SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements in this Form 10-K or incorporated by reference into this Form 10-K, in future filings by us with the Securities and Exchange Commission (the "SEC"), in our press releases, and in oral statements made from time to time by us or on our behalf constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, statements regarding our future operating results and sources of liquidity (especially in light of the COVID-19 pandemic), the implementation and impact of our strategic plans, initiatives and capital expenses, and our ability to meet environmental, social, and governance goals. Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "outlook," "estimate," "expect," "project," "we believe,"believe," "is or remains optimistic,"envision," "currently envisions,"goal," "target," "can," "will," and similar words or phrases and involve known and unknown risks, uncertainties, and other factors which may cause actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed in or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others:
•the loss of key personnel, including Mr. Ralph Lauren, or other changes in our executive and senior management team or to our operating structure, including those resulting from our decision to significantly reduce our global workforce during Fiscal 2021, and our ability to effectively transfer knowledge and maintain adequate controls and procedures during periods of transition;
•the impact to our business resulting from the COVID-19 pandemic, including periods of reduced operating hours and capacity limits and/or temporary closure of our stores, distribution centers, and corporate facilities, as well as those of our wholesale customers, licensing partners, suppliers, and vendors, and potential changes to consumer behavior, spending levels, and/or shopping preferences, such as willingness to congregate in shopping centers or other populated locations;
•our ability to achieve anticipated operating enhancements and/orand cost reductions from our restructuring plans, as well as the impact to our business resulting from restructuring-related charges, which could includemay be dilutive to our earnings in the short term;
•the impact to our business resulting from potential sale, discontinuance,costs and obligations related to the early or consolidation of certaintemporary closure of our brands;stores or termination of our long-term, non-cancellable leases;
•our ability to successfully implementmaintain adequate levels of liquidity to provide for our growth strategiescash needs, including our debt obligations, tax obligations, capital expenditures, and to capitalize on our repositioning initiatives in certain brands, regions,potential payment of dividends and merchandise categories;
•the impact to our business resulting from changes in consumers' ability, willingness, or preferences to purchase premium lifestylediscretionary items and luxury retail products, that we offer for salewhich tends to decline during recessionary periods, and our ability to accurately forecast consumer demand, the failure of which could result in either a build-up or shortage of inventory;
•the impact of economic, political, and other conditions on us, our customers, suppliers, vendors, and lenders, including business disruptions related to pandemic diseases such as COVID-19, civil and political unrest such as the recent protests in the U.S., and diplomatic tensions between the U.S. and China;
•the potential impact to our business resulting from the financial difficulties of certain of our large wholesale customers, which may result in consolidations, liquidations, restructurings, and other ownership changes in the retail industry, as well as other changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors,competitors;
•our ability to successfully implement our long-term growth strategy;
•our ability to continue to expand and consolidations, liquidations, restructurings,grow our business internationally and other ownershipthe impact of related changes in our customer, channel, and geographic sales mix as a result, as well as our ability to accelerate growth in certain product categories;
•our ability to open new retail stores and concession shops, as well as enhance and expand our digital footprint and capabilities, all in an effort to expand our direct-to-consumer presence;
•our ability to respond to constantly changing fashion and retail trends and consumer demands in a timely manner, develop products that resonate with our existing customers and attract new customers, and execute marketing and advertising programs that appeal to consumers;
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•our ability to effectively manage inventory levels and the increasing pressure on our margins in a highly promotional retail industry;environment;
•our ability to continue to maintain our brand image and reputation and protect our trademarks;
•our ability to competitively price our products and create an acceptable value proposition for consumers;
•our ability to access capital markets and maintain compliance with covenants associated with our existing debt instruments;
•a variety of legal, regulatory, tax, political, and economic risks, including risks related to the importation and exportation of products tariffs, and other trade barriers which our international operations are currently subject to, or may become subject to as a result of potential changes in legislation, and other risks associated with our international operations, such as compliance with the Foreign Corrupt Practices Act or violations of other anti-bribery and corruption laws prohibiting improper payments, and the burdens of complying with a variety of foreign laws and regulations, including tax laws, trade and labor restrictions, and related laws that may reduce the flexibility of our business;
•the potential impact to our business resulting from the imposition of additional duties, tariffs, taxes, and other charges or barriers to trade, including those resulting from trade developments between the U.S. and China, as well as the trade agreement reached in December 2020 between the United Kingdom and the European Union, and any related impact to global stock markets, as well as our ability to implement mitigating sourcing strategies;
•the impact to our business resulting from increases in the costs of raw materials, transportation, and labor, including wages, healthcare, and other benefit-related costs;
•our ability and the ability of our third-party service providers to secure our respective facilities and systems from, among other things, cybersecurity breaches, acts of vandalism, computer viruses, ransomware, or similar Internet or email events;
•our efforts to successfully enhance, upgrade, and/or transition our global information technology systems and digital commerce platforms;
•the potential impact to our business if any of our distribution centers were to become inoperable or inaccessible;
•the potential impact on our operations and on our suppliers and customers resulting from man-made or natural disasters, including pandemic diseases such as COVID-19, severe weather, geological events, and other catastrophic events;
•changes in our tax obligations and effective tax rate due to a variety of factors, including potential changes in U.S. or foreign tax laws and regulations, accounting rules, or the mix and level of earnings by jurisdiction in future periods that are not currently known or anticipated;
•our exposure to currency exchange rate fluctuations from both a transactional and translational perspective;
•the impact to our business of events of unrest and instability that are currently taking place in certain parts of the world, as well as from any terrorist action, retaliation, and the threat of further action or retaliation;
•the potential impact to the trading prices of our securities if our Class A common stock share repurchase activity and/or cash dividend rate differspayments differ from investors' expectations;
•our ability to maintain our credit profile and ratings within the financial community;
•our intention to introduce new products or brands, or enter into or renew alliances;
•changes in the business of, and our relationships with, major wholesale customers and licensing partners;
•our ability to achieve our goals regarding environmental, social, and governance practices, including those related to our human capital; and
•our ability to make strategic acquisitions and successfully integrate the potential impact onacquired businesses into our operations and on our suppliers and customers resulting from natural or man-made disasters.existing operations.
These forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations is described in Part I of this Form 10-K under the heading of "Risk Factors." We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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WEBSITE ACCESS TO COMPANY REPORTS AND OTHER INFORMATION
Our investor website is http://investor.ralphlauren.com. We were incorporated in June 1997 under the laws of the State of Delaware. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed with or furnished to the SEC pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, are available free of charge at our investor website under the caption "SEC Filings" promptly after we electronically file such materials with or furnish such materials to the SEC. All such filings are also available on the SEC's website at https://www.sec.gov. Information relating to corporate governance at Ralph Lauren Corporation, including our Corporate Governance Policies, our Code of Business Conduct and Ethics for all directors, officers, and employees, our Code of Ethics for Principal Executive Officers and Senior Financial Officers, and information concerning our directors, Committees of the Board of Directors, including Committee charters, and transactions involving Ralph Lauren Corporation securities by directors and executive officers, are available at our website under the captions "Corporate Governance" and "SEC Filings." Paper copies of these filings and corporate governance documents are available to stockholders without charge by written request to Investor Relations, Ralph Lauren Corporation, 625650 Madison Avenue, New York, New York 10022.
In this Form 10-K, references to "Ralph Lauren," "ourselves," "we," "our," "us," and the "Company" refer to Ralph Lauren Corporation and its subsidiaries, unless the context indicates otherwise. Due to the collaborative and ongoing nature of our relationships with our licensees, such licensees are sometimes referred to in this Form 10-K as "licensing alliances." Our fiscal year ends on the Saturday closest toimmediately before or after March 31. All references to "Fiscal 2017"2022" represent the 53-week fiscal year ending April 2, 2022. All references to "Fiscal 2021" represent the 52-week fiscal year ending April 1, 2017.ended March 27, 2021. All references to "Fiscal 2016" represent the 53-week fiscal year ended April 2, 2016. All references to "Fiscal 2015"2020" represent the 52-week fiscal year ended March 28, 2015.2020. All references to "Fiscal 2014"2019" represent the 52-week fiscal year ended March 29, 2014.30, 2019.
PART I
General
Founded in 1967 by Mr. Ralph Lauren, we are a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, footwear, accessories, home furnishings, fragrances and other licensed product categories.hospitality. Our long-standing reputation and distinctive image have been consistently developed across an expanding number of products, brands, sales channels, and international markets. We believe that our global reach, breadth of product offerings, and multi-channel distribution are unique among luxury and apparel companies.
We operate in three distinct but integrated segments: Wholesale, Retail,diversify our business by geography (North America, Europe, and Licensing. Our Wholesale business, representing approximately 45%Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows us to maintain a dynamic balance as our Fiscal 2016 net revenues, consistsoperating results do not depend solely on the performance of sales made principally to major department stores and specialty stores around the world. Our Retail business, representing approximately 53%any single geographic area or channel of our Fiscal 2016 net revenues, consists of sales madedistribution. We sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and e-commercedigital commerce operations around the world. Our Licensing business, representing approximately 2% of our Fiscal 2016 net revenues, consists of royalty-based arrangements underwholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which we have licensed the right to operate in defined geographic territories using our trademarks. In addition, we license to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess our various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings. Approximately 37%
We organize our business into the following three reportable segments: North America, Europe, and Asia. In addition to these reportable segments, we also have other non-reportable segments. See "Our Segments" for further discussion of our Fiscal 2016 net revenues were earned outside of the U.S. See Note 21 to the accompanying audited consolidated financial statements for a summary of net revenues, operating income, and total assets by reportable segment as well as net revenues and long-lived assets by geographic location.reporting structure.
We have been controlled by the Lauren family since the founding of our Company. As of April 2, 2016,March 27, 2021, Mr. R. Lauren, or entities controlled by the Lauren family, held approximately 82%84% of the voting power of the Company's outstanding common stock.
Objectives and Opportunities
We believe that our size and the global scope of our operations provide us with design, sourcing, and distribution synergies across our different businesses. Our core strengths include a portfolio of global premium lifestyle brands, a proven ability to develop and extend thewell-diversified global multi-channel distribution of our brands through multiple channels in global markets, a disciplinednetwork, an investment philosophy supported by a strong balance sheet, and an experienced management team. Despite the various risks and uncertainties associated with the current global economic environment, as discussed further in Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — CurrentGlobal Economic Conditions and Industry Trends, and Outlook," we believe our core strengths will allow us to execute our long-term growth strategy.
An overview of our long-term growth strategy is presented below:
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Global Citizenship and Sustainability
Global citizenship and sustainability at Ralph Lauren Corporation is rooted in the heritage of our brand and our purpose to inspire the dream of a better life through authenticity and timeless style. We believe that delivering the next 50 years for Ralph Lauren means rethinking our impact on the environment and society and utilizing creativity, the power of design, and innovative technologies to drive meaningful change. We call our citizenship and sustainability plan "Design the Change," and through this strategy, we’re creating a more sustainable future in three key areas:
1.Create Timeless Style
•Responsible Design — We commit to embedding sustainability, inclusivity, intention, and celebration into the products and services we design.
•Circularity — We are committed to a comprehensive circular strategy, whereby we will inform our product development and support more circular systems in our industry by designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.
•Sustainable Materials — We commit to using more materials in a way that results in positive social and environmental outcomes, protects biodiversity, advances animal welfare, and continuously improves traceability of our raw materials.
•Sustainable Spaces — We are committed to designing and building Ralph Lauren stores with materials that minimize environmental impact and maximize occupant health.
•Chemical Management — We commit to monitor and reduce hazardous chemical use and discharge and we are working to eliminate all hazardous chemicals from our product manufacturing.
2.Protect the Environment
•Carbon and Energy — We are committed to playing our part to address the climate crisis by reducing greenhouse gas emissions across our value chain and investing in credible emission removals.
•Water Stewardship — We commit to reducing water consumption across our value chain and to safeguarding and preserving water resources in our communities.
•Waste Management — We commit to integrating zero-waste principles across our business, focusing on reducing waste at its source and diverting waste from landfill through increased recycling and upcycling.
•Sustainable Packaging — We commit to our packaging material being recyclable, reusable, or sustainably sourced.
3.Champion Better Lives
•Diversity and Inclusion — We unite and inspire the communities within our Company, as well as those we serve, by amplifying voices and perspectives to create a culture of belonging, equality, inclusion, and fairness for all.
•Community Engagement and Philanthropy — We commit to making a meaningful difference in our communities through our global employee volunteerism and our dedication to social and environmental causes.
•Worker Empowerment and Well-being — We are committed to conducting our global operations ethically and with respect for the dignity of all people who make our products. We aim to enrich the quality of work and life for everyone in our supply chain, ensuring they all have the opportunity to executereach their full potential in a safe and inclusive environment.
Additional information relating to Design the Change can be found in our initiatives for long-term sustainable growthannual sustainability reports, which is available at our website at http://investor.ralphlauren.com under the caption "Global Citizenship & Sustainability Report." Our 2021 Global Citizenship & Sustainability Report is expected to be published in revenue, net income, and operating cash flow.
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Recent Developments
COVID-19 Pandemic
Beginning in the fourth quarter of Fiscal 2020, a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which we operate (North America, Europe, and Asia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets. Governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such factors, among others, have resulted in a significant decline in retail traffic, tourism, and consumer spending on discretionary items. Additionally, during this period of uncertainty, companies across a wide array of industries have implemented various initiatives to reduce operating expenses and preserve cash balances, including work furloughs, reduced pay, and severance actions, which could lower consumers' disposable income levels or willingness to purchase discretionary items. Further, even after such government restrictions and company initiatives are lifted, consumer behavior, spending levels, and/or shopping preferences, such as willingness to congregate in indoor shopping centers or other populated locations, could be adversely affected.
As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our stores, distribution centers, and corporate facilities, as have our wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021, the majority of our stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to our operating results. Resurgences in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of our stores were closed for approximately two to three months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions have continued into the first quarter of Fiscal 2022, impacting not only our businesses in Europe but also in other regions of the world (notably our retail operations in Japan and our sourcing operations in India). Further, the majority of our stores that are able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. Our wholesale and licensing businesses have also been adversely affected, particularly in North America and Europe, as a result of store closures and lower traffic and consumer demand.
Throughout the pandemic, our priority has been to ensure the safety and well-being of our employees, customers, and the communities in which we operate around the world. We continue to consider the guidance of local governments and global health organizations and have implemented new health and safety protocols in our stores, distribution centers, and corporate facilities. We have also taken various preemptive actions to preserve cash and strengthen our liquidity position, including:
•amending our Global ReorganizationCredit Facility in May 2020 to temporarily waive our leverage ratio requirement (see Note 11 to the accompanying consolidated financial statements);
•issuing $1.250 billion of unsecured senior notes in June 2020, the proceeds of which are being used for general corporate purposes, including repayment of certain of our previously outstanding borrowings (see Note 11 to the accompanying consolidated financial statements);
•temporarily suspending our quarterly cash dividend and common stock repurchase program, effective beginning in the first quarter of Fiscal 2021 (see Note 16 to the accompanying consolidated financial statements);
•temporarily reducing the base compensation of our executives and senior management team, as well as our Board of Directors, for the first quarter of Fiscal 2021;
•furloughing or reducing work hours for a significant portion of our employees during the first half of Fiscal 2021;
•carefully managing our expense structure across all key areas of spend, including aligning inventory levels with anticipated demand, negotiating rent abatements with certain of our landlords, and postponing non-critical capital build-out and other investments and activities;
•pursuing relevant government subsidy programs related to COVID-19 business disruptions; and
•improving upon our cash conversion cycle largely driven by our accounts receivable collection efforts and extended vendor payment terms.
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Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. Accordingly, we cannot predict for how long and to what extent the pandemic will impact our business operations or the global economy as a whole. We will continue to assess our operations location-by-location, considering the guidance of local governments and global health organizations to determine when our operations can begin returning to normal levels of business. See Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business"for additional discussion regarding risks to our business associated with the COVID-19 pandemic.
Fiscal 2021 Strategic Realignment Plan
In connection with the first initiative, on September 17, 2020, our Board of Directors approved a reorganization and restructuring plan comprised(the "Fiscal 2021 Strategic Realignment Plan") to reduce our global workforce by the end of Fiscal 2021. Additionally, during our preliminary review of our store portfolio during the following major actions: (i)second quarter of Fiscal 2021, we made the reorganizationdecision to close our Polo store on Regent Street in London.
On October 29, 2020, we announced the planned transition of the Company from its historical channelour Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy in connection with our third initiative (see "Transition of Chaps Brand to a Licensing Model" further below for additional discussion).
Additionally, on February 3, 2021, our Board of Directors approved additional realignment actions related to our real estate initiative. Specifically, we plan to further rightsize and regional structure to an integratedconsolidate our global brand-based operating structure, which will streamline our business processescorporate offices to better align with our cost structurecurrent organizational profile and new ways of working. We also expect to close certain of our stores to improve overall profitability. Additionally, we plan to complete the consolidation of our existing North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on May 13, 2021, in connection with our brand portfolio initiative, we announced that we have entered into an agreement to sell our Club Monaco business to Regent, L.P., a global private equity firm. The transaction is expected to close by the end of the first quarter of Fiscal 2022.
In connection with these collective realignment initiatives, we expect to incur total estimated pre-tax charges of approximately $300 million to $350 million, of which $236.8 million was recorded during Fiscal 2021. Once substantially completed by the end of Fiscal 2022, these actions are expected to result in gross annualized pre-tax expense savings of approximately $200 million to $240 million, a portion of which will be reinvested back into the business. These estimated charges and expense savings are subject to change based upon the completion of the sale of our Club Monaco business.
See Note 9 to our accompanying consolidated financial statements for additional discussion regarding charges recorded in connection with the Fiscal 2021 Strategic Restructuring Plan.
Transition of Chaps Brand to a Fully Licensed Business Model
On October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy. Specifically, we have entered into a multi-year licensing partnership, taking effect on August 1, 2021 after a transition period, with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. The products will be sold at existing channels of distribution with opportunities for expansion into additional channels and markets globally.
This agreement is expected to create incremental value for the Company by enabling an even greater focus on elevating our core brands in the marketplace, reducing our direct exposure to the North America department store channel, and setting up Chaps to deliver on its potential with an experienced partner that is focused on nurturing the brand.
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Fiscal 2019 Restructuring Plan
On June 4, 2018, our Board of Directors approved a restructuring plan associated with our strategic objective of operating with discipline to drive sustainable growth strategy;(the "Fiscal 2019 Restructuring Plan"). The Fiscal 2019 Restructuring Plan included the following activities: (i) rightsizing and consolidation of our global distribution network and corporate offices; (ii) a strategic storetargeted severance-related actions; and shop-within-shop performance review conducted by region and brand; (iii) a targeted corporate functional area review; and (iv) the consolidationclosure of certain of our luxury lines (collectively, the "Global Reorganization Plan"). The Global Reorganization Plan has resulted in a reduction in workforce and the closure of certain stores and shop-within-shops. Actions associated with the Global ReorganizationFiscal 2019 Restructuring Plan were substantially completed during Fiscal 2016 and are expected to resultresulted in improved operational efficiencies by reducing annual operating expenses bygross annualized expense savings of approximately $125$80 million.
In connection with the Global ReorganizationFiscal 2019 Restructuring Plan, we have recorded totalcumulative charges of $142$145.8 million since its inception, of which $48.5 million and $97.3 million were recorded during Fiscal 2016 (see Notes 102020 and 11Fiscal 2019, respectively. Actions associated with the Fiscal 2019 Restructuring Plan are complete and no additional charges are expected to thebe incurred in connection with this plan.
See Note 9 to our accompanying audited consolidated financial statements) and expect to incurstatements for additional discussion regarding charges of approximately $5 million duringrecorded in connection with the Fiscal 2017.2019 Restructuring Plan.
Our Brands and Products
We combine consumer insight with our design, marketing, and imaging skills to offer, along with our licensing alliances, broad lifestyle product collections with a unified vision:
•Apparel — Our apparel products include extensive collections of men's, women's, and children's clothing, which are sold under various brand names, including Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Polo Sport, Double RL, Lauren Ralph Lauren, Ralph byPolo Golf Ralph Lauren, Polo andRalph Lauren Golf, RLX Golf,Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren, Chaps, and Club Monaco, among others.
•Footwear and American Living, among others;
Accessories — Our range of footwear and accessories products encompass a broad range for both menencompasses men's, women's, and women,children's, including footwear,casual shoes, dress shoes, boots, sneakers, sandals, eyewear, watches, fashion and fine jewelry, scarves, hats, belts,gloves, umbrellas, and leather goods, including handbags, luggage, small leather goods, and luggage,belts, which are sold under various brand names, includingour Ralph Lauren Collection, Ralph Lauren Purple Label, Double RL, Polo Ralph Lauren, Lauren Ralph Lauren, Polo Ralph Lauren Children, Chaps, and Club Monaco among others;
brands.•Fragrance — Our fragrance productsofferings capture the essence of Ralph Lauren's men's and women's brands with numerous labels, designed to appeal to a variety of audiences. Women's fragrance products are sold under our Safari, Ralph Lauren Blue,Collection, Woman by Ralph Lauren, Romance collection, RALPH collection,Collection, Ralph Collection, and Big Pony collectionWomen's brands. Men's fragrance products are sold under our Polo Blue, Safari, Purple Label, Polo Sport,Red, Polo Green, Polo Blue,Black, Polo BlueSupreme, Polo Sport, Purple Label, Polo Black, Double Black,and Big Pony collection, Polo Red collection, and Polo Supreme Oud brands; and
Men's brands.•Hospitality — Continuing to engage our consumers with experiential and unique expressions of the brand, our hospitality portfolio is a natural extension of the World of Ralph Lauren as expressed through the culinary arts. Ralph Lauren's global hospitality collection is comprised of our restaurants translate Mr. R. Lauren's distinctive vision into places to gather with family and friends to enjoy fine food. Our restaurants include including The Polo Bar and Ralph’s Coffee located in New York City, RL Restaurant located in Chicago, and Ralph’sRalph's located in Paris.Paris, and our Ralph's Coffee concept in various cities around the world.
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Our lifestyle brand image is reinforced by our distribution through our stores and concession-based shop-within-shops, our wholesale channels of distribution, our global e-commercedigital commerce sites, and our Ralph Lauren restaurants. We organizesell our brands intoproducts under the following six distinct globalkey brand groups:platforms:
1.Ralph Lauren Luxury — Our Luxury group includes:
Ralph Lauren Collection and Ralph Lauren Purple Label. The runway sets the stage for each season's Ralph Lauren Collection designs, which includes handmade evening gownsembodies the highest expression of chic, feminine glamour. Each piece is inspired by a vision of timeless luxury and modern elegance, and is crafted with exquisite detailunparalleled passion and refined, hand-tailored suitings.artistry. For men, Ralph Lauren Purple Label offers refinedis the ultimate expression of luxury for the modern gentleman. Refined suitings are hand-tailored, including custom tailored made-to-measure suits andcrafted in the time-honored traditions of Savile Row. Purple Label's sophisticated sportswear as well as benchmade footwearis designed with a meticulous attention to detail, capturing the elegance and made-to-order dress furnishings, accessories, and luggage.ease of Ralph Lauren's signature, timeless style. Ralph Lauren Collection and Ralph Lauren Purple Label are available in Ralph Lauren stores around the world, an exclusive selection of the finest specialty stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
Double RL. Founded in 1993 and named after Ralph Lauren and his wife Ricky's "RRL"Lauren's working cattle ranch in Colorado, Double RL is a tribute to America's pioneering spirit and tradition of rugged independence. The foundation of Double RL lies in timeless wardrobe staples for men and women, offers a mix ofincluding authentic American made selvedge denim, vintage apparel, sportswear,military-grade chinos, tube-knit t-shirts, thermals, and flannels. Beyond these iconic styles are added seasonal vintage-inspired collections, along with a full collection of footwear and accessories, with roots in workwearincluding quality belts, bags, and military gear.leather goods. Double RL is available at Double RL stores, at select Ralph Lauren stores, and an exclusive selection of the finest specialty stores around the world, as well as online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
Ralph Lauren Home.Ralph Lauren Home represents a full expression of modern luxury — style is a life well-lived. Based on an immersive design ethos, the collection includes furniture, lighting, bed and bath linens, tabletop, decorative accessories and gifts, as well as fabric, wallcoverings, and floorcoverings. Each piece is crafted with the greatest attention to detail. Ralph Lauren Home offers exclusive luxury goods at select Ralph Lauren stores, home specialty stores, trade showrooms, and online at our Ralph Lauren digital commerce sites, including RalphLauren.com. The complete world of Ralph Lauren Home can be explored online at RalphLaurenHome.com.
Ralph Lauren Watches and Fine Jewelry. In 2008, Ralph Lauren, together with internationally renowned luxury group Compagnie Financière Richemont SA, launchedWe offer a premier collection of timepieces, through the Ralph Lauren Watch & Jewelry Co. The four pillar collections – the iconic Ralph Lauren Stirrup, the refined Ralph Lauren Slim Classique, the Ralph Lauren Sporting, and the 867 Collection –which embody Mr. Ralph Lauren's passion for impeccable quality and exquisite design. The Ralph Lauren Watch & Jewelry Co.We also offers premieroffer premium collections of fine jewelry, including the Ralph Lauren Diamond Link Collection, Ralph Lauren Equestrian Collection, and Ralph Lauren Chunky Chains Collection, all capturingwhich capture the glamour and craftsmanship of Ralph Lauren's most luxurious designs. Ralph Lauren watches and fine jewelry are available at select Ralph Lauren stores and flagship locations around the world. A selection of watches is also available online at RalphLauren.com and the finest watch retailers.
2.Polo Ralph Lauren — The Polo Ralph Lauren group includes:
Polo Ralph Lauren. Men's Polo combines Ivy League classics and time-honored English haberdashery with downtown styles and all-American sporting looks in sportswear and tailored clothing. Women's Polo is targeted towardsrepresents the young, modern girlepitome of classic and mixes romantic bohemianiconic American style with a modern and cool sportiness.twist. Polo's signature aesthetic includes our renowned polo player logo. Polo Sport reflects the active lifestyle and youthful energy of Polo’s sporting roots through Men’s and Women’s activewear. Men's and Women's Polo apparel, footwear, and accessories are available in Polo and Ralph Lauren stores around the world, better department and specialty stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com.
Polo Ralph Lauren Children. Polo Ralph Lauren Children is designed to reflect the timeless heritage and modern spirit of Ralph Lauren’sLauren's collections for men and women. Signature classics include iconic polo knit shirts and luxurious cashmere cable-knit sweaters. Polo Ralph Lauren Children is available in a full range of sizes, from baby to girls 2-16 and boys 2-20. Polo Ralph Lauren Children can be found in select Polo and Ralph Lauren stores around the world, better department stores, and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com, as well as certain of our retailer partner e-commercedigital commerce sites.
RLX Ralph Lauren. RLX is the leading edge of Ralph Lauren’s performance and activewear. Comprised of functional apparel that address the performance needs of a modern active lifestyle, RLX includes men's and women's apparel and accessories that represent Ralph Lauren's belief that things that are purposefully designed and made of the highest quality achieve a timeless elegance.
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Polo Golf Ralph Lauren, Ralph Lauren Golf, and RLX Ralph Lauren Golf. Tested and worn by top-ranked professional golfers, Polo Golf Ralph Lauren, Ralph Lauren Golf, and RLX Ralph Lauren for men and women define excellence in the world of golf. With a sharpened focus on the needs of the modern player but rooted in the rich design tradition of Ralph Lauren, the Golf collections combine state-of-the-art performance wear with luxurious finishing touches. Our Golf collections are available in select Polo stores, exclusive private clubs and resorts, and online at RalphLauren.com.
Pink Pony. Established in 2000, the Pink Pony campaign is our worldwide initiative in the fight against cancer. In the United States,U.S., a percentage of sales from Pink Pony products benefit the Pink Pony Fund of Thethe Ralph Lauren Corporate Foundation (formerly known as the Polo Ralph Lauren Foundation,Foundation), which supports programs for early diagnosis, education, treatment, and research, and is dedicated to bringing patient navigation and quality cancer care to medically underserved communities. Internationally, a network of local cancer charities around the world benefit from the sale of Pink Pony products. Pink Pony primarily consists of slim-fitting women'sdual gender sportswear and accessories crafted in luxurious fabrics. Allaccessories. Pink Pony items feature our iconic pink polo player – a symbol of our commitment to the fight against cancer. Pink Pony is available at select Polo and Ralph Lauren stores and online at our Ralph Lauren e-commercedigital commerce sites, including RalphLauren.com. Pink Pony is also available at select Macy's stores and online at Macys.com.
3.Lauren Ralph Lauren — Our Lauren group includes:
Lauren Ralph Lauren. Lauren for women offers sophisticatedcombines aspirational timeless style with modern femininity in a lifestyle collection of sportswear, denim, and dresses, activewear,as well as footwear and a wide array of accessories and footwear at a more accessible price point.accessories. Lauren for women is available in select department stores around the world and online at our Ralph Lauren e-commerceselect digital commerce sites, including RalphLauren.com. Lauren for men offers a complete collection of men's tailored clothing, including suits, sport coats, dress shirts, dress pants, tuxedos, topcoats, and ties at a more accessible price point. Lauren for men is available at select department stores in North America and Europe.
4.Chaps —Launched in 1978, Chaps celebrates real American style, delivering classic collections updated for modern lifestyles for men, women, children and home. The modern lifestyle collection offers versatile sportswear, workday essentials, tailored clothing, and occasion dresses that are wearable from season to season. Chaps is available in select department stores and retail partner digital commerce sites across the U.S., Canada, Mexico, and China. Refer to "Recent Developments" for discussion regarding the planned transition of our Chaps brand to a fully licensed business model.
5.Club Monaco — Founded in 1985, Club Monaco is a modern, urban-minded brand with an element of ease and a spark of entrepreneurship. The brand prides itself on creating elevated essentials recognized for their style, design, fit, and functionality with a relaxed, of-the-moment sensibility. Club Monaco apparel, footwear, and accessories are available at Club Monaco stores and select department stores in North America and around the world, as well as online at ClubMonaco.com and ClubMonaco.ca. Refer to "Recent Developments" for discussion regarding the anticipated sale of our Club Monaco business, which is expected to close by Ralph Lauren. Ralph bythe end of the first quarter of Fiscal 2022.
Our Segments
We organize our business into the following three reportable segments:
•North America — Our North America segment, representing approximately 45% of our Fiscal 2021 net revenues, primarily consists of sales of our Ralph Lauren offers suit separates, sport coats, vests,branded apparel, footwear, accessories, home furnishings, and topcoats with refined luxury at an excellent value. Ralph byrelated products made through our retail and wholesale businesses in the U.S. and Canada, excluding Club Monaco. In North America, our retail business is primarily comprised of our Ralph Lauren is available exclusively at Dillard'sstores, our factory stores, and online at Dillards.com.our digital commerce site, www.RalphLauren.com. Our wholesale business in North America is comprised primarily of sales to department stores, and to a lesser extent, specialty stores.
•Europe — Our Europe segment, representing approximately 27% of our Fiscal 2021 net revenues, primarily consists of sales of our Ralph Lauren branded apparel, footwear, accessories, home furnishings, and related products made through our retail and wholesale businesses in Europe, the Middle East, and Latin America, excluding Club Monaco. In Europe, our retail business is primarily comprised of our Ralph Lauren stores, our factory stores, our concession-based shop-within-shops, and our various digital commerce sites. Our wholesale
•Asia — Our Asia segment, representing approximately 23% of our Fiscal 2021 net revenues, primarily consists of sales of our Ralph Lauren branded apparel, footwear, accessories, home furnishings, and related products made through our retail and wholesale businesses in Asia, Australia, and New Zealand. Our retail business in Asia is primarily comprised of our Ralph Lauren stores, our factory stores, our concession-based shop-within-shops, and our various digital commerce sites. In addition, we sell our products online through various third-party digital partner commerce sites. In Asia, our wholesale business is comprised primarily of sales to department stores, with related products are distributed through shop-within-shops.
No operating segments were aggregated to form our reportable segments. In addition to these reportable segments, we also have other non-reportable segments, representing approximately 5% of our Fiscal 2021 net revenues, which primarily consist of (i) sales of Club Monaco branded products made through shop-within-shops at department stores. We also distribute our retail and wholesale products to certain licensed stores operated by our partnersbusinesses in Latin America, Asia,the U.S., Canada, and Europe, and our licensing alliances in Europe and Asia, and (ii) royalty revenues earned through our global licensing alliances, excluding Club Monaco. As discussed in "Recent Developments," on May 13, 2021, we announced the Middle East.
This segment structure is consistent with how we establish our overall business strategy, allocate resources, and out-of-season products through secondary distribution channels worldwide, including our retail factory stores.
Approximately 52% of our Fiscal 2021 net revenues were earned outside of the U.S. See Note 20 to the accompanying consolidated financial statements for a summary of net revenues and total Wholesale net revenues, respectively. Further, during Fiscal 2016, sales to our three largest wholesale customers, including Macy's, accounted for approximately 24% and 53% of our totaloperating income by segment, as well as net revenues and total Wholesale net revenues, respectively.long-lived assets by geographic location.
Our Retail SegmentBusiness
Our Retail segmentretail business sells directly to customers throughout the world via our 493548 retail stores and 650 concession-based shop-within-shops, totaling approximately 3.84.2 million and 0.7 million square feet, and 583 concession-based shop-within-shops,respectively, as well as through our own digital commerce sites and those of various e-commerce sites. The extension of our direct-to-consumer reach is one of our primary long-term strategic goals.third-party digital partners. We operate our retail business using ana global omni-channel retailing strategy that seeks to deliver an integrated shopping experience with a consistent message of our brands and products to our customers, regardless of whether they are shopping for our products in one of our physical stores or online. We also continue to introduce new Connected Retail capabilities, such as virtual clienteling, Buy Online-Ship to Store, Buy Online-Pick Up in Store, curbside pickup, appointment scheduling, and mobile checkout, to further enhance our customers' shopping experience.
Ralph Lauren Stores
Our Ralph Lauren stores feature a broad range of apparel, footwear, accessories, watch and jewelry, fragrance, and home product assortments in an atmosphere reflecting the distinctive attitude and image of the Ralph Lauren, Polo, and Double RL and Denim & Supply brands, including exclusive merchandise that is not sold in department stores. During Fiscal 2016,2021, we opened 2224 new Ralph Lauren stores and closed 2111 stores. Our Ralph Lauren stores are primarily situated in major upscale street locations and upscale regional malls, generally in large urban markets.
The following table presents the number of Ralph Lauren stores by segment as of March 27, 2021:
| Ralph Lauren Stores | ||||||||
| 40 | |||||
| 32 | ||||||||
| 79 | ||||||||
| Total | 151 | |||||||
Our nineeight flagship Ralph Lauren regional store locations showcase our iconic styles and products and demonstrate our most refined merchandising techniques. In addition to generating sales of our products, our worldwide Ralph Lauren stores establish, reinforce, and capitalize on the image of our brands. Our Ralph Lauren stores range in size from approximately 700500 to 39,000 square feet.
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Factory Stores
We extend our reach to additional consumer groups through our 272325 factory stores worldwide, which are principally located in major outlet centers. During Fiscal 2016, we added 32 new factory stores and closed 19 factory stores.
Our worldwide factory stores offer selections of our apparel, footwear, accessories, and fragrances. In addition to these product offerings, certain of our factory stores in the AmericasNorth America and Europe offer home furnishings. During Fiscal 2021, we opened 16 new factory stores and closed nine factory stores.
The following table presents the number of factory stores by segment as of March 27, 2021:
| Factory Stores | ||||||||
| North America | 193 | |||||||
| Europe | 60 | |||||||
| Asia | 72 | |||||||
| Total | 325 | |||||||
Our factory stores range in size from approximately 1,4001,100 to 26,70028,300 square feet.
Factory stores obtain products from our suppliers, our product licensing partners, and our other retail stores and e-commercedigital commerce operations, and also serve as a secondary distribution channel for our excess and out-of-season products.
Concession-based Shop-within-Shops
The terms of trade for shop-within-shops are largely conducted on a concession basis, whereby inventory continues to be owned by us (not the department store) until ultimate sale to the end consumer. The salespeople involved in the sales transactions are generally our employees and not those of the department store.
| Concession-based Shop-within-Shops | ||||||||
| North America | 1 | |||||||
| Europe | 29 | |||||||
| Asia | 616 | |||||||
| Other non-reportable segments | 4 | |||||||
Total(a) | 650 | |||||||
(a) Our concession-based shop-within-shops were located in Asia, Australia, and Europe. at approximately 300 retail locations.
The size of our concession-based shop-within-shops ranges from approximately 200100 to 3,3003,500 square feet. We may share in the cost of building out certain of these shop-within-shops with our department store partners.
Our Club Monaco stores feature fashion apparel, footwear, and accessories for both men and women with clean and contemporary signature styles. During Fiscal 2021, we opened three new Club Monaco store and closed five stores. Our Club Monaco stores range in size from approximately 1,200 to 17,200 square feet.
The following table presents the number of Club Monaco stores by geographic location as of March 27, 2021:
| Club Monaco Stores | ||||||||
| North America | 67 | |||||||
| Europe | 5 | |||||||
Total(a) | 72 | |||||||
(a) Our Club Monaco business has been aggregated with other non-reportable segments.
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As discussed in "Recent Developments," on May 13, 2021, we announced the anticipated sale of our Club Monaco business, which is expected to close by the end of the first quarter of Fiscal 2022.
Directly-Operated Digital Commerce Websites
In addition to our stores, our Retail segmentretail business sells products online in North America, Europe, and Asia through our e-commerce channel,various directly-operated digital commerce sites, which includes:
Our Ralph Lauren e-commercedigital commerce sites offer our customers access to a broad array of Ralph Lauren, Polo, and Double RL Polo, and Denim & Supply apparel, footwear, accessories, watch and jewelry, fragrance, and home product assortments, and reinforce the luxury image of our brands. While investing in e-commercedigital commerce operations remains a primary focus, it is an extension of our investment in the integrated omni-channel strategy used to operate our overall retail business, in which our e-commercedigital commerce operations are interdependent with our physical stores.
Our Club Monaco e-commercedigital commerce sites offer our domestic and Canadian customers access to our global assortment of Club Monaco apparel, footwear, and accessories product lines, as well as select online exclusives.
Our Wholesale Business
Our wholesale business sells our products globally to leading upscale and certain mid-tier department stores, specialty stores, and golf and pro shops, as well as to various third-party digital partners. We have continued to focus on elevating our brand by improving in-store product assortment and presentation, as well as full-price sell-throughs to consumers. As of the end of Fiscal 2021, our wholesale products were sold through approximately 9,000 doors worldwide, with the majority in specialty stores. Our products are also increasingly being sold through the digital commerce sites of many of our traditional wholesale customers and our third-party digital partners.
The primary product offerings sold through our wholesale channels of distribution include apparel, footwear, accessories, and home furnishings. Our luxury brands, including Ralph Lauren Collection and Ralph Lauren Purple Label, are distributed worldwide through a limited number of premier fashion retailers. In North America, our wholesale business is comprised primarily of sales to department stores, and to a lesser extent, specialty stores. In Europe, our wholesale business is comprised of a varying mix of sales to both department stores and specialty stores, depending on the country, as well as to various third-party digital partners. In Asia, our wholesale business is comprised primarily of sales to department stores, with related products distributed through shop-within-shops. We also distribute our wholesale products to certain licensed stores operated by our partners in Latin America, Asia, Europe, and the Middle East.
We sell the majority of our excess and out-of-season products through secondary distribution channels worldwide, including our retail factory stores.
Worldwide Wholesale Distribution Channels
The following table presents by segment the number of wholesale doors in our primary channels of distribution as of March 27, 2021:
| Doors | ||||||||
| North America | 4,404 | |||||||
| Europe | 3,920 | |||||||
| Asia | 500 | |||||||
| Total | 8,824 | |||||||
In addition to our conventional wholesale doors, our products are increasingly being sold through the websites of many of our traditional wholesale customers, as well as those of our third-party digital partners. As of March 27, 2021, our wholesale business served approximately 100 third-party digital partners, primarily in Europe.
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We have three key wholesale customers that generate significant sales volume. During Fiscal 2021, sales to our three largest wholesale customers accounted for approximately 14% of our total net revenues. Substantially all sales to our three largest wholesale customers related to our North America segment.
Our products are sold primarily by our own sales forces. Our wholesale business maintains its primary showrooms in New York City, as well as regional showrooms in London, Madrid, Milan, Munich, Paris, and Stockholm. In addition, we recently introduced virtual showrooms, allowing our customers to experience and discover our product assortments in a retail setting remotely.
Shop-within-Shops. As a critical element of our distribution to department stores, we and our licensing partners utilize shop-within-shops to enhance brand recognition, to permit more complete merchandising of our lines by the department stores, and to differentiate the presentation of our products.
The following table presents by segment the number of shop-within-shops in our primary channels of distribution as of March 27, 2021:
| Shop-within-Shops | ||||||||
| North America | 9,552 | |||||||
| Europe | 6,016 | |||||||
| Asia | 682 | |||||||
| Total | 16,250 | |||||||
The size of our shop-within-shops ranges from approximately 85 to 9,200 square feet. Shop-within-shop fixed assets primarily include items such as customized freestanding fixtures, wall cases and components, decorative items, and flooring. We normally share in the cost of building out these shop-within-shops with our wholesale customers.
Replenishment Program. Core products such as knit shirts, chino pants, oxford cloth shirts, select footwear and accessories, and home products can be ordered by our wholesale customers at any time through our replenishment program. We generally ship these products within two to five days of order receipt.
Backlog. We generally receive wholesale orders approximately three to five months prior to the time the products are delivered to customers, with the exception of orders received through our replenishment program, which ship within two to five days of order receipt. Our wholesale orders are generally subject to broad cancellation rights. Further, the size of our order backlog depends upon a number of factors, including the timing of the market weeks for our particular lines during which a significant percentage of our orders are received and the timing of shipments, which varies from year-to-year with consideration for holidays, consumer trends, concept plans, and the replenishment program's usage. Consequently, the dollar amount of our backlog as of any date may not be indicative of actual future shipments and therefore is not meaningful in understanding our business taken as a whole.
Our Licensing SegmentBusiness
Through licensing alliances, we combine our consumer insight, design, and marketing skills with the specific product or geographic competencies of our licensing partners to create and build new businesses. We generally seek out licensing partners who are leaders in their respective markets, contribute the majority of the product development costs, provide the operational infrastructure required to support the business, and own the inventory. Our licensing business has been aggregated with other non-reportable segments.
Product Licensing
We grant our product licensees the right to access our various trademarks in connection with the licensees' manufacture and sell at wholesale specified categoriessale of designated products, under one or more of our trademarks.such as certain apparel, eyewear, fragrances, and home furnishings. Each product licensing partner pays us royalties based upon its sales of our products, generally subject to a minimum royalty requirement for the right to use our trademarks and design services. In addition, our licensing partners may be required to allocate a portion of their revenues to advertising our products and sharing in the creative costs associated with these products. Larger allocations typically are required in connection with launches of new products or in new territories. Our license agreements generally have onetwo to five-year terms and may grant the licensees conditional renewal options.
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We work closely with all of our licensing partners to ensure that their products are developed, marketed, and distributed to reach the intended consumer and are presented consistently across product categories to convey the distinctive identity and lifestyle associated with our brands. Virtually all aspects of the design, production quality, packaging, merchandising, distribution, advertising, and promotion of Ralph Lauren products are subject to our prior approval and continuing oversight. We perform a broader range of services for most of our Ralph Lauren Home licensing partners than we do for our other licensing partners, including design, operating showrooms, marketing, and advertising.
| Category | Licensed Products | Licensing Partners | ||||||||||||
| Men's Apparel | Underwear and Sleepwear | Hanesbrands, Inc. (includes Japan) | ||||||||||||
| Chaps, Lauren, and Ralph Tailored Clothing | Peerless Clothing International, Inc. | |||||||||||||
| Beauty Products | Fragrances, Cosmetics, | L'Oreal S.A. (global) | ||||||||||||
| BBC International LLC (global) | ||||||||||||||
| Accessories | Eyewear | Luxottica Group S.p.A. (global) | ||||||||||||
| Socks and hosiery | Renfro Corporation | |||||||||||||
| Home | Bedding and Bath | Ichida Co., Ltd. | ||||||||||||
| Utility and Blankets | Ichida Co., Ltd. (Japan only) and Hollander Sleep Products LLC | |||||||||||||
Additionally, on October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy. Specifically, we have entered into a multi-year licensing partnership, taking effect on August 1, 2021 after a transition period, with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. See "Recent Developments" for additional discussion.
International Licensing
Digital Ecosystem
Investing in our digital ecosystem remains a primary focus and is a key component of our integrated global omni-channel strategy that spans across owned and partnered channels, both physical and digital. Our digital ecosystem is comprised of directly-operated platforms, wholesale partner websites, third-party digital pure players, and social commerce.
Our directly-operated digital commerce sites represent our digital flagships, featuring the most elevated expression of our brands. The strategy for our digital flagships is to deliver distinct and immersive brand experiences, continuously enhance consumer experience, and develop digital content that drives deeper consumer engagement and conversion. With the ongoing launch of our localized sites, including in Japan and Hong Kong this year, we continue to expand the reach of our digital flagship experience. We also brought our physical flagships to life in a digital format this year with the launch of our virtual store experience, allowing consumers to experience our brands and product assortments in a way that was previously only possible by walking into our stores. In connection with our long-term growth strategy, we are also working to broaden our omni-channel service offerings, such as Buy Online-Ship to Store and Buy Online-Pick Up in Store.
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Our products are also sold through the digital commerce sites of many of our wholesale customers across the globe. With all partners in our ecosystem, we seek to showcase the brand consistently with our values. We collaborate with our key wholesale customers to deliver the right content to the right audience, and leverage consumer insights to develop a holistic, channel-agnostic view of our consumer.
We also sell our products online through various third-party digital pure-play sites to reach younger consumers and amplify our brand messages. On many of these sites, we have created digital shop-in-shop environments with a consistent brand experience, tailored product stories, and an assortment that is carefully curated by our merchants. We also partner closely with our pure-play customers on marketing content and events, as well as optimizing search and other data analyses to drive higher traffic and conversion for our brands. We also continue to tap into the social commerce opportunity, such as our launch of Instagram Checkout this year.
In connection with our digital commerce operations, we engage consumers through various digital and social media platforms, which are supported through our collaboration with influencers who have an authentic connection to our brand.
Seasonality of Business
Our business is typically affected by seasonal trends, with higher levels of retail sales in our second and third fiscal quarters and higher wholesale sales in our second and fourth fiscal quarters. These trends result primarily from the timing of key vacation travel, back-to-school, and holiday shopping periods impacting our retail business and timing of seasonal wholesale shipments. As a result of changes in our business, consumer spending patterns, and the macroeconomic environment, including those resulting from pandemic diseases and other catastrophic events, historical quarterly operating trends and working capital requirements may not be indicative of our future performance. In addition, fluctuations in sales, operating income, and cash flows in any fiscal quarter may be affected by other events affecting retail sales, such as changes in weather patterns.
Working capital requirements vary throughout the year. Working capital requirements typically increase during the first half of the fiscal year as inventory builds to support peak shipping/selling periods and, accordingly, typically decrease during the second half of the fiscal year as inventory is shipped/sold. Cash provided by operating activities is typically higher in the second half of the fiscal year due to reduced working capital requirements during that period.
Product Design
Our products reflect a timeless and innovative interpretation of American style with a strong international appeal. Our consistent emphasis on new and distinctive design has been an important contributor to the prominence, strength, and reputation of the Ralph Lauren brands.
Our Ralph Lauren products are designed by, and under the direction of, Mr. Ralph Lauren and our design staff. We form design teams around our brands and product categories to develop concepts, themes, and products for each brand and category. Through close collaboration with merchandising, sales, and productionproduct management staff, these teams support all three segments of our business — Wholesale, Retail, and Licensing —businesses in order to gain market information and other valuable input.
Marketing and Advertising
Our marketing and advertising programs communicate the themes and images of our brands and are integral to the success of our product offerings. The majority of our advertising program isprograms are created and executed on a centralized basis throughby our in-house creative and advertising organizationagency to ensure consistency of presentation, which is complemented by our marketing experts in each region who help to execute our international strategies.
We create distinctive image advertising for our brands, conveying the particular message of each one within the context of the overall Ralph Lauren aesthetic. Advertisements generally portray a lifestyle rather than a specific item and include a variety of products offered by ourselvesus and, in some cases, our licensing partners. Our communication campaigns are primarilyincreasingly being executed through a combination of print, outdoor, digital and social media platforms to drive further engagement with the younger consumer. With regard to influencers, we believe in fostering long-term relationships with those who have an authentic connection to our brand and influence the areas of culture that matter most to our audiences. We also continue to advertise through print and outdoor media, and, to a lesser extent, through television and cinema.
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Our digital advertising programs focus on high impact and innovative digital media outlets, which allow us to convey our key brand messages and lifestyle positioning. We also develop digital editorial initiatives that allow for deeper education and engagement around the Ralph Lauren lifestyle, including the Ralph Lauren magazine, style guides, and videos.lifestyle. We deploy these
marketing and advertising initiatives through online, mobile, video, email, and social media. Our e-commercedigital commerce sites present the Ralph Lauren lifestyle online, while offering a broad array of our apparel, footwear, accessories, and home product lines.
We also conduct a variety of public relations activities. Each spring and fall, our Ralph Lauren Women's Collection is presented during New York Fashion Week. We alsoFor example, we typically introduce each of theour spring and fall menswear and womenswear collections at press presentations in major cities such as New York City and Milan. TheseSuch fashion events, in addition to celebrity red carpet dressing moments model appearances, as well asand events hosted in-store and in our restaurantstores and restaurants, including The Polo Bar in New York The Polo Bar,City, generate extensive domestic and international media and social coverage.
We continue to be the official outfitter for all on-court officials at both the Wimbledon and the U.S. Open tennis tournaments. Both tournaments provide worldwide exposure for our brand in a relevant lifestyle environment. We also continue to be the exclusive Official Parade Outfitter for the U.S. Olympic and Paralympic Teams, with the right to manufacture, distribute, advertise, promote, and sell products in the U.S. which replicate the Parade Outfits and associated leisure wear. Most recently, we dressed Team U.S.A. for the 2014 Winter Olympic Games in Sochi andWe will be dressing the team for the 2016upcoming Summer Olympic Games in Rio.Tokyo, Japan in July and August 2021. As part of our involvement with Team U.S.A., we have established a partnership with athletes serving as brand ambassadors and as the faces of our advertising, marketing, and public relations campaigns.
We believe our partnerships with such prestigious global athletic events reinforce our brand's sporting heritage in a truly authentic way and serve to connect our Company and brands to our consumers through their individual areas of passion.
Sourcing, Production and Quality
We contract for the manufacture of our products and do not own or operate any production facilities. Over 600300 different manufacturers worldwide produce our apparel, footwear, accessories, and home products, with no one manufacturer providing more than 5%6% of our total production during Fiscal 2016.2021. We source both finished products and raw materials. Raw materials include fabric, buttons, and other trim. Finished products consist of manufactured and fully assembled products ready for shipment to our customers. In Fiscal 2016, over2021, approximately 97% of our products (by dollar value) were produced outside of the U.S., primarily in Asia, Europe, and Latin America.America, with approximately 20% of our products sourced from China and another 20% from Vietnam. See "Import"Import Restrictions and Other Government Regulations" Regulations," Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Economic conditions could have a negative impact on our major customers, suppliers, vendors, and lenders, which in turn could materially adversely affect our business," and Item 1A — "Risk Factors— Risks Related to our Business and Operations — Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications."
Most of our businesses must commit to the manufacturing of our garments before we sell finished goods, whether to wholly-owned retail stores or to wholesale customers. We also must commit to the purchase of fabric from mills well in advance of our sales. If we overestimate our primary customers' demand for a particular product or the need for a particular fabric or yarn, we primarily sell the excess products or garments made from such fabric or yarn in our factory stores or through other secondary distribution channels.
Suppliers operate under the close supervision of our global manufacturing division and buying agents headquartered in Asia, the Americas, the Middle East, and Europe. All products are produced according to our specifications.specifications and standards. Production and quality control staff in Asia, the Americas, the Middle East, and Europe monitor manufacturing at supplier facilities in order to correct problems prior to shipment of the final product. Procedures have been implemented under our vendor certification and compliance programs so that quality assurance is reviewed early in the production process, allowing merchandise to be received at the distribution facilities and shipped to customers with minimal interruption.
Competition
Competition is very strong in the segments of the fashion and consumer product industries in which we operate. We compete with numerous designers and manufacturers of apparel, andfootwear, accessories, fragrances, and home furnishing products, both domestic and international. We also face increasing competition from companies selling our product categories through the Internet. Some of our competitors may be significantly larger and have substantially greater resources than us. We compete primarily on the basis of fashion, quality, value, and service, which depend on our ability to:
•anticipate and respond to changing consumer demands in a timely manner;and shopping preferences, including the ever-increasing shift to digital brand engagement, social media communications, and online shopping;
•create and maintain favorable brand recognition, loyalty, and reputation for quality;
•develop and produce high qualityinnovative, high-quality products that appeal to consumers;consumers of varying age groups;
•provide strong and effective marketing support;
•obtain additional points of distribution and sufficient retail floor space, and effectively present our products to consumers.consumers;
•attract consumer traffic to stores, shop-within-shops, and digital commerce sites;
•source raw materials at cost-effective prices;
•anticipate and maintain proper inventory levels;
•ensure product availability and optimize supply chain and distribution efficiencies;
•maintain and grow market share;
•recruit and retain key employees;
•protect our intellectual property; and
•withstand prolonged periods of adverse economic conditions or business disruptions.
See Item 1A — "Risk Factors— Risks Related to our Business and Operations — We face intense competition worldwide in the markets in which we operate."
Distribution
To facilitate global distribution, our products are shipped from manufacturers to a network of distribution centers around the world for inspection, sorting, packing, and delivery to our retail locations and digital commerce and wholesale customers. This network includes the following primary distribution facilities:
| Facility Location | Geographic Region Serviced | Facility | Ownership | |||||||||||||||
| N. Pendleton Street, High Point, North Carolina | Owned | |||||||||||||||||
| NC Highway 66, High Point, North Carolina | U.S. | Leased | ||||||||||||||||
| Leased | ||||||||||||||||||
| Chino Hills, California | U.S. | Third-party | ||||||||||||||||
| Miami, Florida | U.S. | Third-party | ||||||||||||||||
Toronto, Ontario | Canada | Third-party | ||||||||||||||||
Parma, Italy | Europe and Latin America | Third-party | ||||||||||||||||
Yokohama, Japan | Japan | Third-party | ||||||||||||||||
Bugok, South Korea | South Korea | Leased | ||||||||||||||||
| Tuen Mun, Hong Kong | Third-party | |||||||||||||||||
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(a)Includes Australia, China, Hong Kong, India, Macau, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand, and Vietnam.
All facilities are designed to allow for high-density cube storage and value-added services, and utilize unit and carton tracking technology to facilitate process control and inventory management. The distribution network is managed through globally integrated information technology systems.
Our management information systems makefacilitate business processes, consumer experiences, and decision-making support across the Company and our extended ecosystem of manufacturers, vendors, business partners, and customers. Our system applications are connected to support the flow of information across functions, including:
•product design, marketing, manufacturing, importing,sourcing, and distribution of our products more efficient by providing, among other things:production;
•comprehensive order processing;processing, fulfillment, and distribution;
•marketing and advertising;
•financial accounting information; and management reporting; and
We are in the process of implementing a global operatingcontinually improving and financial reporting information technology system, SAP, as part of a multi-year plan to integrate and upgradeupgrading our computer systems and processes. The implementation of this global system is scheduled to occur in phases over the next several years. We substantially completed the migration of our North America operations to SAPsoftware. For example, during Fiscal 2015,2021, we began upgrading our value chain processes and we are currently in the process of executing the migration oftechnology to support advanced global capabilities for our European operations to SAP, which is expected to be completed duringsupply and demand management solutions. In Fiscal 2017. In addition to implementing SAP,2021, we also completedmigrated our analytics platform to the migration ofcloud to accelerate our North America operations to a new procure-to-pay platform during Fiscal 2016, and we expect to execute the migration of our European operations to this new platform during Fiscal 2017.advanced analytics capabilities across functions. We are also incontinually enhancing the processconsumer experience by adding new functionality to our direct-to-consumer channels.
We have a longstanding information security risk program committed to regular risk management practices surrounding the protection of building an in-house global e-commerce platform as partconfidential data. This program includes various technical controls, including security monitoring, data leakage protection, network segmentation and access controls around the computer resources that house confidential or sensitive data. We have also implemented employee awareness training programs around phishing, malware, and other cyber risks. We continually evaluate the security environment surrounding the handling and control of our plancritical data, especially the private data we receive from our customers, employees and partners, and have instituted additional measures to further enhance our omni-channel capabilities. Rollouthelp protect us from system intrusion or data breaches. Additionally, we have purchased network security and cyber liability insurance in order to provide a level of the new global e-commerce platform is expected to be completed in 2018.financial protection, should a data breach occur.
See Item 1A — "Risk Factors — RiskRisks Related to Information Systems and uncertainties associated with the implementation of information systems may negatively impact our business," "Risk Factors Data Security — A data security or privacy breach could damage our reputation and our relationships with our customers or employees, expose us to litigation risk, and adversely affect our business" and "Risk Factors — Risks Related to Information Systems and Data Security — Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively."
Wholesale Credit Control
We manage our own credit function. We sell our merchandise principally to major department stores, specialty stores, and third-party digital partners, and extend credit based on an evaluation of the wholesale customer's financial capacity and condition, usually without requiring collateral. We monitor credit levels and the financial condition of our wholesale customers on a continuing basis to minimize credit risk. We do not factor or underwrite our accounts receivables, ornor do we maintain credit insurance to manage the risk of bad debts. In North America, collection and deduction transactional activities are provided through a third-party service provider. See Item 1A — "Risk
Factors — Risks Related to our Business and Operations — A substantial portion of our revenue is derived from a limited number of large wholesale customers. Our business could sufferbe
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adversely affected as a result of consolidations, liquidations, restructurings, other ownership changes in the retail industry, and/or any financial instability of our large wholesale customers."
Trademarks
We own the RALPH LAUREN, POLO, POLO BY RALPH LAUREN, DESIGN, and the famous polo player astride a horsePolo Player Design trademarks in the U.S. and approximatelyover 120 countries worldwide. Other trademarks that we own include:
•PURPLE LABEL;
•DOUBLE RL;
•RLX;
•LAUREN RALPH LAUREN;
•PINK PONY;
•LAUREN;
•RALPH;
•CHAPS;
•CLUB MONACO; and
•Various other trademarks, including those pertaining to fragrances and cosmetics.trademarks.
Mr. Ralph Lauren has the royalty-free right to use as trademarks RALPH LAUREN, DOUBLE RL, and RRL in perpetuity in connection with, among other things, beef and living animals. The trademarks DOUBLE RL and RRL are currently used by the Double RL Company, an entity wholly-ownedwholly owned by Mr. R. Lauren. In addition, Mr. R. 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-ownedwholly owned by Mr. R. Lauren. Any activity by these companies has no impact on us.
Our trademarks are the subject of registrations and pending applications throughout the world for use on a variety of items of apparel, apparel-related products and accessories, home furnishings, restaurant and café services, online services and online publications, and beauty products, as well as in connection with retail services, and we continue to expand our worldwide usage and registration of related trademarks. In general, trademarks remain valid and enforceable as long as the marks are used in connection with the related products and services and the required registration renewals are filed. We regard the license to use the trademarks and our other proprietary rights in and to the trademarks as extremely valuable assets in marketing our products and, on a worldwide basis, vigorously seek to protect them against infringement. As a result of the appeal of our trademarks, our products have been the object of counterfeiting. While we have a broad enforcement program which has been generally effective in protecting our intellectual property rights and limiting the sale of counterfeit products in the U.S. and in most major markets abroad, we face greater challenges with respect to enforcing our rights against trademark infringement in certain parts of Asia.
In markets outside of the U.S., our rights to some or all of our trademarks may not be clearly established. InOver the course of our international expansion, we have experienced conflicts with various third parties who have acquired ownership rights in certain trademarks, including POLO and/or a representation of a Polo Player Design, which impede our use and registration of our principal trademarks. While such conflicts are common and may arise again from time to time as we continue our international expansion, we have, in general, successfully resolved such conflicts in the past through both legal action and negotiated settlements with third-party owners of the conflicting marks (see Item 1A — "Risk Factors — Risks Related to our Business and Operations — Our trademarks and other intellectual property rights may not be adequately protected outside the U.S." and Item 3 — "Legal Proceedings" for further discussion). Although we have not suffered any material restraints or restrictions on doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce trademarks to new markets.
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Import Restrictions and Other Government Regulations
Virtually all of our merchandise imported into the Americas, Europe, Asia, Australia, and New Zealand is subject to duties. In addition, most of the countries to which we ship could impose safeguard quotas and duties to protect their local industries from import surges that threaten to create market disruption. The U.S. and other countries may also unilaterally impose additional duties in response to a particular product being imported (from China or other countries) at unfairly traded prices in such increased quantities that would cause (or threaten) injury to the relevant domestic industry (generally known as "anti-dumping" actions). If dumping is suspected in the U.S., the U.S. government may self-initiate a dumping case on behalf of the U.S. textile industry which could significantly affect our costs. Furthermore, additional duties, generally known as countervailing duties, can also be imposed by the U.S. government to offset subsidies provided by a foreign government to foreign manufacturers if the importation of such subsidized merchandise injures or threatens to injure a U.S. industry. Legislative proposals have been introduced which, if adopted, would treat a manipulation by China of the value of its currency as actionable under the anti-dumping or countervailing duty laws.
As almost all of our products are manufactured by foreign suppliers, the enactment of new legislation or the administration of current international trade regulations or executive action affecting textile agreements, or changes in sourcing patterns resulting from the elimination of quotas, could adversely affect our operations. See Item 1A — "Risk Factors —Risks Related to Regulatory, Legal, and Tax Matters — Our ability to conduct business in international marketsglobally may be affected by a variety of legal, regulatory, political, and economic risks"and"Risk Factors —Risks Related to our Business and Operations — Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications."
We are also subject to other international trade agreements, such as the North American Free Trade Agreement, now known as the U.S.-Mexico-Canada Agreement, the Central American Free Trade Agreement, the U.S.-Peru Free Trade Agreement, the U.S.-Jordan Free Trade Agreement, the U.S.-Korea Free Trade Agreement and other special trade preference programs. A portion of our imported products are eligible for certain of these duty-advantaged programs.
Apparel and other products sold by us are under the jurisdiction of multiple governmental agencies, including, in the U.S., the Federal Trade Commission, the U.S. Fish and Wildlife Service, the Environmental Protection Agency, and the Consumer Products Safety Commission. Our products are also subject to regulation in the U.S. and other countries, including the U.S. Consumer Product Safety Improvement Act, which imposes limitations on the permissible amounts of lead and phthalates allowed in children's products. These regulations relate principally to product labeling, licensing requirements, and consumer product safety requirements and regulatory testing,
particularly with respect to products used by children. Any failure to comply with such requirements could result in significant penalties and require us to recall products, which could have a material adverse effect on our business or operating results. We believe that we are in substantial compliance with these regulations, as well as applicable federal, state, local, and foreign rules and regulations governing the discharge of materials hazardous to the environment. We do not estimateanticipate making any significant capital expenditures for environmental control matters either in the next fiscal year or in the near future. Our licensed products, licensing partners, buying/sourcing agents, and the vendors and factories with which we contract for the manufacture and distribution of our products are also subject to regulation. Our agreements require our licensing partners, buying/sourcing agents, vendors, and factories to operate in compliance with all applicable laws and regulations, and we are not aware of any violations which could reasonably be expected to have a material adverse effect on our business or operating results.
We are also subject to disclosure and reporting requirements, established under existing or new federal or state laws, such as the requirements to identify the origin and existence of certain "conflict minerals" under the Dodd-Frank Wall Street Reform and Consumer Protection Act, and disclosures of specific actions to eradicate abusive labor practices in our supply chain under the California Transparency in Supply Chains Act. While we require our suppliers to operate in compliance with all applicable laws and our operating guidelines which promote ethical and socially responsible business practices, any violation of labor, environmental, health, and safety or other laws, or any divergence by an independent supplier's labor practices from generally accepted industry standards, could damage our reputation, disrupt our sourcing capabilities, and increase the cost of doing business, adversely affecting our results of operations. See Item 1A — "Risk Factors — Risks Related to our Business and Operations — Our business could suffer if we fail to comply with labor laws or if one of our manufacturers fails to use acceptable labor or environmental practices."
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Although we have not suffered any material restriction from doing business in desirable markets in the past, we cannot assure that significant impediments will not arise in the future as we expand product offerings and introduce additional trademarks to new markets.
Human Capital
Our purpose is to inspire the dream of a better life through authenticity and timeless style. This purpose extends to how we provide resources to support our employees' health, well-being, work-life harmony, and quality of life. We believe that attracting, developing, and retaining a diverse work force that is both skilled and motivated is critical to the successful execution of our long-term growth strategy. To this end, we are committed to creating a culture and work environment in which all employees feel welcome and can thrive, both as individuals and as part of our team.
Our Board of Directors regularly reviews our people and development strategy, including our employee diversity, respect, and inclusion initiatives.
Our Employees
As of April 2, 2016,March 27, 2021, we had approximately 26,00020,300 employees, comprised of approximately 15,00012,100 full-time and approximately 11,0008,200 part-time employees. Approximately 14,00010,400 of our employees are located in the U.S. and approximately 12,0009,900 are located in foreign countries. Approximately 255 of our U.S. production employees in the womenswear business are members of Workers United (which was previously known as UNITE HERE) under an industry association collective bargaining agreement, which our womenswear subsidiary has adopted. We consider our relations with both our union and non-union employees to be good.
As of March 27, 2021, approximately 64% and 36% of our global workforce self-identified as female and male, respectively, and in the U.S., approximately 39% of our workforce self-identified as white and 60% self-identified as an underrepresented race and ethnic group.
Diversity and Inclusion
We believe the diversity of our employees and our culture of inclusivity drive innovation and creativity, and we are committed to further strengthening such diversity and inclusion across race, ethnicity, gender, sexual orientation, disability, and mental health and wellness, among other demographics, ensuring fairness for all. Our diversity and inclusion ("D&I") strategy is guided by the following five pillars:
1.Talent — Cultivate diverse teams and elevate underrepresented talent to leadership ranks. In calendar 2019, we achieved our goal to have gender parity in our leadership ranks for Vice President and above. We are committed to have at least 20% of People of Color in our global leadership team by calendar 2023.
2.Collaboration and Belonging — Enable open dialogue and create safe spaces for the amplification of diverse voices and perspectives. During Fiscal 2021, we implemented six new internal advisory councils, as discussed below, and employee resource groups. We expanded our RL Community Groups to include a Working Parents Network, focusing on our employees who are parents and caregivers. We also established a company manifesto with specific and action-oriented commitments to elevate, amplify, and support the Black Community.
3.Learning — Build an inclusive culture through awareness, education, and deployment of mandatory D&I trainings globally. During Fiscal 2021, we expanded inclusive leadership learning with the rollout of an unconscious bias, allyship, and advocacy training, which is also now included in our new hire onboarding. In addition, we have mentoring and professional development programs offering internal and external development and career acceleration programs for underrepresented talent. We also provided scholarship funds to academic programs supporting underrepresented students.
4.Communication and Messaging — Maximize our inclusive message and increase the transparency of our D&I initiatives. We gather direct feedback from our employees and measure their engagement to better understand how we can improve. In Fiscal 2021, we expanded our approach to solicit employee feedback, shifting from an annual company-wide survey to more frequent pulse surveys on topical issues, specifically focusing on the experiences of our underrepresented employees. For Fiscal 2022, we plan to return to our global annual employee survey.
5.Celebration and Recognition — Appreciate our unique differences and increase educational events for all employees with a focus on diverse experiences. In Fiscal 2021, we increased educational and celebratory events focused on diverse experiences with over 30 virtual D&I events with 10,000 participants globally. Our D&I efforts have been recognized in recent years, including being named a Best Place to Work for LGTBQIA+, receiving 100% on the Human Rights Campaign's Corporate Equality Index in calendar 2021 for the second year in a row, as well as being named Best Place to Advance for Women by Parity.Org.
During Fiscal 2021, we expanded our Global D&I Steering Committee whose members are directly accountable for executing on our D&I strategies ensuring consistent support to achieve our goals. This committee leads our newly created D&I Black and African American Commitment Working Groups, which provide a robust structural framework to action on our racial equity commitments. We also introduced advisory councils, including the Black Advisory Council, Asian Pacific Islander Council, Native American Council, and Hispanic, Latino, and Latinx Council, who advise our executive leadership team, marketing campaigns, and long-term programs and initiatives to amplify the voices of underrepresented groups at Ralph Lauren.
In addition to our robust D&I governance structure, our employees play a key role in embedding a culture of inclusion at Ralph Lauren through our other employee resource groups, including our Gender Community Group, Pride Group, and Disability, Mental Health, and Wellness Group. These groups promote dialogue, define D&I focus areas, and help us properly prioritize action plans and necessary resources to develop solutions.
Additional information relating to our D&I initiatives and goals can be found in our annual sustainability reports, which is available at our website at http://investor.ralphlauren.com under the caption "Global Citizenship & Sustainability Report." Our 2021 Global Citizenship & Sustainability Report is expected to be published in June 2021. The content of our sustainability reports is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC.
Learning and Development
We are committed to the growth and development of our employees and offer a wide range of training programs for all levels. In addition to receiving ongoing on-the-job training and coaching, our employees can build skills and prepare for the future through our Ralph Lauren Learning Portal. We added new courses this year, many of which focus on remote working skills, as well as D&I education. We also support learning beyond our walls through tuition assistance. These collective learning and development programs help foster career mobility for our employees, while simultaneously allowing us to fill open positions with existing employees who know our company best.
Employee Safety and Well-Being
We are committed to the safety, health, and overall well-being of each of our employees and their families, providing a wide array of physical, emotional, social, and financial support to meet this objective. THRIVE, our global wellness program, provides access to benefits such as flexible work arrangements, volunteer events, and physical and mental wellness support. We gather direct feedback from our workforce, including through regular employee surveys, which allows us to measure their engagement and understand how we can improve.
Throughout the COVID-19 pandemic, our priority has been to ensure the safety and well-being of all of our employees, customers, and the communities in which we operate in around the world. In this regard, we have implemented new health and safety protocols in our stores, distribution centers, and corporate offices. We have also expanded employee well-being services in the U.S. to include additional backup childcare, as well as MyStrength, an online wellness portal. Globally, we host monthly wellness webinars and provide weekly meditation classes through our RL Well-Being Exchange program. Financial grants have also been provided through the Ralph Lauren Employee Relief Fund for employees facing special circumstances.
Compensation and Benefits
We are committed to providing competitive compensation and benefits to attract and retain a diverse and talented workforce. We are also committed to achieving pay equity throughout our organization, conducting biennial assessments with the assistance of an independent human capital management firm to analyze our employee compensation based on gender, race, and ethnicity. We offer a wide array of both employer-paid and employee-paid benefits to support our employees' overall financial, physical, and mental well-being, including, but not limited to, healthcare and welfare benefits, retirement savings, paid time off, temporary leave, sabbaticals, and flexible work arrangements. We also provide our employees a merchandise
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discount on most of our products. During Fiscal 2021, we expanded our medical benefits in the U.S. to our part-time employees, ensuring equitable benefits for our front-line employees. As a token of gratitude for their work during the COVID-19 pandemic, we also recently provided a one-time $1,000 bonus to each of our global frontline workers in May 2021. Additionally, we made COVID-19 vaccines available in our North Carolina Health Clinic with over 400 employees receiving their first dose from an onsite counselor.
Information About Our Executive Officers
The following are our current executive officers and their principal recent business experience:
Ralph Lauren | Age | Mr. | ||||||||||||
Patrice Louvet | Age | Mr. | ||||||||||||
Jane Hamilton Nielsen | Age 57 | Ms. Nielsen has been our Chief Financial Officer since September 2016 and our Chief Operating Officer since March 2019. She served as Chief Financial Officer of Coach, Inc. from September 2011 to August 2016. From 2009 to 2011, she was Senior Vice President and Chief Financial Officer of PepsiCo Beverages Americas and the Global Nutrition Group, divisions of PepsiCo, Inc., with responsibility for all financial management including financial reporting, performance management, capital allocation, and strategic planning. Prior to that, Ms. Nielsen held various senior roles in finance at PepsiCo, Inc. and Pepsi Bottling Group starting in 1996. She also serves on the board of directors of Mondelez International since May 2021, and previously served on the board of directors of Pinnacle Foods Inc. Ms. Nielsen received her M.B.A. from the Harvard Business School and B.A. from Smith College. | ||||||||||||
Andrew Howard Smith | Age 50 | Mr. Smith has served as our Chief Commercial Officer since April 2019. He has been with our Company for over 17 years, having worked in various capacities based in the U.S., Europe, and Asia. Prior to his current role, he was responsible for our International Division based in Geneva, Switzerland, with general management responsibility for all markets outside of North America. Prior to this, he led our businesses across Asia as Group President of Asia Pacific, and before that he was responsible for our Japan market as President & | ||||||||||||
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David Lauren | Age | |||||||||||||
Item 1A. Risk Factors
There are risks associated with an investment in our securities. The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risk factors could materially adversely affect our business, including our prospects, our results of operations, our financial condition, our liquidity, the trading price of our securities, and/or the actual outcome of matters as to which forward-looking statements are made in this report. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also materially adversely affect our business results of operations, and financial condition in future periods or if circumstances change.
Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business.
Our business could be adversely affected by infectious disease outbreaks, such as the novel strain of coronavirus commonly referred to as COVID-19. COVID-19, which emerged beginning in our executivethe fourth quarter of Fiscal 2020, has spread rapidly across the globe, including throughout all major geographies in which we operate (North America, Europe, and senior management team may be disruptiveAsia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets. Governments worldwide have periodically imposed varying degrees of preventative and protective actions, such as temporary travel bans, stay-at-home orders, and forced business closures or other operational restrictions, including reduced capacity limits and operating hours, all in an effort to or cause uncertaintyreduce the spread of the virus. Such factors, among others, have resulted in oura significant decline in retail traffic, tourism, and consumer spending on discretionary items.
As a result of the COVID-19 pandemic, we have experienced varying degrees of business resultsdisruptions and periods of operations, financial condition, and the market priceclosure of our common stock.
•our ability to successfully execute our long-term growth strategy;
•reduced retail traffic at our stores and those of our wholesale customers and licensing partners due to forced closures or other operational restrictions, such as reduced capacity limits and operating hours, declines in tourism, and/or potential changes in consumer behavior and shopping preferences, such as their willingness to congregate in shopping centers or other populated locations;
•potential declines in the market pricelevel of consumer purchases of discretionary items and luxury retail products, including our products, caused by higher unemployment and lower disposal income levels, travel and social gathering restrictions, work-from-home arrangements, or other factors beyond our control;
•the potential build-up of excess inventory as a result of store closures and/or lower consumer demand;
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•our ability to generate sufficient cash flows to support our operations, including repayment of our debt obligations as they become due, as well as to return value to our shareholders in the form of dividend payments and repurchases of our common stock. Further,stock;
•the potential loss of one or more of our significant wholesale customers or licensing partners, or the loss of a large number of smaller wholesale customers or licensing partners, if they are not able to withstand prolonged periods of adverse economic conditions, and our ability to collect outstanding receivables;
•temporary closures or other operational restrictions of our distribution centers and/or corporate facilities;
•supply chain disruptions resulting from closed factories, reduced workforces, scarcity of raw materials, and scrutiny or embargoing of goods produced in infected areas, including any related cost increases;
•our ability to access capital markets and maintain compliance with covenants associated with our existing debt instruments, as well as the ability of our key customers, suppliers, and vendors to do the same with regard to their own obligations;
•our ability to successfully negotiate with landlords to obtain rent abatements, rent deferrals, and other relief;
•additional costs to protect the health and safety of our employees, customers, and communities, such disruption may hinder as more frequent and thorough cleanings of our facilities and supplying personal protection equipment;
•diversion of management attention and resources from ongoing business activities and/or a decrease in employee morale; and
•our ability to maintain an effective system of internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002.
Additional discussion related to the various risks and uncertainties described above is included elsewhere within this "Risk Factors" section of our Form 10-K.
Economic, political, and other conditions may adversely affect the level of consumer purchases of discretionary items and luxury retail products, including our products.
The industries in which we operate are cyclical. Many economic and other factors outside of our control affect the level of consumer spending in the apparel, footwear, accessory, and home product industries, including, among others, man-made or natural disasters, including pandemic diseases such as COVID-19; consumer perceptions of personal well-being and safety; consumer perceptions of current and future economic conditions; employment levels and wage rates; stock market performance; inflation; interest rates; foreign currency exchange rates; the housing market; consumer debt levels; the availability of consumer credit; commodity prices, including fuel and energy costs; taxation; general domestic and international political conditions; the threat, outbreak, or escalation of terrorism, military conflicts, or other hostilities; and weather conditions.
Consumer purchases of discretionary items and luxury retail products, including our products, tend to decline during recessionary periods and at other times when disposable income is lower. Unfavorable economic conditions and other factors, such as pandemic diseases and other health-related concerns, political unrest, war, and acts of terrorism, may also reduce consumers' willingness and ability to travel to major cities and vacation destinations in which our stores and shop-within-shops are located. Further, consumers may prefer to spend more of their discretionary income on "experiences," such as dining and entertainment, over consumer goods. Stay-at-home orders, social gathering restrictions, and work-from-home arrangements, such as those resulting from the COVID-19 pandemic, may also diminish consumers’ demand for luxury apparel products. Accordingly, a downturn or an uncertain outlook in the economies in which we, or our wholesale customers and licensing partners, sell our products, or other changes in consumer preferences, may materially adversely affect our business.
Economic conditions could have a negative impact on our major customers, suppliers, vendors, and lenders, which in turn could materially adversely affect our business.
Although we believe that our existing cash and investments, cash provided by operations, and available borrowing capacity under our credit and overdraft facilities and commercial paper borrowing program will provide us with sufficient liquidity, the impact of economic conditions on our major customers, suppliers, vendors, and lenders, including those resulting from the COVID-19 pandemic, and their ability to access global capital markets cannot be predicted. The inability of major manufacturers to ship our products could impair our ability to meet the delivery date requirements of our customers. Deterioration in global financial or capital markets could affect our ability to access sources of liquidity to provide for our future cash needs, increase the cost of any future financing, or cause our lenders to be unable to meet their funding commitments under our credit and overdraft facilities. A disruption in the ability of our significant customers to access liquidity
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could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction in their future orders of our products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our business.
Our business is exposed to domestic and foreign currency fluctuations.
Our business is exposed to foreign currency exchange risk. Specifically, changes in exchange rates between the U.S. dollar and other currencies impact our financial results from a transactional perspective, as our foreign operations generally purchase inventory in U.S. dollars, as is common for most apparel companies. Given that we source most of our products overseas, the cost of these products may be affected by changes in the value of the relevant currencies. Changes in currency exchange rates may also impact consumers' willingness or ability to travel abroad and/or purchase our products while traveling, as well as affect the U.S. Dollar value of the foreign currency denominated prices at which our international businesses sell products. Additionally, the operating results and financial position of our international subsidiaries are exposed to foreign exchange rate fluctuations as their financial results are translated from the respective local currency into U.S. Dollars during the financial statement consolidation process. The foreign currencies to which we are exposed to from a transactional and translational perspective primarily include the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Chinese Renminbi. The expansion of our international business increases our exposure to foreign currency exchange risk.
Although we hedge certain exposures to changes in foreign currency exchange rates arising in the ordinary course of business, we cannot fully anticipate all of our currency exposures and therefore foreign currency fluctuations may have a material adverse impact on our business. In addition, factors that could impact the effectiveness of our hedging activities include the volatility of currency markets, the accuracy of forecasted transactions, and the availability of hedging instruments. As such, our hedging activities may not completely mitigate the impact of foreign currency fluctuations on our results of operations. See Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — Market Risk Management."
Risks Related to our Strategic Initiatives and Restructuring Activities
We cannot assure the successful implementation of our growth strategy.
We have developed a long-term growth strategy with the objective of delivering sustainable, profitable growth and long-term value creation for shareholders, as described in Item 1 — "Business — Objectives and Opportunities." Our ability to successfully execute our growth strategy is subject to various risks and uncertainties, as described herein.
Although we believe that our growth strategy will lead to long-term growth in revenue and profitability, there can be no assurance regarding the timing of or extent to which we will realize the anticipated benefits, if at all. Our failure to realize the anticipated benefits, which may be due to our inability to execute the various elements of our growth strategy, changes in consumer preferences, competition, economic conditions, and other risks described herein, including those related to the COVID-19 pandemic, could have a material adverse effect on our business. Such a failure could also result in the implementation of additional restructuring-related activities beyond those currently planned, which may be dilutive to our earnings in the short term.
Achievement of our growth strategy may require investment in new capabilities, distribution channels, and technologies. These investments may result in short-term costs without accompanying current revenues and, therefore, may be dilutive to our earnings in the short term. There can be no assurance regarding the timing of or extent to which we will realize the anticipated benefits of these investments and other costs, if at all.
We may not be successful in the expansion of our multi-channel distribution network or accelerating growth in certain product categories.
Implementation of our growth strategy involves the continuation and expansion of our multi-channel distribution network, including within international markets such as China, which is subject to many factors, including, but not limited to, our ability to:
•identify new or underpenetrated markets where our products and brand will be accepted by consumers;
•attract customers, particularly in new markets;
•identify desirable freestanding and department store locations, the availability of which may be out of our control;
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•negotiate acceptable lease terms, including desired tenant improvement allowances;
•efficiently and cost effectively build-out stores and shop-within-shops;
•source sufficient inventory levels to meet the needs of the new stores and shop-within-shops;
•hire, train, and retain competent store personnel; and
•integrate new stores and shop-within-shops into our existing systems and operations.
Any of these challenges could delay or otherwise prevent us from successfully executing our distribution expansion strategy. There can be no assurance that our new stores and shop-within-shops will be successful and profitable or if the capital costs associated with the build-out of such new locations will be recovered. Further, entry into new markets may bring us into competition with new or existing competitors that have a more established market presence than us or other competitive advantages. Other risks related to our international expansion plans include general economic conditions in specific countries and markets, changes in diplomatic and trade relationships and any resulting anti-American sentiment, political instability, and foreign government regulation, among other risks described herein. If our expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our business, results of operations, and financial condition could be adversely affected.
The success of our business also depends largely on our ability to continue to maintain, enhance, and expand our digital footprint and capabilities. In recent years, consumers have been increasingly shopping online using computers, smartphones, tablets, and other devices. The COVID-19 pandemic has further amplified this trend due in part to travel bans, stay-at-home orders, forced business closures, and other operational restrictions, which impede upon the ease at which consumers can shop at brick and mortar locations. Many consumers may also prefer to avoid populated locations, such as indoor shopping centers, in fear of exposing themselves to the virus or other infectious diseases. Any failure on our part, or on the part of our third-party digital partners, to provide attractive, reliable, secure, and user-friendly digital commerce platforms, including mobile apps, could negatively impact our customers' shopping experience resulting in reduced website traffic, diminished loyalty to our brands, and lost sales. In addition, as we continue to expand and increase the global presence of our digital commerce business, sales from our brick and mortar stores and wholesale channels of distribution in areas where digital commerce sites are introduced may decline due to changes in consumer shopping habits and cannibalization.
Our growth strategy also includes accelerating growth in certain high-value, underdeveloped product categories, comprised of denim, wear to work, outerwear, footwear, and accessories. We compete with other retailers in these product categories, some of which may be significantly larger than us and more established in these product categories, and competition is intense, as described within other risk factors herein. There can be no assurance that our targeted expansion in these product categories will be successful.
The success of our business depends on our ability to respond to constantly changing fashion and retail trends and consumer preferences in a timely manner, develop products that resonate with our existing customers and attract new customers, and provide a seamless shopping experience to our customers.
The industries in which we operate have historically been subject to rapidly changing fashion trends and consumer preferences. Our success depends in large part on our ability to originate and define fashion product and home product trends, as well as to anticipate, gauge, and react to changing consumer preferences in a timely manner. Our products must appeal to a broad range of consumers worldwide whose preferences cannot be predicted with certainty and are subject to rapid change, influenced by fashion trends, economic conditions, and weather conditions, among other factors. This issue is further compounded by the increasing use of digital and social media by consumers and the speed by which information and opinions are shared across the globe. We cannot assure that we will be able to continue to develop appealing styles or successfully meet constantly changing consumer preferences in the future. In addition, we cannot assure that any new products or brands that we introduce will be successfully received by consumers. Any failure on our part to anticipate, identify, and respond effectively to changing consumer preferences and fashion trends could adversely affect consumer acceptance of our products and leave us with a substantial amount of unsold inventory or missed opportunities. Conversely, if we underestimate consumer demand for our products or if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages. Any of these outcomes could have a material adverse effect on our business. For a discussion of risks related to our inventory management, see "Risks Related to our Strategic Initiatives and Restructuring Activities — Our profitability may decline if we are unable to effectively manage inventory or as a result of increasing pressure on margins."
Our marketing and advertising programs are integral to the success of our product offerings and on our ability to attract new customers and retain existing customers. Our communication campaigns are increasingly being executed through digital and social media platforms to drive further engagement with the younger consumer, with a focus on influencers. However, we cannot assure that our marketing and advertising programs will be successful or appeal to consumers.
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The success of our business also depends on our ability to continue to develop and maintain a reliable omni-channel experience for our customers, as well as our ability to introduce new Connected Retail capabilities, such as virtual clienteling, Buy Online-Ship to Store, Buy Online-Pick Up in Store, curbside pickup, appointment scheduling, and mobile checkout. Our business has evolved from an in-store experience to a shopping experience through multiple technologies, including computers, smartphones, tablets, and other devices, as our customers have become increasingly technologically savvy. We are increasingly using digital and social media platforms to interact with customers and enhance their shopping experience. If we are unable to develop and continuously improve our customer-facing technologies, we may not be able to provide a convenient and consistent experience to our customers regardless of the sales channel. This could negatively affect our ability to compete with other retailers and result in diminished loyalty to our brands, which could adversely impact our business.
We have also implemented, and expect to continue to implement, new store design concepts as part of our growth strategy. There can be no assurance that any of our store designs will resonate with customers or otherwise achieve the desired sales and profitability measures necessary to recover our initial capital investments. If customers are not receptive to the design layout or visual merchandising of our stores, our business could be adversely affected. In addition, the failure of our store designs to achieve acceptable results could lead to our decision to close a store prior to the lease expiration date. For additional discussion of risks related to the early termination of our leases, see "Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases."
Our profitability may decline if we are unable to effectively manage inventory or as a result of increasing pressure on margins.
We have implemented key strategic initiatives designed to optimize our inventory levels and improve the efficiency and responsiveness of our supply chain. Although we have shortened lead times for the design, sourcing, and production of certain of our product lines, we expect to continue to place orders with our vendors for the majority of products in advance of the related selling season. As a result, we are vulnerable to changes in consumer preferences and demand and pricing shifts. Our failure to continue to shorten lead times or to correctly anticipate consumer preferences and demand could result in the build-up of excess inventory. Other factors beyond our control could also result in the build-up of excess inventory, including unforeseen adverse economic conditions or business disruptions, such as those caused by the COVID-19 pandemic. Excess inventory levels could result in the utilization of less-preferred distribution channels, markdowns, promotional sales, donations, or destruction to dispose of such excess or slow-moving inventory, which may negatively impact our overall profitability and/or impair the image of our brands. Conversely, if we underestimate consumer demand for our products or if manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which may negatively impact customer relationships, diminish brand loyalty, and result in lost sales. Any of these outcomes could have a material adverse effect on our business.
Additionally, our industry is subject to significant pricing pressure caused by many factors, including intense competition and a highly promotional retail environment, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer spending patterns. Although we continue to limit our promotional activity in connection with our quality of sales initiatives, these factors may cause us to reduce our sales prices to retailers and consumers, which could cause our gross margin to decline if we are unable to appropriately manage inventory levels and/or otherwise offset price reductions with comparable reductions in our costs. If our sales prices decline and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. In addition, changes in our customer, channel, and geographic sales mix could have a negative impact on our profitability. Any of these outcomes could have a material adverse effect on our business.
We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring plans.
We have implemented restructuring plans to support key strategic initiatives, such as the Fiscal 2021 Strategic Realignment Plan, as described in Item 1 — "Business — Recent Developments." Although designed to deliver long-term sustainable growth, restructuring plans present significant potential risks that may impair our ability to achieve anticipated operating enhancements and/or cost reductions, or otherwise harm our business, including:
•higher than anticipated costs in implementing planned workforce reductions, particularly in highly regulated locations outside the U.S.;
•higher than anticipated lease termination and store or facility closure costs (see "Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases");
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•failure to meet operational targets or customer requirements due to the loss of employees or inadequate transfer of knowledge;
•failure to maintain adequate controls and procedures while executing, and subsequent to completing, our restructuring plans;
•diversion of management attention and resources from ongoing business activities and/or a decrease in employee morale;
•attrition beyond any planned reduction in workforce; and
•damage to our reputation and brand image due to our restructuring-related activities, including the closure of certain of our stores.
If we are not successful in implementing and managing our restructuring plans, we may not be able to achieve targeted operating enhancements, sales growth, and/or cost reductions, which could adversely impact our business. Our failure to achieve targeted results for any reason, including business disruptions from pandemic diseases such as COVID-19, could also lead to the implementation of additional restructuring-related activities, which may be dilutive to our earnings in the short term.
Risks Related to our Business and Operations
The loss of the services of Mr. Ralph Lauren members ofor any other changes to our executive and senior management team may be disruptive to, or other key personnel could have a material adverse effect oncause uncertainty in, our business.
Mr. Ralph Lauren's leadership in the design and marketing areas of our business has been a critical element of our success since the inception of our Company. Mr. R. Lauren is instrumental to, and closely identified with, our brand that bears his name. Our ability to maintain our brand image and leverage the goodwill associated with Mr. R. Lauren's name may be damaged if we were to lose his services. The death or disability of Mr. R. Lauren or other extended or permanent loss of his services, or any negative market or industry perception with respect to him or arising from his loss, could have a material adverse effect on our business, results of operations, and financial condition.business.
We also depend on the service and management experience of other key executive officers including Mr. Stefan Larsson, our President and Chief Executive Officer, and other members of senior management who have substantial experience and expertise in our industry and our business and have made significant contributions to our growth and success. Competition in our industry to attract and retain these employees is intense and is influenced by our reputation, our ability to offer competitive compensation and benefits, and economic conditions, among other factors. Any changes in our executive and senior management team, including those resulting from our restructuring actions, may be disruptive to, or cause uncertainty in, our business and future strategic direction. The loss of the servicesdeparture of any key individuals and the failure to ensure a smooth transition and effective transfer of knowledge involving senior employees could hinder or delay our key executive officers orstrategic planning and execution, as well as adversely affect our ability to attract and retain other members of senior management, or one or more of our other key personnel, or the concurrent loss of several of these individuals or any negative public perception with respect to these individuals,experienced and talented employees. Such departures could also impede our ability to maintain an effective system of internal controls and compliance with the requirements under the Sarbanes-Oxley Act of 2002. Any such disruptions could have a material adverse effectimpact on our business, results of operations, and financial condition.business.
We are not protected by a material amount of key-man or similar life insurance covering our executive officers, including Mr. R. Lauren, or other members of senior management. We have entered into employment agreements with certain of our executive officers, but competition for experienced executives in our industry is intense and the non-compete period with respect to certain of our executive officers could, in some circumstances in the event of their termination of employment with our Company, end prior to the employment term set forth in their employment agreements.
We may not fully realizeface intense competition worldwide in the expected cost savings and/or operating efficienciesmarkets in which we operate.
We face increasing competition from our restructuring plans, which could include the potential sale, discontinuance, or consolidation of certaincompanies selling apparel, footwear, accessories, home, and other of our brands.product categories through the Internet. Although we sell our products through the Internet, increased competition and promotional activity in the worldwide apparel, footwear, accessory, and home product industries from Internet-based competitors could reduce our sales, prices, and margins. We also face intense competition from other domestic and foreign fashion-oriented apparel, footwear, accessory, and casual apparel producers that sell products through brick and mortar stores and wholesale and licensing channels. We compete with these companies primarily on the basis of:
online shopping;
•creating and maintaining favorable brand recognition, loyalty, and a reputation for quality;
•developing and producing innovative, high-quality products in sizes, colors, and styles that appeal to consumers of varying age groups;
•providing strong and effective marketing support;
•providing attractive, reliable, secure, and user-friendly digital commerce sites;
•obtaining sufficient retail floor space and effective presentation of our products at stores and shop-within-shops;
•attracting consumer traffic to stores, shop-within-shops, and digital commerce sites;
•sourcing raw materials at cost-effective prices;
•anticipating and maintaining proper inventory levels;
•ensuring product availability and optimizing supply chain and distribution efficiencies with third-party manufacturers and retailers;
•maintaining and growing market share;
•recruiting and retaining key employees;
•protecting our intellectual property; and
•ability to withstand prolonged periods of adverse economic conditions or business disruptions.
Some of our competitors may be significantly larger and more diversified and may have greater financial, marketing, and distribution resources, more desirable store locations, and/or greater digital commerce presence than anticipated lease terminationus, among other competitive advantages. Such competitive advantages may enable them to better withstand unfavorable economic conditions, compete more effectively on the basis of price and store closure costs (see "Our business is subjectproduction, and/or more quickly respond to risks associated with leasing real estaterapidly changing fashion trends and other assets under long-term, non-cancellable leases");
consumer preferences than us. In addition, technological advances and the retail industry's low barriers to entry allow for the introduction of new competitors and products at a rapid pace. Any increased competition, or our failure to meet operational targetsadequately address any of these competitive factors, could result in reduced market share or customer requirements due to the loss of employees or inadequate transfer of knowledge;
The success of our business depends on our ability to retain the value and reputation of our brands, to continue to develop products that resonate with our existing customers and attract new customers, and to provide a seamless shopping experience to our customers.brands.
Our success depends on the value and reputation of our brands and our ability to consistently anticipate, identify, and respond to customers' demands, preferences, and fashion trends in the design, pricing, and production of our products, including the preference for certain products to be manufactured in the U.S. Any failure on our part to anticipate, identify, and respond effectively to these consumer demands, preferences, and trends could adversely affect acceptancenegative publicity regarding Mr. R. Lauren, or other members of our products. The Ralph Lauren name is integral toexecutive and senior management team, or our business and our business could be adversely affected if Mr. Ralph Lauren's public image or reputation were to be tarnished. Merchandise missteps or unfavorable publicity,Company as a whole, especially through social media which accelerates and increases the potential scope of negative publicity, could negatively impact the image of our brands with our customers and could result in diminished loyalty to our brands, which could adversely impact our business, resultseven if the subject of operations,such publicity is unverified or inaccurate and financial condition.
Our ability to conduct business in international markets may be affected by legal, regulatory, political, and economic risks.
We believe that our trademarks, intellectual property, and other proprietary rights are extremely important to foreign operations, including, but not limitedour success and our competitive position. We devote substantial resources to the Foreign Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the purposeestablishment and protection of obtaining or retaining business,our trademarks and the U.K. Bribery Act, which prohibits U.K.anti-counterfeiting activities worldwide. However, significant counterfeiting and related companies from any form of bribery;
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claimed ownership rights to some of our key 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 resolved certain of these conflicts through both legal action and negotiated settlements. We cannot guarantee that the actions we have taken to establish and protect our trademarks and other proprietary rights will be adequate to prevent counterfeiting, lost business, or brand dilution, any of these actions would have, if any, on our business, results of operations, and financial condition. Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the outcome of the 2016 U.S. presidential election, if any, may have a material adverse effect on our businessbusiness. We expect to continue to devote substantial resources to challenge brands arising from imitation of our products. Also, there can be no assurance that others will not assert rights in, the future, or may require usownership of, trademarks and other proprietary rights of ours or that we will be able to exit a particular marketsuccessfully resolve these types of conflicts to our satisfaction or significantly modify our current business practices.
at all. See Item 1 — "Business — Trademarks," and Item 3 — "Legal Proceedings."
Our business is subject to risks associated with importing products and could suffer as a resultthe ability of increases in the price of raw materials, freight, or labor; or a manufacturer's inabilityour manufacturers to produce our goods on time and to our specifications.
We do not own or operate any manufacturing facilities and depend exclusively on independent third parties for the manufacture of our products. Our products are manufactured to our specifications through arrangements with over 600300 foreign manufacturers in various countries. In Fiscal 2016, over2021, approximately 97% of our products (by dollar value) were produced outside of the U.S., primarily in Asia, Europe, and Latin America.America, with approximately 20% of our products sourced from China and another 20% from Vietnam. Risks inherent in importing our products include:
•pandemic diseases, such as COVID-19, which could result in closed factories, reduced workforces, scarcity of raw materials, port congestion, and scrutiny or embargoing of goods produced in infected areas;
•changes in social, political, and economic conditions including those which may result from the outcome of the 2016 U.S. presidential election, 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, quotas, or safeguards relating to imports or exports, and costs of complying with such regulations and other laws relating to the identification and reporting of the sources of mineralsraw materials used in our products;
•the imposition of additional duties, tariffs, taxes, and other charges on imports or exports;
•increases in the cost of labor, travel, and transportation;
•disruptions of shipping and international trade caused by natural and man-made disasters;disasters, labor shortages (stemming from labor disputes, strikes, or otherwise), or other unforeseen events;
•decreased scrutiny by customs officials for counterfeit goods, leading to security considerations;lost sales, increased costs for our anti-counterfeiting measures, and damage to the reputation of our brands; and
•the imposition of sanctions in the form of additional duties either by the U.S. or its trading partners to remedy perceived illegal actions by national governments.
In addition, the inability of a manufacturer to ship orders of our products in a timely manner or to meet our strict quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries, or a substantial reduction in purchase prices, any of which could have a material adverse effect on our business, results of operations, and financial condition.prices. Prices of raw materials used to manufacture our products may also fluctuate significantly as a result of many factors, including general economic conditions, energy prices, crop yields, and availability of labor and the related costs of such labor. Any increases in prices of such raw materials could have a material adverse effect on our cost of sales. Furthermore, the cost of labor at many of our third-party manufacturers has been increasing significantly and, as the middle class in developing countries such as China continues to grow, it is unlikely that such cost pressure will abate. The cost of transportation remains significant as well, and it is likely that such cost will fluctuate significantly if oil prices remain volatile. We may not be able to offset such increases in raw materials, freight, or labor costs through pricing actions or other means.
Any one of these factors could have a material adverse effect on our business. For a discussion of risks related to the potential imposition of additional regulations and laws, see "Risks Related to Regulatory, Legal, and Tax Matters — Our ability to conduct business globally may be affected by a variety of legal, regulatory, political, and economic risks."
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Our business could suffer if we need to replace manufacturers or distribution centers.
We do not own or operate any manufacturing facilities and depend exclusively on independent third parties for the manufacture of our products. We compete with other companies for the production capacity of our manufacturers. Some of these competitors may place larger orders than we do, and thus may have an advantage in securing production capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party manufacturing capacity. We cannot guarantee that this additional capacity will be available when required on terms that are acceptable to us. See Item 1 — "Business — Sourcing, Production and Quality." We enter into 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-term contracts with any manufacturer. None of the manufacturers we use produce our products exclusively.
In addition, we rely on a number of owned, leased, and independently-operated distribution facilities around the world to warehouse and ship products to our customers and perform other related logistic services. Our ability to meet the needs of our customers depends on the proper operation of these distribution centers. Our distributions centers generally utilize computer-controlled and automated equipment, which are subject to various risks, including software viruses, security breaches, power interruptions, or other system failures. If any of our distribution centers were to close or become inoperable or inaccessible for any reason, including pandemic diseases such as COVID-19, or if we fail to successfully consolidate existing facilities or transition to new facilities, we could experience a substantial loss of inventory, disruption of deliveries to our customers and our stores, increased costs, and longer lead times associated with the distribution of products during the period that would be required to reopen or replace the facility. Any such disruptions could have a material adverse effect on our business.
We also rely upon third-party transportation providers for substantially all of our product shipments, including shipments to and from our distribution centers, to our stores and shop-within-shops, and to our digital commerce and wholesale customers. Our utilization of these shipping services is subject to various risks, including, but not limited to, potential labor shortages (stemming from labor disputes, strikes, or otherwise), severe weather, and pandemic diseases, which could delay the timing of shipments, and increases in wages and fuel prices, which could result in higher transportation costs. Any delays in the timing of our product shipments or increases in transportation costs could have a material adverse effect on our business.
Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases.
We generally operate most of our stores and corporate facilities under long-term, non-cancellable leasing arrangements. Our retail store leases typically require us to make minimum rental payments, and often contingent rental payments based upon sales. In addition, our leases generally require us to pay our proportionate share of the cost of insurance, taxes, maintenance, and utilities. We generally cannot cancel our leases at our option. If we decide to close a store, or if we decide to downsize, consolidate, or relocate any of our corporate facilities, we may be required to record an impairment charge and/or exit costs associated with the disposal of the store or corporate facility. In addition, we may remain obligated under the applicable lease for, among other things, payment of the base rent for the remaining lease term, even after the space is exited or otherwise closed and even if such closures are beyond our control (such as the recent forced store closures resulting from the COVID-19 pandemic). Such costs and obligations related to the early or temporary closure of our stores or termination of our leases could have a material adverse effect on our business. In addition, as each of our leases naturally expires, we may be unable to negotiate renewals, either on commercially acceptable terms or at all, which could lead to store closures resulting in lost sales.
A substantial portion of our revenue is derived from a limited number of large wholesale customers. Our business could be adversely affected as a result of consolidations, liquidations, restructurings, other ownership changes in the retail industry, and/or any financial instability of our large wholesale customers.
Several of our department store customers, including some under common ownership, account for a significant portion of our wholesale net sales. A substantial portion of sales of our licensed products by our domestic licensing partners are also made to our largest department store customers. Sales to our three largest wholesale customers accounted for approximately 14% of total net revenues for Fiscal 2021, and these customers accounted for approximately 30% of our total gross trade accounts receivable outstanding as of March 27, 2021. Substantially all sales to our three largest wholesale customers related to our North America segment.
We typically do not enter into long-term agreements with our customers. Instead, we enter into a number of purchase order commitments with our customers for each of our product lines every season. A decision by the controlling owner of a group of stores or any other significant customer, whether motivated by economic conditions, financial difficulties, competitive
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conditions, or otherwise, to decrease or eliminate the amount of merchandise purchased from us or our licensing partners or to change their manner of doing business with us or our licensing partners or their new strategic and operational initiatives, including their continued focus on further development of their "private label" initiatives, could have a material adverse effect on our business.
The department store sector has also experienced numerous consolidations, restructurings, reorganizations, and other ownership changes in recent years, which could potentially increase in frequency as a result of prolonged periods of adverse economic conditions, such as those being caused by the COVID-19 pandemic, or changes in consumer shopping preferences, such as the increasing shift away from traditional brick and mortar wholesale retailers to larger online retailers. Our wholesale customers have experienced significant business disruptions as a result of the pandemic, including declines in retail traffic, temporary store closures, and other operational restrictions. There can be no assurance that our wholesale customers have adequate financial resources and/or access to additional capital to withstand prolonged periods of such adverse economic conditions. The loss of one or more significant wholesale customers, or the loss of a large number of smaller wholesale customers, could have a material adverse effect on our business.
Further, even prior to the COVID-19 pandemic, certain of our large wholesale customers, particularly those located in the U.S., have been highly promotional and have aggressively marked down their merchandise, including our products. The continuation of such promotional activity could negatively impact our brand image and/or lead to requests from those customers for increased markdown allowances at the end of the season. In response and in connection with our growth plan, we strategically reduce shipments to certain of our customers and close less productive doors when deemed appropriate.
We sell our wholesale merchandise primarily to major department stores, specialty stores, and third-party digital partners across North America, Europe, Asia, and Australia, and extend credit based on an evaluation of each wholesale customer's financial condition, usually without requiring collateral. However, the financial difficulties of a wholesale customer, including those resulting from the COVID-19 pandemic, could cause us to limit or eliminate our business with that customer. We may also assume more credit risk relating to that customer's receivables. Our inability to collect on our trade accounts receivable from any one of these customers could have a material adverse effect on our business. See Item 1 — "Business — Wholesale Credit Control."
We have a substantial amount of indebtedness which could restrict our ability to engage in additional capital-related transactions in the future.
As of March 27, 2021, our consolidated indebtedness was approximately $1.633 billion, comprised of our outstanding borrowings under Senior Notes. We also maintain several credit and overdraft facilities, including our Global Credit Facility, which collectively had a remaining availability of approximately $571 million as of March 27, 2021. Accordingly, the amount of our indebtedness could further increase materially if we decide to draw upon our credit or overdraft facilities.
We rely on our operating cash flows to repay our outstanding borrowings, as well as to fund any working capital needs, capital expenditures, dividend payments, share repurchases, and other general corporate purposes. Prolonged periods of adverse economic conditions or business disruptions in any of our key regions, or a combination thereof, such as those resulting from the COVID-19 pandemic, could impede our ability to pay our obligations as they become due or return value to our shareholders, as well as delay previously planned expenditures related to our operations. Credit rating agencies also periodically review our capital structure and our ability to generate earnings. A prolonged period of deteriorated financial performance or our inability to comply with debt covenants (as discussed below) could make future financing more difficult to secure and/or expensive. Further, factors beyond our control, such as adverse economic conditions, could disrupt capital markets and limit the availability or willingness of financial institutions to extend capital to us in the future.
Certain of our debt instruments contain a number of affirmative and negative covenants. On May 26, 2020, we entered into an amendment to our Global Credit Facility that relaxed certain financial covenants while providing additional restrictions under our negative covenants for a specified period of time as further described in Note 11 to the accompanying consolidated financial statements. Our amended Global Credit Facility also contains representations and warranties, including that there has been no material adverse change in the business, operations, property, or condition (financial or otherwise) of the Company and its subsidiaries, taken as a whole. Our failure to comply with such covenants or representations and warranties, or otherwise secure temporary waivers of non-compliance, could result in the termination of the related facilities and/or our lenders demanding any amounts outstanding to be immediately repaid, which could have a material adverse effect on our business. Further, even if we are able to obtain waivers of non-compliance, such waivers may result in incremental fees, higher interest rates, and/or additional restrictions and covenants.
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We rely on our licensing partners to preserve the value of our licenses. Failure to maintain licensing partners could harm our business.
The risks associated with our own products also apply to our licensed products in addition to any number of possible risks specific to a licensing partner's business, including risks associated with a particular licensing partner's ability to (i) obtain capital; (ii) execute its business plans; (iii) manage its labor relations; (iv) maintain relationships with its suppliers and customers; (v) generate sufficient cash flows to fund its operations and pay its obligations as they become due, including minimum royalties due to us; (vi) withstand prolonged periods of adverse economic conditions, such as those being caused by the COVID-19 pandemic; and (vii) manage its credit and bankruptcy risks effectively.
Although a number of our license agreements prohibit our licensing partners from entering into licensing arrangements with our competitors, our licensing partners generally are not precluded from offering, under other non-competitor brands, the types of products covered by their license agreements with us. A substantial portion of sales of our products by our domestic licensing partners are also made to our largest customers. While we have significant control over our licensing partners' products and advertising, we rely on our licensing partners for, among other things, operational and financial control over their businesses. Changes in management, reduced sales of licensed products, poor execution, or financial difficulties with respect to any of our licensing partners could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reduced sales of our other products. Although we believe that we could replace our existing licensing partners in most circumstances, if necessary, our inability to do so for any period of time could adversely affect our revenues, both directly from reduced licensing revenue received and indirectly from reduced sales of our other products. See Item 1 — "Business — Our Licensing Business."
Our business could be adversely affected by man-made or natural disasters and other catastrophic events in the locations in which we or our customers or suppliers operate.
Our operations, including retail, distribution, and warehousing operations, are susceptible to man-made or natural disasters, including pandemic diseases such as COVID-19, severe weather, geological events, and other catastrophic events, such as terrorist attacks and military conflict, any of which could disrupt our operations. In addition, the operations of our customers and suppliers could experience similar disruptions. The occurrence of natural disasters or other catastrophic events may result in sudden disruptions in the business operations of the local economies affected, as well as of the regional and global economies. The occurrence of such events could also adversely affect financial markets and the availability of capital. In addition, our business can be affected by unseasonable weather conditions, such as extended periods of unseasonably warm temperatures in the winter or unseasonably cold temperatures in the summer. Any of these events could result in decreased demand for our products and disruptions in our sales channels and manufacturing and distribution networks, which could have a material adverse effect on our business.
Risks Related to Information Systems and Data Security
A data security or privacy breach could damage our reputation and our relationships with our customers or employees, expose us to litigation risk, and adversely affect our business.
We are dependent on information technology systems and networks, including the Internet, for a significant portion of our direct-to-consumer sales, including our digital commerce operations and retail business credit card transaction authorization and processing. We are also responsible for storing data relating to our customers and employees and rely on third parties for the operation of our digital commerce sites and for the various social media tools and websites we use as part of our marketing strategy. In our normal course of business, we often collect, transmit, and/or retain certain sensitive and confidential customer information, including credit card information. There is significant concern by consumers, employees, and lawmakers alike over the security of personal information transmitted over the Internet, consumer identity theft, and user privacy, as cyber-criminals are becoming increasingly more sophisticated in their attempts to gain unauthorized access to computer systems and confidential or sensitive data.
Despite the security measures we currently have in place (including those described in Item 1 — "Business — Information Systems"), our facilities and systems and those of our third-party service providers may be vulnerable to security breaches, acts of vandalism, phishing attacks, computer viruses, malware, ransomware, misplaced or lost data, programming and/or human errors, or other Internet or email events. The increased use of smartphones, tablets, and other wireless devices, as well as the need for a substantial portion of our corporate employees to work remotely during the COVID-19 pandemic, may also heighten these and other operational risks. The retail industry in particular continues to be the target of many cyber-attacks, which are becoming increasingly more difficult to anticipate and prevent due to their rapidly evolving nature. Although we have purchased network security and cyber liability insurance to provide a level of financial protection should a data breach occur,
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such insurance may not cover us against all claims or costs associated with such a breach. Additionally, the technology we use to protect our systems from being breached or compromised could become outdated as a result of advances in computer capabilities or other technological developments. Further, measures we implement to protect our computer systems against cyber-attacks may make them harder to use or reduce the speed at which they operate, which in turn could negatively impact our customers' shopping experience resulting in reduced website traffic, diminished loyalty to our brands, and lost sales.
Any perceived or actual electronic or physical security breach involving the misappropriation, loss, or other unauthorized disclosure of confidential or personally identifiable information, including penetration of our network security, whether by us or by a third party, could disrupt our business, severely damage our reputation and our relationships with our customers or employees, expose us to risks of litigation, significant fines and penalties, and liability, and result in deterioration in our customers' and employees' confidence in us, and adversely affect our business, results of operations, and financial condition. Since we do not control third-party service providers and cannot guarantee that no electronic or physical computer break-ins and security breaches will occur in the future, any perceived or actual unauthorized disclosure of personally identifiable information regarding our employees, customers, or website visitors could harm our reputation and credibility, result in lost sales, impair our ability to attract website visitors, and/or reduce our ability to attract and retain employees and customers. As these threats develop and grow, we may find it necessary to make significant further investments to protect data and our infrastructure, including the implementation of new computer systems or upgrades to existing systems, deployment of additional personnel and protection-related technologies, engagement of third-party consultants, and training of employees.
In addition, the regulatory environment relating to information security and privacy is becoming increasingly more demanding with frequent new requirements surrounding the handling, protection, and use of personal and sensitive information. We may incur significant costs in complying with the various applicable state, federal, and foreign laws regarding protection of, and unauthorized disclosure of, personal information. Additionally, failing to comply with such laws and regulations could damage the reputation of our brands and lead to adverse consumer actions, as well as expose us to government enforcement action and/or private litigation, any of which could adversely affect our business.
Our business could suffer if our computer systems and websites are disrupted or cease to operate effectively.
We are dependent on our computer systems to record and process transactions and manage and operate our business, including designing, marketing, manufacturing, importing, tracking, and distributing our products, processing payments, accounting for and reporting financial results, and managing our employees and employee benefit programs. In addition, we have digital commerce and other informational websites in North America, Europe, and Asia, including Australia and New Zealand, and have plans for additional digital commerce sites in the future. Given the complexity of our business and the significant number of transactions that we engage in on a daily basis, it is imperative that we maintain uninterrupted operation of our computer hardware and software systems.
Despite our preventative efforts, our systems are vulnerable to damage or interruption from, among other things, security breaches, computer viruses, technical malfunctions, inadequate system capacity, power outages, natural disasters, and usage errors by our employees or third-party consultants. If our information technology systems become damaged or otherwise cease to function properly, we may have to make significant investments to repair or replace them. Additionally, confidential or sensitive data related to our customers or employees could be lost or compromised. We are continually improving and upgrading our computer systems and software, which also involves risks and uncertainties. Any disruptions, delays, or deficiencies in the design, implementation, or transition of such systems could result in increased costs, disruptions in the sourcing, sale, and shipment of our product, delays in the collection of cash from our customers, and/or adversely affect our ability to accurately report our financial results in a timely manner. Any material disruptions in our information technology systems could have a material adverse effect on our business.
Risks Related to Regulatory, Legal, and Tax Matters
Our ability to conduct business globally may be affected by a variety of legal, regulatory, political, and economic risks.
Our ability to capitalize on growth in new international markets and to maintain our current level of operations in our existing markets is subject to certain risks associated with operating in various locations around the globe. These include, but are not limited to:
•complying with a variety of U.S. and foreign laws and regulations, including, but not limited to, trade, labor, product labeling, and product safety restrictions, as well as the Foreign Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining
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business, and similar foreign country laws, such as the U.K. Bribery Act, which prohibits U.K. and related companies from any form of bribery;
•adapting to local customs and culture;
•unexpected changes in laws, judicial processes, or regulatory requirements;
•the imposition of additional duties, tariffs, taxes, and other charges or other barriers to trade;
•changes in diplomatic and trade relationships;
•civil and political instability, such as the recent protests in the U.S., and terrorist attacks;
•pandemic diseases, such as COVID-19; and
•general economic fluctuations in specific countries or markets.
Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors may have a material adverse effect on our business in the future or may require us to exit a particular market or significantly modify our current business practices. For example, in recent years both the U.S. and China have imposed new tariffs on each other related to the importation of certain product categories, including imports of apparel into the U.S. from China. As a result of actions to mitigate our exposure to the resulting tariffs, which have included diverting production to and sourcing from other countries, driving productivity within our existing supplier base, and taking pricing actions, the tariffs enacted to date have not had a material adverse impact on our business operations. However, if the U.S. decides to impose additional tariffs on apparel or other of our goods imported from China, there can be no assurance that we will be able to offset all related increased costs, which could be material to our business operations as approximately 20% of our products are sourced from China. We cannot predict if, and to what extent, there will be changes to international trade agreements or the resulting impact any such changes would have on our business operations, which could be material. For a discussion of risks associated with the importation of products, see "Risks Related to our Business and Operations — Our business is subject to risks associated with importing products and the ability of our manufacturers to produce our goods on time and to our specifications."
Our business could also be impacted by changes to the tax laws and regulations in the countries where we operate. For example, the Organisation for Economic Co-operation and Development (the "OECD"), which represents a coalition of member countries, has proposed changes to numerous long-standing tax principles through its Base Erosion and Profit Shifting project, which is focused on a number of issues, including the shifting of profits among affiliated entities located in different tax jurisdictions. In response, certain member countries are beginning to implement legislation to align their international tax rules with the OECD's recommendations, such as Switzerland’s recently enacted Swiss Tax Act, as described in Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments." Additionally, the Biden Administration has proposed to increase the U.S. corporate income tax rate from 21% up to as much as 28%, as well as increase U.S. taxation on foreign earnings. Other taxing authorities of certain state, local, and other foreign jurisdictions may also decide to modify existing tax laws. We cannot predict which, if any, of these items or others will be enacted into law or the resulting impact any such enactment will have on our business operations, which could be material.
Additionally, the United Kingdom recently withdrew from the European Union, commonly referred to as "Brexit," whereby it ceased to be a member effective January 31, 2020. In December 2020, the United Kingdom and the European Union entered into an agreement that defines their future relationship, including terms of trade, that among its provisions will result in new tariffs on goods imported to the United Kingdom from the European Union that were manufactured elsewhere, as well as require additional administrative effort to import and export goods, adding friction and cost to transportation. The United Kingdom's future relationship with the European Union could also adversely impact consumer and investor confidence, and the level of consumer purchases of discretionary items and luxury retail products, including our products. Although we are closely monitoring the latest Brexit developments, including the December 2020 trade agreement, and are assessing risks and opportunities and developing strategies to mitigate our exposure, Brexit and its resulting impacts to the economy could materially adversely affect our business.
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results.
We are subject to income and non-income taxes in many U.S. and certain foreign jurisdictions, with the applicable tax rates varying by jurisdiction. We record tax expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions. At any given time, multiple tax years are subject to audit by various taxing authorities. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. Our effective tax rate in a given financial statement period may also be materially impacted
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by changes in the mix and level of earnings by jurisdiction or by changes to existing accounting rules. Additionally, our products are subject to import and excise duties, and/or sales, consumption, value-added taxes ("VAT"), and other non-income taxes in certain international jurisdictions. Failure to correctly calculate or submit the appropriate amount of income or non-income taxes could subject us to substantial fines and penalties and adversely affect our business.
In addition, the tax laws and regulations in the countries where we operate may change, or there may be changes in interpretation and enforcement of existing tax laws, which could materially affect our income tax expense in our consolidated financial statements. For a discussion of risks related to the potential imposition of additional regulations and laws, see "Risks Related to Regulatory, Legal, and Tax Matters — Our ability to conduct business globally may be affected by a variety of legal, regulatory, political, and economic risks."
Our business could suffer if we fail to comply with labor laws or if one of our manufacturers fails to use acceptable labor or environmental practices.
We are subject to labor laws governing relationships with employees, including minimum wage requirements, overtime, working conditions, and citizenship requirements. Compliance with these laws may lead to increased costs and operational complexity and may increase our exposure to governmental investigations or litigation.
In addition, we require our licensing partners and independent manufacturers to operate in compliance with applicable laws and regulations. While our internal and vendor operating guidelines promote ethical business practices and our employees periodically visit and monitor the operations of our independent manufacturers, we do not control these manufacturers or their labor practices. The violation of labor, environmental, or other laws by an independent manufacturer used by us or one of our licensing partners, or the divergence of an independent manufacturer's or licensing partner's labor or environmental practices from those generally accepted as ethical or appropriate in the U.S., could interrupt or otherwise disrupt the shipment of finished products to us or damage our reputation. Any of these events, in turn, could have a material adverse effect on our business, results of operations, and financial condition.
Certain legal proceedings, regulatory matters, and accounting changes could adversely impactaffect our results of operations.business.
We are involved in certain legal proceedings and regulatory matters and are subject from time to time to various claims involving alleged breach of contract claims, intellectual property and other related claims, escheatment and unclaimed property, credit card fraud, security breaches in certain of our retail store information systems, employment issues, consumer matters, and other litigation. Certain of these lawsuits and claims, if decided adversely to us or settled by us, could result in material liability to our Company or have a negative impact on our reputation or relations with our employees, customers, licensees,licensing partners, or other third parties. Other potential claimants may also be encouraged to bring suits against us based on a settlement from us or adverse court decision against us for similar claims or allegations as their own. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings could result in substantial costs and may require our Company to devote substantial time and resources to defend itself. Further, changes in governmental regulations both in the U.S. and in other countries where we conduct business operations could have an adverse impact on our business, results of operations, and financial condition.business. See Item 3 — "Legal Proceedings"Proceedings" for further discussion of our Company's legal matters.
In addition, we are subject to changes in accounting rules and interpretations issued by the Financial Accounting Standards Board and other regulatory agencies. If and when effective, such changes to accounting standards could have a material impact on our consolidated financial statements. See Note 4 to the accompanying audited consolidated financial statements for furthera discussion of recent amendments to currentcertain recently issued accounting standards.
Risks Related to our Common Stock
The trading prices of operations could be affected by natural events inour securities periodically may rise or fall based on the locations in which weaccuracy of predictions of our earnings or other financial performance, including our customers or suppliers operate.
Our business could suffer if we needplanning process is designed to replace manufacturers or distribution centers.
maximize our long-term strength, growth, and profitability, and not to achieve an earnings target in any particular fiscal quarter. We compete with other companies forbelieve that this longer-term focus is in the production capacitybest interests of our manufacturers. SomeCompany and our stockholders. However, we also recognize that, from time to time, it may be helpful to provide investors with guidance as to our quarterly and annual forecast of these competitors have greater financialnet sales and other resources thanearnings. While we have, and thus may have an advantage in securing production capacity. Ifgenerally expect to provide updates to our guidance when we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced,report our results each fiscal quarter, we may have to expand our third-party manufacturing capacity. We cannot guarantee that this additional capacity will be available when required on terms that are acceptable to us. See Item 1 — "Business — Sourcing, Production and Quality." We enter into a number of purchase order commitments each season specifying a time for delivery, method of payment, design and quality specifications, and other standard industry provisions, but do not have long-term contracts with any manufacturer. None of the manufacturers we use produce our products exclusively.
In addition, we may remain obligated under the applicable lease for, among other things,have historically returned value to shareholders through our payment of quarterly cash dividends and common stock share repurchases. Investors may have an expectation that we will continue to pay quarterly cash dividends, further increase our cash dividend rate, and/or repurchase shares available under our Class A common stock repurchase program. Our ability to pay quarterly cash dividends and repurchase our Class A common stock will depend on our ability to generate sufficient cash flows from operations in the base rent for the remaining lease term. Such costsfuture. This ability may be subject to certain economic, financial, competitive, and obligationsother factors that are beyond our control, such as impacts related to the early terminationCOVID-19 pandemic, which has resulted in us temporarily suspending our quarterly cash dividend and share repurchases, effective beginning in the first quarter of Fiscal 2021. Further, our Board of Directors may, at its discretion, elect to suspend or otherwise alter these programs at any time. The market price of our leasessecurities could have a material adverse effect onbe adversely affected if our business, results of operations, and financial condition.cash dividend payments and/or Class A common stock share repurchase activity differ from investors' expectations.
The voting shares of our Company's stock are concentrated in one majority stockholder.
As of April 2, 2016,March 27, 2021, Mr. Ralph Lauren, or entities controlled by the Lauren family, held approximately 82%84% of the voting power of the outstanding common stock of our Company. In addition, Mr. R. Lauren also serves as our Executive Chairman and Chief Creative Officer, Mr. R. Lauren's son, Mr. David Lauren, is an executive officerserves as our Chief Innovation Officer, Strategic Advisor to the CEO, and Vice Chairman of the Company and a director on our Board of Directors, and we employ other members of the Lauren family. From time to time, we may have other business dealings with Mr. R. Lauren, members of the Lauren family, or entities affiliated with Mr. R. Lauren or the Lauren family. As a result of his stock ownership and position in our Company, Mr. R. Lauren has the ability to exercise significant control over our business, including, without limitation, (i) the election of our Class B common stock directors, voting separately as a class and (ii) any action requiring the approval of our stockholders, including the adoption of amendments to our certificate of incorporation and the approval of mergers or sales of all or substantially all of our assets.
Not applicable.
We lease space for our retail stores, showrooms, warehouses, and offices in various domestic and international locations. We do not own any real property except for our distribution facility and an adjacent parcel of land in Greensboro, North Carolina; our retail e-commercedigital commerce call center and distribution facility in High Point, North Carolina; and our retail stores in Southampton and Easthampton, New York, and Nantucket, Massachusetts.
We believe that our existing facilities are well maintained, in good operating condition, and are adequate for our present level of operations.
The following table sets forth information relating to our keyprincipal properties as of April 2, 2016:
March 27, 2021:
| Location | Use | Approximate Square Feet | ||||||||||||
| NC Highway 66, High Point, NC | Wholesale and retail distribution facility | 847,000 | ||||||||||||
| N. Pendleton Street, High Point, NC | Retail | 805,000 | ||||||||||||
| 650 Madison Avenue, NYC | Executive and corporate offices, design studio, and showrooms | |||||||||||||
| Corporate offices | 263,000 | |||||||||||||
| Nutley, NJ | Corporate and retail administrative offices and showrooms | |||||||||||||
| Geneva, Switzerland | European corporate offices | |||||||||||||
| Gateway Office, Hong Kong | Asia corporate offices | |||||||||||||
| 888 Madison Avenue, NYC | Retail flagship store | 37,900 | ||||||||||||
| N. Michigan Avenue, Chicago | Retail flagship store | 37,500 | ||||||||||||
| New Bond Street, London, UK | Retail flagship store | 31,500 | ||||||||||||
| 867 Madison Avenue, NYC | Retail flagship store | 27,700 | ||||||||||||
| Paris, France | Retail flagship store | 25,700 | ||||||||||||
| Tokyo, Japan | Retail flagship store | 25,000 | ||||||||||||
| N. Rodeo Drive, Beverly Hills | Retail flagship store | 19,400 | ||||||||||||
| Prince's Building, Hong Kong | Retail flagship store | 9,800 | ||||||||||||
As of April 2, 2016,March 27, 2021, we directly operated 493548 retail stores, totaling approximately 3.84.2 million square feet. We anticipate that we will be able to extend our retail store leases, as well as those leases for our non-retail facilities, which expire in the near future on satisfactory terms or relocate to desirable alternate locations. We generally lease our freestanding retail stores for initial periods ranging from 53 to 15 years, with renewal options. See Item 1A — "Risk Factors— Risks Related to our Business and Operations — Our business is subject to risks associated with leasing real estate and other assets under long-term, non-cancellable leases."
Item 3. Legal Proceedings.
We are involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to our business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of products, taxation, unclaimed property, and employee relations. We believe at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on our consolidated financial statements. However, our assessment of any current litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
As of May 14, 2021, there were 649 holders of record of our Class A common stock and 8 holders of record of our Class B common stock. Our Class A common stock is traded on the New York Stock Exchange ("NYSE") under the symbol "RL." The following table sets forth the high and low sales prices per share of our Class A common stock, as reported on the NYSE Composite Tape, and the cash dividends per common share declared for each quarterly period in our two most recent fiscal years:
Market Price of Class A Common Stock | Dividends Declared per Common Share | |||||||||||
| High | Low | |||||||||||
| Fiscal 2016: | ||||||||||||
| First Quarter | $ | 141.08 | $ | 127.77 | $ | 0.50 | ||||||
| Second Quarter | 135.67 | 104.34 | 0.50 | |||||||||
| Third Quarter | 137.38 | 103.29 | 0.50 | |||||||||
| Fourth Quarter | 115.85 | 82.15 | 0.50 | |||||||||
| Fiscal 2015: | ||||||||||||
| First Quarter | $ | 164.75 | $ | 141.93 | $ | 0.45 | ||||||
| Second Quarter | 174.98 | 152.22 | 0.45 | |||||||||
| Third Quarter | 185.92 | 153.39 | 0.45 | |||||||||
| Fourth Quarter | 187.49 | 127.29 | 0.50 | |||||||||
The following table sets forth repurchases of shares of our Class A common stock during the fiscal quarter ended April 2, 2016:March 27, 2021:
| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(a) | |||||||||||
| (millions) | ||||||||||||||
| December 27, 2015 to January 23, 2016 | 819 | (b) | $ | 113.40 | — | $ | 200 | |||||||
| January 24, 2016 to February 20, 2016 | 1,167,700 | 85.61 | 1,167,700 | 100 | ||||||||||
| February 21, 2016 to April 2, 2016 | 946 | (b) | 94.89 | — | 100 | |||||||||
| 1,169,465 | 1,167,700 | |||||||||||||
Total Number of Shares Purchased(a) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs(b) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| December 27, 2020 to January 23, 2021 | 8,399 | $ | 102.00 | — | $ | 580 | ||||||||||||||||||||
| January 24, 2021 to February 20, 2021 | — | — | — | 580 | ||||||||||||||||||||||
| February 21, 2021 to March 27, 2021 | 6,212 | 115.02 | — | 580 | ||||||||||||||||||||||
| 14,611 | — | |||||||||||||||||||||||||
(a) Represents shares surrendered to or withheld by the Company in satisfaction of withholding taxes in connection with the vesting of awards issued under its long-term stock incentive plans.
(b) As of March 27, 2021, the remaining availability under our Class A common stock repurchase program was approximately $580 million, reflecting the May 13, 2019 approval by our Board of Directors to expand the program by up to an additional $600 million of Class A common stock repurchases. Repurchases of shares of Class A common stock are subject to overall business and market conditions. Accordingly, as a result of business disruptions related to the COVID-19 pandemic, we have temporarily suspended our common stock repurchase program as a preemptive action to preserve cash and strengthen our liquidity.
The following graph compares the cumulative total stockholder return (stock price appreciation plus dividends) on our Class A common stock to the cumulative total return of the Standard & Poor's 500 Index and a peer group index of companies that we believe are closest to ours (the "Peer Group") for the period from April 2, 2011, the last day of our 2011 fiscal year, through April 2, 2016, the last day of our 2016 fiscal year, through March 27, 2021, the last day of our 2021 fiscal year. Our Peer Group consists of Burberry Group PLC, Coach, Inc., Compagnie Financière Richemont SA, EssilorLuxottica SA, The Estée Lauder Companies Inc., Hermes International, Kering, Luxottica Group, LVMH, PVH Corp., Tiffany & Co.Tapestry, Inc., Tod's S.p.A., and V.F. Corporation. All calculations for foreign companies in our Peer Group are performed using the local foreign issue of such companies. The returns are calculated by assuming ana $100 investment made on April 2, 2016 in the Class A common stock and eachor March 31, 2016 in an index, of $100 on April 2, 2011, with all dividends reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*RETURN
Among Ralph Lauren Corporation, the S&P 500 Index, and a Peer Group
Not applicable as the endCompany has adopted certain provisions within the amendments to Regulation S-K, including the elimination of this Annual Report on Form 10-K. This selected financial data should be read in conjunction with Item 7 — "301.
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8 — "Financial Statements and Supplementary Data" included in this Annual Report on Form 10-K. Historical results may not be indicative of future results.Operations.
The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read together with our audited consolidated financial statements and footnotes,notes thereto, which are included in this Annual Report on Form 10-K. We utilize a 52-53 week fiscal year ending on the Saturday closest toimmediately before or after March 31. As such, Fiscal 20162021 ended on April 2, 2016March 27, 2021 and was a 53-week52-week period; Fiscal 20152020 ended on March 28, 20152020 and was a 52-week period; Fiscal 2019 ended on March 30, 2019 and was a 52-week period; and Fiscal 2014 ended on March 29, 2014 and was also a 52-week period. Fiscal 20172022 will end on April 1, 20172, 2022 and will be a 52-week53-week period.
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INTRODUCTION
MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotesnotes thereto to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:
•Overview. This section provides a general description of our business, currentglobal economic conditions and industry trends, and outlook, and a summary of our financial performance for Fiscal 2016.2021. In addition, this section includes a discussion of recent developments and transactions affecting comparability that we believe are important in understanding our results of operations and financial condition, and in anticipating future trends.
•Results of operations. This section provides an analysis of our results of operations for Fiscal 20162021 and Fiscal 2020 as compared to Fiscal 2015 and Fiscal 2015 as compared to Fiscal 2014.
the respective prior fiscal year.•Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of April 2, 2016,March 27, 2021, which includes (i) an analysis of our financial condition as compared to the prior fiscal year-end; (ii) an analysis of changes in our cash flows for Fiscal 20162021 and Fiscal 20152020 as compared to the respective prior fiscal year; (iii) an analysis of our liquidity, including the availability under our commercial paper borrowing program and credit facilities, common stock repurchases, payments of dividends, and our outstanding debt and covenant compliance;compliance, common stock repurchases, and payments of dividends; and (iv) a summary of our contractual and other obligations as of April 2, 2016.
March 27, 2021.•Market risk management. This section discusses how we manage our risk exposures related to foreign currency exchange rates, interest rates, and our investments as of April 2, 2016.
March 27, 2021.•Critical accounting policies. This section discusses accounting policies considered to be important to our results of operations and financial condition, which typically require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 3 to the accompanying audited consolidated financial statements.
•Recently issued accounting standards. This section discusses the potential impact on our reported results of operations and financial condition of certain accounting standards that have been recently issued or proposed.
issued.OVERVIEW
Our Business
Our Company is a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, footwear, accessories, home furnishings, fragrances, and other licensed product categories.hospitality. Our long-standing reputation and distinctive image have been consistently developed across an expanding number of products, brands, sales channels, and international markets. Our brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren, Chaps, and Club Monaco, and American Living, among others.
We classifydiversify our businesses into three segments: Wholesale, Retail,business by geography (North America, Europe, and Licensing. Our Wholesale business, which represented approximately 45%Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows us to maintain a dynamic balance as our Fiscal 2016 net revenues, consistsoperating results do not depend solely on the performance of sales made principally to major department stores and specialty stores around the world. Our Retail business, which represented approximately 53%any single geographic area or channel of our Fiscal 2016 net revenues, consists of sales madedistribution. We sell directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and our e-commercedigital commerce operations around the world. Our Licensing business, which represented approximately 2% of our Fiscal 2016 net revenues, consists of royalty-based arrangements underwholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which we have licensed the right to operate in defined geographic territories using our trademarks. In addition, we license to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess our various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings. Approximately
We organize our business into the following three reportable segments:
•North America — Our North America segment, representing approximately 45% of our Fiscal 2021 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our retail and wholesale businesses in the U.S. and Canada, excluding Club Monaco. In North America, our retail business is primarily comprised of our Ralph Lauren stores, our factory stores, and our digital commerce site, www.RalphLauren.com. Our wholesale business in North America is comprised primarily of sales to department stores, and to a lesser extent, specialty stores.
•Asia — Our Asia segment, representing approximately 23% of our Fiscal 2021 net revenues, primarily consists of sales of our Ralph Lauren branded products made through our retail and wholesale businesses in Asia, Australia, and New Zealand. Our retail business in Asia is primarily comprised of our Ralph Lauren stores, our factory stores, our concession-based shop-within-shops, and our various digital commerce sites. In addition, we sell our products online through various third-party digital partner commerce sites. Our wholesale business in Asia is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.
No operating segments were aggregated to form our reportable segments. In addition to these reportable segments, we also have other non-reportable segments, representing approximately 5% of our Fiscal 2021 net revenues, which primarily consist of (i) sales of Club Monaco branded products made through our retail and wholesale businesses in the U.S., Canada, and Europe, and our licensing alliances in Europe and Asia, and (ii) royalty revenues earned through our global licensing alliances, excluding Club Monaco. As discussed in "Recent Developments," on May 13, 2021, we announced the anticipated sale of our Club Monaco business, which is expected to close by the end of the first quarter of Fiscal 2022.
Approximately 52% of our Fiscal 2021 net revenues were earned outside of the U.S. See Note 2120 to the accompanying audited consolidated financial statements for a summaryfurther discussion of net revenues, operating income, and total assets by reportableour segment as well as net revenues and long-lived assets by geographic location.reporting structure.
Our business is typically affected by seasonal trends, with higher levels of retail sales in our second and third fiscal quarters and higher wholesale sales in our second and fourth fiscal quarters and higher retail sales in our second and third fiscal quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel, back-to-school, and holiday shopping periods impacting our Retail segment.retail business and timing of seasonal wholesale shipments. As a result of changes in our business, consumer spending patterns, and the macroeconomic environment, including those resulting from pandemic diseases and other catastrophic events, historical quarterly operating trends and working capital requirements may not be indicative of our future performance. In addition, fluctuations in sales, operating income, and cash flows in any fiscal quarter may be affected by other events affecting retail sales, such as changes in weather patterns.
COVID-19 Pandemic
Beginning in the fourth quarter of Fiscal 2020, a novel strain of coronavirus commonly referred to as COVID-19 emerged and Outlook
As a result of the COVID-19 pandemic, we have experienced varying degrees of business disruptions and periods of closure of our stores, distribution centers, and corporate facilities, as have our wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021, the majority of our stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to our operating results. Resurgences in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of our stores were closed for approximately two to three months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions have continued into the first quarter of Fiscal 2022, impacting not only our businesses in Europe but also in other regions of the world (notably our retail operations in Japan and our sourcing operations in
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India). Further, the majority of our stores that are able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. Our wholesale and licensing businesses have also been adversely affected, particularly in North America and Europe, as a result of store closures and lower traffic and consumer demand.
Throughout the pandemic, our priority has been to ensure the safety and well-being of our employees, customers, and the communities in which we operate around the world. We continue to consider the guidance of local governments and global health organizations and have implemented new health and safety protocols in our stores, distribution centers, and corporate facilities. We have also taken various preemptive actions to preserve cash and strengthen our liquidity position, including:
•amending our Global Credit Facility in May 2020 to temporarily waive our leverage ratio requirement (see Note 11 to the accompanying consolidated financial statements);
•issuing $1.250 billion of unsecured senior notes in June 2020, the proceeds of which are being used for general corporate purposes, including repayment of certain of our previously outstanding borrowings (see Note 11 to the accompanying consolidated financial statements);
•temporarily suspending our quarterly cash dividend and common stock repurchase program, effective beginning in the first quarter of Fiscal 2021 (see Note 16 to the accompanying consolidated financial statements);
•temporarily reducing the base compensation of our executives and senior management team, as well as our Board of Directors, for the first quarter of Fiscal 2021;
•furloughing or reducing work hours for a significant portion of our employees during the first half of Fiscal 2021;
•carefully managing our expense structure across all key areas of spend, including aligning inventory levels with anticipated demand, negotiating rent abatements with certain of our landlords, and postponing non-critical capital build-out and other investments and activities;
•pursuing relevant government subsidy programs related to COVID-19 business disruptions; and
•improving upon our cash conversion cycle largely driven by our accounts receivable collection efforts and extended vendor payment terms.
Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. Accordingly, we cannot predict for how long and to what extent the pandemic will impact consumer confidence andour business operations or the global economy as a whole,whole. We will continue to assess our operations location-by-location, considering the guidance of local governments and global health organizations to determine when our operations can begin returning to normal levels of business. See Item 1A — "Risk Factors — Risks Related to Macroeconomic Conditions — Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business"for additional discussion regarding risks to our business associated with the COVID-19 pandemic.
Fiscal 2021 Strategic Realignment Plan
We have begun efforts to realign our resources to support future growth and profitability, and to create a sustainable cost structure. The key areas of our evaluation include our: (i) team organizational structures and ways of working; (ii) real estate footprint and related costs across corporate offices, distribution centers, and direct-to-consumer retail and wholesale doors; and (iii) brand portfolio.
In connection with the first initiative, on September 17, 2020, our Board of Directors approved a restructuring plan (the "Fiscal 2021 Strategic Realignment Plan") to reduce our global workforce by the end of Fiscal 2021. Additionally, during our preliminary review of our store portfolio during the second quarter of Fiscal 2021, we made the decision to close our Polo store on Regent Street in London.
On October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy in connection with our third initiative (see "Transition of Chaps Brand to a Licensing Model" further below for additional discussion).
Additionally, on February 3, 2021, our Board of Directors approved additional realignment actions related to our real estate initiative. Specifically, we plan to further rightsize and consolidate our global corporate offices to better align with our
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current organizational profile and new ways of working. We also expect to close certain of our stores to improve overall profitability. Additionally, we plan to complete the consolidation of our existing North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on May 13, 2021, in connection with our brand portfolio initiative, we announced that we have entered into an agreement to sell our Club Monaco business to Regent, L.P., a global private equity firm. The transaction is expected to close by the end of the first quarter of Fiscal 2022.
In connection with these collective realignment initiatives, we expect to incur total estimated pre-tax charges of approximately $300 million to $350 million, of which $236.8 million was recorded during Fiscal 2021. Once substantially completed by the end of Fiscal 2022, these actions are expected to result in gross annualized pre-tax expense savings of approximately $200 million to $240 million, a portion of which will be reinvested back into the business. These estimated charges and expense savings are subject to change based upon the completion of the sale of our Club Monaco business.
See Note 9 to our accompanying consolidated financial statements for additional discussion regarding charges recorded in connection with the Fiscal 2021 Strategic Restructuring Plan.
Transition of Chaps Brand to a Fully Licensed Business Model
On October 29, 2020, we announced the planned transition of our Chaps brand to a fully licensed business model, consistent with our long-term brand elevation strategy. Specifically, we have entered into a multi-year licensing partnership, taking effect on August 1, 2021 after a transition period, with an affiliate of 5 Star Apparel LLC, a division of the OVED Group, to manufacture, market, and distribute Chaps menswear and womenswear. The products will be sold at existing channels of distribution with opportunities for expansion into additional channels and markets globally.
This agreement is expected to create incremental value for the Company by enabling an even greater focus on elevating our core brands in the marketplace, reducing our direct exposure to the North America department store channel, and setting up Chaps to deliver on its potential with an experienced partner that is focused on nurturing the brand.
Swiss Tax Reform
In May 2019, a public referendum was held in Switzerland that approved the Federal Act on Tax Reform and AHV Financing (the "Swiss Tax Act"), which became effective January 1, 2020. The Swiss Tax Act eliminates certain preferential tax items at both the federal and cantonal levels for multinational companies and provides the cantons with parameters for establishing local tax rates and regulations. The Swiss Tax Act also provides transitional provisions, one of which allows eligible companies to increase the tax basis of certain assets based on the value generated by their business in previous years, and to amortize such adjustment as a tax deduction over a transitional period.
In connection with this transitional provision, we recorded a one-time income tax benefit and corresponding deferred tax asset of $122.9 million during Fiscal 2020, which reduced our effective tax rate by 3,760 basis points. Subsequently, during Fiscal 2021, we reduced this one-time tax benefit by $13.8 million due to new legislation enacted in connection with the European Union's anti-tax avoidance directive, which increased our effective rate by 1,840 basis points.
See Note 10 to the accompanying consolidated financial statements for additional discussion regarding the Swiss Tax Act.
Fiscal 2019 Restructuring Plan
On June 4, 2018, our Board of Directors approved a restructuring plan associated with our strategic objective of operating with discipline to drive sustainable growth (the "Fiscal 2019 Restructuring Plan"). The Fiscal 2019 Restructuring Plan included the following activities: (i) rightsizing and consolidation of our global distribution network and corporate offices; (ii) targeted severance-related actions; and (iii) closure of certain of our stores and shop-within-shops. Actions associated with the Fiscal 2019 Restructuring Plan resulted in gross annualized expense savings of approximately $80 million.
In connection with the Fiscal 2019 Restructuring Plan, we have recorded cumulative charges of $145.8 million since its inception, of which $48.5 million and $97.3 million were recorded during Fiscal 2020 and Fiscal 2019, respectively. Actions associated with the Fiscal 2019 Restructuring Plan are complete and no additional charges are expected to be incurred in connection with this plan.
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See Note 9 to our accompanying consolidated financial statements for additional discussion regarding charges recorded in connection with the Fiscal 2019 Restructuring Plan.
U.S. Tax Reform
In January 2018, new U.S. tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA") became effective. The TCJA significantly revised U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from 35% to 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions.
During our fiscal year ended March 31, 2018 ("Fiscal 2018"), we recorded net charges of $221.4 million within our income tax provision in connection with the TCJA. Subsequently, during Fiscal 2019, we recorded net unfavorable measurement period adjustments of $27.6 million as permitted by SEC Staff Accounting Bulletin No. 118. These measurement period adjustments increased our effective tax rate by 470 basis points during Fiscal 2019.
See Note 10 to the accompanying consolidated financial statements for additional discussion regarding the TCJA.
Global Economic Conditions and Industry Trends
The global economy and retail industry are impacted by many different factors. The COVID-19 pandemic has resulted in heightened uncertainty surrounding the future state of the global economy, as well as significant volatility in global financial markets. As discussed in "Recent Developments," governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the world's stock markets. Whilespread of the virus. Such actions, together with changes in consumers' willingness to congregate in populated areas and lower levels of disposal income due to high unemployment rates, have resulted in significant business disruptions across a wide array of industries and an overall decline of the global economy. Despite the introduction of COVID-19 vaccines, it is not clear at this time how much longer the pandemic will last.
The global economy has also been impacted by the domestic and international political environment, including volatile international trade relations and civil and political unrest taking place in certain geographic regions are withstanding these pressures better than others,parts of the levelworld. The U.S. in particular has experienced civil unrest centered around racial inequality and political allegiances. Additionally, the United Kingdom recently withdrew from the European Union, commonly referred to as "Brexit," whereby it ceased to be a member effective January 31, 2020. In December 2020, the United Kingdom and the European Union entered into an agreement that defines their future relationship, including terms of trade, that among its provisions will result in new tariffs on goods imported to the United Kingdom from the European Union that were manufactured elsewhere, as well as require additional administrative effort to import and export goods, adding friction and cost to transportation. Further, certain other worldwide events, including diplomatic tensions between the U.S. and China, acts of terrorism, taxation or monetary policy changes, fluctuations in commodity prices, and rising healthcare costs, also increase volatility in the global economy.
The retail landscape in which we operate has been significantly disrupted by the COVID-19 pandemic, including widespread temporary closures of stores and distribution centers and declines in retail traffic, tourism, and consumer travel and spending on discretionary items remains constraineditems. Prior to the COVID-19 pandemic, consumers had been increasingly shifting their shopping preference from physical stores to online. This shift in certain markets, with trends likelypreference has accelerated during the pandemic and could be further amplified in the future as consumers may continue to continue in 2016. Additionally, consumers are increasingly spending more of their discretionary income on “experiences,”prefer to avoid populated locations, such as diningshopping centers, in fear of exposing themselves to infectious diseases. Even before the pandemic, many retailers, including certain of our large wholesale customers, have been highly promotional and entertainment, over consumer goods. Consequently, consumer retail traffic remains relatively weak and inconsistent, which has led to increased competition andhave aggressively marked down their merchandise on a desireperiodic basis in an attempt to offset traffic declines with increased levelsin physical store traffic. The retail industry, particularly in the U.S., has also experienced numerous bankruptcies, restructurings, and ownership changes in recent years. The COVID-19 pandemic could exacerbate these trends if companies do not have adequate financial resources and/or access to additional capital to withstand prolonged periods of conversion. Certainadverse economic conditions. The continuation of our operations have experienced, and have been impacted by, these dynamics, with variations across the geographic regions and businesses in which we operate.
We have implemented various strategies globally to help address many of these current challenges and continue to build a foundation for long-term profitable growth centered around strengthening our consumer-facing areas of product, stores, and marketing across channels and driving a more efficient operating model. In response to the COVID-19 pandemic, we have taken preemptive actions to preserve cash and strengthen our liquidity position, as described in "Recent Developments." Investing in our digital ecosystem remains a primary focus and is a key component of our integrated global omni-channel strategy, particularly in light of the current COVID-19 pandemic, which has and could continue to reshape consumer shopping preferences. We continue to expand our offering of Connected Retailing capabilities to enhance the consumer experience,
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which now include virtual clienteling, Buy Online-Ship to Store, Buy Online-Pick Up in Store, curbside pickup, appointment scheduling, and mobile checkout and contactless payments. Further, during Fiscal 2021, we launched new digital flagships in Japan and Hong Kong, as well as our first subscription apparel rental service, the Lauren Look. We also continue to take deliberate actions to ensure promotional consistency across channels and to enhance the overall brand and shopping experience, including better aligning shipments and inventory levels with underlying demand. We also remain committed to optimizing our wholesale distribution channel and operating margin in Fiscal 2017. Furthermore,enhancing our results have been,department store consumer experience. We are closely monitoring the latest Brexit developments, including the December 2020 trade agreement, and are expected to continue to be, negatively impacted by unfavorable foreign exchange rate fluctuations. We have initiated various operatingassessing risks and opportunities and developing strategies to mitigate these challenges, and remain optimistic about our future growth prospects. Accordingly, we continue to invest in our longer-term growth initiatives, including our restructuring activities, as described within "Recent Developments" below, while continually monitoring macroeconomic risks and remaining focused on disciplined expense management. Although we continue to expect that the dilutive effects of investments that we are making in our business will create operating margin pressure in the near-term, we expect that these initiatives will create longer-term shareholder value. exposure.
We will continue to monitor these risksconditions and trends and will evaluate and adjust our operating strategies and foreign currency and cost management opportunities to help mitigate the related impactimpacts on our results of operations, while remaining focused on the long-term growth of our business and protecting and elevating the value of our brand.
For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A — "Risk Factors" included in this Annual Report on Form 10-K.
Summary of Financial Performance
Operating Results
In Fiscal 2016,2021, we reported net revenues of $7.405$4.401 billion,, a net loss of $121.1 million, and net loss per diluted share of $1.65, as compared to net revenues of $6.160 billion, net income of $396$384.3 million,, and net income per diluted share of $4.62, as compared to net revenues of $7.620 billion, net income of $702 million, and net income per diluted share of $7.88$4.98 in Fiscal 2015.2020. The comparability of our operating results has been affected by charges incurred in connection with the Global Reorganization Plan (as defined within "Recent Developments"below), other charges primarilynet adverse impacts related to a pending customs auditCOVID-19 business disruptions, as well as restructuring-related charges, impairment of assets, and the settlement of certain litigation claims, unfavorable foreign currency effects, and the 53rd week in Fiscal 2016, allother benefits (charges), including one-time income tax events, as discussed further below.
Our gross profit as a percentage of net revenues from our wholesale and retail businesses,increased by 570 basis points to 65.0% during Fiscal 2021, primarily driven by unfavorable foreign currency effectsimproved pricing and a more competitive retail environment, partially offset by thelower levels of promotional activity, lower non-routine inventory charges, and favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $72 million. Our gross margin percentage declined by 100 basis points to 56.5% during Fiscal 2016, primarily driven by unfavorable foreign currency effectsgeographic and certain non-cash charges recorded in connection with the Global Reorganization Plan, partially offset by increased profitability largely attributable to favorable channel mix.
Selling, general, and administrative ("SG&A") expenses as a percentage of net revenues increased by 250740 basis points to 45.8%60.0% during Fiscal 2016,2021, primarily due todriven by operating deleverage on lower net revenues, due in part to unfavorable foreign currency effects, and increased investments in our stores, facilities, and infrastructure consistent with our longer-term initiatives.
partially offset by expense savings across various categories.
Net income declineddecreased by $306$505.4 million to a net loss of $121.1 million in Fiscal 20162021 as compared to Fiscal 2015,2020, primarily due to a $453$360.6 million decreasedecline in operating income partially offsetdriven by COVID-19 business disruptions, a $129$104.2 million declineincrease in our provision for income taxes. The lower income tax provision, for Fiscal 2016 was primarily driven by lower pretax income and a decline in our reported effective tax rate of 70 basis points.higher non-operating expense, net. Net income per diluted share declineddecreased by $3.26$6.63 to $4.62a net loss of $1.65 per share in Fiscal 20162021 as compared to Fiscal 2015, primarily2020, due to the lower level of net income, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2016. income.
Our operating results during Fiscal 20162021 and Fiscal 2020 included $142 millionnet restructuring-related charges, impairment of pretax charges recorded in connection with the Global Reorganization Plan, $48 million ofassets, and certain other charges primarily related to a pending customs audittotaling $254.4 million and the settlement of certain litigation claims, and $22$321.8 million, of other non-cash impairment charges related to underperforming stores subject to potential future closure,respectively, which together had an after-tax effect of reducing net income by $150$201.5 million, or approximately $1.74 per diluted share. Partially offsetting these charges was the favorable impact of the 53rd week in Fiscal 2016, which increased net income by $8 million, or approximately $0.10 per diluted share. Net income$2.71 per diluted share, also included unfavorable foreign currency impacts of approximately $1.10and $244.8 million, or $3.17 per diluted share, respectively. Net income (loss) during Fiscal 2021 and Fiscal 2020 also reflected $46.6 million of incremental net tax expense and an income tax benefit of $122.9 million, respectively, recorded in Fiscal 2016.connection with one-time income tax events.
Financial Condition and Liquidity
We ended Fiscal 20162021 in a net cash and investments position (cash and cash equivalents plus short-term and non-current investments, less total debt) of $559 million,$1.144 billion, compared to $620$945.3 million as of the end of Fiscal 2015.2020. The declineincrease in our net cash and investments position was primarily due to our operating cash flows of $380.9 million, partially offset by our use of cash to invest in our business through $107.8 million in capital expenditures, to make dividend payments of $49.8 million (which had been previously declared during the fourth quarter of Fiscal 2020), and to support Class A common stock repurchases of $500$37.7 million, includingrepresenting withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $418 million of capital expenditures, and to make cash dividend payments of $170 million, partially offset by our operating cash flows of $1.007 billion during Fiscal 2016.awards.
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We generated $1.007 billion$380.9 million of cash from operations during Fiscal 2016,2021, compared to $894$754.6 million during Fiscal 2015.2020. The increasedecline in ourcash provided by operating cash flowsactivities was primarily due to a decrease in net income before non-cash charges, partially offset by a net favorable change related to our operating assets and liabilities, including our working capital, partially offset by a decline in net income before non-cash charges during Fiscal 2016 as compared to the prior fiscal year.year period.
Our equity declineddecreased to $3.744$2.604 billion as of April 2, 2016,March 27, 2021, compared to $3.891$2.693 billion as of March 28, 2015,2020, primarily due to our Class A common stock repurchasescomprehensive loss and dividends declared,shares surrendered for tax withholdings, partially offset by our comprehensive income and the net impact of stock-based compensation arrangements during Fiscal 2016.
2021.
Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition
The comparability of our operating results for the three fiscal years presented herein has been affected by certain events, including:
•pretax charges incurred in connection with our restructuring activities, as well as certain other asset impairment and restructuringimpairments and other charges recorded during the periods presented. A summary of the effect of these items on pretax income for each fiscal year isbenefits (charges), including those related to COVID-19 business disruptions, as summarized below (references to "Notes" are to the notes to the accompanying audited consolidated financial statements):
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Restructuring and other charges (see Note 9) | $ | (170.5) | $ | (67.2) | $ | (130.1) | ||||||||||||||
Impairment of assets (see Note 8)(a) | (96.0) | (38.7) | (25.8) | |||||||||||||||||
Non-routine inventory charges(b) | (29.3) | (159.5) | (7.2) | |||||||||||||||||
COVID-19-related bad debt reversals (expense)(c) | 41.4 | (56.4) | — | |||||||||||||||||
| Total charges | $ | (254.4) | $ | (321.8) | $ | (163.1) | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Impairments of assets (see Note 10) | $ | (49 | ) | $ | (7 | ) | $ | (1 | ) | |||
| Restructuring and other charges (see Note 11) | (143 | ) | (10 | ) | (18 | ) | ||||||
(c)COVID-19-related bad debt reversals (expense) are recorded within SG&A expenses in the inclusionconsolidated statements of the 53rd week inoperations.
•other adverse impacts related to COVID-19 business disruptions during Fiscal 2016, which resulted in 2021 and Fiscal 2020;
•adverse impacts related to Hong Kong protest business disruptions during Fiscal 2020;
•incremental net revenuestax expense of $72$46.6 million and netrecorded within our income of $8 million, or approximately $0.10 per diluted share.
•a one-time benefit of $122.9 million recorded within our income tax provision in July 2013;the consolidated statements of operations during Fiscal 2020 in connection with the Swiss Tax Act, which reduced our effective tax rate by 3,760 basis points. During Fiscal 2021, we reduced this one-time tax benefit by $13.8 million due to new legislation enacted, which increased the Company's effective tax rate by 1,840 basis points. See Note 10 to the accompanying consolidated financial statements for further discussion; and
•TCJA enactment-related charges of $27.6 million recorded within the transitionincome tax provision in the consolidated statements of operations during Fiscal 2019, which increased our effective tax rate by 470 basis points. See Note 10 to the North American Chaps-branded men's sportswear business (the "Chaps Menswear Business") from a licensed to a wholly-owned operation (the "Chaps Menswear License Acquisition") in April 2013, which resulted in a $16 million gain recorded during the first quarter of Fiscal 2014.accompanying consolidated financial statements for further discussion.
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Because we are a global company, the comparability of our operating results reported in U.S. Dollars is also affected by foreign currency exchange rate fluctuations because the underlying currencies in which we transact change in value over time compared to the U.S. Dollar. These rateSuch fluctuations can have a significant effect on our reported results. As such, in addition to financial measures prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), our discussions often contain references to constant currency measures, which are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency. We present constant currency financial information, which is a non-U.S. GAAP financial measure, as a supplement to our reported operating results. We use constant currency information to provide a framework to assessfor assessing how our businesses performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors to facilitatefor facilitating comparisons of operating results and better identifyidentifying trends in our businesses. The constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with U.S. GAAP. Reconciliations between this non-U.S. GAAP financial measure and the most directly comparable U.S. GAAP measure are included in the "Results of Operations" section where applicable.
Our "Results of Operations" discussion that followsalso includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have affected operating trends.
| Fiscal Years Ended | |||||||||||||||
| April 2, 2016 | March 28, 2015 | $ Change | % / bps Change | ||||||||||||
| (millions, except per share data) | |||||||||||||||
| Net revenues | $ | 7,405 | $ | 7,620 | $ | (215 | ) | (2.8 | %) | ||||||
Cost of goods sold(a) | (3,218 | ) | (3,242 | ) | 24 | (0.7 | %) | ||||||||
| Gross profit | 4,187 | 4,378 | (191 | ) | (4.4 | %) | |||||||||
| Gross profit as % of net revenues | 56.5 | % | 57.5 | % | (100 bps) | ||||||||||
Selling, general, and administrative expenses(a) | (3,389 | ) | (3,301 | ) | (88 | ) | 2.7 | % | |||||||
| SG&A expenses as % of net revenues | 45.8 | % | 43.3 | % | 250 bps | ||||||||||
| Amortization of intangible assets | (24 | ) | (25 | ) | 1 | (6.2 | %) | ||||||||
| Impairment of assets | (49 | ) | (7 | ) | (42 | ) | NM | ||||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (133 | ) | NM | ||||||||
| Operating income | 582 | 1,035 | (453 | ) | (43.8 | %) | |||||||||
| Operating income as % of net revenues | 7.9 | % | 13.6 | % | (570 bps) | ||||||||||
| Foreign currency losses | (4 | ) | (26 | ) | 22 | (85.2 | %) | ||||||||
| Interest expense | (21 | ) | (17 | ) | (4 | ) | 25.7 | % | |||||||
| Interest and other income, net | 6 | 6 | — | (7.9 | %) | ||||||||||
| Equity in losses of equity-method investees | (11 | ) | (11 | ) | — | (5.3 | %) | ||||||||
| Income before provision for income taxes | 552 | 987 | (435 | ) | (44.1 | %) | |||||||||
| Provision for income taxes | (156 | ) | (285 | ) | 129 | (45.5 | %) | ||||||||
Effective tax rate(b) | 28.2 | % | 28.9 | % | (70 bps) | ||||||||||
| Net income | $ | 396 | $ | 702 | $ | (306 | ) | (43.6 | %) | ||||||
| Net income per common share: | |||||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | (3.31 | ) | (41.6 | %) | ||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | (3.26 | ) | (41.4 | %) | ||||||
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||
| Wholesale | $ | 3,297 | $ | 3,495 | $ | (198 | ) | $ | (105 | ) | $ | (93 | ) | (5.7 | %) | (2.7 | %) | |||||||||
| Retail | 3,933 | 3,956 | (23 | ) | (168 | ) | 145 | (0.6 | %) | 3.7 | % | |||||||||||||||
| Licensing | 175 | 169 | 6 | (2 | ) | 8 | 3.7 | % | 5.0 | % | ||||||||||||||||
| Total net revenues | $ | 7,405 | $ | 7,620 | $ | (215 | ) | $ | (275 | ) | $ | 60 | (2.8 | %) | 0.8 | % | ||||||||||
sales. Comparable store sales refer to the growthchange in sales of sales inour stores that arehave been open for at least one13 full fiscal year.months. Sales from our digital commerce sites are also included within comparable sales for those geographies that have been serviced by the related site for at least 13 full fiscal months. Sales for stores or digital commerce sites that are closed or shut down during a fiscalthe year are excluded from the calculation of comparable store sales. Sales for stores that are either relocated, enlarged (as defined by gross square footage expansion of 25% or greater), or generally closed for 30 or more consecutive days for renovation are also excluded from the calculation of comparable store sales until such stores have been operating in their new location or in their newly renovated state for at least one13 full fiscal year. Sales from our e-commerce sites are included withinmonths. All comparable store sales for those geographiesmetrics are calculated on a constant currency basis.
Our "Results of Operations" discussion that follows includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have been serviced by the related site for at least one full fiscal year. Consolidated comparable store sales information includes our Ralph Lauren stores (including concession-based shop-within-shops), factory stores, Club Monaco stores and e-commerce sites, and certain Ralph Lauren e-commerce sites. We use an integrated omni-channel strategy to operate our retail business, in which our e-commerce operations are interdependent with our physical stores.
affected operating trends.
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RESULTS OF OPERATIONS
Fiscal 2021 Compared to Fiscal 2020
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.
| Fiscal Years Ended | ||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | $ Change | % / bps Change | |||||||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||||||||
Net revenues | $ | 4,400.8 | $ | 6,159.8 | $ | (1,759.0) | (28.6 | %) | ||||||||||||||||||
| Cost of goods sold | (1,539.4) | (2,506.5) | 967.1 | (38.6 | %) | |||||||||||||||||||||
Gross profit | 2,861.4 | 3,653.3 | (791.9) | (21.7 | %) | |||||||||||||||||||||
| Gross profit as % of net revenues | 65.0 | % | 59.3 | % | 570 bps | |||||||||||||||||||||
| Selling, general, and administrative expenses | (2,638.5) | (3,237.5) | 599.0 | (18.5 | %) | |||||||||||||||||||||
| SG&A expenses as % of net revenues | 60.0 | % | 52.6 | % | 740 bps | |||||||||||||||||||||
| Impairment of assets | (96.0) | (31.6) | (64.4) | 203.5 | % | |||||||||||||||||||||
| Restructuring and other charges | (170.5) | (67.2) | (103.3) | 153.9 | % | |||||||||||||||||||||
Operating income (loss) | (43.6) | 317.0 | (360.6) | NM | ||||||||||||||||||||||
| Operating income (loss) as % of net revenues | (1.0 | %) | 5.1 | % | (610 bps) | |||||||||||||||||||||
| Interest expense | (48.5) | (17.6) | (30.9) | 175.9 | % | |||||||||||||||||||||
| Interest income | 9.7 | 34.4 | (24.7) | (71.8 | %) | |||||||||||||||||||||
| Other income (expense), net | 7.6 | (7.4) | 15.0 | NM | ||||||||||||||||||||||
Income (loss) before income taxes | (74.8) | 326.4 | (401.2) | NM | ||||||||||||||||||||||
| Income tax benefit (provision) | (46.3) | 57.9 | (104.2) | NM | ||||||||||||||||||||||
Effective tax rate(a) | (61.9 | %) | (17.7 | %) | (4,420 bps) | |||||||||||||||||||||
Net income (loss) | $ | (121.1) | $ | 384.3 | $ | (505.4) | NM | |||||||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||||||||
Basic | $ | (1.65) | $ | 5.07 | $ | (6.72) | NM | |||||||||||||||||||
Diluted | $ | (1.65) | $ | 4.98 | $ | (6.63) | NM | |||||||||||||||||||
NM Not meaningful.
The following table summarizes the percentage change in our Fiscal 2021 consolidated comparable store sales increased by $242 million, or 34%, primarily driven by new global store openings andas compared to the expansionprior fiscal year, inclusive of our e-commerce operations within the past twelve months, which more than offset the impact of store closings.adverse impacts related to COVID-19 business disruptions:
| % Change | ||||||||
| Digital commerce comparable store sales | 20 | % | ||||||
| Comparable store sales excluding digital commerce | (36 | %) | ||||||
| Total comparable store sales | (29 | %) | ||||||
| 51 | ||||||||
Our global average store count increased by 9120 stores and concession shops during Fiscal 20162021 compared with the prior fiscal year, due tolargely driven by new global store openings primarily in Asia, partially offset by store closures.Asia. The following table details our retail store presence by segment as of the periods presented:
| April 2, 2016 | March 28, 2015 | |||||
| Stores: | ||||||
| Freestanding stores | 493 | 466 | ||||
| Concession shops | 583 | 536 | ||||
| Total stores | 1,076 | 1,002 | ||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| Freestanding Stores: | ||||||||||||||
| North America | 233 | 230 | ||||||||||||
| Europe | 92 | 94 | ||||||||||||
| Asia | 151 | 132 | ||||||||||||
| Other non-reportable segments | 72 | 74 | ||||||||||||
| Total freestanding stores | 548 | 530 | ||||||||||||
| Concession Shops: | ||||||||||||||
| North America | 1 | 2 | ||||||||||||
| Europe | 29 | 29 | ||||||||||||
| Asia | 616 | 619 | ||||||||||||
| Other non-reportable segments | 4 | 4 | ||||||||||||
| Total concession shops | 650 | 654 | ||||||||||||
| Total stores | 1,198 | 1,184 | ||||||||||||
In addition to our stores, we sell products online in North America, Europe, and Asia through our Retail segment sellsvarious digital commerce sites, as well as through our Polo mobile app in North America and the United Kingdom. We also sell products online through various third-party digital partner commerce sites, primarily in Asia.
Net revenues for our e-commerce channel, which includes:
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 1,992.4 | $ | 3,140.5 | $ | (1,148.1) | $ | — | $ | (1,148.1) | (36.6 | %) | (36.6 | %) | ||||||||||||||||||||||||||||||
| Europe | 1,165.9 | 1,632.2 | (466.3) | 52.1 | (518.4) | (28.6 | %) | (31.8 | %) | |||||||||||||||||||||||||||||||||||
| Asia | 1,027.5 | 1,017.2 | 10.3 | 28.5 | (18.2) | 1.0 | % | (1.8 | %) | |||||||||||||||||||||||||||||||||||
| Other non-reportable segments | 215.0 | 369.9 | (154.9) | 0.1 | (155.0) | (41.9 | %) | (41.9 | %) | |||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 4,400.8 | $ | 6,159.8 | $ | (1,759.0) | $ | 80.7 | $ | (1,839.7) | (28.6 | %) | (29.9 | %) | ||||||||||||||||||||||||||||||
The $1.148 billion net unfavorable foreign currency effects of $2decline in North America net revenues was driven by:
•a $634.9 million primarilynet decrease related to the weakeningour North America wholesale business, driven by COVID-19 business disruptions and continued challenging department store traffic trends; and
•a $513.2 million net decrease related to our North America retail business, inclusive of the Euro and the Japanese Yen against the U.S. Dollar.adverse impact of COVID-19 business disruptions. On a constant currency basis, net revenues decreased by $513.1 million driven by decreases of $498.4 million in comparable store sales and $14.7 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our North America retail business, inclusive of adverse impacts related to COVID-19 business disruptions:
| 52 | ||||||||
| % Change | ||||||||
| Digital commerce comparable store sales | 11 | % | ||||||
| Comparable store sales excluding digital commerce | (40 | %) | ||||||
| Total comparable store sales | (30 | %) | ||||||
Europe net revenues — Net revenues decreased by $466.3 million, or 28.6%, during Fiscal 2021 as compared to Fiscal 2020, including net favorable foreign currency effects of $52.1 million. On a constant currency basis, net revenues decreased by $518.4 million, or 31.8%.
The $466.3 million net decline in Europe net revenues was driven by:
•a $357.5 million net decrease related to our Europe retail business, inclusive of the adverse impact of COVID-19 business disruptions, as well as net favorable foreign currency effects of $15.1 million. On a constant currency basis, net revenues decreased by $372.6 million driven by decreases of $336.2 million in comparable store sales and $36.4 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Europe retail business, inclusive of adverse impacts related to COVID-19 business disruptions:
| % Change | ||||||||
| Digital commerce comparable store sales | 56 | % | ||||||
| Comparable store sales excluding digital commerce | (55 | %) | ||||||
| Total comparable store sales | (43 | %) | ||||||
•a $108.8 million net decrease related to our Europe wholesale business driven by COVID-19 business disruptions partially offset by net favorable foreign currency effects of $37.0 million.
Asia net revenues — Net revenues increased by $8$10.3 million, or 5.0%1.0%, during Fiscal 2021 as compared to Fiscal 2020, including net favorable foreign currency effects of $28.5 million. On a constant currency basis, net revenues decreased by $18.2 million, or 1.8%.
The $10.3 million net increase in Asia net revenues was driven by:
•a $20.4 million net increase related to our Asia retail business, inclusive of the adverse impact of COVID-19 business disruptions, as well as net favorable foreign currency effects of $26.9 million. On a constant currency basis, net revenues decreased by $6.5 million, reflecting a decrease of $43.1 million in comparable store sales, partially offset by an increase of $36.6 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Asia retail business, inclusive of adverse impacts related to COVID-19 business disruptions:
| % Change | ||||||||
| Digital commerce comparable store sales | 54 | % | ||||||
| Comparable store sales excluding digital commerce | (7 | %) | ||||||
| Total comparable store sales | (6 | %) | ||||||
This increase was partially offset by a $10.1 million net decrease related to our Asia wholesale business driven by COVID-19 business disruptions, primarily in Japan.
Gross Profit. Gross profit decreased by $191$791.9 million,, or 4.4%21.7%, to $4.187$2.861 billion in Fiscal 2016 from $4.378 billion2021, including net favorable foreign currency effects of $60.2 million. Gross profit during Fiscal 2021 and Fiscal 2020 reflects adverse impacts related to COVID-19 business disruptions, including incremental inventory charges of $21.0 million and $157.3 million, respectively. Gross profit during Fiscal 2021 and Fiscal 2020 also reflects inventory charges of $8.3 million and $2.2 million, respectively, recorded in Fiscal 2015.connection with our restructuring plans. Gross profit as a percentage of net revenues declined by 100increased to 65.0% in Fiscal 2021 from 59.3% in Fiscal 2020. The 570 basis points to 56.5% in Fiscal 2016 from 57.5% in Fiscal 2015. This declinepoint improvement was primarily driven by unfavorable foreign currency effectsimproved pricing and certain non-cashlower levels of promotional activity, lower non-routine inventory charges recorded in connection withduring Fiscal 2021 as compared to the Global Reorganization Plan, partially offset by increased profitability largely attributable toprior fiscal year, and favorable geographic and channel mix.
| 53 | ||||||||
Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, pricing, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net revenues to fluctuate from year to year.
Selling, General, and Administrative Expenses. SG&A expenses primarily include compensation and benefits, advertising and marketing, rent and occupancy, distribution, information technology, legal, depreciation and amortization, bad debt, information technology, facilities, legal, and other costs associated with financeselling and administration.administrative costs. SG&A expenses increaseddecreased by $88$599.0 million,, or 2.7%18.5%, to $3.389$2.639 billion in Fiscal 2016 from $3.301 billion in Fiscal 2015. This increase included a2021, including net favorableunfavorable foreign currency effect of $110 million, primarily$40.7 million. The decrease in SG&A expenses reflects impacts related to the weakeningCOVID-19 business disruptions and our related mitigating actions, including (i) lower compensation-related expenses largely driven by employee furloughs and terminations, reduced pay for our executives, senior management team, and Board of the Euro, the Japanese Yen,Directors, and the Korean Won against the U.S. Dollar.COVID-19-related government subsidies, (ii) lower rent and occupancy costs largely driven by reduced percentage-of-sales-based rent due to store closures and a reduction in traffic, as well as rent abatements negotiated with certain of our landlords, (iii) favorable COVID-19-related bad debt expense adjustments, and (iv) our operational discipline. SG&A expenses as a percentage of net revenues increased to 45.8%60.0% in Fiscal 20162021 from 43.3%52.6% in Fiscal 2015.2020. The 250740 basis point increase was primarily due to operating deleverage on lower net revenues, duepartially offset by expense savings across various categories.
The $599.0 million decrease in partSG&A expenses was driven by:
| Fiscal 2021 Compared to Fiscal 2020 | ||||||||
| (millions) | ||||||||
| SG&A expense category: | ||||||||
| Compensation-related expenses | $ | (263.9) | ||||||
| Bad debt expense | (86.3) | |||||||
| Rent and occupancy costs | (80.4) | |||||||
| Staff-related expenses | (59.4) | |||||||
| Selling-related expenses | (46.8) | |||||||
| Depreciation and amortization expense | (22.1) | |||||||
| Consulting fees | (16.8) | |||||||
| Marketing and advertising expenses | (13.0) | |||||||
| Shipping and handling costs | (7.6) | |||||||
| Other | (2.7) | |||||||
| Total decrease in SG&A expenses | $ | (599.0) | ||||||
We have been carefully evaluating our organizational and operating cost structures to unfavorablebetter support long-term growth, with a focus on our (i) team organizational structures and ways of working; (ii) real estate footprint and related costs across our corporate offices, distribution centers, and direct-to-consumer retail and wholesale doors; and (iii) brand portfolio. Additionally, we plan to continue to closely manage our discretionary spending.
Impairment of Assets. During Fiscal 2021 and Fiscal 2020, we recorded non-cash impairment charges of $96.0 million and $31.6 million, respectively, to write-down certain long-lived assets. See Note 8 to the accompanying consolidated financial statements.
Restructuring and Other Charges. During Fiscal 2021 and Fiscal 2020, we recorded restructuring charges of $159.1 million and $37.6 million, respectively, primarily consisting of severance and benefits costs, as well as other charges of $11.4 million and $8.8 million, respectively, primarily related to rent and occupancy costs associated with certain previously exited real estate locations for which the related lease agreements have not yet expired. Additionally, during Fiscal 2020, we recorded other charges of $20.8 million related to the charitable donation of the net cash proceeds received from the sale of our corporate jet. See Note 9 to the accompanying consolidated financial statements.
Operating Income (Loss). During Fiscal 2021, we reported an operating loss of $43.6 million, as compared to operating income of $317.0 million during Fiscal 2020. The $360.6 million decline in operating income reflects net adverse impacts related to COVID-19 business disruptions, as well as net favorable foreign currency effects as previously discussed, and an increase inof $19.5 million. Our operating expenses in support of the continued investment in, and expansion of, our retail businesses (which typically carry higher operating expense margins) through new store and concession shop openings (as previously discussed); increased investments in our facilities and infrastructure; increased advertising and marketing costs; and investments in new business initiatives. These increases were partially offset by our operational discipline and savings associated with our restructuring activities.
Fiscal 2016 Compared to Fiscal 2015 | ||||
| (millions) | ||||
| SG&A expense category: | ||||
| Consulting fees | $ | 26 | ||
| Depreciation expense | 18 | |||
| Rent and occupancy expenses | 16 | |||
| Compensation-related expenses | 7 | |||
| Marketing and advertising expenses | 5 | |||
| Other | 16 | |||
| Total change in SG&A expenses | $ | 88 | ||
Operating income (loss) and margin for our segments, as well as a discussion of the increasechanges in restructuring and other charges and impairment of assets, all as previously discussed.
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||||||||||||||
| Operating Income (Loss) | Operating Margin | Operating Income (Loss) | Operating Margin | $ Change | Margin Change | |||||||||||||||||||||||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||||||||||||||
| North America | $ | 334.0 | 16.8% | $ | 456.0 | 14.5% | $ | (122.0) | 230 bps | |||||||||||||||||||||||||||||
| Europe | 189.3 | 16.2% | 336.3 | 20.6% | (147.0) | (440 bps) | ||||||||||||||||||||||||||||||||
| Asia | 148.2 | 14.4% | 124.8 | 12.3% | 23.4 | 210 bps | ||||||||||||||||||||||||||||||||
| Other non-reportable segments | 32.4 | 15.1% | 85.2 | 23.0% | (52.8) | (790 bps) | ||||||||||||||||||||||||||||||||
| 703.9 | 1,002.3 | (298.4) | ||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (577.0) | (618.1) | 41.1 | |||||||||||||||||||||||||||||||||||
| Unallocated restructuring and other charges | (170.5) | (67.2) | (103.3) | |||||||||||||||||||||||||||||||||||
| Total operating income (loss) | $ | (43.6) | (1.0%) | $ | 317.0 | 5.1% | $ | (360.6) | (610 bps) | |||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||
| April 2, 2016 | March 28, 2015 | |||||||||||||||||
Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||
| Segment: | ||||||||||||||||||
| Wholesale | $ | 822 | 24.9% | $ | 943 | 27.0% | $ | (121 | ) | (210 bps) | ||||||||
| Retail | 359 | 9.1% | 527 | 13.3% | (168 | ) | (420 bps) | |||||||||||
| Licensing | 155 | 88.7% | 152 | 90.4% | 3 | (170 bps) | ||||||||||||
| 1,336 | 1,622 | (286 | ) | |||||||||||||||
| Unallocated corporate expenses | (611 | ) | (577 | ) | (34 | ) | ||||||||||||
| Unallocated restructuring and other charges | (143 | ) | (10 | ) | (133 | ) | ||||||||||||
| Total operating income | $ | 582 | 7.9% | $ | 1,035 | 13.6% | $ | (453 | ) | (570 bps) | ||||||||
Asia operating margin improved by 170210 basis points, primarily due to approximately 190 basis points attributable to net lower non-routine inventory charges, COVID-19-related bad debt expense, and impairment of assets recorded during Fiscal 2021 as compared to the prior fiscal year, as well as favorable foreign currency effects of approximately 60 basis points. The increase in operating margin also reflected the favorable impact of approximately 20 basis points related to our retail business. These increases in operating margin were partially offset by the unfavorable impact of approximately 30 basis points related to our wholesale business largely driven by an increase in SG&A expenses as a percentage of net revenues. The remaining change in operating margin was attributable to other factors, including unfavorable channel mix.
Unallocated corporate expenses decreased by $41.1 million to $577.0 million in Fiscal 2021. The decline in unallocated corporate expenses was due to lower compensation-related expenses of $87.3 million and lower rent and occupancy costs of $24.3 million, partially offset by lower intercompany sourcing commission income of $33.9 million (which is offset at the segment level and eliminates in consolidation), higher impairment of asset charges of $33.2 million, and higher other expenses of $3.4 million.
| 55 | ||||||||
Unallocated restructuring and other charges increased by $34$103.3 million primarily due to higher compensation-related costs of $33$170.5 million due in part to the introduction of new vesting provisions for certain stock-based compensation awards granted to retirement-eligible employees beginning in Fiscal 2016 (see2021, as previously discussed above and in Note 199 to the accompanying audited consolidated financial statements)statements.
Non-operating Income (Expense), Net. Non-operating income (expense), net is comprised of interest expense, interest income, and higher consulting feesother income (expense), net, which includes foreign currency gains (losses), equity in income (losses) from our equity-method investees, and other non-operating expenses. During Fiscal 2021, we reported non-operating expense, net, of $27 million. $31.2 million, as compared to non-operating income, net, of $9.4 million in Fiscal 2020. The $40.6 million decline in non-operating income was driven by:
•a $30.9 million increase in interest expense, primarily driven by the net increase in our borrowings during Fiscal 2021 (see "Financial Condition and Liquidity — Cash Flows"); and
•a $24.7 million decline in interest income, primarily driven by the decrease in our investment portfolio and lower interest rates in financial markets.
These increasesunfavorable variances were partially offset by a decline$15.0 million favorable change in other operating expensesincome (expense), net, primarily driven by the absence of $26a $7.1 million due in part to operational discipline.
We reported an income tax provision and effective tax rate of $46.3 million and (61.9%), respectively, in Fiscal 2021, as compared to an income tax benefit and effective tax rate of $57.9 million and (17.7%), respectively, in Fiscal 2020. The $104.2 million increase in our income tax provision was driven by the absence of a one-time benefit of $122.9 million recorded in connection with Swiss tax reform during the prior fiscal year, which reduced our prior fiscal year effective tax rate by 3,760 basis points. Our income tax provision in Fiscal 2021 also reflected incremental tax expense of $33.7 million primarily related to a valuation allowance provided against domestic losses attributable to significant COVID-19 business disruptions and $13.8 million related to international tax legislation enacted in connection with the European Union's anti-tax avoidance directive, partially offset by an income tax benefit of $0.9 million primarily due to a net operating loss carryback under the CARES Act. Collectively, this $46.6 million of net incremental tax expense unfavorably impacted our current fiscal period effective tax rate by 6,230 basis points. The remaining 1,950 basis point decline was attributable to tax impacts on stock-based compensation, as well as the absence of favorable settlements of certain international income tax audits that impacted the prior fiscal year. See Note 10 to the accompanying consolidated financial statements.
Net Income. Net income declined by $306 million, or 43.6%, to $396 million in Fiscal 2016 from $702Income (Loss). We reported a net loss of $121.1 million in Fiscal 2015.2021, as compared to net income of $384.3 million in Fiscal 2020. The $505.4 million decline in net income was primarily due to the $453 million decline in our operating income, partially offset by the $129 million reductionincrease in our income tax provision, for income taxes,and higher non-operating expense, net, all as previously discussed. Our operating results during Fiscal 2016 were negatively impacted by $142 million2021 and Fiscal 2020 included net restructuring-related charges, impairment of pretax charges recorded in connection with the Global Reorganization Plan, $48 million ofassets, and certain other charges primarily related to a pending customs audittotaling $254.4 million and the settlement of certain litigation claims, and $22$321.8 million, of other non-cash impairment charges related to underperforming stores subject to potential future closure,respectively, which together had an after-tax effect of reducing net income by $150 million. Partially offsetting these charges was the favorable impact$201.5 million and $244.8 million, respectively. Net income (loss) during Fiscal 2021 and Fiscal 2020 also reflected $46.6 million of the 53rd weekincremental net tax expense and an income tax benefit of $122.9 million, respectively, recorded in connection with one-time income tax events, as previously discussed.
Net Income (Loss) per Diluted Share. We reported a net loss per diluted share of $1.65 in Fiscal 2016, which increased2021, as compared to net income by $8 million. Net income also included unfavorable foreign currency impacts of $94 million during Fiscal 2016.
2021 and Fiscal 2020 were also negatively impacted by $0.64 per share due to incremental net tax expense and favorably impacted by $1.59 per share due to an income tax benefit, respectively, recorded in connection with one-time tax events, as previously discussed.
Fiscal 20152020 Compared to Fiscal 20142019
The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.
| Fiscal Years Ended | |||||||||||||||
| March 28, 2015 | March 29, 2014 | $ Change | % / bps Change | ||||||||||||
| (millions, except per share data) | |||||||||||||||
| Net revenues | $ | 7,620 | $ | 7,450 | $ | 170 | 2.3 | % | |||||||
Cost of goods sold(a) | (3,242 | ) | (3,140 | ) | (102 | ) | 3.3 | % | |||||||
| Gross profit | 4,378 | 4,310 | 68 | 1.6 | % | ||||||||||
| Gross profit as % of net revenues | 57.5 | % | 57.9 | % | (40 bps) | ||||||||||
Selling, general, and administrative expenses(a) | (3,301 | ) | (3,142 | ) | (159 | ) | 5.0 | % | |||||||
| SG&A expenses as % of net revenues | 43.3 | % | 42.2 | % | 110 bps | ||||||||||
| Amortization of intangible assets | (25 | ) | (35 | ) | 10 | (27.9 | %) | ||||||||
| Gain on acquisition of Chaps | — | 16 | (16 | ) | NM | ||||||||||
| Impairment of assets | (7 | ) | (1 | ) | (6 | ) | NM | ||||||||
| Restructuring and other charges | (10 | ) | (18 | ) | 8 | (43.5 | %) | ||||||||
| Operating income | 1,035 | 1,130 | (95 | ) | (8.4 | %) | |||||||||
| Operating income as % of net revenues | 13.6 | % | 15.2 | % | (160 bps) | ||||||||||
| Foreign currency losses | (26 | ) | (8 | ) | (18 | ) | NM | ||||||||
| Interest expense | (17 | ) | (20 | ) | 3 | (17.3 | %) | ||||||||
| Interest and other income, net | 6 | 3 | 3 | 73.3 | % | ||||||||||
| Equity in losses of equity-method investees | (11 | ) | (9 | ) | (2 | ) | 22.8 | % | |||||||
| Income before provision for income taxes | 987 | 1,096 | (109 | ) | (9.9 | %) | |||||||||
| Provision for income taxes | (285 | ) | (320 | ) | 35 | (11.0 | %) | ||||||||
Effective tax rate(b) | 28.9 | % | 29.2 | % | (30 bps) | ||||||||||
| Net income | $ | 702 | $ | 776 | $ | (74 | ) | (9.5 | %) | ||||||
| Net income per common share: | |||||||||||||||
| Basic | $ | 7.96 | $ | 8.55 | $ | (0.59 | ) | (6.9 | %) | ||||||
| Diluted | $ | 7.88 | $ | 8.43 | $ | (0.55 | ) | (6.5 | %) | ||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| March 28, 2020 | March 30, 2019 | $ Change | % / bps Change | |||||||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||||||||
Net revenues | $ | 6,159.8 | $ | 6,313.0 | $ | (153.2) | (2.4 | %) | ||||||||||||||||||
| Cost of goods sold | (2,506.5) | (2,427.0) | (79.5) | 3.3 | % | |||||||||||||||||||||
Gross profit | 3,653.3 | 3,886.0 | (232.7) | (6.0 | %) | |||||||||||||||||||||
| Gross profit as % of net revenues | 59.3 | % | 61.6 | % | (230 bps) | |||||||||||||||||||||
| Selling, general, and administrative expenses | (3,237.5) | (3,168.3) | (69.2) | 2.2 | % | |||||||||||||||||||||
| SG&A expenses as % of net revenues | 52.6 | % | 50.2 | % | 240 bps | |||||||||||||||||||||
| Impairment of assets | (31.6) | (25.8) | (5.8) | 22.8 | % | |||||||||||||||||||||
| Restructuring and other charges | (67.2) | (130.1) | 62.9 | (48.4 | %) | |||||||||||||||||||||
Operating income | 317.0 | 561.8 | (244.8) | (43.6 | %) | |||||||||||||||||||||
| Operating income as % of net revenues | 5.1 | % | 8.9 | % | (380 bps) | |||||||||||||||||||||
| Interest expense | (17.6) | (20.7) | 3.1 | (14.8 | %) | |||||||||||||||||||||
| Interest income | 34.4 | 40.8 | (6.4) | (15.8 | %) | |||||||||||||||||||||
| Other income (expense), net | (7.4) | 0.6 | (8.0) | NM | ||||||||||||||||||||||
Income before income taxes | 326.4 | 582.5 | (256.1) | (44.0 | %) | |||||||||||||||||||||
| Income tax benefit (provision) | 57.9 | (151.6) | 209.5 | NM | ||||||||||||||||||||||
Effective tax rate(a) | (17.7 | %) | 26.0 | % | (4,370 bps) | |||||||||||||||||||||
Net income | $ | 384.3 | $ | 430.9 | $ | (46.6) | (10.8 | %) | ||||||||||||||||||
| Net income per common share: | ||||||||||||||||||||||||||
Basic | $ | 5.07 | $ | 5.35 | $ | (0.28) | (5.2 | %) | ||||||||||||||||||
Diluted | $ | 4.98 | $ | 5.27 | $ | (0.29) | (5.5 | %) | ||||||||||||||||||
(a)Effective tax rate is calculated by dividing the income tax benefit (provision) by income before income taxes.
NM Not meaningful.
Net Revenues. Net revenues increaseddecreased by $170$153.2 million, or 2.3%2.4%, to $7.620$6.160 billion in Fiscal 2015 from $7.450 billion in2020 as compared to Fiscal 2014.2019, including net unfavorable foreign currency effects of $77.1 million. On a constant currency basis, net revenues increaseddecreased by $301$76.1 million, or 4.0%.1.2%, reflecting adverse impacts related to COVID-19 and Hong Kong protest business disruptions.
The following table summarizes the percentage change in our Fiscal 2020 consolidated comparable store sales as compared to the prior fiscal year, inclusive of adverse impacts related to COVID-19 and Hong Kong protest business disruptions:
| % Change | ||||||||
| Digital commerce comparable store sales | 3 | % | ||||||
| Comparable store sales excluding digital commerce | (3 | %) | ||||||
| Total comparable store sales | (2 | %) | ||||||
Our global average store count increased by 43 stores and concession shops during Fiscal 2020 compared with the prior fiscal year, largely driven by new openings in Asia and Europe. The following table details our retail store presence by segment as of the periods presented:
| March 28, 2020 | March 30, 2019 | |||||||||||||
| Freestanding Stores: | ||||||||||||||
| North America | 230 | 224 | ||||||||||||
| Europe | 94 | 87 | ||||||||||||
| Asia | 132 | 115 | ||||||||||||
| Other non-reportable segments | 74 | 75 | ||||||||||||
| Total freestanding stores | 530 | 501 | ||||||||||||
| Concession Shops: | ||||||||||||||
| North America | 2 | 2 | ||||||||||||
| Europe | 29 | 29 | ||||||||||||
| Asia | 619 | 622 | ||||||||||||
| Other non-reportable segments | 4 | 5 | ||||||||||||
| Total concession shops | 654 | 658 | ||||||||||||
| Total stores | 1,184 | 1,159 | ||||||||||||
In addition to our stores, we sold products online in North America and Europe through our various digital commerce sites, which include www.RalphLauren.com and www.ClubMonaco.com, among others, as well as through our Polo mobile app in North America and the United Kingdom. In Asia, we sold products online through our digital commerce site, www.RalphLauren.cn, which launched in September 2018, as well as through various third-party digital partner commerce sites.
Net revenues for our three business segments, as well as a discussion of the changes in each reportable segment's net revenues from the prior fiscal year, are provided below:
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||||||||||||||||||||
| March 28, 2020 | March 30, 2019 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||||||||||||||||||||
| North America | $ | 3,140.5 | $ | 3,202.9 | $ | (62.4) | $ | (1.4) | $ | (61.0) | (2.0 | %) | (1.9 | %) | ||||||||||||||||||||||||||||||
| Europe | 1,632.2 | 1,683.0 | (50.8) | (63.6) | 12.8 | (3.0 | %) | 0.8 | % | |||||||||||||||||||||||||||||||||||
| Asia | 1,017.2 | 1,041.0 | (23.8) | (11.6) | (12.2) | (2.3 | %) | (1.2 | %) | |||||||||||||||||||||||||||||||||||
| Other non-reportable segments | 369.9 | 386.1 | (16.2) | (0.5) | (15.7) | (4.2 | %) | (4.1 | %) | |||||||||||||||||||||||||||||||||||
| Total net revenues | $ | 6,159.8 | $ | 6,313.0 | $ | (153.2) | $ | (77.1) | $ | (76.1) | (2.4 | %) | (1.2 | %) | ||||||||||||||||||||||||||||||
| Fiscal Years Ended | $ Change | Foreign Exchange Impact | $ Change | % Change | ||||||||||||||||||||||
| March 28, 2015 | March 29, 2014 | As Reported | Constant Currency | As Reported | Constant Currency | |||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Revenues: | ||||||||||||||||||||||||||
| Wholesale | $ | 3,495 | $ | 3,486 | $ | 9 | $ | (63 | ) | $ | 72 | 0.3 | % | 2.1 | % | |||||||||||
| Retail | 3,956 | 3,798 | 158 | (65 | ) | 223 | 4.2 | % | 5.9 | % | ||||||||||||||||
| Licensing | 169 | 166 | 3 | (3 | ) | 6 | 1.8 | % | 3.3 | % | ||||||||||||||||
| Total net revenues | $ | 7,620 | $ | 7,450 | $ | 170 | $ | (131 | ) | $ | 301 | 2.3 | % | 4.0 | % | |||||||||||
The $62.4 million net decline in North America net revenues was driven by:
•a $101.2 million net decrease related to our North America wholesale business, largely driven by weaker demand and challenging department store traffic trends, as well as COVID-19 business disruptions.
This decrease was partially offset by:
•an increase of the Euro, the Canadian Dollar,$38.8 million related to our North America retail business, inclusive of net unfavorable foreign currency effects of $0.7 million and the Japanese Yen against the U.S. Dollar.adverse impact of COVID-19 business disruptions. On a constant currency basis, net revenues increased by $72$39.5 million or 2.1%.driven by an increase of $47.1 million in non-comparable
| 58 | ||||||||
store sales, partially offset by a decrease of $7.6 million in comparable store sales. The $9 million net increasefollowing table summarizes the percentage change in Wholesale net revenues was driven by:
| % Change | ||||||||
| Digital commerce comparable store sales | 1 | % | ||||||
| Comparable store sales excluding digital commerce | (1 | %) | ||||||
| Total comparable store sales | — | % | ||||||
Europe net unfavorable foreign currency effects of $9 million due to the weakening of the Canadian Dollar against the U.S. Dollar.
The $158$50.8 million net increasedecline in RetailEurope net revenues was driven by:
•a $178$44.3 million or a 23%, net increase in non-comparable store sales, includingdecrease related to our Europe wholesale business driven by net unfavorable foreign currency effects of $17 million. On a constant currency basis, non-comparable store sales increased by $195$32.3 million or 25%, primarily driven by new global store openings in Asia and Europe within the past twelve months, the expansion of our e-commerce operations, and new stores and concession shops assumed in connection with the Australia and New Zealand Licensed Operations Acquisition, which more than offset the impact of store closings.
•a $20$6.5 million or 1%, net decline in consolidated comparable store sales, includingdecrease related to our Europe retail business, inclusive of net unfavorable foreign currency effects of $48 million. Our total comparable store sales increased approximately $28$31.3 million or 1%, on a constant currency basis, primarily driven by an increase from our Ralph Lauren e-commerce operations, partially offset by lower sales from certain retail stores and concession shops. Comparable store sales related to our e-commerce operations increased by approximately 16% on a reported basis and 17% on a constant currency basis over the related prior fiscal year period, and had a favorable impact on our total comparable store sales of approximately 3% to 4% on a reported basis and 2% to 3% on a constant currency basis. Our consolidated comparable store sales excluding e-commerce declined between 3% and 4% on a reported basis and declined between 2% and 3% on a constant currency basis.
| March 28, 2015 | March 29, 2014 | |||||
| Stores: | ||||||
| Freestanding stores | 466 | 433 | ||||
| Concession shops | 536 | 503 | ||||
| Total stores | 1,002 | 936 | ||||
| E-commerce Sites: | ||||||
North American sites(a) | 3 | 3 | ||||
European sites(b) | 3 | 3 | ||||
Asian sites(c) | 4 | 2 | ||||
| Total e-commerce sites | 10 | 8 | ||||
| % Change | ||||||||
| Digital commerce comparable store sales | 11 | % | ||||||
| Comparable store sales excluding digital commerce | (2 | %) | ||||||
| Total comparable store sales | (1 | %) | ||||||
Asia net revenues — Net revenues decreased by $23.8 million, or 3.3%.2.3%, during Fiscal 2020 as compared to Fiscal 2019, including net unfavorable foreign currency effects of $11.6 million. On a constant currency basis, net revenues decreased by $12.2 million, or 1.2%, reflecting adverse impacts related to COVID-19 and Hong Kong protest business disruptions.
The $3$23.8 million increasenet decline in Asia net revenues was primarily attributabledriven by:
•a $21.9 million net decrease related to increased apparelour Asia retail business, inclusive of net unfavorable foreign currency effects of $10.7 million and accessories-relatedthe adverse impacts of COVID-19 and Hong Kong protest business disruptions. On a constant currency basis, net revenues and home licensing revenues,decreased by $11.2 million, reflecting a decrease of $36.4 million in comparable store sales, partially offset by an increase of $25.2 million in non-comparable store sales. The following table summarizes the percentage change in comparable store sales related to our Asia retail business, inclusive of adverse impacts related to COVID-19 and Hong Kong protest business disruptions:
| % Change | ||||||||
| Digital commerce comparable store sales | 22 | % | ||||||
| Comparable store sales excluding digital commerce | (5 | %) | ||||||
| Total comparable store sales | (4 | %) | ||||||
•a $1.9 million net decrease related to our Asia wholesale business, inclusive of net unfavorable foreign currency effects of $0.9 million and the adverse impact of the transition of the previously licensed Australia and New Zealand Business to a wholly-owned operation.COVID-19 business disruptions.
Gross Profit. Gross profit increaseddecreased by $68$232.7 million, or 1.6%6.0%, to $4.378$3.653 billion in Fiscal 2015 from $4.310 billion2020, including net unfavorable foreign currency effects of $53.7 million. The decline in gross profit reflects adverse impacts related to COVID-19 and Hong Kong protest business disruptions, including incremental inventory charges of $157.3 million. Gross profit during Fiscal 2014.2020 and Fiscal 2019 also reflected inventory charges of $2.2 million and $7.2 million, respectively, recorded in connection with our restructuring plans. Gross profit as a percentage of net revenues decreased by 40 basis points to 57.5%59.3% in Fiscal 20152020 from 57.9%
| 59 | ||||||||
61.6% in Fiscal 2014. This2019. The 230 basis point decline was primarily attributable to a more promotional retail environmentdriven by higher inventory charges and less favorable product mix,deleverage on lower net revenues, partially offset by a more favorable geographic, channel, mix.and product mix, improved pricing, and lower levels of promotional activity.
Selling, General, and Administrative Expenses. SG&A expenses increased by $159$69.2 million, or 5.0%2.2%, to $3.301$3.238 billion in Fiscal 2015 from $3.142 billion in Fiscal 2014. This increase included a2020, including net favorable foreign currency effecteffects of $54 million, primarily$35.5 million. The increase in SG&A expenses reflects net adverse impacts related to the weakeningCOVID-19 and Hong Kong protest business disruptions, including incremental bad debt expense of the Euro and the Japanese Yen against the U.S. Dollar.$56.4 million. SG&A expenses as a percentage of net revenues increased to 43.3%52.6% in Fiscal 20152020 from 42.2%50.2% in Fiscal 2014.2019. The 110240 basis point increase was primarily due to operating deleverage on lower net revenues and higher bad debt expense, both primarily attributable to the increase in operating expenses in supportCOVID-19 pandemic, as well as the unfavorable impact attributable to geographic and channel mix, as a greater portion of the growth ofour revenue was generated by our retail businesses (which typically carry higher operating expense margins); increased investments in our facilities and infrastructure; increased advertising and marketing costs; incremental operating expenses attributable to our acquisition of the Australia and New Zealand Business; and investments in new business initiatives. These increases were partially offset by our operating leverage on higher net revenues and operational discipline.
.
The $159$69.2 million net increase in SG&A expenses by functional category is as follows:
Fiscal 2015 Compared to Fiscal 2014 | ||||
| (millions) | ||||
| SG&A expense category: | ||||
Compensation-related expenses(a) | $ | 62 | ||
| Depreciation expense | 46 | |||
| Rent and occupancy expenses | 26 | |||
| Marketing and advertising expenses | 19 | |||
| Incremental operating expenses related to the Australia and New Zealand Business | 10 | |||
| Shipping and handling costs | 7 | |||
Acquisition-related costs(b) | (7 | ) | ||
| Other | (4 | ) | ||
| Total change in SG&A expenses | $ | 159 | ||
was driven by:
| Fiscal 2020 Compared to Fiscal 2019 | ||||||||
| (millions) | ||||||||
| SG&A expense category: | ||||||||
| $ | 58.3 | |||||||
| Compensation-related expenses | 29.4 | |||||||
| Marketing and advertising expenses | 5.2 | |||||||
| Staff-related expenses | (21.4) | |||||||
| Rent and occupancy expenses | (14.3) | |||||||
| Other | 12.0 | |||||||
| Total net increase in | $ | 69.2 | ||||||
Impairment of Assets. During Fiscal 2015,2020 and Fiscal 2019, we recorded non-cash impairment charges of $7$31.6 million primarilyand $21.2 million, respectively, to write off certain fixed assets related to our domestic and international retail stores. During Fiscal 2014, we recognized non-cash impairment charges of $1 million to write offwrite-down certain long-lived assets relatedin connection with our restructuring plans and identification of underperforming stores. Additionally, as a result of our decision to sell our European operations (seecorporate jet in connection with our cost savings initiative, we recorded a non-cash impairment charge of $4.6 million during Fiscal 2019 to reduce the carrying value of the asset being held-for-sale to its estimated fair value, less costs to sell. See Note 108 to the accompanying audited consolidated financial statements).statements.
Restructuring and Other Charges. Restructuring and other charges declined by $8 million to $10 million in Fiscal 2015 from $18 million in Fiscal 2014. During Fiscal 2015,2020 and Fiscal 2019, we recorded restructuring charges of $10$37.6 million and $93.6 million, respectively, in connection with our restructuring plans, primarily consisting of severance and benefits costs, as well as a loss on sale of property during the prior fiscal year period. Additionally, during Fiscal 2020, we recorded other charges of $29.6 million primarily related to severancethe charitable donation of the net cash proceeds received from the sale of our corporate jet, and benefitrent and occupancy costs associated with certain of our retail, wholesale, and corporate operations.previously exited real estate locations for which the related lease agreements had not yet expired. During Fiscal 2014,2019, we recorded restructuringother charges of $8$36.5 million primarily related to severance and benefit costsour sabbatical leave program initiated during the fourth quarter of Fiscal 2019, depreciation expense associated with our corporate operations. In addition, during Fiscal 2014, we recorded $10 million of accelerated stock-based compensation expense associated with certain new executive employment agreement provisions (seeformer Polo store at 711 Fifth Avenue in New York City, and a customs audit. See Note 119 to the accompanying audited consolidated financial statements).statements.
Operating Income. Operating income decreased by $95$244.8 million, or 8.4%43.6%, to $1.035 billion$317.0 million in Fiscal 2015 from $1.130 billion2020, including net unfavorable foreign currency effects of $18.2 million. The decline in operating income reflects net adverse impacts related to COVID-19 and Hong Kong protest business disruptions, including total incremental inventory charges and bad debt expense of $213.7 million, as previously discussed. Our operating results during Fiscal 2014.2020 and Fiscal 2019 were also negatively impacted by restructuring-related charges, impairment of assets, and certain other charges totaling $101.0 million and $163.1 million, respectively, as previously discussed. Operating income as a percentage of net revenues decreased 160 basis points, to 13.6%5.1% in Fiscal 20152020 from 15.2%8.9% in Fiscal 2014.2019. The overall380 basis point decline in operating income as a percentage of net revenues was primarily driven by the decline in our gross margin and the increase in SG&A as a percentage of net revenues and the absence of the prior year gain on the Chaps Menswear License Acquisition, as well as a lower gross profit margin, as previously discussed.
| Fiscal Years Ended | ||||||||||||||||||
| March 28, 2015 | March 29, 2014 | |||||||||||||||||
Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||
| Segment: | ||||||||||||||||||
| Wholesale | $ | 943 | 27.0% | $ | 963 | 27.6% | $ | (20 | ) | (60 bps) | ||||||||
| Retail | 527 | 13.3% | 572 | 15.1% | (45 | ) | (180 bps) | |||||||||||
| Licensing | 152 | 90.4% | 150 | 90.2% | 2 | 20 bps | ||||||||||||
| 1,622 | 1,685 | (63 | ) | |||||||||||||||
| Unallocated corporate expenses | (577 | ) | (553 | ) | (24 | ) | ||||||||||||
| Gain on acquisition of Chaps | — | 16 | (16 | ) | ||||||||||||||
| Unallocated restructuring and other charges | (10 | ) | (18 | ) | 8 | |||||||||||||
| Total operating income | $ | 1,035 | 13.6% | $ | 1,130 | 15.2% | $ | (95 | ) | (160 bps) | ||||||||
| 60 | ||||||||
Operating income and margin for our segments, as well as a discussion of the changes in each reportable segment's operating margin from the prior fiscal year, are provided below:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| March 28, 2020 | March 30, 2019 | |||||||||||||||||||||||||||||||||||||
| Operating Income | Operating Margin | Operating Income | Operating Margin | $ Change | Margin Change | |||||||||||||||||||||||||||||||||
| (millions) | (millions) | (millions) | ||||||||||||||||||||||||||||||||||||
| Segment: | ||||||||||||||||||||||||||||||||||||||
| North America | $ | 456.0 | 14.5% | $ | 655.8 | 20.5% | $ | (199.8) | (600 bps) | |||||||||||||||||||||||||||||
| Europe | 336.3 | 20.6% | 392.8 | 23.3% | (56.5) | (270 bps) | ||||||||||||||||||||||||||||||||
| Asia | 124.8 | 12.3% | 161.0 | 15.5% | (36.2) | (320 bps) | ||||||||||||||||||||||||||||||||
| Other non-reportable segments | 85.2 | 23.0% | 118.7 | 30.7% | (33.5) | (770 bps) | ||||||||||||||||||||||||||||||||
| 1,002.3 | 1,328.3 | (326.0) | ||||||||||||||||||||||||||||||||||||
| Unallocated corporate expenses | (618.1) | (636.4) | 18.3 | |||||||||||||||||||||||||||||||||||
| Unallocated restructuring and other charges | (67.2) | (130.1) | 62.9 | |||||||||||||||||||||||||||||||||||
| Total operating income | $ | 317.0 | 5.1% | $ | 561.8 | 8.9% | $ | (244.8) | (380 bps) | |||||||||||||||||||||||||||||
North America operating margin declined by 180600 basis points, primarily attributabledue to a 60the unfavorable impact of 450 basis points related to incremental inventory charges and bad debt expense recorded in connection with COVID-19 business disruptions. The remaining 150 basis point increasedecline largely related to adverse market conditions driven by the COVID-19 pandemic.
Europe operating margin declined by 270 basis points, primarily due to the net unfavorable impact of 210 basis points related to incremental inventory charges and bad debt expense recorded in compensation-related expenses and a 50 basis point increaseconnection with COVID-19 business disruptions, partially offset by lower non-cash charges recorded in depreciation expense, both primarily associatedconnection with our global store development efforts and new store openings, a 20 basis point increase in advertising and marketing expenses, and a 10 basis point increase in other operating expenses.restructuring plans during Fiscal 2020 as compared to the prior fiscal year. The decline in the Retail operating margin also reflected a 40 basis point decrease duedecline largely related to other factors, including lower profitability from our existing retail operations, reflectingadverse market conditions driven by the impact ofCOVID-19 pandemic, as well as a more promotional retail environment, as previously discussed.20 basis point decline related to unfavorable foreign currency.
Unallocated corporate expenses increased decreased by $24$18.3 million primarilyto $618.1 million in Fiscal 2020. The decline in unallocated corporate expenses was due to higherlower compensation-related costs of $18 million, higher depreciation expense of $17 million largely due to the increased investment in our infrastructure, higher rent and occupancy expenses of $5$11.5 million, lower staff-related expenses of $8.8 million, lower consulting fees of $6.7 million, and higher corporatelower marketing and advertising and marketing costsexpenses of $3 million. These increases were$9.5 million, partially offset by lower amortization expenseintercompany sourcing commission income of $9$10.2 million (which is offset at the non-recurrence of prior year acquisition-related costs of $7 million,segment level and a declineeliminates in consolidation) and higher other operating expenses of $3$8.0 million.
Unallocated restructuring and other charges declined decreased by $8$62.9 million to $10$67.2 million in Fiscal 2015 from $182020, as previously discussed above and in Note 9 to the accompanying consolidated financial statements.
Non-operating Income (Expense), Net. During Fiscal 2020, we reported non-operating income, net, of $9.4 million, as compared to $20.7 million in Fiscal 2014, as previously described (see2019. The $11.3 million decline was primarily driven by:
•an $8.0 million increase in other expense, net, driven by a $7.1 million impairment of an equity method investment recorded in Fiscal 2020. See Note 118 to the accompanying audited consolidated financial statements).statements; and
Income Tax Benefit (Provision). We reported an income tax benefit and effective tax rate on the Euro-denominated notes, which were repaid in October 2013 (see Note 13 to the accompanying audited consolidated financial statements).
Net Income. Net income declined by $74 million, or 9.5%,decreased to $702$384.3 million in Fiscal 20152020, from $776$430.9 million in Fiscal 2014.2019. The $46.6 million decline in net income was primarily due to the $95 million declinedecrease in our operating income, and higher foreign currency losses of $18 million, partially offset by the $35 million reductiondecrease in our income tax provision, for income taxes, allboth as previously discussed. Net income during Fiscal 2020 and Fiscal 2019 reflected a one-time income tax benefit of $122.9 million recorded in connection with Swiss tax reform and TCJA enactment-related charges of $27.6 million, respectively, both as previously discussed. Our operating results during Fiscal 2020 and Fiscal 2019 were also negatively impacted by restructuring-related charges, impairment of assets (including an equity method investment), and certain other charges (including those related to COVID-19 business disruptions) totaling $321.8 million and $163.1 million, respectively, which had an after-tax effect of reducing net income by $244.8 million and $129.0 million, respectively.
Net Income per Diluted Share. Net income per diluted share declined by $0.55, or 6.5%,decreased to $7.88 per share$4.98 in Fiscal 20152020, from $8.43 per share$5.27 in Fiscal 2014.2019. The $0.29 per share decline was due to the lower level of net income, as previously discussed, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2015,2020 driven by our share repurchases during Fiscal 2015. 2020. Net income per diluted share in Fiscal 2020 and Fiscal 2019 were favorably impacted by $1.59 per share as a result of a one-time income tax benefit recorded in connection with the Swiss Tax Act and negatively impacted by $0.34 per share as a result of TCJA enactment-related charges, respectively, both as previously discussed. Net income per diluted share in Fiscal 2020 and Fiscal 2019 were also negatively impacted by $3.17 per share and $1.58 per share, respectively, as a result of restructuring-related charges, impairment of assets (including an equity method investment), and certain other charges (including those related to COVID-19 business disruptions), as previously discussed.
FINANCIAL CONDITION AND LIQUIDITY
Financial Condition
The following table presents our financial condition as of April 2, 2016March 27, 2021 and March 28, 2015.2020.
| April 2, 2016 | March 28, 2015 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | $ | (44 | ) | |||||
| Short-term investments | 629 | 644 | (15 | ) | ||||||||
Non-current investments(a) | 187 | 8 | 179 | |||||||||
| Short-term debt | (116 | ) | (234 | ) | 118 | |||||||
Long-term debt(b) | (597 | ) | (298 | ) | (299 | ) | ||||||
Net cash and investments(c) | $ | 559 | $ | 620 | $ | (61 | ) | |||||
| Equity | $ | 3,744 | $ | 3,891 | $ | (147 | ) | |||||
| March 27, 2021 | March 28, 2020 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash and cash equivalents | $ | 2,579.0 | $ | 1,620.4 | $ | 958.6 | ||||||||||||||
| Short-term investments | 197.5 | 495.9 | (298.4) | |||||||||||||||||
Short-term debt(a) | — | (475.0) | 475.0 | |||||||||||||||||
Current portion of long-term debt(a) | — | (299.6) | 299.6 | |||||||||||||||||
Long-term debt(a) | (1,632.9) | (396.4) | (1,236.5) | |||||||||||||||||
Net cash and investments(b) | $ | 1,143.6 | $ | 945.3 | $ | 198.3 | ||||||||||||||
| Equity | $ | 2,604.4 | $ | 2,693.1 | $ | (88.7) | ||||||||||||||
(a)See Note 11 to the accompanying consolidated financial statements for discussion of the carrying values of our debt. (b)"Net cash and investments" is defined as cash and cash equivalents, plus investments, less total debt. |
The declineincrease in our net cash and investments position at April 2, 2016March 27, 2021 as compared to March 28, 20152020 was primarily due to our operating cash flows of $380.9 million, partially offset by our use of cash to invest in our business through $107.8 million in capital expenditures, to make dividend payments of $49.8 million (which had been previously declared during the fourth quarter of Fiscal 2020), and to support our Class A common stock repurchases of $500$37.7 million, includingrepresenting withholdings in satisfaction of tax obligations for stock-based compensation awards,awards.
The decrease in equity was primarily attributable to invest in our business through $418 million in capital expenditures,comprehensive loss and to make cash dividend payments of $170 million during Fiscal 2016,shares surrendered for tax withholdings, partially offset by our operating cash flows of $1.007 billion.
2021.
Cash Flows
Fiscal 20162021 Compared to Fiscal 20152020
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 380.9 | $ | 754.6 | $ | (373.7) | ||||||||||||||
| Net cash provided by investing activities | 195.0 | 702.1 | (507.1) | |||||||||||||||||
| Net cash provided by (used in) financing activities | 356.8 | (438.2) | 795.0 | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 25.5 | (15.2) | 40.7 | |||||||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | $ | 958.2 | $ | 1,003.3 | $ | (45.1) | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Net cash provided by operating activities | $ | 1,007 | $ | 894 | $ | 113 | ||||||
| Net cash used in investing activities | (583 | ) | (689 | ) | 106 | |||||||
| Net cash used in financing activities | (473 | ) | (421 | ) | (52 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 5 | (81 | ) | 86 | ||||||||
| Net decrease in cash and cash equivalents | $ | (44 | ) | $ | (297 | ) | $ | 253 | ||||
Net Cash Provided by Operating Activities. Net cash provided by operating activities increaseddecreased to $1.007 billion during Fiscal 2016, from $894$380.9 million during Fiscal 2015.2021, from $754.6 million during Fiscal 2020. The $113$373.7 million net increasedecline in cash provided by operating activities was primarily due to a decrease in net income before non-cash charges, partially offset by a net favorable change related to our operating assets and liabilities, including our working capital, partially offset by a decline in net income before non-cash charges. as compared to the prior fiscal year.
The net favorable change related to our operating assets and liabilities, including our working capital, was primarily driven by:
•a favorable change in our accrued liabilities, primarily driven by the increase in our restructuring reserve related to charges recorded in connection with the Fiscal 2021 Strategic Realignment Plan; and
•a favorable change in our accounts payable, driven by our extended payment terms.
These increases related to our operating assets and liabilities were partially offset by:
•an unfavorable change related to our accounts receivable, balance,largely driven by an increase in wholesale revenue during the fourth quarter of Fiscal 2021 as compared to the fourth quarter of Fiscal 2020;
•an unfavorable change in inventory, largely driven by lower net revenues atCOVID-19-related inventory charges recorded in Fiscal 2021 as compared to the end of Fiscal 2016prior year period; and the timing of cash collections; and
Net Cash Used inProvided by Investing Activities. Net cash used inprovided by investing activities was $583$195.0 million during Fiscal 2016,2021, as compared to $689of $702.1 million during Fiscal 2015.2020. The $106$507.1 million net decrease in cash used inprovided by investing activities was primarily driven by by:
•a $142$648.1 million declinedecrease in cash used to purchase investments, less proceeds from sales and maturities of investments, less purchases of investments. During Fiscal 2016,2021, we madereceived net investment purchasesproceeds from sales and maturities of $143investments of $302.6 million, as compared to net investment purchases of $285$950.7 million during Fiscal 2015.2020.
•a $27$162.5 million increasedecrease in capital expenditures. During Fiscal 2016,2021, we spent $418$107.8 million on capital expenditures, as compared to $391$270.3 million during Fiscal 2015.2020. This decline reflects the temporary postponement of non-critical capital expenditures as a preemptive action to preserve cash and strengthen our liquidity position in response to business disruptions related to the COVID-19 pandemic. Our capital expenditures during Fiscal 20162021 primarily related to our global retailinternational store expansion, department storeopenings and renovations, as well as enhancements to our global information technology systems, and further development of our infrastructure, including the build-out of a new distribution center in High Point, North Carolina.
In Fiscal 2022, we expect to spend approximately $250 million to $275 million on capital expenditures, in-line with our pre-pandemic levels, primarily related to store openings and renovations, as well as further investment in our digital infrastructure.
•a $32$657.1 million decrease in cash used to repurchase shares of our Class A common stock. During Fiscal 2016,2021, $37.7 million in shares of Class A common stock were surrendered or withheld in satisfaction of withholding taxes in connection with the vesting of awards under our long-term stock incentive plans and no shares of Class A common stock were repurchased pursuant to our common stock repurchase program, which we have temporarily suspended as a preemptive action to preserve cash and strengthen our liquidity position in response to business disruptions related to the COVID-19 pandemic. On a comparative basis, during Fiscal 2020, $650.3 million in shares of Class A common stock were repurchased and $44.5 million in shares of Class A common stock were surrendered or withheld for taxes; and
•a $154.1 million decrease in payments of dividends, driven by the temporary suspension of our quarterly cash dividend program as a preemptive action to preserve cash and strengthen our liquidity position, as discussed in "Dividends" below.
These increases in cash provided by financing activities were partially offset by:
•an $8.1 million decrease in cash proceeds from the issuance of debt, less debt repayments. During Fiscal 2021, we received $1.242 billion in proceeds from our issuance of 1.700% unsecured notes and 2.950% unsecured senior notes, a portion of which was used to repay $475 million of borrowings previously outstanding under our credit facilities and our previously outstanding $300 million principal amount of unsecured 2.625% senior notes that matured in August 2020. On a comparative basis, during Fiscal 2020 we borrowed $475 million under our credit facilities as a preemptive action to preserve cash and strengthen our liquidity in response to the COVID-19 pandemic.
Fiscal 2020 Compared to Fiscal 2019
| Fiscal Years Ended | ||||||||||||||||||||
| March 28, 2020 | March 30, 2019 | $ Change | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 754.6 | $ | 783.8 | $ | (29.2) | ||||||||||||||
| Net cash provided by (used in) investing activities | 702.1 | (879.3) | 1,581.4 | |||||||||||||||||
| Net cash used in financing activities | (438.2) | (605.7) | 167.5 | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (15.2) | (27.8) | 12.6 | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | $ | 1,003.3 | $ | (729.0) | $ | 1,732.3 | ||||||||||||||
Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $754.6 million during Fiscal 2020, from $783.8 million during Fiscal 2019. The $29.2 million net decline in cash provided by operating activities was due to a decrease in net income before non-cash charges, partially offset by a net favorable change related to our operating assets and liabilities, including our working capital, as compared to the prior fiscal year. The net favorable change related to our operating assets and liabilities, including our working capital, was primarily driven by:
•a favorable change related to our inventories, largely driven by higher inventory charges primarily related to adverse impacts associated with COVID-19 business disruptions;
•a favorable change related to our prepaid expenses and other current assets, largely driven by the timing of cash payments; and
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•a favorable change related to our accounts receivable, largely driven by lower wholesale sales during the fourth quarter of Fiscal 2020 as compared to the prior fiscal year driven by COVID-19 business disruptions, as well as the timing of cash receipts.
These increases related to our operating assets and liabilities were partially offset by:
•an unfavorable change related to our income tax receivables and payables, largely as a result of the absence of charges recorded during the prior fiscal year in connection with the TCJA's mandatory transition tax; and
•an unfavorable change related to our accrued liabilities driven by larger decreases in our bonus accrual and restructuring reserves as compared to the prior fiscal year, as well as the timing of cash payments.
Net Cash Provided by (Used in) Investing Activities. Net cash provided by investing activities was $702.1 million during Fiscal 2020, as compared to net cash used in investing activities of $879.3 million during Fiscal 2019. The $1.581 billion net increase in cash provided by investing activities was primarily driven by:
•a $1.624 billion increase in proceeds from sales and maturities of investments, less purchases of investments. During Fiscal 2020, we received net proceeds from sales and maturities of investments of $950.7 million, as compared to making net investment purchases of $673.3 million during Fiscal 2019; and
•a $23.8 million decrease in payments made to settle net investment hedges.
These increases in cash provided by investing activities were partially offset by:
•a $72.6 million increase in capital expenditures. During Fiscal 2020, we spent $270.3 million on capital expenditures, as compared to $197.7 million during Fiscal 2019. Our capital expenditures during Fiscal 2020 primarily related to new store openings, retail and department store renovations, enhancements to our information technology systems, and the consolidation of our corporate office footprint.
Net Cash Used in Financing Activities. Net cash used in financing activities was $438.2 million during Fiscal 2020, as compared to $605.7 million during Fiscal 2019. The $167.5 million net decrease in cash used in financing activities was primarily driven by:
•a $386.8 million increase in cash proceeds from the issuance of debt, less debt repayments. During Fiscal 2020, we borrowed $475 million under our credit facilities as a preemptive action to preserve cash and strengthen our liquidity in response to the COVID-19 pandemic. During Fiscal 2019, we received $398.1 million in proceeds from our issuance of 3.750% unsecured senior notes in August 2018, a portion of which was used to repay our previously outstanding $300 million principal amount of unsecured 2.125% senior notes that matured in September 2018. Additionally, during Fiscal 2019 we repaid approximately $10 million that had been borrowed under our credit facilities during Fiscal 2018.
This decrease in cash used in financing activities was partially offset by:
•a $192.2 million increase in cash used to repurchase shares of our Class A common stock. During Fiscal 2020, we used $480$650.3 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $20$44.5 million in shares of Class A common stock were surrendered or withheld in satisfaction of withholding taxes in connection with the vesting of awards under our long-term stock incentive plans. On a comparative basis, during Fiscal 2015, we used $5002019, $470.0 million to repurchasein shares of Class A common stock pursuant to our common stock repurchase program,were repurchased and an additional $32$32.6 million in shares of Class A common stock were surrendered or withheld for taxes.taxes;
•a $13.2 million increase in payments of dividends, driven by an increase to Fiscal 2014
| Fiscal Years Ended | ||||||||||||
| March 28, 2015 | March 29, 2014 | $ Change | ||||||||||
| (millions) | ||||||||||||
| Net cash provided by operating activities | $ | 894 | $ | 907 | $ | (13 | ) | |||||
| Net cash used in investing activities | (689 | ) | (488 | ) | (201 | ) | ||||||
| Net cash used in financing activities | (421 | ) | (599 | ) | 178 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (81 | ) | 3 | (84 | ) | |||||||
| Net decrease in cash and cash equivalents | $ | (297 | ) | $ | (177 | ) | $ | (120 | ) | |||
2019, respectively.
Sources of Liquidity
Our primary sources of liquidity are the cash flows generated from our operations, availability under our credit facilities, our issuances of commercial paper notes, our available cash and cash equivalents and short-term investments, availability under our credit and overdraft facilities and commercial paper program, and other available financing options.
During Fiscal 2016,2021, we generated $1.007 billion$380.9 million of net cash flows from our operations. As of April 2, 2016,March 27, 2021, we had $1.085$2.777 billion in cash, cash equivalents, and short-term investments, of which $1.066 billion$904.6 million were held by our subsidiaries domiciled outside the U.S. We are not dependent on foreign cash to fund our domestic operationsoperations. Undistributed foreign earnings that were subject to the TCJA's one-time mandatory transition tax as of December 31, 2017 are not considered to be permanently reinvested and domay be repatriated to the U.S. in the future with minimal or no additional U.S. taxation. We intend to permanently reinvest undistributed foreign earnings generated after December 31, 2017 that were not expectsubject to repatriate these balances to meet our domestic cash needs.the one-time mandatory transition tax. However, if our plans change and we choose to repatriate any fundspost-2017 earnings to the U.S. in the future, we would be subject to applicable U.S. and foreign taxes.
The following table presents our total availability, borrowings outstanding, and remaining availability under our credit and overdraft facilities and Commercial Paper Program as of April 2, 2016:March 27, 2021:
| April 2, 2016 | ||||||||||||
Description(a) | Total Availability | Borrowings Outstanding | Remaining Availability | |||||||||
| (millions) | ||||||||||||
Commercial Paper Program(b) | $ | 500 | $ | 90 | (c) | $ | 410 | |||||
| Global Credit Facility | 500 | 9 | (d) | 491 | ||||||||
| Pan-Asia Credit Facilities | 57 | 26 | (c) | 31 | ||||||||
| March 27, 2021 | ||||||||||||||||||||
Description(a) | Total Availability | Borrowings Outstanding | Remaining Availability | |||||||||||||||||
| (millions) | ||||||||||||||||||||
Global Credit Facility and Commercial Paper Program(b) | $ | 500 | $ | 9 | (c) | $ | 491 | |||||||||||||
| Pan-Asia Credit Facilities | 34 | — | 34 | |||||||||||||||||
| Japan Overdraft Facility | 46 | — | 46 | |||||||||||||||||
(a)As defined in Note 11 to the accompanying consolidated financial statements. (b)Borrowings under the Commercial Paper Program are supported by the Global Credit Facility. Accordingly, we do not expect combined borrowings outstanding under the Commercial Paper Program and the Global Credit Facility to exceed $500 million. (c)Represents outstanding letters of credit for which we were contingently liable under the Global Credit Facility as of March 27, 2021. |
We believe that ourthe Global Credit Facility is adequately diversified with no undue concentration in any one financial institution. In particular, as of April 2, 2016,March 27, 2021, there were nineeight financial institutions participating in the Global Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 20%. In accordance with the terms of the agreement, we have the ability to expand our borrowing availability under the Global Credit Facility to $1 billion through the full term of the facility, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments.
Borrowings under the Pan-Asia Credit Facilities and Japan Overdraft Facility (collectively, the "Pan-Asia Borrowing Facilities") are guaranteed by the parent company and are granted at the sole discretion of the participating regional branches of JPMorgan Chase (the "Banks")banks (as described within Note 11 to the accompanying consolidated financial statements), subject to availability of the Banks'respective banks' funds and satisfaction of certain regulatory requirements. We have no reason to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Global Credit Facility and the Pan-Asia CreditBorrowing Facilities in the event of our election to draw additional funds in the foreseeable future.
Our sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, global retail store and e-commerce development anddigital commerce expansion, construction and renovation of shop-within-shops, investment in infrastructure, including technology, acquisitions, joint ventures, payment of dividends, debt repayments, Class A common stock repurchases, settlement of contingent liabilities (including uncertain tax positions), and other corporate activities, including our restructuring actions. We believe that our existing sources of cash, the availability under our credit facilities, and our ability to access capital markets will be sufficient to support our operating, capital, and debt service requirements for the foreseeable future, the ongoing development of our businesses, and our plans for further business expansion. However, prolonged periods of adverse economic conditions or business disruptions in any of our key regions, or a combination thereof, such as those resulting from the
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COVID-19 pandemic, could impede our ability to pay our obligations as they become due or return value to our shareholders, as well as delay previously planned expenditures related to our operations.
See Note 1311 to the accompanying audited consolidated financial statements for additional information relating to our credit facilities.
Debt and Covenant Compliance
In September 2013,August 2018, we completed a registered public debt offering and issued $300$400 million aggregate principal amount of unsecured senior notes due September 26, 2018,15, 2025, which bear interest at a fixed rate of 2.125%3.750%, payable semi-annually (the "2.125%"3.750% Senior Notes"). In August 2015,June 2020, we completed a secondanother registered public debt offering and issued an additional $300$500 million aggregate principal amount of unsecured senior notes due August 18, 2020,June 15, 2022, which bear interest at a fixed rate of 2.625%1.700%, payable semi-annually (the "2.625%"1.700% Senior Notes"), and $750 million aggregate principal amount of unsecured senior notes due June 15, 2030, which bear interest at a fixed rate of 2.950%, payable semi-annually (the "2.950% Senior Notes").
The indenture and supplemental indentures governing the 2.125%3.750% Senior Notes, 1.700% Senior Notes, and 2.625%2.950% Senior Notes (as supplemented, the "Indenture") contain certain covenants that restrict our ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of our property or assets to another party. However, the Indenture does not contain any financial covenants.
We have a credit facility that provides for a $500 million senior unsecured revolving line of credit through August 12, 2024, which is also used to support the issuance of letters of credit and the maintenance of the Commercial Paper Program (the "Global Credit Facility"). Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. We have the ability to expand the borrowing availability under the Global Credit Facility to $1 billion, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit Facility.
In March 2020, we borrowed $475.0 million under the Global Credit Facility as a preemptive action to preserve cash and strengthen our liquidity position in response to the COVID-19 pandemic, which was subsequently repaid in June 2020.
The Global Credit Facility contains a number of covenants, as described in Note 1311 to the accompanying audited consolidated financial statements. As of April 2, 2016,March 27, 2021, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under our Global Credit Facility. The Pan-Asia CreditBorrowing Facilities do not contain any financial covenants.
See Note 1311 to the accompanying audited consolidated financial statements for additional information relating to our debt and covenant compliance.
Common Stock Repurchase Program
On May 13, 2019, our Board of Directors approved an expansion of our existing common stock repurchase program that allowed us to repurchase up to an additional $600 million of Class A common stock. As of March 27, 2021, the remaining availability under our Class A common stock repurchase program was approximately $580 million. Repurchases of shares of Class A common stock are subject to certain restrictions under our Global Credit Facility and more generally overall business and market conditions. Accordingly, as a result of business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021 we temporarily suspended our common stock repurchase program as a preemptive action to preserve cash and strengthen our liquidity position.
See Note 16 to the accompanying consolidated financial statements for additional information relating to our Class A common stock repurchase program.
Dividends
Except as discussed below, we have maintained a regular quarterly cash dividend program on our common stock since 2003. On May 13, 2019, our Board of Directors approved an increase to the quarterly cash dividend on our common stock from $0.625 to $0.6875 per share.
As a result of business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021 we temporarily suspended our quarterly cash dividend program as a preemptive action to preserve cash and strengthen our liquidity position. On May 19, 2021, our Board of Directors approved the reinstatement of our quarterly cash dividend program at the pre-pandemic amount of $0.6875 per share. The first quarterly dividend since such reinstatement will be payable to shareholders of record at the close of business on June 25, 2021, and will be paid on July 9, 2021.
We intend to continue to pay regular dividends on our outstanding common stock. However, any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem relevant, including economic and market conditions.
Contractual and Other Obligations
Firm Commitments
The following table summarizes certain of our aggregate contractual obligations as of April 2, 2016,March 27, 2021, and the estimated timing and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing.
| Fiscal 2022 | Fiscal 2023-2024 | Fiscal 2025-2026 | Fiscal 2027 and Thereafter | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Senior Notes | $ | — | $ | 500.0 | $ | 400.0 | $ | 750.0 | $ | 1,650.0 | ||||||||||||||||||||||
| Interest payments on debt | 45.6 | 78.5 | 64.3 | 94.0 | 282.4 | |||||||||||||||||||||||||||
| Operating leases | 332.7 | 570.5 | 362.5 | 458.4 | 1,724.1 | |||||||||||||||||||||||||||
| Finance leases | 33.7 | 70.7 | 72.1 | 312.7 | 489.2 | |||||||||||||||||||||||||||
| Other lease commitments | 10.4 | 21.9 | 25.6 | 49.5 | 107.4 | |||||||||||||||||||||||||||
| Inventory purchase commitments | 713.7 | — | — | — | 713.7 | |||||||||||||||||||||||||||
| Mandatory transition tax payments | 14.0 | 40.2 | 78.5 | — | 132.7 | |||||||||||||||||||||||||||
| Other commitments | 27.9 | 12.3 | 13.7 | 23.3 | 77.2 | |||||||||||||||||||||||||||
| Total | $ | 1,178.0 | $ | 1,294.1 | $ | 1,016.7 | $ | 1,687.9 | $ | 5,176.7 | ||||||||||||||||||||||
| Fiscal 2017 | Fiscal 2018-2019 | Fiscal 2020-2021 | Fiscal 2022 and Thereafter | Total | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Senior Notes | $ | — | $ | 300 | $ | 300 | $ | — | $ | 600 | ||||||||||
| Interest payments on Senior Notes | 14 | 25 | 12 | — | 51 | |||||||||||||||
| Capital leases | 30 | 54 | 55 | 106 | 245 | |||||||||||||||
| Operating leases | 346 | 634 | 494 | 733 | 2,207 | |||||||||||||||
| Inventory purchase commitments | 525 | 416 | — | — | 941 | |||||||||||||||
| Other commitments | 58 | 43 | 38 | 10 | 149 | |||||||||||||||
| Total | $ | 973 | $ | 1,472 | $ | 899 | $ | 849 | $ | 4,193 | ||||||||||
The following is a description of our material, firmly committed obligations as of April 2, 2016:March 27, 2021:
•Senior Notes represents represent the principal amount of our outstanding 2.125%3.750% Senior Notes, 1.700% Senior Notes, and 2.625%2.950% Senior Notes. Amounts do not include any fair value adjustments, call premiums, unamortized debt issuance costs, or interest payments (see below);
•Interest payments on Senior Notesdebt represent the semi-annual contractual interest payments due on our 2.125%3.750% Senior Notes, 1.700% Senior Notes, and 2.625%2.950% Senior Notes;
Notes. Amounts do not include the impact of potential cash flows underlying our related swap contracts (see Note 13 to the accompanying consolidated financial statements for discussion of our swap contracts);•Lease obligations represent the minimum lease rentalfixed payments due underover the lease term of our noncancelable leases for ourof real estate and operating equipment. In addition to such amounts, we are normally required to payequipment, including rent, real estate taxes, insurance, andcommon area maintenance fees, and/or certain occupancy costs relating to our leased real estate properties, which are not included in the table above. Approximately 70% of theseother costs. For lease obligations relate to our retail operations. Informationterms that have commenced, information has been presented separately for capitaloperating and operating leases;finance leases. Other lease commitments relate to executed lease agreements for which the related lease terms have not yet commenced as of March 27, 2021;
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•Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities of goods at determinable prices;
•Mandatory transition tax payments represent our remaining tax obligation incurred in connection with the deemed repatriation of previously deferred foreign earnings pursuant to the TCJA (see Note 10 to the accompanying consolidated financial statements for discussion of the TCJA); and
•Other commitments primarily represent our legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements; distribution-related agreements; information technology-related service agreements; and pension-related obligations.
Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $81$91.4 million as of April 2, 2016,March 27, 2021, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The above table also excludes the following: (i) amounts recorded in current liabilities in our consolidated balance sheet as of April 2, 2016, including borrowings outstanding of $90 million and $26 million under our Commercial Paper Program and Pan-Asia Credit Facilities, respectively,March 27, 2021, which will be paid within one year;year, other than lease obligations, mandatory transition tax payments, and accrued interest payments on debt; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred revenue)income), or the cash outflows associated with them are uncertain or do not represent a "purchase obligation" as thesuch term is used herein (e.g., deferred taxes, derivative financial instruments, and other miscellaneous items).
We also have certain contractual arrangements that would require us to make payments if certain events or circumstances occur. See Note 1615 to the accompanying audited consolidated financial statements for a description of our contingent commitments not included in the above table.
Off-Balance Sheet Arrangements
In addition to the commitments included in the above table, our other off-balance sheet firm commitments relating to our outstanding letters of credit amounted to approximately $10$8.9 million as of April 2, 2016.March 27, 2021. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements.
MARKET RISK MANAGEMENT
As discussed in Note 1513 to the accompanying audited consolidated financial statements, we are exposed to a variety of risks, including the impact of changes in foreign currency exchange rates relating toon foreign currency-denominated balances, certain anticipated cash flows fromof our international operations, and possible declines in the value of reported net assets of certain of our foreign operations, as well as changes in the fair value of our fixed-rate debt obligations relating to changesfluctuations in benchmark interest rates. Consequently,Accordingly, at times, in the normal course of business, we employ established policies and procedures to manage such risks, including the use of derivative financial instruments, to manage such risks.instruments. We do not enter into derivative transactionsuse derivatives for speculative or trading purposes.
Foreign Currency Risk Management
We manage our exposure to changes in foreign currency exchange rates through the use ofusing forward foreign currency exchange and cross-currency swap contracts. Refer to Note 1513 to the accompanying audited consolidated financial statements for a summary of the notional amounts and fair values of our outstanding forward foreign currency exchange and cross-currency swap contracts, outstanding as well as the impact on earnings and other comprehensive income of April 2, 2016.such instruments for the fiscal periods presented.
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Forward Foreign Currency Exchange Contracts
We enter into forward foreign currency exchange contracts as hedges to reduce ourmitigate risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certainthe settlement of our international operations, and other foreign currency-denominated operational and intercompany balances, and cash flows.the translation of certain foreign operations' net assets into U.S. Dollars. As part of our overall strategy to managefor managing the level of exposure to the risk of foreign currencysuch exchange rate fluctuations,risk, relating primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Hong Kong Dollar,Chinese Renminbi, we generally hedge a portion of our foreign currencyrelated exposures anticipated over a two-year period. In doing so, we usethe next twelve months using forward foreign currency exchange contracts that generally havewith maturities of two months to two yearsone year to provide continuing coverage throughoutover the hedging period.period of the respective exposure.
Our foreign exchange risk management activities are governed by our Company's established policies and procedures. These policies and procedures provide a framework that allows for the management of currency exposures while ensuring the activities are conducted within our established guidelines. Our policies include guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including, but not limited to, authorization levels, transaction limits, and credit quality controls, as well as various measurements for monitoring compliance. We monitor foreign exchange risk using different techniques, including a periodic review of market values and performance of sensitivity analyses.
Cross-Currency Swap Contracts
Our pay-floating rate, receive-floating rate cross-currency swap thecontracts swap U.S. Dollar-denominated variable interest rate payments based on the contract's notional amount and 3-month London Interbank Offered Rate ("LIBOR") plus a fixed spread (as paid under a corresponding interest rate swap contract discussed below) for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate ("EURIBOR") plus a fixed spread. Asspread, which, in combination with a result, the Cross-Currency Swaps, in conjunction with the Interest Rate Swaps (as defined below),corresponding interest rate swap contract, economically convertconverts a portion of our $300 million fixed-rate 2.125% and $300 million fixed-rate 2.625%U.S. Dollar-denominated senior note obligations to €280 million and €274 million floating-rate Euro-denominated liabilities, respectively.obligations.
Our pay-fixed rate, receive-fixed rate cross-currency swap contracts swap U.S. Dollar-denominated fixed interest rate payments based on the contract's notional amount and the fixed rate of interest payable on certain of our senior notes for Euro-denominated fixed interest rate payments, thereby economically converting a portion of our fixed-rate U.S. Dollar-denominated senior note obligations to fixed rate Euro-denominated obligations.
Sensitivity
We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our forward foreign currency exchange and cross-currency swap contracts. To perform the sensitivity analysis,In doing so, we assess the risk of loss in the fair values of these contracts that would result from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of April 2, 2016,March 27, 2021, a 10% appreciation or depreciation of the U.S. Dollar against the exchange rates for foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $155$109 million. As our outstanding forward foreign currency exchange contracts are primarily designated as cash flow hedges of forecasted transactions, and as our cross-currency swap contracts are designated as hedges of our net investment in certain of our European subsidiaries, thisThis hypothetical net change in fair value wouldshould ultimately be largely offset by the net change in the fair values of therelated underlying hedged items.
Interest Rate Risk Management
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Sensitivity
As of April 2, 2016, notwithstanding the aforementioned Interest Rate Swaps,March 27, 2021, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily relates to a changechanges in the fair valuevalues of our fixed-rate Senior Notes, commercial paper notes, and borrowings outstanding under our credit facilities.Notes. As of April 2, 2016,March 27, 2021, the aggregate fair values of our Senior Notes commercial paper notes, and borrowings outstanding under our credit facilities were $614 million, $90 million, and $26 million, respectively.$1.731 billion. A 25 basis25-basis point increase or decrease in the level of interest rates would decrease or increase, respectively, the aggregate fair valuevalues of our Senior Notes commercial paper notes, and borrowings outstanding under our credit facilities by approximately $5 million. Such potential increases or decreases in the fair value of our debt would only be relevant if we were to retire all or a portion of the debt prior to its maturity, and are$22 million based on certain simplifying assumptions, including an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period. Such potential increases or decreases in the fair value of our debt would only be realized if we were to retire all or a portion of the debt prior to its maturity.
Investment Risk Management
As of April 2, 2016,March 27, 2021, we had cash and cash equivalents on-hand of $456 million,$2.579 billion, consisting of deposits in interest bearing accounts, and investedinvestments in money market fundsdeposit accounts, and investments in time deposits with original maturities of 90 days or less. Our other significant investments included $629$197.5 million of short-term investments, consisting of investments in time deposits and corporate bonds with original maturities greater than 90 days; $46and $9.0 million of restricted cash placedheld in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters;matters and $187 million of investments with maturities greater than one year, consisting of time deposits.real estate leases.
We actively monitor our exposure to changes in the fair value of our global investment portfolio in accordance with our established policies and procedures, which include monitoring both general and issuer-specific economic conditions, as discussed further below.in Note 3 to the accompanying consolidated financial statements. Our investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in our investment policy. See Note 1513 to the accompanying audited consolidated financial statements for further detail of the composition of our investment portfolio as of April 2, 2016.March 27, 2021.
CRITICAL ACCOUNTING POLICIES
An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that the following list represents our critical accounting policies. For a discussion of all of our significant accounting policies, including our critical accounting policies, see Note 3 to the accompanying audited consolidated financial statements.
Sales Reserves and Uncollectible Accounts
A significant area of judgment affecting reported revenue and net income involves estimating sales reserves, which represent the portion of gross revenues not expected to be realized. In particular, gross revenue related to our wholesale revenuebusiness is reduced by estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and operational chargebacks. Retailcertain cooperative advertising allowances. Gross revenue related to our retail business, including e-commercedigital commerce sales, is also reduced by an estimate of returns.
In determiningdeveloping estimates of returns, discounts, end-of-season markdowns, and operational chargebacks, and cooperative advertising allowances, we analyze historical trends, actual and forecasted seasonal results, current economic and market conditions, retailer performance, and, retailer performance.in certain cases, contractual terms. Estimates for operational chargebacks are based on actual customer notifications of order fulfillment discrepancies and historical trends. We review and refine these estimates on a quarterly basis. Our historical estimates of these costsamounts have not differed materially from actual results. However, unforeseen adverse future economic and market conditions, such as those resulting from widespread pandemic diseases and/or other catastrophic events, could result in our actual results differing materially from our estimates. A hypothetical 1% increase in our reserves for returns, discounts, end-of-season markdowns, and operational chargebacks, and certain cooperative advertising allowances as of April 2, 2016March 27, 2021 would have decreasedreduced our Fiscal 20162021 net revenues by approximately $2 million.
Similarly, we evaluate our accounts receivable balances to determine ifdevelop expectations regarding the extent to which they will ultimately be collected. Significant judgmentsjudgment and estimatesestimation are involved in this evaluation, including a receivables aging analysis which shows, by aged category, the percentage of receivables that has historically gone uncollected, an analysis of specific risks on a customer-by-customer basis for larger accounts (including consideration of their financial condition and customers,ability to withstand potential prolonged periods of adverse economic conditions), and a receivables aging analysis that determinesan evaluation of current and forecasted economic and market conditions over the percentage of receivables that has historically been uncollected by aged category.respective asset's contractual life. Based on this information, we provide a reserve record an allowance
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for the estimated amounts believedthat we ultimately expect not to be uncollectible.collect due to credit. Although we believe that we have adequately provided for thosethese risks as part of our bad debt reserve,allowance for doubtful accounts, a severe and prolonged adverse impact on our major customers' business and operations beyond those forecasted could have a corresponding material adverse effect on our net sales,revenues, cash flows, and/or financial condition. A hypothetical 1% increase in the level of our allowance for doubtful accounts as of March 27, 2021 would have increased our Fiscal 2021 SG&A expenses by less than $1 million.
See "Accounts Receivable" in Note 3 to the accompanying audited consolidated financial statements for an analysis of the activity in our sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.
Inventories
We hold retail inventory that is sold in our own stores and digital commerce sites directly to consumers. We also hold inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores. We also hold retail inventory that is sold in our own stores and e-commerce sites directly to consumers. Substantially all of our inventories are comprised of finished goods, which are stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis.
The estimated net realizable value of inventory is determined based on an analysis of historical sales trends of our individual product lines, the impact of market trends and economic conditions (including those resulting from pandemic diseases and other catastrophic events), and a forecast of future demand, giving consideration to the value of current orders in-house for future sales of inventory, as well as plans to sell inventory through our factory stores, among other liquidation channels. EstimatesActual results may differ from actual resultsestimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and economic and market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. Our historical estimates of these costs and the related provisions have not differed materially from actual results. However, unforeseen adverse future economic and market conditions could result in our actual results differing materially from our estimates.
A hypothetical 1% increase in the level of our inventory reserves as of April 2, 2016March 27, 2021 would have decreased our Fiscal 20162021 gross profit by approximately $1$3 million.
Impairment of Goodwill and Other Intangible Assets
Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable.
We generally perform our annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its respective carrying value. However, in order to reassess the fair values of our reporting units, we periodically perform a quantitative impairment analysis in lieu of using the qualitative approach.
Performance of the qualitative goodwill impairment assessment requires judgment in identifying and considering the significance of relevant key factors, events, and circumstances that affect the fair values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date that a fair value measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.
The quantitative goodwill impairment test is a two-step process. The first step is to identify the existence of potential impairment byinvolves comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary.impaired. However, if the carrying value of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss to be recorded, if any. The second step of the quantitative goodwillimpairment test compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, an impairment loss is recognizedrecorded in an amount equal to that excess. Any impairment charge recognized is limited to the amount of the respective reporting unit's allocated goodwill.
Determining the fair value of a reporting unit under the first step of the quantitative goodwill impairment test and determining the fair values of individual assets and liabilities of a reporting unit (including any unrecognized intangible assets) under the second step of the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and assumptions.assumptions, including an assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as actual and planned financial
| 72 | ||||||||
performance. Similarly, estimates and assumptions are used when determining the fair values of other indefinite-lived intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment, we may review and consider appraisals from accredited independent valuation firms. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches useinvolve significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in those future cash flows, perpetual growth rates, and determinationselection of appropriate market comparables.comparable metrics and transactions.
We performed our annual goodwill impairment assessment as of the beginning of the second quarter of Fiscal 20162021 using the qualitative approach discussed above, while giving consideration toabove. In performing the assessment, we considered the results of our most recent quantitative goodwill impairment test, (thewhich was performed as of the end of Fiscal 2020 and incorporated assumptions related to COVID-19 business disruptions, the results of which indicated that the fair values of our reporting units significantly exceeded their respective carrying values).values. Based on the results of the qualitative impairment assessment performed, we concluded that it is more likely than not that the fair values of our reporting units significantly exceeded their respective carrying values and there were no reporting units at risk of impairment. Additionally, noNo goodwill impairment charges have beenwere recorded during any of the three fiscal years presented.
See Note 12 to the accompanying consolidated financial statements for further discussion.
In evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition where probable. To the extent thatIf such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.
It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, or (iv) the identification of our reporting units change, among other factors. Such changes could result in a future impairment charge of goodwill or other intangible assets, which could have a material adverse effect on our consolidated financial position or results of operations.
Impairment of Other Long-Lived Assets
Property and equipment and lease-related right-of-use ("ROU") assets, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset (including any potential sublease income for lease-related ROU assets) and its eventual disposition, where applicable. To the extent thatIf such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.assumptions and discounted cash flows, including those based on estimated market rents for lease-related ROU assets. Assets to be disposed of and for which there is a committed plan of disposal (commonly referred to as assets held-for-sale) are reported at the lower of carrying value or fair value, less costs to sell.
In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more experienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations. For example, unforeseen adverse future economic and market conditions could negatively impact consumer behavior, spending levels, and/or shopping preferences and result in actual results differing from our estimates. Additionally, we may review and consider appraisals from accredited independent valuation firms to determine the fair value of long-lived assets, where applicable.
During Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014,2019, we recorded non-cash impairment charges of $49$96.0 million,, $7 $38.7 million,, and $1$21.2 million,, respectively, to reducewrite-down the net carrying valuevalues of certain long-lived assets primarily inbased upon their assumed fair values. Additionally, during Fiscal 2019, we recorded a non-cash charge of $4.6 million to reduce the carrying value of our Retail segment,corporate jet being held-for-sale to theirits estimated fair values.value, less costs to sell. See Note 108 to the accompanying audited consolidated financial statements for further discussion.
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Income Taxes
In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions. If we considerbelieve that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the tax benefit. We measure the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and require significant judgment, and we often obtain assistance from external advisors. To the extent that our estimates change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. If the initial assessment of a position fails to result in the recognition of a tax benefit, we will recognize the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency.
Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically by assessing the adequacy of future expected taxable income, which typically involves the use of significant estimates. Such allowances are adjusted as events occur, or circumstances change, that warrant adjustments to those balances.
See Note 1210 to the accompanying audited consolidated financial statements for further discussion of income taxes.
Contingencies
We are periodically exposed to various contingencies in the ordinary course of conducting our business, including potential losses relating to certain litigation, alleged information system security breaches, contractual disputes, employee relation matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies to the extent that we conclude their occurrencethat it is probable that a loss has been incurred and the related losses areamount of such loss is reasonably estimable. In addition, if it is considered reasonably possible that an unfavorable settlement of a contingency could exceed theany established liability, we disclose the estimated impact on our liquidity, financial condition, and results of operations, if practicable. Management considers many factors in making these assessments. As the ultimate resolution of contingencies is inherently unpredictable, these assessments can involve a series of complex judgments about future events including, but not limited to, court rulings, negotiations between affected parties, and governmental actions. As a result, the accounting for loss contingencies relies heavily on management's judgment in developing the related estimates and assumptions.
Stock-Based Compensation
We expense all stock-based compensation awarded to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated forfeitures.based on an analysis of historical experience and expected future trends.
Restricted Stock and Restricted Stock Units ("RSUs")
We have granted restricted shares of our Class A common stock to our non-employee directors and grant service-based RSUs to certain of our senior executives and other employees, as well as to our non-employee directors. In addition, we grant RSUs with performance-based and market-based vesting conditions to such senior executives and other key employees.
The fair values of our restricted stock, service-based RSU, and performance-based RSU awards are measured based on the fair value of our Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not accrue while outstanding and unvested. Related compensation expense for performance-based RSUs is recognized over the employees' requisite service period, to the extent that our attainment of performance goals (upon which vesting is dependent) is deemed probable, and involves judgment as to expectations surrounding our achievement of certain defined operating performance metrics.
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The fair value of our market-based RSU awards, for which vesting is dependent upon total shareholder return ("TSR") of our Class A common stock over a three-year performance period relative to that of a pre-established peer group, is measured on the grant date based on estimated projections of our relative TSR over the performance period. These estimates are made using a Monte Carlo simulation, which models multiple stock price paths of our Class A common stock and that of the peer group to evaluate and determine our ultimate expected relative TSR performance ranking. Related compensation expense, net of estimated forfeitures, is recorded regardless of whether, and the extent to which, the market condition is ultimately satisfied. See Note 18 to the accompanying consolidated financial statements for further discussion.
Stock Options
Stock options arehave been granted to employees and non-employee directors with exercise prices equal to the fair market value of our Class A common stock on the date of grant. We use the Black-Scholes option-pricing model to estimate the grant date fair value of stock options, which requires the use of both subjective and objective assumptions. Certain key assumptions involve estimating future uncertain events. The key factors influencing the estimation process include the expected term of the option, expected volatility of our stock price, our expected dividend yield, and the risk-free interest rate, among others. Generally, once stock option values are determined, accounting practices do not permit them to be changed, even if the estimates used are different from actual results.
No stock options were granted in Fiscal 2016.during any of the fiscal years presented. See Note 1918 to the accompanying audited consolidated financial statements for further discussion.
Sensitivity
The assumptions used in calculating the grant date fair values of our stock-based compensation awards represent our best estimates. In addition, judgment is required inprojecting the achievement level of certain performance-based awards, as well as estimating the number of stock-based awards that are expected to be forfeited.forfeited, requires judgment. If actual results or forfeitures differ significantly from our estimates and assumptions, or if we change the assumptions used to estimate the grant date fair value forof future stock-based award grants or if there are changes in market conditions,significantly changed, stock-based compensation expense and, therefore, our results of operations could be materially impacted. A hypothetical 10% change in our Fiscal 2021 stock-based compensation expense would have affected our Fiscal 2016net incomeloss by approximately $6 million.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 4 to the accompanying audited consolidated financial statements for a description of certain recently issued accounting standards which have impacted our consolidated financial statements or may impact our consolidated financial statements in future reporting periods.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
For a discussion of our exposure to market risk, see "Market Risk Management" in Item 7 included elsewhere in this Annual Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data.
See the "Index to Consolidated Financial Statements" appearing at the end of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
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Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are the controls and other procedures of an issuer that are designed to provide reasonable assurance that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that material information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We have evaluated, under the supervision and with the participation of management, including our Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers, the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as of the end of the fiscal year covered by this annual report. Based on that evaluation, our Chief Executive Officerprincipal executive and Chief Financial Officerprincipal financial officers have concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level, as of the fiscal year-end covered by this Annual Report on Form 10-K.
(b) Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with U.S. Generally Accepted Accounting Principles. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of the Company's assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Further, the evaluation of the effectiveness of internal control over financial reporting was made as of a specific date, and continued effectiveness in future periods is subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies and procedures may decline.
Under the supervision and with the participation of management, including our Chief Executive Officerprincipal executive and Chief Financial Officer,principal financial officers, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of the end of the fiscal year covered by this report based on the framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013 Framework). Based on this evaluation, management concluded that the Company's internal controls over financial reporting were effective at the reasonable assurance level as of the fiscal year-end covered by this Annual Report on Form 10-K.
Ernst & Young LLP, the Company's independent registered public accounting firm, has issued an attestation report on the Company's internal control over financial reporting as included elsewhere herein.
(c) Changes in Internal Controls over Financial Reporting
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Factors — Risks Related to Macroeconomic Conditions — Infectious disease outbreaks, such as the COVID-19 pandemic, could have a material adverse effect on our business" and "Risk Factors — Risks Related to our Strategic Initiatives and uncertaintiesRestructuring Activities — We may not fully realize the expected cost savings and/or operating efficiencies from our restructuring plans" for additional discussion regarding risks to our business associated with the implementation of information systems may negatively impactCOVID-19 pandemic and our business."restructuring plans, respectively.
Item 9B. Other Information.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information relating to our directors and corporate governance will be set forth in the Company's proxy statement for its 20162021 annual meeting of stockholders to be filed within 120 days after April 2, 2016March 27, 2021 (the "Proxy Statement") and is incorporated by reference herein. Information relating to our executive officers is set forth in Item 1 of this Annual Report on Form 10-K under the caption "Information About Our Executive Officers."
Item 11. Executive Compensation.
Information relating to executive and director compensation will be set forth in the Proxy Statement and such information is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Equity Compensation Plan Information as of April 2, 2016
The following table sets forth information as of April 2, 2016March 27, 2021 regarding compensation plans under which the Company's equity securities are authorized for issuance:
| (a) | (b) | (c) | |||||||||||||||||||||
| Plan Category | Numbers of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||||||||||||||
| Equity compensation plans approved by security holders | 3,137,067 | (1) | $ | 159.83 | (2) | 3,192,457 | (3) | ||||||||||||||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||||||||||||||||
| Total | 3,137,067 | $ | 159.83 | 3,192,457 | |||||||||||||||||||
(1)Consists of 254,853 options to purchase shares of our Class A common stock and 2,882,214 restricted stock units that are payable solely in shares of Class A common stock (including 473,870 service-based restricted stock units that have fully vested but for which the underlying shares have not yet been delivered as of March 27, 2021).
(2)Represents the weighted-average exercise price of outstanding stock options.
| (a) | (b) | (c) | |||||||||
| Plan Category | Numbers of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options ($) | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | ||||||||
| Equity compensation plans approved by security holders | 4,170,629 | (1) | $ | 146.58 | (2) | 2,522,816 | (3) | ||||
| Equity compensation plans not approved by security holders | — | — | — | ||||||||
| Total | 4,170,629 | $ | 146.58 | 2,522,816 | |||||||
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(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 2019 Incentive Plan.
Other information relating to security ownership of certain beneficial owners and management will be set forth in the Proxy Statement and such information is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required to be included by Item 13 of Form 10-K will be included in the Proxy Statement and such information is incorporated by reference herein.
Item 14. Principal Accounting Fees and Services.
The information required to be included by Item 14 of Form 10-K will be included in the Proxy Statement and such information is incorporated by reference herein.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) 1., 2. Financial Statements and Financial Statement Schedules. See index on Page F-1.
3. Exhibits
Exhibit Number | Description | |||||
| 3.1 | ||||||
| 3.2 | ||||||
| 3.3 | ||||||
| 4.1 | ||||||
| 4.2 | ||||||
| 4.3 | ||||||
| 4.5 | ||||||
| 10.1 | ||||||
| 10.2 | ||||||
| 10.3 | ||||||
| 10.4 | ||||||
| 10.5 | ||||||
| 10.6 | ||||||
| 10.7 | ||||||
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| Exhibit Number | Description | |||||
| 10.8 | ||||||
| 10.9 | ||||||
| 10.11 | ||||||
| 10.12 | ||||||
| 10.14 | ||||||
| 10.18 | ||||||
| 10.23 | ||||||
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| 14.1 | ||||||
| Code of Ethics for Principal Executive Officers and Senior Financial Officers (filed as Exhibit 14.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 29, | ||||||
| 14.2 | ||||||
| 21.1* | ||||||
| 23.1* | ||||||
| 31.1* | ||||||
| 31.2* | ||||||
| 80 | ||||||||
| Exhibit Number | Description | |||||
| 32.1* | ||||||
| 101.INS* | XBRL Instance Document - the | |||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document. | |||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document. | |||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document. | |||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document. | |||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document. | |||||
Exhibits 32.1 and 32.2 shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.
| * | Filed herewith. | ||||
| † | Management contract or compensatory plan or arrangement. | ||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| RALPH LAUREN CORPORATION | |||||||||
| By: | |||||||||
/S/ | |||||||||
| (Principal Financial and Accounting Officer) | |||||||||
| Date: May | |||||||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| Signature | Title | Date | ||||||||||||
/S/ RALPH LAUREN | Executive Chairman, Chief Creative Officer, and Director | May 20, 2021 | ||||||||||||
| Ralph Lauren | ||||||||||||||
/S/ | ||||||||||||||
| President, Chief Executive Officer, and Director (Principal Executive Officer) | May | |||||||||||||
/S/ | May | |||||||||||||
| David Lauren | ||||||||||||||
| /s/ ANDREW HOWARD SMITH | Chief Commercial Officer and Director | May 20, 2021 | ||||||||||||
| Andrew Howard Smith | ||||||||||||||
/S/ | Director | May | ||||||||||||
/S/ | Director | May | ||||||||||||
/S/ FRANK A. BENNACK, JR. | Director | May 20, 2021 | ||||||||||||
| Frank A. Bennack, Jr. | ||||||||||||||
/S/ JOEL L. FLEISHMAN | Director | May 20, 2021 | ||||||||||||
| Joel L. Fleishman | ||||||||||||||
| /s/ MICHAEL A. GEORGE | Director | May 20, 2021 | ||||||||||||
| Michael A. George |
| 82 | ||||||||
| Signature | Title | Date | ||||||||||||
/S/ VALERIE JARRETT | Director | May 20, 2021 | ||||||||||||
| Valerie Jarrett | ||||||||||||||
/S/ HUBERT JOLY | Director | May 20, 2021 | ||||||||||||
| Hubert Joly | ||||||||||||||
/S/ LINDA FINDLEY KOZLOWSKI | Director | May 20, 2021 | ||||||||||||
| Linda Findley Kozlowski | ||||||||||||||
/S/ JUDITH MCHALE | Director | May 20, 2021 | ||||||||||||
| Judith McHale | ||||||||||||||
/S/ DARREN WALKER | Director | May 20, 2021 | ||||||||||||
| Darren Walker | ||||||||||||||
| 83 | ||||||||
RALPH LAUREN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
| Page | ||||||||
| Consolidated Financial Statements: | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
F- | ||||||||
| F-1 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | ||||
| Short-term investments | 629 | 644 | ||||||
| Accounts receivable, net of allowances of $254 million and $251 million | 517 | 655 | ||||||
| Inventories | 1,125 | 1,042 | ||||||
| Income tax receivable | 58 | 57 | ||||||
| Deferred tax assets | — | 145 | ||||||
| Prepaid expenses and other current assets | 268 | 281 | ||||||
| Total current assets | 3,053 | 3,324 | ||||||
| Property and equipment, net | 1,583 | 1,436 | ||||||
| Deferred tax assets | 119 | 45 | ||||||
| Goodwill | 918 | 903 | ||||||
| Intangible assets, net | 244 | 267 | ||||||
| Other non-current assets | 296 | 131 | ||||||
| Total assets | $ | 6,213 | $ | 6,106 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current liabilities: | ||||||||
| Short-term debt | $ | 116 | $ | 234 | ||||
| Accounts payable | 151 | 210 | ||||||
| Income tax payable | 33 | 27 | ||||||
| Accrued expenses and other current liabilities | 898 | 715 | ||||||
| Total current liabilities | 1,198 | 1,186 | ||||||
| Long-term debt | 597 | 298 | ||||||
| Non-current liability for unrecognized tax benefits | 81 | 116 | ||||||
| Other non-current liabilities | 593 | 615 | ||||||
| Commitments and contingencies (Note 16) | ||||||||
| Total liabilities | 2,469 | 2,215 | ||||||
| Equity: | ||||||||
| Class A common stock, par value $.01 per share; 101.0 million and 100.0 million shares issued; 57.0 million and 60.4 million shares outstanding | 1 | 1 | ||||||
| Class B common stock, par value $.01 per share; 25.9 million shares issued and outstanding | — | — | ||||||
| Additional paid-in-capital | 2,258 | 2,117 | ||||||
| Retained earnings | 6,015 | 5,787 | ||||||
| Treasury stock, Class A, at cost; 44.0 million and 39.6 million shares | (4,349 | ) | (3,849 | ) | ||||
| Accumulated other comprehensive loss | (181 | ) | (165 | ) | ||||
| Total equity | 3,744 | 3,891 | ||||||
| Total liabilities and equity | $ | 6,213 | $ | 6,106 | ||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 2,579.0 | $ | 1,620.4 | ||||||||||
| Short-term investments | 197.5 | 495.9 | ||||||||||||
| Accounts receivable, net of allowances of $213.8 million and $276.2 million | 451.5 | 277.1 | ||||||||||||
| Inventories | 759.0 | 736.2 | ||||||||||||
| Income tax receivable | 54.4 | 84.8 | ||||||||||||
| Prepaid expenses and other current assets | 166.6 | 160.8 | ||||||||||||
Total current assets | 4,208.0 | 3,375.2 | ||||||||||||
| Property and equipment, net | 1,014.0 | 979.5 | ||||||||||||
| Operating lease right-of-use assets | 1,239.5 | 1,511.6 | ||||||||||||
| Deferred tax assets | 283.9 | 245.2 | ||||||||||||
| Goodwill | 934.6 | 915.5 | ||||||||||||
| Intangible assets, net | 121.1 | 141.0 | ||||||||||||
| Other non-current assets | 86.4 | 111.9 | ||||||||||||
Total assets | $ | 7,887.5 | $ | 7,279.9 | ||||||||||
| LIABILITIES AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Short-term debt | $ | 0 | $ | 475.0 | ||||||||||
| Current portion of long-term debt | 0 | 299.6 | ||||||||||||
| Accounts payable | 355.9 | 246.8 | ||||||||||||
| Income tax payable | 50.6 | 65.1 | ||||||||||||
| Current operating lease liabilities | 302.9 | 288.4 | ||||||||||||
| Accrued expenses and other current liabilities | 875.4 | 717.1 | ||||||||||||
Total current liabilities | 1,584.8 | 2,092.0 | ||||||||||||
| Long-term debt | 1,632.9 | 396.4 | ||||||||||||
| Long-term operating lease liabilities | 1,294.5 | 1,568.3 | ||||||||||||
| Income tax payable | 118.7 | 132.7 | ||||||||||||
| Non-current liability for unrecognized tax benefits | 91.4 | 88.9 | ||||||||||||
| Other non-current liabilities | 560.8 | 308.5 | ||||||||||||
| Commitments and contingencies (Note 15) | 0 | 0 | ||||||||||||
Total liabilities | 5,283.1 | 4,586.8 | ||||||||||||
| Equity: | ||||||||||||||
| Class A common stock, par value $.01 per share; 106.1 million and 104.9 million shares issued; 48.3 million and 47.6 million shares outstanding | 1.0 | 1.0 | ||||||||||||
| Class B common stock, par value $.01 per share; 24.9 million issued and outstanding | 0.3 | 0.3 | ||||||||||||
| Additional paid-in-capital | 2,667.1 | 2,594.4 | ||||||||||||
| Retained earnings | 5,872.9 | 5,994.0 | ||||||||||||
| Treasury stock, Class A, at cost; 57.8 million and 57.3 million shares | (5,816.1) | (5,778.4) | ||||||||||||
| Accumulated other comprehensive loss | (120.8) | (118.2) | ||||||||||||
Total equity | 2,604.4 | 2,693.1 | ||||||||||||
Total liabilities and equity | $ | 7,887.5 | $ | 7,279.9 | ||||||||||
See accompanying notes.
| F-2 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions, except per share data) | ||||||||||||
| Net sales | $ | 7,230 | $ | 7,451 | $ | 7,284 | ||||||
| Licensing revenue | 175 | 169 | 166 | |||||||||
| Net revenues | 7,405 | 7,620 | 7,450 | |||||||||
Cost of goods sold(a) | (3,218 | ) | (3,242 | ) | (3,140 | ) | ||||||
| Gross profit | 4,187 | 4,378 | 4,310 | |||||||||
Selling, general, and administrative expenses(a) | (3,389 | ) | (3,301 | ) | (3,142 | ) | ||||||
| Amortization of intangible assets | (24 | ) | (25 | ) | (35 | ) | ||||||
| Gain on acquisition of Chaps | — | — | 16 | |||||||||
| Impairment of assets | (49 | ) | (7 | ) | (1 | ) | ||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (18 | ) | ||||||
| Total other operating expenses, net | (3,605 | ) | (3,343 | ) | (3,180 | ) | ||||||
| Operating income | 582 | 1,035 | 1,130 | |||||||||
| Foreign currency losses | (4 | ) | (26 | ) | (8 | ) | ||||||
| Interest expense | (21 | ) | (17 | ) | (20 | ) | ||||||
| Interest and other income, net | 6 | 6 | 3 | |||||||||
| Equity in losses of equity-method investees | (11 | ) | (11 | ) | (9 | ) | ||||||
| Income before provision for income taxes | 552 | 987 | 1,096 | |||||||||
| Provision for income taxes | (156 | ) | (285 | ) | (320 | ) | ||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||
| Net income per common share: | ||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | 8.55 | ||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | 8.43 | ||||||
| Weighted average common shares outstanding: | ||||||||||||
| Basic | 85.2 | 88.2 | 90.7 | |||||||||
| Diluted | 85.9 | 89.1 | 92.0 | |||||||||
| Dividends declared per share | $ | 2.00 | $ | 1.85 | $ | 1.70 | ||||||
(a) Includes total depreciation expense of: | $ | (286 | ) | $ | (269 | ) | $ | (223 | ) | |||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||
Net revenues | $ | 4,400.8 | $ | 6,159.8 | $ | 6,313.0 | ||||||||||||||
Cost of goods sold | (1,539.4) | (2,506.5) | (2,427.0) | |||||||||||||||||
Gross profit | 2,861.4 | 3,653.3 | 3,886.0 | |||||||||||||||||
| Selling, general, and administrative expenses | (2,638.5) | (3,237.5) | (3,168.3) | |||||||||||||||||
| Impairment of assets | (96.0) | (31.6) | (25.8) | |||||||||||||||||
| Restructuring and other charges | (170.5) | (67.2) | (130.1) | |||||||||||||||||
Total other operating expenses, net | (2,905.0) | (3,336.3) | (3,324.2) | |||||||||||||||||
Operating income (loss) | (43.6) | 317.0 | 561.8 | |||||||||||||||||
| Interest expense | (48.5) | (17.6) | (20.7) | |||||||||||||||||
| Interest income | 9.7 | 34.4 | 40.8 | |||||||||||||||||
| Other income (expense), net | 7.6 | (7.4) | 0.6 | |||||||||||||||||
Income (loss) before income taxes | (74.8) | 326.4 | 582.5 | |||||||||||||||||
| Income tax benefit (provision) | (46.3) | 57.9 | (151.6) | |||||||||||||||||
Net income (loss) | $ | (121.1) | $ | 384.3 | $ | 430.9 | ||||||||||||||
| Net income (loss) per common share: | ||||||||||||||||||||
| Basic | $ | (1.65) | $ | 5.07 | $ | 5.35 | ||||||||||||||
| Diluted | $ | (1.65) | $ | 4.98 | $ | 5.27 | ||||||||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||||||
| Basic | 73.5 | 75.8 | 80.6 | |||||||||||||||||
| Diluted | 73.5 | 77.2 | 81.7 | |||||||||||||||||
| Dividends declared per share | $ | 0 | $ | 2.75 | $ | 2.50 | ||||||||||||||
See accompanying notes.
| F-3 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||
| Fiscal Years Ended | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | (millions) | |||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||||||||||||||||||||||
Net income (loss) | Net income (loss) | $ | (121.1) | $ | 384.3 | $ | 430.9 | |||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||||
| Foreign currency translation gains (losses) | 36 | (318 | ) | 52 | Foreign currency translation gains (losses) | 7.2 | (11.9) | (39.2) | ||||||||||||||||||||||||
| Net gains (losses) on cash flow hedges | (55 | ) | 47 | (27 | ) | Net gains (losses) on cash flow hedges | (13.4) | (2.2) | 36.2 | |||||||||||||||||||||||
| Net losses on available-for-sale investments | — | — | (5 | ) | ||||||||||||||||||||||||||||
| Net gains (losses) on defined benefit plans | 3 | (8 | ) | — | Net gains (losses) on defined benefit plans | 3.6 | (0.7) | (1.9) | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (16 | ) | (279 | ) | 20 | |||||||||||||||||||||||||||
| Total comprehensive income | $ | 380 | $ | 423 | $ | 796 | ||||||||||||||||||||||||||
Other comprehensive loss, net of tax | Other comprehensive loss, net of tax | (2.6) | (14.8) | (4.9) | ||||||||||||||||||||||||||||
Total comprehensive income (loss) | Total comprehensive income (loss) | $ | (123.7) | $ | 369.5 | $ | 426.0 | |||||||||||||||||||||||||
See accompanying notes.
| F-4 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization expense | 310 | 294 | 258 | |||||||||
| Deferred income tax expense (benefit) | (8 | ) | 11 | 1 | ||||||||
| Equity in losses of equity-method investees | 11 | 11 | 9 | |||||||||
| Non-cash stock-based compensation expense | 97 | 81 | 93 | |||||||||
| Gain on acquisition of Chaps | — | — | (16 | ) | ||||||||
| Non-cash impairment of assets | 49 | 7 | 1 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | (10 | ) | (8 | ) | (34 | ) | ||||||
| Other non-cash charges (benefits), net | 40 | (25 | ) | 6 | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 129 | (96 | ) | (104 | ) | |||||||
| Inventories | (91 | ) | (97 | ) | (77 | ) | ||||||
| Prepaid expenses and other current assets | 30 | (96 | ) | (56 | ) | |||||||
| Accounts payable and accrued liabilities | 90 | 50 | 43 | |||||||||
| Income tax receivables and payables | (15 | ) | (22 | ) | 59 | |||||||
| Deferred income | (8 | ) | (21 | ) | (18 | ) | ||||||
| Other balance sheet changes, net | (13 | ) | 103 | (34 | ) | |||||||
| Net cash provided by operating activities | 1,007 | 894 | 907 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Capital expenditures | (418 | ) | (391 | ) | (390 | ) | ||||||
| Purchases of investments | (1,085 | ) | (1,398 | ) | (1,067 | ) | ||||||
| Proceeds from sales and maturities of investments | 942 | 1,113 | 1,011 | |||||||||
| Acquisitions and ventures | (16 | ) | (12 | ) | (40 | ) | ||||||
| Change in restricted cash deposits | (6 | ) | (1 | ) | (2 | ) | ||||||
| Net cash used in investing activities | (583 | ) | (689 | ) | (488 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from issuance of short-term debt | 4,344 | 2,808 | — | |||||||||
| Repayments of short-term debt | (4,463 | ) | (2,574 | ) | — | |||||||
| Proceeds from issuance of long-term debt | 299 | — | 300 | |||||||||
| Repayments of current maturities of long-term debt | — | — | (269 | ) | ||||||||
| Payments of capital lease obligations | (25 | ) | (24 | ) | (9 | ) | ||||||
| Payments of dividends | (170 | ) | (158 | ) | (149 | ) | ||||||
| Repurchases of common stock, including shares surrendered for tax withholdings | (500 | ) | (532 | ) | (558 | ) | ||||||
| Proceeds from exercise of stock options | 34 | 52 | 52 | |||||||||
| Excess tax benefits from stock-based compensation arrangements | 10 | 8 | 34 | |||||||||
| Other financing activities | (2 | ) | (1 | ) | — | |||||||
| Net cash used in financing activities | (473 | ) | (421 | ) | (599 | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 5 | (81 | ) | 3 | ||||||||
| Net decrease in cash and cash equivalents | (44 | ) | (297 | ) | (177 | ) | ||||||
| Cash and cash equivalents at beginning of period | 500 | 797 | 974 | |||||||||
| Cash and cash equivalents at end of period | $ | 456 | $ | 500 | $ | 797 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash flows from operating activities: | ||||||||||||||||||||
| Net income (loss) | $ | (121.1) | $ | 384.3 | $ | 430.9 | ||||||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||||||
| Depreciation and amortization expense | 247.6 | 269.5 | 281.3 | |||||||||||||||||
| Deferred income tax expense (benefit) | 35.6 | (168.8) | 8.5 | |||||||||||||||||
| Loss on sale of property | 0 | 0 | 11.6 | |||||||||||||||||
| Non-cash stock-based compensation expense | 72.7 | 100.6 | 88.6 | |||||||||||||||||
| Non-cash impairment of assets, including equity method investment | 96.0 | 38.7 | 25.8 | |||||||||||||||||
| Bad debt expense (benefit) | (27.6) | 58.7 | 0.4 | |||||||||||||||||
| Other non-cash charges (benefits) | 1.8 | (2.3) | 6.5 | |||||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable | (143.0) | 57.6 | 10.1 | |||||||||||||||||
| Inventories | 3.7 | 72.3 | (83.6) | |||||||||||||||||
| Prepaid expenses and other current assets | 5.2 | 58.2 | (40.5) | |||||||||||||||||
| Accounts payable and accrued liabilities | 296.8 | (64.3) | (4.7) | |||||||||||||||||
| Income tax receivables and payables | (37.8) | (42.5) | 29.7 | |||||||||||||||||
| Deferred income | (3.2) | 0 | (16.5) | |||||||||||||||||
| Other balance sheet changes | (45.8) | (7.4) | 35.7 | |||||||||||||||||
Net cash provided by operating activities | 380.9 | 754.6 | 783.8 | |||||||||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Capital expenditures | (107.8) | (270.3) | (197.7) | |||||||||||||||||
| Purchases of investments | (704.6) | (1,289.7) | (3,030.8) | |||||||||||||||||
| Proceeds from sales and maturities of investments | 1,007.2 | 2,240.4 | 2,357.5 | |||||||||||||||||
| Proceeds from sale of property | 0 | 20.8 | 20.0 | |||||||||||||||||
| Settlement of net investment hedges | 3.7 | 0 | (23.8) | |||||||||||||||||
| Other investing activities | (3.5) | 0.9 | (4.5) | |||||||||||||||||
Net cash provided by (used in) investing activities | 195.0 | 702.1 | (879.3) | |||||||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from credit facility borrowings | 0 | 475.0 | 0 | |||||||||||||||||
| Repayments of credit facility borrowings | (475.0) | 0 | (9.9) | |||||||||||||||||
| Proceeds from the issuance of long-term debt | 1,241.9 | 0 | 398.1 | |||||||||||||||||
| Repayments of long-term debt | (300.0) | 0 | (300.0) | |||||||||||||||||
| Payments of finance lease obligations | (13.9) | (13.6) | (19.6) | |||||||||||||||||
| Payments of dividends | (49.8) | (203.9) | (190.7) | |||||||||||||||||
| Repurchases of common stock, including shares surrendered for tax withholdings | (37.7) | (694.8) | (502.6) | |||||||||||||||||
| Proceeds from exercise of stock options | 0 | 0 | 21.8 | |||||||||||||||||
| Other financing activities | (8.7) | (0.9) | (2.8) | |||||||||||||||||
Net cash provided by (used in) financing activities | 356.8 | (438.2) | (605.7) | |||||||||||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 25.5 | (15.2) | (27.8) | |||||||||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | 958.2 | 1,003.3 | (729.0) | |||||||||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | 1,629.8 | 626.5 | 1,355.5 | |||||||||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | 2,588.0 | $ | 1,629.8 | $ | 626.5 | ||||||||||||||
See accompanying notes.
| F-5 | ||||||||
RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
| Additional | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock(a) | Paid-in | Retained | at Cost | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | AOCI(b) | Equity | |||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2018 | 127.9 | $ | 1.3 | $ | 2,383.4 | $ | 5,752.2 | 46.6 | $ | (4,581.0) | $ | (98.5) | $ | 3,457.4 | ||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 430.9 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (4.9) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 426.0 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (198.9) | (198.9) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 4.1 | (502.6) | (502.6) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 88.6 | 88.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 0.9 | 0 | 21.8 | 21.8 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative adjustment from adoption of new accounting standards | (5.1) | (5.1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 30, 2019 | 128.8 | $ | 1.3 | $ | 2,493.8 | $ | 5,979.1 | 50.7 | $ | (5,083.6) | $ | (103.4) | $ | 3,287.2 | ||||||||||||||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | 384.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (14.8) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income | 369.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | (204.9) | (204.9) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 6.6 | (694.8) | (694.8) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 100.6 | 100.6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 1.0 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||
| Cumulative adjustment from adoption of new accounting standards | (164.5) | (164.5) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 28, 2020 | 129.8 | $ | 1.3 | $ | 2,594.4 | $ | 5,994.0 | 57.3 | $ | (5,778.4) | $ | (118.2) | $ | 2,693.1 | ||||||||||||||||||||||||||||||||||||
| Comprehensive loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (121.1) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (2.6) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive loss | (123.7) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | 0.5 | (37.7) | (37.7) | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | 72.7 | 72.7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares issued pursuant to stock-based compensation plans | 1.2 | 0 | 0 | 0 | ||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 27, 2021 | 131.0 | $ | 1.3 | $ | 2,667.1 | $ | 5,872.9 | 57.8 | $ | (5,816.1) | $ | (120.8) | $ | 2,604.4 | ||||||||||||||||||||||||||||||||||||
(a)Includes Class A and Class B common stock. In Fiscal 2020, 1.0 million shares of Class B common stock were converted into an equal number of shares of Class A common stock pursuant to the terms of the Class B common stock (see Note 16).
| RALPH LAUREN CORPORATION | ||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF EQUITY | ||||||||||||||||||||||||||||||
| Additional | Treasury Stock | |||||||||||||||||||||||||||||
Common Stock(a) | Paid-in | Retained | at Cost | Total | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Earnings | Shares | Amount | AOCI(b) | Equity | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||
| Balance at March 30, 2013 | 123.5 | $ | 1 | $ | 1,752 | $ | 4,647 | 32.6 | $ | (2,709 | ) | $ | 94 | $ | 3,785 | |||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 776 | |||||||||||||||||||||||||||||
| Other comprehensive income | 20 | |||||||||||||||||||||||||||||
| Total comprehensive income | 796 | |||||||||||||||||||||||||||||
| Dividends declared | (153 | ) | (153 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 50 | (c) | 3.6 | (608 | ) | (558 | ) | |||||||||||||||||||||||
| Stock-based compensation | 93 | 93 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.4 | — | 86 | 86 | ||||||||||||||||||||||||||
Conversion of stock-based compensation awards(e) | (2 | ) | (13 | ) | (15 | ) | ||||||||||||||||||||||||
| Balance at March 29, 2014 | 124.9 | $ | 1 | $ | 1,979 | $ | 5,257 | 36.2 | $ | (3,317 | ) | $ | 114 | $ | 4,034 | |||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 702 | |||||||||||||||||||||||||||||
| Other comprehensive loss | (279 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | 423 | |||||||||||||||||||||||||||||
| Dividends declared | (161 | ) | (161 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 3.4 | (532 | ) | (532 | ) | |||||||||||||||||||||||||
| Stock-based compensation | 81 | 81 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.0 | — | 60 | 60 | ||||||||||||||||||||||||||
Conversion of stock-based compensation awards(e) | (3 | ) | (11 | ) | (14 | ) | ||||||||||||||||||||||||
| Balance at March 28, 2015 | 125.9 | $ | 1 | $ | 2,117 | $ | 5,787 | 39.6 | $ | (3,849 | ) | $ | (165 | ) | $ | 3,891 | ||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||
| Net income | 396 | |||||||||||||||||||||||||||||
| Other comprehensive loss | (16 | ) | ||||||||||||||||||||||||||||
| Total comprehensive income | 380 | |||||||||||||||||||||||||||||
| Dividends declared | (168 | ) | (168 | ) | ||||||||||||||||||||||||||
| Repurchases of common stock | 4.4 | (500 | ) | (500 | ) | |||||||||||||||||||||||||
| Stock-based compensation | 97 | 97 | ||||||||||||||||||||||||||||
| Shares issued and tax benefits recognized | ||||||||||||||||||||||||||||||
pursuant to stock-based compensation plans(d) | 1.0 | — | 44 | 44 | ||||||||||||||||||||||||||
| Balance at April 2, 2016 | 126.9 | $ | 1 | $ | 2,258 | $ | 6,015 | 44.0 | $ | (4,349 | ) | $ | (181 | ) | $ | 3,744 | ||||||||||||||
See accompanying notes.
| F-6 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
Ralph Lauren Corporation ("RLC") is a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, footwear, accessories, home furnishings, fragrances, and other licensed product categories.hospitality. RLC's long-standing reputation and distinctive image have been consistently developed across an expanding number of products, brands, sales channels, and international markets. RLC's brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren, Chaps, and Club Monaco, and American Living, among others. RLC and its subsidiaries are collectively referred to herein as the "Company," "we," "us," "our," and "ourselves," unless the context indicates otherwise.
The Company classifiesdiversifies its businesses into three segments: Wholesale, Retail,business by geography (North America, Europe, and Licensing.Asia, among other regions) and channel of distribution (retail, wholesale, and licensing). This allows the Company to maintain a dynamic balance as its operating results do not depend solely on the performance of any single geographic area or channel of distribution. The Company's wholesale sales are made principally to major department stores and specialty stores around the world. The Company also sells directly to consumers through its integrated retail channel, which includes its retail stores, concession-based shop-within-shops, and e-commercedigital commerce operations around the world. The Company's wholesale sales are made principally to major department stores, specialty stores, and third-party digital partners around the world, as well as to certain third-party-owned stores to which the Company has licensed the right to operate in defined geographic territories using its trademarks. In addition, the Company licenses to unrelated third parties for specified periods the right to operate retail stores and/or to useaccess its various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings.
The Company organizes its business into the following 3 reportable segments: North America, Europe, and Asia. In addition to these reportable segments, the Company also has other non-reportable segments. See Note 20 for further discussion of the Company's segment reporting structure.
2. Basis of Presentation
Basis of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") and present the consolidated financial position, income (loss), comprehensive income (loss), and cash flows of the Company, including all entities in which the Company has a controlling financial interest and is determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year
The Company utilizes a 52-53 week fiscal year ending on the Saturday closest toimmediately before or after March 31. As such, fiscal year 2016 ended on April 2, 2016 and was a 53-week period ("Fiscal 2016"). Fiscal year 20152021 ended on March 28, 201527, 2021 and was a 52-week period ("Fiscal 2015"2021"). Fiscal; fiscal year 20142020 ended on March 29, 201428, 2020 and was also a 52-week period ("Fiscal 2014"2020"); fiscal year 2019 ended on March 30, 2019 and was a 52-week period ("Fiscal 2019"); and fiscal year 2022 will end on April 2, 2022 and will be a 53-week period ("Fiscal 2022").
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and footnotesnotes thereto. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include reserves for bad debt, customer returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances; the realizability of inventory; reserves for litigation and other contingencies; useful lives and impairments of long-lived tangible and intangible assets; fair value measurements; accounting for income taxes and related uncertain tax positions; valuation of stock-based compensation awards and related estimated forfeiture rates; and reserves for restructuring activity; and accounting for business combinations,activity, among others.
| F-7 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Reclassifications
Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation.
COVID-19 Pandemic
Beginning in the fourth quarter of Fiscal 2020, a novel strain of coronavirus commonly referred to as COVID-19 emerged and spread rapidly across the globe, including throughout all major geographies in which the Company operates (North America, Europe, and Asia), resulting in adverse economic conditions and business disruptions, as well as significant volatility in global financial markets. Governments worldwide have imposed varying degrees of preventative and protective actions, such as temporary travel bans, forced business closures, and stay-at-home orders, all in an effort to reduce the spread of the virus. Such factors, among others, have resulted in a significant decline in retail traffic, tourism, and consumer spending on discretionary items. Additionally, during this period of uncertainty, companies across a wide array of industries have implemented various initiatives to reduce operating expenses and preserve cash balances, including work furloughs, reduced pay, and severance actions, which could lower consumers' disposable income levels or willingness to purchase discretionary items. Further, even after such government restrictions and company initiatives are lifted, consumer behavior, spending levels, and/or shopping preferences, such as willingness to congregate in indoor shopping centers or other populated locations, could be adversely affected.
As a result of the COVID-19 pandemic, the Company has experienced varying degrees of business disruptions and periods of closure of its stores, distribution centers, and corporate facilities, as have the Company's wholesale customers, licensing partners, suppliers, and vendors. During the first quarter of Fiscal 2021, the majority of the Company's stores in key markets were closed for an average of 8 to 10 weeks due to government-mandated lockdowns and other restrictions, resulting in significant adverse impacts to its operating results. Resurgences in certain parts of the world resulted in further business disruptions periodically throughout Fiscal 2021, most notably in Europe where a significant number of the Company's stores were closed for approximately two to three months during the second half of Fiscal 2021, including during the holiday period, due to government-mandated lockdowns and other restrictions. Such disruptions have continued into the first quarter of Fiscal 2022, impacting not only the Company's businesses in Europe but also in other regions of the world (notably the Company's retail operations in Japan and its sourcing operations in India). Further, the majority of the Company's stores that are able to remain open have periodically been subject to limited operating hours and/or customer capacity levels in accordance with local health guidelines, with traffic remaining challenged. The Company's wholesale and licensing businesses have also been adversely affected, particularly in North America and Europe, as a result of store closures and lower traffic and consumer demand.
Throughout the pandemic, the Company's priority has been to ensure the safety and well-being of its employees, customers, and the communities in which it operates around the world. The Company continues to consider the guidance of local governments and global health organizations and has implemented new health and safety protocols in its stores, distribution centers, and corporate facilities. The Company has also taken various preemptive actions to preserve cash and strengthen its liquidity position, including:
•amending its Global Credit Facility in May 2020 to temporarily waive its leverage ratio requirement (see Note 11);
•issuing $1.250 billion of unsecured senior notes in June 2020, the proceeds of which are being used for general corporate purposes, including repayment of certain of the Company's previously outstanding borrowings (see Note 11);
•temporarily suspending its quarterly cash dividend and common stock repurchase program, effective beginning in the first quarter of Fiscal 2021 (see Note 16);
•temporarily reducing the base compensation of its executives and senior management team, as well as its Board of Directors, for the first quarter of Fiscal 2021;
•furloughing or reducing work hours for a significant portion of its employees during the first half of Fiscal 2021;
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•carefully managing its expense structure across all key areas of spend, including aligning inventory levels with anticipated demand, negotiating rent abatements with certain of its landlords, and postponing non-critical capital build-out and other investments and activities;
•pursuing relevant government subsidy programs related to COVID-19 business disruptions; and
•improving upon its cash conversion cycle largely driven by its accounts receivable collection efforts and extended vendor payment terms.
Despite the introduction of COVID-19 vaccines, the pandemic remains highly volatile and continues to evolve. Accordingly, the Company cannot predict for how long and to what extent the pandemic will impact its business operations or the global economy as a whole. The Company will continue to assess its operations location-by-location, considering the guidance of local governments and global health organizations to determine when its operations can begin returning to normal levels of business.
3. Summary of Significant Accounting Policies
Revenue Recognition
Revenue withinfrom the Company's Wholesale segmentretail business is recognized when the customer takes physical possession of the products, which occurs either at the timepoint of sale for merchandise purchased at the Company's own retail stores and shop-within-shop locations, or upon receipt of shipment for merchandise ordered through direct-to-consumer digital commerce sites. Such revenues are recorded net of estimated returns based on historical trends. Payment is due at the point of sale.
Gift cards purchased by customers are recorded as a liability until they are redeemed for products sold by the Company's retail business, at which point revenue is recognized. The Company also estimates and recognizes revenue for gift card balances not expected to ever be redeemed (referred to as "breakage") to the extent that it does not have a legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdiction as unclaimed or abandoned property. Such estimates are based upon historical redemption trends, with breakage income recognized in proportion to the pattern of actual customer redemptions.
Revenue from the Company's wholesale business is generally recognized upon shipment of products, at which point title passes and risk of loss is transferred to customers.the customer. In certain arrangements where the Company retains the risk of loss during shipment, revenue is recognized upon receipt of products by the customer. Wholesale revenue is recorded net of estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances. Returns and allowances require pre-approval from management and discounts are based on trade terms. Estimates for end-of-season markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Estimates for operational chargebacks are based on actual customer notifications of order fulfillment discrepancies and historical trends. The Company reviews and refines these estimates on at least a quarterly basis. The Company's historical estimates of these costsamounts have not differed materially from actual results.
| F-9 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
guaranteed minimum royalty amount, the minimum is generally recognized as revenue ratably over the respective contractual period. This sales-based output measure of progress and pattern of recognition best represents the value transferred to the licensee over the term of the arrangement, as well as the amount of consideration that the Company is entitled to receive in exchange for providing access to its trademarks. As of March 27, 2021, contractually-guaranteed minimum royalty amounts expected to be recognized as revenue during future periods were as follows:
Contractually-Guaranteed Minimum Royalties(a) | ||||||||
| (millions) | ||||||||
| Fiscal 2022 | $ | 94.8 | ||||||
| Fiscal 2023 | 73.4 | |||||||
| Fiscal 2024 | 39.1 | |||||||
| Fiscal 2025 | 11.5 | |||||||
| Fiscal 2026 | 11.5 | |||||||
| Fiscal 2027 and thereafter | 12.1 | |||||||
| Total | $ | 242.4 | ||||||
(a)Amounts presented do not contemplate potential contract renewals or royalties earned in excess of the contractually-guaranteed minimums.
Disaggregated Net Revenues
The following tables disaggregate the Company's net revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors for the fiscal periods presented:
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| March 27, 2021 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,214.1 | $ | 517.1 | $ | 968.4 | $ | 80.2 | $ | 2,779.8 | ||||||||||||||||||||||
| Wholesale | 778.3 | 648.8 | 59.1 | 12.4 | 1,498.6 | |||||||||||||||||||||||||||
| Licensing | 0 | 0 | 0 | 122.4 | 122.4 | |||||||||||||||||||||||||||
| Total | $ | 1,992.4 | $ | 1,165.9 | $ | 1,027.5 | $ | 215.0 | $ | 4,400.8 | ||||||||||||||||||||||
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| March 28, 2020 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,727.3 | $ | 874.6 | $ | 948.0 | $ | 191.0 | $ | 3,740.9 | ||||||||||||||||||||||
| Wholesale | 1,413.2 | 757.6 | 69.2 | 10.8 | 2,250.8 | |||||||||||||||||||||||||||
| Licensing | 0 | 0 | 0 | 168.1 | 168.1 | |||||||||||||||||||||||||||
| Total | $ | 3,140.5 | $ | 1,632.2 | $ | 1,017.2 | $ | 369.9 | $ | 6,159.8 | ||||||||||||||||||||||
| F-10 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Year Ended | ||||||||||||||||||||||||||||||||
| March 30, 2019 | ||||||||||||||||||||||||||||||||
| North America | Europe | Asia | Other | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
Sales Channel(a): | ||||||||||||||||||||||||||||||||
| Retail | $ | 1,688.5 | $ | 881.1 | $ | 969.9 | $ | 208.3 | $ | 3,747.8 | ||||||||||||||||||||||
| Wholesale | 1,514.4 | 801.9 | 71.1 | 5.1 | 2,392.5 | |||||||||||||||||||||||||||
| Licensing | 0 | 0 | 0 | 172.7 | 172.7 | |||||||||||||||||||||||||||
| Total | $ | 3,202.9 | $ | 1,683.0 | $ | 1,041.0 | $ | 386.1 | $ | 6,313.0 | ||||||||||||||||||||||
(a)Net revenues from the Company's retail and wholesale businesses are recognized at a point in time. Net revenues from the Company's licensing business are recognized over time.
Deferred Income
Deferred income forrepresents cash payments received in advance of the Company's transfer of control of products or services to its customers and generally consists of unredeemed gift cards when(net of breakage) and advance royalty payments from licensees. The Company's deferred income balances were $12.1 million and $14.6 million as of March 27, 2021 and March 28, 2020, respectively, and were primarily recorded within accrued expenses and other current liabilities within the likelihood of redemption by a customer is remote andconsolidated balance sheets. During Fiscal 2021, the Company determines that it does not have a legal obligation to remit the valuerecognized $10.0 million of net revenues from amounts recorded as deferred income as of March 28, 2020. The majority of the unredeemed gift carddeferred income balance as of March 27, 2021 is expected to be recognized as revenue within the relevant jurisdiction as unclaimed or abandoned property.
Cost of Goods Sold and Selling Expenses
Cost of goods sold includes the expensesamounts incurred to acquire and produce inventory for sale to the Company's customers, including product costs, freight-in, and import costs, as well as changes in reserves for shrinkage and inventory realizability. Gains and losses associated with forward foreign currency exchange contracts that are designated and qualifying as cash flow hedges of inventory transactions are also recognized within cost of goods sold when the hedged inventory is sold. The costs of selling merchandise, including those associated with preparing merchandise for sale, such as picking, packing, warehousing, and order charges ("handling costs"), are included in selling, general, and administrative ("SG&A") expenses in the consolidated statements of income.operations.
Shipping and Handling Costs
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Shipping costs | $ | 54.8 | $ | 46.7 | $ | 49.1 | ||||||||||||||
| Handling costs | 138.3 | 154.0 | 153.1 | |||||||||||||||||
| F-11 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Advertising and Marketing Costs
Advertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Out-of-store advertisingAdvertising costs paid to wholesale customers under cooperative advertising programs are expensed as an advertising cost within SG&A expenses if both the identified advertising benefit is sufficiently separable from the purchase of the Company's products by customers and the fair value of such benefit is measurable. Otherwise, such costs are reflected as a reduction of revenue. Costs of in-store advertising paid to wholesale customers under cooperative advertising programs are not included in advertising costs, but rather are reflected as a reduction of revenue since generally the benefits are not sufficiently separable from the purchases of the
Company's products by customers. Costs associated with the marketing and promotion of the Company's products are included within SG&A expenses.
Advertising and marketing expenses amounted to approximately $280were $265.0 million,, $275 $278.0 million,, and $256$272.8 million in Fiscal 2016,2021, Fiscal 2015,2020, and Fiscal 2014,2019, respectively. Deferred advertising, marketing, and promotional costs, which principally relate to advertisements that have not yet been exhibited or payments made for services that have not yet been received, were approximately $7$9.5 million and $10.1 million at the end of both Fiscal 20162021 and Fiscal 2015,2020, respectively, and were recorded within prepaid expenses and other current assets in the Company's consolidated balance sheets.
Foreign Currency Translation and Transactions
The financial position and operating results of the Company's foreign operations are primarily consolidated usingaccounted for in their respective functional currencies, which are generally consistent with the local currency as the functional currency. LocalFor purposes of consolidation, local currency assets and liabilities are translated to U.S. Dollars at the spot rates of exchange in effectprevailing on the balance sheet date, and local currency revenues and expenses are translated to U.S. Dollars at average rates of exchange in effect during the period. The resulting translation gains or losses are included in the consolidated statements of comprehensive income (loss) as a component of other comprehensive income (loss) ("OCI") and in the consolidated statements of equity within accumulated other comprehensive income (loss) ("AOCI"). Gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included within this component of equity.
The Company also recognizes gains and losses on both third-party and intercompany transactionsbalances that are denominated in a currency other than the respective entity's functional currency. ForeignSuch foreign currency transactiontransactional gains and losses are recognized in earnings and separately disclosedwithin other income (expense), net in the consolidated statements of income.operations, inclusive of the effects of any related hedging activities, and reflected net gains of $8.7 million in Fiscal 2021 and net losses of $1.1 million and $2.8 million in Fiscal 2020 and Fiscal 2019, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss), which is reported in the consolidated statements of comprehensive income (loss) and consolidated statements of equity, consists of net income (loss) and certain other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income. The componentsincome (loss) and referred to as OCI. Components of OCI for the Company consist of foreign currency translation gains (losses); net realized and unrealized gains (losses) on cash flow hedges, such as forward foreign currency exchange contracts; net realized and unrealized gains (losses) on available-for-sale investments; and net realized and unrealized gains (losses) related to the Company's defined benefit plans.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shares by the weighted-average number of common shares outstanding during the period. Weighted-average common shares include shares of the Company's Class A and Class B common stock. Diluted net income (loss) per common share adjusts basic net income (loss) per common share for the dilutive effects of outstanding stock options, restricted stock, restricted stock units ("RSUs"), stock options, and any other potentially dilutive instruments, only in the periods in which such effects are dilutive under the treasury stock method.dilutive.
| F-12 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted-average number of common shares outstanding used to calculate basic net income (loss) per common share is reconciled to shares used to calculate diluted net income (loss) per common share as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Basic shares | 73.5 | 75.8 | 80.6 | |||||||||||||||||
| Dilutive effect of RSUs and stock options | 0 | (a) | 1.4 | 1.1 | ||||||||||||||||
| Diluted shares | 73.5 | 77.2 | 81.7 | |||||||||||||||||
| Fiscal Years Ended | |||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||
| Basic shares | 85.2 | 88.2 | 90.7 | ||||||
| Dilutive effect of stock options, restricted stock, and RSUs | 0.7 | 0.9 | 1.3 | ||||||
| Diluted shares | 85.9 | 89.1 | 92.0 | ||||||
(a)Incremental shares of 1.2 million attributable to outstanding RSUs were excluded from the computation of diluted shares for Fiscal 2021 as such shares would not be dilutive given the net loss incurred during the fiscal year.
All earnings per share amounts have been calculated using unrounded numbers. Options to purchase shares of the Company's Class A common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income per common share. In addition, theThe Company has outstanding performance-based RSUs, that are issuable only upon the achievement of certain service and/or performance goals. Performance-based RSUswhich are included in the computation of diluted shares only to the extent that the underlying performance conditions (and any
Stock-Based Compensation
The Company recognizes expense for all stock-based compensation awards granted to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated forfeitures.based on an analysis of historical experience and expected future trends. The Company uses the Black-Scholes valuation model to estimate the grant date fair value of its stock option awards. For performance-based RSU awards that include a market condition in the form of a total shareholder return ("TSR") modifier, the Company uses a Monte Carlo simulation valuation model to estimate the grant date fair value. The fair values of restricted stock awards, service-based RSUs, and performance-based RSUs that are not subject to a TSR modifier are determined based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for thoseany awards for which dividend equivalent amounts do not accrue while outstanding and unvested. The grant date fair value of the Company's market-based RSU awards, for which vesting is dependent upon total shareholder return ("TSR") of its Class A common stock over a three-year performance period relative to that are not entitledof a pre-established peer group, is estimated using a Monte Carlo simulation model. The Company uses the Black-Scholes valuation model to dividend equivalents. estimate the grant date fair value of any stock option awards.
Compensation expense for all performance-based RSUs is recognized over the requisite service period when attainment of the performance goal is deemed probable, net of estimated forfeitures. Compensation expense for market-based RSUs, net of estimated forfeitures, is recognized over the requisite service period regardless of whether, and the extent to which, the market condition is ultimately satisfied. The Company recognizes compensation expense on an accelerated basis for all awards with graded vesting terms, including stock options, restricted stock, certain RSUs, and certain RSUs.stock options. For RSU awards with cliff vesting terms, compensation expense is recognized on a straight-line basis. For certain RSU awards granted to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, the related stock-based compensation expense is recognized on an accelerated basis over a term commensurate with the period that the employee is required to provide service in order to vest in the award. See Note 1918 for further discussion of the Company's stock-based compensation plans.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less, including investments in time deposits and debt securities and money market funds.securities. Investments in debt securities are diversified amongacross high-credit quality securitiesissuers in accordance with the Company's risk-management policies.
| F-13 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Cash
The Company is periodically required to place cash in escrow with various banks as collateral, primarily to secure guarantees of corresponding amounts made by the banks to international tax authorities on behalf of the Company, such as to secure refunds of value-added tax payments in certain international tax jurisdictions or in the case of certain international tax audits.audits, as well as to secure guarantees related to certain real estate leases. Such cash is classified as restricted cash and reported as a component of either prepaid expenses and other current assets or other non-current assets in the Company's consolidated balance sheets. The cash inflows and outflows related to restricted cash are classified as investing activities in the Company's consolidated statements of cash flows.
Investments
The Company's investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in the Company's investment policy.
Short-term investments consist of investments which the Company expects to convert into cash within one year, including any time deposits which haveand debt securities with original maturities greater than 90 days. Non-current investments, which are classified within other non-current assets in the consolidated balance sheets, consist of those investmentstime deposits and debt securities which the Company does not expect to convert into cash within one year. See Note 13 for further information relating to the composition of the Company's investments.
The Company classifies all of itssuch investments at the time of purchase as available-for-sale. These investmentsAccordingly, they are recorded at fair value with unrealized gains or losses classifiedgenerally recognized as a component of AOCI in the consolidated balance sheets, and related realized gains or losses classified as a component of interest and(or unrealized credit-related impairment losses, if any) recorded within other income (expense), net, in the consolidated statements of income.operations. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in the Company's consolidated statements of cash flows.
Equity-method Investments
Under the equity method of accounting, the following amounts are generally recorded in the Company's consolidated financial statements: the Company's original investment, inas subsequently adjusted for its share of the investee's earnings (losses) and amounts due toreduced by any dividends received and from the investee areother-than-temporary impairments recorded, is included in the consolidated balance sheets; the Company's share of the investee's periodic earnings (losses) is included in the consolidated statements of income;operations; and dividends and other cash distributions loans, or other cash received from the investee and additional cash investments loan repayments,made in or other cash paid to the investee are included in the consolidated statements of cash flows.
The Company's share of equity-method investments include its 50% interestinvestee earnings and losses is recognized within other income (expense), net, in the Ralph Lauren Watch and Jewelry Company, Sárl (the "RL Watch Company"), a joint venture formed with Compagnie Financière Richemont SA ("Richemont"), the Swiss luxury goods group, in March 2007. This joint venture is a Swiss corporation whose purpose is to design, develop, manufacture, sell, and distribute luxury watches and fine jewelry through Ralph Lauren stores, as well as through fine independent jewelry and luxury watch retailers around the world. Royalty payments due to the Company under the related license agreement for use of certain of its trademarks are reflected as licensing revenue within the consolidated statements of income.operations, and reflected a net loss in Fiscal 2021 of $0.1 million and net gains of $0.1 million and $2.9 million in Fiscal 2020 and Fiscal 2019, respectively.
Impairment Assessment
The Company evaluates the need to recognize impairment charges for its investments heldthat are in unrealized loss positions, if any, for other-than-temporary impairmentand its equity method investments on a quarterly basis.basis (see Note 12). Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers.issuers or investees. Factors considered by the Company include (i) the length of time and the extent to which the fair value has been below cost; (ii) the financial condition, credit worthiness,creditworthiness, and near-term prospects of the issuer;issuer or investee; (ii) future economic conditions and market forecasts; (iii) the length of time to maturity; (iv) future economic conditionsmaturity, if applicable, and market forecasts; (v) the Company's intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; and (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value. See value; and (iv) whether events or changes in circumstances indicate that the investment's carrying amount might not be recoverable.
During Fiscal 2020, the Company recorded a $7.1 million impairment charge within other income (expense), net in the consolidated statements of operations related to an equity method investment (see Note 15 for further information relating to the Company's investments.8).
| F-14 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Accounts Receivable
In the normal course of business, the Company extends credit to wholesale customers that satisfy defined credit criteria. Payment is generally due within 30 to 120 days and does not include a significant financing component. Accounts receivable is recorded at carrying value,amortized cost, which approximates fair value, and is presented in the Company's consolidated balance sheets net of certain reserves and allowances. These reserves and allowances consist of (i) reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances (see the "Revenue Recognition" section above for further discussion of related accounting policies) and (ii) allowances for doubtful accounts.
A rollforward of the activity in the Company's reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances is presented below:as follows:
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||
| Beginning reserve balance | $ | 240 | $ | 254 | $ | 230 | Beginning reserve balance | $ | 204.7 | $ | 176.5 | $ | 202.5 | |||||||||||||||||||
| Amount charged against revenue to increase reserve | 749 | 756 | 758 | Amount charged against revenue to increase reserve | 280.1 | 580.1 | 543.8 | |||||||||||||||||||||||||
| Amount credited against customer accounts to decrease reserve | (753 | ) | (749 | ) | (739 | ) | Amount credited against customer accounts to decrease reserve | (317.4) | (550.3) | (563.0) | ||||||||||||||||||||||
| Foreign currency translation | 4 | (21 | ) | 5 | Foreign currency translation | 6.3 | (1.6) | (6.8) | ||||||||||||||||||||||||
| Ending reserve balance | $ | 240 | $ | 240 | $ | 254 | Ending reserve balance | $ | 173.7 | $ | 204.7 | $ | 176.5 | |||||||||||||||||||
An allowance for doubtful accounts is determined through analysis of periodic aging of accounts receivable aging, assessments of collectability based on an evaluation of historical and anticipated trends, the financial condition of the Company's customers and antheir ability to withstand prolonged periods of adverse economic conditions, and evaluation of the impact of current and forecasted economic and market conditions over the related asset's contractual life, among other factors.
The Company's allowance for doubtful accounts as of March 27, 2021 and March 28, 2020 reflects estimated impacts associated with COVID-19 business disruptions, which include declines in retail traffic, tourism, and consumer spending on discretionary items.
A rollforward of the activity in the Company's allowance for doubtful accounts is presented below:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Beginning reserve balance | $ | 11 | $ | 16 | $ | 15 | ||||||
Amount recorded to expense to increase reserve(a) | 7 | — | 3 | |||||||||
| Amount written-off against customer accounts to decrease reserve | (4 | ) | (2 | ) | (3 | ) | ||||||
| Foreign currency translation | — | (3 | ) | 1 | ||||||||
| Ending reserve balance | $ | 14 | $ | 11 | $ | 16 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Beginning reserve balance | $ | 71.5 | $ | 15.7 | $ | 19.7 | ||||||||||||||
Amount recorded to expense to increase (decrease) reserve(a) | (27.6) | 58.7 | 0.4 | |||||||||||||||||
| Amount written-off against customer accounts to decrease reserve | (6.1) | (2.6) | (3.5) | |||||||||||||||||
| Foreign currency translation | 2.3 | (0.3) | (0.9) | |||||||||||||||||
| Ending reserve balance | $ | 40.1 | $ | 71.5 | $ | 15.7 | ||||||||||||||
(a)Amounts recorded to bad debt expense are included within SG&A expenses in the consolidated statements of operations. |
Concentration of Credit Risk
The Company sells its wholesale merchandise primarily to major department andstores, specialty stores, and third-party digital partners around the world, and extends credit based on an evaluation of each customer's financial capacity and condition, usually without requiring collateral. In the Company's wholesale business, concentration of credit risk is relatively limited due to the large number of customers and their dispersion across many geographic areas. However, the Company has three3 key wholesale customers that generate significant sales volume. During Fiscal 2016,2021, the Company's sales to its 3 largest wholesale customer, Macy's, Inc. ("Macy's"),customers accounted for approximately 11%14% of total net revenues, andrevenues. Substantially all of the Company's sales to its three3 largest wholesale customers (including Macy's)related to its North America segment. As of March 27, 2021, these 3 key wholesale customers accounted for approximately 24% of total net revenues. As of April 2, 2016, these three key wholesale customers constituted approximately 36%30% of total gross accounts receivable.
| F-15 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories
The Company holds inventory that is sold in its retail stores and digital commerce sites directly to consumers. The Company also holds inventory that is to be sold through wholesale distribution channels to major department stores, and specialty retail stores. The Company also holds retail inventory that is sold in its own stores, and e-commerce sites directly to consumers.third-party digital partners. Substantially all of the Company's inventories are comprisedconsist of finished goods, which are stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis.
The estimated realizable value of inventory is determined based on an analysis of historical sales trends of the Company's individual product lines, the impact of market trends and economic conditions (such as those resulting from pandemic diseases and other catastrophic events), and a forecast of future demand, giving consideration to the value of current in-house orders for future sales of inventory, as well as plans to sell inventory through the Company's factory stores, among other liquidation channels. Actual results may differ from estimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and actual economic and market conditions. ReservesIn addition, reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. The Company's historical estimates of these coststhe realizable value of its inventory and its related provisionsreserves for inventory shrinkage have not differed materially from actual results. However, unforeseen adverse future economic and market conditions could result in the Company's actual results differing materially from its estimates.
The Company's estimated realizable value of its inventory reflects adverse impacts associated with COVID-19 business disruptions, which include temporary closures of the Company's stores and those of its wholesale customers worldwide, as well as declines in retail traffic, tourism, and consumer spending on discretionary items.
Implementation Costs Incurred in Cloud Computing Arrangements
For cloud computing arrangements that are a service contract, the Company capitalizes certain implementation costs incurred (depending on their nature) during the application development stage of the related project, and expenses costs during the preliminary project and post-implementation stages as they are incurred. Capitalized implementation costs are expensed on a straight-line basis over the reasonably certain term of the hosting arrangement, beginning when the module is ready for its intended use. The Company's cloud computing arrangements relate to various areas, including certain retail store and digital commerce operations, and corporate and administrative functions. Capitalized amounts related to such arrangements are recorded within prepaid expenses and other current assets and within other non-current assets in the consolidated balance sheets (see Note 7). Capitalized implementation costs expensed were $8.4 million and $4.3 million during Fiscal 2021 and Fiscal 2020, respectively, and were recorded in SG&A expenses in the consolidated statements of operations. The Company did not incur any capitalized implementation costs during Fiscal 2019.
See Note 4 for discussion of the Company's adoption of a new accounting standard related to implementation costs incurred in connection with cloud computing arrangements that are a service contract as of the beginning of Fiscal 2021.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using theon a straight-line methodbasis, based upon the estimated useful lives of depreciable assets, which range from three to seven years for furniture and fixtures, machinery and equipment, and capitalized software; and from ten to forty years for buildings and improvements. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the respective assets or the term of the related lease.
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable.recoverable (see Note 12). In evaluating long-lived assets for recoverability, including finite-lived intangibles as described below, the Company uses its best estimate of future cash flows expected to result from theits use of the asset and its eventual disposition. To the extent thatdisposition, where applicable. If such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between theextent that such asset's carrying value of such asset andexceeds its fair value, as estimated considering external market participant assumptions.assumptions and discounted cash flows. Assets to be disposed of and for which there is a committed plan forof disposal (commonly referred to as assets held-for-sale) are reported at the lower of carrying value or fair value, less costs to sell.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
The Company's lease arrangements primarily relate to real estate, including its retail stores, concession-based shop-within-shops, corporate offices, and warehouse facilities and, to a lesser extent, certain equipment and other assets. The Company's leases generally have initial terms ranging from three to fifteen years and may include renewal or early-termination options, rent escalation clauses, and/or lease incentives in the form of construction allowances and rent abatements. The Company is typically required to make fixed minimum rent payments, variable rent payments based on performance (e.g., percentage-of-sales-based payments), or a combination thereof, relating to its right to use an underlying leased asset. The Company is also often required to pay for certain other costs that do not relate specifically to its right to use an underlying leased asset, but that are associated with the asset, including real estate taxes, insurance, common area maintenance fees, and/or certain other costs (referred to collectively herein as "non-lease components"), which may be fixed or variable in amount, depending on the terms of the respective lease agreement. The Company's leases do not contain significantly restrictive covenants or residual value guarantees.
The Company determines whether an arrangement contains a lease at the arrangement's inception. If a lease is determined to exist, its related term is assessed at the lease commencement date, once the underlying asset is made available by the lessor for the Company's use. The Company's assessment of the lease term reflects the non-cancellable period of the lease, inclusive of any rent-free periods, plus any periods covered by early-termination options for which the Company is not considered reasonably certain of exercising, as well as periods covered by renewal options for which it is considered reasonably certain of exercising. The Company also determines lease classification as either operating or finance at lease commencement, which governs the pattern of expense recognition and the presentation thereof in the consolidated statements of operations over the lease term.
For leases with a lease term exceeding 12 months, a liability is recorded on the Company's consolidated balance sheet at the lease commencement date reflecting the present value of its related fixed payment obligations over such term. A corresponding right-of-use ("ROU") asset equal to the initial lease liability is also recorded, increased by any prepaid rent and/or initial direct costs incurred in connection with execution of the lease, and reduced by any incentives provided by the lessor. The Company also includes fixed payment obligations related to non-lease components in the measurement of its ROU assets and lease liabilities, given its election to account for lease and non-lease components together as a single lease component. Variable lease payments are not included in the measurement of ROU assets and lease liabilities. ROU assets associated with finance leases are presented separately from those associated with operating leases, and are included within property and equipment, net on the Company's consolidated balance sheet. For purposes of measuring the present value of its fixed payment obligations for a given lease, the Company uses its incremental borrowing rate, determined based on information available at lease commencement, given that rates implicit in its leasing arrangements are not readily determinable. The Company's incremental borrowing rate reflects the rate it would pay to borrow on a secured basis an amount equal to the lease payments and incorporates the term and economic environment of the lease.
For operating leases, fixed lease payments are recognized as operating lease cost on a straight-line basis over the lease term. For finance leases, the initial ROU asset is depreciated on a straight-line basis over the lease term, along with recognition of interest expense associated with accretion of the remaining lease liability, which is ultimately reduced by the related fixed payments as they are made. For leases with a lease term of 12 months or less (referred to as a "short-term lease"), any fixed lease payments are recognized on a straight-line basis over such term and are not recognized on the consolidated balance sheet. For all leases, variable lease cost, if any, is recognized as incurred.
ROU assets, along with any related long-lived assets, are periodically evaluated for impairment whenever events or circumstances indicate that their carrying values may not be fully recoverable (see Note 12). To the extent that such assets are ultimately determined to be impaired, they are written down accordingly on a relative carrying amount basis, with the ROU asset written down to an amount no lower than its estimated fair value. Subsequent to the recognition of any such impairment, total remaining lease cost is recognized on a front-loaded basis over the remaining lease term.
See Note 14 for further discussion of the Company's leases.
Goodwill and Other Intangible Assets
At acquisition, the Company estimates and records the fair value of purchased intangible assets, which typically consist of reacquired license agreements, customer relationships, non-compete agreements, and/or order backlog. The fair values of these intangible assets are estimated based on management's assessment, considering independent third-party appraisals when
| F-17 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
necessary. The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as goodwill. Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annually. The Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analyses using a qualitative approach to determine whether it is more likely than not that the fair values of such assets are less than their respective carrying values. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the asset exceeds its carrying value, a quantitative test is performed. Under the quantitative test, if the carrying value of the asset exceeds its fair value, an impairment loss is recognized in the amount of the excess. The Company also periodically performs a quantitative test to assess its goodwill for impairment in lieu of using the qualitative approach in order to reassess the fair values of its reporting units.
Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. See discussion of the Company's accounting policy for long-lived asset impairment as previously described under the caption "Property and Equipment, Net."
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets and liabilities, current taxes payable/refunds receivable, and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. The Company accounts for the financial effect of changes in tax laws or rates in the period of enactment.
In addition, valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur or circumstances change that warrant adjustments.
In determining the income tax provisionbenefit (provision) for financial reporting purposes, the Company establishes a reserve for uncertain tax positions. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and the Company often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax provisionbenefit (provision) in the period in which such determinations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly monitors its position and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties if any, are recorded within the provision for income taxestax benefit (provision) in the Company's consolidated statements of incomeoperations and are classified on the consolidated balance sheets together with the related liability for unrecognized tax benefits.
See Note 1210 for further discussion of the Company's income taxes.
Derivative Financial Instruments
The Company records all derivative financial instruments on its consolidated balance sheets at fair value. ForChanges in the fair value of derivative instruments that are designated and qualify for hedge accounting the effective portion of changes in their fair value isare either (i) offset through earnings against the changes in fair value of the related hedged assets, liabilities, or firm commitments through earnings or (ii) recognized in equity as a component of AOCI until the hedged item is recognized in earnings, depending on whether the derivativeinstrument is being used to hedgehedging against changes in fair value or cash flows and net investments, respectively.
| F-18 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Each derivative instrument that qualifies for hedge accounting is expected to be highly effective at reducingin offsetting the risk associated with the exposure being hedged.related exposure. For each derivative instrument that is designated as a hedge, the Company formally documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item, and the risk exposure, as well as how hedge effectiveness will be assessed prospectively and retrospectively over the instrument's term. To assess hedge effectiveness at the inception of a hedging relationship, the Company generally uses regression analysis, a statistical method, to compare the changeevaluate how changes in the fair value of the derivative instrument are expected to offset changes in the change in fair value or cash flows of the related hedged item. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed and documented by the Company on at least a quarterly basis.
The fair values of the Company's derivative instruments are recorded on its consolidated balance sheets on a gross basis. For cash flow reporting purposes, proceeds received or amounts paid upon the settlement of a derivative instrument are classified in the same manner as the related item being hedged, primarily within cash flows from operating activities.
activities for its forward foreign exchange contracts and within cash flows from investing activities for its cross-currency swap contracts, both as discussed below.
Cash Flow Hedges
The Company enters intouses forward foreign currency exchange contracts to reducemitigate its risk related to exchange rate fluctuations on inventory transactions intercompany royalty payments made by certain of its international operations, and other foreign currency-denominated operational cash flows.in an entity's non-functional currency. To the extent forward foreign currency exchange contracts are designated as cash flow hedges, and are highly effective in offsetting changes in the value of the hedged items, the related gains or losses on such instruments are initially deferred in equity as a component of AOCI and are subsequently recognized within cost of goods sold in the consolidated statements of income as follows:
Hedges of Net Investments in earnings withinForeign Operations
The Company periodically uses cross-currency swap contracts to reduce risk associated with exchange rate fluctuations on certain of its net investments in foreign currency gains (losses).
subsidiaries. Changes in the fair valuevalues of asuch derivative instrument or the carrying value of a non-derivative instrumentinstruments that isare designated as hedges of net investments in foreign operations are recorded in equity as a hedgecomponent of a net investment in a foreign operation are reportedAOCI in the same manner as aforeign currency translation adjustment, to the extent it is effective.adjustments. In assessing the effectiveness of a derivative financial instrument that is designated as a hedge of a net investment,such hedges, the Company uses a method based on changes in spot rates to measure the impact of foreign currency exchange rate changesfluctuations on both its foreign subsidiary net investment and the related hedging instrument. IfUnder this method, changes in the notional amountfair value of the hedging instrument designated as the hedge of a net investment is greaterother than the portion of the net investment being hedged, hedge ineffectiveness is recognized immediately in earnings within foreign currency gains (losses). To the extent the instrument remains effective,those due to changes in itsthe spot rate are initially recorded in AOCI as a translation adjustment and are amortized into earnings as interest expense using a systematic and rational method over the instrument's term. Changes in fair value associated with the effective portion (i.e., those due to changes in the spot rate) are recorded in equityAOCI as foreign currencya translation gains (losses), a component of AOCI,adjustment and are released and recognized in earnings within foreign currency gains (losses) only upon the sale or liquidation of the hedged net investment.
| F-19 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value Hedges
Changes in the fair value of a derivative instrument that is designated as a fair value hedge, along with offsetting changes in the fair value of the related hedged item attributable to the hedged risk, are recorded in earnings. Hedge ineffectiveness is recorded in earnings toTo the extent that the change in the fair value of the hedged item does not fully offset the change in the fair value of the hedging instrument.instrument, the resulting net impact is reflected in earnings within the income statement line item associated with the hedged item.
Undesignated Hedges
See Note 1513 for further discussion of the Company's derivative financial instruments.
4. Recently Issued Accounting Standards
In March 2016,2020 and January 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-09, "Improvements to Employee Share-Based Payment Accounting"2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2016-09"2020-04"). and ASU 2016-09 simplifies several aspects related to how share-based payments are accounted forNo. 2021-01, "Reference Rate Reform: Scope" ("ASU 2021-01"), respectively. Together, ASU 2020-04 and presented in the financial statements, including the accounting for forfeituresASU 2021-01 provide temporary optional expedients and tax-effects related to share-based payments at settlement, and the classification of excess tax benefits and shares surrendered for tax withholdings in the statement of cash flows. ASU 2016-09 is effectiveexceptions for the Company beginningapplication of U.S. GAAP, if certain criteria are met, to contract modifications, hedging relationships, and other arrangements that are expected to be impacted by the global transition away from certain reference rates, such as the London Interbank Offered Rate ("LIBOR") and other interbank offered rates, towards new reference rates, such as the Secured Overnight Financing Rate ("SOFR"). The guidance in its fiscal year 2018, with early adoption permitted. The adoption methodology (i.e., prospective, retrospective, or modified-retrospective) varies by amendment.ASU 2020-04 and ASU 2021-01 was effective upon issuance and, once adopted, may be applied prospectively to contract modifications and hedging relationships through December 31, 2022. The Company is currently in the process of evaluating the impact that ASU 2016-09 will have on its consolidated financial statements and related disclosures.
Implementation Costs Incurred in a significant increase to its long-term assets and liabilities.
In November 2015,August 2018, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes"2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2015-17"2018-15"). ASU 2015-172018-15 addresses diversity in practice surrounding the accounting for costs incurred to implement a cloud computing hosting arrangement that is a service contract by establishing a model for capitalizing or expensing such costs, depending on their nature and the stage of the related project during which they are incurred. Any capitalized costs are to be expensed over the reasonably certain term of the hosting arrangement and presented in the same line within the statement of operations as the expense for the arrangement's fees. ASU 2018-15 also requires entities to classify all deferred tax assetenhanced qualitative and liability balances, together with any related valuation allowance, as non-current on the consolidated balance sheet. ASU 2015-07 simplifies past guidance, which required entities to present deferred tax asset and liability balances as current and non-current on the consolidated balance sheet. quantitative disclosures surrounding hosting arrangements that are service contracts.
The Company early-adoptedadopted ASU 2015-172018-15 as of the endbeginning of its Fiscal 2016 and applied its provisions prospectively (see2021. Prior to adoption, the Company had already generally accounted for implementation costs incurred in connection with cloud computing arrangements in a manner consistent with the new standard. Therefore, other than the new disclosure requirements, the adoption of ASU 2018-15 did not have an impact on the Company's consolidated financial statements. See Note 12). As a result,3 for further discussion of the prior period was not retrospectively adjusted.Company's accounting for cloud computing arrangements.
In May 2014,June 2016, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers"2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2014-09"2016-13"). ASU 2014-09 provides a single, comprehensive accounting model2016-13, which was further updated and clarified by the FASB through issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and investments in certain debt securities, by requiring upfront recognition of an allowance for revenues arising from contracts with customers that will supersede most existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue is recognized at an amount that an entity expectscredit losses expected to be entitled toincurred over an asset's contractual life based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. Application of this "expected loss" model results in earlier recognition of credit losses than the historical "as incurred" model, under which losses were recognized only upon transferring controloccurrence of goods or services to a customer, as opposed to when risks and rewards transfer to a customer under existing revenue recognition guidance.
Company's historical bad debt write-off
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Assets acquired and liabilities assumed: | ||||
| Inventory | $ | 9 | ||
| Fixed assets | 4 | |||
| Customer relationship intangible asset | 3 | |||
| Other assets | 2 | |||
| Other liabilities | (3 | ) | ||
| Fair value of net assets acquired | $ | 15 | ||
5. Property and liabilities assumed based on an assessment of their respective fair values, as follows (in millions):Equipment
| Assets acquired: | ||||
| Inventory | $ | 30 | ||
| Accounts receivable | 19 | |||
| Licensed trademark intangible asset | 9 | |||
| Total assets acquired | 58 | |||
| Liabilities assumed: | ||||
| Accounts payable | (22 | ) | ||
| Other net liabilities | (2 | ) | ||
| Total net liabilities assumed | (24 | ) | ||
| Fair value of net assets acquired | 34 | |||
| Consideration paid | 18 | |||
Gain on acquisition(a) | $ | 16 | ||
Property and equipment, net consists of the following:
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Land and improvements | $ | 15.3 | $ | 15.3 | ||||||||||
| Buildings and improvements | 492.8 | 309.0 | ||||||||||||
| Furniture and fixtures | 608.9 | 629.5 | ||||||||||||
| Machinery and equipment | 391.8 | 378.8 | ||||||||||||
| Capitalized software | 555.2 | 543.3 | ||||||||||||
| Leasehold improvements | 1,207.2 | 1,194.5 | ||||||||||||
| Construction in progress | 34.5 | 37.5 | ||||||||||||
| 3,305.7 | 3,107.9 | |||||||||||||
| Less: accumulated depreciation | (2,291.7) | (2,128.4) | ||||||||||||
| Property and equipment, net | $ | 1,014.0 | $ | 979.5 | ||||||||||
Property and equipment, net includes finance lease ROU assets, which are reflected in the table above based on their nature.
Depreciation expense was $227.4 million, $246.6 million, and $257.8 million during Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively, and is recorded primarily within SG&A expenses in the consolidated statements of operations.
6. Goodwill and Other Intangible Assets
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Land and improvements | $ | 17 | $ | 17 | ||||
| Buildings and improvements | 460 | 409 | ||||||
| Furniture and fixtures | 727 | 686 | ||||||
| Machinery and equipment | 359 | 317 | ||||||
| Capitalized software | 460 | 402 | ||||||
| Leasehold improvements | 1,248 | 1,185 | ||||||
| Construction in progress | 216 | 99 | ||||||
| 3,487 | 3,115 | |||||||
| Less: accumulated depreciation | (1,904 | ) | (1,679 | ) | ||||
| Property and equipment, net | $ | 1,583 | $ | 1,436 | ||||
Goodwill
The following table details the changes in goodwill for each of the Company's reportable segments during Fiscal 20162021 and Fiscal 2015:2020:
| North America | Europe | Asia | Other Non-reportable Segments(a) | Total(a) | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Balance at March 30, 2019 | $ | 421.8 | $ | 290.0 | $ | 75.8 | $ | 132.0 | $ | 919.6 | ||||||||||||||||||||||
| Foreign currency translation | 0 | (4.9) | 0.8 | 0 | (4.1) | |||||||||||||||||||||||||||
| Balance at March 28, 2020 | 421.8 | 285.1 | 76.6 | 132.0 | 915.5 | |||||||||||||||||||||||||||
| Foreign currency translation | 0 | 18.9 | 0.2 | 0 | 19.1 | |||||||||||||||||||||||||||
| Balance at March 27, 2021 | $ | 421.8 | $ | 304.0 | $ | 76.8 | $ | 132.0 | $ | 934.6 | ||||||||||||||||||||||
| Wholesale | Retail | Licensing | Total | |||||||||||||
| (millions) | ||||||||||||||||
| Balance at March 29, 2014 | $ | 617 | $ | 210 | $ | 137 | $ | 964 | ||||||||
| Foreign currency translation | (46 | ) | (10 | ) | (5 | ) | (61 | ) | ||||||||
| Balance at March 28, 2015 | 571 | 200 | 132 | 903 | ||||||||||||
| Foreign currency translation | 11 | 3 | 1 | 15 | ||||||||||||
| Balance at April 2, 2016 | $ | 582 | $ | 203 | $ | 133 | $ | 918 | ||||||||
(a)The goodwill balance for each period presented is net of accumulated impairment charges of $5.2 million related to the Company's other non-reportable segments.
Based on the results of the Company's annual goodwill impairment testing in Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014, no2019, 0 goodwill impairment charges were recorded.
See Note 12 for further discussion of the Company's goodwill impairment testing.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Intangible Assets
Other intangible assets consist of the following:
| April 2, 2016 | March 28, 2015 | March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | Gross Carrying Amount | Accum. Amort. | Net | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets subject to amortization: | Intangible assets subject to amortization: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Re-acquired licensed trademarks | $ | 231 | $ | (122 | ) | $ | 109 | $ | 230 | $ | (112 | ) | $ | 118 | Re-acquired licensed trademarks | $ | 231.7 | $ | (163.6) | $ | 68.1 | $ | 231.6 | $ | (155.4) | $ | 76.2 | |||||||||||||||||||||||||||||||||||
| Customer relationships | 252 | (138 | ) | 114 | 247 | (120 | ) | 127 | Customer relationships | 254.3 | (211.0) | 43.3 | 253.9 | (199.0) | 54.9 | |||||||||||||||||||||||||||||||||||||||||||||||
| Other | 28 | (14 | ) | 14 | 28 | (13 | ) | 15 | Other | 10.1 | (7.7) | 2.4 | 10.1 | (7.5) | 2.6 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total intangible assets subject to amortization | 511 | (274 | ) | 237 | 505 | (245 | ) | 260 | Total intangible assets subject to amortization | 496.1 | (382.3) | 113.8 | 495.6 | (361.9) | 133.7 | |||||||||||||||||||||||||||||||||||||||||||||||
| Intangible assets not subject to amortization: | Intangible assets not subject to amortization: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Trademarks and brands | 7 | N/A | 7 | 7 | N/A | 7 | Trademarks and brands | 7.3 | N/A | 7.3 | 7.3 | N/A | 7.3 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 518 | $ | (274 | ) | $ | 244 | $ | 512 | $ | (245 | ) | $ | 267 | Total intangible assets | $ | 503.4 | $ | (382.3) | $ | 121.1 | $ | 502.9 | $ | (361.9) | $ | 141.0 | |||||||||||||||||||||||||||||||||||
Amortization Expense
Amortization expense was $20.2 million, $22.9 million, and $23.5 million during Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively, and is recorded within SG&A expenses in the consolidated statements of operations.
Based on the balance of the Company's finite-lived intangible assets subject to amortization as of April 2, 2016,March 27, 2021, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:
| Amortization Expense | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 24 | ||
| Fiscal 2018 | 24 | |||
| Fiscal 2019 | 24 | |||
| Fiscal 2020 | 23 | |||
| Fiscal 2021 | 21 | |||
| Fiscal 2022 and thereafter | 121 | |||
| Total | $ | 237 | ||
| Amortization Expense | ||||||||
| (millions) | ||||||||
| Fiscal 2022 | $ | 17.8 | ||||||
| Fiscal 2023 | 14.4 | |||||||
| Fiscal 2024 | 13.2 | |||||||
| Fiscal 2025 | 12.9 | |||||||
| Fiscal 2026 | 10.7 | |||||||
| Fiscal 2027 and thereafter | 44.8 | |||||||
| Total | $ | 113.8 | ||||||
The expected future amortization expense above reflects weighted-average estimated remaining useful lives of 13.59.0 years for re-acquired licensed trademarks, 9.47.7 years for customer relationships, and 11.58.6 years for the Company's finite-lived intangible assets in total.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Other Assets and Liabilities
Prepaid expenses and other current assets consist of the following:
| March 27, 2021 | March 28, 2020 | |||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | (millions) | ||||||||||||||||||||
| Non-trade receivables | Non-trade receivables | $ | 28.9 | $ | 27.0 | |||||||||||||||||
| Other taxes receivable | Other taxes receivable | 28.4 | 24.7 | |||||||||||||||||||
| Prepaid software maintenance | Prepaid software maintenance | 12.9 | 14.8 | |||||||||||||||||||
| Prepaid advertising and marketing | Prepaid advertising and marketing | 9.5 | 10.1 | |||||||||||||||||||
| Tenant allowances receivable | Tenant allowances receivable | 8.7 | 1.8 | |||||||||||||||||||
| Inventory return asset | Inventory return asset | 8.3 | 8.9 | |||||||||||||||||||
| Cloud computing arrangement implementation costs | Cloud computing arrangement implementation costs | 8.2 | 8.4 | |||||||||||||||||||
| Prepaid logistic services | Prepaid logistic services | 7.1 | 6.6 | |||||||||||||||||||
| Prepaid occupancy expense | Prepaid occupancy expense | 6.7 | 6.7 | |||||||||||||||||||
| Derivative financial instruments | Derivative financial instruments | 5.6 | 13.7 | |||||||||||||||||||
| Prepaid inventory | Prepaid inventory | 5.0 | 0.2 | |||||||||||||||||||
| (millions) | ||||||||||||||||||||||
| Other taxes receivable | $ | 112 | $ | 93 | ||||||||||||||||||
| Prepaid rent expense | 37 | 31 | ||||||||||||||||||||
| Restricted cash | 17 | 2 | ||||||||||||||||||||
| Derivative financial instruments | 16 | 65 | ||||||||||||||||||||
| Tenant allowances receivable | 13 | 14 | ||||||||||||||||||||
| Prepaid samples | 9 | 12 | ||||||||||||||||||||
| Prepaid advertising and marketing | 7 | 7 | ||||||||||||||||||||
| Other prepaid expenses and current assets | 57 | 57 | Other prepaid expenses and current assets | 37.3 | 37.9 | |||||||||||||||||
| Total prepaid expenses and other current assets | $ | 268 | $ | 281 | Total prepaid expenses and other current assets | $ | 166.6 | $ | 160.8 | |||||||||||||
Other non-current assets consist of the following:
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Security deposits | $ | 31.1 | $ | 29.4 | ||||||||||
| Derivative financial instruments | 10.2 | 48.6 | ||||||||||||
| Restricted cash | 7.5 | 8.0 | ||||||||||||
| Cloud computing arrangement implementation costs | 5.3 | 4.9 | ||||||||||||
| Other non-current assets | 32.3 | 21.0 | ||||||||||||
| Total other non-current assets | $ | 86.4 | $ | 111.9 | ||||||||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Non-current investments | $ | 187 | $ | 8 | ||||
| Security deposits | 32 | 28 | ||||||
| Restricted cash | 29 | 36 | ||||||
| Derivative financial instruments | 6 | 22 | ||||||
| Other non-current assets | 42 | 37 | ||||||
| Total other non-current assets | $ | 296 | $ | 131 | ||||
Accrued expenses and other current liabilities consist of the following:
| April 2, 2016 | March 28, 2015 | March 27, 2021 | March 28, 2020 | |||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||
| Accrued operating expenses | $ | 186 | $ | 183 | Accrued operating expenses | $ | 225.0 | $ | 176.4 | |||||||||||||
| Accrued payroll and benefits | Accrued payroll and benefits | 223.6 | 186.2 | |||||||||||||||||||
| Accrued inventory | 176 | 75 | Accrued inventory | 196.1 | 167.1 | |||||||||||||||||
| Accrued payroll and benefits | 149 | 162 | ||||||||||||||||||||
| Restructuring reserve | Restructuring reserve | 99.8 | 25.5 | |||||||||||||||||||
| Other taxes payable | 139 | 108 | Other taxes payable | 64.6 | 47.9 | |||||||||||||||||
| Accrued capital expenditures | 65 | 62 | Accrued capital expenditures | 21.3 | 29.1 | |||||||||||||||||
| Finance lease obligations | Finance lease obligations | 19.7 | 9.8 | |||||||||||||||||||
| Deferred income | 50 | 38 | Deferred income | 12.0 | 14.6 | |||||||||||||||||
| Derivative financial instruments | Derivative financial instruments | 0.3 | 6.9 | |||||||||||||||||||
| Dividends payable | 41 | 43 | Dividends payable | 0 | 49.8 | |||||||||||||||||
| Restructuring reserve | 40 | 5 | ||||||||||||||||||||
| Derivative financial instruments | 26 | 18 | ||||||||||||||||||||
| Capital lease obligations | 21 | 19 | ||||||||||||||||||||
| Other accrued expenses and current liabilities | 5 | 2 | Other accrued expenses and current liabilities | 13.0 | 3.8 | |||||||||||||||||
| Total accrued expenses and other current liabilities | $ | 898 | $ | 715 | Total accrued expenses and other current liabilities | $ | 875.4 | $ | 717.1 | |||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other non-current liabilities consist of the following:
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Finance lease obligations | $ | 370.5 | $ | 189.4 | ||||||||||
| Deferred lease incentives and obligations | 62.4 | 57.8 | ||||||||||||
| Derivative financial instruments | 55.1 | 0 | ||||||||||||
| Accrued benefits and deferred compensation | 22.4 | 19.5 | ||||||||||||
| Deferred tax liabilities | 10.7 | 10.0 | ||||||||||||
| Restructuring reserve | 3.6 | 2.0 | ||||||||||||
| Other non-current liabilities | 36.1 | 29.8 | ||||||||||||
| Total other non-current liabilities | $ | 560.8 | $ | 308.5 | ||||||||||
8. Impairment of Assets
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Capital lease obligations | $ | 266 | $ | 238 | ||||
| Deferred rent obligations | 222 | 219 | ||||||
| Derivative financial instruments | 33 | 1 | ||||||
| Deferred tax liabilities | 17 | 87 | ||||||
| Deferred compensation | 8 | 9 | ||||||
| Deferred income | 1 | 20 | ||||||
| Other non-current liabilities | 46 | 41 | ||||||
| Total other non-current liabilities | $ | 593 | $ | 615 | ||||
During Fiscal 2016,2021, the Company recorded non-cash impairment charges of $49$96.0 million to write offwrite-down certain fixedlong-lived assets, of which $69.4 million related to its domestic and international stores and shop-within-shops, of which $27 million was recorded in connection with the Global Reorganization Planrestructuring plans (see Note 11) and $229), $17.5 million was recorded in connection withrelated to underperforming stores subjectidentified through its ongoing store portfolio evaluation and adverse impacts associated with COVID-19 business disruptions, and $9.1 million related to potential future closure.certain previously exited real estate locations for which the related lease agreements have not yet expired.
During Fiscal 2015,2020, the Company recorded non-cash impairment charges of $7$31.6 million primarily to write offwrite-down certain fixedlong-lived assets, of which $8.7 million related to its domesticrestructuring plans (see Note 9) and international retail stores.$22.9 million related to underperforming stores identified through its ongoing store portfolio evaluation and adverse impacts associated with COVID-19 business disruptions. These charges were recorded within impairment of assets in the consolidated statements of operations. In addition, the Company recorded a $7.1 million impairment charge within other income (expense), net in the consolidated statements of operations during Fiscal 2020 relating to an equity method investment.
During Fiscal 2014,2019, the Company recorded non-cash impairment charges of $1$21.2 million primarily to write offwrite-down certain fixedlong-lived assets, of which $10.7 million related to its European operations.restructuring plans (see Note 9) and $10.5 million related to underperforming stores identified through its ongoing store portfolio evaluation. Additionally, as a result of its decision to sell its corporate jet in connection with its cost savings initiative, the Company recorded a non-cash impairment charge of $4.6 million during Fiscal 2019 to reduce the carrying value of the asset being held-for-sale to its estimated fair value, less costs to sell.
See Note 12 for further discussion of the non-cash impairment charges recorded during the fiscal years presented.
9. Restructuring and Other Charges
A description of significant restructuring and other activities and their related costs is includedprovided below.
Fiscal 2016
In connection with the first initiative, on September 17, 2020, the Company's Board of Directors approved a reorganization and restructuring plan comprised(the "Fiscal 2021 Strategic Realignment Plan") to reduce its global workforce by the end of Fiscal 2021. Additionally, during its preliminary review of its store portfolio during the following major actions: (i) the reorganizationsecond quarter of Fiscal 2021, the Company frommade the decision to close its historical channel and regional structurePolo store on Regent Street in London.
On October 29, 2020, the Company announced the planned transition of its Chaps brand to an integrated global brand-based operating structure, which will streamline the Company'sa fully licensed business processes to better align its cost structuremodel, consistent with its long-term growth strategy; (ii)brand elevation strategy in connection with its third initiative. Specifically, the Company entered into a strategic store and shop-within-shop performance review conducted by region and brand; (iii)multi-year licensing partnership, taking effect on August 1, 2021 after a targeted corporate functional area review; and (iv) the consolidationtransition period, with an affiliate of certain5 Star Apparel LLC, a division of the Company's luxury lines (collectively, the "Global Reorganization Plan"). Actions associated with the Global Reorganization Plan were substantially completed during Fiscal 2016OVED Group, to manufacture, market, and resulted in a reduction in workforcedistribute Chaps menswear and the closure of certain stores and shop-within-shops.
womenswear.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
This agreement is expected to create incremental value for the Company by enabling an even greater focus on elevating its core brands in the marketplace, reducing its direct exposure to the North America department store channel, and setting up Chaps to deliver on its potential with an experienced partner that is focused on nurturing the brand.
Additionally, on February 3, 2021, the Company's Board of Directors approved additional realignment actions related to its real estate initiative. Specifically, the Company plans to further rightsize and consolidate its global corporate offices to better align with its current organizational profile and new ways of working. The Company also expects to close certain of its stores to improve overall profitability. Additionally, the Company plans to complete the consolidation of its existing North America distribution centers in order to drive greater efficiencies, improve sustainability, and deliver a better consumer experience.
Finally, on May 13, 2021, in connection with its brand portfolio initiative, the Company announced that it has entered into an agreement to sell its Club Monaco business to Regent, L.P., a global private equity firm. The transaction is expected to close by the end of the first quarter of Fiscal 2022.
In connection with these collective realignment initiatives, the Company expects to incur total estimated pre-tax charges of approximately $300 million to $350 million, comprised of cash-related restructuring charges of approximately $185 million to $200 million and non-cash charges of approximately $115 million and $150 million. These estimated charges are subject to change based upon the completion of the sale of the Company's Club Monaco business.
A summary of the charges recorded in connection with the Global ReorganizationFiscal 2021 Strategic Realignment Plan during the fiscal period presented (inclusive of immaterial other restructuring-related charges previously recorded during the first quarter of Fiscal 20162021) is as follows:
| Fiscal Year Ended | ||||
| April 2, 2016 | ||||
| (millions) | ||||
| Cash-related restructuring charges: | ||||
| Severance and benefit costs | $ | 64 | ||
| Lease termination and store closure costs | 8 | |||
Other cash charges(a) | 14 | |||
| Total cash-related restructuring charges | 86 | |||
| Non-cash charges: | ||||
| Impairment of assets (see Note 10) | 27 | |||
Accelerated stock-based compensation expense(b) | 9 | |||
Inventory-related charges(c) | 20 | |||
| Total non-cash charges | 56 | |||
| Total charges | $ | 142 | ||
| Fiscal Year Ended | ||||||||||||||||||||||||||
| March 27, 2021 | ||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Cash-related restructuring charges: | ||||||||||||||||||||||||||
| Severance and benefit costs | $ | 144.2 | ||||||||||||||||||||||||
| Other cash charges | 14.9 | |||||||||||||||||||||||||
| Total cash-related restructuring charges | 159.1 | |||||||||||||||||||||||||
| Non-cash charges: | ||||||||||||||||||||||||||
| Impairment of assets (see Note 8) | 69.4 | |||||||||||||||||||||||||
Inventory-related charges(a) | ||||||||||||||||||||||||||
| 8.3 | ||||||||||||||||||||
| Total non-cash charges | 77.7 | |||||||||||||||||||||||||
| Total charges | $ | 236.8 | ||||||||||||||||||||||||
(a)Inventory-related charges are recorded within cost of approximately $5 million during its fiscal year ending April 1, 2017 ("Fiscal 2017")goods sold in connection with the Global Reorganization Plan, consisting primarilyconsolidated statements of cash-related severance and benefit costs. In addition, the Company continues to develop and work towards finalizing its strategic growth plan for Fiscal 2017 and beyond, which once completed will likely result in additional restructuring activities and related charges.operations.
A summary of the activity in the restructuring reserve related to the Global ReorganizationFiscal 2021 Strategic Realignment Plan is as follows:
| Severance and Benefit Costs | Lease Termination and Store Closure Costs | Other Cash Charges | Total | |||||||||||||
| (millions) | ||||||||||||||||
| Balance at March 28, 2015 | $ | — | $ | — | $ | — | $ | — | ||||||||
| Additions charged to expense | 64 | 8 | 14 | 86 | ||||||||||||
| Cash payments charged against reserve | (33 | ) | (3 | ) | (11 | ) | (47 | ) | ||||||||
| Non-cash adjustments | — | 1 | — | 1 | ||||||||||||
| Balance at April 2, 2016 | $ | 31 | $ | 6 | $ | 3 | $ | 40 | ||||||||
| Severance and Benefit Costs | Other Cash Charges | Total | ||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Balance at March 28, 2020 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||||
| Additions charged to expense | 144.2 | 14.9 | 159.1 | |||||||||||||||||||||||
| Cash payments charged against reserve | (48.0) | (11.7) | (59.7) | |||||||||||||||||||||||
| Balance at March 27, 2021 | $ | 96.2 | $ | 3.2 | $ | 99.4 | ||||||||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fiscal 2019 Restructuring Plan
Actions associated with the Fiscal 2019 Restructuring Plan are complete and no additional charges are expected to be incurred in connection with this plan. A summary of both April 2, 2016 and March 28, 2015, the related aggregate remaining restructuring liability was not material.
| Fiscal Year Ended | Cumulative Charges | |||||||||||||||||||
| March 28, 2020 | March 30, 2019 | |||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Cash-related restructuring charges: | ||||||||||||||||||||
| Severance and benefit costs | $ | 30.1 | $ | 60.2 | $ | 90.3 | ||||||||||||||
| Lease termination and store closure costs | 0.5 | 1.8 | 2.3 | |||||||||||||||||
| Other cash charges | 3.4 | 7.4 | 10.8 | |||||||||||||||||
| Total cash-related restructuring charges | 34.0 | 69.4 | 103.4 | |||||||||||||||||
| Non-cash charges: | ||||||||||||||||||||
| Impairment of assets (see Note 8) | 8.7 | 10.3 | 19.0 | |||||||||||||||||
Inventory-related charges(a) | 2.2 | 6.0 | 8.2 | |||||||||||||||||
Accelerated stock-based compensation expense(b) | 3.6 | 0 | 3.6 | |||||||||||||||||
Loss on sale of property(c) | 0 | 11.6 | 11.6 | |||||||||||||||||
| Total non-cash charges | 14.5 | 27.9 | 42.4 | |||||||||||||||||
| Total charges | $ | 48.5 | $ | 97.3 | $ | 145.8 | ||||||||||||||
(a)Inventory-related charges are recorded within cost of goods sold in the Officeconsolidated statements of the Chairman, the Company entered into employment agreements with certain of its executive officers, which became effective in November 2013. As a result of the new employment agreement provisions, the Company recorded $10 million of acceleratedoperations.
(b)Accelerated stock-based compensation expense, during Fiscal 2014.which is recorded within restructuring and other charges in the consolidated statements of operations, was recorded in connection with vesting provisions associated with certain separation agreements.
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Domestic | $ | 275 | $ | 620 | $ | 710 | ||||||
| Foreign | 277 | 367 | 386 | |||||||||
| Total income before provision for income taxes | $ | 552 | $ | 987 | $ | 1,096 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Current: | ||||||||||||
Federal(a) | $ | 88 | $ | 161 | $ | 211 | ||||||
State and local(a) | (3 | ) | 35 | 51 | ||||||||
| Foreign | 79 | 78 | 57 | |||||||||
| 164 | 274 | 319 | ||||||||||
| Deferred: | ||||||||||||
| Federal | (5 | ) | 22 | (4 | ) | |||||||
| State and local | (1 | ) | 3 | 1 | ||||||||
| Foreign | (2 | ) | (14 | ) | 4 | |||||||
| (8 | ) | 11 | 1 | |||||||||
| Total provision for income taxes | $ | 156 | $ | 285 | $ | 320 | ||||||
other charges in the consolidated statements of operations, was incurred in connection with the sale of one of the Company's distribution centers in North America. Total cash proceeds from the sale were $20.0 million.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the activity in the restructuring reserve related to the Fiscal 2019 Restructuring Plan is as follows:
| Severance and Benefit Costs | Lease Termination and Store Closure Costs | Other Cash Charges | Total | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Balance at March 31, 2018 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||||
| Additions charged to expense | 60.2 | 1.8 | 7.4 | 69.4 | ||||||||||||||||||||||
| Cash payments charged against reserve | (19.0) | (2.1) | (7.3) | (28.4) | ||||||||||||||||||||||
| Non-cash adjustments | (0.2) | 0.8 | 0 | 0.6 | ||||||||||||||||||||||
| Balance at March 30, 2019 | 41.0 | 0.5 | 0.1 | 41.6 | ||||||||||||||||||||||
| Additions charged to expense | 30.1 | 0.5 | 3.4 | 34.0 | ||||||||||||||||||||||
| Cash payments charged against reserve | (47.6) | (0.6) | (2.9) | (51.1) | ||||||||||||||||||||||
Non-cash adjustments(a) | 0 | (0.4) | 0 | (0.4) | ||||||||||||||||||||||
| Balance at March 28, 2020 | 23.5 | 0 | 0.6 | 24.1 | ||||||||||||||||||||||
| Additions charged to expense | 0 | 0 | 0 | 0 | ||||||||||||||||||||||
| Cash payments charged against reserve | (20.8) | 0 | (0.6) | (21.4) | ||||||||||||||||||||||
| Balance at March 27, 2021 | $ | 2.7 | $ | 0 | $ | 0 | $ | 2.7 | ||||||||||||||||||
(a)Certain lease-related liabilities previously recognized in connection with the Company's closure and cessation of use of real estate locations were reclassified and reflected as reductions of the respective operating lease ROU assets initially recognized as of the beginning of Fiscal 2020, upon adoption of new lease accounting rules prescribed by ASU No. 2016-02, "Leases" ("ASU 2016-02").
Other Restructuring Plans
During Fiscal 2019, the Company recorded charges of $14.2 million in connection with its restructuring plan initiated during its fiscal year ended April 1, 2017, comprised of cash-related restructuring charges of $9.2 million and non-cash charges of $5.0 million. Actions associated with this plan are complete and no additional charges are expected to be incurred. The Company made cash payments of $2.1 million, $7.1 million, and $73.5 million during Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively, which were applied against the reserve associated with this restructuring plan. Additionally, during Fiscal 2020, $17.7 million of lease-related liabilities previously recognized in connection with the Company's closure and cessation of use of real estate locations were reclassified and reflected as reductions of the respective operating lease ROU assets initially recognized upon adoption of ASU 2016-02. As of March 27, 2021 and March 28, 2020, the remaining restructuring reserve associated with this plan was $1.3 million and $3.4 million, respectively.
Refer to Note 9 of the Fiscal 2020 10-K for additional discussion regarding this restructuring plan.
Other Charges
During Fiscal 2021, the Company recorded other charges of $11.4 million primarily related to rent and occupancy costs associated with certain previously exited real estate locations for which the related lease agreements have not yet expired.
During Fiscal 2020, the Company recorded other charges of $20.8 million related to the donation of net cash proceeds received from the sale of its corporate jet. This donation was made to the Ralph Lauren Corporate Foundation (formerly known as the Polo Ralph Lauren Foundation), a non-profit, charitable foundation that supports various philanthropic programs. Additionally, during Fiscal 2020, the Company recorded other charges of $8.8 million primarily related to rent and occupancy costs associated with certain previously exited real estate locations for which the related lease agreements had not yet expired.
During Fiscal 2019, the Company recorded other charges of $14.1 million related to depreciation expense associated with its former Polo store at 711 Fifth Avenue in New York City, recorded after the store closed during the first quarter of its fiscal year ended March 31, 2018 ("Fiscal 2018"). Additionally, during Fiscal 2019, the Company recorded other charges of
| F-27 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$4.2 million primarily related to a customs audit, as well as $18.2 million primarily related to the launch of its new sabbatical leave program, which entitles eligible employees to periodic paid leave based on the attainment of certain employment tenure milestones. Other than this initial charge to establish its estimated liability for services rendered to-date, the Company does not expect there will be a significant, ongoing impact to the consolidated financial statements in future periods related to its sabbatical leave program.
10. Income Taxes
Swiss Tax Reform
In May 2019, a public referendum was held in Switzerland that approved the Federal Act on Tax Reform and AHV Financing (the "Swiss Tax Act"), which became effective January 1, 2020. The Swiss Tax Act eliminates certain preferential tax items at both the federal and cantonal levels for multinational companies and provides the cantons with parameters for establishing local tax rates and regulations. The Swiss Tax Act also provides transitional provisions, one of which allows eligible companies to increase the tax basis of certain assets based on the value generated by their business in previous years, and to amortize such adjustment as a tax deduction over a transitional period.
During the second quarter of Fiscal 2020, the Swiss Tax Act was enacted into law, resulting in an immaterial adjustment associated with the revaluation of the Company's Swiss deferred tax assets and liabilities and the then estimated annual effective tax rate. Subsequently, as a result of additional information received from the tax authorities and analyses performed related to the transitional provision noted above, the Company recorded a one-time income tax benefit and corresponding deferred tax asset of $122.9 million during Fiscal 2020, which reduced the Company's effective tax rate by 3,760 basis points.
During Fiscal 2021, the Company reduced its one-time tax benefit by $13.8 million due to new legislation enacted in connection with the European Union's anti-tax avoidance directive, which increased the Company's effective tax rate by 1,840 basis points.
U.S. Tax Reform
In January 2018, new U.S. tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA") became effective. The TCJA significantly revised U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from 35% to 21%, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions.
U.S. GAAP requires that the effects of changes in tax laws be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA's provisions, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which allowed companies to record the tax effects of the TCJA on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as additional information became available and further analyses were completed. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, not to extend beyond one year from enactment.
During Fiscal 2018, the Company recorded net charges of $221.4 million on a provisional basis, inclusive of measurement period adjustments. Subsequently, during Fiscal 2019, the Company completed its analyses and recorded additional net unfavorable measurement period adjustments of $27.6 million as a result of the issuance of new interpretive guidance related to stock-based compensation for certain executives and other analyses performed. These measurement period adjustments increased the Company's effective tax rate by 470 basis points during Fiscal 2019. Approximately $241 million of the cumulative TCJA enactment-related charges recorded related to the mandatory transition tax (see Note 15).
Additionally, during the fourth quarter of Fiscal 2018 the Company reevaluated its permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. The mandatory transition tax does not apply to undistributed foreign earnings generated after December 31, 2017, and therefore the Company intends to permanently reinvest such earnings. See "Deferred Taxes" for additional discussion.
| F-28 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company also decided to account for the minimum tax on global intangible low-taxed income ("GILTI") in the period in which it is incurred and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements.
Taxes on Income
Domestic and foreign pretax income (loss) are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Domestic | $ | (285.0) | $ | (82.9) | $ | 66.6 | ||||||||||||||
| Foreign | 210.2 | 409.3 | 515.9 | |||||||||||||||||
| Total income (loss) before income taxes | $ | (74.8) | $ | 326.4 | $ | 582.5 | ||||||||||||||
Benefits (provisions) for current and deferred income taxes are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 38.5 | $ | 1.5 | $ | (37.3) | ||||||||||||||
| State and local | 1.5 | (19.8) | (11.9) | |||||||||||||||||
| Foreign | (50.7) | (92.6) | (93.9) | |||||||||||||||||
| (10.7) | (110.9) | (143.1) | ||||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (19.2) | 18.0 | (5.0) | |||||||||||||||||
| State and local | 3.5 | 5.6 | (6.9) | |||||||||||||||||
| Foreign | (19.9) | 145.2 | 3.4 | |||||||||||||||||
| (35.6) | 168.8 | (8.5) | ||||||||||||||||||
| Total income tax benefit (provision) | $ | (46.3) | $ | 57.9 | $ | (151.6) | ||||||||||||||
| F-29 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tax Rate Reconciliation
The differences between income taxes expected at the U.S. federal statutory income tax rate of 35%and income taxes provided are as set forth below:follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Provision for income taxes at the U.S. federal statutory rate | $ | 193 | $ | 346 | $ | 384 | ||||||
| Increase (decrease) due to: | ||||||||||||
| State and local income taxes, net of federal benefit | 11 | 21 | 29 | |||||||||
| Foreign income taxed at different rates, net of U.S. foreign tax credits | (33 | ) | (96 | ) | (89 | ) | ||||||
| Unrecognized tax benefits and settlements of tax examinations | (13 | ) | 11 | (5 | ) | |||||||
| Other | (2 | ) | 3 | 1 | ||||||||
| Total provision for income taxes | $ | 156 | $ | 285 | $ | 320 | ||||||
Effective tax rate(a) | 28.2 | % | 28.9 | % | 29.2 | % | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Benefit (provision) for income taxes at the U.S. federal statutory rate | $ | 15.7 | $ | (68.5) | $ | (122.3) | ||||||||||||||
| Change due to: | ||||||||||||||||||||
| State and local income taxes, net of federal benefit | 6.1 | (1.5) | (12.4) | |||||||||||||||||
| Foreign income taxed at different rates, net of U.S. foreign tax credits | (4.8) | 24.7 | 27.6 | |||||||||||||||||
| Unrecognized tax benefits and settlements of tax examinations | (4.6) | (9.2) | (3.4) | |||||||||||||||||
| Changes in valuation allowance on deferred tax assets | (34.9) | (1.7) | (1.4) | |||||||||||||||||
| TCJA enactment-related charges | 0 | 0 | (27.6) | |||||||||||||||||
| Swiss Tax Act benefit (expense) | (13.8) | 125.3 | 0 | |||||||||||||||||
| Compensation-related adjustments | (12.9) | (10.7) | (11.6) | |||||||||||||||||
| Charitable contributions | 7.4 | 0.2 | 0.2 | |||||||||||||||||
| Transfer pricing adjustments | (4.1) | 0 | 0 | |||||||||||||||||
| Other | (0.4) | (0.7) | (0.7) | |||||||||||||||||
| Total income tax benefit (provision) | $ | (46.3) | $ | 57.9 | $ | (151.6) | ||||||||||||||
Effective tax rate(a) | (61.9 | %) | (17.7 | %) | 26.0 | % | ||||||||||||||
(a)Effective tax rate is calculated by dividing the income tax benefit (provision) by income (loss) before income taxes. |
The Company's Fiscal 2021 effective tax rate iswas unfavorable to the U.S. federal statutory income tax rate of 21% primarily due to incremental tax expense resulting from new legislation enacted in connection with the European Union's anti-tax avoidance directive, valuation allowances recorded against certain deferred tax assets as a result of significant business disruptions attributable to COVID-19, and tax impacts on stock-based compensation and other permanent adjustments, partially offset by an income tax benefit related to charitable contributions. The Company's Fiscal 2020 effective tax rate was lower than the U.S. federal statutory income tax rate principallyof 21% primarily due to the one-time income tax benefit recorded in connection with the Swiss Tax Act, as a resultpreviously discussed, the favorable impact of the change in geographic mix of its worldwide earnings and the favorable impact of tax benefits associated with provision to tax return adjustments, partially offset by the unfavorable impact of additional income tax reserves associated with certain income tax audits. The Company's Fiscal 2019 effective tax rate was higher than the U.S. federal statutory income tax rate of 21% primarily due to the SAB 118 measurement period adjustments recorded, as previously discussed, state and local income taxes, and compensation-related adjustments, partially offset by the favorable impact of the proportion of earnings generated in lower taxed foreign jurisdictions versus the U.S. In addition, during Fiscal 2016, the effective tax rate was favorably impacted by tax benefits associated with provision to tax return adjustments, the reversal of certain tax liabilities due to the expiration of statues of limitations, and a change in estimate related to the assessment period of certain tax liabilities, as discussed below, partially offset by the reversal of certain deferred tax assets that were determined to not be realizable. The Company's effective tax rate during both Fiscal 2015 and Fiscal 2014 was favorably impacted by tax reserve reductions associated with income tax benefits resulting from the legal entity restructurings of certain of the Company's foreign operations. The Company's effective tax rate for Fiscal 2014 also reflected tax reserve reductions associated with the conclusion of a tax examination.
jurisdictions.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Taxes
Significant components of the Company's net deferred tax assets (liabilities)and liabilities are as follows:
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Current deferred tax assets: | ||||||||
| Receivable allowances and reserves | $ | — | $ | 64 | ||||
| Deferred compensation | — | 32 | ||||||
| Inventory basis difference | — | 24 | ||||||
| Other | — | 15 | ||||||
| Valuation allowance | — | — | ||||||
Net current deferred tax assets(a) | — | 135 | ||||||
| Non-current deferred tax assets (liabilities): | ||||||||
| Goodwill and other intangible assets | (217 | ) | (209 | ) | ||||
| Property and equipment | (89 | ) | (86 | ) | ||||
| Deferred compensation | 126 | 76 | ||||||
| Lease obligations | 88 | 86 | ||||||
| Receivable allowances and reserves | 66 | — | ||||||
| Inventory basis difference | 29 | — | ||||||
| Unrecognized tax benefits | 21 | 30 | ||||||
| Net operating loss carryforwards | 21 | 19 | ||||||
| Deferred rent | 17 | 18 | ||||||
| Deferred income | 15 | 12 | ||||||
| Accrued expenses | 9 | — | ||||||
| Cumulative translation adjustment and hedges | 8 | (1 | ) | |||||
| Transfer pricing | 6 | 14 | ||||||
| Other | 12 | 7 | ||||||
| Valuation allowance | (10 | ) | (8 | ) | ||||
Net non-current deferred tax assets (liabilities)(b) | 102 | (42 | ) | |||||
| Net deferred tax assets | $ | 102 | $ | 93 | ||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Lease liabilities | $ | 406.6 | $ | 428.9 | ||||||||||
| Net operating loss carryforwards | 59.6 | 42.6 | ||||||||||||
| Deferred compensation | 49.7 | 50.2 | ||||||||||||
| Inventory basis difference | 44.9 | 54.0 | ||||||||||||
| GILTI-related carryforwards | 34.1 | 0 | ||||||||||||
| Receivable allowances and reserves | 30.5 | 45.6 | ||||||||||||
| Unrecognized tax benefits | 23.3 | 17.1 | ||||||||||||
| Property and equipment | 22.8 | 3.0 | ||||||||||||
| Charitable contribution carryforwards | 18.4 | 0 | ||||||||||||
| Accrued expenses | 13.0 | 10.5 | ||||||||||||
| Transfer pricing | 4.1 | 9.0 | ||||||||||||
| Cumulative translation adjustment and hedges | 4.0 | (17.6) | ||||||||||||
| Lease right-of-use assets | (322.0) | (353.0) | ||||||||||||
| Goodwill and other intangible assets | (48.2) | (30.0) | ||||||||||||
| Other | 4.4 | 12.2 | ||||||||||||
| Valuation allowance | (72.0) | (37.3) | ||||||||||||
Net deferred tax assets(a) | $ | 273.2 | $ | 235.2 | ||||||||||
(a)Net deferred tax balances as of March 27, 2021 and March 28, 2020 were comprised of non-current deferred tax assets of $283.9 million and $245.2 million, respectively, recorded within deferred tax assets, and non-current deferred tax liabilities of $10.7 million and $10.0 million, respectively, recorded within other non-current liabilities in the consolidated balance sheets.
The Company has available federal, state, and foreign net operating loss carryforwards of $4$2.2 million, $4.0 million, and $71$17.7 million (all net of tax), respectively, for tax purposes to offset future taxable income. The net operating loss carryforwards expire beginning in Fiscal 2017.2022.
The Company also has available state and foreign net operating loss carryforwards of $7$8.5 million and $17$27.4 million (both net of tax), respectively, for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded against these carryforwards since managementthe Company does not believe that the Companyit will more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent recognition of these deferred tax assets would result in an income tax benefit in the year of such recognition. The valuation allowance relating to state net operating loss carryforwards remained consistent with the prior year. The valuation allowance relating to foreign net operating loss carryforwards increased by $6$0.7 million mainly (net of tax) as a result of additional net operating losses in certain jurisdictions where managementthe Company does not believe that the Companyit will more likely than not be able to utilize these carryforwards in the future. The valuation allowance relating to foreign net operating loss carryforwards decreased by $0.7 million as a result of reductions in net operating losses in certain jurisdictions.
| F-31 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Uncertain Income Tax Benefits
Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 20142019 Activity
Reconciliations of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 20142019 are presented below:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Unrecognized tax benefits beginning balance | $ | 72.7 | $ | 65.2 | $ | 64.2 | ||||||||||||||
| Additions related to current period tax positions | 3.2 | 6.0 | 4.9 | |||||||||||||||||
| Additions related to prior period tax positions | 8.8 | 30.5 | 11.7 | |||||||||||||||||
| Reductions related to prior period tax positions | (4.2) | (18.7) | (5.5) | |||||||||||||||||
| Reductions related to expiration of statutes of limitations | (2.1) | (1.2) | (4.1) | |||||||||||||||||
| Reductions related to settlements with taxing authorities | (9.6) | (8.8) | (3.1) | |||||||||||||||||
| Additions (reductions) related to foreign currency translation | 2.6 | (0.3) | (2.9) | |||||||||||||||||
| Unrecognized tax benefits ending balance | $ | 71.4 | $ | 72.7 | $ | 65.2 | ||||||||||||||
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Unrecognized tax benefits beginning balance | $ | 69 | $ | 83 | $ | 100 | |||||||
| Additions related to current period tax positions | 5 | 5 | 6 | ||||||||||
| Additions related to prior period tax positions | 7 | 10 | 12 | ||||||||||
| Reductions related to prior period tax positions | (12 | ) | (1 | ) | (13 | ) | (b) | ||||||
| Reductions related to expiration of statutes of limitations | (7 | ) | (1 | ) | (2 | ) | |||||||
| Reductions related to settlements with taxing authorities | (12 | ) | (25 | ) | (a) | (23 | ) | (b) | |||||
| Additions (reductions) related to foreign currency translation | — | (2 | ) | 3 | |||||||||
| Unrecognized tax benefits ending balance | $ | 50 | $ | 69 | $ | 83 | |||||||
The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. Reconciliations of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits for Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 20142019 are presented below:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Accrued interest and penalties beginning balance | $ | 16.2 | $ | 13.6 | $ | 15.0 | ||||||||||||||
| Net additions charged to expense | 5.5 | 7.0 | 3.0 | |||||||||||||||||
| Reductions related to prior period tax positions | (1.7) | (1.9) | (3.4) | |||||||||||||||||
| Reductions related to settlements with taxing authorities | (0.3) | (2.5) | (0.8) | |||||||||||||||||
| Additions (reductions) related to foreign currency translation | 0.3 | 0 | (0.2) | |||||||||||||||||
| Accrued interest and penalties ending balance | $ | 20.0 | $ | 16.2 | $ | 13.6 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Accrued interest and penalties beginning balance | $ | 47 | $ | 49 | $ | 50 | ||||||
| Net additions charged to expense | 4 | 6 | 6 | |||||||||
| Reductions related to prior period tax positions | (15 | ) | (1 | ) | (4 | ) | ||||||
| Reductions related to settlements with taxing authorities | (5 | ) | (5 | ) | (5 | ) | ||||||
| Additions (reductions) related to foreign currency translation | — | (2 | ) | 2 | ||||||||
| Accrued interest and penalties ending balance | $ | 31 | $ | 47 | $ | 49 | ||||||
The total amount of unrecognized tax benefits, including interest and penalties, was $81$91.4 million and $116$88.9 million as of April 2, 2016March 27, 2021 and March 28, 2015,2020, respectively, and iswas included within the non-current liability for unrecognized tax benefits in the consolidated balance sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate was $60$68.0 million and $85$71.7 million as of April 2, 2016March 27, 2021 and March 28, 2015,2020, respectively.
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future.
The Company files a consolidated U.S. federal income tax return, as well as tax returns in various state, local, and foreign jurisdictions. The Company is generally no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year ended April 1, 2006.
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
$300 million 2.125% Senior Notes(a) | $ | 301 | $ | 298 | ||||
$300 million 2.625% Senior Notes(b) | 296 | — | ||||||
| Commercial paper notes | 90 | 234 | ||||||
| Borrowings outstanding under credit facilities | 26 | — | ||||||
| Total debt | 713 | 532 | ||||||
| Less: short-term debt | 116 | 234 | ||||||
| Total long-term debt | $ | 597 | $ | 298 | ||||
March 30, 2013.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Debt
Debt consists of the following:
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
$300 million 2.625% Senior Notes(a) | $ | 0 | $ | 299.6 | ||||||||||
$400 million 3.750% Senior Notes(b) | 397.1 | 396.4 | ||||||||||||
$500 million 1.700% Senior Notes(c) | 498.4 | 0 | ||||||||||||
$750 million 2.950% Senior Notes(d) | 737.4 | 0 | ||||||||||||
| Borrowings outstanding under credit facilities | 0 | 475.0 | ||||||||||||
| Total debt | 1,632.9 | 1,171.0 | ||||||||||||
| Less: short-term debt and current portion of long-term debt | 0 | 774.6 | ||||||||||||
| Total long-term debt | $ | 1,632.9 | $ | 396.4 | ||||||||||
(a)The carrying value of the 2.625% Senior Notes as of March 28, 2020 is presented net of unamortized debt issuance costs and original issue discount of $0.2 million and also reflects an adjustment of $0.2 million associated with a related interest rate swap contract (see Note 13).
(b)The carrying value of the 3.750% Senior Notes is presented net of unamortized debt issuance costs and original issue discount of $2.9 million and $3.6 million as of March 27, 2021 and March 28, 2020, respectively.
(c)The carrying value of the 1.700% Senior Notes is presented net of unamortized debt issuance costs and original issue discount of $1.6 million as of March 27, 2021.
(d)The carrying value of the 2.950% Senior Notes is presented net of unamortized debt issuance costs and original issue discount of $12.6 million as of March 27, 2021.
Senior Notes
In September 2013,August 2018, the Company completed a registered public debt offering and issued $300$400 million aggregate principal amount of unsecured senior notes due September 26, 2018,15, 2025, which bear interest at a fixed rate of 2.125%3.750%, payable semi-annually (the "2.125%"3.750% Senior Notes"). The 2.125%3.750% Senior Notes were issued at a price equal to 99.896%99.521% of their principal amount. The proceeds from this offering were used for general corporate purposes, including repayment of the Company's previously outstanding €209$300 million principal amount of 4.5% Euro-denominatedunsecured 2.125% senior notes whichthat matured on October 4, 2013.September 26, 2018 (the "2.125% Senior Notes").
In August 2015,June 2020, the Company completed a secondanother registered public debt offering and issued an additional $300$500 million aggregate principal amount of unsecured senior notes due August 18, 2020,June 15, 2022, which bear interest at a fixed rate of 2.625%1.700%, payable semi-annually (the "1.700% Senior Notes"), and $750 million aggregate principal amount of unsecured senior notes due June 15, 2030, which bear interest at a fixed rate of 2.950%, payable semi-annually (the "2.950% Senior Notes"). The 1.700% Senior Notes and 2.950% Senior Notes were issued at prices equal to 99.880% and 98.995% of their principal amounts, respectively. The proceeds from these offerings are being used for general corporate purposes, which included the repayment of $475 million previously outstanding under the Company's Global Credit Facility (as defined below) on June 3, 2020 and repayment of its previously outstanding $300 million principal amount of unsecured 2.625% senior notes that matured August 18, 2020 (the "2.625% Senior Notes"). The 2.625% Senior Notes were issued at a price equal to 99.795% of their principal amount. The proceeds from this offering were used for general corporate purposes.
The Company has the option to redeem the 2.125%3.750% Senior Notes, 1.700% Senior Notes, and 2.625%2.950% Senior Notes (collectively, the "Senior Notes"), in whole or in part, at any time at a price equal to accrued and unpaid interest on the redemption date plus the greater of (i) 100% of the principal amount of the series of Senior Notes to be redeemed or (ii) the sum of the present value of Remaining Scheduled Payments, as defined in the supplemental indentures governing such Senior Notes (together with the indenture governing the Senior Notes, the "Indenture"). The Indenture contains certain covenants that restrict the Company's ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of the Company's property or assets to another party. However, the Indenture does not contain any financial covenants.
| F-33 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Commercial Paper
Borrowings under the Commercial Paper Program are supported by the Global Credit Facility, as defined below,below. Accordingly, the Company does not expect combined borrowings outstanding under the Commercial Paper Program and Global Credit Facility to exceed $500 million. Commercial Paper Program borrowings may be used to support the Company's general working capital and corporate needs. Maturities of commercial paper notes vary, but cannot exceed 397 days from the date of issuance. Commercial paper notes issued under the Commercial Paper Program rank equally in seniority with the Company's other forms of unsecured indebtedness. As of April 2, 2016, the Company had $90 million inboth March 27, 2021 and March 28, 2020 there were 0 borrowings outstanding under itsthe Commercial Paper Program, with a weighted-average annual interest rate of 0.41% and a weighted-average remaining term of 3 days.Program.
Revolving Credit Facilities
Global Credit Facility
In February 2015,August 2019, the Company replaced its existing credit facility and entered into an amended and restateda new credit facility (which was further amended in March 2016) that provides for a $500$500 million senior unsecured revolving line of credit through February 11, 2020August 12, 2024 (the "Global Credit Facility") under terms and conditions substantially similar to those previously in effect.of the previous facility. The Global Credit Facility is also used to support the issuance of letters of credit and the maintenance of the Commercial Paper Program. Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and certain other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. TheYen, and are guaranteed by all of the Company's domestic significant subsidiaries. In accordance with the terms of the agreement governing the Global Credit Facility, the Company has the ability to expand its borrowing availability under the Global Credit Facility to $750 million,$1 billion, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit Facility. As of April 2, 2016, there were no borrowings outstanding under
Under the Global Credit Facility and the Company was contingently liable for $9 million of outstanding letters of credit.
as originally implemented, U.S. Dollar-denominated borrowings under the Global Credit Facility bear interest, at the Company's option, either at (a) a base rate, by reference to the greatest of: (i) the annual prime commercial lending rate of JPMorgan Chase Bank, N.A. in effect from time to time, (ii) the weighted-average overnight Federal funds rate plus 50 basis points,, or (iii) the one-month London Interbank Offered Rate ("LIBOR")LIBOR plus 100 basis points;points; or (b) LIBOR, adjusted for the Federal Reserve Board's Eurocurrency liabilities maximum reserve percentage, plus a spread of 87.575 basis points,, subject to adjustment based on the Company's credit ratings ("Adjusted LIBOR"). Foreign currency-denominated borrowings bear interest at Adjusted LIBOR.
In addition to paying interest on any outstanding borrowings under the Global Credit Facility, the Company is required to pay a commitment fee to the lenders under the Global Credit Facility with respectrelating to the unutilized commitments. The commitment fee rate of 76.5 basis points under the terms of the Global Credit Facility is subject to adjustment based on the Company's credit ratings. These provisions were amended in May 2020, as discussed further below.
The Global Credit Facility contains a number of covenants that, among other things, restrict the Company's ability, subject to specified exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve itself; engage in businesses that are not in a related line of business; make loans, advances, or guarantees; engage in transactions with affiliates; and make certain investments. TheAs originally implemented, the Global Credit Facility also requiresrequired the Company to maintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the "leverage ratio") of no greater than 3.754.25 as of the date of measurement for the four4 most recent consecutive fiscal quarters. Adjusted Debt is defined generally as consolidated debt outstanding, including finance lease obligations, plus four times consolidated rent expense for the four most recent consecutive fiscal quarters.all operating lease obligations. Consolidated EBITDAR is defined generally as consolidated net income plus (i) income tax expense, (ii) net interest expense, (iii) depreciation and amortization expense, (iv) consolidated rent expense,operating lease cost, (v) restructuring and other non-recurring expenses, and (vi) acquisition-related costs. AsThis requirement was amended in May 2020, as discussed below.
In May 2020, the Company entered into an amendment of April 2, 2016, no Eventits Global Credit Facility (the "Amendment"). Under the Amendment, until the earlier of Default (as such term is defined pursuant to(a) the date on which the Company provides the periodic reporting information required under the Global Credit Facility) has occurredFacility for the quarter ending September 30, 2021 and (b) the date on which the Company certifies that its leverage ratio as of the last day of the two most recent fiscal quarters was no greater than 4.25 (the "Ratings-Based Toggle Date"), for loans based on Adjusted LIBOR, the spread over Adjusted LIBOR will be increased to 187.5 basis points, the spread on loans based on the base rate will be 87.5 basis points and the commitment fee will be increased to 25 basis points, in each case with no adjustments based on the Company's credit ratings. The pricing will return to the original levels set forth in the Global Credit Facility on the Ratings-Based Toggle Date. Additionally, the leverage ratio requirements have been waived
| F-34 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
until the quarter ending September 30, 2021. The maximum permitted leverage ratio for that fiscal quarter would be 5.25. For the fiscal quarters ending December 31, 2021 and March 31, 2022, the maximum permitted leverage ratio would be 4.75. For each fiscal quarter ending on or after June 30, 2022, the maximum permitted leverage ratio would return to 4.25. The Amendment also (a) imposes a new requirement that would remain in effect until the Ratings-Based Toggle Date that the aggregate amount of unrestricted cash of the Company and its subsidiaries plus the undrawn amounts available under the Company's Global Credit Facility. may not be less than $750 million, (b) restricts the amount of dividends and distributions on, or purchases, redemptions, repurchases, retirements or acquisitions of, the Company's stock until the Specified Period Termination Date (as defined below), (c) until March 31, 2021, amends the material adverse change representation to disregard pandemic-related impacts to the business, and (d) until the Specified Period Termination Date, adds certain other restrictions on indebtedness incurred by the Company and its subsidiaries and investments and acquisitions by the Company and its subsidiaries. The "Specified Period Termination Date" is the earlier of (i) the date on which the Company provides the periodic reporting information required under the Global Credit Facility for the quarter ending June 30, 2022 and (ii) the date on which the Company certifies that its leverage ratio as of the last day of the two most recent fiscal quarters was no greater than 4.25.
Upon the occurrence of an Event of Default under the Global Credit Facility, the lenders may cease making loans, terminate the Global Credit Facility, and declare all amounts outstanding to be immediately due and payable. The Global Credit Facility specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal, interest, and fee payments or to satisfy the covenants, including the financial covenant described above. Additionally, the Global Credit Facility provides that an Event of Default will occur if Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family fail to maintain a specified minimum percentage of the voting power of the Company's common stock. As of March 27, 2021, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under the Company's Global Credit Facility.
In March 2020, the Company borrowed $475.0 million under the Global Credit Facility as a preemptive action to preserve cash and strengthen its liquidity position in response to the COVID-19 pandemic. These borrowings were subsequently repaid in June 2020. As of March 27, 2021, there were 0 borrowings outstanding under the Global Credit Facility and the Company was contingently liable for $8.9 million of outstanding letters of credit
364 Day Facility
In May 2020, the Company entered into a new credit facility with the same lenders that are parties to the Global Credit Facility (the "364 Day Facility") as a preemptive measure to strengthen its liquidity in response to the COVID-19 pandemic. The 364 Day Facility provided for a $500 million senior unsecured revolving line of credit through May 25, 2021, provided that the maturity date may be earlier if the Company was to issue senior notes other than to refinance the previously outstanding 2.625% Senior Notes. In connection with the issuances of the 1.700% Senior Notes and the 2.950% Senior Notes in June 2020, the 364 Day Facility automatically terminated in accordance with its terms because the aggregate proceeds received upon issuance of these senior notes exceeded the amount necessary to refinance the 2.625% Senior Notes.
Pan-Asia CreditBorrowing Facilities
Certain of the Company's subsidiaries in Asia have uncommitted credit facilities with regional branches of JPMorgan Chase (the "Banks") in China and South Korea (the "Pan-Asia Credit Facilities"). These credit facilitiesAdditionally, the Company's Japan subsidiary has an uncommitted overdraft facility with Sumitomo Mitsui Banking Corporation (the "Japan Overdraft Facility"). The Pan-Asia Credit Facilities and Japan Overdraft Facility (collectively, the "Pan-Asia Borrowing Facilities") are subject to annual renewal and may be used to fund general working capital and corporate needs of the Company's operations in the respective countries. Borrowings under the Pan-Asia CreditBorrowing Facilities are guaranteed by the parent company and are granted at the sole discretion of the Banks,respective banks, subject to availability of the Banks'banks' funds and satisfaction of certain regulatory requirements. The Pan-Asia CreditBorrowing Facilities do not contain any financial covenants. TheA summary of the Company's Pan-Asia CreditBorrowing Facilities by country areis as follows:
•China Credit Facility — provides Ralph Lauren Trading (Shanghai) Co., Ltd. with a revolving line of credit of up to 10050 million Chinese Renminbi (approximately $16 million)$8 million) through April 6, 2017, and may3, 2022, which is also able to be used to support bank guarantees. As of April 2, 2016, bank guarantees supported by this facility were not material.
•South Korea Credit Facility — provides Ralph Lauren (Korea) Ltd. with a revolving line of credit of up to 4730 billion South Korean Won (approximately $41 million)$26 million) through October 31, 2016.
29, 2021.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
•Japan Overdraft Facility — provides Ralph Lauren Corporation Japan with an overdraft amount of up to 5 billion Japanese Yen (approximately $46 million) through April 28, 2022.
As of both March 27, 2021 and March 28, 2020 there were 0 borrowings outstanding under the Pan-Asia Borrowing Facilities.
12. Fair Value Measurements
U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
•Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.
•Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.
The following table summarizes the Company's financial assets and liabilities that are measured and recorded at fair value on a recurring basis, excluding accrued interest components:
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Financial assets recorded at fair value: | ||||||||
Corporate bonds — non-U.S.(a) | $ | 8 | $ | 8 | ||||
Derivative financial instruments(b) | 22 | 87 | ||||||
| Total | $ | 30 | $ | 95 | ||||
| Financial liabilities recorded at fair value: | ||||||||
Derivative financial instruments(b) | $ | 59 | $ | 19 | ||||
| Total | $ | 59 | $ | 19 | ||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
Investments in commercial paper(a)(b) | $ | 0 | $ | 243.6 | ||||||||||
Derivative assets(a) | 15.8 | 62.3 | ||||||||||||
Derivative liabilities(a) | 55.4 | 6.9 | ||||||||||||
(b)Amounts are included within short-term investments in the extent the Company investsconsolidated balance sheet.
The Company's investments in bonds, such investmentscommercial paper are classified as available-for-sale and recorded at fair value in its consolidated balance sheets using external pricing data, based uponon interest rates and credit ratings for similar issuances with the same remaining term as the Company's investments. To the extent the Company invests in bonds, such investments are also classified as available-for-sale and recorded at fair value in its consolidated balance sheets based on quoted prices in active markets.
The Company's derivative financial instruments are recorded at fair value in its consolidated balance sheets and are valued using pricing models that are primarily based on market observable external inputs, including spot and forward currency exchange rates, benchmark interest rates, and discount rates consistent with the instrument's tenor, and consider the impact of the Company's own credit risk, if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments.
The Company's cash and cash equivalents, restricted cash, and time deposits are recorded at carrying value, which generally approximates fair value based on Level 1 measurements.
The Company's debt instruments are recorded at their carrying values in its consolidated balance sheets, which may differ from their respective fair values. The fair values of the Senior Notes are estimated based on external pricing data, including available quoted market prices, and with reference to comparable debt instruments with similar interest rates, credit ratings, and trading frequency, among other factors. The fair values of the Company's commercial paper notes and borrowings
| F-36 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
outstanding under its credit facilities, if any, are estimated using external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company's outstanding borrowings. Due to their short-term nature, the fair values of the Company's commercial paper notes and borrowings outstanding under its credit facilities, at April 2, 2016if any, generally approximate their carrying values.
The following table summarizes the carrying values and the estimated fair values of the Company's debt instruments:
| March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||
Carrying Value(a) | Fair Value(b) | Carrying Value(a) | Fair Value(b) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| $300 million 2.625% Senior Notes | $ | 0 | $ | 0 | $ | 299.6 | $ | 299.8 | ||||||||||||||||||
| $400 million 3.750% Senior Notes | 397.1 | 443.4 | 396.4 | 415.1 | ||||||||||||||||||||||
| $500 million 1.700% Senior Notes | 498.4 | 507.8 | 0 | 0 | ||||||||||||||||||||||
| $750 million 2.950% Senior Notes | 737.4 | 779.4 | 0 | 0 | ||||||||||||||||||||||
| Borrowings outstanding under credit facilities | 0 | 0 | 475.0 | 473.0 | ||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | |||||||||||||||
| Carrying Value | Fair Value(a) | Carrying Value | Fair Value(a) | |||||||||||||
| (millions) | ||||||||||||||||
| $300 million 2.125% Senior Notes | $ | 301 | (b) | $ | 306 | $ | 298 | (b) | $ | 304 | ||||||
| $300 million 2.625% Senior Notes | 296 | (b) | 308 | — | — | |||||||||||
| Commercial paper notes | 90 | 90 | 234 | 234 | ||||||||||||
| Borrowings outstanding under credit facilities | 26 | 26 | — | — | ||||||||||||
(a)See Note 11 for discussion of the carrying values of the Company's senior notes.
(b)Based on Level 2 measurements. |
Unrealized gains or losses resulting from changes in the fair value of the Company's debt instruments do not result in the realization or expenditure of cash, unless the debt is retired prior to its maturity.
Non-financial Assets and Liabilities
The Company's non-financial assets, which primarily consist of goodwill, other intangible assets, and property and equipment, and lease-related ROU assets, are not required to be measured at fair value on a recurring basis, and instead are reported at carrying value.value in its consolidated balance sheet. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying valuethey may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), the respective carrying value of non-financial instrumentsassets are assessed for impairment and, if applicable,ultimately considered impaired, are adjusted and written down to and recorded attheir fair value, consideringas estimated based on consideration of external market participant assumptions.assumptions and discounted cash flows.
During Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014,2019, the Company recorded non-cash impairment charges to reduce the carrying values of certain long-lived store and shop-within-shop assets to their estimated fair values. The fair values of these assets were determined based on Level 3 measurements. Inputs to these fair value measurements, the related inputs of which included estimates of the amount and timing of the stores' or shop-within-shops'assets' net future discounted cash flows (including any potential sublease income for lease-related ROU assets), based on historical experience and consideration of current trends, market conditions, and market conditions.comparable sales, as applicable.
The following table summarizes thetables summarize non-cash impairment charges recorded by the Company during Fiscal 2016, Fiscal 2015, and Fiscal 2014:the fiscal years presented in order to reduce the carrying values of certain long-lived assets to their estimated fair values as of the assessment date:
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||||||||||||||||||||
| Long-Lived Asset Category | Fair Value As of Impairment Date | Total Impairments(a) | Fair Value As of Impairment Date | Total Impairments(a) | Fair Value As of Impairment Date | Total Impairments(a) | ||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
Property and equipment, net(b) | $ | 23.5 | $ | 44.1 | $ | 2.4 | $ | 16.8 | $ | 20.8 | $ | 25.8 | ||||||||||||||||||||||||||
Operating lease right-of-use assets(c) | 84.3 | 51.9 | 120.8 | 239.9 | N/A | N/A | ||||||||||||||||||||||||||||||||
| Equity method investment | N/A | 0 | 1.3 | 7.1 | N/A | 0 | ||||||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Aggregate carrying value of long-lived assets written down to fair value | $ | 49 | $ | 7 | $ | 1 | ||||||
Impairment charges(a) | (49 | ) | (7 | ) | (1 | ) | ||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)Impairment of equity method investment is recorded within other income (expense), net in the consolidated statements of operations. All other impairment charges have beenare recorded within impairments of assets in the consolidated statements of operations, unless otherwise noted.
(b)Total impairment charges for Fiscal 2019 includes $4.6 million recorded to reduce the carrying value of the Company's corporate jet being held-for-sale to its estimated fair value, less costs to sell of $20.8 million as of March 30, 2019. This balance was reclassified from property and equipment, net to prepaid expenses and other current assets in the consolidated balance sheet upon being classified as an asset held-for-sale. The asset was subsequently sold during Fiscal 2020.
(c)Total impairment charges for Fiscal 2020 includes $225.1 million recorded in connection with the Company's adoption of ASU 2016-02 as of the beginning of Fiscal 2020 which, net of related income tax benefits, reduced its opening retained earnings balance by $169.4 million.
See Note 8 for additional discussion regarding non-cash impairment charges recorded by the Company within the consolidated statements of operations during the fiscal years presented.
NaN impairment charges associated with goodwill or other intangible assets were recorded during any of the three fiscal years presented. In Fiscal 2016,2021, the Company performed its annual goodwill impairment assessment using a qualitative approach as of the beginning of the second quarter of the fiscal year using a qualitative approach.year. In performing the assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affected the fair values and/or carrying amounts of its reporting units.units with allocated goodwill. These factors included external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as the Company's actual and plannedexpected financial performance. Additionally, the Company also considered the results of the Company'sits most recent quantitative goodwill impairment test, which was performed as of the end of Fiscal 2020 and incorporated assumptions related to COVID-19 business disruptions, the results of which indicated that the fair values of itsthese reporting units significantly exceeded their respective carrying values. Based on the results of its qualitative goodwill impairment assessment, the Company concluded that it is not more likely than not that the fair values of its reporting units are less than their respective carrying values, and there were no reporting units at risk of impairment.
13. Financial Instruments
Derivative Financial Instruments
The Company is exposed to changes in foreign currency exchange rates, primarily relating to certain anticipated cash flows and the value of the reported net assets of its international operations, as well as changes in the fair value of its fixed-rate debt obligations attributed to changes in the benchmark interest rate. Consequently,rates. Accordingly, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not enter into derivative transactionsuse derivatives for speculative or trading purposes.
The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded inon its consolidated balance sheets as of April 2, 2016March 27, 2021 and March 28, 2015:2020:
| Notional Amounts | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||
Derivative Instrument(a) | April 2, 2016 | March 28, 2015 | April 2, 2016 | March 28, 2015 | April 2, 2016 | March 28, 2015 | ||||||||||||||||||||||||||
Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | |||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||||||||||||||
| FC — Inventory purchases | $ | 532 | $ | 587 | PP | $ | 1 | PP | $ | 49 | AE | $ | 14 | AE | $ | 9 | ||||||||||||||||
FC — Other(c) | 210 | 118 | — | — | PP | 5 | AE | 9 | AE | 1 | ||||||||||||||||||||||
| IRS — Fixed-rate debt | 600 | — | ONCA | 2 | — | — | ONCL | 2 | — | — | ||||||||||||||||||||||
| CCS — NI | 630 | — | — | — | — | — | ONCL | 31 | — | — | ||||||||||||||||||||||
| Total Designated Hedges | $ | 1,972 | $ | 705 | $ | 3 | $ | 54 | $ | 56 | $ | 10 | ||||||||||||||||||||
| Undesignated Hedges: | ||||||||||||||||||||||||||||||||
FC — Other(d) | $ | 541 | $ | 464 | (e) | $ | 19 | (f) | $ | 33 | AE | $ | 3 | (g) | $ | 9 | ||||||||||||||||
| Total Hedges | $ | 2,513 | $ | 1,169 | $ | 22 | $ | 87 | $ | 59 | $ | 19 | ||||||||||||||||||||
| Notional Amounts | Derivative Assets | Derivative Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instrument(a) | March 27, 2021 | March 28, 2020 | March 27, 2021 | March 28, 2020 | March 27, 2021 | March 28, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | Balance Sheet Line(b) | Fair Value | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| FC — Cash flow hedges | $ | 168.9 | $ | 229.0 | PP | $ | 5.0 | PP | $ | 7.4 | $ | 0 | AE | $ | 0.4 | |||||||||||||||||||||||||||||||||||||||||||||||
| IRS — Fixed-rate debt | 0 | 300.0 | 0 | 0 | 0 | AE | 0.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net investment hedges(c) | 723.2 | 683.6 | ONCA | 10.2 | ONCA | 48.6 | ONCL | 55.1 | AE | 4.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Designated Hedges | 892.1 | 1,212.6 | 15.2 | 56.0 | 55.1 | 4.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Undesignated Hedges: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FC — Undesignated hedges(d) | 242.4 | 473.5 | PP | 0.6 | PP | 6.3 | AE | 0.3 | AE | 2.3 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Hedges | $ | 1,134.5 | $ | 1,686.1 | $ | 15.8 | $ | 62.3 | $ | 55.4 | $ | 6.9 | ||||||||||||||||||||||||||||||||||||||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)FC = Forward foreign currency exchange contracts; IRS = Interest rate swap contracts.
(b)PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities; ONCA = Other non-current assets; ONCL = Other non-current liabilities.
(c)Includes cross-currency swaps designated as hedges of the Company's net investment in certain foreign operations.
(d)Relates to third-party and intercompany foreign currency-denominated exposures and balances.
The Company records and presents the fair values of all of its derivative assets and liabilities inrecorded on its consolidated balance sheets on a gross basis, even thoughwhen they are subject to master netting arrangements. However, if the Company were to offset and record the asset and liability balances of all of its derivative instruments on a net basis in accordance with the terms of each of its master netting arrangements, spread across eight10 separate counterparties, the amounts presented in the consolidated balance sheets as of April 2, 2016March 27, 2021 and March 28, 20152020 would be adjusted from the current gross presentation as detailed in the following table:
| March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements | Net Amount | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements | Net Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instrument | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements | Net Amount | Gross Amounts Presented in the Balance Sheet | Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Arrangements | Net Amount | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets | $ | 22 | $ | (11 | ) | $ | 11 | $ | 87 | $ | (14 | ) | $ | 73 | Derivative assets | $ | 15.8 | $ | (0.3) | $ | 15.5 | $ | 62.3 | $ | (6.1) | $ | 56.2 | |||||||||||||||||||||||||||||||||||
| Derivative liabilities | $ | 59 | $ | (11 | ) | $ | 48 | $ | 19 | $ | (14 | ) | $ | 5 | Derivative liabilities | 55.4 | (0.3) | 55.1 | 6.9 | (6.1) | 0.8 | |||||||||||||||||||||||||||||||||||||||||
The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. Refer toSee Note 3 for further discussion of the Company's master netting arrangements.
The following tables summarize the pretax impact of the effective portion of gains and losses from the Company's designated derivative instruments on its consolidated financial statements for the fiscal years presented:
| Gains (Losses) Recognized in OCI | ||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Designated Hedges: | ||||||||||||||||||||
| FC — Cash flow hedges | $ | (3.5) | $ | 24.0 | $ | 47.5 | ||||||||||||||
Net investment hedges — effective portion | (35.5) | 7.7 | 64.5 | |||||||||||||||||
| Net investment hedges — portion excluded from assessment of hedge effectiveness | (50.8) | 30.7 | 1.6 | |||||||||||||||||
| Total Designated Hedges | $ | (89.8) | $ | 62.4 | $ | 113.6 | ||||||||||||||
Gains (Losses) Recognized in OCI | Gains (Losses) Reclassified from AOCI to Earnings | Location of Gains (Losses) Reclassified from AOCI to Earnings | ||||||||||||||||||||||||
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||
| Derivative Instrument | April 2, 2016 | March 28, 2015 | March 29, 2014 | April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Designated Cash Flow Hedges: | ||||||||||||||||||||||||||
| FC — Inventory purchases | $ | (7 | ) | $ | 50 | $ | (10 | ) | $ | 44 | $ | 3 | $ | 10 | Cost of goods sold | |||||||||||
| FC — Other | (14 | ) | 19 | — | (5 | ) | 14 | — | Foreign currency gains (losses) | |||||||||||||||||
| $ | (21 | ) | $ | 69 | $ | (10 | ) | $ | 39 | $ | 17 | $ | 10 | |||||||||||||
| Designated Hedges of Net Investments: | ||||||||||||||||||||||||||
CCS(a) | $ | (28 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| Total Designated Hedges | $ | (49 | ) | $ | 69 | $ | (10 | ) | $ | 39 | $ | 17 | $ | 10 | ||||||||||||
| Location and Amount of Gains (Losses) from Cash Flow Hedges Reclassified from AOCI to Earnings | ||||||||||||||||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||||||||||||||||||||
| Cost of goods sold | Other income (expense), net | Cost of goods sold | Other income (expense), net | Cost of goods sold | Other income (expense), net | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
Total amounts presented in the consolidated statements of operations in which the effects of related cash flow hedges are recorded | $ | (1,539.4) | $ | 7.6 | $ | (2,506.5) | $ | (7.4) | $ | (2,427.0) | $ | 0.6 | ||||||||||||||||||||||||||
| Effects of cash flow hedging: | ||||||||||||||||||||||||||||||||||||||
| FC — Cash flow hedges | 12.6 | (0.3) | 24.9 | 1.1 | 5.0 | 1.7 | ||||||||||||||||||||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Gains (Losses) from Net Investment Hedges Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Net Investment Hedges: | ||||||||||||||||||||||||||
Net investment hedges — portion excluded from assessment of hedge effectiveness(a) | $ | 11.3 | $ | 19.0 | $ | 19.0 | Interest expense | |||||||||||||||||||
| Total Net Investment Hedges | $ | 11.3 | $ | 19.0 | $ | 19.0 | ||||||||||||||||||||
(a)Amounts recognized in OCI relating to the effective portion of the Company's net investment hedges would be recognized in earnings only upon the sale or liquidation of the hedged net investment.
As of March 27, 2021, it is estimated that $4.9 million of pretax net gains on both outstanding and matured derivative instruments designated and qualifying as cash flow hedges deferred in AOCI will be recognized in earnings over the next twelve months. Amounts ultimately recognized in earnings will depend on exchange rates in effect when outstanding derivative instruments are settled.
The following table summarizes the pretax impact of gains and losses from the Company's undesignated derivative instruments on its consolidated financial statements for the fiscal years presented:
| Gains (Losses) Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | |||||||||||||||||||||||||||||||||||||||
Gains (Losses) Recognized in Earnings | Location of Gains (Losses) Recognized in Earnings | Fiscal Years Ended | ||||||||||||||||||||||||||||||||||||||
| Fiscal Years Ended | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||||||||||||||||||
| Derivative Instrument | April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||||||||||
| Undesignated Hedges: | Undesignated Hedges: | |||||||||||||||||||||||||||||||||||||||
| FC — Other | $ | (7 | ) | $ | 18 | $ | 20 | Foreign currency gains (losses) | ||||||||||||||||||||||||||||||||
| FC — Undesignated hedges | FC — Undesignated hedges | $ | (0.8) | $ | 16.0 | $ | 3.1 | Other income (expense), net | ||||||||||||||||||||||||||||||||
| Total Undesignated Hedges | $ | (7 | ) | $ | 18 | $ | 20 | Total Undesignated Hedges | $ | (0.8) | $ | 16.0 | $ | 3.1 | ||||||||||||||||||||||||||
Risk Management Strategies
Forward Foreign Currency Exchange Contracts
The Company enters intouses forward foreign currency exchange contracts to reducemitigate its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certainthe settlement of its international operations, and other foreign currency-denominated operational and intercompany balances, and cash flows.the translation of certain foreign operations' net assets into U.S. dollars. As part of its overall strategy to managefor managing the level of exposure to the risk of foreign currencysuch exchange rate fluctuations,risk, relating primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, and the Hong Kong Dollar,Chinese Renminbi, the Company generally hedges a portion of its foreign currencyrelated exposures anticipated over a two-year period. In doing so, the Company usesnext twelve months using forward foreign currency exchange contracts that generally havewith maturities of two months to two yearsone year to provide continuing coverage throughoutover the hedging period.period of the respective exposure.
Interest Rate Swap Contracts
| F-40 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the carrying value of the hedged senior notes and the impacts of the related fair value hedging adjustments as of March 27, 2021 and March 28, 2020:
| Carrying Value of the Hedged Item | Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Item | |||||||||||||||||||||||||||||||
| Hedged Item | Balance Sheet Line in which the Hedged Item is Included | March 27, 2021 | March 28, 2020 | March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
$300 million 2.625% Senior Notes(a) | Current portion of long-term debt | N/A | $ | 299.6 | N/A | $ | (0.2) | |||||||||||||||||||||||||
(a)The interest rate swap contract designated as a fair value hedge of the Company's 2.625% Senior Notes was settled during Fiscal 2016.2021 at a loss of $0.3 million.
Cross-Currency Swap Contracts
The Cross-Currency Swaps, which mature on September 26, 2018 and August 18, 2020, respectively,Company's pay-floating rate, receive-floating rate cross-currency swap thecontracts swap U.S. Dollar-denominated variable interest rate payments based on the contract's notional amount and 3-month LIBOR plus a fixed spread (as paid under the Interest Rate Swaps describeda corresponding interest rate swap contract discussed above) for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate ("EURIBOR") plus a fixed spread. As a result, the Cross-Currency Swaps,spread, which, in conjunctioncombination with the Interest Rate Swaps,corresponding interest rate swap contract, economically convertconverts a portion of the Company's $300 million fixed-rate 2.125% and $300 million fixed-rate 2.625%U.S. Dollar-denominated senior note obligations to €280 million and €274 million floating-rate Euro-denominated liabilities, respectively. No material gains or losses relatedobligations.
The Company's pay-fixed rate, receive-fixed rate cross-currency swap contracts swap U.S. Dollar-denominated fixed interest rate payments based on the contract's notional amount and the fixed rate of interest payable on certain of the Company's senior notes for Euro-denominated fixed interest rate payments, thereby economically converting a portion of its fixed-rate U.S. Dollar-denominated senior note obligations to the ineffective portion, or the amount excluded from effectiveness testing, were recognized in interest expense within the consolidated statement of income during Fiscal 2016.fixed-rate Euro-denominated obligations.
See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.
Investments
As of April 2, 2016,March 27, 2021, the Company's investments were all classified as short-term investmentsand consisted of $621$197.5 million of time deposits. The Company's investments as of March 28, 2020 were also all classified as short-term and consisted of $252.3 million of time deposits and $8$243.6 million of non-U.S. corporate bonds, and its non-current investments consisted of $187 million of time deposits. As of March 28, 2015, the Company's short-term and non-current investments consisted of $644 million of time deposits and $8 million of non-U.S. corporate bonds, respectively. The Company's non-current investments as of both April 2, 2016 and March 28, 2015 have maturities of one to two years.commercial paper.
No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded in any of the fiscal years presented. Refer to Note 18 for further detail.
See Note 3 for further discussion of the Company's accounting policies relating to its investments.
Minimum Operating Lease Payments(a)(b) | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 346 | ||
| Fiscal 2018 | 329 | |||
| Fiscal 2019 | 305 | |||
| Fiscal 2020 | 279 | |||
| Fiscal 2021 | 215 | |||
| Fiscal 2022 and thereafter | 733 | |||
| Total net minimum rental payments | $ | 2,207 | ||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| March 27, 2021 | March 28, 2020 | Location Recorded on Balance Sheet | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Operating leases | $ | 1,239.5 | $ | 1,511.6 | Operating lease right-of-use assets | |||||||||||||||
| Finance leases | 331.6 | 166.4 | Property and equipment, net | |||||||||||||||||
| Total lease assets | $ | 1,571.1 | $ | 1,678.0 | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
Operating leases: | ||||||||||||||||||||
| Current portion | $ | 302.9 | $ | 288.4 | Current operating lease liabilities | |||||||||||||||
| Non-current portion | 1,294.5 | 1,568.3 | Long-term operating lease liabilities | |||||||||||||||||
| Total operating lease liabilities | 1,597.4 | 1,856.7 | ||||||||||||||||||
Finance leases: | ||||||||||||||||||||
| Current portion | 19.7 | 9.8 | Accrued expenses and other current liabilities | |||||||||||||||||
| Non-current portion | 370.5 | 189.4 | Other non-current liabilities | |||||||||||||||||
| Total finance lease liabilities | 390.2 | 199.2 | ||||||||||||||||||
| Total lease liabilities | $ | 1,987.6 | $ | 2,055.9 | ||||||||||||||||
The following table summarizes the composition of total lease cost during Fiscal 2021 and Fiscal 2020:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | Location Recorded in Earnings | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Operating lease cost | $ | 323.5 | $ | 322.0 | (a) | |||||||||||||||
Finance lease costs: | ||||||||||||||||||||
| Depreciation of leased assets | 20.5 | 18.1 | SG&A expenses | |||||||||||||||||
| Accretion of lease liabilities | 9.7 | 8.1 | Interest expense | |||||||||||||||||
| Variable lease cost | 224.7 | 298.0 | (b) | |||||||||||||||||
| Short-term lease cost | 4.9 | 5.5 | SG&A expenses | |||||||||||||||||
| Sublease income | (1.8) | (2.9) | Restructuring and other charges | |||||||||||||||||
| Total lease cost | $ | 581.5 | $ | 648.8 | ||||||||||||||||
(a)During Fiscal 2021, $3.4 million was included within cost of goods sold, $307.0 million was included within SG&A expenses, and $13.1 million was included within restructuring and other charges. During Fiscal 2020, $4.4 million was included within cost of goods sold, $307.3 million was included within SG&A expenses, and $10.3 million was included within restructuring and other charges.
(b)During Fiscal 2021, $4.5 million was included within cost of goods sold and $220.2 million was included within SG&A expenses. During Fiscal 2020, $4.7 million was included within cost of goods sold, $290.3 million was included within SG&A expenses, and $3.0 million was included within restructuring and other charges.
During Fiscal 2019, in accordance with lease accounting guidance then in effect (prior to adoption of ASU 2016-02), the Company recognized rent expense of approximately $449.3 million, net of insignificant sublease income, related to its operating leases, including build-to-suit leases, amountedwhich included contingent rental charges of approximately $192.0 million and does not include costs related to approximately $278non-lease components.
| F-42 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes certain cash flow information related to the Company's leases:
| Fiscal Year Ended | ||||||||||||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||
| Operating cash flows from operating leases | $ | 360.6 | $ | 383.9 | ||||||||||
| Operating cash flows from finance leases | 6.7 | 8.0 | ||||||||||||
| Financing cash flows from finance leases | 13.9 | 13.6 | ||||||||||||
See Note 21 for supplemental non-cash information related to ROU assets recorded in connection with the recognition of new lease liabilities.
The following table presents a maturity analysis summary of contractual cash payments for the Company's lease liabilities recorded on the consolidated balance sheet as of March 27, 2021:
| March 27, 2021 | ||||||||||||||
| Operating Leases | Finance Leases | |||||||||||||
| (millions) | ||||||||||||||
| Fiscal 2022 | $ | 332.7 | $ | 33.7 | ||||||||||
| Fiscal 2023 | 303.5 | 35.2 | ||||||||||||
| Fiscal 2024 | 267.0 | 35.5 | ||||||||||||
| Fiscal 2025 | 212.2 | 35.9 | ||||||||||||
| Fiscal 2026 | 150.3 | 36.2 | ||||||||||||
| Fiscal 2027 and thereafter | 458.4 | 312.7 | ||||||||||||
| Total lease payments | 1,724.1 | 489.2 | ||||||||||||
| Less: interest | (126.7) | (99.0) | ||||||||||||
| Total lease liabilities | $ | 1,597.4 | $ | 390.2 | ||||||||||
Additionally, the Company has $107.4 million and $251 million at of future payment obligations relating to executed lease agreements for which the related lease terms had not yet commenced as of the end of Fiscal 20162021, and, Fiscal 2015, respectively, nettherefore, are not recorded on the consolidated balance sheet as of accumulated depreciationMarch 27, 2021.
The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates related to the Company's operating and finance leases recorded on the consolidated balance sheet as of March 27, 2021:
| March 27, 2021 | March 28, 2020 | |||||||||||||||||||||||||
| Operating Leases | Finance Leases | Operating Leases | Finance Leases | |||||||||||||||||||||||
| Weighted-average remaining lease term (years) | 6.9 | 14.2 | 7.6 | 12.7 | ||||||||||||||||||||||
| Weighted-average discount rate | 2.0 | % | 3.3 | % | 2.1 | % | 4.1 | % | ||||||||||||||||||
See Note 3 for discussion of the Company's accounting policies related to leases.
| F-43 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Commitments and Contingencies
U.S. Tax Reform
In connection with the TCJA's provision that subjects previously deferred foreign earnings to a one-time mandatory transition tax, the Company recorded cumulative charges of approximately $53$241 million within its income tax provision in prior fiscal years (as described in Note 10). The remaining related income tax payable obligation of $132.7 million as of March 27, 2021, which was reduced by foreign tax credits and $30 million, respectively. Such assets are classifiedother federal income tax activity, is expected to be paid as follows:
Mandatory Transition Tax Payments(a) | ||||||||
| (millions) | ||||||||
| Fiscal 2022 | $ | 14.0 | ||||||
| Fiscal 2023 | 14.0 | |||||||
| Fiscal 2024 | 26.2 | |||||||
| Fiscal 2025 | 34.9 | |||||||
| Fiscal 2026 | 43.6 | |||||||
| Total mandatory transition tax payments | $ | 132.7 | ||||||
(a)Included within propertycurrent and equipment, netnon-current income tax payable in the consolidated balance sheets based upon the estimated timing of payments.
See Note 10 for further discussion of the TCJA and its enactment-related impacts on their nature.the Company's consolidated financial statements.
Minimum Capital Lease Payments(a)(b) | ||||
| (millions) | ||||
| Fiscal 2017 | $ | 30 | ||
| Fiscal 2018 | 28 | |||
| Fiscal 2019 | 26 | |||
| Fiscal 2020 | 28 | |||
| Fiscal 2021 | 27 | |||
| Fiscal 2022 and thereafter | 106 | |||
| Total net minimum rental payments | 245 | |||
| Less: amount representing interest | (59 | ) | ||
| Present value of net minimum rental payments | $ | 186 | ||
Employee Agreements
The Company has employment agreements with certain executives in the normal course of business which provide for compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances.
Other Commitments
Other off-balance sheet firm commitments amounted to approximately $1.151$1.190 billion as of April 2, 2016,March 27, 2021, including inventory purchase commitments of approximately $941$713.7 million, lease commitments related to lease agreements for which the related lease terms have not yet commenced of $107.4 million, outstanding letters of credit of approximately $10$8.9 million, interest payments related to the Company's Senior Notesdebt of approximately $51$282.4 million, and other commitments of approximately $149$77.2 million, comprised of the Company's legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements, distribution-related agreements, information technology-related service agreements, and pension-related obligations.
Other Matters
The Company is involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to its business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of its products, taxation, unclaimed property, and employee relations. The Company believes at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on its consolidated financial statements. However, the Company's assessment of theany current litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
In the normal course of business, the Company enters into agreements that provide general indemnifications. The Company has not made any significant indemnification payments under such agreements in the past and does not currently anticipate incurring any material indemnification payments.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Equity
Capital Stock
The Company's capital stock consists of two2 classes of common stock. There are 500 million shares of Class A common stock and 100 million shares of Class B common stock authorized to be issued. Shares of Class A and Class B common stock have substantially identical rights, except with respect to voting rights. Holders of Class A common stock are entitled to one1 vote per share and holders of Class B common stock are entitled to ten10 votes per share. Holders of both classes of stock vote together as a single class on all matters presented to the stockholders for their approval, except with respect to the election and removal of directors or as otherwise required by applicable law. All outstanding shares of Class B common stock are owned by Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family, and are convertible at any time into shares of Class A common stock on a one-for-one basis.
Class B Common Stock Conversions
During Fiscal 2015,2020, the Lauren Family, L.L.C., a limited liability company managed by the children of Mr. R.Ralph Lauren, converted 1.0 million shares of Class B common stock into an equal number of shares of Class A common stock pursuant to the terms of the security, which were subsequently sold on the open market as partsecurity. These conversions occurred in advance of a pre-determined, systematic trading plan.
conditions set forth therein. These transactions resulted in reclassificationsa reclassification within equity and had no other effect on the Company's consolidated balance sheets.
sheet.
Common Stock Repurchase Program
A summary of the Company's repurchases of Class A common stock under its common stock repurchase program is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Cost of shares repurchased | $ | 0 | $ | 650.3 | $ | 470.0 | ||||||||||||||
| Number of shares repurchased | 0 | 6.2 | 3.8 | |||||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (in millions) | ||||||||||||
| Cost of shares repurchased | $ | 480 | $ | 500 | $ | 548 | (a) | |||||
| Number of shares repurchased | 4.2 | 3.2 | 3.2 | (a) | ||||||||
On May 13, 2019, the Company's Board of Directors approved an expansion of the Company's existing common stock repurchase program that allowed it to repurchase up to an additional $600 million of Class A common stock. As of April 2, 2016,March 27, 2021, the remaining availability under the Company's Class A common stock repurchase program was approximately $100$580 million. On May 11, 2016, the Company's Board of Directors approved an expansion of the program that allows it to repurchase up to an additional $200 million of Class A common stock. Repurchases of shares of Class A common stock are subject to certain restrictions under the Company's Global Credit Facility and more generally overall business and market conditions. Accordingly, as a result of business disruptions related to the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021 the Company temporarily suspended its common stock repurchase program as a preemptive action to preserve cash and strengthen its liquidity position.
In addition, during Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014, 0.22019, 0.5 million,, 0.2 million, and 0.4 million, and 0.3 million shares of Class A common stock, respectively, at a cost of $20$37.7 million, $32$44.5 million, and $60$32.6 million, respectively, were surrendered to or withheld by the Company in satisfaction of withholding taxes in connection with the vesting of awards under the Company's 1997 Long-Term Stock Incentive Plan, as amended (the "1997 Incentive Plan"), and its Amended and Restated 2010 Long-Term Stock Incentive Plan (the "2010 Incentive Plan").long-term stock incentive plans.
Repurchased and surrendered shares are accounted for as treasury stock at cost and held in treasury for future use.
Dividends
As a result of business disruptions related to $0.45 per share.the COVID-19 pandemic, effective beginning in the first quarter of Fiscal 2021 the Company temporarily suspended its quarterly cash dividend program as a preemptive action to preserve cash and strengthen its liquidity position. On February 3, 2015,May 19, 2021, the Company's Board of Directors approved a further increase to the Company's quarterly cash dividend on its common stock from $0.45 per share to $0.50 per share. Dividends paid amounted to $170 million, $158 million, and $149 million in Fiscal 2016, Fiscal 2015, and Fiscal 2014, respectively.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
quarterly cash dividend program at the pre-pandemic amount of $0.6875 per share. The first quarterly dividend since such reinstatement will be payable to shareholders of record at the close of business on June 25, 2021, and will be paid on July 9, 2021.
The Company intends to pay regular dividends on its outstanding common stock. However, any decision to declare and pay dividends in the future will be made at the discretion of the Company's Board of Directors and will depend on the Company's results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem relevant, including economic and market conditions.
17. Accumulated Other Comprehensive Income (Loss)
The following table presents OCI activity, net of tax, which is accumulated in equity:
Foreign Currency Translation Gains (Losses)(a) | Net Unrealized Gains (Losses) on Cash Flow Hedges(b) | Net Unrealized Gains (Losses) on Available-for-Sale Investments(c) | Net Unrealized Gains (Losses) on Defined Benefit Plans(d) | Total Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Balance at March 30, 2013 | $ | 73 | $ | 23 | $ | 5 | $ | (7 | ) | $ | 94 | |||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | 52 | (20 | ) | (4 | ) | — | 28 | |||||||||||||
| Amounts reclassified from AOCI to earnings | — | (7 | ) | (1 | ) | — | (8 | ) | ||||||||||||
| Other comprehensive income (loss), net of tax | 52 | (27 | ) | (5 | ) | — | 20 | |||||||||||||
| Balance at March 29, 2014 | 125 | (4 | ) | — | (7 | ) | 114 | |||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | (318 | ) | 62 | — | (9 | ) | (265 | ) | ||||||||||||
| Amounts reclassified from AOCI to earnings | — | (15 | ) | — | 1 | (14 | ) | |||||||||||||
| Other comprehensive income (loss), net of tax | (318 | ) | 47 | — | (8 | ) | (279 | ) | ||||||||||||
| Balance at March 28, 2015 | (193 | ) | 43 | — | (15 | ) | (165 | ) | ||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||
| OCI before reclassifications | 36 | (19 | ) | — | 1 | 18 | ||||||||||||||
| Amounts reclassified from AOCI to earnings | — | (36 | ) | — | 2 | (34 | ) | |||||||||||||
| Other comprehensive income (loss), net of tax | 36 | (55 | ) | — | 3 | (16 | ) | |||||||||||||
| Balance at April 2, 2016 | $ | (157 | ) | $ | (12 | ) | $ | — | $ | (12 | ) | $ | (181 | ) | ||||||
Foreign Currency Translation Gains (Losses)(a) | Net Unrealized Gains (Losses) on Cash Flow Hedges(b) | Net Unrealized Gains (Losses) on Defined Benefit Plans(c) | Total Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Balance at March 31, 2018 | $ | (79.3) | $ | (16.0) | $ | (3.2) | $ | (98.5) | ||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | (39.2) | 42.2 | (2.0) | 1.0 | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | 0 | (6.0) | 0.1 | (5.9) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | (39.2) | 36.2 | (1.9) | (4.9) | ||||||||||||||||||||||
| Balance at March 30, 2019 | (118.5) | 20.2 | (5.1) | (103.4) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | (7.0) | 21.2 | (1.6) | 12.6 | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | (4.9) | (23.4) | 0.9 | (27.4) | ||||||||||||||||||||||
| Other comprehensive loss, net of tax | (11.9) | (2.2) | (0.7) | (14.8) | ||||||||||||||||||||||
| Balance at March 28, 2020 | (130.4) | 18.0 | (5.8) | (118.2) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
| OCI before reclassifications | 7.2 | (3.0) | 3.3 | 7.5 | ||||||||||||||||||||||
| Amounts reclassified from AOCI to earnings | 0 | (10.4) | 0.3 | (10.1) | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | 7.2 | (13.4) | 3.6 | (2.6) | ||||||||||||||||||||||
| Balance at March 27, 2021 | $ | (123.2) | $ | 4.6 | $ | (2.2) | $ | (120.8) | ||||||||||||||||||
(a)OCI before reclassifications to earnings related to foreign currency translation gains (losses) includes an income tax benefit of $22.1 million for Fiscal 2021 and includes income tax provisions of $9.2 million and $10.8 million for Fiscal 2020 and Fiscal 2019, respectively. OCI before reclassifications to earnings includes a loss of $65.6 million (net of a $20.7 million income tax benefit) for Fiscal 2021 and includes gains of $29.0 million (net of a $9.4 million income tax provision) and $50.2 million (net of a $15.9 million income tax provision) for Fiscal 2020 and Fiscal 2019, respectively, related to the effective portion of changes in the fair values of instruments designated as hedges of the Company's net investment in certain foreign operations (see Note 13). Amounts reclassified from AOCI to earnings related to foreign currency translation gains (losses) during Fiscal 2020 relate to the reclassification to retained earnings of income tax effects stranded in AOCI.
(b)OCI before reclassifications to earnings related to net unrealized gains (losses) on cash flow hedges are presented net of an income tax benefit of $0.5 million for Fiscal 2021 and are presented net of income tax provisions of $2.8 million and $5.3 million for Fiscal 2020 and Fiscal 2019, respectively. The tax effects on amounts reclassified from AOCI to earnings are presented in a table below.
(c)OCI before reclassifications to earnings related to net unrealized gains (losses) on defined benefit plans are presented net of an income tax provision of $1.2 million for Fiscal 2021. The tax effects on OCI before reclassifications to earnings were immaterial for the other periods presented, and were immaterial for amounts reclassified from AOCI to earnings for all periods presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table presents reclassifications from AOCI to earnings for cash flow hedges, by component:
| Fiscal Years Ended | ||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | Location of Gains (Losses) Reclassified from AOCI to Earnings | |||||||||||
| (millions) | ||||||||||||||
Gains (losses) on cash flow hedges(a): | ||||||||||||||
| FC — Inventory purchases | $ | 44 | $ | 3 | $ | 10 | Cost of goods sold | |||||||
| FC — Other | (5 | ) | 14 | — | Foreign currency gains (losses) | |||||||||
| Tax effect | (3 | ) | (2 | ) | (3 | ) | Provision for income taxes | |||||||
| Net of tax | $ | 36 | $ | 15 | $ | 7 | ||||||||
| Fiscal Years Ended | ||||||||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | Location of Gains (Losses) Reclassified from AOCI to Earnings | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
Gains (losses) on cash flow hedges(a): | ||||||||||||||||||||||||||
| FC — Cash flow hedges | $ | 12.6 | $ | 24.9 | $ | 5.0 | Cost of goods sold | |||||||||||||||||||
| FC — Cash flow hedges | (0.3) | 1.1 | 1.7 | Other income (expense), net | ||||||||||||||||||||||
| Tax effect | (1.9) | (2.6) | (0.7) | Income tax benefit (provision) | ||||||||||||||||||||||
| Net of tax | $ | 10.4 | $ | 23.4 | $ | 6.0 | ||||||||||||||||||||
(a)FC = Forward foreign currency exchange contracts. 18. Stock-based Compensation |
Long-term Stock Incentive Plans
On August 1, 2019, the Company's shareholders approved the 2019 Long-Term Stock Incentive Plan (the "2019 Incentive Plan"), which replaced the Company's Amended and Restated 2010 Long-Term Stock Incentive Plan (the "2010 Incentive Plan"). The Company's stock-based compensation awards are currently issued2019 Incentive Plan provided for 1.2 million of new shares authorized for issuance to the participants, in addition to the approximately 3.0 million shares that remained available for issuance under the 2010 Incentive Plan which was approved by its stockholders onas of August 5, 2010. However,1, 2019. In addition, any prioroutstanding awards granted under the 19972010 Incentive Plan remain subject toor the terms of that plan. Any awardsCompany's 1997 Long-Term Stock Incentive Plan (the "1997 Incentive Plan") that expire, are forfeited, or are surrendered to the Company in satisfaction of taxes, arewill become available for issuance under the 20102019 Incentive Plan. On September 24, 2013, the Company registered with the SEC an additional 1.7 million shares of its Class A common stock for issuance pursuant toThe 2019 Incentive Plan became effective August 1, 2019 and no further grants will be made under the 2010 Incentive Plan. Outstanding awards issued prior to August 1, 2019 will continue to remain subject to the terms of the 2010 Incentive Plan or 1997 Incentive Plan, as applicable. As of April 2, 2016, 2.5March 27, 2021, 3.2 million shares remained available for future issuance under the Company's incentive plans.
Stock-based compensation awards that may be made under the 20102019 Incentive Plan include, but are not limited to, (i) stock options, (ii) restricted stock, (ii) RSUs, and (iii) RSUs. In recent years,stock options. During the Company's annual grants of stock-based compensation awards to its employees primarily consisted of stock options and RSUs. However, in Fiscal 2016, thefiscal periods presented, annual grants consisted entirely of RSUs, as the Company elected to issue service-based RSUs in lieu ofrestricted stock options.and RSUs. Additionally, new vesting provisions for certain awards granted to retirement-eligible employees were introduced. Specifically, beginning in Fiscal 2016, for certain service-based and performance-based RSUs granted to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, vesting continues post-retirement for all or a portion of the remaining unvested RSUs.
Impact on Results
A summary of the total stock-based compensation expense and the associatedrelated income tax benefits recognized related to stock-based compensation arrangements is as follows:
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Compensation expense | $ | 97 | (a) | $ | 81 | $ | 93 | (a) | |||||
| Income tax benefit | $ | (37 | ) | $ | (30 | ) | $ | (34 | ) | ||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Compensation expense(a) | $ | 72.7 | $ | 100.6 | $ | 88.6 | ||||||||||||||
| Income tax benefit | (12.4) | (15.3) | (13.1) | |||||||||||||||||
(a)Fiscal 2020 includes $3.6 million of accelerated stock-based compensation expense recorded within restructuring and other charges in the consolidated statements of operations (see Note 9). All other stock-based compensation expense was recorded within SG&A expenses.
The Company issues its annual grants of stock-based compensation awards in the first half of each fiscal year. Due to the timing of the annual grants and other factors, including the timing and magnitude of forfeiture and performance goal achievement adjustments, as well as changes to the size and composition of the eligible employee population, stock-based compensation expense recognized during any given fiscal period is not indicative of the level of compensation expense expected to be incurred in future periods.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Years Ended | ||||||||
April 2, 2016(a) | March 28, 2015 | March 29, 2014 | ||||||
| Expected term (years) | N/A | 4.2 | 4.2 | |||||
| Expected volatility | N/A | 30.2 | % | 32.9 | % | |||
| Expected dividend yield | N/A | 1.10 | % | 0.98 | % | |||
| Risk-free interest rate | N/A | 1.4 | % | 1.1 | % | |||
| Weighted-average option grant date fair value | N/A | $37.91 | $45.83 | |||||
Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value(a) | ||||||||||
| (thousands) | (years) | (millions) | |||||||||||
| Options outstanding at March 28, 2015 | 3,225 | $ | 129.28 | 4.0 | $ | 69 | |||||||
| Granted | — | N/A | |||||||||||
| Exercised | (625 | ) | 52.37 | ||||||||||
| Cancelled/Forfeited | (182 | ) | 163.56 | ||||||||||
| Options outstanding at April 2, 2016 | 2,418 | $ | 146.58 | 3.7 | $ | 6 | |||||||
Options vested and expected to vest at April 2, 2016(b) | 2,391 | $ | 145.60 | 3.7 | $ | 6 | |||||||
| Options exercisable at April 2, 2016 | 1,818 | $ | 140.34 | 3.3 | $ | 6 | |||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
Aggregate intrinsic value of stock options exercised(a) | $ | 44 | $ | 35 | $ | 63 | ||||||
| Cash received from the exercise of stock options | 34 | 52 | 52 | |||||||||
| Tax benefits realized on exercise of stock options | 17 | 12 | 24 | |||||||||
Restricted Stock Awards and Service-based RSUs
Restricted sharesstock awards granted to non-employee directors vest ratably over a three-year period, subject to the director's continued service to the Company. The fair values of restricted stock awards are based on the fair value of the Company's Class A common stock on the date of grant. Holders of restricted shares are entitled to receive cash dividends in connection with the payments of dividends on the Company's Class A common stock. Effective beginning Fiscal 2019, non-employee directors are now granted service-based RSUs in lieu of restricted shares.
Service-based RSUs granted to certain of the Company's senior executives and other employees, as well as certain of its other employees,non-employee directors, generally vest over a three-yearthree-year period, subject to the employee's continuing employment (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, as previously discussed). The fair values of service-based RSUs are based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not entitled to accrue dividend equivalents while outstanding.outstanding and unvested.
A summary of restricted stock and service-based RSU activity during Fiscal 20162021 is as follows:
| Restricted Stock | Service- based RSUs | |||||||||||||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||||
| (thousands) | (thousands) | |||||||||||||||||||||||||
| Nonvested at March 28, 2020 | 4 | $ | 81.78 | 1,094 | $ | 100.92 | ||||||||||||||||||||
| Granted | 0 | N/A | 1,351 | 64.55 | ||||||||||||||||||||||
| Vested | (4) | 81.78 | (480) | 94.95 | ||||||||||||||||||||||
| Forfeited | 0 | N/A | (156) | 79.30 | ||||||||||||||||||||||
| Nonvested at March 27, 2021 | 0 | $ | 0 | 1,809 | $ | 77.20 | ||||||||||||||||||||
Restricted Stock | Service- based RSUs | |||||||||||||
Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||
| (thousands) | (thousands) | |||||||||||||
| Nonvested at March 28, 2015 | 5 | $ | 164.73 | 47 | $ | 150.01 | ||||||||
| Granted | 17 | 111.94 | 508 | 125.19 | ||||||||||
| Vested | (7 | ) | 153.53 | (18 | ) | 149.28 | ||||||||
| Forfeited | (1 | ) | 139.87 | (47 | ) | 129.60 | ||||||||
| Nonvested at April 2, 2016 | 14 | $ | 110.68 | 490 | $ | 126.30 | ||||||||
| Restricted Stock | Service- based RSUs | |||||||||||||||||||||
Restricted Stock | Service- based RSUs | |||||||||||||||||||||
| Total unrecognized compensation expense at April 2, 2016 (millions) | $ | 1 | $ | 25 | ||||||||||||||||||
| Total unrecognized compensation expense at March 27, 2021 (millions) | Total unrecognized compensation expense at March 27, 2021 (millions) | $ | 0 | $ | 53.6 | |||||||||||||||||
| Weighted-average period expected to be recognized over (years) | 1.8 | 1.5 | Weighted-average period expected to be recognized over (years) | N/A | 1.7 | |||||||||||||||||
Additional information pertaining to restricted stock and service-based RSU activity is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| Restricted Stock: | ||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | N/A | N/A | N/A | |||||||||||||||||
| Total fair value of awards vested (millions) | $ | 0.2 | $ | 0.9 | $ | 1.0 | ||||||||||||||
| Service-based RSUs: | ||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 64.55 | $ | 102.27 | $ | 113.38 | ||||||||||||||
| Total fair value of awards vested (millions) | $ | 33.4 | $ | 52.5 | $ | 50.0 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| Restricted Stock: | ||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 111.94 | $ | 162.36 | $ | 164.76 | ||||||
| Total fair value of awards vested (millions) | $ | 1 | $ | 1 | $ | 1 | ||||||
| Service-based RSUs: | ||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 125.19 | $ | 150.23 | N/A | |||||||
| Total fair value of awards vested (millions) | $ | 2 | $ | 1 | $ | 16 | ||||||
| F-48 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Performance-based RSUs
The Company grants performance-based RSUs to its senior executives and other key executives, as well as certainemployees. The fair values of its other employees.performance-based RSUs are based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not accrue while outstanding and unvested. Performance-based RSUs generally vest (i) upon the completion of a three-yearthree-year period of time (cliff vesting), subject to the employee's continuing employment (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, as previously discussed) and the Company's achievement of certain performance goals established at the beginning of the three-yearthree-year performance period or (ii) ratably, over a three-yearthree-year period of time (graded vesting), subject to the employee's continuing employment during the applicable vesting period (except for awards granted in Fiscal 2016 to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, as previously discussed) and the achievement by the Company of certain performance goals in the initial year of the three-year vesting period.
For performance-based RSUs subject to cliff vesting, beginning with grants in Fiscal 2019, the number of shares that may be earned ranges between 0% (if the specified threshold performance level is not attained) and 200% (if performance meets or exceeds the maximum achievement level) of the awards originally granted. For such awards granted in recent years prior to Fiscal 2019, the number of shares that may be earned ranges between 0% (if the specified threshold performance level is not attained) and 150% (if performance meets or exceeds the maximum achievement level) of the awards originally granted. If actual performance exceeds the pre-established threshold, the number of shares earned is calculated based on the relative performance between specified levels of achievement.
Market-based RSUs
During Fiscal 2019, the Company began granting cliff vesting performance-based RSU awards granted by the Company,to its senior executives and other key employees, which, in addition to being subject to continuing employment requirements and(except for awards granted to retirement-eligible employees, or employees who become retirement-eligible prior to the Company's performance goals noted above,end of the awards' respective stated vesting periods, as previously discussed), are also subject to a market condition in the form ofbased on a total shareholder return ("TSR") modifier.TSR performance metric. The actual number of shares that vest atupon the endcompletion of the respective three-yeara three-year period of time is determined basedby comparing the Company's TSR relative to that of a pre-established peer group over the related three-year performance period. Depending on the Company's level of achievement of the three-yearagainst its TSR performance goals, described above, as well as its TSR relative to the S&P 500 over the related three-year performance period. At the end of the three-year performance period, if the performance condition is achieved at or above the pre-established threshold, the number of shares earnedthat ultimately vest may range from 0% to 200% of the awards originally granted.
The Company estimates the fair value of its TSR awards on the date of grant using a Monte Carlo simulation, which models multiple stock price paths of the Company's Class A common stock and that of its peer group to evaluate and determine its ultimate expected relative TSR performance ranking. Compensation expense, net of estimated forfeitures, is further adjustedrecorded regardless of whether, and the extent to which, the market condition is ultimately satisfied. No such awards were granted during Fiscal 2021 as the Company has elected to temporarily issue service-based RSUs in lieu of performance-based RSUs as a result of business disruptions and uncertainty created by a TSR modifier
the COVID-19 pandemic.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Year Ended | ||||||||||||||
| March 28, 2020 | March 30, 2019 | |||||||||||||
| Expected term (years) | 2.6 | 2.6 | ||||||||||||
| Expected volatility | 31.4 | % | 33.5 | % | ||||||||||
| Expected dividend yield | 3.2 | % | 1.9 | % | ||||||||||
| Risk-free interest rate | 1.4 | % | 2.6 | % | ||||||||||
| Weighted-average grant date fair value | $ | 90.59 | $ | 177.13 | ||||||||||
A summary of performance-based RSUs thatRSU activity including TSR awards during Fiscal 2021 is as follows:
| Performance-based RSUs | ||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| (thousands) | ||||||||||||||
| Nonvested at March 28, 2020 | 1,168 | $ | 89.97 | |||||||||||
| Granted | 0 | N/A | ||||||||||||
| Change due to performance and/or market condition achievement | 185 | 69.82 | ||||||||||||
| Vested | (720) | 71.46 | ||||||||||||
| Forfeited | (33) | 92.11 | ||||||||||||
| Nonvested at March 27, 2021 | 600 | $ | 105.85 | |||||||||||
| Performance-based RSUs | ||||||||
| Total unrecognized compensation expense at March 27, 2021 (millions) | $ | 13.2 | ||||||
| Weighted-average period expected to be recognized over (years) | 1.0 | |||||||
Additional information pertaining to performance-based RSU activity including TSR awards is as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| Performance-based RSUs: | ||||||||||||||||||||
| Weighted-average grant date fair value of awards granted | N/A | $ | 85.80 | $ | 145.97 | |||||||||||||||
| Total fair value of awards vested (millions) | $ | 55.0 | $ | 52.8 | $ | 31.8 | ||||||||||||||
| F-50 | ||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock Options
Stock options are not subjectgranted to a TSR modifier is based onemployees and non-employee directors with exercise prices equal to the fair market value of the Company's Class A common stock on the date of grant, adjustedgrant. Generally, options become exercisable ratably (graded-vesting schedule) over a three-year vesting period, subject to reflect the absenceemployee's continuing employment. Stock options generally expire seven years from the date of dividends for those securities that are not entitled to dividend equivalents. The fairgrant. NaN stock options were granted during any of the fiscal years presented.
A summary of stock option activity during Fiscal 2021 is as follows:
| Number of Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value(a) | |||||||||||||||||||||||
| (thousands) | (years) | (millions) | ||||||||||||||||||||||||
| Options outstanding at March 28, 2020 | 518 | $ | 169.37 | 0.9 | $ | 0 | ||||||||||||||||||||
| Granted | 0 | N/A | ||||||||||||||||||||||||
| Exercised | 0 | N/A | ||||||||||||||||||||||||
| Cancelled/Forfeited | (263) | 178.63 | ||||||||||||||||||||||||
| Options outstanding at March 27, 2021 | 255 | $ | 159.83 | 0.3 | $ | 0 | ||||||||||||||||||||
Options vested at March 27, 2021(b) | 255 | $ | 159.83 | 0.3 | $ | 0 | ||||||||||||||||||||
| Options exercisable at March 27, 2021 | 255 | $ | 159.83 | 0.3 | $ | 0 | ||||||||||||||||||||
(a)Aggregate intrinsic value is the amount by which the market price of the Company's performance-based RSUs with a TSR modifier is determined onClass A common stock at the date of grant using a Monte Carlo simulation valuation model. This pricing model uses multiple simulations to evaluate the probabilityend of the Company achieving variousperiod exceeds the exercise price of the stock price levelsoption, multiplied by the number of options.
(b)There were 0 nonvested stock options as of March 27, 2021. Accordingly, there was 0 related unrecognized compensation expense as of March 27, 2021.
Additional information pertaining to determine its expected TSR performance ranking. The weighted-average assumptions used to estimate the fair value of performance-based RSUs with a TSR modifier granted during the fiscal years presented wereCompany's stock option plans is as follows:
| Fiscal Years Ended | ||||||||
April 2, 2016(a) | March 28, 2015 | March 29, 2014 | ||||||
| Expected term (years) | N/A | 3.0 | 2.9 | |||||
| Expected volatility | N/A | 29.8 | % | 32.6 | % | |||
| Expected dividend yield | N/A | 1.09 | % | 0.98 | % | |||
| Risk-free interest rate | N/A | 0.9 | % | 0.4 | % | |||
| Weighted-average grant date fair value | N/A | $169.47 | $169.14 | |||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Aggregate intrinsic value of stock options exercised(a) | $ | 0 | $ | 0 | $ | 1.2 | ||||||||||||||
| Cash received from the exercise of stock options | 0 | 0 | 21.8 | |||||||||||||||||
| Tax benefits realized on exercise of stock options | 0 | 0 | 3.7 | |||||||||||||||||
(a)Aggregate intrinsic value is the amount by which the market price of the Company's Class A summarycommon stock exceeded the stock option's exercise price when exercised, multiplied by the number of performance-based RSUs without TSR Modifier and performance-based RSUs with TSR Modifier activity during Fiscal 2016 is as follows:
Performance-based RSUs — without TSR Modifier | Performance-based RSUs — with TSR Modifier | |||||||||||||
Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||
| (thousands) | (thousands) | |||||||||||||
| Nonvested at March 28, 2015 | 697 | $ | 155.47 | 214 | $ | 158.65 | ||||||||
| Granted | 341 | 126.48 | — | N/A | ||||||||||
| Change due to performance/market condition achievement | (8 | ) | 137.08 | (20 | ) | 136.27 | ||||||||
| Vested | (293 | ) | 147.26 | (50 | ) | 136.30 | ||||||||
| Forfeited | (46 | ) | 155.61 | (2 | ) | 167.64 | ||||||||
| Nonvested at April 2, 2016 | 691 | $ | 144.81 | 142 | $ | 169.46 | ||||||||
Performance-based RSUs — without TSR Modifier | Performance-based RSUs — with TSR Modifier | |||||||
| Total unrecognized compensation expense at April 2, 2016 (millions) | $ | 25 | $ | 3 | ||||
| Weighted-average period expected to be recognized over (years) | 1.6 | 1.1 | ||||||
options.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| Performance-based RSUs — without TSR Modifier: | ||||||||||||
| Weighted-average grant date fair value of awards granted | $ | 126.48 | $ | 157.10 | $ | 171.93 | ||||||
| Total fair value of awards vested (millions) | $ | 38 | $ | 65 | $ | 109 | ||||||
| Performance-based RSUs — with TSR Modifier: | ||||||||||||
| Weighted-average grant date fair value of awards granted | N/A | $ | 169.47 | $ | 169.14 | |||||||
| Total fair value of awards vested (millions) | $ | 7 | $ | — | $ | — | ||||||
| 19. Employee Benefit |
Defined Contribution Plans
The Company sponsors defined contribution benefit plans covering substantially all eligible employees in the U.S. and Puerto Rico who are not covered by a collective bargaining agreement. The plans include a savings plan feature under Section 401(k) of the Internal Revenue Code. The Company makes matching contributions to the plans equal to 50% of the first 6% of salary contributed by an eligible employee. Additionally, the Company makes a supplemental matching contribution for plan years in which the Company achieves a "stretch" or a "maximum"an "above target" performance targetlevel based on certain goals established at the beginning of each fiscal year, increasing the matching contribution to 75% or between 67% and 100%, respectively, depending on the performance level achieved, of the first 6% of salary contributed by eligible employees, not to exceed the maximum contribution permitted by the plan.
Under the terms of the plans, a participant becomes 100% vested in the Company's matching contributions after five years of credited service. Contributions made by the Company under these plans were $11$9.8 million, $8.7 million, and $11.2 million in each of Fiscal 20162021, Fiscal 2020, and Fiscal 2015, and $10 million in Fiscal 2014.2019, respectively.
International Defined Benefit Plans
The Company sponsors certain single-employer defined benefit plans and cash balance plans at international locations which are not considered to be material individually or in the aggregate to the Company's financial statements. Pension benefits under these plans are based on formulas that reflect the employees' years of service and compensation levels during their employment period. The aggregate funded status of the single-employer defined benefit plans reflected net assets of $0.7 million and net liabilities of $5 million and $8$4.0 million as of April 2, 2016March 27, 2021 and March 28, 2015,2020, respectively, and were primarily recorded within other non-current assets and non-current liabilities, respectively, in the Company's consolidated balance sheets. These single-employer defined benefit plans had aggregate projected benefit obligations of $65$56.1 million and aggregate fair values of plan assets of $60$56.8 million as of April 2, 2016,March 27, 2021, compared to aggregate projected benefit obligations of $60$52.4 million and aggregate fair values of plan assets of $52$48.4 million as of March 28, 2015.2020. The asset portfolio of the single-employer defined benefit plans primarily consists of fixed income securities, which have been measured at fair value largely using Level 2 inputs, as described in Note 14. Pension12. Net pension expense for these plans was $5.1 million, $5.0 million, and $4.2 million in Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively. The service cost component of $5.9 million, $4.7 million, and $4.4 million in Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively, was recorded within SG&A expenses in the Company's consolidated statements of operations. All other components of net pension expense during the fiscal years presented were recorded within other income was $6 million(expense), net, in Fiscal 2016 and $5 million in eachthe Company's consolidated statement of Fiscal 2015 and Fiscal 2014.operations.
Union Pension Plan
The Company participates in a multi-employer pension plan and is required to make contributions to the Workers United union (which was previously known as UNITE HERE) (the "Union") for dues based on wages paid to union employees. A portion of these dues is allocated by the Union to a retirement fund which provides defined benefits to substantially all unionized workers. The Company does not participate in the management of the plan and has not been furnished with information with respect to the type of benefits provided, vested and non-vested benefits, or assets.
Under the Employee Retirement Income Security Act of 1974, as amended, an employer, upon withdrawal from or termination of a multi-employer plan, is required to continue funding its proportionate share of the plan's unfunded vested benefits. Such liability was assumed in conjunction with the acquisition of certain assets from a non-affiliated licensee. The Company has no current intention of withdrawing from the plan.
Other Compensation Plans
The Company had a non-qualified supplemental retirement plan for certain highly compensated employees whose benefits under the 401(k) profit sharing retirement savings plans were expected to be constrained by the operation of Internal Revenue Code limitations. These supplemental benefits vested over time and the related compensation expense was recognized over the vesting period. Effective August 2008, the Company amended this plan, resulting in a suspension of the annual contributions for substantially all plan participants. Further, affected participants were provided with a one-time election to either withdraw all benefits vested in the plan in a lump sum amount or remain in the plan and receive future distributions of benefits. As of April 2, 2016March 27, 2021 and March 28, 2015,2020, amounts accrued under this plan totaled approximately $8$1.9 million and $9$3.4 million, respectively, and were classified within other non-current liabilities in the consolidated balance sheets. Total compensation expense recognized related to these benefits was not material in any of the three fiscal years presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
20. Segment Information
The Company has three3 reportable segments based on its business activities and organization: Wholesale, Retail, and Licensing. These segments offer a variety of products through different channels of distribution.
•North America — The WholesaleNorth America segment primarily consists of sales of Ralph Lauren branded apparel, footwear, accessories, home furnishings, and related products which are sold to major department stores, specialty stores, golf and pro shops, andmade through the Company's licensedretail and franchised retail storeswholesale businesses in the U.S. and overseas.Canada, excluding Club Monaco. In North America, the Company's retail business is primarily comprised of its Ralph Lauren stores, its factory stores, and its digital commerce site, www.RalphLauren.com. The RetailCompany's wholesale business in North America is comprised primarily of sales to department stores, and to a lesser extent, specialty stores.
•Europe — The Europe segment primarily consists of sales of Ralph Lauren branded apparel, footwear, accessories, home furnishings, and related products made through the Company's integrated worldwide retail operations,and wholesale businesses in Europe, the Middle East, and Latin America, excluding Club Monaco. In Europe, the Company's retail business is primarily comprised of its Ralph Lauren stores, its factory stores, its concession-based shop-within-shops, and its various digital commerce sites. The Company's wholesale business in Europe is comprised of a varying mix of sales to both department stores and specialty stores, depending on the country, as well as to various third-party digital partners.
•Asia — The Asia segment primarily consists of sales of Ralph Lauren branded apparel, footwear, accessories, home furnishings, and related products made through the Company's retail and wholesale businesses in Asia, Australia, and New Zealand. The Company's retail business in Asia is primarily comprised of its Ralph Lauren stores, its factory stores, its concession-based shop-within-shops, and its various digital commerce sites. In addition, the Company sells its products online through various third-party digital partner commerce sites. The Company's wholesale business in Asia is comprised primarily of sales to department stores, with related products distributed through shop-within-shops.
No operating segments were aggregated to form the Company's reportable segments. In addition to these reportable segments, the Company also has other non-reportable segments, which sellprimarily consist of (i) sales of Club Monaco branded products made through its retail stores, concession-based shop-within-shops, and e-commerce sites, which are purchased fromwholesale businesses in the Company's licenseesU.S., Canada, and suppliers. The Licensing segment generatesEurope, and its licensing alliances in Europe and Asia, and (ii) royalty revenues from royalties earned through its global licensing alliances, excluding Club Monaco. As discussed in Note 9, on May 13, 2021, the Company announced the anticipated sale of its Club Monaco business, which is expected to close by the end of the first quarter of Fiscal 2022.
The Company's apparel, home,segment reporting structure is consistent with how it establishes its overall business strategy, allocates resources, and other products internationally and domestically through licensing alliances. The licensing agreements grant the licensees rights to use the Company's various trademarks in connection with the manufacture and saleassesses performance of designated products in specified geographical areas for specified periods.
its business. The accounting policies of the Company's segments are consistent with those described in Notes 2 and 3. Sales and transfers between segments are generally recorded at cost and treated as transfers of inventory. All intercompany revenues including such sales between segments, are eliminated in consolidation and are not reviewed when evaluating segment performance. Each segment's performance is evaluated based upon net revenues and operating income before restructuringrestructuring-related charges, impairment of assets, and certain other one-time items, such as legal charges, if any. Certain corporate overhead expenses related to global functions, most notably the Company's executive office, information technology, finance and accounting, human resources, and legal departments, largely remain at corporate. Additionally, other costs that cannot be allocated to the segments based on specific usage are also maintained at corporate, including corporate advertising and marketing expenses, depreciation and amortization of corporate assets, and other general and administrative expenses resulting from corporate-level activities and projects.
Asset information by segment is not utilized for purposes of assessing performance or allocating resources, and therefore such information has not been presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net revenues for each of the Company's reportable segments are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| North America | $ | 1,992.4 | $ | 3,140.5 | $ | 3,202.9 | ||||||||||||||
| Europe | 1,165.9 | 1,632.2 | 1,683.0 | |||||||||||||||||
| Asia | 1,027.5 | 1,017.2 | 1,041.0 | |||||||||||||||||
| Other non-reportable segments | 215.0 | 369.9 | 386.1 | |||||||||||||||||
| Total net revenues | $ | 4,400.8 | $ | 6,159.8 | $ | 6,313.0 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Net revenues: | ||||||||||||
| Wholesale | $ | 3,297 | $ | 3,495 | $ | 3,486 | ||||||
| Retail | 3,933 | 3,956 | 3,798 | |||||||||
| Licensing | 175 | 169 | 166 | |||||||||
Total net revenues(a) | $ | 7,405 | $ | 7,620 | $ | 7,450 | ||||||
Operating income (loss) for each of the Company's reportable segments is as follows:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Operating income: | ||||||||||||
Wholesale(a) | $ | 822 | $ | 943 | $ | 963 | ||||||
Retail(b) | 359 | 527 | 572 | |||||||||
| Licensing | 155 | 152 | 150 | |||||||||
| 1,336 | 1,622 | 1,685 | ||||||||||
| Unallocated corporate expenses | (611 | ) | (577 | ) | (553 | ) | ||||||
Gain on acquisition of Chaps(c) | — | — | 16 | |||||||||
Unallocated restructuring and other charges(d) | (143 | ) | (10 | ) | (18 | ) | ||||||
| Total operating income | $ | 582 | $ | 1,035 | $ | 1,130 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Operating income (loss)(a): | ||||||||||||||||||||
| North America | $ | 334.0 | $ | 456.0 | $ | 655.8 | ||||||||||||||
| Europe | 189.3 | 336.3 | 392.8 | |||||||||||||||||
| Asia | 148.2 | 124.8 | 161.0 | |||||||||||||||||
| Other non-reportable segments | 32.4 | 85.2 | 118.7 | |||||||||||||||||
| 703.9 | 1,002.3 | 1,328.3 | ||||||||||||||||||
| Unallocated corporate expenses | (577.0) | (618.1) | (636.4) | |||||||||||||||||
Unallocated restructuring and other charges(b) | (170.5) | (67.2) | (130.1) | |||||||||||||||||
| Total operating income (loss) | $ | (43.6) | $ | 317.0 | $ | 561.8 | ||||||||||||||
(a)Segment operating income during Fiscal 2021 reflects bad debt expense reversals of $22.0 million, $4.8 million, $0.3 million, and $0.5 million related to North America, Europe, Asia, and other non-reportable segments, respectively, primarily related to adjustments to reserves previously established in connection with COVID-19 business disruptions. Segment operating income during Fiscal 2020 reflects bad debt expense of $38.7 million, $15.2 million, $1.7 million, and $3.1 million related to North America, Europe, Asia, and other non-reportable segments, respectively, primarily related to adverse impacts associated with COVID-19 business disruptions. Segment operating income during Fiscal 2020 also reflects higher inventory charges of approximately $108 million, $42 million, $17 million, and $8 million as compared to the prior fiscal year related to North America, Europe, Asia, and other non-reportable segments, respectively, primarily related to adverse impacts associated with COVID-19 business disruptions. Segment operating income and unallocated corporate expenses during the fiscal years presented also included asset impairment charges (see Note 8), which are detailed below:
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Asset impairment charges: | ||||||||||||||||||||
| North America | $ | (12.2) | $ | (1.9) | $ | (3.1) | ||||||||||||||
| Europe | (24.3) | 0 | (5.4) | |||||||||||||||||
| Asia | (1.4) | (3.7) | (4.4) | |||||||||||||||||
| Other non-reportable segments | (18.2) | (19.3) | (7.0) | |||||||||||||||||
| Unallocated corporate expenses | (39.9) | (6.7) | (5.9) | |||||||||||||||||
| Total asset impairment charges | $ | (96.0) | $ | (31.6) | $ | (25.8) | ||||||||||||||
| Fiscal Years Ended | |||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | |||||||||||
| (millions) | |||||||||||||
| Restructuring and other charges: | |||||||||||||
| Restructuring charges: | |||||||||||||
| Wholesale-related | $ | (13 | ) | $ | (4 | ) | $ | — | |||||
| Retail-related | (27 | ) | (4 | ) | — | ||||||||
| Licensing-related | (1 | ) | — | — | |||||||||
| Corporate operations-related | (54 | ) | (2 | ) | (8 | ) | |||||||
| Unallocated restructuring charges | (95 | ) | (10 | ) | (8 | ) | |||||||
| Other charges (see Note 11) | (48 | ) | — | (10 | ) | ||||||||
| Total unallocated restructuring and other charges | $ | (143 | ) | $ | (10 | ) | $ | (18 | ) | ||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Unallocated restructuring and other charges: | ||||||||||||||||||||
| North America-related | $ | (22.4) | $ | (1.2) | $ | (27.0) | ||||||||||||||
| Europe-related | (30.0) | (3.3) | (14.9) | |||||||||||||||||
| Asia-related | (7.4) | (0.9) | (0.9) | |||||||||||||||||
| Other non-reportable segment-related | (3.3) | (0.8) | (4.5) | |||||||||||||||||
| Corporate operations-related | (96.0) | (31.4) | (46.3) | |||||||||||||||||
| Unallocated restructuring charges | (159.1) | (37.6) | (93.6) | |||||||||||||||||
| Other charges (see Note 9) | (11.4) | (29.6) | (36.5) | |||||||||||||||||
| Total unallocated restructuring and other charges | $ | (170.5) | $ | (67.2) | $ | (130.1) | ||||||||||||||
The following tables summarize the Company's depreciation and amortization expense and capital expenditures for each of its reportablethe Company's segments:
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Depreciation and amortization: | ||||||||||||
| Wholesale | $ | 61 | $ | 66 | $ | 66 | ||||||
| Retail | 157 | 154 | 125 | |||||||||
| Licensing | 1 | — | — | |||||||||
| Unallocated corporate | 91 | 74 | 67 | |||||||||
| Total depreciation and amortization | $ | 310 | $ | 294 | $ | 258 | ||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
| Capital expenditures: | ||||||||||||
| Wholesale | $ | 43 | $ | 48 | $ | 53 | ||||||
| Retail | 173 | 237 | 252 | |||||||||
| Licensing | 4 | 4 | 1 | |||||||||
| Unallocated corporate | 198 | 102 | 84 | |||||||||
| Total capital expenditures | $ | 418 | $ | 391 | $ | 390 | ||||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Depreciation and amortization expense: | ||||||||||||||||||||
| North America | $ | 73.4 | $ | 74.6 | $ | 81.8 | ||||||||||||||
| Europe | 31.6 | 32.8 | 33.6 | |||||||||||||||||
| Asia | 56.3 | 59.3 | 49.1 | |||||||||||||||||
| Other non-reportable segments | 4.3 | 5.4 | 7.2 | |||||||||||||||||
| Unallocated corporate | 82.0 | 97.4 | 95.5 | |||||||||||||||||
| Unallocated restructuring and other charges (see Note 9) | 0 | 0 | 14.1 | |||||||||||||||||
| Total depreciation and amortization expense | $ | 247.6 | $ | 269.5 | $ | 281.3 | ||||||||||||||
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
| Total assets: | ||||||||
| Wholesale | $ | 2,569 | $ | 2,643 | ||||
| Retail | 2,540 | 2,395 | ||||||
| Licensing | 188 | 197 | ||||||
| Corporate | 916 | 871 | ||||||
| Total assets | $ | 6,213 | $ | 6,106 | ||||
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
| Capital expenditures: | ||||||||||||||||||||
| North America | $ | 23.8 | $ | 48.5 | $ | 74.6 | ||||||||||||||
| Europe | 16.9 | 34.3 | 26.6 | |||||||||||||||||
| Asia | 41.2 | 59.6 | 45.2 | |||||||||||||||||
| Other non-reportable segments | 2.4 | 7.3 | 5.0 | |||||||||||||||||
| Unallocated corporate | 23.5 | 120.6 | 46.3 | |||||||||||||||||
| Total capital expenditures | $ | 107.8 | $ | 270.3 | $ | 197.7 | ||||||||||||||
Net revenues and long-lived assets by geographic location of the reporting subsidiary are as follows:
| Fiscal Years Ended | ||||||||||||||||||||
| March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||
| (millions) | ||||||||||||||||||||
Net revenues(a): | ||||||||||||||||||||
The Americas(b) | $ | 2,208.4 | $ | 3,516.4 | $ | 3,602.2 | ||||||||||||||
Europe(c) | 1,164.3 | 1,625.3 | 1,668.6 | |||||||||||||||||
Asia(d) | 1,028.1 | 1,018.1 | 1,042.2 | |||||||||||||||||
| Total net revenues | $ | 4,400.8 | $ | 6,159.8 | $ | 6,313.0 | ||||||||||||||
| Fiscal Years Ended | ||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | ||||||||||
| (millions) | ||||||||||||
Net revenues(a): | ||||||||||||
The Americas(b) | $ | 4,938 | $ | 5,077 | $ | 4,983 | ||||||
Europe(c) | 1,573 | 1,627 | 1,580 | |||||||||
Asia(d) | 894 | 916 | 887 | |||||||||
| Total net revenues | $ | 7,405 | $ | 7,620 | $ | 7,450 | ||||||
| April 2, 2016 | March 28, 2015 | |||||||
| (millions) | ||||||||
Long-lived assets(a): | ||||||||
The Americas(b) | $ | 1,206 | $ | 1,106 | ||||
Europe(c) | 212 | 148 | ||||||
Asia(d) | 165 | 182 | ||||||
| Total long-lived assets | $ | 1,583 | $ | 1,436 | ||||
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
Long-lived assets(a): | ||||||||||||||
The Americas(b) | $ | 1,253.6 | $ | 1,383.6 | ||||||||||
Europe(c) | 682.1 | 772.9 | ||||||||||||
Asia(d) | 317.8 | 334.6 | ||||||||||||
| Total long-lived assets | $ | 2,253.5 | $ | 2,491.1 | ||||||||||
(a)For certain of the Company's licensed operations, net revenues and long-lived assets, which is comprised of property and equipment and lease ROU assets, are included within the geographic location of the reporting subsidiary which holds the respective license.
(b)Includes the U.S., Canada, and Latin America. Net revenues earned in the U.S. were $2.103 billion, $3.308 billion, and $3.379 billion in Fiscal 2021, Fiscal 2020, and Fiscal 2019, respectively. Long-lived assets located in the U.S. were $1.210 billion and $1.327 billion as of March 27, 2021 and March 28, 2020, respectively.
(c)Includes the Middle East.
(d)Includes Australia and New Zealand.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21. Additional Financial Information
Reconciliation of Cash, Cash Equivalents, and Restricted Cash
A reconciliation of cash, cash equivalents, and restricted cash as of March 27, 2021 and March 28, 2020 from the consolidated balance sheets to the consolidated statements of cash flows is as follows:
| March 27, 2021 | March 28, 2020 | |||||||||||||
| (millions) | ||||||||||||||
| Cash and cash equivalents | $ | 2,579.0 | $ | 1,620.4 | ||||||||||
| Restricted cash included within prepaid expenses and other current assets | 1.5 | 1.4 | ||||||||||||
| Restricted cash included within other non-current assets | 7.5 | 8.0 | ||||||||||||
| Total cash, cash equivalents, and restricted cash | $ | 2,588.0 | $ | 1,629.8 | ||||||||||
Restricted cash relates to cash held in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters and real estate leases.
Cash Interest and Taxes
Cash paid for interest and income taxes is as follows:
| Fiscal Years Ended | Fiscal Years Ended | |||||||||||||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||||||||||
| (millions) | (millions) | |||||||||||||||||||||||||||||||
| Cash paid for interest | $ | 15 | $ | 15 | $ | 20 | Cash paid for interest | $ | 33.5 | $ | 15.4 | $ | 17.3 | |||||||||||||||||||
| Cash paid for income taxes | $ | 172 | $ | 317 | $ | 302 | ||||||||||||||||||||||||||
| Cash paid for income taxes, net of refunds | Cash paid for income taxes, net of refunds | 47.8 | 135.5 | 102.0 | ||||||||||||||||||||||||||||
Non-cash Transactions
Operating and finance lease ROU assets recorded in connection with the recognition of new lease liabilities were $66.7 million and $133.2 million, respectively, during Fiscal 2021, and $374.0 million and $64.0 million, respectively, during Fiscal 2020. Additionally, $55.7 million of operating lease ROU assets were reclassified and reflected as finance lease ROU assets as a result of certain lease amendments executed during Fiscal 2021.
Non-cash investing activities also included capital expenditures incurred but not yet paid of $65$21.3 million, $62$29.1 million,, and $45$47.6 million as of the end of Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014,2019, respectively.
There were no other significant non-cash investing or financing activities for any of the fiscal years presented.
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Ralph Lauren Corporation is responsible for the preparation, objectivity, and integrity of the consolidated financial statements and other information contained in this Annual Report. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include some amounts that are based on management's informed judgments and best estimates.
These consolidated financial statements have been audited by Ernst & Young LLP in Fiscal 2016, 2021, Fiscal 2015,2020, and Fiscal 2014,2019, which is an independent registered public accounting firm. They conducted their audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and have expressed herein their unqualified opinions on those financial statements.
The Audit Committee of the Board of Directors, which oversees all of the Company's financial reporting process on behalf of the Board of Directors, consists solely of independent directors, meets with the independent registered accountants, internal auditors, and management periodically to review their respective activities and the discharge of their respective responsibilities. Both the independent registered public accountants and the internal auditors have unrestricted access to the Audit Committee, with or without management, to discuss the scope and results of their audits and any recommendations regarding the system of internal controls.
May 19, 201620, 2021
| /s/ | /s/ | ||||||||||
| President and Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | (Principal Financial and Accounting Officer) | ||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Ralph Lauren Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Ralph Lauren Corporation and subsidiaries (the "Company") as of April 2, 2016March 27, 2021 and March 28, 2015,2020, and the related consolidated statements of income,operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended April 2, 2016. March 27, 2021, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at March 27, 2021 and March 28, 2020, and the results of its operations and its cash flows for each of the three years in the period ended March 27, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of March 27, 2021, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated May 20, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. 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 includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
The critical audit matters communicated below are matters arising from the current period audit of the financial statements referredthat were communicated or required to above present fairly,be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in all material respects,any way our opinion on the consolidated financial position of Ralph Lauren Corporationstatements, taken as a whole, and subsidiaries at April 2, 2016 and March 28, 2015, andwe are not, by communicating the consolidated results of their operations and their cash flows for each ofcritical audit matters below, providing separate opinions on the three years incritical audit matters or on the period ended April 2, 2016, in conformity with U.S. generally accepted accounting principles.accounts or disclosures to which they relate.
| End-of-season Markdown Reserves | |||||
| Description of the Matter | As disclosed in Note 3 of the consolidated financial statements, estimates for end-of-season markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Auditing management's estimate of end-of-season markdown reserves was complex and judgmental as reserve amounts are sensitive to changes in market or economic conditions (including the effects of the global pandemic), and have a direct, material impact on the amount of revenue recognized by the Company. There is also significant estimation required to establish markdown reserve rates by brand and customer, which are based on the Company's review of the seasonal negotiations with each customer and the expected performance of the products in the customers' stores. | ||||
| F-59 | ||||||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process to calculate the end-of-season markdown reserves, including the consideration of historical experience, actual and forecasted seasonal results, current economic and market conditions, (including the effects of the global pandemic), retailer performance, and contractual terms as applicable. To test the estimate of end-of-season markdown reserves, we performed audit procedures that included, among others, assessing methodologies and testing the assumptions regarding seasonal negotiations with each customer which include the application of market and economic conditions to individual customers and the expected performance of the products in the customers' stores that were used by the Company to calculate the projected markdown allowances to be issued upon settlement. We compared the significant assumptions used by management to current market and economic trends, historical results and other relevant factors. We assessed the historical accuracy of management's estimates and performed sensitivity analyses of significant assumptions to substantively test the changes in the estimate that would result from reasonable changes in the assumptions. | ||||
| Estimated Realizable Value of Inventory | |||||
| Description of the Matter | As of March 27, 2021, the Company's net inventory balance was $759.0 million. As described in Note 3 to the consolidated financial statements, the valuation of inventory requires management to make assumptions and judgments about the recoverability of inventory and its estimated realizable value. The estimated realizable value of inventory is determined based on an analysis of historical sales trends, market trends and economic conditions (including the effects of the global pandemic), future sales forecasts, on-hand inventory quantities, and consideration of the value of existing customer orders for future sales of inventory. Given the importance of inventory to the Company's operations and the materiality of the balance, coupled with the judgment involved in estimating future sales, auditing management's estimated realizable value involved a higher extent of testing and the involvement of more senior members of the engagement team in executing, supervising and reviewing the results of the procedures. | ||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the process to determine the estimated realizable value of inventory, including controls over the inputs and assumptions used in management's calculation as described above. Our audit procedures to test the estimated realizable value of inventory included, among others, evaluating the appropriateness of management's inputs to the calculation, including testing the completeness and accuracy of the data used in management's calculation such as historical sales activity and loss rates for each class of inventory, write-off activity, on-hand inventory levels and inventory aging. Our procedures also included testing the completeness of any expected net losses on firm commitments to purchase inventory. To evaluate management's ability to accurately estimate future sales projections, which is also a key factor in the determination of the reserve, we retrospectively reviewed actual sales compared to projections and considered the impact of the global pandemic on market trends and economic conditions. We also tested the mathematical accuracy of the Company's calculation. | ||||
| F-60 | ||||||||
| Impairment of Long-Lived Assets | |||||
| Description of the Matter | As discussed in Note 8 to the consolidated financial statements, the Company recorded non-cash impairment charges of $96.0 million to write-down certain long-lived assets (property and equipment and operating lease right-of-use ("ROU") assets). The Company evaluates its long-lived assets for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived assets for recoverability, the Company uses its best estimate of future cash flows expected to result from its use of the asset and its eventual disposition, where applicable. If such estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized to the extent that such asset's carrying value exceeds its fair value, as estimated considering external market participant assumptions and discounted cash flows. To the extent any ROU assets, along with any related long-lived assets, are ultimately determined to be impaired, they are written down accordingly on a relative carrying amount basis, with the ROU asset written down to an amount no lower than its estimated fair value. Auditing the Company's impairment assessment of long-lived assets was complex and highly judgmental due to the significant estimation required in determining the future cash flows used to assess recoverability of each long-lived asset or asset group (undiscounted) and determining the fair value (discounted). The significant assumptions used include estimated future cash flows to be generated by the Company's long-lived assets or asset groups and the discount rates used to determine fair value. Significant assumptions used in determining the fair value of ROU assets also include current market rental rates and projected escalations as well as the discount rates applied for the respective remaining lease term. These assumptions are subjective in nature and are affected by expectations about future market or economic conditions (including the effects of the global pandemic). | ||||
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the long-lived assets impairment process, including determining the undiscounted future cash flows of the Company's long-lived assets or asset groups and the fair value of the long-lived assets for the assets that were deemed to be impaired. Our testing of the impairment charges recorded by the Company included, among other procedures, evaluating the significant assumptions and data used to calculate the estimated future cash flows and to determine the fair value of the related long-lived assets. We tested the completeness and accuracy of the data used by the Company in its analyses and we compared the significant assumptions used to determine the forecasted cash flows to historical results, current industry and economic trends and inquired of the Company's executives to understand the business initiatives supporting the assumptions in the future cash flows. We involved our internal valuation specialists to assist in evaluating the fair value of certain of the assets, which included assessing the estimated market rental rates of these leases by comparing them to rental rates for comparable leases and evaluating the applied discount rates. | ||||
/s/ Ernst & Young LLP
We have served as the Company's auditor since 2008.
New York, New York
May 19, 2016
20, 2021
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of Ralph Lauren Corporation
Opinion on Internal Control over Financial Reporting
We have audited Ralph Lauren Corporation and subsidiaries' (the "Company's")Corporation's internal control over financial reporting as of April 2, 2016,March 27, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Ralph Lauren Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of March 27, 2021, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of March 27, 2021 and March 28, 2020, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended March 27, 2021, and the related notes and our report dated May 20, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
May 19, 2016
20, 2021
Fiscal Years Ended(a) | ||||||||||||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014(b) | March 30, 2013(c) | March 31, 2012 | ||||||||||||||||
| (millions, except per share data) | ||||||||||||||||||||
| Statement of Income Data: | ||||||||||||||||||||
| Net revenues: | ||||||||||||||||||||
| Net sales | $ | 7,230 | $ | 7,451 | $ | 7,284 | $ | 6,763 | $ | 6,679 | ||||||||||
| Licensing revenue | 175 | 169 | 166 | 182 | 181 | |||||||||||||||
| Net revenues | 7,405 | 7,620 | 7,450 | 6,945 | 6,860 | |||||||||||||||
| Gross profit | 4,187 | 4,378 | 4,310 | 4,156 | 3,998 | |||||||||||||||
| Depreciation and amortization expense | (310 | ) | (294 | ) | (258 | ) | (233 | ) | (225 | ) | ||||||||||
| Impairment of assets | (49 | ) | (7 | ) | (1 | ) | (19 | ) | (2 | ) | ||||||||||
| Restructuring and other charges | (143 | ) | (10 | ) | (18 | ) | (12 | ) | (12 | ) | ||||||||||
| Operating income | 582 | 1,035 | 1,130 | 1,127 | 1,039 | |||||||||||||||
| Interest expense, net | (15 | ) | (11 | ) | (17 | ) | (16 | ) | (13 | ) | ||||||||||
| Net income | $ | 396 | $ | 702 | $ | 776 | $ | 750 | $ | 681 | ||||||||||
| Net income per common share: | ||||||||||||||||||||
| Basic | $ | 4.65 | $ | 7.96 | $ | 8.55 | $ | 8.21 | $ | 7.35 | ||||||||||
| Diluted | $ | 4.62 | $ | 7.88 | $ | 8.43 | $ | 8.00 | $ | 7.13 | ||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||
| Basic | 85.2 | 88.2 | 90.7 | 91.3 | 92.7 | |||||||||||||||
| Diluted | 85.9 | 89.1 | 92.0 | 93.7 | 95.5 | |||||||||||||||
| Dividends declared per common share | $ | 2.00 | $ | 1.85 | $ | 1.70 | $ | 1.60 | $ | 0.80 | ||||||||||
| April 2, 2016 | March 28, 2015 | March 29, 2014 | March 30, 2013 | March 31, 2012 | ||||||||||||||||
| (millions) | ||||||||||||||||||||
| Balance Sheet Data: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 456 | $ | 500 | $ | 797 | $ | 974 | $ | 672 | ||||||||||
| Investments | 816 | 652 | 490 | 406 | 616 | |||||||||||||||
Working capital(a) | 1,855 | 2,138 | 2,359 | 1,842 | 1,954 | |||||||||||||||
| Total assets | 6,213 | 6,106 | 6,088 | 5,418 | 5,416 | |||||||||||||||
| Total debt (including current maturities of debt) | 713 | 532 | 298 | 267 | 274 | |||||||||||||||
| Equity | 3,744 | 3,891 | 4,034 | 3,785 | 3,653 | |||||||||||||||
Quarterly Periods Ended(a)(b) | ||||||||||||||||
| June 27, 2015 | September 26, 2015 | December 26, 2015 | April 2, 2016(c) | |||||||||||||
| (millions, except per share data) | ||||||||||||||||
| Net revenues | $ | 1,618 | $ | 1,970 | $ | 1,946 | $ | 1,871 | ||||||||
| Gross profit | 966 | 1,113 | 1,094 | 1,014 | ||||||||||||
| Net income | 64 | 160 | 131 | 41 | ||||||||||||
Net income per common share(d): | ||||||||||||||||
| Basic | $ | 0.74 | $ | 1.87 | $ | 1.55 | $ | 0.49 | ||||||||
| Diluted | $ | 0.73 | $ | 1.86 | $ | 1.54 | $ | 0.49 | ||||||||
| Dividends declared per common share | $ | 0.50 | $ | 0.50 | $ | 0.50 | $ | 0.50 | ||||||||
Quarterly Periods Ended(a) | ||||||||||||||||
| June 28, 2014 | September 27, 2014 | December 27, 2014 | March 28, 2015 | |||||||||||||
| (millions, except per share data) | ||||||||||||||||
| Net revenues | $ | 1,708 | $ | 1,994 | $ | 2,033 | $ | 1,885 | ||||||||
| Gross profit | 1,043 | 1,132 | 1,159 | 1,044 | ||||||||||||
| Net income | 162 | 201 | 215 | 124 | ||||||||||||
Net income per common share(d): | ||||||||||||||||
| Basic | $ | 1.82 | $ | 2.27 | $ | 2.44 | $ | 1.43 | ||||||||
| Diluted | $ | 1.80 | $ | 2.25 | $ | 2.41 | $ | 1.41 | ||||||||
| Dividends declared per common share | $ | 0.45 | $ | 0.45 | $ | 0.45 | $ | 0.50 | ||||||||