Form 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ~~[X]~~þ No ~~[ ]~~o

At ~~August~~November 7, 2002 ~~44,567,861~~48,841,971 shares of the ~~registrant's~~registrant’s Class A Common Stock, $.01 par value, were outstanding, 43,280,021 shares of the ~~registrant's~~registrant’s Class B Common Stock, $.01 par value, were outstanding and 10,570,979 shares of the ~~registrant's~~registrant’s Class C Common Stock, $.01 par value were outstanding. ~~- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------~~

POLO RALPH LAUREN CORPORATION ASSETS Current assets Cash and cash equivalents................................. Accounts receivable, net of allowances of $7,522 and $13,175................................................ Inventories............................................... Deferred tax assets....................................... Prepaid expenses and other................................ TOTAL CURRENT ASSETS................................. Property and equipment, net................................. Deferred tax assets......................................... Goodwill, net............................................... Other assets, net........................................... LIABILITIES AND STOCKHOLDERS' Current liabilities Short term bank borrowings................................ Accounts payable.......................................... Income taxes payable...................................... Accrued expenses and other................................ TOTAL CURRENT LIABILITIES............................ Long-term debt.............................................. Other noncurrent liabilities................................ Stockholders' equity Common Stock Class A, par value $.01 per share; 500,000,000 shares authorized; 35,688,098 and 34,948,730 shares issued... Class B, par value $.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding........................................... Class C, par value $.01 per share; 70,000,000 shares authorized; 22,720,979 shares issued and outstanding........................................... Additional paid-in-capital................................ Retained earnings......................................... Treasury Stock, Class A, at cost (3,887,094 and 3,771,806 shares)................................................ Accumulated other comprehensive loss...................... Unearned compensation..................................... TOTAL STOCKHOLDERS' EQUITY...........................

CONSOLIDATED BALANCE SHEETS
JUNE 29, MARCH 30, 2002 2002 ------------- ------------ (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) $ 371,623 $ 244,733 208,363 353,608 384,865 349,818 21,091 17,897 52,859 42,001 ---------- ---------- 1,038,801 1,008,057 341,519 343,836 64,076 58,127 289,430 273,348 68,797 66,129 ---------- ---------- $1,802,623 $1,749,497 ========== ========== EQUITY $ 124,887 $ 32,988 159,952 177,472 58,608 52,819 148,393 128,492 ---------- ---------- 491,840 391,771 225,475 285,414 79,090 74,117 363 361 433 433 227 227 494,402 490,337 608,584 602,124 (73,555) (73,246) (22,194) (19,799) (2,042) (2,242) ---------- ---------- 1,006,218 998,195 ---------- ---------- $1,802,623 $1,749,497 ========== ========== class="cl5">(In thousands, except share and per share data)

September 28, March 30,
2002 2002
(Unaudited)
ASSETS
Cash and cash equivalents $ 355,475 $ 244,733
Accounts receivable, net of allowances of $7,896 and $13,175 290,698 353,608
Inventories 401,521 349,818
Deferred tax assets 18,989 17,897
Prepaid expenses and other 58,986 42,001

Total current assets
1,125,669 1,008,057
Property and equipment, net 344,032 343,836
Deferred tax assets 66,762 58,127
Goodwill, net 284,623 273,348
Other assets, net 71,869 66,129

Total assets
$ 1,892,955 $ 1,749,497

LIABILITIES AND STOCKHOLDERS’ EQUITY
Short term bank borrowings $ 120,442 $ 32,988
Accounts payable 173,786 177,472
Income taxes payable 83,560 52,819
Accrued expenses and other 151,155 128,492

Total current liabilities
528,943 391,771
Long-term debt 226,577 285,414
Other noncurrent liabilities 79,448 74,117
Commitments & Contingencies (Note 9)
Stockholders’ equity
Common Stock
Class A, par value $.01 per share; 500,000,000 shares authorized; 48,841,671 and 36,103,439 shares issued 488 361
Class B, par value $.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding 433 433
Class C, par value $.01 per share; 70,000,000 shares authorized; 10,570,979 and 22,720,929 shares issued and outstanding 106 227
Additional paid-in-capital 501,441 490,337
Retained earnings 660,328 602,124
Treasury Stock, Class A, at cost (3,887,094 and 3,876,506 shares) (73,555 ) (73,246 )
Accumulated other comprehensive loss (24,128 ) (19,799 )
Unearned compensation (7,126 ) (2,242 )

Total stockholders’ equity
1,057,987 998,195

Total liabilities & stockholders’ equity
$ 1,892,955 $ 1,749,497

See accompanying notes to consolidated financial statements.
2
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS ~~(UNAUDITED)~~
THREE MONTHS ENDED ------------------------------- JUNE 29, 2002 JUNE 30, 2001 -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Net sales................................................... $ 413,866 $ 461,058 Licensing revenue........................................... 53,134 56,771 ----------- ----------- NET REVENUES.............................................. 467,000 517,829 Cost of goods sold.......................................... 234,396 255,468 ----------- ----------- GROSS PROFIT.............................................. 232,604 262,361 Selling, general and administrative expenses................ 214,916 208,773 ----------- ----------- INCOME FROM OPERATIONS.................................... 17,688 53,588 Foreign currency loss (gain)................................ 3,531 (2,827) Interest expense, net....................................... 3,984 5,924 ----------- ----------- INCOME BEFORE INCOME TAXES................................ 10,173 50,491 Income tax provision........................................ 3,713 19,440 ----------- ----------- NET INCOME................................................ $ 6,460 $ 31,051 =========== =========== Net income per share -- Basic............................... $ 0.07 $ 0.32 =========== =========== Net income per share -- Diluted............................. $ 0.07 $ 0.32 =========== =========== Weighted average common shares outstanding -- Basic......... 98,161,220 97,108,788 =========== =========== Weighted average common shares outstanding -- Diluted....... 99,333,199 98,493,077 =========== ===========
(In thousands, except share and per share data)
(Unaudited)

Three Months Ended Six Months Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
Net sales $ 574,554 $ 528,202 $ 988,420 $ 989,260
Licensing revenue 66,285 67,493 119,419 124,264

Net revenues
640,839 595,695 1,107,839 1,113,524
Cost of goods sold 319,573 310,055 553,969 565,522

Gross profit
321,266 285,640 553,870 548,002
Selling, general and administrative expenses 236,618 199,507 451,534 408,281

Income from operations
84,648 86,133 102,336 139,721
Foreign currency loss 220 5,664 3,752 2,837
Interest expense, net 2,942 4,779 6,926 10,703

Income before income taxes
81,486 75,690 91,658 126,181
Income tax provision 29,742 27,880 33,454 47,318

Net income
$ 51,744 $ 47,810 $ 58,204 $ 78,863

Net income per share — Basic $ 0.53 $ 0.49 $ 0.59 $ 0.81

Net income per share — Diluted $ 0.52 $ 0.49 $ 0.59 $ 0.80

Weighted average common shares outstanding — Basic 98,301,441 97,437,461 98,230,188 97,273,124

Weighted average common shares outstanding — Diluted 99,319,019 98,483,031 99,440,497 98,454,113

See accompanying notes to consolidated financial statements.
3
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED ------------------- JUNE 29, JUNE 30, 2002 2001 -------- -------- (IN THOUSANDS) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income.................................................. $ 6,460 $ 31,051 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............................. 18,462 20,923 Provision for (Benefit from) deferred income taxes........ 3,384 (393) Provision for losses on accounts receivable............... 446 357 Foreign currency losses (gains)........................... 3,531 (2,827) Other..................................................... (11,202) (3,363) Changes in assets and liabilities, net of acquisitions Accounts receivable.................................... 152,138 28,401 Inventories............................................ (20,251) (23,143) Prepaid expenses and other............................. (7,116) 59 Other assets........................................... (146) 1,368 Accounts payable....................................... (22,726) 12,967 Income taxes payable (receivable)...................... 5,789 41,985 Accrued expenses and other............................. (469) (23,287) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 128,300 84,098 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment....................... (12,495) (16,237) Increase (decrease) in cash surrender value -- officers' life insurance......................................... 775 (837) -------- -------- NET CASH USED IN INVESTING ACTIVITIES....................... (11,720) (17,074) CASH FLOWS FROM FINANCING ACTIVITIES Repurchases of common stock............................... (309) -- Proceeds from issuance of common stock.................... 4,067 10,114 Proceeds from (Repayments of) short term borrowings, net.................................................... 9,314 (48,665) Repayments of long-term debt.............................. (7,746) -- -------- -------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 5,326 (38,551) Effect of exchange rate changes on cash..................... 4,984 (1,091) Net increase (decrease) in cash and cash equivalents........ 126,890 27,382 Cash and cash equivalents at beginning of period............ 244,733 102,219 -------- -------- Cash and cash equivalents at end of period.................. $371,623 $129,601 ======== ========
(In thousands)
(Unaudited)

Six Months Ended
September 28, September 29,
2002 2001
Cash flows from operating activities

Net income $ 58,204 $ 78,863
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 42,115 44,737
Benefit from deferred income taxes (7,128 ) (9,517 )
Provision for losses on accounts receivable 1,210 698
Foreign currency losses 3,752 2,837
Other (15,106 ) (4,363 )
Changes in assets and liabilities
Accounts receivable 73,435 (14,237 )
Inventories (39,781 ) 1,320
Prepaid expenses and other (13,892 ) 26,461
Other assets (2,026 ) 1,376
Accounts payable (9,352 ) 581
Income taxes payable (receivable) 30,741 68,908
Accrued expenses and other 17,594 (71,427 )

Net cash provided by operating activities
139,766 126,237
Cash flows from investing activities

Purchases of property and equipment (40,177 ) (40,242 )
Increase (Decrease) in cash surrender value — officers’ life insurance 1,911 (1,540 )

Net cash used in investing activities
(38,266 ) (41,782 )
Cash flows from financing activities

Repurchases of common stock (309 ) (2,067 )
Proceeds from exercise of stock options 5,644 11,882
Proceeds from (Repayments of) short term borrowings, net 6,307 (24,379 )
Repayments of long-term debt (7,746 ) —

Net cash provided by (used in) financing activities
3,896 (14,564 )
Effect of exchange rate changes on cash 5,346 (358 )
Net increase in cash and cash equivalents 110,742 69,533
Cash and cash equivalents at beginning of period 244,733 102,219

Cash and cash equivalents at end of period $ 355,475 $ 171,752

Supplemental cash flow information

Cash paid for interest $ 2,789 $ 3,018

Cash paid (refunded) for income taxes $ 14,681 $ (25,716 )

See accompanying notes to consolidated financial statements.
4
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES ~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
THREE MONTHS ENDED ------------------- JUNE 29, JUNE 30, 2002 2001 -------- -------- (IN THOUSANDS) (UNAUDITED) SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest.................................... $ 1,667 $1,848 ======= ====== Cash paid for income taxes................................ $11,723 $1,417 ======= ======
~~See accompanying notes to consolidated financial statements. 5~~ ~~POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES~~
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~(INFORMATION FOR JUNE~~
(Information for September 28, 2002 and September 29, ~~2002 AND JUNE 30,~~ 2001 ~~IS UNAUDITED) (IN THOUSANDS, EXCEPT WHERE OTHERWISE INDICATED)~~ is unaudited)
(In thousands, except where otherwise indicated)
1.     ~~BASIS OF PRESENTATION AND ORGANIZATION (A) BASIS OF PRESENTATION~~Basis of Presentation and Organization
     The accompanying unaudited consolidated financial statements include the accounts of Polo Ralph Lauren Corporation ~~("PRLC"~~(“PRLC”) and its wholly and majority owned subsidiaries (collectively referred to as the ~~"Company"~~“Company”, ~~"we"~~“we”, ~~"us"~~“us”, and ~~"our"~~“our”). The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from this report as is permitted by such rules and ~~regulations however,~~regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The consolidated balance sheet data for March 30, 2002 is derived from the audited financial statements which are included in the ~~Company's~~Company’s annual report on ~~fiscal 2002~~ Form 10-K filed with the Securities and Exchange Commission for the year ended March 30, 2002 (“fiscal 2002”), which should be read in conjunction with these financial statements. Reference is made to such annual report on Form 10-K for a complete set of financial notes, including the Company’s significant accounting policies. The results of operations for the three and six months ended September 28, 2002 are not necessarily indicative of results to be expected for the entire fiscal year ended March 29, 2003 (“fiscal 2003”).
     Effective December 30, 2001, for reporting purposes the Company changed the fiscal ~~year ends~~years of certain of its European subsidiaries ~~as reported~~ in the consolidated financial statements to end on the Saturday closest to March 31 to conform with the fiscal year end of the Company. Previously, ~~certain of the~~these European subsidiaries were consolidated and reported on a three-month lag with a fiscal ~~year~~years ending December 31. Accordingly, we have included the ~~June 29,~~September 28, 2002 and March 30, 2002 balance sheets of ~~our wholly owned~~these European subsidiaries in the accompanying ~~June 29,~~September 28, 2002 and March 30, 2002, consolidated balance sheets. We also have consolidated the results of operations of ~~our wholly owned~~these European subsidiaries for the three and six months ended ~~June 29, 2002 and March 31, 2001 in the three months ended June 29,~~September 28, 2002 and June 30, 2001 in the three and six months ended September 28, 2002 and September 29, 2001 consolidated statements of ~~income~~operations and cash flows. Had ~~certain of the~~these European subsidiaries been consolidated on a consistent fiscal year basis for the three and six months ended ~~June 30,~~September 29, 2001, net revenues would have been ~~$473.3~~$659 million and $1,133 million, and net income would have been ~~$15.7 million.~~$66 million and $82 million, respectively.
     In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial condition, results of operations, and changes in cash flows of the Company for the interim periods presented. (B) ACQUISITIONS On October 31, 2001, the Company completed the acquisition of substantially all of the assets of PRL Fashions of Europe SRL ("PRL Fashions" or "Italian Licensee") which held licenses to sell our women's Ralph Lauren apparel in Europe, our men's
2.     Restructuring and boys' Polo Ralph Lauren apparel in Italy and men's and women's Polo Jeans Co. collections in Italy. The purchase price of this transaction was approximately $22.0 million in cash plus the assumption of certain liabilities and earn-out payments based on achieving profitability targets over the first three years with a guaranteed minimum annual payment of $3.5 million each year. The assets acquired of $15.1 million and liabilities assumed of $15.1 million were recorded at estimated fair values as determined by the Company's management based on information currently available. Goodwill of approximately $33.5 million has been recognized for the excess of the purchase price over the preliminary estimate of fair market value of the net assets acquired. The Company is in the process of obtaining independent appraisals of the intangible assets acquired. Accordingly, the allocation of the purchase price is subject to revision, which is not expected to be material, based on the final determination of appraised and other fair values. 6 POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 22, 2001, we acquired the Polo Brussels SA store from one of our licensees. The purchase price of this transaction was approximately $3.0 million in cash, which was primarily allocated to goodwill. The sales and total assets were not material. The proforma effect of these two acquisitions on the historical results were not material. Consistent with Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, these acquisitions were accounted for as purchases and the goodwill recorded is not being amortized 2. RESTRUCTURING AND SPECIAL CHARGES (A) 2001 OPERATIONAL PLAN During the second quarter of fiscal 2001, we completed an internal operational review and formalized our plans to enhance the growth of our worldwide luxury retail business, to better manage inventory and to increase overall profitability (the "Operational Plan"). The major initiatives of the Operational Plan included: refining our retail strategy; developing efficiencies in our supply chain; and consolidating corporate strategic business functions and internal processes. In connection with refining our retail strategy, we closed all 12 Polo Jeans Co. full-price retail stores and 11 under-performing Club Monaco retail stores. Costs associated with this aspect of the Operational Plan included lease and contract termination costs, store fixed asset write downs (primarily leasehold improvements of $21.5 million) and severance and termination benefits. Additionally, as a result of changes in market conditions combined with our change in retail strategy in certain locations in which we operate full-price retail stores, we performed an evaluation of the recoverability of the assets of certain of these stores in accordance with Statements of Financial Accounting Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. We concluded from the results of this evaluation that a significant permanent impairment of long-lived assets had occurred. Accordingly, we recorded a write down of these assets (primarily leasehold improvements) to their estimated fair value based on discounted future cash flows. In connection with the implementation of the Operational Plan, we recorded a pretax restructuring charge of $128.6 million in our second quarter of fiscal 2001, subsequently adjusted for a $5.0 million reduction of liabilities in the fourth quarter of fiscal 2001. After extensive review of the Operational Plan, and changes in business conditions in certain markets in which we operate, we made adjustments to the Operational Plan in the fourth quarter of fiscal 2002. We recorded an additional $16.0 million of lease termination costs associated with the closure of our retail stores due to market factors that were less favorable than originally estimated. Special Charges
(a) 2001 Operational Plan
The major components of the activity in the restructuring charge ~~and~~taken in connection with the ~~activity through~~Company’s 2001 Operational Plan (as defined in the Company’s fiscal 2002 Form 10-K) for the ~~three~~six months ended ~~June 29,~~September 28, 2002 were as follows:
LEASE AND SEVERANCE AND CONTRACT TERMINATION TERMINATION BENEFITS COSTS TOTAL ------------- ----------- ------- Balance at March 30, 2002.......................... $807 $14,155 $14,962 2003 activity...................................... (628) (1,352) (1,980) ---- ------- ------- Balance at June 29, 2002........................... $179 $12,803 $12,982 ==== ======= =======

Severance and
Termination Lease and Contract
Benefits Termination Costs Total
Balance at March 30, 2002 $ 807 $ 14,155 $ 14,962
Fiscal 2003 activity (582 ) (7,560 ) (8,142 )

Balance at September 28, 2002 $ 225 $ 6,595 $ 6,820

     Total severance and termination benefits as a result of the 2001 Operational Plan related to approximately 550 employees, all of whom have been terminated. Total cash outlays related to the 2001 Operational Plan are
5
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expected to be approximately $40.7 million, ~~$27.7~~$33.9 million of which have been paid through ~~June 29,~~September 28, 2002. We completed the implementation of the 2001 Operational Plan in fiscal 2002 and expect to settle the remaining liabilities in fiscal ~~2003. 7~~ POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (B) 1999 RESTRUCTURING PLAN During the fourth quarter of fiscal 1999, we formalized our plans to streamline operations within our wholesale and retail operations and reduce our overall cost structure (the "Restructuring Plan"). The major initiatives of the Restructuring Plan included the following: an evaluation of our retail operations and site locations; the realignment and operational integration of our wholesale operating units; and the realignment and consolidation of corporate strategic business functions and internal processes. In connection2003 or in accordance with ~~the implementation of the Restructuring Plan, we recorded a pretax restructuring charge of $58.6 million in our fourth quarter of fiscal 1999.~~ contract terms.
(b) 1999 Restructuring Plan
The major components of the restructuring activity in the restructuring charge ~~and~~taken in connection with the ~~activity~~Company’s 1999 Restructuring Plan (as defined in the Company’s fiscal 2002 Form 10-K) for the ~~three~~six months ended ~~June 29,~~September 28, 2002 were as follows:
LEASE AND SEVERANCE AND CONTRACT TERMINATION TERMINATION BENEFITS COSTS TOTAL ------------- ----------- ------- Balance at March 30, 2002.......................... $1,456 $ 1,226 $ 2,682 2003 activity...................................... (527) (1,250) (1,777) ------ ------- ------- Balance at June 29, 2002........................... $ 929 $ (24) $ 905 ====== ======= =======

Severance and
Termination Lease and Contract
Benefits Termination Costs Total
Balance at March 30, 2002 $ 1,456 $ 1,226 $ 2,682
Fiscal 2003 activity (981 ) (1,250 ) (2,231 )

Balance at September 28, 2002 $ 475 $ (24 ) $ 451

     Total severance and termination benefits as a result of the 1999 Restructuring Plan related to approximately 280 employees, all of whom have been terminated. Total cash outlays related to the 1999 Restructuring Plan are approximately $39.5 million, ~~$38.6~~$39.0 million of which have been paid to date. We completed the implementation of the 1999 Restructuring Plan in fiscal 2000 and expect to settle the remaining liabilities in fiscal ~~2003.~~ 2003 or in accordance with contract terms.
3.     ~~INVENTORIES~~ Inventories
Inventories are valued at lower of cost (first-in, first-out, ~~"FIFO"~~“FIFO”) or market and consist of the following:
~~JUNE 29, MARCH 30, 2002 2002 -------- ---------~~ Raw materials............................................... $ 9,066 $ 3,874 Work-in-process............................................. 8,541 5,469 Finished goods.............................................. 367,258 340,475 -------- -------- $384,865 $349,818 ======== ========

September 28, March 30,
2002 2002
Raw materials $ 8,745 $ 3,874
Work-in-process 6,299 5,469
Finished goods 386,477 340,475

$ 401,521 $ 349,818

4.     ~~DERIVATIVE INSTRUMENTS~~ Derivative Instruments
In June 2002, we entered into a cross currency rate swap, which ~~terminates~~expires in November 2006. The cross currency rate swap is being used to convert Euro 105.2 million, 6.125% fixed rate borrowings into $100.0 million, LIBOR plus 1.24% variable rate borrowings. We entered into the cross currency rate swap to minimize the impact of foreign exchange ~~fluctuations in both principal~~ and interest ~~payments resulting from the Euro debt; and to minimize the impact of changes in~~rate fluctuations on the fair value of the Euro ~~debt due to changes in LIBOR, the benchmark interest rate.~~debt. The swap has been designated as a fair value hedge under ~~SFAS 133.~~Statements of Financial Accounting Standards (“SFAS”) No. 133,Accounting for Derivative Instruments and Hedging Activities. Hedge ineffectiveness is measured as the difference between the respective gains or losses recognized in earnings from the changes in the fair value of the cross currency rate swap and the Euro ~~debt;~~debt, and was ~~de minimis~~deminimis for the ~~three~~six months ended ~~June 29,~~September 28, 2002. 8
6
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~-- (CONTINUED)~~ — (Continued)
5.     ~~COMPREHENSIVE INCOME~~ Comprehensive Income
For the three and six months ended ~~June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001, comprehensive income was as follows:
THREE MONTHS ENDED ------------------- JUNE 29, JUNE 30, 2002 2001 -------- -------- Net Income.................................................. $ 6,460 $31,051 Other comprehensive income (loss), net of taxes: Foreign currency translation adjustments.................. 18,410 2,421 Cumulative transition adjustment gains, net............... -- 4,028 Unrealized losses on cash flow hedge contracts, net....... (20,805) (156) -------- ------- Comprehensive Income...................................... $ 4,065 $37,344 ======== =======

Three Months Ended
September 28, September 29,
2002 2001
Net Income $ 51,744 $ 47,810
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments (6,927 ) (1,709 )
Unrealized gains (losses) on cash flow and foreign currency hedges 4,993 (1,825 )

Comprehensive Income $ 49,810 $ 44,276

The income tax effect related to foreign currency translation adjustments and unrealized gains and losses on cash flow and foreign currency hedges was a benefit of $1.1 million in the three months ended September 28, 2002, and a benefit of $2.1 million in the three months ended September 29, 2001.

Six Months Ended
September 28, September 29,
2002 2001
Net Income $ 58,204 $ 78,863
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments 9,866 712
Cumulative transition adjustment gains — 4,028
Unrealized losses on cash flow and foreign currency hedges (14,195 ) (1,981 )

Comprehensive Income $ 53,875 $ 81,622

     The income tax effect related to foreign currency translation adjustments, cumulative transition adjustment gains ~~net,~~ and unrealized losses on cash flow ~~hedge contracts, net,~~and foreign currency hedges was a benefit of ~~$1.4~~$2.5 million in the ~~three~~six months ended ~~June 29,~~September 28, 2002, and an expense of ~~$3.9~~$1.7 million in the ~~three~~six months ended ~~June 30,~~September 29, 2001.
6.     ~~SEGMENT REPORTING~~Segment Reporting
     We have three reportable business segments: wholesale, retail and licensing. Our reportable segments are individual business units that offer different products and services. The segments are managed separately because each segment requires different strategic initiatives, promotional campaigns, marketing and advertising, based upon its own individual positioning in the market. Additionally, these segments reflect the reporting basis used internally by senior management to evaluate performance and the allocation of resources.
7
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our net revenues and income from operations for the three and six months ended ~~June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001, by segment were as follows:
~~THREE MONTHS ENDED ------------------- JUNE~~

Three Months Ended
September 28, September 29,
2002 2001
Net revenues:

Wholesale $ 310,715 $ 280,437
Retail 263,839 247,765
Licensing 66,285 67,493

$ 640,839 $ 595,695

Income from operations:

Wholesale $ 35,769 $ 28,723
Retail 13,310 14,966
Licensing 35,569 42,444

$ 84,648 $ 86,133

Six Months Ended
September 28, September 29,
2002 2001
Net revenues:

Wholesale $ 497,443 $ 525,610
Retail 490,977 463,650
Licensing 119,419 124,264

$ 1,107,839 $ 1,113,524

Income from operations:

Wholesale $ 13,839 $ 49,690
Retail 29,180 18,933
Licensing 59,317 71,098

$ 102,336 $ 139,721

Summarized below are our net revenues for the three and six months ended September 28, 2002 and September 29, ~~JUNE 30, 2002 2001 -------- --------~~ NET REVENUES: Wholesale................................................. $186,728 $245,173 Retail.................................................... 227,139 215,885 Licensing................................................. 53,133 56,771 -------- -------- $467,000 $517,829 ======== ======== INCOME (LOSS) FROM OPERATIONS: Wholesale................................................. $(21,930) $ 21,002 Retail.................................................... 15,870 3,923 Licensing................................................. 23,748 28,663 -------- -------- $ 17,688 $ 53,588 ======== ========
~~7. RECENTLY ISSUED PRONOUNCEMENTS In July~~ 2001, the Financial Accounting Standards Board, or "FASB", issued Statement of Financial Accounting Standards, or SFAS No. 141 and SFAS No. 142. In addition to requiring the use of the purchase method for all business combinations, SFAS No. 141 requires intangible assets that meet certain criteria to be 9 by geographic location:

Three Months Ended
September 28, September 29,
2002 2001
Net revenues:

United States $ 478,003 $ 523,453
Foreign Countries 162,836 72,242

$ 640,839 $ 595,695

8
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~-- (CONTINUED) recognized as assets apart from goodwill.~~— (Continued)

Six Months Ended
September 28, September 29,
2002 2001
Net revenues:

United States $ 859,369 $ 928,636
Foreign Countries 248,470 184,888

$ 1,107,839 $ 1,113,524

7.     Goodwill and Other Intangible Assets
Effective March 31, 2002, the Company adopted SFAS No. 142, ~~addresses~~Goodwill and Other Intangible Assets (“SFAS No. 142”). This accounting standard requires that goodwill and ~~reporting standards for the acquisition of~~indefinite life intangible assets ~~outside of a business combination and for goodwill and other~~are no longer amortized but are subject to annual impairment tests. Other intangible assets ~~subsequent to their acquisition. Intangible assets that have~~with finite lives will continue to be amortized over their useful lives. ~~SFAS No. 141~~The transitional impairment tests were completed and ~~SFAS No. 142 were effective for the Company's first quarter~~did not result in the fiscal year ending March 29, 2003 or for any business combinations initiated after June 30, 2001. Effective March 31, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial position, and no longer be amortized but tested foran impairment ~~on a periodic basis.~~ charge.
In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective March 31, ~~2002.~~2002 and prior period amounts were not restated. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect is as follows:
THREE MONTHS ENDED ------------------- JUNE 29, JUNE 30, 2002 2001 -------- -------- (IN MILLIONS) Reported net income......................................... $6,460 $31,051 ------ ------- Goodwill amortization, net of tax........................... 0 1,255 ------ ------- Adjusted net income per share............................... $6,460 $32,306 ====== ======= Adjusted net income basic and diluted....................... $ 0.07 $ 0.34 ------ -------

Three Months Ended
September 28, September 29,
2002 2001
Reported net income $ 51,744 $ 47,810
Goodwill amortization, net of taxes — 2,438

Adjusted net income $ 51,744 $ 50,248
Adjusted net income per share — basic $ 0.53 $ 0.52
Adjusted net income per share — diluted $ 0.52 $ 0.51

Six Months Ended
September 28, September 29,
2002 2001
Reported net income $ 58,204 $ 78,863
Goodwill amortization, net of taxes — 4,631

Adjusted net income $ 58,204 $ 83,494
Adjusted net income per share — basic $ 0.59 $ 0.86
Adjusted net income per share — diluted $ 0.59 $ 0.85
The ~~provisions~~net carrying value of ~~SFAS No. 142 also require the completion~~goodwill as of a transitional impairment test within six months of adoption, with any impairments treated as a cumulative effect of a change in accounting principle. We expect to complete the transitional impairment test during the quarter ending September 28, ~~2002. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. This Statement addresses financial accounting~~2002 and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement requires that the fair value of a liability for an asset retirement obligation be recognizedMarch 30, 2002 by operating segment is as follows (amounts in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for the first quarter in the fiscal year ending April 3, 2004. The Company does not expect the adoption of this pronouncement to have a material impact on our consolidated results of operations or financial position. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS No. 144 supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. However, this Statement retains the fundamental provisions of Statement 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. Effective March 31, 2002, the Company adopted the pronouncement and there was no material impact on our consolidated results of operations. In April 2002, the FASB, issued SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or 10 millions):

Unallocated
Wholesale Retail Licensing Corporate Total
Balance at March 30, 2002 $ 107.0 $ 64.7 $ 99.1 $ 2.5 $ 273.3
Effect of foreign exchange and other adjustments 9.3 (2.0 ) — 4.0 11.3
Balance at September 28, 2002 $ 116.3 $ 62.7 $ 99.1 $ 6.5 $ 284.6
9
POLO RALPH LAUREN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for our first quarter in the fiscal year ending April 3, 2004. The Company does not expect the adoption of this pronouncement to have a material impact on our consolidated results of operations or financial position. In April 2001, the FASB's Emerging Issues Task Force (EITF") reached a consensus on Issue No. 00-25, Vendor Income Statement Characteristics of Consideration Paid to a Reseller of the Vendor's Products ("EITF No. 00-25"). In November 2001, EITF No. 00-25 was codified in EITF Issue No. 01-09,— (Continued)
8.     Recently Issued Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). EITF No. 01-09 concluded that consideration from a vendor to a reseller of the vendor's products is presumed to be a reduction of the selling prices of the vendor's products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement. That presumption is overcome and the consideration characterized as a cost incurred if a benefit is or will be received from the recipient of the consideration if certain conditions are met. The Company adopted this pronouncement in our fourth quarter in the fiscal year ended March 30, 2002 and there was no impact on our consolidated results of operations. Pronouncements
In June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal ~~Activities.~~Activities. The standard ~~requires~~required companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or ~~other~~ exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company does not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. ~~8. RECLASSIFICATION~~
9. Commitments & Contingencies
(a) Commitments
As of September 28, 2002, the Company had $40.4 million outstanding in direct borrowings, $80.0 million outstanding under the term loan and $226.6 million outstanding in Euro debt based on the quarter end Euro exchange rate. The Company was also contingently liable for $32.5 million in outstanding letters of credit primarily related to commitments for the purchase of inventory. The weighted-average interest rate on the Company’s borrowings at September 28, 2002 was 5.7%.
(b) Legal Proceedings
     With regard to the Saipan class action litigation referred to in the fiscal 2002 Form 10-K, subsequent to the date of the fiscal 2002 Form 10-K, most of the remaining defendants agreed to a settlement with plaintiffs. A hearing on final court approval of the settlements is expected to be held in the spring of 2003.
On September 18, 2002, an employee at one of the Company’s stores, Toni Young, filed a lawsuit against Polo Retail, LLC and the Company in the United States District Court for the District of Northern California alleging violations of California antitrust and labor laws. The plaintiff purports to represent a class of employees who have allegedly been injured by Polo’s requirement that certain retail employees purchase and wear Polo Ralph Lauren merchandise as a condition of their employment. The complaint, as amended, seeks an unspecified amount of actual and punitive damages, disgorgement of profits and injunctive and declaratory relief. The Company answered the amended complaint on November 4, 2002, and believes that the plaintiff’s claims are substantially without merit and intends to defend against them vigorously.
10. Reclassification
For comparative purposes, certain prior period amounts have been reclassified to conform to the current ~~period's~~period’s presentation. 11
11. Subsequent Events
     In October 2002, the Company signed an agreement in principle which, if definitive agreements are executed and consummated, would result, among other things, in the Company having increased control over the license for Japan. The agreement in principle outlines a series of transactions whereby the Company would acquire a 50% controlling interest in its Japanese master license and an 18% equity interest in a company that will hold the sublicenses for the Company’s men’s, women’s and Polo Jeans businesses in Japan. The Company’s total investment in the transactions will be approximately $70 million and will be funded through the Company’s available cash.
10
POLO RALPH LAUREN CORPORATION ~~ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is a summary and should be read together with our consolidated financial statements and related notes thereto which are included herein. We utilize a 52-53 week fiscal year ending on the Saturday nearest March 31. Fiscal 2003 and fiscal 2002 end on March 29, 2003 and March 30, 2002, respectively, and each reflect a 52-week period. Due to the collaborative and ongoing nature of our relationships with our licensees, such licensees are referred to herein as ~~"licensing partners"~~“licensing partners” and the relationships are referred to herein as ~~"licensing~~“licensing alliances."” Notwithstanding these references, however, the legal relationship between our licensees and us is one of licensor and licensee, and not one of partnership.
Certain statements in this Form 10-Q and in future filings with the Securities and Exchange Commission, in our press releases and in oral statements made by or with the approval of authorized personnel constitute ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations and are indicated by words or phrases such as ~~"anticipate," "estimate," "expect," "project," "we~~“anticipate,” “estimate,” “expect,” “project,” “we believe,~~" "is~~” “is or remains optimistic,~~" "currently envisions"~~” “currently envisions” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: risks associated with a general economic downturn and other events leading to a reduction in discretionary consumer spending; risks associated with implementing our plans to enhance our worldwide luxury retail business, inventory management program and operating efficiency initiatives; risks associated with changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors; changes in global economic or political conditions; risks associated with our dependence on sales to a limited number of large department store customers, including risks related to extending credit to customers; risks associated with our dependence on our licensing partners for a substantial portion of our net income and risks associated with a lack of operational and financial control over licensed businesses; risks associated with financial distress of licensees, including the impact on our net income and business of one or more ~~licensee's~~licensee’s reorganization; risks associated with consolidations, restructurings and other ownership changes in the retail industry; risks associated with competition in the segments of the fashion and consumer product industries in which we operate, including our ability to shape, stimulate and respond to changing consumer tastes and demands by producing attractive products, brands and marketing, and our ability to remain competitive in the areas of quality and price; risks associated with uncertainty relating to our ability to implement our growth strategies; risks associated with our entry into new markets either through internal development activities or through acquisitions; risks associated with the possible adverse impact of our unaffiliated ~~manufacturers'~~manufacturers’ inability to manufacture in a timely manner, to meet quality standards or to use acceptable labor practices; risks associated with changes in social, political, economic and other conditions affecting foreign operations or sourcing and the possible adverse impact of changes in import restrictions; risks related to our ability to establish and protect our trademarks and other proprietary rights; risks related to fluctuations in foreign currency affecting our foreign ~~subsidiaries'~~subsidiaries’ and foreign ~~licensees'~~licensees’ results of operations and the relative prices at which we and our foreign competitors sell products in the same market and our operating and manufacturing costs outside of the United States; and, risks associated with our control by Lauren family members and the anti-takeover effect of multiple classes of stock. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. ~~OVERVIEW~~
Overview
     We began operations in 1968 as a designer and marketer of premium quality ~~men's~~men’s clothing and sportswear. Since our inception, we have grown through increased sales of existing product lines, the introduction of new brands and products, expansion into international markets, development of our retail operations and acquisitions. Our net revenues are generated from our three integrated operations: wholesale, retail and licensing. 12 ~~RESULTS OF OPERATIONS~~
11
Results of Operations
The table below sets forth the percentage relationship to net revenues of certain items in our consolidated statements of income for the three and six months ended ~~June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001:
THREE MONTHS ENDED --------------------- JUNE 29, JUNE 30, 2002 2001 --------- --------- Net......................................................... 88.6% 89.0% sales Licensing revenue..................................... 11.4 11.0 ----- ----- Net revenues................................................ 100.0 100.0 ----- ----- Gross profit................................................ 49.8 50.7 Selling, general and administrative expenses................ 46.0 40.3 ----- ----- Income from operations...................................... 3.8 10.4 Foreign currency loss (gain)................................ 0.8 (0.5) Interest expense, net....................................... 0.9 1.1 ----- ----- Income before income taxes.................................. 2.1% 9.8% ===== =====
~~CONSOLIDATION OF EUROPEAN ENTITIES -- CHANGE IN REPORTING PERIOD~~

September 28, 2002 September 29, 2001
Three Six Three Six
Months Months Months Months
Net sales 89.7 % 89.2 % 88.7 % 88.8 %
Licensing revenue 10.3 10.8 11.3 11.2

Net revenues 100.0 100.0 100.0 100.0

Gross profit 50.1 50.0 48.0 49.2
Selling, general and administrative expenses 36.9 40.8 33.5 36.7

Income from operations 13.2 9.2 14.5 12.5
Foreign currency loss — 0.3 1.0 0.3
Interest expense, net 0.5 0.6 0.8 0.9

Income before income taxes 12.7 % 8.3 % 12.7 % 11.3 %

Consolidation of European Entities — Change in Reporting Period
Effective December 30, 2001, for reporting purposes the Company changed the fiscal ~~year ends~~years of certain of its European subsidiaries ~~as reported~~ in the consolidated financial statements to end on the Saturday closest to March 31 to conform with the fiscal year end of the Company. Previously, ~~certain of the~~these European subsidiaries were consolidated and reported on a three-month lag with a fiscal ~~year~~years ending December 31. Accordingly, we have included the ~~June 29,~~September 28, 2002 and March 30, 2002 balance sheets of ~~our wholly owned~~these European subsidiaries in the accompanying ~~June 29,~~September 28, 2002 and March 30, 2002, consolidated balance sheets. We also have consolidated the results of operations of ~~our wholly owned~~these European subsidiaries for the three and six months ended ~~June 29, 2002 and March 31, 2001 in the three months ended June 29,~~September 28, 2002 and June 30, 2001 in the three and six months ended September 28, 2002 and September 29, 2001 consolidated statements of ~~income~~operations and cash flows. Had ~~certain of the~~these European subsidiaries been consolidated on a consistent fiscal year basis for the three and six months ended ~~June 30,~~September 29, 2001, net revenues would have been ~~$473.3~~$659 million and $1,133 million, and net income would have been $15.7 million. The impact of consolidating the results of the European subsidiaries for three months ended June 30, 2001 as compared to a three month lag relates primarily to their first quarter being included rather then their fourth quarter. Traditionally, the first quarter for our European subsidiaries is weaker then their fourth quarter. THREE MONTHS ENDED JUNE 29, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001 $66 million and $82 million, respectively.
Three Months Ended September 28, 2002 Compared to Three Months Ended September 29, 2001
Net Sales.Net sales ~~decreased 10.2%~~increased 8.8% to ~~$413.9~~$574.6 million in the three months ended ~~June 29,~~September 28, 2002, from ~~$461.1~~$528.2 million in the three months ended ~~June 30,~~September 29, 2001. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended ~~June 30,~~September 28, 2001, net sales would have been ~~$419.6.~~$590.2 million.
     Wholesale net sales ~~decreased 23.8%~~increased 10.8% to ~~$186.7~~$310.7 million in the three-month period, from ~~$245.2~~$280.4 million in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended ~~June 30,~~September 28, 2001, wholesale net sales would have been ~~$201.8~~$341.2 million, ~~and the decrease would have been 7.5%.~~resulting in an 8.9% decrease. This decrease primarily reflects a ~~strategical stream lining~~strategic streamlining of the amount of product sold to the department ~~stores. In addition,~~stores and the elimination of the women’s Ralph Lauren Sport and the Lauren ~~classification line~~ for men ~~was discontinued which represented~~lines, resulting in a combined decrease of approximately ~~$5.0 million of wholesale net sales in the first quarter of fiscal 2002.~~$66.5 million. These decreases were offset by a ~~$23.0~~$43.2 million increase, or approximately ~~101.3%~~51.3%, in the European wholesale business which primarily reflects the acquisition in October 2001 of PRL Fashions of Europe S.R.L, ~~in October 2001,~~ which held licenses to sell ~~women's~~women’s Ralph Lauren apparel in Europe, ~~mens'~~men’s and ~~boys'~~boys’ Polo Ralph Lauren apparel in Italy and ~~men's~~men’s and ~~women's~~women’s Polo Jeans Co. collections in Italy. 13
     Retail sales increased ~~$11.2~~$16.0 million, ~~5.2%~~or 6.5%, to ~~$227.1~~$263.8 million in the three months ended ~~June 29,~~September 28, 2002, from ~~$215.9~~$247.8 million in the corresponding period in fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended ~~June 30,~~September 29, 2001, retail net sales
12
would have been ~~$217.8~~$248.9 million, and the increase would have been ~~4.3%~~6.0%. This increase is primarily driven by ~~the 7.6%~~a $9.5 million, or 5.7%, increase in comparable outlet store sales, which ~~were~~was offset by a ~~10.2%~~$6.6 million, or 8.8%, decrease in ~~our~~comparable full price ~~stores.~~store sales.
     At ~~June 29,~~September 28, 2002, we operated ~~237~~243 stores compared to ~~232~~231 stores inat the ~~first~~second quarter end of fiscal 2002. ~~The Company's~~At September 28, 2002 the Company’s retail group consisted of 3941 Polo Ralph Lauren stores, 5456 Club Monaco stores, 9394 full line Outlet stores, 2223 Polo Jeans Co. ~~outlet~~Outlet stores, 19 European Outlet stores and 10 Club Monaco Outlet stores. During the three months ended ~~June 29,~~September 28, 2002, the Company opened ~~three European outlet~~two Polo Ralph Lauren stores, ~~closed~~ one domestic outlet store, one Polo Jeans Co. Outlet store and ~~one Canadian~~two Club Monaco stores.
Licensing Revenue.Licensing revenue decreased ~~6.5%~~1.8% to ~~$53.1~~$66.3 million in the three months ended ~~June 29,~~September 28, 2002, from ~~$56.8~~$67.5 million in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended ~~June 30,~~September 29, 2001, licensing revenue would have been ~~$53.7~~$69.3 million, resulting in a ~~1.1%~~4.3% decrease. This decrease resulted from the elimination of the Italian royalties due to the acquisition in October 2001 of PRL Fashions of Europe S.R.L., which holds licenses to sell our women’s Ralph Lauren apparel in Europe, our men’s and boy’s Polo Ralph Lauren apparel in Italy, and our men’s and women’s Polo Jeans Co. collections in Italy.
Gross Profit.Gross profit as a percentage of net revenues ~~decreased~~increased to ~~49.8%~~50.1% in the three months ended ~~June 29,~~September 28, 2002, from ~~50.7%~~48.0% in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended ~~June 30,~~September 29, 2001, gross profit would have been ~~49.7%~~48.7%. ~~Decreased~~Improved gross profit was driven by better merchandise margins in the ~~wholesale business due to the sell through of product from the discontinued Lauren classification line for men and the RL Sport line women were offset by increased~~ domestic retail ~~merchandise margins.~~ businesses.
Selling, General and Administrative Expenses.Selling, general and administrative ("(“SG~~&A"~~&A”) expenses increased $37.1 million to $236.6 million, or 36.9%, of net revenues in the three months ended September 28, 2002, from 33.5% of net revenues in the corresponding period of fiscal 2002. Had certain of the Company’s European subsidiaries been reported on a consistent fiscal year basis for the three months ended September 29, 2001, SG&A expenses would have increased $31.1 million to 31.2% of net revenues. This increase is primarily due to increased operating expenses from the acquisition in October 2001 of PRL Fashions of Europe S.R.L, which held licenses to sell women’s Ralph Lauren apparel in Europe, men’s and boys’ Polo Ralph Lauren apparel in Italy and men’s and women’s Polo Jeans Co. collections in Italy, and higher selling salaries and related costs in connection with the expansion of the European retail business.
Interest Expense, net.Interest expense decreased to $2.9 million in the three months ended September 28, 2002, from $4.8 million in the comparable period in fiscal 2002. This decrease was primarily due to decreased borrowings as a result of significantly increased levels of cash and cash equivalents during the three months ended September 28, 2002 and repurchases of a portion of our outstanding Euro debt.
Income Taxes.The effective tax rate decreased to 36.5% in the three months ended September 28, 2002, from 36.8% in the corresponding period in fiscal 2002. This decline is primarily a result of the implementation of tax strategies.
Six Months Ended September 28, 2002 Compared to Six Months Ended September 29, 2001
Net Sales.Net sales decreased $0.9 million to $988.4 million in the six months ended September 28, 2002 from $989.3 million in the six months ended September 29, 2001. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the six months ended September 29, 2001, net sales would have been $1,009.8 million.
     Wholesale net sales decreased 5.4% to $497.4 million in the six-month period, from $525.6 million in the corresponding period in fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the six months ended September 29, 2001, wholesale net sales would have been $543.1 million and the decrease would have been 8.4%. This decrease primarily reflects a strategic streamlining of the amount of product sold to the department stores and the elimination of the women’s Ralph Lauren Sport and the Lauren for men lines, resulting in a combined decrease of approximately $106.8 million.
13
These decreases were offset by a $66.2 million increase, or approximately 61.9%, in the European wholesale business which primarily reflects the acquisition in October 2001 of PRL Fashions of Europe S.R.L, which held licenses to sell women’s Ralph Lauren apparel in Europe, men’s and boys’ Polo Ralph Lauren apparel in Italy and men’s and women’s Polo Jeans Co. collections in Italy.
     Retail sales increased $27.3 million, or 5.9%, to $491.0 million in the six months ended September 28, 2002, from $463.7 million in the corresponding period in fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the six months ended September 29, 2001, retail net sales would have been $466.8 million, and the increase would have been 5.2%. This increase is primarily driven by the $19.2 million, or 6.4% increase in comparable outlet store sales, which was offset by $14.9 million, or 9.8% decrease, in our full price stores.
     At September 28, 2002, we operated 243 stores compared to 231 stores at the second quarter end of fiscal 2002. At September 28, 2002, the Company’s retail group consisted of 41 Polo Ralph Lauren stores, 56 Club Monaco stores, 94 full line Outlet stores, 23 Polo Jeans Co. Outlet stores, 19 European Outlet stores and 10 Club Monaco Outlet stores. During the six months ended September 28, 2002, the Company opened three European outlet stores, two Polo Ralph Lauren stores, one domestic outlet store, one Polo Jeans Co. Outlet store, two Club Monaco stores, and closed one domestic outlet store and one Club Monaco store.
Licensing Revenue.Licensing revenue decreased 3.9% to $119.4 million in the three months ended September 28, 2002, from $124.3 million in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the three months ended September 29, 2001, licensing revenue would have been $123.0 million, resulting in a 2.9% decrease. This decrease resulted from the elimination of the Italian royalties due to the acquisition in October 2001 of PRL Fashions of Europe S.R.L., which holds licenses to sell our women’s Ralph Lauren apparel in Europe, our men’s and boys’ Polo Ralph Lauren apparel in Italy, and our men’s and women’s Polo Jeans Co. collections in Italy.
Gross Profit.Gross profit as a percentage of net revenues increased to ~~46.0%~~50.0% in the ~~three~~six months ended ~~June 29,~~September 28, 2002, from ~~40.3%~~49.2% in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the six months ended September 29, 2001, gross profit would have been 49.1%. Improved gross profit was driven by better merchandise margins in the domestic retail businesses.
Selling, General and Administrative Expenses.SG&A expenses increased $43.3 million to $451.5 million, to 40.8% of net revenues in the six months ended September 28, 2002, from 36.7% of net revenues in the corresponding period of fiscal 2002. Had certain of the European subsidiaries been reported on a consistent fiscal year basis for the ~~three~~six months ended ~~June 30,~~September 29, 2001, SG&A expenses would have increased $39.4 million, or as a percentage of net revenues would have been ~~43.6%~~36.4%, ~~an increase~~a decrease of ~~2.4%.~~30 basis points. This increase is primarily due to ~~higher selling salaries and related costs related to the increase in the European retail business combined with~~ increased operating expenses from the acquisition in October 2001 of PRL Fashions of Europe ~~S.R.L in October 2001,~~S.R.L., which held licenses to sell ~~women's~~women’s Ralph Lauren apparel in Europe, ~~mens'~~men’s and ~~boys'~~boys’ Polo Ralph Lauren apparel in Italy and ~~men's~~men’s and ~~women's~~women’s Polo Jeans Co. collections in ~~Italy.~~ Italy and higher selling salaries and related costs in connection with the expansion of the European retail business.
Interest ~~and Other Expense.~~ Expense, net.Interest expense decreased to ~~$4.0~~$6.9 million in the ~~three~~six months ended ~~June 29,~~September 28, 2002, from ~~$5.9~~$10.7 million in the comparable period in fiscal 2002. This decrease was primarily due to decreased borrowings as a result of significantly increased levels of cash and cash equivalents during the ~~three~~six months ended ~~June 29,~~September 28, 2002 and ~~decreased borrowings during the current quarter as a result of~~ repurchases of a portion of our outstanding Euro debt.
Income Taxes.The effective tax rate decreased to 36.5% in the ~~three~~six months ended ~~June 29,~~September 28, 2002, from ~~38.5%~~37.5% in the corresponding period in fiscal 2002. This decline is primarily as a result of the implementation of tax strategies. ~~LIQUIDITY AND CAPITAL RESOURCES~~
Liquidity and Capital Resources
     Our cash requirements primarily derive from working capital needs, construction and renovation of shop-within-shops, retail expansion, acquisitions, and other corporate activities. Our main sources of liquidity are cash flows from operations, credit facilities and other borrowings.
14
     Net cash provided by operating activities increased to ~~$134.3~~$139.8 million in the ~~three~~six months ended ~~June 29,~~September 28, 2002, from ~~$84.1~~$126.2 million in the comparable period in fiscal 2002. This increase was primarily due to a ~~significant~~ decrease in accounts receivable ~~and accounts payable~~offset by increased inventories, both of which were primarily ~~relates to the seasonality~~caused by seasonal differences reflected in the ~~European business from the~~two periods as a result of certain European subsidiaries being consolidated on a current basis in the ~~three~~six months ended ~~June 29,~~September 28, 2002 as compared to a ~~three month~~three-month lag in the comparable period in fiscal 2002. 14
     Net cash used in investing activities decreased to ~~$11.7~~$38.3 million in the ~~three~~six months ended ~~June 29,~~September 28, 2002 as compared to ~~$17.1~~$41.8 million in the comparable period in fiscal 2002 primarily due to the ~~decrease in capital expenditures of approximately $3.7 million compared to the same period~~increase in the ~~prior year.~~cash surrender value of officers’ life insurance.
     Net cash provided by financing activities was ~~$5.3~~$3.9 million in the ~~three~~six months ended ~~June 29,~~September 28, 2002 as compared to net cash used in financing activities of ~~$38.6~~$14.6 million in the comparable period in fiscal 2002. This change is primarily due to the proceeds from short-term borrowings of $6.3 million and the proceeds from the issuance of common stock of ~~$4.1~~$5.6 million, ~~and $9.3 of proceeds from short-term borrowings~~ offset by the repurchase of $7.7 million of our Euro debt.
     In June 1997, we entered into a credit facility with a syndicate of banks which provides for a $225.0 million revolving line of credit available for the issuance of letters of credit, acceptances and direct borrowings and matures on December 31, 2002. Borrowings under the syndicated bank credit facility bear interest, at our option, at a base rate equal to the higher of the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial lending rate of ~~The~~JP Morgan Chase ~~Manhattan~~ Bank in effect from time to time, or at the Eurodollar Rate (LIBOR) plus an interest margin based on the Federal Reserve Boards ~~"Eurocurrency liabilities"~~“Eurocurrency liabilities” reserve requirements. The margin was ~~0.875%~~0.75% as of ~~June 29,~~September 28, 2002.
     In March 1999, in connection with our acquisition of Club Monaco, we entered into a $100.0 million senior credit facility with a syndicate of banks consisting of a $20.0 million revolving line of credit and an $80.0 million term loan. The revolving line of credit is available for working capital needs and general corporate purposes and matures on June 30, 2003. The term loan was used to finance the acquisition of all of the outstanding common stock of Club Monaco and to repay indebtedness of Club Monaco. The term loan is also repayable on June 30, 2003. Borrowings under the 1999 senior credit facility bear interest, at our option, at a Base Rate equal to the higher of the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent and the prime commercial lending rate of ~~The~~JP Morgan Chase ~~Manhattan~~ Bank in effect from time to time, or at the Eurodollar Rate (LIBOR) plus an interest margin based on the Federal Reserve ~~Board's "Eurocurrency liabilities"~~Board’s “Eurocurrency liabilities” reserve requirements. The margin was ~~0.875%~~0.75% as of ~~June 29,~~September 28, 2002. In April 1999, we entered into interest rate swap agreements with an aggregate notional amount of $100.0 million to convert the variable interest rate on our 1999 senior credit facility to a fixed rate of 5.5%.
     Our 1997 bank credit facility and our 1999 senior bank credit facility require that we maintain: ~~- a minimum consolidated net worth, and -~~
• a minimum consolidated net worth, and
• a maximum consolidated indebtedness ratio.
     Each of these credit facilities also contain covenants that, subject to specified exceptions, restrict our ability to: - make capital expenditures, - sell or dispose of our assets, - incur additional debt, - incur contingent liabilities and liens, - merge with or acquire other companies or be subject to a change of control, - make loans or advances or stock repurchases, - engage in transactions with affiliates, and -
• make capital expenditures,
• sell or dispose of our assets,
• incur additional debt,
• incur contingent liabilities and liens,
• merge with or acquire other companies or be subject to a change of control,
• make loans or advances or stock repurchases,
15
• engage in transactions with affiliates, and
• make investments.
     Upon the occurrence of an event of default under each of these credit facilities, the lenders may cease making loans, terminate the credit facility, and declare all amounts outstanding to be immediately due and payable. The credit facilities specify a number of events of default, many of which are subject to applicable grace or cure periods, including, among others, the failure to make timely principal and interest payments, to satisfy the covenants, or to maintain the required financial performance requirements described above. 15
     Additionally, the agreements provide that an event of default will occur if Mr. Ralph Lauren and related entities fail to maintain a specified minimum percentage of the voting power of our common stock.
     As of September 28, 2002, the Company was in compliance with all financial and non-financial debt covenants.
     We are currently in the process of negotiating a new credit facility which would replace the 1997 and 1999 credit facilities. The proposed credit facility, which would be with a syndicate of banks, would provide for a $300.0 million revolving line of credit (subject to increase to $375 million) available for the issuance of letters of credit and direct borrowings, and would expire on the third anniversary of its effective date. It is contemplated that borrowings under the proposed facility would bear interest, at our option, at a base rate equal to the higher of the Federal Funds Rate, as published by the Federal Reserve Bank of New York, plus 1/2 of one percent, and the prime commercial lending rate of JP Morgan Chase Bank in effect from time to time, or at the Eurodollar Rate (LIBOR) plus an interest margin based on the Federal Reserve Boards “Eurocurrency liabilities” reserve requirements. It is also contemplated that the credit facility will contain requirements, covenants and events of default of the types described above. Although no assurance can be given as to the consummation of the proposed credit facility or its final terms, we currently expect to enter into the facility in November 2002.
     In November 1999, we issued Euro 275.0 million of 6.125% notes due November 2006. Our Euro debt is listed on the London Stock Exchange. The net proceeds from the Euro offering were $281.5 million, based on the Euro exchange rate on the issuance date. Interest on the Euro debt is payable annually. A portion of the net proceeds from the issuance was used to acquire Poloco while the remaining net proceeds were retained for general corporate purposes.
     In June 2002, we entered into a cross currency rate swap, which ~~terminates~~expires November 2006. The cross currency rate swap is being used to convert Euro 105.2 million, 6.125% fixed rate borrowings into $100.0 million, LIBOR plus 1.24% variable rate borrowings. We entered into the cross currency rate swap to minimize the impact of foreign exchange ~~fluctuations in both principal~~ and interest ~~payments resulting from the Euro debt; and to minimize the impact of changes in~~rate fluctuations on the fair value of the Euro ~~debt due to changes in LIBOR, the benchmark interest rate.~~debt. The swap has been designated as a fair value hedge under SFAS 133. Hedge ineffectiveness is measured as the difference between the respective gains or losses recognized in earnings from the changes in the fair value of the cross currency rate swap and the Euro debt; and was ~~de minimis~~deminimis for the ~~three~~six months ended ~~June 29,~~September 28, 2002.
     In fiscal 2003, we repurchased Euro 8.3 million, or $7.7 million based on Euro exchange rates, of our outstanding Euro debt.
     As of ~~June 29,~~September 28, 2002, we had ~~$44.9~~$40.4 million outstanding in direct borrowings, $80.0 million outstanding under the term loan and ~~$225.5~~$226.6 million outstanding in Euro debt based on the quarter end Euro exchange rate. We were also contingently liable for ~~$26.1~~$32.5 million in outstanding letters of credit primarily related to commitments for the purchase of inventory. The weighted-average interest rate on our borrowings at ~~June 29,~~September 28, 2002 was ~~5.9%~~5.7%.
     We recognize foreign currency gains or losses in connection with our Euro debt based on fluctuations in foreign exchange rates. We recorded ~~$3.5~~$0.2 million and $3.8 million in foreign currency loss in the three and six months ended ~~June 29,~~September 28, 2002, respectively, and $5.7 million and $2.8 million in foreign currency ~~gains~~loss in the three and six months ended ~~June 30, 2001.~~September 29, 2001, respectively.
16
     Total cash outlays related to the ~~fiscal~~ 2001 Operational Plan are expected to be approximately $40.7 million, ~~$27.7~~$33.9 million of which have been paid through ~~June 29,~~September 28, 2002. We completed the implementation of the operational plan in fiscal 2002 and expect to settle the remaining liabilities in fiscal 2003.
     Total cash outlays related to the 1999 Restructuring Plan are approximately $39.5 million, ~~$38.6~~$39.0 million of which has been paid through ~~June 29,~~September 28, 2002. We completed the implementation of the operational plan in fiscal 2002 and expect to settle the remaining liabilities in fiscal 2003.
     Capital expenditures were ~~$12.5~~$41.9 million and ~~$16.2~~$40.2 million infor the ~~three~~six months ended ~~June 29,~~September 28, 2002 and ~~June 30, 2001, respectively.~~September 29, 2001. Capital expenditures primarily reflect costs associated with the following: - The expansion of our retail operations; - make the shop-within-shops development program which includes new shops, renovations and expansions; - the expansion of our distribution facilities; - our information systems; and - other capital projects. On October 31, 2001, the Company completed the acquisition of substantially all of the assets of PRL Fashions of Europe S.R.L., which holds licenses to sell our women's Ralph Lauren apparel in Europe, our men's and boys' Polo Ralph Lauren apparel in Italy, and our men's and women's Polo Jeans Co. collections in Italy. The purchase price was approximately $22.0 million in cash plus the assumption of certain liabilities and earn-out payments based on achieving profitability targets over the first three years, with a guaranteed minimum annual payment of $3.5 million each year. 16
• the expansion of our retail operations;
• shop-within-shops development program which includes new shops, renovations and expansions;
• the expansion of our distribution facilities;
• our information systems; and
• other capital projects.
     In March 1998, the Board of Directors authorized the repurchase, subject to market conditions, of up to $100.0 million of our Class A common stock. Share repurchases were to be made in the open market over a two-year period which commenced April 1, 1998. The Board of Directors has extended the stock repurchase program through March 31, 2004. Shares acquired under the repurchase program will be used for stock option programs and for other corporate purposes. As of ~~June 29,~~September 28, 2002, we had repurchased 3,887,094 shares of our Class A common stock at an aggregate cost of $73.6 million. As of September 28, 2002, we had approximately $26.4 million remaining in our stock repurchase program.
We believe that cash from ongoing operations and funds available under our credit facilities and replacement facilities that we will be able to obtain, and from our Euro offering will be sufficient to satisfy our current level of operations, capital requirements, the stock repurchase program and other corporate activities for the next 12 months. We do not currently intend to pay dividends on our common stock in the next 12 months. ~~SEASONALITY OF BUSINESS~~
Seasonality of Business
     Our business is affected by seasonal trends, with higher levels of wholesale sales in our second and fourth quarters and higher retail sales in our second and third quarters. These trends result primarily from the timing of seasonal wholesale shipments to retail customers and key vacation travel and holiday shopping periods in the retail segment. As a result of the growth in our retail operations and licensing revenue, historical quarterly operating trends and working capital requirements may not be indicative of future performances. In addition, fluctuations in sales and operating income in any fiscal quarter may be affected by the timing of seasonal wholesale shipments and other events affecting retail sales.
     Effective December 30, 2001, for reporting purposes the Company changed the fiscal ~~year ends~~years of certain of its European subsidiaries ~~as reported~~ in the consolidated financial statements to end on the Saturday closest to March 31 to conform with the fiscal year end of the Company. Previously, ~~certain of the~~these European subsidiaries were consolidated and reported on a three-month lag with a fiscal ~~year~~years ending December 31. Accordingly, we have included the ~~June 29,~~September 28, 2002 and March 30, 2002 balance sheets of ~~our wholly owned~~these European subsidiaries in the accompanying ~~June 29,~~September 28, 2002 and March 30, 2002, consolidated balance sheets. We also have consolidated the results of operations of ~~our wholly owned~~these European subsidiaries for the three and six months ended ~~June 29, 2002 and March 31, 2001 in the three months ended June 29,~~September 28, 2002 and June 30, 2001 in the three and six months ended September 28, 2002 and September 29, 2001 consolidated statements of ~~income~~operations and cash flows. Had ~~certain of the~~theses European subsidiaries been consolidated on a consistent fiscal year basis for the three and six months ended ~~June 30,~~September 29, 2001, net revenues would have been ~~$473.3~~$659.4 million and $1,132.8 million, and net income would have been ~~$15.7 million. NEW ACCOUNTING STANDARDS In July 2001, the Financial~~$66.1 million and $81.8 million, respectively.
17
Critical Accounting ~~Standards Board, or "FASB", issued Statement~~Policies and Estimates
     Our discussion of ~~Financial Accounting Standards, or SFAS No. 141~~results of operations and SFAS No. 142. In addition to requiring the use of the purchase method for all business combinations, SFAS No. 141 requires intangible assets that meet certain criteria to be recognized as assets apart from goodwill. SFAS No. 142 addresses accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. Intangible assets that have finite lives will continue to be amortized over their useful lives. SFAS No. 141 and SFAS No. 142 were effective for the Company's first quarter in the fiscal year ending March 29, 2003 or for any business combinations initiated after June 30, 2001. Effective March 31, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the statement of financial ~~position, and no longer be amortized but tested for impairment on a periodic basis. 17~~ In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill effective March 31, 2002. A reconciliation of previously reported net income and earnings per share to the amounts adjusted for the exclusion of goodwill amortization net of the related income tax effect follows:
THREE MONTHS ENDED ------------------- JUNE 29, JUNE 30, 2002 2001 -------- -------- (IN MILLIONS) Reported net income......................................... $6,460 $31,051 ------ ------- Goodwill amortization, net of tax........................... 0 1,255 ------ ------- Adjusted net income......................................... $6,460 $32,306 ------ ------- Adjusted net income per share basic and diluted............. $ 0.07 $ 0.34 ====== =======
The provisions of SFAS No. 142 also require the completion of a transitional impairment test within six months of adoption, with any impairments treated as a cumulative effect of a change in accounting principle. We expect to complete the transitional impairment test during the quarter ending September 28, 2002. In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for the first quarter in the fiscal year ending April 3, 2004. The Company does not expect the adoption of this pronouncement to have a material impactcondition relies on our consolidated ~~results~~financial statements that are prepared based on certain critical accounting policies that require management to make judgements and estimates that are subject to varying degrees of operations or financial position. In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assetsuncertainty. We believe that investors need to be ~~disposed of. SFAS No. 144 supersedes FASB Statement No. 121, Accounting~~aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risks described in our report on Form 10-K for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. However, SFAS No. 144 retains the fundamental provisions of Statement 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. Effective March 31, 2002, the Company adopted this pronouncement and there was no material impact on our consolidated results of operations. In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. In addition to amending and rescinding other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions, SFAS No. 145 precludes companies from recording gains and losses from the extinguishment of debt as an extraordinary item. SFAS No. 145 is effective for our first quarter in the fiscal year ending April 3, 2004. The Company does not expect the adoption of this pronouncement to have a material impact on our consolidated results of operations or financial position. In April 2001, the FASB's Emerging Issues Task Force reached a consensus on Issue No. 00-25, Vendor Income Statement Characteristics of Consideration Paid to a Reseller of the Vendor's Products. In November 2001, EITF No. 00-25 was codified by the Emerging Issues Task Force in EITF Issue No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products). EITF No. 01-09 concluded that consideration from a vendor to a reseller of the vendor's products is presumed to be a reduction of the selling prices of the vendor's products and, therefore, should be characterized as a reduction of revenue when recognized in the vendor's income statement. That presumption is overcome and the consideration characterized as a cost incurred if a benefit is or will be received from the recipient of the consideration if certain conditions are met. The Company adopted this pronouncement in our fourth quarter of the fiscal year ended March 30, 2002 are those that depend most heavily on these judgements and estimates. As of September 28, 2002, there ~~was~~have been no ~~impact on our consolidated results~~material changes to any of ~~operations. 18~~ the critical accounting policies contained therein other than the adoption of the new accounting standards as discussed herein.
New Accounting Standards
In June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal ~~Activities.~~Activities. The standard ~~requires~~required companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or ~~other~~ exit or disposal activity. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. ~~The Company does~~We do not expect the adoption of this pronouncement to have a material effect on the consolidated results of operations or financial position. ~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.~~
Item 3.      Quantitative and Qualitative Disclosures About Market Risk
The market risk inherent in our financial instruments represents the potential loss in fair value, earnings or cash flows arising from adverse changes in interest rates or foreign currency exchange rates. We manage these exposures through operating and financing activities and, when appropriate, through the use of derivative financial instruments. Our policy allows for the use of derivative financial instruments for identifiable market risk exposures, including interest rate and foreign currency fluctuations. During the ~~three~~six months ended ~~June 29,~~September 28, 2002, there were significant fluctuations in the value of the Euro. We entered into a cross currency rate swap in June 2002 to minimize the impact of foreign exchange ~~fluctuations on the Euro debt~~ and ~~the impact of fluctuations in the~~ interest rate fluctuations on the fair value of the Euro debt. Since March 30, 2002, other then disclosed above, there have been no significant changes in our interest rate and foreign currency exposures, changes in the types of derivative instruments used to hedge those exposures, or significant changes in underlying market conditions. 19
Item 4.      Controls and Procedures
     During the quarter ended September 28, 2002, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chairman and Chief Executive Officer and the Senior Vice President of Finance and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the Chairman and Chief Executive Officer and the Senior Vice President of Finance and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures (as defined in Rule 13a-14 promulgated under the Securities Exchange Act of 1934) are effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of completion of their evaluation.
18
PART II.     OTHER INFORMATION ~~ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits -- 10.1 Amended~~
Item 1.      Legal Proceedings
     With regard to the Saipan class action litigation referred to in the fiscal 2002 Form 10-K, subsequent to the date of the fiscal 2002 Form 10-K, most of the remaining defendants agreed to a settlement with plaintiffs. A hearing on final court approval of the settlements is expected to be held in the spring of 2003.
On September 18, 2002, an employee at one of the Company’s stores, Toni Young, filed a lawsuit against Polo Retail, LLC and ~~Restated Employment Agreement, effective as~~the Company in the United States District Court for the District of ~~July 23, 2002, between~~Northern California alleging violations of California antitrust and labor laws. The plaintiff purports to represent a class of employees who have allegedly been injured by Polo’s requirement that certain retail employees purchase and wear Polo Ralph Lauren ~~Corporation~~merchandise as a condition of their employment. The complaint, as amended, seeks an unspecified amount of actual and ~~Roger N. Farah.~~ punitive damages, disgorgement of profits and injunctive and declaratory relief. The Company answered the amended complaint on November 4, 2002, and believes that the plaintiff’s claims are substantially without merit and intends to defend against them vigorously.
Item 4.      Submission of Matters to a Vote of Security-Holders
(a) The Annual Meeting of Stockholders of the Company was held on August 15, 2002.
(b) The following directors were elected at the Annual Meeting of Stockholders to serve until the 2003 Annual Meeting and until their respective successors are duly elected and qualified:
Class A Directors:
Arnold H. Aronson
Dr. Joyce F. Brown

Class B Directors:
Ralph Lauren
F. Lance Isham
Roger N. Farah
Frank A. Bennack, Jr.
Joel L. Fleishman
Judith A. McHale
Terry S. Semel
Class C Director:
Richard A. Friedman
(c)(i) Each person elected as a director received the number of votes (shares of Class B Common Stock are entitled to ten votes per share) indicated beside his or her name:

Number of Number of
Votes For Votes Withheld
Class A Directors:

Arnold H. Aronson 37,912,741 560,301
Dr. Joyce F. Brown 38,229,170 243,872
Class B Directors:

Ralph Lauren 432,800,210 —
F. Lance Isham 432,800,210 —
Roger N. Farah 432,800,210 —
Frank A. Bennack, Jr. 432,800,210 —
Joel L. Fleishman 432,800,210 —
Judith A. McHale 432,800,210 —
19
Number of Number of
Votes For Votes Withheld
Terry S. Semel 432,800,210 —
432,800,210 —
Class C Director:
Richard A. Friedman 10,570,979 —
(ii) 480,581,915 votes were cast for, and 911,191 votes were cast against, the approval of amendments to the Company’s Executive Officer Annual Incentive Plan. Abstentions totaled 351,125; there were no broker non-votes.
(iii) 481,812,869 votes were cast for, and 12,670 votes were cast against, the ratification of the selection of Deloitte & Touche LLP as the independent auditors of the Company for the year ending March 29, 2003. Abstentions totaled 18,692; there were no broker non-votes.
Item 6.     Exhibits and Reports on Form 8-K --
(a) Exhibits —
10.1 Polo Ralph Lauren Corporation Executive Officer Annual Incentive Plan as Amended as of August 15, 2002.
99.1 Certification of Ralph Lauren Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Gerald M. Chaney Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K —
     The Company filed no reports on Form 8-K in the quarter ended ~~June 29,~~September 28, 2002.
20
SIGNATURES CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Polo Ralph Lauren Corporation (the "Company") on Form 10-Q for the period ended June 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ralph Lauren, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ RALPH LAUREN -------------------------------------- Ralph Lauren August 13, 2002 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Polo Ralph Lauren Corporation (the "Company") on Form 10-Q for the period ended June 29, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerald M. Chaney, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ GERALD M. CHANEY -------------------------------------- Gerald M. Chaney August 13, 2002 21
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ~~POLO RALPH LAUREN CORPORATION By: /s/ GERALD M. CHANEY ------------------------------------~~
POLO RALPH LAUREN CORPORATION
By: /s/ GERALD M. CHANEY
Gerald M. Chaney
Senior Vice President of Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: November 12, 2002
21
CERTIFICATION
I, Ralph Lauren, certify that:
     1.     I have reviewed this quarterly report on Form 10-Q of Polo Ralph Lauren Corporation;
     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     3.     Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
     c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ RALPH LAUREN
Ralph Lauren
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 2002
22
CERTIFICATION
I, Gerald M. Chaney, ~~Senior Vice President~~certify that:
     1.     I have reviewed this quarterly report on Form 10-Q of ~~Finance~~Polo Ralph Lauren Corporation;
     2.     Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
     3.     Based on my knowledge, the financial statements, and ~~Chief Financial Officer~~ other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
     4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and
     c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
     5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):
     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and
     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and
     6.     The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ GERALD M. CHANEY
Gerald M. Chaney
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: ~~August 13,~~November 12, 2002 22
23


Delaware		13-2622036 ~~(State~~
(State or other jurisdiction of ~~(I.R.S. Employer Identification No.)~~ incorporation or organization)		(I.R.S. Employer Identification No.)

650 ~~MADISON AVENUE,~~ Madison Avenue, New York, New York		10022 ~~NEW YORK, NEW YORK (Zip Code) (Address~~
(Address of principal executive offices)		(Zip Code)


CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security-Holders
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATION
EXHIBIT 10.1
EXHIBIT 99.1
EXHIBIT 99.2


		Page

PART 1. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Consolidated Balance Sheets as of ~~June 29,~~September 28, 2002 (Unaudited) and March 30, ~~2002.........................~~ 2002		2
	Consolidated Statements of Operations for the three and six months ended ~~June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001 (Unaudited)~~......~~		3
	Consolidated Statements of Cash Flows for the three months ended ~~June 29,~~September 28, 2002 and ~~June 30,~~September 29, 2001 (Unaudited)~~...... 4-5~~		4
	Notes to Consolidated Financial ~~Statements................ 6-11~~ Statements		5-10
Item 2. ~~Management's~~	Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations....................... 12-19~~ Operations		11-18
Item 3.	Quantitative and Qualitative Disclosures about Market ~~Risk............................................... 19~~ Risk		18
Item 4.	Controls and Procedures		18

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		19
Item 4.	Submission of Matters to a Vote of Security-Holders		19-20
Item 6.	Exhibits and Reports on Form ~~8-K...................~~ 8-K		20
Signatures			21
Certifications			22-23


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 28, 2002

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934