual results may differ from those estimates. FOREIGN CURRENCY EXCHANGE RATES

Foreign Currency Exchange Rates

     We are exposed to market risk related to changes in foreign currency exchange rates. We have assets and liabilities denominated in certain foreign currencies related to international subsidiaries. At March 29, 2003,April 3, 2004, we had outstanding foreign exchange contracts in Europe and Japan to purchase $92.5$144.9 million U.S. dollars through March 2004. We believe that these financial instruments should not subject us to undue risk due to foreign exchange movements because gains and losses on these contracts should offset losses and gains on the assets, liabilities, and transactions being hedged. We are exposed to credit-related losses if the counterparty to the financial instruments fails to perform its obligations. However, we do not expect the counterparty, which presently has high credit ratings, to fail to meet its obligations.

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Our primary foreign currency exposure relates to our Euro debt. As of March 29, 2003,April 3, 2004, the fair value of our fixed Euro debt was $252.4$292.6 million, based on its quoted market price as listed on the London Stock exchange and translated using Euro exchange rates in effect as of March 29, 2003.April 3, 2004. The potential increase in fair value of our fixed rate Euro debt resulting from a hypothetical 10% adverse change in exchange rates would have been approximately $27.2$29.3 million at March 29, 2003.April 3, 2004. As of March 29, 2003,April 3, 2004, a hypothetical immediate 10% adverse change in exchange rates would have had a $1.7$1.8 million unfavorable impact over a one-year period on our earnings and cash flows. We employ a cross-currency fair value hedging strategy utilizing swaps to effectively convert a portion of our Euro-denominated debt into USD-denominated debt. For further information, see Note 12 to our Consolidated Financial Statements. INTEREST RATES

Interest Rates

Our primary interest rate exposure relates to our fixed and variable rate debt. The potential increase in fair value of our fixed rate Euro debt resulting from a hypothetical 10% adverse change in interest rates would have been approximately $3.7$4.1 million at March 29, 2003.April 3, 2004. We employ a fair value cross currency hedging strategy utilizing interest rate swaps to effectively float a portion of our interest rate exposure on our fixed rate Euro debt. The primary interest rate exposure on floating rate financing arrangements are with respect toOn April 6, 2004, the United States. We had approximately $100.9 million in variable rate financing arrangements at March 29, 2003. As of March 29, 2003, a hypothetical immediate 10% adverse change in interest rates, as they relate to the maximum available borrowings under our variable rate financial instruments, would have a $0.9 million unfavorable impact over a one-year period on our earnings and cash flows. We employcompany executed an interest rate hedging strategy utilizing swapsswap to effectively fix substantially all of ourconvert the fixed interest rate exposure on our outstanding variable rate debt. For further information, see Note 1250 million of the Eurobonds to our Consolidated Financial Statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA a floating rate. After the execution of this swap, approximately 77 million of Eurobonds remained at fixed interest rate.

Item 8.Financial Statements and Supplementary Data

See the "Index“Index to Consolidated Financial Statements"Statements” appearing at the end of this report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable. 42

Item 9A.Controls and Procedures

     Based on an evaluation as of the end of the fiscal year covered by this report under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to provide reasonable assurance that information relating to the company and its subsidiaries that we are required to disclose in the reports that we file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

     During the last fiscal quarter covered by this annual report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III ITEM

Item 10.Directors and Executive Officers of the Registrant

Information relating to our directors will be set forth under the captions “(Proposal 1) ELECTION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT SeeCORPORATE GOVERNANCE — Independent Committees of the Board” and “SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in the Company’s proxy statement for it’s 2004 annual meeting of stockholders (to be filed within 120 days after April 3, 2004 (“the Proxy Statement”) and is incorporated by reference herein. Information relating to our executive officers is set forth in Item 13. ITEM 11. EXECUTIVE COMPENSATION See Item 13. ITEM 12. SECURITYI of this report on Form 10-K under the caption “Executive Officers”.

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The Company has a Code of Ethics for Principal Executive Officers and Senior Financial Officers that applies to our principal executive officer, our principal operating officer, our principal financial officer, our controller, and our principal accounting officer. You can find our Code of Ethics for Principal Executive Officers and Senior Financial Officers on our internet site, http://investor.polo.com. We will post any amendments to the Code of Ethics for Principal Executive Officers and Senior Financial Officers and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE on our internet site.

Item 11.Executive Compensation

Information relating to executive compensation will be set forth under the caption “EXECUTIVE COMPENSATION” in the Proxy Statement and such information is incorporated by reference herein.

Item 12.Security Ownership of Certain Beneficial Owners and Management
Equity Compensation Plan Information at April 3, 2004.

The following table sets forth information as of April 3, 2004 regarding compensation plans under which the Company’s equity securities are authorized for issuance.

             
(a)(b)(c)



Number of Securities
Remaining Available for
Future Issuance Under
Numbers of Securities toEquity Compensation
be Issued upon Exercise ofPlans (Excluding
Outstanding Options,Weighted-Average ExerciseSecurities Reflected in
Plan CategoryWarrants and RightsPrice of Outstanding Options ($)Column (a))




Equity compensation plans approved by security holders  10,823,180(1)  23.44(2)  5,172,342(3)
Equity compensation plans not approved by security holders         
Total  10,823,180   23.44   5,172,342 


(1) Consists of 10,722,639 options to purchase shares of our Class A Common Stock and 100,541 restricted stock units that are payable solely in shares of Class A Common Stock.
(2) Represents the weighted average exercise price of the outstanding stock options. No exercise price is payable with respect to the outstanding restricted stock units.
(3) All of the securities remaining available for future issuance set forth in column (c) may be in the form of options, stock appreciation rights, restricted stock, restricted stock units, performance awards or other stock-based awards under the Company’s 1997 Long-Term Stock Incentive Plan. An additional 299,149 outstanding shares of restricted stock granted under the Company’s 1997 Long-Term Stock Incentive Plan that remain subject to forfeiture are not reflected in column (c).

Other information relating to security ownership of certain beneficial owners and management will be set forth under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See Item 13. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSMANAGEMENT” in the Proxy Statement and such information is incorporated by reference herein.

Item 13.Certain Relationships and Related Transactions

     The information required to be included by Item 10 through 13 of Form 10-K will be included under the caption “CERTAIN RELATIONSHIPS AND TRANSACTIONS” in ourthe proxy statement for the 2003 Annual Meeting of Stockholders, which will be filed within 120 days after the close of our fiscal year ended March 29, 2003, and thatsuch information is incorporated herein by reference herein.

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Item 14.Principal Accounting Fees and Services

     The information required to that proxy statement. ITEM 14. CONTROLS AND PROCEDURES Within the 90-day period prior to the datebe included by Item 14 of this report, an evaluation was performedForm 10-K will be included under the supervisioncaption “(Proposal 2) RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS — Independent Auditor’s Fees” in the Proxy Statement and with the participationsuch information is incorporated by reference herein.

PART IV

Item 15.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
NumberDescription


 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(a) Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to the S-1)*†
 10.1(b) Amendment to Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan (filed as Exhibit A to the Company’s DEF 14A Proxy Statement, filed June 27, 2000)*†
 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 (filed as Exhibit 10.3 to the Fiscal 2000 
10-K)†
 10.4 Registration Rights Agreement dated as of June 9, 1997 by and among Ralph Lauren, GS Capital Partners, L.P., GS Capital Partner PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P., Stone Street Fund 1994, L.P., Stone Street 1994 Subsidiary Corp., Bridge Street Fund 1994, L.P., and 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)*

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Exhibit
NumberDescription


 10.10 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 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 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)*
 10.12 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)*
 10.13 Form of Indemnification Agreement between Polo Ralph Lauren Corporation and its Directors and Executive Officers (filed as Exhibit 10.26 to the S-1)*
 10.14 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)*†
 10.15 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)*†
 10.16 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)*†
 10.17 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)*†
 10.18 Amendment No. 1 to Amended and Restated Employment Agreement between Polo Ralph Lauren Corporation and F. Lance Isham, dated as of December 21, 2000 (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended December 30, 2000)*†
 10.19 Employment Agreement effective April 12, 2000, between Polo Ralph Lauren Corporation and Roger N. Farah (filed as Exhibit 10.27 to the Fiscal 2000 10-K)*†
 10.20 Employment Agreement, dated July 1, 2001, between Polo Ralph Lauren Corporation and Gerald M. Chaney (filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-3 (File No. 333-83500))*†
 10.21 Amended and Restated Employment Agreement, dated as of September 8, 2003, between Polo Ralph Lauren Corporation and Mitchell A. Kosh (filed as Exhibit 10.2 to the Form 10-Q for the quarterly period ended September 27, 2003)*†
 10.22 Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan as Amended and Restated Generally Effective as of March 31, 2002 (filed as Exhibit 10.32 to the Fiscal 2002 10-K)*†
 10.23 Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan (For Hourly Employees of Fashions Outlet of America, Inc., and Subsidiaries and Polo Clothing Co., Inc.) as Amended and Restated Generally Effective as of March 31, 2002 (filed as Exhibit 10.33 to the Fiscal 2002 10-K)*†
 10.24 Consulting Agreement, dated as of March 25, 2002, between Polo Ralph Lauren Corporation and Arnold H. Aronson (filed as Exhibit 10.34 to the Fiscal 2002 10-K)*†
 10.25 Amended and Restated Employment Agreement, effective as of July 23, 2002, between Polo Ralph Lauren Corporation and Roger N. Farah (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended June 29, 2002)*†

55


     
Exhibit
NumberDescription


 10.26 Polo Ralph Lauren Corporation Executive Officer Annual Incentive Plan as Amended as of August 15, 2002 (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 28, 2002)*†
 10.27 Cross Default and Term Extension Agreement, dated May 11, 1998, among PRL USA, Inc., The Polo/ Lauren Company, L.P., Polo Ralph Lauren Corporation, Jones Apparel Group, Inc. and Jones Investment Co., Inc. (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended December 28, 2002)*
 10.28 Form of Credit Agreement, dated as of November 18, 2002, among Polo Ralph Lauren, as Borrower, The Lenders Party Thereto, and JP Morgan Chase Bank, as Administrative Agent, The Bank of New York, Fleet National Bank, SunTrust Bank, Wachovia Bank, N.A., as Syndication Agents, and J.P. Morgan Securities, Inc. as Sole Bookrunner and Sole Lead Arranger (filed as Exhibit 10-2 to the Form 10-Q for the quarterly period ended December 28, 2002)*
 10.29 Amendment generally effective as of March 31, 2002, to the Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan as Amended and Restated Generally Effective as of March 31, 2002 (filed as Exhibit 10.39 to the Fiscal 2003 Form 10-K)†*
 10.30 Amendment generally effective as of March 31, 2002, to the Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan (For Hourly Employees of Fashions Outlet of America, Inc., and Subsidiaries and Polo Clothing Co., Inc.) as Amended and Restated Generally Effective as of March 31, 2002 (filed as Exhibit 10.40 to the Fiscal 2003 Form 10-K)†*
 14.1 Code of Ethics for Principal Executive Officers and Senior Financial Officers (filed as Exhibit 14.1 to the Fiscal 2003 Form 10-K)*
 21.1 List of Significant Subsidiaries of the Company
 23.1 Consent of Deloitte & Touche LLP
 31.1 Certification of Ralph Lauren required by 17 CFR 240.13a-14(a)
 31.2 Certification of Gerald M. Chaney required by 17 CFR 240.13a-14(a)
 32.1 Certification of Ralph Lauren Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 32.2 Certification of Gerald M. Chaney Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of the Company's management, including the Chairman and Chief Executive Officer, and the Senior Vice PresidentSection 18 of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the Chairman and Chief Executive Officer, and the Senior Vice President of Finance and Chief Financial Officer, concluded that the Company's disclosure controls and procedures (as defined in Rule 13a-14c promulgated under the Securities Exchange Act of 1934) are effective. There have been no significant changes in the Company's internal controls1934, or in other factors that could significantly affect internal controls subsequentotherwise subject to the dateliability of completionthat Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of their evaluation. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM1933 or Securities Exchange Act of 1934.

 * Incorporated herein by reference.

 † Exhibit is a management contract or compensatory plan or arrangement.

** Portions of Exhibits 10.5-10.11 have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission.

56


     (b) 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
     (i) Report on Form 8-K dated February 4, 2004, reporting the release of our results of operations for the fiscal quarter ended December 27, 2003 and Restated Certificateattaching a copy of Incorporation (filed as Exhibit 3.1the press release reporting such results. The information contained in this Form 8-K, including the accompanying exhibit, was furnished under Item 12 of Form 8-K and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the Company's Registration Statementliability of that Section, and shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
     (ii) Report on Form S-1 (File No. 333-24733) (the "S-1"))* 3.2 Amended and Restated By-laws8-K dated March 19, 2004, attaching a copy of the Company (filed as Exhibit 3.2 topress release announcing rulings on motions in the S-1)* 10.1(a) Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan (filed as Exhibit 10.1 to the S-1)*+ 10.1(b) Amendment to Polo Ralph Lauren Corporation 1997 Long-Term Stock Incentive Plan (filed as Exhibit A to the Company's DEF 14A Proxy Statement, filed June 27, 2000)*+ 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 (filed as Exhibit 10.3 to the Fiscal 2000 10-K)+
43
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.4 Registration Rights Agreement dated as of June 9, 1997 by and among Ralph Lauren, GS Capital Partners, L.P., GS Capital Partner PRL Holding I, L.P., GS Capital Partners PRL Holding II, L.P., Stone Street Fund 1994, L.P., Stone Street 1994 Subsidiary Corp., Bridge Street Fund 1994, L.P., and 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, dated as of July 1, 2000, between Ralph Lauren Home Collection, Inc. and WestPoint Stevens Inc.** (filed as Exhibit 10.10 to the Fiscal 2001 10-K) 10.11 License Agreement, dated March 1, 1998, between The Polo/Ralph 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. andCompany’s litigations with Jones Apparel Group, Inc.** (filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for the Fiscal Year ended March 28, 1998 (the "Fiscal 1998 10-K"))* 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 by 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)*
44
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 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 10-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 Amendment No. 1 to Amended and Restated Employment Agreement between Polo Ralph Lauren Corporation and F. Lance Isham, dated as of December 21, 2000 (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended December 30, 2000).*+ 10.28 Employment Agreement effective April 12, 2000 between Polo Ralph Lauren Corporation and Roger N. Farah (filed as Exhibit 10.27 to the Fiscal 2000 10-K)*+ 10.29 Employment Agreement effective January 1, 2000 between Polo Ralph Lauren Corporation and Douglas L. Williams (filed as Exhibit 10.29 to the Fiscal 2000 10-K)*+ 10.30 Employment Agreement, dated July 1, 2001, between Polo Ralph Lauren Corporation and Gerald M. Chaney (filed as Exhibit 10.1 to the Company's Registration Statement on Form S-3 (File No. 333-83500)).*+ 10.31 Employment Agreement, dated July 1, 2002, between Polo Ralph Lauren Corporation and Mitchell A. Kosh (filed as Exhibit 10.2 to the Company's Registration Statement on Form S-3 (File No. 333-83500)).*+ 10.32 Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan as Amended and Restated Generally Effective as of March 31, 2002. (filed as Exhibit 10.32 to the Fiscal 2002 10-K).+ 10.33 Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan (For Hourly Employees of Fashions Outlet of America, Inc., and Subsidiaries and Polo Clothing Co., Inc.) as Amended and Restated Generally Effective as of March 31, 2002. (filed as Exhibit 10.33 to the Fiscal 2002 10-K).+ 10.34 Consulting Agreement, dated as of March 25, 2002, between Polo Ralph Lauren Corporation and Arnold H. Aronson (filed as Exhibit 10.34 to the Fiscal 2002 10-K).+
45
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.35 Amended and Restated Employment Agreement, effective as of July 23, 2002, between Polo Ralph Lauren Corporation and Roger N. Farah (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended June 29, 2002)*+ 10.36 Polo Ralph Lauren Corporation Executive Officer Annual Incentive Plan as Amended as of August 15, 2002 (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended September 28, 2002)*+ 10.37 Cross Default and Term Extension Agreement, dated May 11, 1998, among PRL USA, Inc., The Polo/Lauren Company, L.P., Polo Ralph Lauren Corporation, Jones Apparel Group, Inc. and Jones Investment Co., Inc. (filed as Exhibit 10.1 to the Form 10-Q for the quarterly period ended December 28, 2002)* 10.38 Form of Credit Agreement, dated as of November 18, 2002, among Polo Ralph Lauren, as Borrower, The Lenders Party Thereto, and JP Morgan Chase Bank, as Administrative Agent, The Bank of New York, Fleet National Bank, SunTrust Bank, Wachovia Bank, N.A., as Syndication Agents, and J.P. Morgan Securities, Inc. as Sole Bookrunner and Sole Lead Arranger. (filed as Exhibit 10-2 to the Form 10-Q for the quarterly period ended December 28, 2002)* 10.39 Amendment, Generally Effective as of March 31, 2002, to the Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan as Amended and Restated Generally Effective as of March 31, 2002.+ 10.40 Polo Ralph Lauren Corporation Profit Sharing Retirement Savings Plan (For Hourly Employees of Fashions Outlet of America, Inc., and Subsidiaries and Polo Clothing Co., Inc.) as Amended and Restated Generally Effective as of March 31, 2002.+ 14.1 Code of Ethics for Principal Executive Officers and Senior Financial Officers 21.1 List of Significant Subsidiaries of the Company (filed as Exhibit 21.1 to the Fiscal 2001 10-K) 23.1 Consent of Deloitte & Touche LLP 99.1 Certification of Ralph Lauren Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Gerald M. Chaney Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
- --------------- * Incorporated herein by reference. + Exhibits 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) No current report on Form 8-K was filed by us with the Securities and Exchange Commission during the last quarter of fiscal 2003. 46

57


SIGNATURES

     Pursuant to the requirements of the Section 13 or 15(d) Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 18, 2003. POLO RALPH LAUREN CORPORATION By: /s/ GERALD M. CHANEY ------------------------------------ Gerald M. Chaney Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 4, 2004.

POLO RALPH LAUREN CORPORATION

By: /s/GERALD M. CHANEY

Gerald M. Chaney
Senior Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

SIGNATURE TITLE DATE --------- ----- ---- /s/
SignatureTitleDate



/s/ RALPH LAUREN

Ralph Lauren
Chairman of the Board, Chief June 18, 2003 - --------------------------------------------------- Executive Officer and Director Ralph Lauren (Principal Executive Officer) /s/June 4, 2004
/s/ ROGER N. FARAH

Roger N. Farah
President, Chief Operating Officer and DirectorJune 4, 2004
/s/ GERALD M. CHANEY

Gerald M. Chaney
Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)June 4, 2004
/s/ ARNOLD H. ARONSON

Arnold H. Aronson
DirectorJune 4, 2004
/s/ FRANK A. BENNACK, JR.

Frank A. Bennack, Jr.
DirectorJune 4, 2004
/s/ DR. JOYCE F. BROWN

Dr. Joyce F. Brown
DirectorJune 4, 2004
/s/ JOEL L. FLEISHMAN

Joel L. Fleishman
DirectorJune 4, 2004
/s/ RICHARD A. FRIEDMAN

Richard A. Friedman
DirectorJune 4, 2004
/s/ F. LANCE ISHAM

F. Lance Isham
Vice Chairman of the Board of DirectorsJune 18, 2003 - --------------------------------------------------- Directors F. Lance Isham /s/ ROGER N. FARAH President, Chief Operating Officer 4, 2004

58


SignatureTitleDate



/s/ JUDITH A. MCHALE

Judith A. McHale
DirectorJune 18, 2003 - --------------------------------------------------- and Director Roger N. Farah /s/ GERALD M. CHANEY Senior Vice President and Chief June 18, 2003 - --------------------------------------------------- Financial Officer (Principal Gerald M. Chaney Financial and Accounting Officer) /s/ FRANK A. BENNACK, JR. Director June 18, 2003 - --------------------------------------------------- Frank A. Bennack, Jr. /s/ JOEL L. FLEISHMAN Director June 18, 2003 - --------------------------------------------------- Joel L. Fleishman /s/ RICHARD FRIEDMAN Director June 18, 2003 - --------------------------------------------------- Richard Friedman /s/ ARNOLD H. ARONSON Director June 18, 2003 - --------------------------------------------------- Arnold H. Aronson /s/4, 2004
/s/ TERRY S. SEMEL Director June 18, 2003 - ---------------------------------------------------

Terry S. Semel
47
SIGNATURE TITLE DATE --------- ----- ---- /s/ JUDITH A. MCHALE
DirectorJune 18, 2003 - --------------------------------------------------- Judith A. McHale /s/ DR. JOYCE F. BROWN 4, 2004
/s/ MYRON E. ULLMAN, III

Myron E. Ullman, III
DirectorJune 18, 2003 - --------------------------------------------------- Dr. Joyce F. Brown 4, 2004
48 CERTIFICATION I, Ralph Lauren, certify that: 1. I have reviewed this annual report on Form 10-K of Polo Ralph Lauren Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ RALPH LAUREN -------------------------------------- Ralph Lauren Chairman of the Board and Chief Executive Officer (Principal Executive Officer) Date: June 18, 2003 49 CERTIFICATION I, Gerald M. Chaney, certify that: 1. I have reviewed this annual report on Form 10-K of Polo Ralph Lauren Corporation; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ GERALD M. CHANEY -------------------------------------- Gerald M. Chaney Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: June 18, 2003 50

59


POLO RALPH LAUREN CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PAGE ----
Page

FINANCIAL STATEMENTS
Report of Independent Auditors' Report................................ Registered Public Accounting FirmF-2
Consolidated Balance Sheets as of April 3, 2004 and March 29, 2003 and March 30, 2002.................................................. F-3
Consolidated Statements of Income for the years ended April 3, 2004, March 29, 2003 and March 30, 2002 and March 31, 2001............... F-4
Consolidated Statements of Stockholders'Stockholders’ Equity for the years ended April 3, 2004, March 29, 2003 and March 30, 2002 and March 31, 2001...................................................... F-5
Consolidated Statements of Cash Flows for the years ended April 3, 2004, March 29, 2003 and March 30, 2002 and March 31, 2001......... F-6
Notes to Consolidated Financial Statements.................. StatementsF-8
Schedule II -- Valuation and Qualifying Accounts............ AccountsS-1

     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


REPORT OF INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF POLO RALPH LAUREN CORPORATION NEW YORK, NEW YORKREGISTERED PUBLIC ACCOUNTING FIRM

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"“Company”) as of April 3, 2004 and March 29, 2003, and March 30, 2002, and the related consolidated statements of income, stockholders'stockholders’ equity, and cash flows for each of the three years in the period ended March 29, 2003.April 3, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 3, 2004 and March 29, 2003, and March 30, 2002, and the results of their operations and their cash flows for each of the three years in the period ended March 29, 2003,April 3, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

     As discussed in Notes 1 and 6 to the consolidated financial statements, effective March 31, 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142.

     As discussed in Note 1 to the consolidated financial statements, the Company eliminated the 90-day reporting lag for certain of its European subsidiaries. The results of operations of these subsidiaries for the period October 1, 2001 through December 29, 2001 are reflected as an adjustment to retained earnings in the consolidated financial statements for the year ended March 30, 2002. /s/

/s/ DELOITTE & TOUCHE LLP

New York, New York May 20, 2003 (June 3, 2003 as to Note 20)

June 4, 2004

F-2


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 29, MARCH 30, 2003 2002 ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets Cash and cash equivalents................................. $ 343,606 $ 244,733 Accounts receivable, net of allowances of $17,631 and $13,175................................................ 375,823 353,608 Inventories............................................... 363,771 349,818 Deferred tax assets....................................... 15,735 17,897 Prepaid expenses and other................................ 67,072 42,001 ---------- ---------- Total current assets.............................. 1,166,007 1,008,057 Property and equipment, net................................. 354,996 343,836 Deferred tax assets......................................... 54,386 58,127 Goodwill, net............................................... 315,559 273,348 Intangibles, net............................................ 11,400 -- Other assets................................................ 136,474 66,129 ---------- ---------- Total assets...................................... $2,038,822 $1,749,497 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term bank borrowings................................ $ 100,943 $ 32,988 Accounts payable.......................................... 181,392 177,472 Income tax payable........................................ 55,501 52,819 Accrued expenses and other................................ 162,511 128,492 ---------- ---------- Total current liabilities......................... 500,347 391,771 Long-term debt.............................................. 248,494 285,414 Other noncurrent liabilities................................ 81,214 74,117 Commitments and contingencies (Note 13) Stockholders' equity: Common Stock Class A, par value $0.01 per share; 500,000,000 shares authorized; 48,977,119 and 36,103,439 shares issued................ 489 361 Class B, par value $0.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding... 433 433 Class C, par value $0.01 per share; 70,000,000 shares authorized; 10,570,979 and 22,720,979 shares issued and outstanding............................................ 106 227 Additional paid-in-capital................................ 504,700 490,337 Retained earnings......................................... 776,359 602,124 Treasury Stock, Class A, at cost (4,105,932 and 3,876,506 shares)................................................ (77,928) (73,246) Accumulated other comprehensive loss (income)............. 10,787 (19,799) Unearned compensation..................................... (6,179) (2,242) ---------- ---------- Total stockholders' equity........................ 1,208,767 998,195 ---------- ---------- Total liabilities and stockholders' equity........ $2,038,822 $1,749,497 ========== ==========

           
April 3,March 29,
20042003


(Dollars in thousands,
except share data)
ASSETS    
Current assets:        
 Cash and cash equivalents $343,477  $343,606 
 Accounts receivable, net of allowances of $30,536 and $17,631  441,724   375,823 
 Inventories  363,691   363,771 
 Deferred tax assets  21,565   15,735 
 Prepaid expenses and other  100,862   63,615 
   
   
 
  Total current assets  1,271,319   1,162,550 
Property and equipment, net  397,328   354,996 
Deferred tax assets  61,579   54,386 
Goodwill, net  341,603   315,559 
Intangibles, net  17,640   11,400 
Other assets  180,772   139,931 
   
   
 
  Total assets $2,270,241  $2,038,822 
   
   
 
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities:        
 Short-term bank borrowings $  $100,943 
 Accounts payable  187,355   181,392 
 Income tax payable  77,736   55,501 
 Deferred tax liabilities  1,821    
 Accrued expenses and other  234,218   162,511 
   
   
 
  Total current liabilities  501,130   500,347 
Long-term debt  277,345   248,494 
Other noncurrent liabilities  69,693   81,214 
Commitments and contingencies (Note 13)        
Stockholders’ equity:        
 Common Stock        
 Class A, par value $0.01 per share; 500,000,000 shares authorized; 61,498,183 and 48,977,119 shares issued and outstanding  620   489 
 Class B, par value $0.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding  433   433 
 Class C, par value $0.01 per share; 70,000,000 shares authorized; 0 and 10,570,979 shares issued and outstanding     106 
 Additional paid-in-capital  563,457   504,700 
 Retained earnings  927,390   776,359 
 Treasury Stock, Class A, at cost (4,145,800 and 4,105,932 shares)  (78,975)  (77,928)
 Accumulated other comprehensive income  23,942   10,787 
 Unearned compensation  (14,794)  (6,179)
   
   
 
  Total stockholders’ equity  1,422,073   1,208,767 
   
   
 
  Total liabilities and stockholders’ equity $2,270,241  $2,038,822 
   
   
 

See accompanying notes to consolidated financial statements.

F-3


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED ----------------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) Net sales....................................... $ 2,189,321 $ 2,122,333 $ 1,982,419 Licensing revenue............................... 250,019 241,374 243,355 ----------- ----------- ----------- Net revenues.................................. 2,439,340 2,363,707 2,225,774 Cost of goods sold.............................. 1,231,739 1,216,904 1,162,727 ----------- ----------- ----------- Gross profit.................................. 1,207,601 1,146,803 1,063,047 Selling, general and administrative expenses.... 904,741 837,591 822,272 Restructuring charge............................ 14,443 16,000 123,554 ----------- ----------- ----------- Total expenses................................ 919,184 853,591 945,826 ----------- ----------- ----------- Income from operations........................ 288,417 293,212 117,221 Foreign currency losses (gains)................. 529 (1,820) (5,846) Interest expense................................ 13,502 19,033 25,113 ----------- ----------- ----------- Income before provision for income taxes...... 274,386 275,999 97,954 Provision for income taxes...................... 100,151 103,499 38,692 ----------- ----------- ----------- Net income.................................... $ 174,235 $ 172,500 $ 59,262 =========== =========== =========== Net income per share -- Basic................... $ 1.77 $ 1.77 $ 0.61 =========== =========== =========== Net income per share -- Diluted................. $ 1.76 $ 1.75 $ 0.61 =========== =========== =========== Weighted-average common shares outstanding -- Basic......................................... 98,330,626 97,470,342 96,773,282 =========== =========== =========== Weighted-average common shares outstanding -- Diluted....................................... 99,263,054 98,522,718 97,446,482 =========== =========== ===========

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



(Dollars in thousands, except per share data)
Net sales $2,380,844  $2,189,321  $2,122,333 
Licensing revenue  268,810   250,019   241,374 
   
   
   
 
 Net revenues  2,649,654   2,439,340   2,363,707 
Cost of goods sold  1,326,335   1,231,739   1,216,904 
   
   
   
 
 Gross profit  1,323,319   1,207,601   1,146,803 
Selling, general and administrative expenses  1,029,957   904,741   837,591 
Restructuring charge  19,566   14,443   16,000 
   
   
   
 
 Total expenses  1,049,523   919,184   853,591 
   
   
   
 
 Income from operations  273,796   288,417   293,212 
Foreign currency losses (gains)  1,864   529   (1,820)
Interest expense  10,000   13,502   19,033 
   
   
   
 
 Income before provision for income taxes and other (income) expense, net  261,932   274,386   275,999 
Provision for income taxes  95,055   100,151   103,499 
Other (income) expense, net  (4,077)      
   
   
   
 
 Net income $170,954  $174,235  $172,500 
   
   
   
 
Net income per share — Basic $1.73  $1.77  $1.77 
   
   
   
 
Net income per share — Diluted $1.69  $1.76  $1.75 
   
   
   
 
Weighted-average common shares outstanding — Basic  98,977   98,331   97,470 
   
   
   
 
Weighted-average common shares outstanding — Diluted  100,960   99,263   98,523 
   
   
   
 
Dividends declared per share $0.20  $  $ 
   
   
   
 

See accompanying notes to consolidated financial statements.

F-4


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS’ EQUITY
COMMON STOCK ADDITIONAL -------------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS ------ ------ ---------- -------- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) BALANCE AT APRIL 1, 2000......... 100,382,653 $1,004 $450,030 $370,785 Comprehensive income: Net income..................... 59,262 Foreign currency translation adjustments, net of income tax benefit of $13.2 million...................... Total comprehensive income................... Repurchases of common stock...... Exercise of stock options........ 448,778 4 10,293 Income tax benefit from stock option exercises............... 679 Restricted stock grants.......... 118,299 1 1,999 Restricted stock amortization.... ----------- ------ -------- -------- BALANCE AT MARCH 31, 2001........ 100,949,730 $1,009 $463,001 $430,047 =========== ====== ======== ======== Comprehensive income: Net income..................... 172,500 Foreign currency translation adjustments, net of income tax benefit of $4.6 million...................... Cumulative transition adjustment, net............................ Net unrealized gains and losses on hedges reclassified into earnings, net.................. Unrealized loss on hedges, net... Total comprehensive Income................... Repurchases of common stock...... Exercise of stock options........ 1,154,709 12 24,474 Income tax benefit from stock option exercises............... 2,862 Net loss of certain European subsidiaries (10/1/01 -- 12/29/01)...................... (423) Restricted stock amortization.... ----------- ------ -------- -------- BALANCE AT MARCH 30, 2002........ 102,104,439 $1,021 $490,337 $602,124 =========== ====== ======== ======== Comprehensive income: Net income..................... 174,235 Foreign currency translation adjustments, net of income tax provision of $7.5 million...................... Net unrealized gains and losses on hedges reclassified into earnings, net.................. Unrealized loss on hedges, net... Total comprehensive Income................... Repurchases of common stock...... Exercise of stock options........ 423,680 4 7,714 Income tax benefit from stock option exercises............... 1,189 Restricted stock grants.......... 300,000 3 5,460 Restricted stock amortization.... ----------- ------ -------- -------- BALANCE AT MARCH 29, 2003........ 102,828,119 $1,028 $504,700 $776,359 =========== ====== ======== ======== TREASURY STOCK, ACCUMULATED AT COST OTHER -------------------- COMPREHENSIVE UNEARNED SHARES AMOUNT INCOME (LOSS) COMPENSATION TOTAL ------ ------ ------------- ------------ ----- (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) BALANCE AT APRIL 1, 2000......... 2,952,677 $(57,346) $ 9,655 $(1,691) $ 772,437 Comprehensive income: Net income..................... Foreign currency translation adjustments, net of income tax benefit of $13.2 million...................... (20,184) Total comprehensive income................... 39,078 Repurchases of common stock...... 819,129 (13,833) (13,833) Exercise of stock options........ 10,297 Income tax benefit from stock option exercises............... 679 Restricted stock grants.......... (2,000) -- Restricted stock amortization.... 651 651 --------- -------- -------- ------- ---------- BALANCE AT MARCH 31, 2001........ 3,771,806 $(71,179) $(10,529) $(3,040) $ 809,309 ========= ======== ======== ======= ========== Comprehensive income: Net income..................... Foreign currency translation adjustments, net of income tax benefit of $4.6 million...................... (7,652) Cumulative transition adjustment, net............................ 4,028 Net unrealized gains and losses on hedges reclassified into earnings, net.................. (4,875) Unrealized loss on hedges, net... (771) Total comprehensive Income................... 163,230 Repurchases of common stock...... 104,700 (2,067) (2,067) Exercise of stock options........ 24,486 Income tax benefit from stock option exercises............... 2,862 Net loss of certain European subsidiaries (10/1/01 -- 12/29/01)...................... (423) Restricted stock amortization.... 798 798 --------- -------- -------- ------- ---------- BALANCE AT MARCH 30, 2002........ 3,876,506 $(73,246) $(19,799) $(2,242) $ 998,195 ========= ======== ======== ======= ========== Comprehensive income: Net income..................... Foreign currency translation adjustments, net of income tax provision of $7.5 million...................... 47,015 Net unrealized gains and losses on hedges reclassified into earnings, net.................. 794 Unrealized loss on hedges, net... (17,223) Total comprehensive Income................... 204,821 Repurchases of common stock...... 229,426 (4,682) (4,682) Exercise of stock options........ 7,718 Income tax benefit from stock option exercises............... 1,189 Restricted stock grants.......... (5,463) -- Restricted stock amortization.... 1,526 1,526 --------- -------- -------- ------- ---------- BALANCE AT MARCH 29, 2003........ 4,105,932 $(77,928) $ 10,787 $(6,179) $1,208,767 ========= ======== ======== ======= ==========

                                        
Treasury Stock,Accumulated
Common StockAdditionalat costOther

Paid-InRetained
ComprehensiveUnearned
SharesAmountCapitalEarningsSharesAmountIncome (Loss)CompensationTotal









(Dollars in thousands, except share data)
Balance at March 31, 2001
  100,949,730  $1,009  $463,001  $430,047   3,771,806  $(71,179) $(10,529) $(3,040) $809,309 
Comprehensive income:                                    
 Net income              172,500  ��                  
 Foreign currency translation adjustments, net of income tax benefit of $4.6 million                          (7,652)        
Cumulative transition adjustment, Net                          4,028         
Net unrealized gains and losses on hedges reclassified into earnings, net                          (4,875)        
Unrealized loss on hedges, net                          (771)        
  Total comprehensive Income                                  163,230 
Repurchases of common stock                  104,700   (2,067)          (2,067)
Exercise of stock options  1,154,709   12   24,474                       24,486 
Income tax benefit from stock option exercises          2,862                       2,862 
Net loss of certain European subsidiaries (10/1/01 — 12/29/01)              (423)                  (423)
Restricted stock amortization                              798   798 
   
   
   
   
   
   
   
   
   
 
Balance at March 30, 2002
  102,104,439  $1,021  $490,337  $602,124   3,876,506  $(73,246) $(19,799) $(2,242) $998,195 
   
   
   
   
   
   
   
   
   
 
Comprehensive income:                                    
 Net income              174,235                     
 Foreign currency translation adjustments, net of income tax provision of $7.5 million                          47,015         
Net unrealized gains and losses on hedges reclassified into earnings, net                          794         
Unrealized loss on hedges, net                          (17,223)        
   Total comprehensive Income                                  204,821 
Repurchases of common stock                  229,426   (4,682)          (4,682)
Exercise of stock options  423,680   4   7,714                       7,718 
Income tax benefit from stock option exercises          1,189                       1,189 
Restricted stock grants  300,000   3   5,460                   (5,463)   
Restricted stock amortization                              1,526   1,526 
   
   
   
   
   
   
   
   
   
 
Balance at March 29, 2003
  102,828,119  $1,028  $504,700  $776,359   4,105,932  $(77,928) $10,787  $(6,179) $1,208,767 
   
   
   
   
   
   
   
   
   
 
Comprehensive income:                                    
 Net income              170,954                     
 Foreign currency translation adjustments, net of income tax provision of $1.8 million                          45,526         
Unrealized loss on hedges, net                          (32,371)        
   Total comprehensive Income                                  184,109 
Cash Dividend              (19,923)                  (19,923)
Repurchases of common stock                  39,868   (1,047)          (1,047)
Exercise of stock options  1,950,085   20   40,394                       40,414 
Income tax benefit from stock option exercises          5,703                       5,703 
Restricted stock grants      5   12,660                   (12,665)   
Restricted stock amortization                              4,050   4,050 
   
   
   
   
   
   
   
   
   
 
Balance at April 3, 2004
  104,778,204  $1,053  $563,457  $927,390   4,145,800  $(78,975) $23,942  $(14,794) $1,422,073 
   
   
   
   
   
   
   
   
   
 

See accompanying notes to consolidated financial statements.

F-5


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED --------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................... $174,235 $172,500 $ 59,262 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (benefit from) deferred income taxes..... 8,901 21,216 (23,430) Depreciation and amortization.......................... 78,645 83,919 78,599 Provision for losses on accounts receivable............ 1,760 2,920 547 Changes in deferred liabilities........................ 3,087 (15,628) (27,989) Provision for restructuring............................ 14,443 16,000 98,836 Foreign currency losses (gains)........................ 529 (1,820) (5,846) Other.................................................. (1,152) 9,173 (9,885) Changes in assets and liabilities, net of acquisitions: Accounts receivable................................. (7,798) (92,314) (68,968) Inventories......................................... 6,365 82,721 (44,626) Prepaid expenses and other.......................... (19,149) 30,102 (22,967) Other assets........................................ 2,868 6,142 8,042 Accounts payable.................................... (5,080) (11,001) 30,683 Accrued expenses and other.......................... 11,320 (4,213) 28,028 -------- -------- --------- Net cash provided by operating activities......... 268,974 299,717 100,286 -------- -------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment, net............... (98,664) (88,008) (105,170) Acquisitions, net of cash acquired..................... (30,326) (23,702) (20,929) Equity interest investments............................ (47,631) -- -- Disposal of property and equipment..................... 13,452 -- -- Cash surrender value -- officers' life Insurance....... (3,100) (4,242) (5,152) -------- -------- --------- Net cash used in investing activities............. (166,269) (115,952) (131,251) -------- -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of common stock............................ (4,682) (2,067) (13,833) Proceeds from exercise of stock options................ 7,718 24,486 10,297 Proceeds from (repayments of) short-term borrowings, net................................................. 68,000 (52,166) 2,939 Repayments of long-term debt........................... (7,700) (10,576) (25,289) Net payments of short-term debt........................ (80,000) -- -- -------- -------- --------- Net cash used in financing activities............. (16,664) (40,323) (25,886) -------- -------- --------- Effect of exchange rate changes on cash.................. 12,832 (928) (5,501) -------- -------- --------- Net increase (decrease) in cash and cash equivalents..... 98,873 142,514 (62,352) Cash and cash equivalents at beginning of period......... 244,733 102,219 164,571 -------- -------- --------- Cash and cash equivalents at end of period............... $343,606 $244,733 $ 102,219 ======== ======== =========

                
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



(Dollars in thousands)
Cash flows from operating activities
            
Net income $170,954  $174,235  $172,500 
Adjustments to reconcile net income to net cash provided by operating activities:            
 Provision for deferred income taxes  (4,233)  8,901   21,216 
 Depreciation and amortization  83,189   78,645   83,919 
 Provision for losses on accounts receivable  2,623   1,760   2,920 
 Changes in other non-current liabilities  (18,930)  3,087   (15,628)
 Provision for restructuring  19,566   14,443   16,000 
 Foreign currency losses (gains)  1,864   529   (1,820)
 Other  5,565   (1,152)  9,173 
 Changes in assets and liabilities, net of acquisitions:            
  Accounts receivable  (55,032)  (7,798)  (92,314)
  Inventories  17,227   6,365   82,721 
  Prepaid expenses and other  (32,439)  (19,149)  30,102 
  Other assets  (37,163)  2,868   6,142 
  Accounts payable  (2,296)  (5,080)  (11,001)
  Income taxes payable  27,658       
  Accrued expenses and other  32,053   11,320   (4,213)
   
   
   
 
   Net cash provided by operating activities  210,606   268,974   299,717 
   
   
   
 
Cash flows from investing activities
            
 Purchases of property and equipment, net  (123,026)  (98,664)  (88,008)
 Acquisitions, net of cash acquired  (5,019)  (30,326)  (23,702)
 Equity interest investments  (4,548)  (47,631)   
 Purchase of trademark  (7,500)      
 Disposal of property and equipment  7,391   13,452    
 Cash surrender value — officers’ life insurance     (3,100)  (4,242)
   
   
   
 
   Net cash used in investing activities  (132,702)  (166,269)  (115,952)
   
   
   
 
Cash flows from financing activities
            
 Payment of dividends  (14,847)      
 Repurchases of common stock  (1,047)  (4,682)  (2,067)
 Proceeds from exercise of stock options  40,414   7,718   24,486 
 Proceeds from (repayments of) short-term borrowings, net     68,000   (52,166)
 Repayments of long-term debt     (7,700)  (10,576)
 Net payments of short-term debt  (100,943)  (80,000)   
   
   
   
 
   Net cash used in financing activities  (76,423)  (16,664)  (40,323)
   
   
   
 
Effect of exchange rate changes on cash and cash equivalents and net investments in foreign subsidies  (1,610)  12,832   (928)
   
   
   
 
Net (decrease) increase in cash and cash equivalents  (129)  98,873   142,514 
Cash and cash equivalents at beginning of period  343,606   244,733   102,219 
   
   
   
 
Cash and cash equivalents at end of period $343,477  $343,606  $244,733 
   
   
   
 

See accompanying notes to consolidated financial statements.

F-6


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED --------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- (DOLLARS IN THOUSANDS) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest.................................... $19,654 $20,193 $25,318 ======= ======= ======= Cash paid for income taxes................................ $65,163 $58,328 $72,599 ======= ======= ======= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Fair value of assets acquired, excluding cash............. $38,832 $49,431 $ -- Less: Cash paid.............................................. 30,326 23,702 -- Acquisition obligation................................. -- 10,500 -- ------- ------- ------- Liabilities assumed....................................... $ 8,506 $15,229 $ -- ======= ======= =======

               
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



(Dollars in thousands)
Supplemental cash flow information
            
 Cash paid for interest $9,396  $19,654  $20,193 
   
   
   
 
 Cash paid for income taxes $60,810  $65,163  $58,328 
   
   
   
 
Supplemental schedule of non-cash investing and financing activities
            
 Fair value of assets acquired, excluding cash $  $38,832  $49,431 
 Less:            
  Cash paid     30,326   23,702 
  Acquisition obligation        10,500 
   
   
   
 
 Liabilities assumed $  $8,506  $15,229 
   
   
   
 

See accompanying notes to consolidated financial statements.

F-7


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED) 1. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION

(In thousands, except where otherwise indicated)
1.Significant Accounting Policies
Principles of Consolidation

The consolidated financial statements include the accounts of Polo Ralph Lauren Corporation (PRLC)(“PRLC”) and its wholly and majority owned subsidiaries. All intercompany balances and transactions have been eliminated. PRLC and its subsidiaries are collectively referred to herein as "we," "us," "our"the “the Company”, “we,” “us,” “our” and "ourselves." BUSINESS“ourselves,” unless the content requires otherwise.

Business

     We design, license, contract for the manufacture of, market and distribute men'smen’s and women'swomen’s apparel, accessories, fragrances, skin care products and home furnishings. Our sales are principally to major department and specialty stores located throughout the United States and Europe. We also sell directly to consumers through full-price and outlet Polo Ralph Lauren, Ralph Lauren and Club Monaco stores located throughout the United States, Canada, Europe, South America and Asia.

We are party to licensing agreements which grant the licensee exclusive rights to use our various trademarks in connection with the manufacture and sale of designated products in specified geographical areas. The license agreements typically provide for designated terms with renewal options based on achievement of specified sales targets. The agreements also require that 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 of licensed products. Additionally, we have granted royalty-free licenses to independent parties to operate Polo stores to promote the sale of our merchandise and our licensees'licensees’ merchandise both domestically and internationally. FISCAL YEAR

Fiscal Year

Our fiscal year ends on the Saturday nearest to March 31. All references to "2003," "2002"“Fiscal 2004” represent the 53-week fiscal year ended April 3, 2004 and "2001"references to “Fiscal 2003” and “Fiscal 2002” represent the 52-week fiscal years ended March 29, 2003 March 30, 2002 and March 31, 2001. We have included the March 29, 2003 and March 30, 2002, balance sheets of our wholly owned European subsidiaries in the accompanying March 29, 2003 and March 30, 2002, consolidated balance sheets. We also have consolidated the results of operations of our wholly owned European subsidiaries for the years ended March 29, 2003, March 30, 2002 and December 31, 2000, in the March 29, 2003, March 30, 2002 and March 31, 2001 consolidated statements of income, stockholders' equity and cash flows. CONSOLIDATION OF EUROPEAN ENTITIES -- CHANGE IN REPORTING PERIODrespectively.

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, the net activity shown below for the three-month F-8 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) period ended December 29, 2001, for those European subsidiaries, is reported as an adjustment

F-8


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

to retained earnings in the fourth quarter of fiscalFiscal 2002 in the accompanying financial statements.
THREE-MONTHS ENDED DECEMBER 29, 2001: - ------------------------------------- Net sales................................................... $49.5 Gross profit................................................ 25.5 Pre-tax loss................................................ (0.7) Income tax benefit.......................................... 0.3 Net loss.................................................... $(0.4)

     
Three-months Ended December 29, 2001:

(Dollars in millions)
Net sales $49.5 
Gross profit  25.5 
Pre-tax loss  (0.7)
Income tax benefit  0.3 
Net loss $(0.4)

Net income for the year ended March 30, 2002, for the consolidated Company as if the European subsidiaries remained on a three-month lag would have been $159.7 million. USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES

Use of Estimates and Critical Accounting Policies

Critical Accounting Policies and Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Use of Estimates by their nature are based on judgments and available information and therefore, actual results could differ from those estimates.

Critical accounting policies are those that are most important to the portrayal of the Company'sCompany’s financial condition and the results of operations, and require management'smanagement’s most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. The Company'sCompany’s most critical accounting policies, discussed below, pertain to revenue recognition, accounts receivable, inventories, goodwill, other intangibleslong-lived intangible assets, income taxes, accrued expenses and long-lived assets.derivative instruments. In applying such policies, management must use some amounts that are based upon its informed judgments and best estimates. BecauseEstimates by their nature are based on judgements and available information. The estimates that we make are based upon historical factors, current circumstances and the experience and judgment of the uncertainty inherentour management. We evaluate our assumptions and estimates on an ongoing basis and may employ outside experts to assist in these estimates, actual results could differ from estimates used in applying the critical accounting policies.our evaluations. Changes in such estimates, based on more accurate future information, may affect amounts reported in future periods. The Company isWe are not aware of any reasonably likely events or circumstances which would result in different amounts being reported that would materially affect itsour financial condition or results of operations. REVENUE RECOGNITION

Revenue Recognition

     Wholesale sales are recognized upon shipment of products to customers sincewhen the title and risk of loss passes upon shipmentto the customer and are recorded net of returns, discounts and allowances. Returns and allowances require pre-approval from management. Discounts are based on trade terms. Estimates for end of season allowances are based on historic trends, seasonal results, an evaluation of current economic conditions and retailer performance. The Company'sCompany’s historical estimates of these costs have not differed materially from actual results. Sales by our retail and outlet stores are recognized when

F-9


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

goods are sold to consumers, net of returns. Licensing revenue is recognized based upon shipment of licensed products sold by our licensees, net of allowances. ACCOUNTS RECEIVABLE, NET

Accounts Receivable, Net

In the normal course of business, the Company extendswe extend credit to customers, whichwho satisfy pre-defined credit criteria. Accounts receivable, net, inas shown on the Consolidated Balance Sheets, is net of allowances and anticipated discounts. An allowance for doubtful accounts is determined through F-9 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectibility based on historic trends, the financial condition of our customers and an evaluation of the economic conditions. An allowance for discounts is based on those discounts relating to open invoices where trade discounts have been extended to customers. Costs associated with potential returns of products as well as allowable customer markdowns and operational chargebacks, net of the expected recoveries, are included as a reduction to net sales and are part of the provision for allowances included in accounts receivable, net. These provisions result from divisional seasonal negotiations, as well as historic deduction trends net of expected recoveries, and the evaluation of current market conditions. The Company's historical estimates ofShould circumstances change or economic or distribution channel conditions deteriorate significantly, we may need to increase these costs have not differed materially from actual results. INVENTORIES provisions.

Inventories

Inventories are valued at the lower of cost (first-in, first-out, FIFO, method)First-in, First-out, (“FIFO”), method, or market. The CompanyWe continually evaluatesevaluate the composition of itsour inventories assessing slow-turning, ongoing product as well as prior seasons'seasons’ fashion product. Market value of distressed inventory is determined based on historical sales trends for the category of inventory involved, the impact of market trends and economic conditions. Estimates may differ from actual results due to quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. We review our inventory reserve position at least quarterly and adjust our estimates based on revised projections and current market conditions. If economic conditions worsen, we incorrectly anticipate trends or unexpected events occur, our estimates could be proven overly optimistic, and required adjustments could materially adversely affect future results of operations. The Company'sCompany’s historical estimates of these costs have not differed materially from actual results. GOODWILL, OTHER INTANGIBLES AND LONG-LIVED ASSETS

Goodwill, Other Intangibles and Long-Lived Assets

     Effective March 31, 2002, the Companywe adopted the provisions of Statement of Financial Accounting Standards (SFAS)(“SFAS”) No. 142 "Goodwill“Goodwill and Other Intangible Assets."Assets”. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer are to be amortized, but rather be tested at least annually for impairment. This pronouncement also requires that intangible assets with definite lives continue to be amortized over their respective lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, "Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets."

     Goodwill represents the excess of purchase cost over the fair value of net assets of businesses acquired. Before adopting the provisions of SFAS No. 142, we amortized goodwill on a straight-line basis over its estimated useful life, ranging from 11 to 40 years. Beginning in fiscalFiscal 2003, consistent with the requirements of SFAS No. 142, we no longer amortize goodwill. The Company reviews goodwill annually for impairment. In addition, trademarks that are owned that have been deemed to have indefinite lives are reviewed at least annually for potential value impairment. Trademarks that are licensed by the Company from third parties are amortized over

F-10


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the individual terms of the respective license agreement, which approximates 10 years. Goodwill amortization expense was $9.1 million and $8.0 million in fiscal 2002 and 2001, respectively.Fiscal 2002. Accumulated goodwill amortization was $23.7 million at March 30, 2002.

We assess the carrying value of long-lived and intangible assets, with finite lives, as current facts and circumstances indicate that they may be impaired. In evaluating the fair value and future benefits of suchall intangible assets, we perform an analysis of the anticipated undiscounted future net cash flows of the individual assets over the remaining amortization period and would recognize an impairment loss if the carrying value exceeded the expected future cash flows. The impairment loss would be measured based upon the difference between the fair value of the asset and its recorded carrying value. See Note 9 for long-lived and intangible asset writedowns recorded in connection with our fiscalFiscal 2001 Operational Plan and fiscalFiscal 1999 Restructuring Plan. During fiscal 2003,Fiscal 2004, there were no material impairment losses recorded in connection with this analysis. F-10

Income Taxes

Income taxes are accounted for under SFAS No. 109, “Accounting for Income Taxes.” In accordance with this statement, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as measured by enacted tax rates that are expected to be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Significant judgment is required in determining the worldwide provisions for income taxes. In the ordinary course of a global business, there are many transactions for which the ultimate tax outcome is uncertain. It is our policy to establish provisions for taxes that may become payable in future years as a result of an examination by tax authorities. We establish the provisions based upon management’s assessment of exposure associated with permanent tax differences, tax credits and interest expense applied to temporary difference adjustments. The tax provisions are analyzed periodically (at least annually) and adjustments are made as events occur that warrant adjustments to those provisions.

Accrued Expenses

Accrued expenses for employee insurance, workers’ compensation, profit sharing, contracted advertising, professional fees, and other outstanding Company obligations are assessed based on claims experience and statistical trends, open contractual obligations, and estimates based on projections and current requirements. If these trends change significantly, then actual results would likely be impacted. Our historical estimates of these costs and our provisions have not differed materially from actual results.

Derivative Instruments

     SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted, requires that each derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability and measured at its fair value. The statement also requires that changes in the derivative’s fair value be recognized currently in earnings in either income from continuing operations or Accumulated other comprehensive income (loss), depending on whether the derivative qualifies for hedge accounting treatment.

F-11


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER SIGNIFICANT ACCOUNTING POLICIES FAIR VALUE OF FINANCIAL INSTRUMENTS— (Continued)

     We use foreign currency forward contracts for the specific purpose of hedging the exposure to variability in forecasted cash flows associated primarily with inventory purchases mainly by our European entity, royalty, payments from our Japanese entity, and other specific activities. These instruments are designated as cash flow hedges and, in accordance with SFAS No. 133, to the extent the hedges are highly effective, the changes in fair value are included in Accumulated other comprehensive income (loss), net of related tax effects, with the corresponding asset or liability recorded in the balance sheet. The ineffective portion of the cash flow hedge, if any, is recognized in current-period earnings. Amounts recorded in Accumulated other comprehensive income (loss) are reflected in current-period earnings when the hedged transaction affects earnings. If fluctuations in the relative value of the currencies involved in the hedging activities were to move dramatically, such movement could have a significant impact on our results of operations. We are not aware of any reasonably likely events or circumstances, which would result in different amounts being reported that would materially affect our financial condition or results of operations.

     Hedge accounting requires that at the beginning of each hedge period, we justify an expectation that the hedge will be highly effective. This effectiveness assessment involves an estimation of the probability of the occurrence of transactions for cash flow hedges. The use of different assumptions and changing market conditions may impact the results of the effectiveness assessment and ultimately the timing of when changes in derivative fair values and underlying hedged items are recorded in earnings.

We hedge our net investment position in Euro functional subsidiaries by borrowing directly in foreign currency and designating a portion of foreign currency debt as a hedge of net investments. Under SFAS No. 133, changes in the fair value of cash and cash equivalents, receivables and accounts payable approximates their carrying value duethese instruments are immediately recognized in foreign currency translation, a component of Accumulated other comprehensive income (loss), to their short-term maturities. The fairoffset the change in the value of the Euro debt is disclosednet investment being hedged.

Inflation

The rate of inflation over the past few years has not had a significant impact on our sales or profitability.

Alternative Accounting Methods

     In certain instances, accounting principles generally accepted in Note 12. Considerable judgment is required in interpreting certain market data to develop estimated fair valuesthe United States allow for certain financial instruments. Accordingly, the estimates presented hereinselection of alternative accounting methods. The Company’s significant policies that involve the selection of alternative methods are not necessarily indicative of the amounts that we could realize in a current market exchange. CASHaccounting for stock options and inventories.

• Two alternative methods for accounting for stock options are available, the intrinsic value method and the fair value method. The Company uses the intrinsic value method of accounting for stock options, and accordingly, no compensation expense has been recognized. Under the fair value method, the determination of the pro forma amounts involves several assumptions including option life and future volatility. If the fair value method were used, diluted earnings per share for 2004 would decrease approximately 10%.
• Two alternative methods for accounting for inventories are the First-in, First out (“FIFO”) method and the last-in, first-out (“LIFO”) method. The Company accounts for all inventories under the FIFO method. Two alternative methods for accounting for retail inventories are the retail method and the cost method. The Company accounts for all retail inventories under the cost method.

F-12


POLO RALPH LAUREN CORPORATION AND CASH EQUIVALENTS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less, including investments in debt securities. Our investments in debt securities are diversified among high-credit quality securities in accordance with our risk management policy and primarily include commercial paper and money market funds. PROPERTY, EQUIPMENT, DEPRECIATION AND AMORTIZATION

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 -- 37.5 years; furniture and fixtures and machinery and equipment -- 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the lesser of the term of the related lease or the estimated useful life. Major additions and betterments are capitalized, and repairs and maintenance are charged to operations in the period incurred. We capitalize our share of the cost of outfitting shop-within-shopsshop-within-shop fixed assets within furniture and fixtures. These assets are amortized using the straight-line method over their estimated useful lives of 3 to 5 years. OFFICERS' LIFE INSURANCE

Officers’ Life Insurance

     We maintain key manwhole life insurance policies on several of our senior executives, the majority of which contain split dollar arrangements. The key manexecutives. These policies are recorded at their cash surrender value, while thevalue. Additionally we have policies with split dollar arrangements which are recorded at the lesser of their cash surrender value or premiums paid. Amounts recorded under theseboth types of policies aggregated $50.2 million and $48.8 million at April 3, 2004 and $46.3 million at March 29, 2003, and March 30, 2002,respectively and are included in other assets in the accompanying consolidated balance sheets.

During fiscalFiscal 2003, the Company ceased paying premiums on split dollar life insurance policies related to officers and began the process of terminatingterminated certain split dollar arrangements. As of March 29, 2003, $0.6April 3, 2004, $2.1 million of split dollar policies had either been surrendered to the insurance company for cash or bought out by the related employee. INCOME TAXES We account for income taxes under the liability method. Deferred tax assets and liabilities are recognized based on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates. A valuation allowance is recorded to reduce the deferred tax asset to that portion which is expected to more likely than not be realized. F-11 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DEFERRED RENT OBLIGATIONS

Deferred Rent Obligations

We account for rent expense under noncancelable operating leases with scheduled rent increases and landlord incentives on a straight-line basis over the lease term. The excess of straight-line rent expense over scheduled payment amounts and landlord incentives is recorded as a deferred liability. Unamortized deferred rent obligations amounted to $57.5$45.4 million and $43.1$47.2 million at April 3, 2004 and March 29, 2003, and March 30, 2002,respectively and are included in accruedAccrued expenses and other,Other, and other noncurrent liabilities in the accompanying consolidated balance sheets. OTHER COMPREHENSIVE INCOME

Other Comprehensive Income

     Other comprehensive income is recorded net of taxes and is reflected in the consolidated statements of stockholders'stockholders’ equity. Other comprehensive income consists of unrealized gains or losses on hedges and foreign currency translation adjustments.

F-13


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL INSTRUMENTSSTATEMENTS — (Continued)

Financial Instruments

     From time to time, we use derivative financial instruments to reduce our 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 generally would be offset by gains on the related exposure. The accounting for changes in the fair value of a derivative is dependent upon the intended use of the derivative. SFAS No. 133, "Accounting“Accounting for Derivative Instruments and Hedging Activities, as Amended and Interpreted," requires that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative'sderivative’s fair value be recognized currently in earnings in either income (loss) from continuing operations or accumulated other comprehensive income(loss)income (loss), depending on the timing and designated purpose of the derivative.

Note 12 further describes the derivative instruments we are party to and the related accounting treatment. Historically, we have entered into interest rate swap agreements and forward foreign exchange contracts, which qualify as cash flow hedges under SFAS No. 133. In accordance with SFAS No. 133, we have recorded the fair value of these derivatives at April 1, 2001, and the resulting net unrealized gain, after taxes, of approximately $4.0 million in other comprehensive income as a cumulative transition adjustment. We have also designated a portion of our Euro debt as a hedge of our net investment in a foreign subsidiary and, as of June 2002, have hedged the remainder of the Euro debt with a cross currency rate swap.subsidiary. During fiscal 2003,Fiscal 2004, we have entered into various forward exchange contracts that qualified as hedges on inventory purchases and a series of forward exchange contracts on Japanese Yen that did not qualify for hedge accounting. FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS royalty payments.

Foreign Currency Transactions and Translations

The financial position and results of operations of our foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities are translated at the exchange rate in effect at each year end. Results of operations are translated at the average rate of exchange prevailing throughout the period. Translation adjustments arising from differences in exchange rates from period to period are included in other comprehensive income, net of taxes, except for certain foreign-denominated debt. Gains and losses on translation of intercompany loans with foreign subsidiaries of a long-term investment nature are also included in this component of stockholders'stockholders’ equity. We have designated a portion of our Euro debt as a hedge of our net investment in a foreign subsidiary and, as of June 2002, have hedged the remainder of F-12 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) thesubsidiary. Prior to fully designating our Euro debt withas a cross currency rate swap. Transactionhedge, transaction gains or losses on the unhedged portion resulting from changes in the Eurodollar rate arewere recorded in income and amounted to $3.2 million and $1.8 million in fiscal 2003 and 2002, respectively.Fiscal 2003. The gain of the Japanese Yen forward contracts, that did not qualify for hedge accounting, amounted to $2.4 million in fiscalFiscal 2003. Gains and losses from other foreign currency transactions are included in operating results and were not material. COST OF GOODS SOLD AND SELLING EXPENSES

Cost of Goods Sold and Selling Expenses

     Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight-in, import costs, as well as reserves for shrinkage. The costs of selling the merchandise, including preparing the merchandise for sale, such as picking, packing, warehousing and order charges, are included in selling, general and administrative expenses (SG&A)(“SG&A”). SHIPPING

F-14


POLO RALPH LAUREN CORPORATION AND HANDLING COSTS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Shipping and Handling Costs

We reflect shipping and handling costs as a component of SG&A expenses in the consolidated statements of income. The shipping and handling costs approximated $61.0 million, $59.9 million and $57.4 million in Fiscal 2004, 2003 and $46.2 million in fiscal years 2003, 2002, and 2001, respectively. As a percent of revenues, they represented 2.7%2.6%, 2.7% and 2.3%2.7% in Fiscal 2004, 2003 2002 and 2001,2002, respectively. We bill our wholesale customers for shipping and handling costs and record such revenues in net sales upon shipment. ADVERTISING

Advertising

We expense the production costs of advertising, marketing and public relations expenses upon the first showing of the related advertisement. We expense the costs of advertising paid to customers under cooperative advertising programs when the related advertisements are run. Total advertising expenses, including cooperative advertising, included within SG&A expenses amounted to $112.3 million, $92.8 million and $79.8 million in Fiscal 2004, 2003 and $88.8 million in fiscal 2003, 2002, and 2001, respectively. NET INCOME PER SHARE

Net Income Per Share

Basic net income per share was calculated by dividing net income by the weighted-average number of shares outstanding during the period, excluding any potential dilution. Diluted net income per share was calculated similarly but includes potential dilution from the exercise of stock options and awards. The difference between the basic and diluted weighted-average shares outstanding is due to the dilutive effect of stock options, restricted stock units and restricted stock awards issued under our stock option plans, which were 932,428; 1,052,376;857,266 and 673,200932,428, and 1,052,376 shares for fiscalFiscal 2004, 2003 and 2002, and 2001, respectively. STOCK OPTIONS

Stock Options

     We use the intrinsic value method to account for stock-based compensation in accordance with Accounting Principles Board (APB)(“APB”) Opinion No. 25, "Accounting“Accounting for Stock Issued to Employees," and have adopted the disclosure-only provisions of SFAS No. 123, "Accounting“Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting“Accounting for Stock-Based Compensation-TransitionCompensation — Transition and Disclosure." Accordingly, no compensation cost has been recognized for its fixed stock option grants. Had compensation costs for the Company'sCompany’s stock option grants been determined based on the fair value at the grant dates for awards under these F-13 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) plans in accordance with SFAS No. 123, the Company'sCompany’s net income and earnings per share

F-15


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

would have been reduced to the pro formaproforma amounts as follows (Dollars in thousands, except per share data):
FISCAL YEAR ----------------------------- 2003 2002 2001 -------- -------- ------- Net income as reported.............................. $174,235 $172,500 $59,262 Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax................................ 16,988 17,009 13,751 -------- -------- ------- Pro forma net income................................ $157,247 $155,491 $45,511 ======== ======== ======= Pro forma net income per share -- Basic............................................. $ 1.60 $ 1.60 $ 0.47 Diluted........................................... $ 1.58 $ 1.58 $ 0.47

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Net income as reported $170,954  $174,235  $172,500 
Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax  16,576   16,988   17,009 
   
   
   
 
Pro forma net income $154,378  $157,247  $155,491 
   
   
   
 
Net income per share as reported —            
 Basic $1.73  $1.77  $1.77 
 Diluted $1.69  $1.76  $1.75 
Pro forma net income per share —            
 Basic $1.56  $1.60  $1.60 
 Diluted $1.53  $1.58  $1.58 

For this purpose, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in Fiscal 2004, 2003 2002 and 2001,2002, respectively: expected volatility of 47.2%40.4%, 47.0%47.2% and 46.0%47.0%; risk-free interest rates of 3.69%2.56%, 4.65%3.69% and 6.35%4.65%; expected lives of 5.27.5 years, 6.05.2 years and 6.0 years; and a dividend yield of 0% for all periods. RECLASSIFICATIONS $0.20, $0.00 and $0.00.

Reclassifications

For comparative purposes, certain prior period amounts have been reclassified to conform to the current period'speriod’s presentation. 2. RECENT ACCOUNTING PRONOUNCEMENTS

2.Recent Accounting Pronouncements

     In December 2003, The Securities Exchange Commission issued Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition”. SAB 104 expands previously issued guidance on the subject of Revenue Recognition and provides specific criteria which must be fulfilled to permit the recognition of revenue from transactions. The Company does not expect the issuance of SAB 104 to have a material effect on the consolidated results of operations or financial position.

     In May 2003, the Financial Accounting Standards Board (FASB)(“FASB”) issued SFAS No. 150, "Accounting“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." This statement requires that certain financial instruments that, under previous guidance, issuers could accountbe accounted for as equity be classified as liabilities in statements of financial position. Most of the guidance in SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company does not expect the adoption of this pronouncement toSFAS No. 150 did not have a material effect on the consolidated results of operations or financial position.

     In April 2003, the FASB issued SFAS No. 149, "Amendment“Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities." This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, except as for the provisions that relate to SFAS No. 133

F-16


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, which should continue to be applied in accordance with their respective effective dates. The Company does not expect the adoption of this pronouncement todid not have a material effect on the consolidated results of operations or financial position.

     In December 2002, the FASB issued SFAS No. 148.148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This statement provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements F-14 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) for SFAS No. 123, “Accounting for Stock-Based Compensation,” to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. SFAS No. 148 is effective for fiscal years ending after December 31, 2002. The Company does not intend to expense stock options; therefore the adoption of this statement did not have any impact on the consolidated financial position or results of operations.

     In June 2002, the FASB issued SFAS No. 146, "Accounting“Accounting for Costs Associated with Exit or Disposal Activities." The” This statement required 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 SFAS No. 146 include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company has adopted the provisions of SFAS No. 146.

     In January 2003, the FASB issued Financial Interpretation No. (FIN)(“FIN”) 46, "Consolidation“Consolidation of Variable Interest Entities."Entities” which was amended by FIN 46R in December, 2003. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. Historically, entities generally were not consolidated unless the entity was controlled through voting interests. FIN 4646R changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity'sentity’s activities or entitled to receive a majority of the entity'sentity’s residual returns or both. A company that consolidates a variable interest entity is called the "primary beneficiary"“primary beneficiary” of that entity. FIN 4646R also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 4646R apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 4646R apply to existing entities in the first fiscal year or interim period beginning after JuneDecember 15, 2003. Also, certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The Company is currently evaluatingadoption of FIN 46R did not have a material impact on the provisionsconsolidated results of operations or financial position of the interpretation and does not expect any material impact to the financial statements as a result of adopting this interpretation.company. See Note 3 regarding our interest in Ralph Lauren Media, LLC.

     In November 2002, the FASB issued FIN 45, "Guarantor's“Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." FIN 45 requires certain guarantees to be recorded at fair value and requires a guarantor to make significant new disclosures, even when the likelihood of making any payments under the guarantee is remote. Generally, FIN 45 applies to certain types of financial guarantees that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability or an equity security of the guaranteed party; performance guarantees involving contracts which require the guarantor to make payments to the guaranteed party based on another entity'sentity’s failure to perform under an obligatingobligation agreement; indemnification agreements that contingently require the guarantor to make payments to an indemnified party based on changes

F-17


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

in an underlying that is related to an asset, liability or an equity security of the indemnified party; or indirect guarantees of the indebtedness of others. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. Disclosure requirements under FIN 45 are effective for financial statements ending after December 15, 2002, and are applicable to all guarantees issued by the guarantor subject tounder FIN 45's45’s scope, including guarantees issued F-15 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) prior to FIN 45. The Companycompany adopted the accounting and disclosure provisions of FIN 45 in its March 29, 2003December 28, 2002 financial statements. 3. ACQUISITIONS AND JOINT VENTURE During the fourth quarter of fiscalstatement.

3.Acquisitions and Joint Venture

     In November 2003, we entered into agreementsacquired a license for approximately $24.1 millionthe use of trademarks for $7.5 million. This license was accounted for as a finite lived intangible asset and $47.6 million, respectively, to acquireis being amortized over 10 years.

     In February 2003, we acquired a 50% controlling interest in the Japanese master license and an 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men's, women'smen’s, women’s and jeans business in Japan. In May 2003, we acquired an additional 2% equity interest in this company. Also, in the past year, we have acquired several retail locations from certain of our licensees in Belgium, Germany and ArgentinaJapan for a total purchase price of approximately $4.6$24.1 million. Consistent with SFAS No. 141, "Business Combinations," the acquisition of the 50% interest in the Japanese master license and the several retail locations were accounted for under purchase accounting. In connection with the acquisition of the Japanese master license, the Companywe recorded tangible assets of $11.0 million, an intangible license valued at $9.9 million and liabilities assumed of $8.5 million based on estimated fair values as determined by management utilizing information available at this time. GoodwillAt March 29, 2003, goodwill of $13.0 million was recognized for the excess of the purchase price plus transaction costs of $1.3 million over the preliminary estimate of fair market value of the net assets acquired. In connection with the purchaseDuring Fiscal 2004, we incurred an additional $3.5 million of transaction costs, which have been included in goodwill and finalized our accounting for the remaining acquisitions,acquisition, which resulted in an additional $0.5 million of goodwill. 100% of the Company isrevenues and expenses for the Japanese master license are included in the processCompany’s consolidated statements of evaluatingoperations. For Fiscal 2004, we have recorded minority interest expense of $1.4 million to reflect the tangibleshare of earnings allocable to the 50% minority interest holder in the Japanese master license. This amount is included in Other (income) expense, net in the consolidated statements of operations.

     Also, in February 2003, we acquired an 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men’s, women’s and intangible assetsjeans business in Japan for approximately $47.6 million. In May 2003, we paid $5.4 million to acquire an additional 2% equity interest in this company. For Fiscal 2004, we recorded $5.5 million of equity investment income related to this investment. This amount is included in Other (income) expense, net in the consolidated statements of operations.

     Results for our 50% interest in the Japanese master license and the 20% equity interest are reported on a one-month lag.

     During Fiscal 2003, we acquired several retail locations from certain of our licensees in Belgium, Germany, and liabilities assumed.Argentina for a total purchase price of $4.6 million.

     At March 29, 2003,April 3, 2004, the Company'sCompany’s accounting for the fiscalFiscal 2003 acquisitions was based on preliminary valuation information, which is subject to revision.has been finalized. Unaudited pro formaproforma information related to these acquisitions is not included since the impact of these transactions are not material to the consolidated results of the Company. In connection with our acquisition of a 50% interest in the Japanese master license and the 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men's, women's and jeans business in Japan, results for these operations will be reflected in our consolidated financial statements for the three months ended June 28, 2003.

     On October 31, 2001, the Company completed the acquisition of substantially all of the assets of PRL Fashions of Europe S.R.L. ("(“PRL Fashions"Fashions” or "Italian Licensee"“Italian Licensee”) which held licenses to sell our women'swomen’s Ralph Lauren apparel in Europe, our men'smen’s and boys'boys’ Polo Ralph Lauren apparel in Italy and men'smen’s and women'swomen’s Polo Jeans 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

F-18


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$15.1 million and liabilities assumed of $15.1 million were recorded at estimated fair values as determined by the Company'sCompany’s management based on information available at that time. Goodwill of approximately $33.5 million was initially recognized for the excess of the purchase price over the preliminary estimate of fair market value of the net assets acquired. During the quarter ended December 28, 2002, the Company finalized the purchase accounting for the acquisition of the assets, the result of which was an increase in goodwill of approximately $0.3 million. Also, subsequent to the quarter ended March 29, 2003,during Fiscal 2004 an initial payment was made on the first earn-out payment calculation, resulting in an additional increase in goodwill of approximately $1.0 million. This adjustment and any other adjustments to the contingent component of the remaining earn-out payments will be accounted for as additional purchase price in future periods. Unaudited pro forma information related to this acquisition is not included since the impact of this transaction is not material to the consolidated results of the Company. F-16 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. Unaudited pro formaproforma information related to this acquisition is not included, as the impact of this transaction is not material to the consolidated results of the Company.

     On February 7, 2000, we announced the formation of Ralph Lauren Media, LLC (RL Media)(“RL Media”), a joint venture between National Broadcasting Company, Inc. and certain affiliated companies (NBC)(“NBC”) and ourselves. RL Media was created to bring our American lifestyle experience to consumers via multiple media platforms, including the Internet, broadcast, cable and print. Under the 30-year joint venture agreement, RL Media is owned 50% by us and 50% by NBC. In exchange for a 50% interest, we provide marketing through our annual print advertising campaign, make our merchandise available at initial cost of inventory and sell RL Media'sMedia’s excess inventory through our outlet stores, among other things. NBC contributed $40.0 million in online distribution and promotion and a cash funding commitment up to $50.0 million. NBC also initially committed to contribute $110.0 million of television and online advertising. During fiscalFiscal 2003, RL Media entered into an agreement to sell its unused television and advertising spots for $15.0 million. Under the terms of the joint venture agreement, for tax purposes, we will not absorb any losses from the joint venture up to the first $50.0 million incurred and will share proportionately in the net income or losses thereafter. Additionally, we will receive a royalty on the sale of our products by RL Media based on specified percentages of net sales over a predetermined threshold, subject to certain limitations; to date, no such royalty income has been recognized. RL Media'sMedia’s managing board has equal representation from NBC and us. The joint venture has been accounted for underCompany uses the equity method fromof accounting for this investment in which it has more than a minor equity interest and more than minor influence over the effective date of its formation.operations, but does not have a controlling interest and is not the primary beneficiary. Our financial basis in RL Media is zero. Our equity in the net assets of RL Media is less than our financial basis. We have not recognized any losses in excess of our financial basis since there are no financial guarantees, commitments or obligations to fund the operations of RL Media. On January 6, 2000, we completed the acquisition of stock and certain assets of Poloco S.A.S. and certain of its affiliates (Poloco), which hold licenses to sell our men's and boys' apparel, our men's and women's jeans apparel, and certain of our accessories in Europe. In addition to acquiring Poloco's wholesale business, we acquired one flagship store in Paris and six outlet stores located in France, the United Kingdom and Austria. We acquired Poloco for an aggregate cash consideration of $209.7 million, plus the assumption of $10.0 million in short-term debt. During the quarter ended July 1, 2000, the final 10% of the acquisition price for Poloco in the amount of $20.9 million was distributed in accordance with the terms of the agreement. 4. INVENTORIES

F-19


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.Inventories

Inventories are summarized as follows (Dollars in thousands):

         
April 3,March 29,
20042003


Raw materials $5,516  $4,214 
Work-in-process  4,669   4,536 
Finished goods  353,506   355,021 
   
   
 
  $363,691  $363,771 
   
   
 
MARCH 29, MARCH 30, 2003 2002 --------- --------- Raw materials............................................... $ 4,214 $ 3,874 Work-in-process............................................. 4,536 5,469 Finished goods.............................................. 355,021 340,475 -------- -------- $363,771 $349,818 ======== ========
5.Property and Equipment, Net
F-17 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following (Dollars in thousands):
MARCH 29, MARCH 30, 2003 2002 --------- --------- Land and improvements....................................... $ 3,725 $ 3,720 Buildings................................................... 18,490 17,250 Furniture and fixtures...................................... 308,300 258,816 Machinery and equipment..................................... 133,835 105,136 Leasehold improvements...................................... 298,449 318,734 -------- -------- 762,799 703,656 Less: accumulated depreciation and amortization............. 407,803 359,820 -------- -------- $354,996 $343,836 ======== ========

         
April 3,March 29,
20042003


Land and improvements $3,725  $3,725 
Buildings  18,540   18,490 
Furniture and fixtures  345,668   308,300 
Machinery and equipment  180,138   133,835 
Leasehold improvements  329,186   298,449 
   
   
 
   877,257   762,799 
Less: accumulated depreciation and amortization  479,929   407,803 
   
   
 
  $397,328  $354,996 
   
   
 

Depreciation and amortization expense of property and equipment was $81.9 million, $78.6 million and $74.8 million for Fiscal 2004, 2003 and $70.6 million for fiscal years 2003, 2002, and 2001, respectively. 6. GOODWILL AND OTHER INTANGIBLE ASSETS

6.Goodwill and Other Intangible Assets

     Effective March 31, 2002, the Company adopted SFAS No. 142. This accounting standard requires that goodwill and indefinite lifelived intangible assets are no longer amortized but are subject to annual impairment tests. Other intangible assets with finite lives will continue to be amortized over their useful lives. The transitional impairment tests were completed and did not result in an impairment charge. The Company will perform the firstWe completed our annual impairment test during 2004, but does not anticipate any resulting impairment.as of the first day of the second quarter of Fiscal 2004. As a result of this test, no impairment was recognized.

     In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective March 31, 2002, and prior period amounts were not restated. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion

F-20


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of goodwill amortization, net of the related income tax effect, is as follows (Dollars in thousands, except per share data):
FISCAL YEAR ENDED --------------------------------- MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- Reported net income................................ $174,235 $172,500 $59,262 Goodwill amortization, net of tax.................. -- 5,712 4,835 -------- -------- ------- Adjusted net income................................ $174,235 $178,212 $64,097 ======== ======== ======= Adjusted net income per share -- Basic............ $ 1.77 $ 1.83 $ 0.66 Adjusted net income per share -- Diluted.......... $ 1.76 $ 1.81 $ 0.66
F-18 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

             
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Reported net income $170,954  $174,235  $172,500 
Goodwill amortization, net of tax        5,712 
   
   
   
 
Adjusted net income $170,954  $174,235  $178,212 
   
   
   
 
Adjusted net income per share — Basic $1.73  $1.77  $1.83 
Adjusted net income per share — Diluted $1.69  $1.76  $1.81 

The carrying value of goodwill as of April 3, 2004 and March 29, 2003 and March 30, 2002 by operating segment is as follows (Dollars in millions):
WHOLESALE RETAIL LICENSING TOTAL --------- ------ --------- ------ Balance at March 30, 2002..................... $109.5 $64.7 $ 99.1 $273.3 Purchases..................................... -- 4.0 13.0 17.0 Effect of foreign exchange and other adjustments................................. 24.2 0.7 0.4 25.3 ------ ----- ------ ------ Balance at March 29, 2003..................... $133.7 $69.4 $112.5 $315.6 ====== ===== ====== ======

                 
WholesaleRetailLicensingTotal




Balance at March 29, 2003 $133.7  $69.4  $112.5  $315.6 
Purchases  1.0      4.0   5.0 
Effect of foreign exchange and other adjustments  16.4   4.6      21.0 
   
   
   
   
 
Balance at April 3, 2004 $151.1  $74.0  $116.5  $341.6 
   
   
   
   
 

The carrying value of indefinite lifelived intangible assets as of March 29, 2003April 3, 2004 was $1.5 million and relates to the Company'sCompany’s owned trademark. Finite life intangible assets as of April 3, 2004 and March 29, 2003, subject to amortization, are comprised of the following (Dollars in millions)thousands):
MARCH 29, 2003 MARCH 30, 2002 ------------------------ ------------------------- GROSS GROSS CARRYING ACCUM. CARRYING ACCUM. ESTIMATED AMOUNT AMORT. NET AMOUNT AMORT. NET LIVES -------- ------ ---- -------- ------ ----- --------- Licensed trademarks............... $9.9 -- $9.9 -- -- -- 10 years

                             
April 3, 2004March 29, 2003


GrossGross
CarryingAccum.CarryingAccum.Estimated
AmountAmort.NetAmountAmort.NetLives







Licensed trademarks $17,400   (1,260) $16,140   9,900      9,900   10 years 

No intangible amortization expense was recorded during fiscal 2003, 2002 or 2001.2002. The estimated intangible amortization expense for each of the next five years is expected to be approximately $1.0$1.7 million per year. 7. OTHER ASSETS

7.Other Assets

Other assets consisted of the following (Dollars in thousands):
MARCH 29, MARCH 30, 2003 2002 --------- --------- Equity Interest Investment.................................. $ 47,631 $ -- Officers' Life Insurance.................................... 48,826 46,270 Other Long-Term Assets...................................... 40,017 19,859 -------- ------- $136,474 $66,129 ======== =======
8. ACCRUED EXPENSES

         
April 3,March 29,
20042003


Equity interest investment $57,766  $47,631 
Officers’ life insurance  50,250   48,826 
Other long-term assets  72,756   43,474 
   
   
 
  $180,772  $139,931 
   
   
 

F-21


POLO RALPH LAUREN CORPORATION AND OTHER SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.Accrued Expenses and Other

Accrued expenses consisted of the following (Dollars in thousands):

         
April 3,March 29,
20042003


Accrued operating expenses $174,574  $103,670 
Accrued payroll and benefits  38,217   33,630 
Accrued restructuring charge  12,835   15,817 
Deferred rent obligation  8,592   9,394 
   
   
 
  $234,218  $162,511 
   
   
 
MARCH 29, MARCH 30,
9.Restructuring Charge

During Fiscal 2004, we decided to close our remaining RRL stores, in connection with this decision we recorded a $1.3 million restructuring charge for fixed asset write-offs and lease termination costs.

2003 2002 --------- --------- Accrued operating expenses.................................. $103,670 $ 75,931 Accrued payroll and benefits................................ 33,630 25,124 Accrued restructuring charge................................ 15,817 17,644 Deferred Rent Obligation.................................... 9,394 9,793 -------- -------- $162,511 $128,492 ======== ======== Restructuring Plan
9. RESTRUCTURING CHARGE 2003 RESTRUCTURING PLAN

During the third quarter of fiscalFiscal 2003, we completed a strategic review of our European businesses and formalized our plans to centralize and more efficiently consolidate its business F-19 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) operations. The major initiatives of the plan included the following: consolidation of our headquarters from five cities in three countries to one location; the consolidation of our European logistics operations to Italy; and the migration of all European information systems to a standard global system. In connection with the implementation of this plan, the Company has completed the consultation process regarding the headquarters and has recorded a restructuring charge of $7.9 million during Fiscal 2004 and $14.4 million restructuring charge during fiscalFiscal 2003 for severance and contract termination costs. The Company expects$7.9 million represents the remaining consolidationadditional liability for employees notified of their termination and migration to be completedproperties we ceased using during fiscalFiscal 2004. The major components of the charge and the activity through March 29, 2003April 3, 2004 were as follows (Dollars in thousands):
LEASE AND SEVERANCE AND OTHER CONTRACT TERMINATION TERMINATION BENEFITS COSTS TOTAL ------------- -------------- -------- Fiscal 2003 provision.......................... $11,876 $ 2,567 $ 14,443 Fiscal 2003 spending........................... (3,777) -- (3,777) ------- -------- -------- Balance at March 29, 2003...................... $ 8,099 $ 2,567 $ 10,666 ======= ======== ========

             
Lease and
Severance andOther Contract
TerminationTermination
BenefitsCostsTotal



Fiscal 2003 provision $11,876  $2,567  $14,443 
Fiscal 2003 spending  (3,777)     (3,777)
   
   
   
 
Balance at March 29, 2003  8,099   2,567   10,666 
Fiscal 2004 provision $7,104  $757  $7,861 
Fiscal 2004 spending  (11,887)  (1,465)  (13,352)
   
   
   
 
Balance at April 3, 2004 $3,316  $1,859  $5,175 
   
   
   
 

     Total severance and termination benefits as a result of this restructuring related to approximately 150160 employees. Total cash outlays related to this plan of approximately $3.8$17.1 million have been paid through March 29, 2003.April 3, 2004. It is expected that this plan will be completed, and the remaining liabilities will be paid, in fiscal 2004. 2001 OPERATIONAL PLANFiscal 2005.

F-22


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2001 Operational Plan

     During the second quarter of fiscalFiscal 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 our overall profitability. The major initiatives of the 2001 Operational Plan included: refining our retail strategy; developing efficiencies in our supply chain; and consolidating corporate strategic business functions and internal processes. Costs associated with this aspect of the 2001 Operational Plan included lease and contract termination costs, store fixed asset writedowns and severance and termination benefits.

In connection with the implementation of the 2001 Operational Plan, we recorded a pre-tax restructuring charge of $128.6 million in our second quarter of fiscalFiscal 2001. This charge was subsequently adjusted for a $5.0 million reduction of liabilities in the fourth quarter of fiscalFiscal 2001 and a $16.0 million increase in the fourth quarter of fiscalFiscal 2002 for lease termination costs associated with the closure of our retail storesstores. During Fiscal 2004, a $10.4 million increase was recorded due to market factors that were less favorable F-20 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) than originally estimated. The major components of the charge and the activity through March 29, 2003,April 3, 2004, were as follows (Dollars in thousands):
LEASE AND SEVERANCE AND ASSET CONTRACT TERMINATION WRITE TERMINATION OTHER BENEFITS DOWNS COSTS COSTS TOTAL ------------- ----- ----------- ----- ----- 2001 provision................ $ 7,947 $ 98,835 $ 15,638 $1,134 $123,554 2001 spending................. (5,005) (98,835) (11,469) (352) (115,661) ------- -------- -------- ------ -------- Balance at March 31, 2001..... 2,942 -- 4,169 782 7,893 2002 spending................. (2,150) -- (6,014) (767) (8,931) Additional provision.......... -- -- 16,000 -- 16,000 ------- -------- -------- ------ -------- Balance at March 30, 2002..... 792 -- 14,155 15 14,962 2003 spending................. (792) -- (9,004) (15) (9,811) ------- -------- -------- ------ -------- Balance at March 29, 2003..... $ -- $ -- $ 5,151 $ -- $ 5,151 ======= ======== ======== ====== ========

                     
Lease and
Severance andAssetContract
TerminationWriteTerminationOther
BenefitsDownsCostsCostsTotal





Balance at March 31, 2001 $2,942  $  $4,169  $782  $7,893 
2002 spending  (2,150)     (6,014)  (767)  (8,931)
Additional provision        16,000      16,000 
   
   
   
   
   
 
Balance at March 30, 2002  792      14,155   15   14,962 
2003 spending  (792)     (9,004)  (15)  (9,811)
   
   
   
   
   
 
Balance at March 29, 2003        5,151      5,151 
   
   
   
   
   
 
Fiscal 2004 provision        10,404      10,404 
Fiscal 2004 spending        (9,195)     (9,195)
   
   
   
   
   
 
Balance at April 3, 2004 $  $  $6,360  $  $6,360 
   
   
   
   
   
 

Total severance and termination benefits as a result of the 2001 Operational Plan related to approximately 550 employees, all of whom have been terminated. Total cash outlays related to the 2001 Operational Plan are expected to be approximately $40.7$51.2 million, $35.5$44.7 million of which have been paid through March 29, 2003, and subsequently in May 2003, an additional $4.6 million was settled.April 3, 2004. We completed the implementation of the 2001 Operational Plan in fiscalFiscal 2002 and expect to settle the remaining liabilities in fiscal 2004Fiscal 2005 or in accordance with contract terms. 1999 RESTRUCTURING PLAN

1999 Restructuring Plan

     During the fourth quarter of fiscalFiscal 1999, we formalized our plans to streamline operations within our wholesale and retail operations and reduce our overall cost structure. The major initiatives of the 1999 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 1999 Restructuring Plan, we recorded a pre-tax restructuring charge of $58.6 million in our fourth quarter of fiscalFiscal 1999. We completed the

F-23


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

implementation of the 1999 Restructuring Plan in fiscalFiscal 2000 and have settled the remaining liabilities during fiscal 2003.Fiscal 2004. The activity through March 29, 2003,April 3, 2004, was as follows (Dollars in thousands):
LEASE AND SEVERANCE AND CONTRACT TERMINATION TERMINATION OTHER BENEFITS COSTS COSTS TOTAL ------------- ----------- ----- ----- Balance at April 1, 2000.................. $ 7,265 $ 4,878 $ 140 $12,283 2001 spending............................. (3,019) (3,131) (140) (6,290) ------- ------- ----- ------- Balance at March 31, 2001................. 4,246 1,747 -- 5,993 2002 spending............................. (2,790) (521) -- (3,311) ------- ------- ----- ------- Balance at March 30, 2002................. 1,456 1,226 -- 2,682 2003 spending............................. (1,456) (1,226) -- (2,682) ------- ------- ----- ------- Balance at March 29, 2003................. $ -- $ -- $ -- $ -- ======= ======= ===== =======
F-21 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                 
Lease and
Severance andContract
TerminationTerminationOther
BenefitsCostsCostsTotal




Balance at March 31, 2001 $4,246  $1,747  $  $5,993 
2002 spending  (2,790)  (521)     (3,311)
   
   
   
   
 
Balance at March 30, 2002  1,456   1,226      2,682 
2003 spending  (1,456)  (1,226)     (2,682)
   
   
   
   
 
Balance at March 29, 2003 $  $  $  $ 
   
   
   
   
 

Total cash outlays related to the 1999 Restructuring Plan were approximately $39.5 million, all of which have been paid through March 29, 2003. 10. INCOME TAXESApril 3, 2004.

10.Income Taxes

The Company and its U.S. subsidiaries file a consolidated Federal Income tax return. The components of the provision for income taxes were as follows (Dollars in thousands):
FISCAL YEAR ENDED -------------------------------- 2003 2002 2001 ---- ---- ---- Current: Federal....................................... $ 77,299 $ 58,529 $ 27,984 State and local............................... 6,550 6,457 21,605 Foreign....................................... 7,401 17,297 12,533 -------- -------- -------- 91,250 82,283 62,122 -------- -------- -------- Deferred: Federal....................................... 9,039 15,835 (11,689) State and local............................... (2,045) 4,672 (12,367) Foreign....................................... 1,907 709 626 -------- -------- -------- 8,901 21,216 (23,430) -------- -------- -------- $100,151 $103,499 $ 38,692 ======== ======== ========

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Current:            
 Federal $81,781  $77,299  $58,529 
 State and local  4,135   6,550   6,457 
 Foreign  10,450   7,401   17,297 
   
   
   
 
   96,366   91,250   82,283 
   
   
   
 
Deferred:            
 Federal  (4,421)  9,039   15,835 
 State and local  (831)  (2,045)  4,672 
 Foreign  3,941   1,907   709 
   
   
   
 
   (1,311)  8,901   21,216 
   
   
   
 
  $95,055  $100,151  $103,499 
   
   
   
 

     The current income tax provisions exclude approximately $5.7 million in Fiscal 2004, $1.2 million in Fiscal 2003, and $2.9 million in Fiscal 2002 arising from the tax benefits related to the exercise of nonqualified stock options. These amounts have been credited to capital in excess of par value.

F-24


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The foreign and domestic components of income before provision for income taxes were as follows (Dollars in thousands):
FISCAL YEAR ENDED -------------------------------- 2003 2002 2001 ---- ---- ---- Domestic........................................ $190,167 $287,291 $127,071 Foreign......................................... 84,219 (11,292) (29,117) -------- -------- -------- $274,386 $275,999 $ 97,954 ======== ======== ========

             
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Domestic $198,957  $190,167  $287,291 
Foreign  62,975   84,219   (11,292)
   
   
   
 
  $261,932  $274,386  $275,999 
   
   
   
 

The deferred tax assets reflect the net tax effect of temporary differences, primarily net operating loss carryforwards, property and equipment and accounts receivable, between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. The components of the net deferred tax assets at April 3, 2004 and March 29, 2003 and March 30, 2002 were as follows (Dollars in thousands):
MARCH 29, MARCH 30, 2003 2002 --------- --------- DEFERRED TAX ASSETS: Net operating loss carryforwards............................ $61,661 $33,390 Property and equipment...................................... 21,292 24,530 Accounts receivable......................................... 6,805 5,233 Uniform inventory capitalization............................ 4,986 6,219 Deferred compensation....................................... 8,955 9,206 Restructuring reserves...................................... 3,958 8,134 Accrued expenses............................................ 1,513 1,900 Other....................................................... 9,556 10,253 ------- -------
F-22 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MARCH 29, MARCH 30, 2003 2002 --------- --------- Total Deferred Tax Asset.................................... 118,726 98,865 Less: Valuation allowance................................... 44,580 23,761 ------- ------- Net Deferred Tax Asset...................................... 74,146 75,104 DEFERRED TAX LIABILITIES: Goodwill and other intangibles.............................. (5,496) (618) Foreign reorganization costs................................ (2,743) 1,538 ------- ------- Total Deferred Tax Liability................................ (8,239) 920 ------- ------- Net Deferred Tax Asset...................................... $65,907 $76,024 ======= =======

         
April 3,March 29,
20042003


Deferred Tax Assets:
        
Net operating loss carryforwards $83,752  $61,661 
Property and equipment  24,964   21,292 
Accounts receivable  13,792   6,805 
Uniform inventory capitalization  5,117   4,986 
Deferred compensation  8,597   8,955 
Restructuring reserves  5,018   3,958 
Accrued expenses  1,788   1,513 
Other  15,529   9,556 
   
   
 
Total Deferred Tax Asset  158,557   118,726 
Less: Valuation allowance  62,934   44,580 
   
   
 
Net Deferred Tax Asset  95,623   74,146 
Deferred Tax Liabilities:
        
Goodwill and other intangibles  (9,854)  (5,496)
Foreign reorganization costs  (4,572)  (2,743)
   
   
 
Total Deferred Tax Liability  (14,426)  (8,239)
   
   
 
Net Deferred Tax Asset $81,197  $65,907 
   
   
 

     We have available federal, state and foreign net operating loss carryforwards of approximately $11.5$10.0 million, $227.5 million and state net operating loss carryforwards of approximately $243.7$22.1 million, respectively, for tax purposes to offset future taxable income. The net operating loss carryforwards expire beginning in fiscal 2004.Fiscal 2005. 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. As a result of the limitation of Section 382, we believe that approximately $3.3 million of the federal net operating loss carryforwards will expire and not be utilized. A valuation allowance has been recorded against such net operating losses.

     Also, we have available additional state and foreign net operating loss carryforwards of approximately $2.5$2.1 million and $151.1$180.0 million, respectively, for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded since we do not believe that we will

F-25


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent recognition of a substantial portion of the deferred tax asset relating to these federal, state and foreign net operating loss carryforwards would result in a reduction of goodwill recorded in connection with acquisitions. Additionally, we have recorded a valuation allowance against certain other deferred tax assets relating to our foreign operations. Subsequent recognition of these deferred tax assets, as well as a portion of the foreign net operating loss carryforwards, would result in an income tax benefit in the year of such recognition.

     Provision has not been made for United States or additional foreign taxes on approximately $103.0$120.0 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, a subsidiary or a United States affiliate of PRLC, or if the stock of the subsidiaries were sold. Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practical. We believe that the amount of the additional taxes that might be payable on the earnings of foreign subsidiaries, if remitted, would be partially offset by United States foreign tax credits. F-23 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The historical provision for income taxes in fiscalFiscal 2004, 2003 2002 and 20012002 differs from the amounts computed by applying the statutory federal income tax rate to income before provision for income taxes due to the following (Dollars in thousands):

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Provision for income taxes at statutory Federal rate $91,677  $96,035  $96,600 
Increase (decrease) due to:            
 State and local income taxes, net of Federal Benefit  2,148   2,928   7,233 
 Foreign income taxes, net  4,803   623   (7,308)
 Other  (3,573)  565   6,974 
   
   
   
 
  $95,055  $100,151  $103,499 
   
   
   
 
FISCAL YEAR ENDED ------------------------------- 2003 2002 2001 ---- ---- ---- Provision for income taxes at statutory Federal rate............................................ $ 96,035 $ 96,600 $34,284 Increase (decrease) due to: State and local income taxes, net of Federal Benefit...................................... 2,928 7,233 6,005 Foreign income taxes, net....................... 623 (7,308) (2,499) Other........................................... 565 6,974 902 -------- -------- ------- $100,151 $103,499 $38,692 ======== ======== =======
11.Financing Agreements
11. FINANCING AGREEMENTS

     In November 2002, we terminated both our 1997 bank credit facility and our 1999 senior bank credit facility and entered into a new credit facility. The 1997 bank credit facility provided for a $225.0 million revolving line of credit and matured on December 31, 2002, while the 1999 senior bank credit facility consisted of a $20.0 million revolving line of credit and an $80.0 million term loan, both of which were scheduled to mature on June 30, 2003. The new credit facility is with a syndicate of banks and consists of a $300.0 million revolving line of credit, subject to increase to $375.0 million, which is available for direct borrowings and the issuance of letters of credit. It will mature on November 18, 2005. As of March 29, 2003,April 3, 2004 we had $100.0 millionno balance outstanding under the new facility, which was the aggregate amount outstanding under the old facilities at the time of extinguishment; $50.0 million of which was repaid in April 2003 and the remaining $50.0 million is expected to be repaid in June 2003.facility. Borrowings under this facility bear interest, at our option, at a rate equal to (i) the higher of the Federal Funds Effective Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial lending rate of JP Morgan Chase Bank in effect from time to time, or (ii) the LIBO Rate (as defined) in effect from time to time, as adjusted for the Federal Reserve Board'sBoard’s Eurocurrency Liabilities maximum reserve percentages, and a margin based on our then current credit ratings. As of March 29, 2003,April 3, 2004, the margin was 0.75%.

F-26


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

     Our 2002 bank credit facility requires that we maintain certain financial covenants: - a minimum consolidated tangible net worth, and - a maximum Adjusted Debt to EBITDAR (as such terms are defined in the credit facility)Credit Facility) ratio.

     The credit facility also contains covenants that, subject to specified exceptions, restrict our ability to: - incur additional debt; - incur liens and contingent liabilities; - sell or dispose of our assets, including equity interests; - merge with or acquire other companies, liquidate or dissolve; - engage in businesses that are not a related line of business; F-24 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) - make loans, advances or guarantees; - engage in transactions with affiliates; and -

• incur additional debt;
• incur liens and contingent liabilities;
• sell or dispose of our assets, including equity interests;
• merge with or acquire other companies, liquidate or dissolve;
• engage in businesses that are not a related line of business;
• make loans, advances or guarantees;
• engage in transactions with affiliates; and
• make investments.

     Upon the occurrence of an event of default under the credit facility, the lenders may cease making loans, terminate the credit facility, and declare all amounts outstanding to be immediately due and payable. The credit facility specifies 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. Additionally, the agreement provides 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. As of March 29, 2003,April 3, 2004, the Company was in compliance with all financial and non-financial debt covenants.

     On November 22, 1999, we issued Euro 275.0 million of 6.125% Notes (Euro debt)(“Euro debt”) due November 2006. The Euro debt is listed on the London Stock Exchange. The net proceeds from the Euro debt offering were $281.5 million based on the Euro exchange rate on the issuance date. A portion of the net proceeds from the issuance was used to finance the acquisition of stock and certain assets of Poloco while the remaining net proceeds were retained for general corporate purposes. Interest on the Euro debt is payable annually. During fiscal 2003 and 2002,Through Fiscal 2004, we repurchased Euro 8.4 million and Euro 11.947.7 million of our outstanding Euro debt, or $7.7$43.6 million and $10.6 million, respectively, based on Euro exchange rates. The loss on this early extinguishment of debt was not material.

     At April 3, 2004, we had no balance outstanding under the credit facility and $277.3 million outstanding in Euro debt based on the year end Euro exchange rate. We were also contingently liable for $35.3 million in outstanding letters of credit related primarily to commitments for the purchase of inventory. At March 29, 2003, we had $100.9 million outstanding in direct borrowings and $248.5 million outstanding in Euro debt based on the year end Euro exchange rate. We were also contingently liable for $19.1 million in outstanding letters of credit related primarily to commitments for the purchase of inventory. At March 30, 2002, we had $33.0 million outstanding in direct borrowings, $80.0 million outstanding under the term loan and $205.0 million outstanding in Euro debt based on the year end Euro exchange rate. The credit facilities bore interest primarily at the institution'sinstitution’s prime rate. The weighted-average interest rate on borrowings was 5.4%3.8%, 5.4% and 5.9% in Fiscal 2004, 2003 and 6.3% in fiscal 2003, 2002, and 2001, respectively.

     The carrying amounts of financial instruments reported in the accompanying consolidated balance sheets approximated their estimated fair values, except for the Euro debt, primarily due to either the short-term maturity of the instruments or their adjustable market rate of interest. The fair value of the Euro debt, net of discounts, was $252.4$292.6 million, and $205.4$252.4 million, as of April 3, 2004 and March 29, 2003 and March 30, 2002,respectively, based on its quoted market price as listed on the London Stock Exchange. 12.

F-27


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL INSTRUMENTS STATEMENTS — (Continued)

12.Financial Instruments

We enter into forward foreign exchange contracts as hedges relating to identifiable currency positions to reduce our risk from exchange rate fluctuations on inventory purchases.purchases and intercompany royalty payments. Gains and losses on these contracts are deferred and recognized as adjustments to either the basis of those assets.assets or foreign exchange gains/losses, as applicable. At March 29, 2003,April 3, 2004, we had the following foreign exchange contracts outstandingoutstanding: (i) to deliver $92.567.1 million in fiscal 2004 in exchange for Euro 87.1 million. The$73.9 million through Fiscal 2005 and (ii) to deliver ¥8,248 million in exchange for $71.0 million through Fiscal 2008. At April 3, 2004, the fair value of these contracts resulted in an unrealized losslosses, net of approximately $0.66 million at March 29, 2003. At March 30, 2002, we had foreign exchange contracts outstanding (i) to deliver Euro 39.3 million in fiscal 2003, in exchange for $34.6taxes of $6.6 million and (ii)$6.3 million, for the Euro forward contracts and Japanese Yen forward contracts respectively.

In May 2003, we terminated the cross currency rate swap, and entered into an interest rate swap that terminates in November 2006. The interest rate swap is being used to deliver 12.7convert Euro 105.2 million, British Pounds6.125% fixed rate borrowings into Euro 105.2 million, EURIBOR minus 1.55% variable rate borrowings. We entered into the interest rate swap to minimize the impact of changes in fiscal 2003 in F-25 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) exchange for $18.0 million. Thethe fair value of these contracts resultedthe Euro debt due to changes in EURIBOR, the benchmark interest rate. The swap has been designated as a fair value hedge under SFAS No. 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 interest rate swap and the Euro debt resulting from changes in the benchmark interest rate, and was de minimis for Fiscal 2004. In addition, we have designated the entire principal of the Euro debt as a hedge of our net investment in certain foreign subsidiaries. As a result, changes in the fair value of the Euro debt resulting from changes in the Euro rate are reported net of income taxes in accumulated other comprehensive income in the consolidated financial statements as an unrealized gain or loss on foreign currency hedges. On April 6, 2004 the Company executed an interest rate swap to convert the fixed interest rate on50 million of the Eurobonds to a floating rate (EURIBOR based). After the execution of this swap, approximately $0.477 million of the Eurobonds remained at March 30, 2002.a fixed interest rate.

     In November 2002, the Company entered into forward contracts on 6.2 billion Japanese Yen that terminated in February 2003. These forward contracts were entered into to minimize the impact of foreign exchange fluctuations on the Japanese Yen purchase price in connection with the transactions described in Note 3. The forward contracts did not qualify for hedge accounting under SFAS No. 133 and as such the changes in the fair value of the contracts were recognized currently in earnings. In connection with accounting for these contracts during fiscalFiscal 2003, the Company recognized $2.4 million of foreign exchange gain on these forward contracts, included as a component of foreign currency losses (gains), in the accompanying consolidated statements of income.

     In June 2002, we entered into a cross currency rate swap, which terminateswas scheduled to terminate in November 2006. The cross currency rate swap iswas 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 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 hashad been designated as a fair value hedge under SFAS No. 133. Hedge ineffectiveness iswas 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 year ended March 29, 2003. In addition, we have designated a portion of our Euro debt as a hedge of our net investment in a foreign subsidiary. As a result, changes in the fair value of the Euro debt resulting from changes in the Eurodollar rate, which are attributable to the portion of debt that hedges our net investment, are reported net of income taxes, in accumulated other comprehensive loss (income) as an unrealized loss or gain on foreign currency hedges.debt.

     In April 1999, we entered into interest rate swap agreements with commercial banks which expireexpired in 2003 to hedge against interest rate fluctuations. The swap agreements effectively convert

F-28


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

converted borrowings under the 2002 bank credit facility from variable rate to fixed rate obligations. Under the terms of these agreements, we makemade payments at a fixed rate of 5.5% and receivereceived payments from the counterparty based on the notional amount of $100.0 million at a variable rate based on LIBOR. The net interest paid or received on this arrangement iswas included in interest expense. The fair value of these agreements was based upon the estimated amount that we would have to pay to terminate the agreements, as determined by the financial institutions. The fair value of these agreements was an unrealized loss of $1.3 million at March 29, 2003, all of which is expected to bewas reclassified into earnings during fiscalFiscal 2004; and an unrealized loss of $2.6 million at March 30, 2002.

As of April 3, 2004 and March 29, 2003, and March 30, 2002, the Company was party to the following contracts (Dollars in millions):

                 
April 3, 2004March 29, 2003


NotionalFair ValueNotionalFair Value




Foreign Currency Contracts $144.9  $(13.0) $92.5  $(0.7)
Cross Currency Swap Contracts       $100.0  $16.8 
Interest Rate Swap Contracts  105.2  $14.9  $100.0  $(1.3)
MARCH 29, 2003 MARCH 30, 2002 --------------------- --------------------- NOTIONAL FAIR VALUE NOTIONAL FAIR VALUE -------- ---------- -------- ---------- Foreign Currency Contracts........................... $92.5 $(0.7) $340.3 $10.0 Cross Currency Swap Contracts........................ 100.0 16.8 -- -- Interest Rate Swap Contracts......................... 100.0 (1.3) 100.0 (2.6)
13.Commitments and Contingencies
F-26 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 13. COMMITMENTS AND CONTINGENCIES LEASES
Leases

We lease office, warehouse and retail space and office equipment under operating leases which expire through 2029. As of March 29, 2003,April 3, 2004, aggregate minimum annual rental payments under noncancelable operating leases with lease terms in excess of one year were payable as follows (Dollars in thousands):
FISCAL YEAR ENDING - ------------------ 2004........................................................ $ 72,654 2005........................................................ 69,690 2006........................................................ 67,231 2007........................................................ 61,447 2008........................................................ 53,478 Thereafter.................................................. 238,052 -------- $562,552 ========

     
Fiscal Year Ending

2005 $107,736 
2006  101,979 
2007  93,121 
2008  88,250 
2009  80,032 
Thereafter  419,361 
   
 
  $890,479 
   
 

Rent expense charged to operations was $107.0 million, $98.2 million and $83.2 million in Fiscal 2004, 2003 and $75.6 million in fiscal 2003, 2002, and 2001, respectively, net of sub-lease income of $0.4 million and $2.2 million, in fiscal 2002 and 2001.income. Substantially all outlet and retail store leases provide for contingent rentals based upon sales and require us to pay taxes, insurance and occupancy costs. Certain rentals are based solely on a percentage of sales, and one significant lease requires a fair market value adjustment at January 1, 2004.sales. Contingent rental charges included in rent expense were $8.1 million, $6.9 million and $6.2 million in Fiscal 2004, 2003 and $6.1 million in fiscal 2003, 2002, respectively. These rental amounts exclude associated costs such as real estate taxes and 2001. EMPLOYMENT AGREEMENTScommon area maintenance.

Employment Agreements

     We are party to employment agreements with certain executives which provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances. ACQUISITIONS

F-29


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Acquisitions

See Note 3 for information regarding contingent payments related to acquisitions made by the Company. CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

     We sell our merchandise primarily to major upscale department stores across the United States and extend credit based on an evaluation of the customer'scustomer’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'scustomer’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 us or to cease carrying our products could have a material adverse effect. We had three customers who in aggregate constituted approximately 30%40.1% and 35%30.0% of trade accounts receivable outstanding at April 3, 2004 and March 29, 2003, and March 30, 2002.respectively.

     We had three significant customers who accounted for approximately 7%14.1%, 5%13.2% and 5%10.4% each of worldwide wholesale net sales, in Fiscal 2004. These three significant customers accounted for approximately 12.5%, 9.7% and 8.4% each of net sales in fiscal 2003. We had three significant customers who accountedFiscal 2003, and for approximately 10%17.3%, 9%16.1% and 9%15.6% each of net sales in fiscal 2002, and for approximately 11%, 10% and 10% each F-27 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of net sales in fiscal 2001.Fiscal 2002. Additionally, we had four significant licensees who in aggregate constituted approximately 51%50%, 55%51% and 53%55% of licensing revenue in fiscalFiscal 2004, 2003 and 2002, and 2001.respectively.

     We monitor credit levels and the financial condition of our customers on a continuing basis to minimize credit risk. We believe that adequate provision for credit loss has been made in the accompanying consolidated financial statements.

We are also subject to concentrations of credit risk with respect to our cash and cash equivalents, marketable securities, cross currency swap agreement, interest rate swap agreements and forward foreign exchange contracts which we attempt to minimize by entering into these arrangements with major banks and financial institutions and investing in high-quality instruments. We do not expect any counterparties to fail to meet their obligations. DECLARATION OF DIVIDEND

Declaration of Dividend

On May 20, 2003, the Board of Directors declaredinitiated a regular quarterly cash dividend program of $0.05 per share, or $0.20 per share on an annual basis, on Polo Ralph Lauren common stock. The fourth quarter dividend iswas payable to shareholders of record at the close of business on June 27, 2003April 2, 2004 and will bewas paid on July 11, 2003. LEGAL MATTERS The Company is a party to several pending legal proceedings and claims. Although the outcome of such actions cannot be determined with certainty, management is of the opinion that the final outcome should not have a material adverse effect on the Company's results of operations or financial position. See Note 18 for discussion of significant legal proceedings. LICENSING COMMITMENTSApril 16, 2004.

Licensing Commitments

     As a result of the failure of Jones Apparel Group, including its subsidiaries (Jones)(“Jones”), to meet the minimum sales volumes for the year ended December 31, 2002, under the license agreements for the sale of products under the "Ralph"“Ralph” trademark between us and Jones dated May 11, 1998, these license agreements will terminateterminated as of December 31, 2003. We have advised Jones that the termination of these licenses will automatically resultresulted in the termination of the licenses between us and Jones with respect to the "Lauren"“Lauren” trademark pursuant to the Cross Default and Term Extension Agreement, between us and Jones dated May 11, 1998. The Lauren license agreements would otherwise expire on December 31, 2006. The royalties that we received pursuant to the "Lauren"“Lauren” license agreements and "Ralph"“Ralph” license agreements represented revenues in fiscalFiscal 2003 of approximately $37.4 million and $5.3 million, respectively. Jones has reported that net

F-30


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

sales of Lauren and Ralph products for the year ended December 31, 2002 were $548.0 million and $37.0 million, respectively. See Note 20 for an updateadditional information on this matter. OTHER COMMITMENTS

Other Commitments

The Company is not party to any off-balance sheet transactions or unconsolidated special purpose entities for any of the periods presented herein. 14. COMMON STOCK

14.Earnings Per Share

Basic EPS is calculated based on income available to common shareholders and the weighted-average number of shares outstanding during the reported period. Diluted EPS includes additional dilution from potential common stock issuable pursuant to the exercise of stock options outstanding and is calculated under the treasury stock method. The weighted-average number of common shares outstanding used to calculate Basic EPS is reconciled to those shares used in calculation Diluted EPS as follows:

             
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



(Shares in thousands)
Basic  98,977   98,331   97,470 
Dilutive effect of stock options, restricted stock and restricted stock units  1,983   932   1,053 
   
   
   
 
Diluted shares  100,960   99,263   98,523 
   
   
   
 

Options to purchase shares of common stock at an exercise price greater than the average market price of the common stock are anti-dilutive and therefore not included in the computation of diluted earnings per share.

15.Common Stock

     All of our outstanding Class B common stock is owned by Mr. Ralph Lauren and related entities and all of our formerly outstanding Class C common stock iswas owned by certain investment funds affiliated with The Goldman Sachs Group, Inc. (GS Group)(“GS Group”). Shares of Class B common stock F-28 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 arewere 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 members of the GS Group.basis. During fiscalFiscal 2003, 11.0 million shares of Class C common stock were converted into Class A common stock and sold in a secondary stock offering. During Fiscal 2004, the remaining Class C shares held by GS Group were converted into Class A common stock and sold in a secondary stock offering. There is no longer any Class C common stock outstanding. 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 10 votes per share. Holders of all classes of common stock entitled to vote will vote together as a single class on all matters presented to the stockholders for their vote or approval except for the election and the removal of directors and as otherwise required by applicable law. 15. STOCK INCENTIVE PLANS

     As of May 21, 2004, there were 1,174 holders of record of our Class A common stock and four holders of record of our Class B common stock.

F-31


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.Stock Incentive Plans

     On June 9, 1997, our Board of Directors adopted the 1997 Long-Term Stock Incentive Plan (Stock Incentive Plan). The Stock Incentive Plan authorizes the grant of awards to any officer or other employee, consultant to, or director with respect to a maximum of 10.0 million shares of our Class A common stock (Shares)(“Shares”), subject to adjustment to avoid dilution or enlargement of intended benefits in the event of certain significant corporate events, which awards may be made in the form of: (i) nonqualified stock options; (ii) stock options intended to qualify as incentive stock options under Section 422 of the Internal Revenue Code; (iii) stock appreciation rights; (iv) restricted stock and/or restricted stock units; (v) performance awards; and (vi) other stock-based awards. On June 13, 2000, our Board of Directors increased the maximum number of Shares that can be granted under the Stock Incentive Plan to 20.0 million shares,Shares, which was approved by the stockholders on August 17, 2000. At March 29, 2003,April 3, 2004, we had 6.8approximately 4.7 million Shares reserved for issuance under this plan.

     On June 9, 1997, our Board of Directors adopted the 1997 Stock Option Plan for Non-Employee Directors (Non-Employee Directors Plan). Under the Non-Employee Directors Plan, grants of options to purchase up to 500,000 Shares may be granted to non-employee directors. In fiscalFiscal 2004, 2003 2002 and 2001,2002 our Board of Directors granted options to purchase 22,500, 18,000, 27,000 and 12,25027,000 Shares with exercise prices equal to the stock'sstock’s fair market value on the date of grant. At March 29, 2003,April 3, 2004, we had 381,500approximately 362,000 shares reserved for issuance under this plan.

Stock options were granted under the plans with an exercise price equal to the stock'sstock’s fair market value on the date of grant. These options vest in equal installments primarily over two years for officers and other key employees and over three years for all remaining employees and non-employee directors. The options expire 10 years from the date of grant. Stock option activity for the Stock Incentive Plan and Non-Employee Directors Plan in fiscalFiscal 2004, 2003 2002 and 20012002 was as follows (Shares in thousands):
NUMBER WEIGHTED OF AVERAGE SHARES EXERCISE PRICE ------ -------------- BALANCE AT APRIL 1, 2000.................................... 7,250 $23.77 Granted................................................... 2,831 14.73 Exercised................................................. (449) 22.95 Forfeited................................................. (764) 22.00 ------ ------ BALANCE AT MARCH 31, 2001................................... 8,868 $20.79 ====== ======
F-29

          
Weighted
NumberAverage
of SharesExercise Price


Balance at March 31, 2001
  8,868  $20.79 
   
   
 
 Granted  2,468   26.59 
 Exercised  (1,155)  21.20 
 Forfeited  (709)  21.75 
   
   
 
Balance at March 30, 2002
  9,472  $22.16 
   
   
 
 Granted  2,665   23.72 
 Exercised  (424)  18.21 
 Forfeited  (945)  23.60 
   
   
 
Balance at March 29, 2003
  10,768  $21.75 
   
   
 
 Granted  2,497   24.30 
 Exercised  (1,950)  20.72 
 Forfeited  (592)  23.82 
   
   
 
Balance at April 3, 2004
  10,723  $23.43 
   
   
 

F-32


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NUMBER WEIGHTED OF AVERAGE SHARES EXERCISE PRICE ------ -------------- Granted................................................... 2,468 26.59 Exercised................................................. (1,155) 21.20 Forfeited................................................. (709) 21.75 ------ ------ BALANCE AT MARCH 30, 2002................................... 9,472 $22.16 ====== ====== Granted................................................... 2,665 23.72 Exercised................................................. (424) 18.21 Forfeited................................................. (945) 23.60 ------ ------ BALANCE AT MARCH 29, 2003................................... 10,768 $21.75 ====== ======
— (Continued)

Additional information relating to options outstanding as of March 29, 2003,April 3, 2004, was as follows (Shares in thousands):
NUMBER WEIGHTED-AVERAGE WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE RANGE OF OF SHARES REMAINING EXERCISE PRICE OF OF SHARES EXERCISE PRICE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE OPTIONS OUTSTANDING EXERCISABLE EXERCISABLE OPTIONS - ------------------------------ ----------- ---------------- ------------------- ----------- ------------------- $13.94-$17.06................. 1,791 7.2 $14.43 1,093 $14.47 $17.13-$19.56................. 1,978 6.9 18.84 1,520 19.01 $20.19-$25.69................. 2,231 9.0 24.46 150 22.43 $26.00-$29.91................. 4,768 6.1 26.71 3,412 26.70 ------ --- ------ ----- ------ 10,768 7.0 $21.75 6,175 $22.54 ====== === ====== ===== ======

                     
NumberWeighted-AverageWeighted-AverageNumberWeighted-Average
Range ofof SharesRemainingExercise Price ofof SharesExercise Price of
Exercise PricesOutstandingContractual LifeOptions OutstandingExercisableExercisable Options






$13.94-$17.06  1,131   6.2  $14.69   1,131  $14.69 
$17.13-$19.56  1,506   6.1   18.79   1,094   19.00 
$20.19-$25.69  3,966   8.6   24.19   762   24.15 
$26.00-$35.03  4,120   5.4   26.79   3,389   26.73 
   
   
   
   
   
 
   10,723   6.8  $23.43   6,376  $22.96 
   
   
   
   
   
 

     In June 2003, a grant of 100,000 restricted stock units was made under our Stock Incentive Plan, and a total of 541 restricted stock units were granted during Fiscal 2004 in respect of the initial grant in connection with the payment of quarterly cash dividends on our common stock. An additional 100,000 restricted stock units will be granted on each anniversary of the first grant date pursuant to an employment agreement with an initial term ending on the last day of Fiscal 2008, and additional units (the “dividend units”) will be granted in respect of the then outstanding restricted stock units in connection with each cash dividend paid on our common stock. The restricted stock units vest on the fifth anniversary of the grant date (with the dividend units vesting with the underlying restricted stock units in respect of which they are granted) and will be payable solely in shares of common stock following termination of employment. The vesting of all then outstanding unvested restricted stock units will be accelerated if termination of employment occurs after the last day of Fiscal 2008, except in the case of termination by the company for cause. The unearned compensation in respect of the grants made during the initial term is being amortized over the period ending on that date.

     In July 2002, 300,000 Shares of restricted stock were granted under the Stock Incentive Plan. These Sharesshares are subject to restrictions on transfer and the risk of forfeiture until earned, and vest as follows: 20% on each of the first five anniversaries of the grant date. The unearned compensation is being amortized over a period equal to the anticipated vesting.

     In April 2000, 118,299 Shares of restricted stock were granted under the Stock Incentive Plan. These shares are subject to restrictions on transfer and the risk of forfeiture until earned, and vest as follows: 25% each on the second, third, fourth and fifth anniversaries of the grant date. The unearned compensation is being amortized over a period equal to the anticipated vesting.

     In March 1998, our Board of Directors authorized the repurchase, subject to market conditions, of up to $100.0 million of our Shares. Share repurchases were made in the open market over the two-year period which commenced April 1, 1998. The Board of Directors has authorized the extension of the stock repurchase program through March 31, 2004.April 1, 2006. Shares acquired under the repurchase program will be used for stock option programs and for other corporate purposes. The repurchased shares have been accounted for as treasury stock at cost. As of March 29, 2003,April 3, 2004, we had repurchased 4,105,9324,087,906 Shares at an aggregate cost of $77.9$77.5 million. 16. EMPLOYEE BENEFITS PROFIT SHARING RETIREMENT SAVINGS PLANSNo shares were repurchased under the stock repurchase program during Fiscal 2004. Certain employees tendered stock in satisfaction of federal and state withholding taxes incurred due to the vesting of shares granted under our stock incentive plan. These transactions are treated as stock repurchases and amounted to approximately $1.0 million in Fiscal 2004.

F-33


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17.Employee Benefits
Profit Sharing Retirement Savings Plans

     We sponsor two defined contribution benefit plans covering substantially all eligible United States employees not covered by a collective bargaining agreement. The plans include a savings plan feature under Section 401(k) of the Internal Revenue Code. We make discretionary F-30 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) contributions to the plans and contribute an amount equal to 50% of the first 6% of an employee'semployee’s contribution.

Under the terms of the plans, a participant is 100% vested in our matching and discretionary contributions after five years of credited service. Contributions under these plans approximated $3.8 million, $3.1 million and $6.0 million in Fiscal 2004, 2003 and $7.4 million in fiscal 2003, 2002, and 2001, respectively. SUPPLEMENTAL RETIREMENT PLAN

Supplemental Retirement Plan

The Company has a non-qualified supplemental retirement plan for certain highly compensated employees whose benefits under the 401(k) profit sharing retirement savings plans are expected to be constrained by the operation of certain Internal Revenue Code limitations. These supplemental benefits vest over time and the compensation expense related to these benefits is recognized over the vesting period. The amounts accrued under these plans were $17.5 million and $16.0 million at April 3, 2004 and $14.1 million at March 29, 2003, and March 30, 2002, and are reflected in other noncurrent liabilities in the accompanying consolidated balance sheets. Total compensation expense related to these benefits was $3.8 million, $1.4 million and $2.9 million in Fiscal 2004, 2003 and $2.5 million in fiscal 2003, 2002, and 2001, respectively. This liability is partially funded through whole-life policies, which had cash surrender values of $12.5 million and $11.8 million at April 3, 2004 and $11.0 million at March 29, 2003, and March 30, 2002, and are reflected in other assets in the accompanying consolidated balance sheets. DEFERRED COMPENSATION

Deferred Compensation

We have deferred compensation arrangements for certain key executives which generally provide for payments upon retirement, death or termination of employment. The amounts accrued under these plans were $4.0 million and $4.6 million at April 3, 2004, and $6.2 million at March 29, 2003, and March 30, 2002, and are reflected in other noncurrent liabilities in the accompanying consolidated balance sheets. Total compensation expense related to these compensation arrangements was $0.7 million each year for fiscalFiscal 2004, 2003 2002 and 2001.2002. We fund 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 consolidated balance sheets. UNION PENSION

Union Pension

     We participate in a multi-employer pension plan and are required to make contributions to the Union of Needletrades Industrial and Textile Employees (Union)(“Union”) for dues based on wages paid to union employees. A portion of these dues is allocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers. We do not participate in the management of the plan and have not been furnished with information with respect to the type of benefits provided, vested and nonvested benefits or assets.

     Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or termination of a multi-employer plan, is required to continue funding its proportionate share of the plan'splan’s unfunded vested benefits. Such withdrawal liability was assumed in conjunction with the acquisition of certain assets from a nonaffiliatednon-affiliated licensee. We have no current intention of withdrawing from the plan. 17. SEGMENT REPORTING

F-34


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

18.Segment Reporting

     The Company operates in three business segments: wholesale, retail and licensing. Our reportable segments are individual business units that either offer different products and services, or are managed separately since each segment requires different strategic initiatives, F-31 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 wholesale segment consists of twothree operating units: Polo Brands, Lauren, and Collection Brands. Each unit designs, sources, markets and distributes discrete brands. BothEach of the units primarily sell products to major department and specialty stores and to our owned and licensed retail stores.

     The retail segment operates two types of stores: outlet and full-price stores. The stores sell our products purchased from our wholesale segment,licensees, our licenseessuppliers and our suppliers.wholesale segment.

     The licensing segment, which consists of product, international and home, generates revenues from royalties through its licensing alliances. The licensing agreements grant the licensee rights to use our various trademarks in connection with the manufacture and sale of designated products in specified geographical areas.

     The accounting policies of the segments are consistent with those described in Note 1. 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. We do not review these sales when evaluating segment performance. We evaluate each segment'ssegment’s performance based upon income or loss from operations before interest, foreign currency gains and losses, restructuring charges and income taxes. Corporate overhead expenses are allocated to each segment based upon each segment'ssegment’s usage of corporate resources. The restructuring charges were allocated as follows: $6.7 million to wholesale and $12.9 million to retail in Fiscal 2004, $12.3 million to wholesale and $2.1 million to retail in Fiscal 2003 and $16.0 million to retail in Fiscal 2002.

Our net revenues, income from operations, depreciation and amortization expense and capital expenditures for fiscalFiscal 2004, 2003 2002 and 2001,2002, and total assets as of April 3, 2004, March 29, 2003 and March 30, 2002, and March 31, 2001, for each segment were as follows (Dollars in thousands):
FISCAL YEAR ENDED -------------------------------------- 2003 2002 2001 ---- ---- ---- NET REVENUES: Wholesale................................ $1,187,363 $1,198,060 $1,053,842 Retail................................... 1,001,958 924,273 928,577 Licensing................................ 250,019 241,374 243,355 ---------- ---------- ---------- $2,439,340 $2,363,707 $2,225,774 ========== ========== ========== INCOME FROM OPERATIONS: Wholesale................................ $ 124,476 $ 158,401 $ 127,040 Retail................................... 40,366 18,799 27,710 Licensing................................ 138,018 132,012 145,598 ---------- ---------- ---------- 302,860 309,212 300,348 Less: Unallocated restructuring and special charges....................... 14,443 16,000 183,127 ---------- ---------- ---------- $ 288,417 $ 293,212 $ 117,221 ========== ========== ========== DEPRECIATION AND AMORTIZATION: Wholesale................................ $ 30,454 $ 33,246 $ 31,642 Retail................................... 37,118 37,877 35,896 Licensing................................ 11,073 12,796 11,061 ---------- ---------- ---------- $ 78,645 $ 83,919 $ 78,599 ========== ========== ==========
F-32

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Net revenues:
            
 Wholesale $1,210,397  $1,187,363  $1,198,060 
 Retail  1,170,447   1,001,958   924,273 
 Licensing  268,810   250,019   241,374 
   
   
   
 
  $2,649,654  $2,439,340  $2,363,707 
   
   
   
 

F-35


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEAR ENDED -------------------------------------- 2003 2002 2001 ---- ---- ---- CAPITAL EXPENDITURES: Wholesale................................ $ 32,020 $ 48,829 $ 20,957 Retail................................... 35,693 19,182 57,836 Licensing................................ 5,587 4,571 6,217 Corporate................................ 25,364 15,426 20,160 ---------- ---------- ---------- $ 98,664 $ 88,008 $ 105,170 ========== ========== ==========
MARCH 29, MARCH 30, MARCH 31, 2003 2002 2001 --------- --------- --------- TOTAL ASSETS: Wholesale................................ $ 766,460 $ 591,680 $ 604,834 Retail................................... 476,314 534,036 528,836 Licensing................................ 157,946 161,912 154,714 Corporate................................ 638,102 461,869 337,709 ---------- ---------- ---------- $2,038,822 $1,749,497 $1,626,093 ========== ========== ==========
— (Continued)

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Income from operations:
            
 Wholesale $93,128  $124,476  $158,401 
 Retail  72,915   40,366   18,799 
 Licensing  127,319   138,018   132,012 
   
   
   
 
   293,362   302,860   309,212 
 Less: Restructuring charges  19,566   14,443   16,000 
   
   
   
 
  $273,796  $288,417  $293,212 
   
   
   
 
Depreciation and amortization:
            
 Wholesale $33,280  $30,454  $33,246 
 Retail  37,605   37,118   37,877 
 Licensing  12,304   11,073   12,796 
   
   
   
 
  $83,189  $78,645  $83,919 
   
   
   
 
Capital expenditures:
            
 Wholesale $33,491  $32,020  $48,829 
 Retail  42,256   35,693   19,182 
 Licensing  1,871   5,587   4,571 
 Corporate  45,408   25,364   15,426 
   
   
   
 
  $123,026  $98,664  $88,008 
   
   
   
 
              
April 3,March 29,March 30,
200420032002



Total assets:
            
 Wholesale $857,721  $766,460  $591,680 
 Retail  573,625   476,314   534,036 
 Licensing  200,136   157,946   161,912 
 Corporate  638,759   638,102   461,869 
   
   
   
 
  $2,270,241  $2,038,822  $1,749,497 
   
   
   
 

F-36


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Our net revenues for fiscalFiscal 2004, 2003 2002 and 2001,2002, and our long-lived assets as of April 3, 2004 and March 29, 2003 and March 30, 2002 by geographic location of the reporting subsidiary, were as follows (Dollars in thousands):

              
Fiscal Year Ended

April 3,March 29,March 30,
200420032002



Net revenues:
            
 United States and Canada $2,073,401  $1,916,096  $1,919,587 
 Europe  464,098   458,627   358,382 
 Other regions  112,155   64,617   85,738 
   
   
   
 
  $2,649,654  $2,439,340  $2,363,707 
   
   
   
 
          
April 3,March 29,
20042003


Long-lived assets:
        
 United States and Canada $334,109  $312,467 
 Europe  59,871   41,472 
 Other regions  3,348   1,057 
   
   
 
  $397,328  $354,996 
   
   
 
FISCAL YEAR ENDED -------------------------------------- 2003 2002 2001 ---- ---- ---- NET REVENUES: United States and Canada................. $1,916,096 $1,919,587 $1,952,156 Europe................................... 458,627 358,382 219,526
19.Accumulated Other regions............................ 64,617 85,738 54,092 ---------- ---------- ---------- $2,439,340 $2,363,707 $2,225,774 ========== ========== ========== Comprehensive Income

Accumulated other comprehensive income is comprised of the effects of foreign currency translation as detailed below (Dollars in thousands):

         
April 3,March 29,
20042003


Foreign currency translation adjustment $74,360  $28,834 
Unrealized losses on hedging derivatives  (50,418)  (18,047)
   
   
 
Accumulated other comprehensive income, net of tax $23,942  $10,787 
   
   
 
MARCH 29, MARCH 30, 2003 2002 --------- --------- LONG-LIVED ASSETS: United States and Canada................................ $ 312,467 $ 324,278 Europe.................................................. 41,472 18,845 Other regions........................................... 1,057 713 ---------- ---------- $ 354,996 $ 343,836 ========== ==========
20.Legal Proceedings
18. LEGAL PROCEEDINGS

     As a result of the failure of Jones Apparel Group, Inc. (including its subsidiaries, “Jones”) to meet the minimum sales volumes for the year ended December 31, 2002 under the license agreements for the sale of products under the “Ralph” trademark between us and Jones dated May 11, 1998, these license agreements terminated as of December 31, 2003. We advised Jones that the termination of these license agreements would automatically result in the termination of the license agreements between us and Jones with respect to the “Lauren” trademark pursuant to the Cross Default and Term Extension Agreement between the Company and Jones dated May 11, 1998. The terms of the Lauren license agreements would otherwise have expired on December 31, 2006.

     On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court of the State of New York alleging, among other things, that we had breached the Lauren license agreements by asserting our rights pursuant to the Cross Default and Term Extension Agreement, and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov’s employment agreement with Jones. Jones stated that it would treat the Lauren license agreements as terminated as of December 31, 2003, and is

F-37


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

seeking compensatory damages of $550.0 million, punitive damages and enforcement of Ms. Nemerov’s agreement. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Court of the State of New York seeking, among other things, an injunction and a declaratory judgment that the Lauren license agreements would terminate as of December 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. The two lawsuits were consolidated.

     On July 3, 2003, we filed a motion to dismiss Jones’ claims regarding breach of the “Lauren” agreements and a motion to stay the claims regarding Ms. Nemerov pending the arbitration of Jones’ dispute with Ms. Nemerov. On July 23, 2003, Jones filed a motion for summary judgment in our action against Jones, and on August 12, 2003, we filed a cross-motion for summary judgment. Oral argument on the motions was heard on September 30, 2003. On March 18, 2004, the Court entered orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granted Jones’ motion for summary judgement in our action for declaratory judgement the Lauren agreements terminated on December 31, 2003 and dismissed our complaint. The order also stayed Jones’ claim against us relating to Ms. Nemerov pending arbitration regarding her alleged breach of her employment agreement. On April 16, 2004, we moved the court to reconsider its orders, and a hearing on our motion was held on May 19, 2004. The Court has not yet issued a ruling as a result of this hearing. We have also filed notices of appeal of the orders. If Jones’ lawsuit were to be determined adversely to us, it could have a material adverse effect on our results of operations and financial condition. However, we intend to continue to defend the case vigorously and believe our position is correct on the merits.

     On September 18, 2002, an employee at one of the Company'sCompany’s stores filed a lawsuit against Polo Retail, LLC and the Company in the United States District Court for the District of Northern California alleging violations of California antitrust and labor laws. The plaintiff purports to represent a class of employees who have allegedly been injured by a requirement that certain retail employees purchase and wear Company apparel as a condition of their employment. The complaint, as amended, seeks an unspecified amount of actual and punitive damages, disgorgement of profits and injunctive and declaratory relief. The Company answered the amended complaint on November 4, 2002. A hearing on cross motionscross-motions for summary judgmentjudgement on F-33 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the issue of whether the Company'sCompany’s policies violated California law took place on August 14, 2003. The Court granted partial summary judgement with respect to certain of the plaintiff’s claims, but concluded that more discovery was necessary before it could decide the key issue as to whether the Company had maintained for a period of time a dress code policy that violated California law. The Court ordered the parties to conduct limited discovery to that end. Discovery has been scheduled for August 14, 2003, andstayed pending the motions are expected to be filed in June or July.outcome of mediation between the parties, which will commence on May 12, 2004.

     On April 14, 2003, a second putative class action was filed in the San Francisco Superior Court. This suit, brought by the same attorneys, alleges near identical claims to thesethose in the Federalfederal class action. The class representatives consist of former employees and the plaintiff in the Federal Courtfederal court action. Defendants in this class action include the Company, Polo Retail, LLC, Fashions Outlet of America, Inc., Polo Retail, Inc., San Francisco Polo, Ltd. as well as a non-Polo corporate defendant and two current managers. As in the Federalfederal action, the complaint seeks an unspecified amount of action and punitive, restitution of monies spent, and declaratory relief. The Company intends to file a motion to stay the state court class action has been stayed pending resolution of the Federalfederal class action. In January 1999, two actions were filed in California naming as defendants more than a dozen United States-based companies that, at the time, sourced apparel garments from Saipan (Commonwealth of the Northern Mariana Islands) and a large number of Saipan-based factories. The actions asserted that the Saipan factories engaged 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, had violated various federal and state laws. One action, filed in California Superior Court in San Francisco by a union and three public interest groups, alleged unfair competition and false advertising and equitable relief, unspecified amounts for restitution and disgorgement of profits, interest and an award of attorneys' fees. The second, filed in Federal Court for the Central District of California and subsequently transferred first to the United States District Court for the District of Hawaii and then to the United States District Court in Saipan, was brought on behalf of a purported class consisting of the Saipan factory workers. It alleged claims under the Federal civil RICO statute, Federal peonage and involuntary servitude laws, the Alien Tort Claims Act, and state tort law, and sought equitable relief and unspecified damages, including treble and punitive damages, interest and an award of attorneys' fees. Although we were not named as a defendant in these suits, we source products in Saipan, and counsel for the plaintiffs in these actions informed us that we were a potential defendant in these or similar actions. Together with some other potential defendants, we entered into an agreement to settle any claims for nonmaterial consideration. As part of the settlement, we were 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 mirrored portions of the larger State and Federal Court actions but did not include RICO and certain of the other claims alleged in those actions. The California action was subsequently dismissed as part of the settlement, and the Federal Court action was transferred to the United States District Court in Saipan. On April 23, 2003, the Federal Court gave final approval of the settlement and dismissed the claims of the settlement class members against the Company with prejudice.

     On October 1, 1999, we filed a lawsuit against the United States Polo Association Inc., Jordache, Ltd. and certain other entities affiliated with them, alleging that the defendants were

F-38


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

infringing on our famous trademarks. This lawsuit continues to proceed as both sides are awaiting the court'scourt’s decision on various motions. In connection with this lawsuit, on July 19, 2001, the United States Polo Association and Jordache filed a lawsuit against us in the United F-34 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) States District Court for the Southern District of New York. This suit, which is effectively a counterclaim by them in connection with the original trademark action, asserts claims related to our actions in connection with our pursuit of claims against the United States Polo Association and Jordache for trademark infringement and other unlawful conduct. Their claims stem from our contacts with the United States Polo Association'sAssociation’s and Jordache'sJordache’s retailers in which we informed these retailers of our position in the original trademark action. TheAll claims and counterclaims have been settled, except for the Company’s claims that the defendants violated the Company’s trademark rights. We did not pay any damages in this settlement.

     On December 5, 2003, United States Polo Association, USPA Properties, Inc., Global Licensing Sverige and JordacheAtlas Design AB (collectively, “USPA”) filed a Demand for Arbitration against the Company in Sweden under the auspices of the International Centre for Dispute Resolution seeking a declaratory judgement that USPA’s so-called Horseman symbol does not infringe on Polo Ralph Lauren’s trademark and other rights. No claim for damages is stated. On February 19, 2004, we answered the Demand for Arbitration, contesting the arbitrability of USPA’s claim for declaratory relief. We also asserted our own counterclaim, seeking a judgement that the USPA’s Horseman symbol infringes on our trademark and other rights. We also seek $50.0 millioninjunctive relief and damages in compensatory damages and $50.0 million in punitive damages from us. This new suitan unspecified amount. On March 5, 2004, USPA answered our counterclaim, denying the allegations set forth therein. A hearing has been consolidated withset in this matter for June 29, June 30, July 1, August 28 and August 29. We will continue to contest the original trademark actionarbitrability of USPA’s claim for purposesdeclaratory relief and continue vigorously to pursue our counterclaim and contest the claim lodged against us by USPA.

     In December, 2003 we received a demand on behalf of discoverya stockholder to inspect the Company’s books and trial. Werecords relating to the amended and restated employment agreement dated June 23, 2003 between the Company and Ralph Lauren. The demand asserts that the purpose of the inspection is to determine, among other things, whether the directors of the Company breached their fiduciary duties in approving the compensation provided for in the employment agreement. While we have provided certain information, we believe that the United States Polo Association's and Jordache's claimsissues asserted by the demand are substantially without merit and intend to pursue our claims and defend against those of the United States Polo Association and Jordache vigorously. See Note 20 for update of Jones matter described in "Licensing Commitments" within Note 13.merit.

     We are otherwise involved from time to time in legal claims involving trademark and intellectual property, licensing, employee relations and other matters incidental to our business. We believe that the resolution of these other matters currently pending will not, individually or in aggregate, have a material adverse effect on our financial condition or results of operations. 19. QUARTERLY INFORMATION (UNAUDITED)

F-39


POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

21.Quarterly Information (Unaudited)

The following is a summary of certain unaudited quarterly financial information for fiscalFiscal 2004, 2003 and 2002 (Dollars(in thousands, except per share data).

                  
June 28,Sept. 27,Dec. 27,April 3,
Fiscal 20042003200320032004





Net revenues $477,731  $707,777  $645,365  $818,781 
Gross profit  248,752   350,566   333,002   390,999 
Net income  5,055   54,010   35,358   76,531 
Net income per share —                
 Basic $0.05  $0.55  $0.36  $0.77 
 Diluted  0.05   0.54   0.35   0.75 
Shares outstanding — Basic  98,377   98,704   99,072   99,699 
Shares outstanding — Diluted  99,544   100,781   101,291   102,265 
                  
June 29,Sept. 28,Dec. 28,March 29,
Fiscal 20032002200220022003





Net revenues $467,000  $640,839  $639,170  $692,331 
Gross profit  232,604   321,266   307,910   345,821 
Net income  6,460   51,744   42,812   73,219 
Net income per share —                
 Basic $0.07  $0.53  $0.44  $0.74 
 Diluted  0.07   0.52   0.43   0.74 
Shares outstanding — Basic  98,161   98,301   98,412   98,450 
Shares outstanding — Diluted  99,333   99,319   99,311   99,343 
                  
June 30,Sept. 29,Dec. 29,March 30,
Fiscal 20022001200120012002





Net revenues $517,829  $595,695  $617,095  $633,088 
Gross profit  262,361   285,640   287,009   311,793 
Net income  31,051   47,810   45,614   48,025 
Net income per share —                
 Basic $0.32  $0.49  $0.47  $0.49 
 Diluted  0.32   0.49   0.46   0.48 
Shares outstanding — Basic  97,109   97,437   97,506   97,814 
Shares outstanding — Diluted  98,493   98,483   98,504   99,146 
22.Subsequent Event

     On May 25, 2004, the Company entered into a definitive agreement to acquire certain of the assets and to assume certain of the liabilities of RL Childrenswear Company, LLC relating to the Childrenswear Licensee’s licensed childrenswear apparel business in thousands)the United States, Canada and Mexico (the “Childrenswear Business”). See Note 1 "ConsolidationThe purchase price for the acquisition of European Entities -- Changethe Childrenswear Business will be $232.1 million in Reporting Period":
JUNE 29, SEPT. 28, DEC. 28, MARCH 29, FISCAL 2003 2002 2002 2002 2003 - ----------- -------- --------- -------- --------- Net revenues........................... $467,000 $640,839 $639,170 $692,331 Gross profit........................... 232,604 321,266 307,910 345,821 Net income............................. 6,460 51,744 42,812 73,219 Net income per share -- Basic................................ $ 0.07 $ 0.53 $ 0.44 $ 0.74 Diluted.............................. 0.07 0.52 0.43 0.74 Shares outstanding -- Basic............ 98,161 98,301 98,412 98,450 Shares outstanding -- Diluted.......... 99,333 99,319 99,311 99,343
JUNE 30, SEPT. 29, DEC. 29, MARCH 30, FISCAL 2002 2001 2001 2001 2002 - ----------- -------- --------- -------- --------- Net revenues........................... $517,829 $595,695 $617,095 $633,088 Gross profit........................... 262,361 285,640 287,009 311,793 Net income............................. 31,051 47,810 45,614 48,025 Net income per share -- Basic................................ $ 0.32 $ 0.49 $ 0.47 $ 0.49 Diluted.............................. 0.32 0.49 0.46 0.48 Shares outstanding -- Basic............ 97,109 97,437 97,506 97,814 Shares outstanding -- Diluted.......... 98,493 98,483 98,504 99,146
F-35 cash payable at closing, subject to a working capital adjustment, plus up to an additional $20 million of deferred and contingent cash payments. Payment of the Purchase Price will be funded by cash on hand and lines of credit as required. In addition, the Company will assume certain ordinary course trade payables and

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POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. SUBSEQUENT EVENTS On June 3, 2003, Jones filed a lawsuit against us in the Supreme Court— (Continued)

accrued expenses of the StateChildrenswear Licensee and accrued vacation obligations for the Childrenswear Licensee’s employees who will become employees of New York allegingthe Company following the closing of the acquisition. The assets of the Childrenswear Licensee being acquired by the Company include, among other things, that we breached our agreements with Jones with respectthe license; all inventories of the Childrenswear Licensee; certain leases; customer lists; supplier lists; and books and records.

     The Childrenswear Licensee and certain of its affiliates and shareholders have agreed to indemnify the Company for all of the liabilities of the Company related to the "Lauren" trademark by asserting our rights pursuantoperation of the Childrenswear Business prior to the Cross Default and Term Extension Agreement and that we induced Ms. Jackwyn Nemerov, the former President of Jones, to breach the non-compete and confidentiality clauses in Ms. Nemerov's employment agreement with Jones. Jones has indicated that it will treat the Lauren license agreements as terminated as of December 31, 2003. Jones is seeking compensatory damages of $550.0 million as well as punitive damages and to enforce the provisions of Ms. Nemerov's agreement. If Jones' lawsuit were to be determined adversely to us, it could have a material adverse effect on our results of operations and financial condition; however, we believe that the lawsuit is without merit and that we will prevail. Also on June 3, 2003, we filed a lawsuit against Jones in the Supreme Courtclosing of the Stateacquisition and have also agreed that they will not compete with the Childrenswear Business for a period of New York seeking among other things an injunctionthree years after the closing date. In addition, the Childrenswear Licensee and a declaratory judgment that the Lauren license agreements terminate ascertain of December 31, 2003 pursuantits affiliates will provide information system and accounting services to the termsCompany for a transitional period following the closing.

     The closing of the Cross Defaultproposed transaction is subject to customary conditions, including the receipt of certain third party consents and Term Extension Agreement. The Company is preparing to begin production and marketingthe expiration or termination of the Lauren and Ralph lines with shipments beginningwaiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The closing of the transaction is anticipated to occur in Januarylate June 2004. F-36

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POLO RALPH LAUREN CORPORATION

VALUATION AND QUALIFYING ACCOUNTS (IN

(IN THOUSANDS)
                     
Balance atCharge toChargeBalance
BeginningCosts andto Otherat End
Descriptionof YearExpensesAccountsDeductionsof Year






Year Ended April 3, 2004
                    
Allowance for doubtful accounts $6,394  $2,633  $  $2,004(a) $7,023 
Allowance for sales discounts  11,237   55,817      43,541   23,513 
   
   
   
   
   
 
  $17,631  $58,450  $  $45,545  $30,536 
   
   
   
   
   
 
Year Ended March 29, 2003
                    
Allowance for doubtful accounts $5,091  $1,760  $  $457(a) $6,394 
Allowance for sales discounts  8,084   35,732      32,579   11,237 
   
   
   
   
   
 
  $13,175  $37,492  $  $33,036  $17,631 
   
   
   
   
   
 
Year Ended March 30, 2002
                    
Allowance for doubtful accounts $4,667  $2,920  $  $2,496(a) $5,091 
Allowance for sales discounts  7,423   29,606      28,945   8,084 
   
   
   
   
   
 
  $12,090  $32,526  $  $31,441  $13,175 
   
   
   
   
   
 


CHARGE TO BALANCE AT COSTS CHARGE BALANCE BEGINNING AND TO OTHER AT END OF DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS YEAR - ----------- ---------- --------- -------- ---------- --------- YEAR ENDED MARCH 29, 2003 Allowance for doubtful accounts......... $ 5,091 $ 1,760 $0 $ 457(a) $ 6,394 Allowance for sales discounts........... 8,084 35,732 0 32,579 11,237 ------- ------- -- ------- ------- $13,175 $37,492 $-- $33,036 $17,631 ======= ======= == ======= ======= YEAR ENDED MARCH 30, 2002 Allowance for doubtful accounts......... $ 4,667 $ 2,920 $0 $ 2,496(a) $ 5,091 Allowance for sales discounts........... 7,423 29,606 0 28,945 8,084 ------- ------- -- ------- ------- $12,090 $32,526 $-- $31,441 $13,175 ======= ======= == ======= ======= YEAR ENDED MARCH 31, 2001 Allowance for doubtful accounts......... $ 9,760 $ 547 $0 $ 5,640(a) $ 4,667 Allowance for sales discounts........... 6,871 35,521 0 34,969 7,423 ------- ------- -- ------- ------- $16,631 $36,068 $-- $40,609 $12,090 ======= ======= == ======= =======
(a) Accounts written-off as uncollectible.
- --------------- (a) Accounts written-off as uncollectible.

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