Accrued expenses for employee insurance, workers’ compensation, contracted advertising, professional fees, and other outstanding Company obligations are assessed based on claims experience and statistical trends, open contractual obligations, and estimates based on projections and current requirements.

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

Assets and liabilities of non-U.S. subsidiaries have been translated at period-end exchange rates. Revenues and expenses have been translated at average rates of exchange in effect during the period. Resulting translation adjustments have been included in accumulated

A summary of the impact of the restatement to properly account for leases and to consolidate RL Media on the consolidated income statements for the three months ended ~~March 31, 2001.~~July 3, 2004 is as follows:

~~In November 2003, we acquired a license for the use of trademarks for $7.5 million. This license was accounted for as a finite lived intangible asset and is being amortized over 10 years.~~

In February 2003, we acquired a 50% controlling interest in the Japanese master licensee for our men’s, women’s, kids, home and jeans business in Japan for approximately $24.1 million. In connection with this acquisition, we recorded tangible assets of $11.0 million, an intangible license valued at $9.9 million and liabilities assumed of $8.5 million based on estimated fair values as determined by management utilizing information available at the time. At March 29, 2003, goodwill of $13.0 million was recognized for the excess of the purchase price plus transaction costs of $1.3 million over the preliminary estimate of fair market value of the net assets acquired. During Fiscal 2004, we incurred an additional $3.5 million of transaction costs, which have been included in goodwill, and finalized our accounting for the acquisition, which resulted our recording an additional $0.5 million of goodwill.

All of the revenues and expenses for the Japanese master licensee are included in the Company’s consolidated statements of operations because management has concluded that certain rights granted to us in the stockholders agreement give us perpetual legal control over our Japanese master licensee. For the three and nine months ended January 1, 2005, we have recorded minority interest expense of $0.8 million and $3.2 million, respectively, to reflect the share of earnings allocable to the 50% minority interest holder in the Japanese master license. These amounts are included in Other (income) expense, net in the Consolidated Statements of Operations.

Also, in February 2003, we acquired an 18% equity interest in the company which holds the sublicenses for the Polo Ralph Lauren men’s, women’s and jeans business in Japan for approximately $47.6 million. In May 2003, we paid $5.4 million to acquire an additional 2% equity interest in this company. For the three and nine months ended January 1, 2005, we recorded $2.6 million and $5.8, respectively, of equity investment income related to this investment. These amounts are included in Other (income) expense, net in the Consolidated Statements of Operations.

On October 31, 2001, we completed the acquisition of substantially all of the assets of PRL Fashions of Europe S.R.L. During Fiscal 2005, ~~and Fiscal 2004,~~an additional ~~payments were~~payment was made on the earn-out, ~~payment calculations,~~ resulting in ~~increases~~an increase in goodwill of approximately $1.3 ~~million and $1.0 million, respectively.~~million.

The carrying value of indefinite life intangible assets as of ~~January 1,~~July 2, 2005 was $1.5 million and relates to ~~an owned~~a purchased trademark. Finite life intangible assets as of ~~January 1,~~July 2, 2005 and April ~~3, 2004,~~2, 2005, subject to amortization, are comprised of the following:

Our credit facility also contains covenants that, subject to specified exceptions, restrict our ability to:


	•	sell or dispose of assets, including equity interests;

	•	merge with or acquire other companies, liquidate or dissolve;

	•	engage in businesses that are not a related line of business;

	•	make loans, advances or guarantees;

	•	engage in transactions with affiliates; and

	•	make investments.

The income tax effect related to foreign currency translation adjustments and unrealized gains and losses on cash flow and foreign currency hedges, was a charge of $2.2 million and a benefit of $11.9 million in the three months ended January 1,2005, respectively. The income tax effect related to foreign currency translation adjustments and unrealized gains and losses on cash flow and foreign currency hedges was a charge of $0.2 million and a benefit of $9.3 million for the three months ended December 27, 2003, respectively.

The income tax effect related to foreign currency translation adjustments and unrealized gains and losses on cash flow and foreign currency hedges, was a charge of $3.1 million and a benefit of $14.0 million in the nine months ended January 1, 2005, respectively.

We are subject to various claims relating to allegations of a security breach of our ~~position~~retail point of sale system, including fraudulent credit card charges, the cost of replacing cards and related monitoring expenses and other related claims. The Company is ~~correct~~unable to predict whether further claims will be asserted. The Company has contested and will continue to vigorously contest the claims made against it and continues to explore its defenses and possible claims against others. The Company recorded a reserve of $6.2 million representing management’s best estimate of the loss incurred in the fourth quarter of Fiscal 2005 relating to this matter.

~~claim, denying the allegations set forth therein.~~ On November 1, 2004, ~~after conducting several hearings,~~ the arbitral ~~tribunal~~panel of the International Centre for Dispute Resolution hearing the arbitration between us and the United States Polo Association, United States Polo Association Properties, Inc., Global Licensing Sverige and Atlas Design AB (collectively, “USPA”) in Sweden rendered a decision rejecting the relief sought by USPA and holding that ~~USPA’s~~their so-called Horseman symbol infringes on our trademark and other rights. The arbitral tribunal awarded us damages in excess of ~~3,500,000~~3.5 million Swedish Krona, or $0.4 million, and ordered USPA to discontinue the sale of, and destroy all remaining stock of, clothing bearing its Horseman symbol in Sweden.

Our net revenues and income from operations for the three ~~and nine~~ months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003~~July 3, 2004 for each segment were as follows:

In ~~May 2004,~~January 2003, the FASB issued ~~FSP FAS 106-2 to~~Financial Interpretation No. (“FIN”) 46, “Consolidation of Variable Interest Entities” which was amended by FIN 46R in December, 2003. A variable interest entity is a corporation, partnership, trust or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights, or (b) has equity investors that do not provide ~~guidance on accounting~~sufficient financial resources for the ~~effects~~entity to support its activities. Historically, entities generally were not consolidated unless the entity was controlled through voting interests. FIN 46R changes that by requiring a variable interest entity to be consolidated by a company if that company is subject to a majority of the ~~Medicare Prescription Drug, Improvement~~risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. A company that consolidates a variable interest entity is called the “primary beneficiary” of that entity. FIN 46R also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46R apply immediately to variable interest entities created after January 31, 2003. The consolidation requirements of FIN 46R apply to existing entities in the first fiscal year or interim period beginning after December 15, 2003. Also, certain disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The adoption of FIN 46R required us to consolidate the assets and ~~Modernization Act~~liabilities of 2003, to employers that sponsor post-retirement health care plans that provide prescription drug benefits. The Company does not sponsor a post-retirement healthcare plan. Consequently this pronouncement has no impact on the Company’s financial position or results of operations.

~~POLO RALPH LAUREN CORPORATION~~

RL Media. See Note 2 regarding our interest in Ralph Lauren Media, LLC.


16.	Subsequent Event

On July 15, 2005, the Company consummated its agreement to acquire from Reebok International, Ltd all the issued and outstanding shares of capital stock of Ralph Lauren Footwear Co., Inc., its global licensee for men’s, women’s and children’s footwear, as well as certain foreign assets owned by affiliates of Reebok International Ltd (the “Footwear Business”). The purchase price for the acquisition was approximately $108 million in cash, subject to certain post closing adjustments. Payment of the Purchase Price was funded by cash on hand. In addition, the Footwear Licensee and certain of its affiliates have entered into a transition services agreement with the Company to provide a variety of operational, financial and information systems services over a period of twelve to eighteen months.

POLO RALPH LAUREN CORPORATION


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*

The following discussion and analysis is a summary and should be read together with our ~~Consolidated Financial Statements~~consolidated financial statements and ~~related~~the notes ~~thereto~~ included elsewhere in this 10-Q. We utilize a 52-53 week ~~Fiscal~~fiscal year ending on the Saturday nearest March 31. Fiscal ~~2005~~2006 will end on April 1, 2006 (“Fiscal 2006”) and reflects a 52 week period. Fiscal 2005 ended April 2, 2005 (“Fiscal 2005”) and reflects a 52 week period. ~~Fiscal 2004 ended April 3, 2004 (“Fiscal 2004”) and reflects a 53 week period.~~

~~Certain~~Various statements in this Form 10-Q, ~~and~~ in future filings with the Securities and Exchange Commission, in our press releases and in oral statements made by or with the approval of authorized personnel constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations about our future operations, results or financial condition and are generally indicated by words or phrases such as “anticipate,” “estimate,” “expect,” “project,” “we believe,” “is or remains optimistic,” “currently envisions” and similar words or phrases and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: risks associated with a general economic downturn and other events leading to a reduction in discretionary consumer spending; risks associated with implementing our plans to enhance our worldwide luxury retail business, inventory management ~~program~~ and operating ~~efficiency initiatives; risks associated with our start-up of the Lauren Line;~~efficiencies; 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 mergers and acquisitions and the extending of credit; risks associated with our dependence on our licensing partners for a substantial portion of our net income and a lack of operational and financial control over licensed businesses; risks associated with financial ~~distress~~condition of licensees, including the impact on our net income and business of one or more licensees’ 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; uncertainties relating to our ability to implement our growth strategies or successfully integrate acquired businesses; risks associated with our entry into new markets, either through internal development activities or through acquisitions; risks associated with ~~change~~changes in import quotas, other restrictions ~~and~~or tariffs; risks associated with the possible adverse impact of our unaffiliated manufacturers’ inability to manufacture products 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, ~~(including~~including foreign currency ~~fluctuations);~~fluctuations; risks related to current or future litigation or our ability to establish and protect our trademarks and other proprietary rights; risks related to fluctuations in foreign currency affecting our foreign subsidiaries’ and foreign licensees’ results of operations, 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, the anti-takeover effect of our two classes of common stock and the potential impact of stock repurchases. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

We operate in three ~~business~~integrated segments: wholesale, retail and licensing.

Wholesale consists of women’s, men’s and children’s ~~apparel that we design and market worldwide. In our wholesale operations, we offer multiple lines that are directed by teams~~apparel. Teams comprising design, merchandising, sales and production staff ~~who~~ work together to ~~conceive,~~ develop ~~and merchandise~~ product groupings that are organized to convey a variety of design concepts. This segment includes the ~~core~~ Polo Ralph Lauren ~~brand~~product lines as

well as ~~Lauren by Ralph~~ Lauren, Blue Label, Polo Golf, RLX Polo Sport, Women’s Ralph Lauren Collection and Black Label, and Men’s Purple Label Collection.

Retail consists of our worldwide Ralph Lauren retail operations, which sell our products through Ralph Lauren and Club Monaco full-price and outlet stores and Rugby full-price stores as well as Ralph Lauren Media, our ~~Club Monaco full-price and outlet stores.~~

50% owned e-commerce joint venture, which sells products over the internet.

Licensing consists of product, international and ~~international~~home licensing alliances, each of which pays us royalties based upon sales of ~~licensed products,~~our product, and are generally subject to minimum royalty payments. We work closely with our licensing partners to ensure that products are developed, marketed and distributed in a manner consistent with the distinctive perspective and lifestyle associated with our ~~brand.~~

brands.

Our wholesale segment showed significant improvements in net sales, gross margin rates and operating income during the three ~~and nine~~ month ~~periods~~period ended ~~January 1,~~July 2, 2005 as compared to the corresponding ~~periods~~period of the prior fiscal year. These improvements were largely due to the addition of the ~~Lauren~~Childrenswear line and ~~Childrenswear lines. These additional sales were partially offset by planned sales reductions~~improvements in our men’s ~~business for the nine months period as we continue to reposition the brand in appropriate stores.~~

line.

Our retail segment continued to perform well during the three ~~and nine~~ months ended ~~January 1,~~July 2, 2005, driven by increased net sales and improved gross profit as a percentage of net sales. ~~Retail~~The increase in retail net sales ~~increased primarily~~was due to positive comparable store sales in both full-price and outlet stores, new store openings and, to a lesser extent, the impact of the appreciation of the Euro relative to the U.S. dollar. The increasing gross profit rate reflects a continued focus on inventory management, sourcing efficiencies, and higher realized sales dollars resulting from a combination of improved product mix, advertising and targeted marketing.

Our licensing segment’s net revenues and operating income ~~decreased~~increased compared to the prior year’s comparable period primarily as a result of increased international licensing income, which was largely offset by the loss of royalties associated with the ~~Lauren line as well as the recently~~ acquired Childrenswear ~~line, partially offset by increases in International licensing income.~~

line.

Our international operations’ results were affected by foreign exchange rate fluctuations. However, the increase in net sales due to the strengthening of the Euro was largely offset by a comparable increase in cost of sales and selling, general and administrative expenses. The strengthening of the Euro has had a significant effect on certain of our balance sheet accounts including accounts receivable, inventory, accounts payable and long-term debt.

~~Recent Developments~~Restatement of Previously Issued Financial Statements

Our financial statements for the three months ended July 3, 2004 have been restated to give effect to the items discussed below. See note 2 to our consolidated financial statements included in this Form 10-Q for a summary of the effects of the restatements. The accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to these restatements. No restatement of our financial statements for the full Fiscal 2005 financial statements is necessary as a result of the matters discussed below. Our second and third quarter financial statements from fiscal 2005 will also be restated in future Fiscal 2006 quarterly filings for these items. The restated financial statements for the fiscal years ended April 3, 2004 ~~we completed the acquisition of certain assets of RL Childrenswear Company LLC. See “Recent Acquisitions.”~~

and March 29, 2003 are contained in our Annual Report on Form 10-K for Fiscal 2005.

As a result of the ~~failure~~clarifications contained in the February 7, 2005 letter from the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) to the Center for Public Company Audit Firms of the American Institute of Certified Public Accountants regarding certain specific lease accounting issues, we initiated a review of the Company’s lease accounting practices. Management and the Audit Committee of the Company’s Board of Directors determined that our accounting practices were incorrect with respect to rent holiday periods and the classification of landlord incentives and the related amortization.

In periods prior to the fourth quarter of Fiscal 2005, we had recorded straight-line rent expense for store operating leases over the related store’s lease term beginning with the commencement date of store operations. Rent expense was not recognized during any build-out period. To correct this practice, we have adopted a policy in which rent expense is recognized on a straight-line over the stores’ lease term commencing with the start of the build-out period (the effective lease-commencement date). In addition, prior to the fourth quarter of Fiscal 2005, we had classified tenant allowances (amounts received from a landlord to fund leasehold improvement) as a reduction of property and equipment rather than as a deferred lease incentive liability. The amortization of these landlord incentives was originally recorded as a reduction in depreciation expense rather than as a reduction of rent expense. In addition, our statements of cash flow had originally reflected these incentives as a reduction of capital expenditures within cash flows from investing activities rather than as cash flows from operating activities. Correcting these items resulted in an increase to each of net property and

equipment and deferred lease incentive liabilities of $10.8 million and $20.5 million, respectively, at July 3, 2004. Additionally, for the three month period ended July 3, 2004, the reclassification of the amortization of deferred lease incentives resulted in an increase to rent expense of $1.1 million and an increase to depreciation expense of $0.7 million.

In January 2000, we formed Ralph Lauren Media, LLC as a joint venture. Under this 30-year joint venture agreement, Ralph Lauren Media is owned 50% by the Company, 37.5% by NBC Universal, Inc. and 12.5% by ValueVision Media, Inc. We had used the equity method of accounting for our investment in the joint venture since its inception. On December 24, 2003, the Financial Accounting Standards Board (“FASB”) issued FIN 46R, which is applicable for financial statements issued for reporting periods ending after March 15, 2004. We considered the provisions of FIN 46R for our Fiscal 2004 financial statements and made the determination that Ralph Lauren Media was a variable interest entity (“VIE”) under FIN 46R, and concluded that we were not the primary beneficiary under FIN 46R and, therefore, should not consolidate the results of Ralph Lauren Media. Upon subsequent review, the Company concluded that its determination in 2004 was incorrect and that consolidation of Ralph Lauren Media into the Company’s financial statements was required as of April 3, 2004. The impact on our balance sheet was to increase assets and liabilities. Previously, we accounted for this joint venture using the equity method of accounting under which we recognized our share of RL Media’s operating results based on our share of ownership and the terms of the joint venture agreement.

The Company has also corrected the classification on our Balance Sheet as of July 3, 2004 of certain unapplied cash from retail credit card receivables to cash. This error was originally corrected on a cumulative basis in the third quarter of Fiscal 2005. This resulted in approximately a $10.5 million increase in cash provided by operating activities, a corresponding increase in our cash and cash equivalents balance and an approximately $10.5 million decrease in accounts receivable prepaid. The Company has also corrected the classification on our Balance Sheet as of July 3, 2004 of certain inventory amounts from prepaid expenses of approximately $2.1 million which had no impact on cash flows from operating activities.

The Company also corrected the classification within the Statement of Cash Flows for the three months ended July 3, 2004 of the net loss recorded on the disposal of property and equipment from the investing activities to the operating activities and capital lease payments from operating activities to financing activities. In addition, we corrected the classification of certain amounts from cash to accounts payable, which resulted in a $2.6 million increase in cash and accounts payable as well as cash flow from operating activities.

Recent Developments

As described in Item 1 — BUSINESS — “Recent Developments” and Item 3 — “LEGAL PROCEEDINGS” of our Annual Report on Form 10-K for Fiscal 2005 and in note 13 to our consolidated financial statements included in this Form 10-Q, we have recorded a reserve of $100.0 million in connection with our litigation with Jones Apparel Group, Inc. (including its subsidiaries, “Jones”) to meet the minimum sales volumes for the year ended December 31, 2002 under the license agreements for the sale of products under the “Ralph” trademark between us and Jones dated May 11, 1998, these license agreements terminated as of December 31, 2003. We had advised Jones thatover the termination of ~~these licenses would automatically result in~~ the ~~termination on that date~~Lauren product line license previously held by Jones. On March 24, 2005, the Appellate Division of the ~~licenses between us and Jones~~New York Supreme Court affirmed the lower Court’s orders in favor of Jones. We filed a motion with ~~respect~~the Appellate Division for reargument and/or permission to appeal its decision to the ~~“Lauren” trademark pursuant~~New York Court of Appeals, and on June 23, 2005, the Appellate Division denied our request for reargument but granted our motion for leave to appeal to the ~~Cross Default and Term Extension Agreement between us and Jones dated May 11, 1998. The Lauren license agreements would otherwise have expired on December 31, 2006.~~

~~On June 3, 2003, Jones filed a lawsuit against us in the Supreme~~ Court of Appeals. If the ~~State~~Court of ~~New York alleging, among other things, that we had breached its agreements with Jones with respect~~Appeals does not reverse the Appellate Division’s decision, the case will go back to the ~~“Lauren” trademark by asserting its rights pursuant~~lower court for a trial on damages. Although we intend to continue to defend the ~~Cross Default~~case vigorously,

in light of the Appellate Division’s decision we recorded an aggregate charge of $100.0 million in Fiscal 2005 to establish a reserve for this litigation. This charge represents management’s best estimate at this time of the loss incurred. No discovery has been held, and ~~Term Extension Agreement, and that we induced Ms. Jackwyn Nemerov,~~ the ~~former President~~ultimate outcome of ~~Jones, to breach~~this matter could differ materially from the ~~non-compete and confidentiality clauses in Ms. Nemerov’s employment agreement with Jones.~~reserved amount. Jones ~~stated that it would treat the Lauren license agreements as terminated as of December 31, 2003, and~~ is seeking compensatory damages of $550.0 million plus punitive damages relating to our alleged tortious interference in the non-compete and ~~enforcement of the~~confidentiality provisions of ~~Ms.~~Jackwyn Nemerov’s ~~agreement. Also on June 3, 2003, we filed a lawsuit against~~former employment agreement with Jones. If Jones ~~in the Supreme Court of the State of New York seeking, among other things, an injunction and a declaratory judgment that the Lauren license agreements would terminate as of Decem-~~

~~ber 31, 2003 pursuant to the terms of the Cross Default and Term Extension Agreement. The two lawsuits were consolidated.~~

On July 3, 2003, we filed a motion to dismiss Jones’ claims regarding breach of the “Lauren” agreements and a motion to stay the claims regarding Ms. Nemerov pending the arbitration of Jones’ dispute with Ms. Nemerov. On July 23, 2003, Jones filed a motion for summary judgment in the action filed by us, and on August 12, 2003, we filed a cross-motion for summary judgment. Oral argument on the motions was heard on September 30, 2003. On March 18, 2004, the Court entered orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granting Jones’ motion for summary judgment in our action for declaratory judgment the Lauren agreement terminated on December 31, 2003 and dismissing our complaint. The order also stayed Jones’ claim against us relating to Ms. Nemerov pending arbitration regarding her alleged breach of her employment agreement. On April 16, 2004, the Company moved the court to reconsider its orders, and a hearing on our motion was held on May 19, 2004. The Court denied our motions on August 24, 2004, and we filed our appeal on October 4, 2004. We currently anticipate that oral argument on our appeal will be heard in March 2005. If Jones’ lawsuit were to be ~~determined adversely to us,~~awarded the full amount of damages it ~~could~~seeks, the award would have a material adverse effect on our results of operations and financial ~~condition. However,~~position.

As described in more detail in Note 13 to our consolidated financial statements included in this Form 10-Q, we ~~intend~~are subject to various claims relating to an alleged security breach of our retail point of sale system, including fraudulent credit card charges, the cost of replacing cards and related monitoring expenses and other related claims. We are unable to predict the extent to which further claims will be asserted. We have contested and will continue to ~~defend~~vigorously contest the ~~case vigorously~~claims made against us and ~~believe~~continue to explore our defenses and possible claims against others. During Fiscal 2005, we established a reserve of $6.2 million relating to this matter, representing management’s best estimate at the time of the loss incurred. The ultimate outcome of this matter could differ from the amounts recorded. While that difference could be material to the results of operations for any affected reporting period, it is not expected to have a material impact on our consolidated financial position ~~is correct on~~or liquidity.

In June 2003, one of our licensing partners, WestPoint Stevens, Inc., and certain of its affiliates (“WestPoint”) filed a voluntary petition for bankruptcy protection under Chapter 11 of the ~~merits.~~

United States Bankruptcy Code. WestPoint produces bedding and bath product in our home collection under license, and royalties paid by WestPoint accounted for 14.2% of our licensing revenues in Fiscal 2005. On June 24, 2005, American Real Estate Properties, LP, an entity controlled by investor Carl Icahn, won the U.S. Bankruptcy Court approved bidding process for WestPoint’s assets, subject to final confirmation by the Court. We ~~recently expanded and extended our revolving credit facility. See “Liquidity and Capital Resources” below for further information.~~

are currently engaged in negotiations to extend the license agreement.

Recent Acquisitions

On July 15, 2005, the Company acquired from Reebok International, Ltd all the issued and outstanding shares of capital stock of Ralph Lauren Footwear Co., Inc., its global licensee for men’s, women’s and children’s footwear, as well as certain foreign assets owned by affiliates of Reebok International Ltd (“the Footwear Business”). The purchase price for the acquisition of the Footwear Business was approximately $108 million in cash, subject to certain post closing adjustments. Payment of the purchase price was funded by cash on hand. In addition, the Footwear Licensee and certain of its affiliates have entered into a transition services agreement with the Company to provide a variety of operational, financial and information systems services over a period of twelve to eighteen months. Licensing revenue from the Footwear Business license was $9.5 million in Fiscal 2005.

On July 2, 2004, we completed the acquisition of certain assets of RL Childrenswear Company, LLC for a purchase price of approximately ~~$260~~$263.5 million including transaction costs. The purchase price includes deferred payments of $15 million over the ~~next~~ three years subsequent to the purchase date, and we have agreed to assume certain liabilities. Additionally, we agreed to pay up to an additional $5 million in contingent payments if certain sales targets ~~are~~were attained. During ~~the third quarter,~~Fiscal 2005, we recorded a $5 million liability for this contingent purchase payment because we believe it is ~~likely~~probable the sales targets will be achieved. This amount was ~~treated~~recorded as an increase in goodwill. RL Childrenswear Company, LLC was ~~a Polo Ralph Lauren~~our licensee holding the exclusive licenses to design, manufacture, merchandise and sell newborn, infant, toddler and girls and boys clothing in the United States, Canada and Mexico. In connection with this acquisition, we recorded ~~preliminary estimates of~~ fair values for assets and liabilities as follows: inventory of ~~$25.5~~$26.6 million, property &and equipment of ~~$6.8~~$7.5 million, intangible assets, consisting of non-compete agreements, valued at ~~$2.6~~$2.5 million and customer relationships, valued at $29.9 million, other assets of $1.0 million, goodwill of ~~$235.5~~$208.3 million and liabilities of ~~$11.4~~$12.3 million. ~~Transaction costs increased the goodwill recorded to $239.2 million.~~

The results of operations for the Childrenswear line for the period July 2, 2004 to January 1, 2005 are included in the consolidated results of operations commencing July 2, 2004, for the three and nine months ended January 1, 2005.

The following unaudited pro forma information assumes the Childrenswear acquisition had occurred on March 30, 2003. The pro forma information, as presented below, is not indicative of the results that would have been obtained had the transaction occurred March 30, 2003, nor is it indicative of the Company’s future results. The unaudited pro forma information is presented based on the preliminary purchase price allocation. The final purchase price allocation and the resulting effect on net income may differ significantly from the unaudited pro forma amounts included herein (dollars in thousands, except per share amounts).

The following pro forma amounts reflect adjustments for purchases made by ~~the Company~~us from Childrenswear, licensing royalties paid to ~~the Company~~us by Childrenswear, amortization of the non-compete agreements, lost interest income on the cash used for the purchase and the income tax effect based upon unaudited pro forma effective tax rate of 35.5% in Fiscal ~~2005 and Fiscal 2004.~~2005. The unaudited pro forma information gives effect only to adjustments

described above and does not reflect management’s estimate of any anticipated cost savings or other benefits as a result of the ~~acquisition. The unaudited pro forma amounts~~

~~exclude material non recurring charges of approximately $6.2 million related to the write up to fair value of inventory as part of the preliminary purchase price allocation.~~acquisition (dollars in thousands, except per share amounts).



	For the Three Months Ended				For the Nine Months Ended
									For the Three Months Ended
	January 1, 2005		December 27, 2003		January 1, 2005		December 27, 2003
									July 2, 2005		July 3, 2004
	(unaudited)						(unaudited)
	Actual		(unaudited)		(unaudited)				Actual
Net revenue	$	887,993	$	687,703	$	2,418,176	$	1,979,393	$	751,942	$	659,759
Net income		74,842		37,564		174,253		105,468		50,707		13,881
Net income per share — Basic	$	0.73	$	0.38	$	1.72	$	1.07	$	0.49	$	0.14
Net income per share — Diluted	$	0.72	$	0.37	$	1.68	$	1.05	$	0.48	$	0.14

In February 2003, we acquired a 50% controlling interest in the Japanese master licensee for our men’s, women’s, kids, home and jeans business in Japan for approximately $24.1 million. In connection with this acquisition, we recorded tangible assets of $11.0 million, an intangible license valued at $9.9 million and liabilities assumed of $8.5 million based on estimated fair values as determined by management utilizing information available at the time. At March 29, 2003, goodwill of $13.0 million was recognized for the excess of the purchase price plus transaction costs of $1.3 million over the preliminary estimate of fair market value of the net assets acquired. During Fiscal 2004, we incurred an additional $3.5 million of transaction costs, which have been included in goodwill, and finalized our accounting for the acquisition, which resulted in our recording an additional $0.5 million of goodwill.

All of the revenues and expenses for the Japanese master licensee are included in the Company’s consolidated statements of operations because we have concluded that certain rights granted to us in the stockholders agreement give us perpetual legal control over the master licensee. For the three and nine months ended January 1, 2005, we have recorded minority interest expense of $0.8 million and $3.2 million, respectively, to reflect the share of earnings allocable to the 50% minority interest holder in the Japanese master license. These amounts are included in Other (income) expense, net in the Consolidated Statements of Operations.

Also, in February 2003, we acquired an 18% equity interest in the company that holds the sublicenses for the Polo Ralph Lauren men’s, women’s and jeans business in Japan for approximately $47.6 million. In May 2003, we paid $5.4 million to acquire an additional 2% equity interest in this company. For the three and nine months ended January 1, 2005, we recorded $2.6 million and $5.8 million, respectively, of equity investment income related to this investment. These amounts are included in Other (income) expense, net in the Consolidated Statements of Operations.

Results of Operations


	*Three Months Ended ~~January 1,~~July 2, 2005 Compared to Three Months Ended ~~December 27, 2003~~July 3, 2004*

The following table sets forth results in millions of dollars and the percentage relationship to net revenues of certain items in our consolidated statements of operations for the three months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003:~~July 3, 2004:



	Three Months Ended						Three Months Ended						Three Months Ended						Three Months Ended

	January 1,			December 27,			January 1,			December 27,			July 2,			July 3,			July 2,			July 3,
	2005			2003			2005			2003			2005			2004			2005			2004

Net sales	$	830.1		$	578.1			93.5	%		89.6	%	$	694.6		$	549.1			92.4	%		90.6	%
Licensing revenue		57.9			67.2			6.5			10.4			57.3			56.9			7.6			9.4

Net revenues		888.0			645.3			100.0			100.0			751.9			606.0			100.0			100.0

Gross profit		438.0			333.0			49.3			51.6			414.4			315.5			55.1			52.1
Selling, general and administrative expenses		323.0			256.6			36.4			39.8			334.2			295.0			44.4			48.7
Restructuring charge		0.2			15.9			—			2.4			—			0.7			—			0.1

Income from operations		114.8			60.5			12.9			9.4			80.2			19.8			10.7			3.3
Foreign currency (gains) losses		(0.4	)		3.6			—			0.6			—			0.2			—			—
Interest expense		3.0			3.0			0.3			0.5			2.5			2.5			0.3			0.4
Interest income		(1.0	)		(0.5	)		(0.1	)		(0.1	)		(2.9	)		(0.8	)		(0.3	)		(0.1	)

Income before provision for income taxes and other (income) expense, net		113.2			54.4			12.7			8.4			80.6			17.9			10.7			3.0
Provision for income taxes		40.2			19.8			4.5			3.0			30.3			6.3			4.1			1.1
Other (income) expense, net		(1.8	)		(0.8	)		(0.2	)		(0.1	)		(0.4	)		(1.1	)		(0.1	)		(0.2	)

Net income	$	74.8		$	35.4			8.4	%		5.5	%	$	50.7		$	12.7			6.7	%		2.1	%

Net revenues. Net revenues for the ~~third~~first quarter of Fiscal ~~2005~~2006 were ~~$888.0~~$751.9 million, an increase of ~~$242.6~~$145.9 million over net revenues for the ~~third~~first quarter of Fiscal ~~2004.~~2005. Net revenues by ~~business segments~~integrated segment were as follows (dollars in thousands):

Three Months Ended
January 1, December 27, Increase/
2005 2003 (Decrease) % Change
Net revenues:

Wholesale $ 427,445 $ 219,147 $ 208,298 95.0
Retail 402,613 358,984 43,629 12.2
Licensing 57,935 67,234 (9,299 ) (13.8 )

$ 887,993 $ 645,365 $ 242,628 37.6


		Three Months Ended

		July 2,		July 3,		Increase/
		2005		2004		(Decrease)		% Change

Net revenues:
	Wholesale	$	337,199	$	239,024	$	98,175		41.1
	Retail		357,404		310,040		47,364		15.3
	Licensing		57,339		56,942		397		0.7

		$	751,942	$	606,006	$	145,936		24.1

Wholesale Net Salesincreased by ~~$208.3~~$98.2 million, or ~~95.0%~~41.1%, primarily due to the following:


	•	~~the incremental increase in sales from the newly implemented Lauren line of $83.5 million during the three months ended January 1, 2005;~~

	•	the inclusion of sales from the ~~newly~~ acquired Childrenswear line of ~~$69.4~~$58.6 million during the three months ended ~~January 1,~~July 2, 2005 (acquired July 2, 2004); and

	•	~~$5.7~~a $27.8 million ~~from the favorable impact of Euro currency fluctuations;~~

	•	~~sales~~increase in our ~~core wholesale business were up due to the timing of spring shipments.~~domestic men’s business.

Retail Net Salesincreased by ~~$43.6~~$47.4 million, or ~~12.2%~~15.3%, primarily as a result of:


	•	~~a 4.4%~~8.7% and ~~7.2% increase,~~6.5% increases, respectively, in ~~comparable store sales for~~ full price and outlet ~~stores.~~comparable store sales. Excluding the effect of foreign currency exchange rate fluctuations, comparable store sales increased ~~3.0%~~7.7% for full price and ~~5.2%~~5.7% for outlet stores, respectively;

	•	~~the stronger Euro, which accounted for approximately $4.9~~a $2.9 million ~~of the~~sales increase ~~in net sales;~~at RL Media, our e-commerce subsidiary; and

	•	~~new~~recent store openings, net of store closings.

Licensing Revenue~~decreased~~increased by ~~$9.3~~$0.4 million, or ~~13.8%~~0.7%, primarily due to the following:


	•	~~loss of $6.2 million of royalties from Lauren licenses,~~growth in our international and home licensing businesses, which ~~terminated as of the end of the third quarter of Fiscal 2004;~~was largely offset by

	•	the loss ~~of $4.5 million~~ of royalties from the Childrenswear ~~licenses,~~license, which terminated as of the end of the first quarter of Fiscal ~~2005;~~

	•	~~partially offset by growth in our international and home licensing businesses.~~2005. During the first quarter of Fiscal 2005, we received royalties of $3.3 million from this license.

Foreign exchange rate fluctuations in the value of the Euro increased recorded wholesale sales by $3.3 million and retail sales by $2.8 million.

Gross Profit. Gross profit increased ~~$105.0~~$98.9 million, or ~~31.5%~~31.3%, for the three months ended ~~January 1,~~July 2, 2005 over the three months ended ~~December 27, 2003.~~July 3, 2004. This increase reflected higher net sales and improved merchandise margins generally across our wholesale and retail businesses.

Gross profit as a percentage of net revenues ~~decreased~~increased from ~~51.6%~~52.1% last year to ~~49.3%~~55.1%. The ~~reduced~~increased gross profit ~~rate reflects the loss of licensing revenue from the Lauren and Childrenswear businesses which was partially offset by gross profit percentage rate improvements~~rates in the wholesale and retail ~~businesses. The gross profit rate improvement in both wholesale and retail reflects~~businesses reflect a continued focus on inventory management and sourcing ~~efficiencies. Although~~efficiencies as well as reduced markdown activity as a result of better sell through on our inventory balance is higher at January 1, 2005 compared to the same period last year, this increase primarily reflects inventories related to the Lauren wholesale business and our recently acquired Childrenswear business lines and the appreciation of the Euro.

products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses (“SG&A”) increased ~~$66.4~~$39.2 million, or ~~25.9%~~13.3%, to ~~$323.0~~$334.2 million for the three months ended ~~January 1,~~July 2, 2005 from ~~$256.6~~$295.0 million for the three months ended ~~December 27, 2003.~~July 3, 2004. SG&A as a percentage of net revenues decreased to ~~36.4%~~44.4% from ~~39.8%~~48.7%. The increase in SG&A was driven by:


	•	higher selling salaries and related costs of ~~$13.3~~$16.7 million in connection with the store openings and the increase in retail sales;

	•	~~incremental~~ expenses of ~~$5.6 million associated with the Lauren wholesale line, exclusive of additional corporate and overhead expenses incurred;~~

	•	~~expenses of $13.2~~$9.0 million attributable to the ~~recently~~ acquired Childrenswear ~~line;~~line.

	•	~~approximately $5.8~~

The remainder of the increase in SG&A results from a number of factors, including higher distribution costs as a result of volume increases. Approximately $2.9 million of the increase in ~~the quarter was due to the impact of foreign currency exchange rate fluctuations, primarily due to the strengthening of the Euro;~~• ~~the remainder of the increase in SG&A results from a number of factors, including higher distribution costs as a result of volume increases.~~

~~Restructuring Charge.~~ ~~During~~ the quarter was due to the ~~Company recorded a $0.2 million restructuring charge associated with our European operations. This charge was~~impact of foreign currency exchange rate fluctuations, primarily ~~attributable~~due to ~~severance and other benefits associated with employees released during~~ the ~~quarter.~~strengthening of the Euro.

2730

Income (Loss) from Operations. Income from operations increased ~~$54.4~~$60.5 million, or ~~89.9%~~306.1%, for the three months ended ~~January 1,~~July 2, 2005 over the three months ended ~~December 27, 2003.~~July 3, 2004. Income from operations for our three business segments is provided below (dollars in thousands):

Three Months Ended
January 1, December 27, Increase/
2005 2003 (Decrease) % Change
Income (loss) from operations:
Wholesale $ 47,653 $ (3,330 ) $ 50,983 1,531.0 %
Retail 49,459 45,411 4,048 8.9 %
Licensing 17,940 34,307 (16,367 ) (47.7 )%

115,052 76,388 38,664 50.6 %
Less: unallocated restructuring charge 218 15,930 15,712 98.6 %

$ 114,834 $ 60,458 $ 54,376 89.9 %


			Three Months Ended

			July 2,		July 3,			Increase/
			2005		2004			(Decrease)		% Change

Income (loss) from operations:
	Wholesale		$	46,269	$	(2,633	)	$	48,902		1,857.3	%
	Retail			35,650		24,444			11,206		45.8	%
	Licensing			35,212		31,847			3,365		10.6	%

				117,131		53,658			63,473		1,182.9	%
	Less: Unallocated corporate expenses			36,910		33,173			3,737		11.3	%
		Unallocated restructuring charge		—		731

			$	80,221	$	19,754


	•	The increase in the wholesale operating results was primarily the result of the inclusion of sales generated by the ~~Lauren and~~ Childrenswear ~~lines~~line and improvements in the gross margin rate.

	•	The increase in retail operating results was driven by increased net sales and improved gross margin rate, partially offset by the higher selling salaries and related costs incurred in connection with the increase in retail ~~sales.~~sales and new store openings.

	•	The ~~decrease~~increase in licensing operating results was primarily due to improvements in our international licensing business, partially offset by the loss of royalties from the ~~Lauren and~~ Childrenswear ~~licenses.~~license.

Foreign Currency (Gains) Losses. The effect of foreign currency exchange rate fluctuations resulted in a gain of ~~$0.4~~$0.1 million for the three months ended ~~January 1,~~July 2, 2005, compared to a ~~$3.6~~$0.2 million loss for the three months ended ~~December 27, 2003.~~

July 3, 2004. These gains are unrelated to the impact of changes in the value of the dollar against the Euro when operating results of our foreign subsidiaries are converted to US dollars.

Interest Expense. Interest expense was ~~$3.0~~$2.5 million for the three months ended ~~January 1,~~July 2, 2005 and ~~for the three months ended December 27, 2003.~~

~~Interest Income.~~ ~~Interest income increased to $1.0 million from $0.5~~$2.4 million for the three months ended ~~January 1,~~July 3, 2004.

Interest Income. Interest income increased to $2.9 million for the three months ended July 2, 2005 ~~and December 27, 2003.~~from $0.8 million for the three months ended July 3, 2004. The increase was the result of an increase in investments and higher interest rates on our investments.

Provision for Income Taxes. The effective tax rate was ~~35.5%~~37.6% for the three months ended ~~January 1,~~July 2, 2005 compared to ~~36.5%~~35.3% for the three months ended ~~December 27, 2003.~~

July 3, 2004. The increase in the effective tax rate is due primarily to a greater portion of our profit being generated in higher tax jurisdictions.

Other (Income) Expense, Net. Other (income) expense, net was ~~$(1.8)~~$(0.4) million for the three months ended ~~January 1,~~July 2, 2005 compared to ~~$(0.8)~~$(1.1) million for the three months ended ~~December 27, 2003.~~July 3, 2004. This reflects ~~$2.6~~$1.8 million and ~~$1.0~~$2.0 million of income, respectively, related to the 20% equity interest in the company that holds the sublicenses for ~~the~~ our men’s, women’s, kids, home and jeans business in Japan for three months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003, respectively,~~July 3, 2004, net of $0.8 million and ~~$0.2~~$0.5 million of minority interest expense, respectively, for three months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003, respectively,~~July 3, 2004 associated with our Japanese master license, both of which were acquired in 2003.

Also included is $0.6 million and $0.4 million of minority interest expense for RL Media for the three months ended July 2, 2005 and July 3, 2004, respectively.

Net Income. Net income increased to ~~$74.8~~$50.7 million for three months ended ~~January 1,~~July 2, 2005 from ~~$35.4~~$12.7 million for the three months ended ~~December 27, 2003,~~July 3, 2004, or ~~8.4%~~6.7% and ~~5.5%~~2.1% of net revenues, respectively.

Net Income Per Share. Diluted net income per share increased due to the increase in Net income, partially offset by an increase in weighted average shares outstanding due to stock option exercises, the issuance of restricted stock units and an increase in stock price.

~~Results of Operations~~


	*~~Nine Months Ended January 1, 2005 Compared to Nine Months Ended December 27, 2003~~*

The following table sets forth results in millions of dollars and the percentage relationship to net revenues of certain items in our consolidated statements of operations for the nine months ended January 1, 2005 and December 27, 2003:

Nine Months Ended Nine Months Ended
January 1, December 27, January 1, December 27,
2005 2003 2005 2003
Net sales $ 2,187.4 $ 1,627.5 92.5 % 88.9 %
Licensing revenue 177.0 203.4 7.5 11.1

Net revenues 2,364.4 1,830.9 100.0 100.0

Gross profit 1,182.9 932.3 50.0 50.9
Selling, general and administrative expenses 921.9 767.5 38.9 41.9
Restructuring charge 1.8 15.9 0.1 0.9

Income from operations 259.2 148.9 11.0 8.1
Foreign currency (gains) losses (3.3 ) (0.5 ) (0.1 ) —
Interest expense, net 8.2 9.7 0.3 0.5
Interest income (2.5 ) (2.1 ) (0.1 ) (0.1 )

Income before provision for income taxes and other (income) expense, net 256.8 141.8 10.9 7.7
Provision for income taxes 91.3 51.8 3.9 2.8
Other (income) expense, net (3.2 ) (4.4 ) (0.1 ) (0.2 )

Net income $ 168.7 $ 94.4 7.1 % 5.1 %

~~Net revenues.~~ Net revenues for the nine months ended January 1, 2005, were $2.4 billion, an increase of $533.6 million over net revenues for the nine months ended December 27, 2003. Net revenues by business segments were as follows (dollars in thousands):

Nine Months Ended
January 1, December 27, Increase/
2005 2003 (Decrease) % Change
Net revenues:

Wholesale $ 1,169,032 $ 716,877 $ 452,155 63.1
Retail 1,018,375 910,584 107,791 11.8
Licensing 177,016 203,412 (26,396 ) (13.0 )

$ 2,364,423 $ 1,830,873 $ 533,550 29.1

~~Wholesale Net Sales~~~~increased by $452.2 million, or 63.1%, primarily due to the following:~~

• ~~the increase in sales from the newly implemented Lauren line of $278.7 million during the nine months ended January 1, 2005;~~
• ~~the inclusion of sales from the newly acquired Childrenswear line of $132.5 million during the nine months ended January 1, 2005 (acquired July 2, 2004);~~
• ~~$17.9 million from the favorable impact of Euro currency fluctuations;~~
• partially offsetting these increases is a $14.7 million decrease in men’s wholesale sales, resulting primarily from planned reductions in sales as we continue to reposition the brand in appropriate stores.

~~Retail Net Sales~~~~increased by $107.8 million, or 11.8%, primarily as a result of:~~

• 8.9% and 6.5% increases, respectively, in comparable store sales for full price and outlet stores. Excluding the effect of foreign currency exchange rate fluctuations, comparable store sales increased 7.4% and 4.7% for full price and outlet stores, respectively;
• ~~the stronger Euro, which accounted for approximately $12.0 million of the increase in net sales; and~~
• ~~new store openings, net of store closings.~~

~~Licensing Revenue~~~~decreased by $26.4 million, or 13.0%, primarily due to the following:~~

• ~~loss of $27.6 million of royalties from Lauren licenses, which were terminated as of the end of the third quarter of Fiscal 2004;~~
• ~~loss of $8.9 million of royalties from Childrenswear licenses, which were terminated as of the end of the first quarter of Fiscal 2005;~~
• ~~partially offset by growth in our international and home licensing businesses.~~

~~Gross Profit.~~ Gross profit increased $250.6 million, or 26.9%, for the nine months ended January 1, 2005 over the nine months ended December 27, 2003. This increase reflected higher sales and improved merchandise margins in our wholesale and retail businesses.

Gross profit as a percentage of net revenues decreased to 50.0% from 50.9%. The decreasing gross profit rate reflects the loss of licensing revenue from the Lauren and Childrenswear licenses, partially offset by improvements in our wholesale and retail segments. The gross profit rate improvement in both wholesale and retail reflects a continued focus on inventory management and sourcing efficiencies. Although our inventory balance is higher at January 1, 2005 compared to the same period last year, this increase primarily reflects inventories related to our Lauren wholesale business and our recently acquired children’s business and the appreciation of the Euro.

~~Selling, General and Administrative Expenses.~~ SG&A increased $154.5 million, or 20.1%, to $921.9 million for the nine months ended January 1, 2005 from $767.5 million for the nine months ended December 27, 2003. SG&A as a percentage of net revenues decreased to 38.9% from 41.9%. The increase in SG&A was driven by:

• ~~higher selling salaries and related costs of $32.5 million in connection with the increase in retail sales;~~
• ~~incremental expenses of $26.8 million associated with a full year’s expenses for the Lauren wholesale line, exclusive of additional corporate and overhead expenses incurred;~~
• ~~expenses of $24.4 million attributable to the recently acquired Childrenswear line;~~
• approximately $14.8 million of the increase in the nine months ended January 1, 2005 was due to the impact of foreign currency exchange rate fluctuations, primarily due to the strengthening of the Euro;
• the remainder of the increase in SG&A results from a number of factors, including higher distribution costs as a result of volume increases, costs associated with the Sarbanes-Oxley Act and incremental advertising related to the addition of the Lauren and Children’s lines.

~~Restructuring Charge.~~ During the nine months ended January 1, 2005, the Company recorded a $1.8 million restructuring charge associated with our European operations. This charge was primarily attributable to severance and other benefits associated with employees released during the quarter.

~~Income (Loss) from Operations.~~ Income from operations increased $110.2 million, or 74.0%, for the nine months ended January 1, 2005 over the nine months ended December 27, 2003. Income from operations for our three business segments is provided below (dollars in thousands):

Nine Months Ended
January 1, December 27, Increase/
2005 2003 (Decrease) % Change
Income (loss) from operations:
Wholesale $ 110,566 $ (8,921 ) $ 119,487 1,339.4 %
Retail 101,005 77,731 23,274 29.9 %
Licensing 49,386 96,057 (46,671 ) (48.6 )%

260,957 164,867 96,090 58.3 %
Less: unallocated restructuring charge 1,846 15,930 14,084 88.4 %

$ 259,111 $ 148,937 $ 110,174 74.0 %

• The increase in the wholesale operating results was primarily the result of sales generated by Lauren and Childrenswear lines and improvements in the gross margin rate, partially offset by the sales decrease in men’s wholesale.
• The increase in retail operating results was driven by increased net sales and improved gross margin rate, partially offset by the higher selling salaries and related costs incurred in connection with the sales increase.
• ~~The decrease in licensing operating results was primarily due to the loss of royalties from the former Lauren and Childrenswear licenses.~~

~~Foreign Currency (Gains) Losses.~~ The effect of foreign currency exchange rate fluctuations resulted in a gain of $3.3 million for the nine months ended January 1, 2005, compared to a $0.5 million gain for the nine months ended December 27, 2003.

~~Interest Expense.~~ Interest expense decreased to $8.2 million in the nine months ended January 1, 2005 from $9.7 million for the nine months ended December 27, 2003. This decrease was due to lower levels of borrowings due to the repayment of approximately $100.9 million of short-term borrowings as well as decreased interest rates as a result of the April 2004 and October 2004 interest rate swaps described in “Liquidity and Capital Resources — Derivative Instruments.”

~~Interest Income.~~ Interest income increased to $2.5 million from $2.1 million for the nine months ended January 1, 2005 and December 27, 2003. The increase resulted from higher rates on our investments during the period.

~~Provision for Income Taxes.~~ ~~The effective tax rate was 35.6% for the nine months ended January 1, 2005 and 36.5% for the nine months ended December 27, 2003.~~

~~Other (Income) Expense, Net.~~ Other (income) expense, net was $(3.2) million and $(4.4) million for the nine months ended January 1, 2005 and December 27, 2003, respectively. This reflected $5.8 million and $5.5 million of income related to the 20% equity interest in the company that holds the sublicenses for our men’s, women’s, kids, home and jeans business in Japan for the nine months ended January 1, 2005 and December 27, 2003, respectively, net of $3.2 million and $1.1 million of minority interest expense, for the nine months ended January 1, 2005 and December 27, 2003, respectively, associated with our 50% owned Japanese master licensee, both of which were acquired in 2003. Also included is $0.6 million of dividend income for the nine months ended January 1, 2005.

~~Net Income.~~ ~~Net income increased to $168.7 million for nine months ended January 1, 2005 from $94.4 million for the nine months ended December 27, 2003, or 7.1% and 5.2% of net revenues, respectively.~~

~~Net Income Per Share.~~ Diluted net income per share increased due to the increase in Net income, partially offset by an increase in weighted average shares outstanding due to stock option exercises, the issuance of restricted stock units and an increase in stock price.

Liquidity and Capital Resources

Our primary ongoing cash requirements are to fund growth in working capital for projected sales increases (primarily accounts receivable and inventory) ~~for projected sales increases,~~, retail store expansion, construction and renovation of shop-within-shops, investment in the technological upgrading of our information systems, acquisitions, dividends and other corporate activities. Sources of liquidity to fund ongoing and future cash requirements include cash flows from operations, cash and cash equivalents on hand, our credit facility and other potential sources of borrowings.

We expect that cash flow from operations will continue to be sufficient to fund our current level of operations, capital requirements, cash dividends and our stock repurchase plan. However, in the event of a material acquisition, material contingencies or material adverse business developments, we may need to draw on our credit facility or other potential sources of borrowing.

As noted above, we used cash on hand to purchase the Footwear Business.

On February 1, 2005, ~~the~~our Board of Directors approved ~~an additional~~a stock repurchase plan which allows for the purchase of up to an additional $100 million in our stock in addition to the approximately ~~$21~~$22.5 million of ~~repurchase authority~~authorized repurchases remaining under our original ~~program~~stock repurchase plan which expires in 2006. The new repurchase plan does not have a termination date.

~~As described below, our~~

Our ability to borrow under our credit facility is subject to our maintenance of financial and other ~~covenants.~~covenants described below. As of ~~January 1,~~July 2, 2005, we had no direct borrowings under the credit facility and were in compliance with our covenants.

With respect to pending litigation, the only matter which, if adversely determined, could have a material adverse effect on our liquidity and capital resources is the litigation with Jones Apparel Group, Inc., discussed above under “Recent Developments,” in which Jones is seeking, among other things, compensatory damages of $550 million and unspecified punitive damages. (See Part II, Item 1 — Legal Proceedings.) We continue to believe that we are right on the merits and intend to continue to defend the case vigorously. We do not believe that this matter is likely to have a material adverse effect on our liquidity or capital resources or our ability to borrow under the credit facility.

As of ~~January 1,~~July 2, 2005, we had ~~$362.9~~$522.3 million in cash and cash equivalents and ~~$308.0~~$269.1 million of debt outstanding compared to ~~$337.7~~$197.4 million in cash and cash equivalents and ~~$284.7~~$279.0 million of debt outstanding at ~~December 27, 2003.~~July 3, 2004. This represents an increase in our cash net of debt position of ~~$2.0~~$334.7 million, which was primarily attributable to cash flow from operations partially offset by the following factors: the appreciation of the Euro increased the dollar equivalent of our Euro denominated debt by $23.2 million and the use of $242.5 million cash to acquire certain assets net of certain assumed liabilities of RL Childrenswear Company LLC.operations. As of ~~January 1,~~July 2, 2005, we had ~~$308.0~~$269.1 million outstanding in long-term Euro denominated debt, based on the Euro exchange rate at that ~~date.~~date, as compared to $279.0 million as of July 3, 2004, due to changes in the exchange rate. Our capital expenditures were ~~$124.9~~$32.6 million for the ~~nine~~three months ended ~~January 1,~~July 2, 2005, compared to ~~$69.7~~$36.0 million for the ~~nine~~three months ended ~~December 27, 2003.~~

July 3, 2004.

Accounts receivable increased to ~~$334.3~~$275.6 million, or ~~14.4%~~9.2%, at ~~January 1,~~July 2, 2005 compared to ~~$292.2~~$252.4 million at December 27, 2003, primarily due to $28.0 million and $38.5 million of accounts receivables associated with Lauren and Childrenswear lines, respectively, and $6.8 million due to favorable impact of foreign currency exchange rate fluctuations on our European businesses accounts receivable, partially offset by decreases in accounts receivable in our other lines.July 3, 2004. Inventories increased to ~~$425.1~~$467.6 million, or ~~0.7%~~8.2%, at ~~January 1,~~July 2, 2005 compared to ~~$422.2~~$432.3 million at ~~December 27, 2003,~~July 3, 2004, which primarily reflects the addition of inventory for ~~the new Lauren and Childrenswear lines in the amount of $40.1 million and $16.2 million, respectively, and a $11.4 million increase in~~ our ~~European inventory level~~Men’s line due to foreign currency exchange rate fluctuations, partially offset by reduced inventory in our other wholesale lines due to inventory management efforts, as well as reductions in our domestic retail inventory as a result of inventory management efforts.strong summer sales. Accounts payable and accrued expenses and other increased to a total of ~~$457.6~~$536.1 million, or ~~7.8%~~39.2% at ~~January 1,~~July 2, 2005 compared to

~~$424.2~~ $385.1 million at ~~December 27, 2003.~~July 3, 2004. This increase is primarily the result of the ~~appreciation of the Euro and the~~ addition of payables associated with our increased inventory balance and the ~~Lauren and children’s wholesale lines.~~accrual of $106.2 million in litigation reserves during Fiscal 2005.

Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to ~~$360.0~~$190.7 million during the ~~nine-month~~three-month period ended ~~January 1,~~July 2, 2005, compared to ~~$182.7~~$112.9 million for the ~~nine-month~~three-month period ended ~~December 27, 2003.~~July 3, 2004. This ~~$177.3~~$77.8 million increase in cash flow was driven primarily by ~~year-over-year~~ changes in working capital ~~described above~~ and the increase in net income.

During Fiscal 2003, we completed a strategic review of our European operations and ~~formalized our plans~~implemented a plan to centralize and more efficiently consolidate these operations. In connection with the implementation of this plan, we had total cash outlays of approximately ~~$5.5~~$0.4 million during the ~~nine~~three months ended ~~January 1,~~July 2, 2005. During Fiscal 2001, we implemented the 2001 Operational Plan, and total cash outlays related to this plan were ~~$2.0~~$0.6 million during the ~~nine~~three months ended ~~January 1,~~July 2, 2005. We expect that the remaining liabilities under these plans will be paid during Fiscal ~~2005 subject to applicable contract terms.~~

2006.

Net Cash Used in Investing Activities. Net cash used in investing activities was ~~$368.7~~$32.6 million for the ~~nine~~three months ended ~~January 1,~~July 2, 2005, as compared to ~~$87.1~~$276.0 million for the ~~nine~~three months ended ~~December 27, 2003.~~July 3, 2004. For the ~~nine~~three months ended ~~January 1, 2005,~~July 2, 2004, net cash used ~~also~~ reflected ~~$242.5~~$240.0 million for the acquisition of certain assets of RL Childrenswear, LLC. For both periods, net cash used reflected capital expenditures related to retail expansion and upgrading our systems and facilities as well as shop-within-shop expenditures. Our anticipated capital expenditures for all of Fiscal ~~2005~~2006 approximate ~~$143.5~~$160 million. The Fiscal 2005 ~~and Fiscal 2004~~ amounts also include $1.3 million ~~and $1.0 million, respectively~~ for an earn-out ~~payments~~payment in connection with the P.R.L. Fashions of Europe SRL ~~acquisition and $9.0 million in Fiscal 2004 related to the acquisition of our Japanese businesses.~~

acquisition.

Net Cash Provided by Financing Activities. Net cash provided by financing activities was ~~$24.9~~$18.1 million for the ~~nine~~three months ended ~~January 1,~~July 2, 2005, compared to ~~$93.2~~$7.5 million ~~used~~ in the ~~nine~~three months ended ~~December 27, 2003.~~July 3, 2004. Cash provided by financing activities during the ~~nine~~three months ended ~~January 1,~~July 2, 2005 consists of ~~$42.2~~$25.6 million received from the exercise of stock options, ~~which was~~ partially offset by the payment of ~~$15.1~~$5.2 million of dividends. ~~Cash used in financing activities during the nine months ended December 27, 2003, consisted primarily of the net repayment of short-term borrowings of $100.9 million.~~

Prior to October 6, 2004, we had a credit facility with a syndicate of banks ~~and~~ consisting of a $300.0 million revolving line of credit, subject to increase to $375.0 million, which was available for direct borrowings and the issuance of letters of credit. It was scheduled to mature on November 18, 2005.

On October 6, 2004, we, in substance, expanded and extended this credit facility by entering into a new Credit Agreement, dated as of that date, with JPMorgan Chase Bank, as Administrative Agent, The Bank of New York, Fleet National Bank, SunTrust Bank and Wachovia Bank National Association, as Syndication Agents, J.P. Morgan Securities Inc., as sole Bookrunner and Sole Lead Arranger, and a syndicate of lending banks that included each of the lending banks under the prior credit ~~agreement.~~

~~The~~agreement (the “New Credit Facility”).

Our current credit facility, which is otherwise substantially on the same terms as the ~~prior~~former credit facility, provides for a $450.0 million revolving line of credit, subject to increase to $525.0 million, which is available for direct borrowings and the issuance of letters of credit. It will mature on October 6, 2009. As of ~~January 1,~~July 2, 2005, we had no direct borrowings outstanding under the credit facility. Direct borrowings under the credit facility bear interest, at our option, at a rate equal to (i) the higher of (x) the weighted average overnight Federal funds rate, as published by the Federal Reserve Bank of New York, plus one-half of one percent, and (y) the prime commercial lending rate of JPMorgan Chase Bank in effect from time to time, or (ii) the LIBO Rate (as defined in the credit facility) in effect from time to time, as adjusted for the Federal Reserve Board’s Eurocurrency Liabilities maximum reserve percentage, and a margin based on our then current credit ratings.

~~The~~ At July 2, 2005, we were contingently liable for $34.8 million in outstanding letters of credit ~~facility~~related primarily to commitments for the purchase of inventory. We incur a financing charge of ten basis points per month on the average monthly balance of these outstanding letters of credit.

Our Credit Facility requires us to maintain certain covenants:


	•	a minimum ratio of consolidated Earnings Before Interest, Taxes, Depreciation, Amortization and Rent (“EBITDAR”) to Consolidated Interest Expense (as such terms are ~~described~~defined in the credit facility); and

	•	a maximum ratio of Adjusted Debt (as defined in the credit facility) to EBITDAR.

~~The~~

Our credit facility also contains covenants that, subject to specified exceptions, restrict our ability to:


	•	incur additional debt;

	•	incur liens and contingent liabilities;

	•	sell or dispose of assets, including equity interests;

	•	merge with or acquire other companies, liquidate or dissolve;


	•	engage in businesses that are not a related line of business;

	•	make loans, advances or guarantees;

	•	engage in transactions with affiliates; and

	•	make investments.

Upon the occurrence of an event of default under the credit facility, the lenders may cease making loans, terminate the credit facility, and declare all amounts outstanding to be immediately due and payable. The credit facility specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal and interest payments or to satisfy the covenants, including the financial covenants described above. Additionally, the credit facility provides that an event of default will occur if Mr. Ralph Lauren and related entities fail to maintain a specified minimum percentage of the voting power of our common stock.

At January 1, 2005, we were contingently liable for $34.9 million in outstanding letters of credit related primarily to commitments for the purchase of inventory. We incur a financing charge of ten basis points per month on the average monthly balance of these outstanding letters of credit.

Fiscal 2005 dividends of $0.05 per outstanding share declared to stockholders of record at the close of business on July 2, 2004, October 1, 2004, ~~and~~ December 20, 2004 and April 1, 2005 were paid on July 16, 2004, ~~and~~ October 15, 2004, ~~and~~ January 14, 2005 and April 15, 2005, respectively.

The first quarter Fiscal 2006 dividend was declared on June 14, 2005 payable to shareholders of record at the close of business on July 1, 2005 and was paid on July 15, 2005.

Derivative Instruments. In May 2003, we entered into an interest rate swap that will terminate in November 2006. The interest rate swap is being used to convert €105.2 million, 6.125% fixed rate borrowings into €105.2 million, EURIBOR minus 1.55% variable rate borrowings. On April 6, 2004 and October 4, 2004 the Company executed interest rate swaps to convert the fixed interest rate on a total of€100 million of the Eurobonds to a EURIBOR plus 3.14% variable rate borrowing. After the execution of these swaps, approximately€22 million of the Eurobonds remained at a fixed interest rate. We entered into the interest rate swaps to minimize the impact of changes in the fair value of the Euro debt due to changes in EURIBOR, the benchmark interest rate. The swaps have been designated as fair value hedges under SFAS No. 133. Hedge ineffectiveness is measured as the difference between the respective gains or losses recognized resulting from changes in the benchmark interest rate, and were immaterial in Fiscal ~~2004~~2005 and for the ~~nine~~three months ended ~~January 1,~~July 2, 2005. In addition, we have designated all of the principal of the Euro debt as a hedge of our net investment in certain foreign subsidiaries. As a result, the changes in the fair value of the Euro debt resulting from changes in the Euro rate are reported net of income taxes in accumulated other comprehensive income in the consolidated financial statements as an unrealized gain or loss on foreign currency hedges.

We enter into forward foreign exchange contracts as hedges relating to identifiable currency positions to reduce our risk from exchange rate fluctuations on inventory and intercompany royalty payments. Gains and losses on these contracts are deferred and recognized as adjustments to either the basis of those assets or foreign exchange gains/losses, as applicable. At ~~January 1,~~July 2, 2005, we had the following foreign exchange

contracts outstanding: (i) to deliver€~~116.3~~77.0 million in exchange for ~~$151.3~~$101.7 million through Fiscal 2006 and (ii) to deliver ~~¥8,248~~¥10,468 million in exchange for ~~$71.0~~$91.6 million through Fiscal 2008. At ~~January 1,~~July 2, 2005, the fair value of these contracts resulted in unrealized pretax gains and losses ~~net~~ of ~~tax of $4.5~~$9.1 million and ~~$10.2~~$9.6 million for the Euro forward contracts and Japanese Yen forward contracts, respectively.

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.

Critical Accounting Policies


	*~~Principles of Consolidation~~Critical Accounting Policies and Estimates*

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


	*~~Use of Estimates~~*

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and ~~the~~ disclosure of contingent assets and liabilities at the date of the ~~consolidated~~ financial ~~statements. These estimates~~statements and ~~assumptions also affect~~ the reported amounts of revenues and ~~expenses. Estimates~~expenses during the reporting period. Significant accounting policies employed by ~~their nature~~the Company, including the use of estimates, are ~~based~~presented in Note 1 to the Consolidated Financial Statements in this Quarterly Report on ~~judgments and available information. Therefore, actual results could materially differ from those estimates under different assumptions and conditions.~~

Form 10-Q.

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

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


	*Revenue Recognition*

Revenue within ~~the Company’s~~our wholesale operations is recognized at the time title passes and risk of loss is transferred to customers. Wholesale revenue is recorded net of returns, discounts, allowances and operational chargebacks. Returns and allowances require pre-approval from management. Discounts are based on trade terms. Estimates for end-of-season allowances are based on historic trends, seasonal results, an evaluation of current economic conditions and retailer performance.

~~The Company reviews~~

We review and ~~refines~~refine these estimates on a quarterly basis based on current experience, trends and retailer performance. ~~The Company’s~~Our historical estimates of these costs have not differed materially from actual results. Retail store revenue is recognized net of estimated returns at the time of sale to consumers. Licensing revenue is initially recorded based upon contractually guaranteed minimum levels and adjusted as actual sales data is received from licensees. During the three ~~and nine~~ months ending ~~January 1,~~July 2, 2005 and

~~December 27, 2003,~~ July 3, 2004, the Company reduced revenues and credited customer accounts for end of season customer allowances, operational chargebacks and returns as follows:



	3 Months Ended						9 Months Ended						Three Months Ended

	January 1,			December 27,			January 1,			December 27,			July 2,			July 3,
	2005			2003			2005			2003			2005			2004

Beginning reserve balance	$	96,234		$	58,779		$	100,570		$	48,432		$	100,001		$	90,269
Amount expensed		79,396			42,278			196,757			131,479
Amount expensed to increase reserve														55,027			48,684
Amount credited against customer accounts		(88,130	)		(37,739	)		(209,827	)		(116,593	)		(76,967	)		(69,444	)
Foreign currency translation														(1,170	)		254

Ending reserve balance	$	87,500		$	63,318		$	87,500		$	63,318		$	76,891		$	69,763

The Company’s provisions for, and write offs against, the reserves offsetting accounts receivable increased in ~~fiscal~~Fiscal 2006 compared to Fiscal 2005 due to the large increase in wholesale ~~sales and the promotional retail environment.~~sales. Ending reserve balances have increased for substantially the same reasons.

We require that a store be open a full fiscal year before we include it in the computation of same store sales change. Stores that are closed during the fiscal year are excluded. Stores that are relocated or enlarged are also excluded until they have been in their new location for a full fiscal year.


	*Income Taxes*

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


	*Accounts Receivable ~~Net~~*

In the normal course of business, the Company extends credit to its wholesale customers that satisfy pre-defined credit criteria. Accounts receivable ~~net,~~ as shown on the Consolidated Balance Sheets, is net of the following allowances and reserves.

An allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the consolidated financial statements, assessments of collectibility based on an evaluation of historic and anticipated trends, the financial condition of the Company’s customers, and an evaluation of the impact of economic conditions. Expenses of ~~$4.4~~$0.2 million were recorded as an allowance for uncollectible accounts during the first ~~nine~~three months of fiscal ~~2005.~~2006. The amounts written off against customer accounts during the first ~~nine~~three months of fiscal ~~2005~~2006 totaled ~~$1.0~~$1.2 million, and the balance in this reserve was ~~$10.4~~$9.6 million as of ~~January 1,~~July 2, 2005.

A reserve for trade discounts is established based on open invoices where trade discounts have been extended to customers and is treated as a reduction of sales.

Estimated customer end of season allowances (also referred to as customer markdowns) are included as a reduction of sales. These provisions are based on retail sales performance, seasonal negotiations with the Company’s customers as well as historic deduction trends and an evaluation of current market conditions. Our historical estimates of these costs have not differed materially from actual results. (See Revenue Recognition above)

A reserve for operational chargebacks represents various deductions by customers relating to individual shipments. This reserve, net of expected recoveries, is included as a reduction of sales. The reserve is based on chargebacks received as of the date of the financial statements and past experience. Our historical estimates of these costs have not differed materially from actual results. (See Revenue Recognition above)

Costs associated with potential returns of ~~products~~product are included as a reduction of sales. These reserves are based on current information regarding retail performance, historical experience and an evaluation of current market conditions. The Company’s historical estimates of these costs have not differed materially from actual results. (See Revenue Recognition above)


	*Inventories ~~Net~~*

Inventories ~~net~~ are ~~stated~~valued at the lower of cost ~~(using the first-in-first-out method)~~First-in, First-out, (“FIFO”), method, or market. ~~The Company~~We continually ~~evaluates~~evaluate the composition of ~~its~~our inventories assessing slow-turning, ongoing product as well as prior seasons’ fashion product. Market value of distressed inventory is determined based on historical sales trends for ~~this~~the category of inventory ~~of the Company’s individual product lines,~~involved, the impact of market trends and economic ~~conditions, and the value of current orders in-house relating to the future sales of this type of inventory.~~conditions. Estimates may differ from actual results due to quantity, quality and mix of products in inventory, consumer and retailer preferences and market conditions. ~~The Company’s~~We review our inventory position on a quarterly basis at a minimum and adjust our estimates based on revised projections and current market conditions. If economic conditions worsen, we incorrectly anticipate trends or unexpected events occur, our estimates could be proven overly optimistic, and required adjustments could materially adversely affect future results of operations. Our historical estimates of these costs ~~and its provisions~~ have not differed materially from actual results.


	*Goodwill, ~~and~~ Other Intangibles, Net and Long-Lived Assets*

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that goodwill and intangible assets with indefinite lives no longer be amortized, but rather be tested, at least annually, for impairment. This pronouncement also requires that intangible assets with finite lives be amortized over their respective lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” During ~~fiscal~~the months ended July 2, 2005, there have been no material impairment losses recorded in connection with the assessment of the carrying value of long-lived and intangible assets.

The recoverability of the carrying values of all long-lived assets with definite lives is reevaluated when changes in circumstances indicate the assets’ value may be impaired. ~~Impairment testing is based on a review~~In evaluating an asset for recoverability, we use our best estimate of ~~forecasted operating~~the future cash flows expected to result from the use of the asset and eventual disposition. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair value of the asset, is recognized. In determining the future cash flows, we take various factors into account, including changes in merchandising strategy, the impact of increased local advertising and the ~~profitability~~emphasis on store cost controls. Since the determination of future cash flows is an estimate of future performance, there may be future impairments in the ~~related business.~~

~~For~~event the ~~nine~~future cash flows do not meet expectations.

During the three months ended ~~January 1,~~July 2, 2005, ~~there~~no impairment charges were ~~no adjustments to the carrying values of assets resulting from these evaluations.~~recorded.


	*Accrued Expenses*

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


	*Derivative Instruments*

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

~~The Company uses~~

We use foreign currency forward contracts ~~and options~~ for the specific purpose of hedging the exposure to variability in forecasted cash ~~flow~~flows associated primarily with inventory purchases ~~and~~mainly for our European businesses, royalty payments from our Japanese licensee, and other specific activities. These instruments are designated as cash flow hedges and, in ~~connection~~accordance with SFAS No. 133, to the extent the hedges are highly effective, the changes in fair value are included in Accumulated other comprehensive income (loss), net of related tax effects, with the ~~Company’s European business.~~corresponding asset or liability recorded in the balance sheet. The ~~Company also uses interest rate swaps~~ineffective portion of the cash flow hedge, if any, is recognized in current-period earnings. Amounts recorded in Accumulated other comprehensive income are reflected in current-period earnings when the hedged transaction affects earnings. If the relative values of the currencies involved in the hedging activities were to ~~hedge the fair value~~move dramatically, such movement could have a significant impact on our results of ~~its Euro denominated bonds against fluctuations due to changes~~operations. We are not aware of any reasonably likely events or circumstances which would result in ~~interest rates.~~

different amounts being reported that would materially affect our financial condition or results of operations.

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

~~The Company hedges its~~37

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


~~Item 3.~~	*Inflation*

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

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


	*Alternative Accounting Methods*

In certain instances, accounting principles generally accepted in the United States allow for the selection of alternative accounting methods. Our significant policies that involve the selection of alternative methods are accounting for stock options and inventories.


	•	Two alternative methods for accounting for stock options are available, the intrinsic value method and the fair value method. We use the intrinsic value method of accounting for stock options, and accordingly, no compensation expense has been recognized. Beginning in Fiscal 2007, we will be required to expense the fair value of stock options granted to employees. Under the fair value method, the determination of the pro forma amounts involves several assumptions including option life and future volatility. If the fair value method were used, diluted earnings per share for Fiscal 2004 would decrease. See Note 1 to the Consolidated Financial Statements.

	•	Two alternative methods for accounting for wholesale inventories are the First-In, First-Out (“FIFO”) method and the Last-in, First-out (“LIFO”) method. We account for all wholesale inventories under the FIFO method. Two alternative methods for accounting for retail inventories are the retail method and the cost method. We account for all retail inventories under the cost method.


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 ~~nine~~three months ended ~~January 1,~~July 2, 2005, there were significant fluctuations in the Euro to U.S. dollar exchange rate.

In May 2003, we entered into an interest rate swap for€105.2 million to minimize the impact of changes in the fair value of the Euro debt due to changes in EURIBOR, the benchmark interest rate. In April 2004 and October 2004, we entered into additional interest rate swaps of€50 million each for the same purpose. We have exposure to interest rate volatility as a result of these interest rate swaps. A ten percent change in the average rate would have resulted in a ~~$0.8~~$0.2 million change in interest expense during the ~~nine~~three months ended ~~January 1,~~July 2, 2005.

Since April ~~3, 2004,~~2, 2005, other than 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.


Item 4.	*Controls and Procedures*

Based on an evaluation carried out as of the end of the period covered by this report conducted under the supervision and with the participation, of our management, including our Chief Executive Officer and Chief Financial Officer, the Chief Executive Officer and Chief Financial Officer have concluded that our

The Company maintains disclosure controls and procedures ~~(as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)~~that are ~~effective~~designed to ~~provide reasonable assurance~~ensure that information ~~relating to the Company and its subsidiaries that we are~~ required to ~~disclose~~be disclosed in the reports that ~~we file~~the Company files or ~~submit to~~submits under the ~~SEC~~Securities and Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and ~~forms.~~forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As of July 2, 2005, we carried out an evaluation, under the ~~end~~supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the ~~period covered by this report, there have been no significant changes~~effectiveness of the design and operation of our disclosure controls and procedures pursuant to the Securities and Exchange Act Rule 13a-15(b). Our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of July 2, 2005 due to the material weakness in our internal control over financial reporting ~~that have materially affected, or are reasonably likely~~with respect to ~~materially affect, our~~income taxes identified during the Company’s assessment of internal control over financial reporting as of April 2, 2005, which has not yet been remediated and which was reported in our Fiscal 2005 Annual Report on Form 10K, and the additional material weakness identified during the first quarter of Fiscal 2006 relating to inadequacies in the controls over the period-end financial closing and reporting process as described below.

During the financial closing and reporting process for the first quarter of Fiscal 2006, accounting errors were identified that resulted in adjustments to present the financial statements for the quarter ended July 2, 2005, in accordance with generally accepted accounting principles and in the restatement of the previously issued financial statements for the first quarter of Fiscal 2005, as more fully disclosed in Note 2 to the Notes to Consolidated Financial Statements. These errors resulted from inadequacies in our controls over the financial closing and reporting process. Specifically, the Company has an inadequate number of accounting personnel with sufficient training, which results in the inadequate review, monitoring and analysis of selected account balances and the lack of resolution of unusual or reconciling items in a timely manner. Based on these facts, and because of the significance of the financial closing and reporting process to the preparation of reliable financial statements, our Chief Executive Officer and Chief Financial Officer have concluded that these inadequacies in our controls as described in this paragraph constituted a material weakness as of July 2, 2005.

To compensate for these material weaknesses, the Company performed additional analysis and other procedures in order to prepare the unaudited quarterly consolidated financial statements in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

To begin the remediation process for the matters described above, we have developed plans that include:


	i) Hiring additional finance staff including tax staff with significant tax accounting experience;

	ii) Instituting formal training of finance and tax personnel;

	iii) Conducting a review of accounting and tax processes to incorporate technology enhancements and strengthen the design and operation of controls and;

	iv) Implementing policies to ensure the accuracy of accounting and tax calculations supporting the amounts reflected in our financial statements and to ensure all significant accounts are properly reconciled on a frequent and timely basis.

These remediation plans will be implemented during the third and fourth quarter of this fiscal year. In addition, we hired a new vice president of Tax in the first quarter of Fiscal 2006. Neither material weakness will be considered remediated until the applicable remedial procedures operate for a period of time, such procedures are tested and management has concluded that the procedures are operating effectively.

Except for the material weakness identified relating to inadequacies in the controls over the period-end financial closing and reporting process described above there were no changes in its internal control over financial reporting during the quarter covered by this report that would materially affect its internal control over financial reporting.

3839

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

Reference is made to the information disclosed under Item 3 — ~~Legal Proceedings~~“LEGAL PROCEEDINGS” in our Annual Report on Form 10-K for the fiscal year ending April ~~3, 2004. Such information is supplemented by the following:~~

In our litigation with Jones Apparel Group, Inc. (including its subsidiaries, “Jones”) with respect to the former Lauren license agreements, the New York State Supreme Court, on August 24, 2004, denied our motion to reconsider its orders (i) denying our motion to dismiss Jones’ claims against us for breach of the Lauren agreements and (ii) granting Jones’ motion for summary judgment in our action for declaratory judgment that the Lauren agreements terminated on December 31, 2003 and dismissing our complaint. We filed our motion to appeal the Court’s orders on October 4, 2004. We currently anticipate that oral argument on our appeal will be heard in March2, 2005.

On November 1, 2004, the arbitral panel of the International Centre for Dispute Resolution hearing the arbitration between us and the United States Polo Association, United States Polo Association Properties, Inc., Global Licensing Sverige and Atlas Design AB (collectively, “USPA”) in Sweden rendered a decision rejecting the relief sought by USPA and holding that their so-called Horseman symbol infringes on our trademark and other rights. The arbitral tribunal awarded us damages in excess of 3,500,000 Swedish Krona, and ordered USPA to discontinue the sale of and destroy all remaining stock of, clothing bearing its Horseman symbol in Sweden.

On October 29, 2004, we filed a Demand for arbitration against the United States Polo Association and United States Polo Association Properties, Inc. in the United Kingdom under the auspices of the International Centre for Dispute Resolution seeking a judgment that the Horseman symbol infringes on our trademark and other rights, as well as injunctive relief. Subsequently, the United States Polo Association and United States Polo Association Properties, Inc. agreed not to distribute products bearing the Horseman symbol in the United Kingdom or any other member nation of the European Community. Consequently, we withdrew our arbitration demand on December 7, 2004.

In the putative class action in the United States District Court for the District of Northern California in which the plaintiff purports to represent a class of employees who allegedly were injured by a requirement that certain retail employees purchase and wear our apparel as a condition of employment, the parties are engaged in settlement discussions and we have established a reserve for our estimate of the cost of a settlement, which is not material to the Company.


Item 2.	*Changes in Securities and Use of Proceeds*

~~We did not repurchase any shares~~

The following table sets forth the repurchases of our common stock during the first fiscal quarter ended ~~January 1,~~July 2, 2005. In 1998 we announced a $100 million stock repurchase plan. Approximately $21 million in shares may yet be repurchased under this plan. On February 2, 2005, we announced that our Board of Directors had approved an additional stock repurchase plan which allows for the purchase of up to an additional $100 million in our stock. The new repurchase plan does not have a termination date.


								Maximum Number
								(or Approximate
						Total Number of		Dollar Value) of
						Shares (or Units)		Shares (or Units)
	Total Number of					Purchased as Part of		That May yet be
	Shares (or Units)			Average Price		Publicly Announced		Purchased Under the
Period	Purchased			Paid per Share		Plans or Programs		Plans or Programs

April 2, 2005 to April 30, 2005		10,248	(1)	$	38.43		—			(2)
May 1, 2005 to May 28, 2005		—			—		—		—
May 29, 2005 to July 2, 2005		28,060	(1)		43.04		—		—
Total		38,308		$	41.81		—		—


(1)	Represents shares surrendered to, or withheld by, the Company in satisfaction of withholding taxes in connection with the vesting of awards under the Company’s 1997 Long Term Incentive Plan, as amended and restated.

(2)	In March 1998, we announced a $100 million Class A Common Stock repurchase plan. Approximately $22.5 million in share repurchases remain available under this plan. On February 2, 2005, we announced a second stock repurchase plan under which up to an additional $100 million of Class A Common Stock may be purchased. No shares have been repurchased under this plan, which does not have a termination date.


Item 6.	*Exhibits*


	3.1			Amended and restated Certificate of Incorporation of Polo Ralph Lauren Corporation (filed as exhibit 3.1 to the Polo Ralph Lauren Registration Statement on Form S-1 (file no. 333-24733) (the “S-1”)).

	3.2			Amended and Restated By-Laws of Polo Ralph Lauren Corporation (filed as exhibit 3.2 to the S-1).

	10.1			Employment Agreement, ~~dated~~effective as of ~~January~~April 3, 2005, between Polo Ralph Lauren Corporation and ~~Tracey T. Travis.~~Mitchell A. Kosh, Senior Vice President, Human Resources and Legal.

~~10.2~~	31.1		Credit Agreement, dated as of October 6, 2004, among the Company, as Borrower, The Lenders Party Thereto, J.P. Morgan Chase Bank, as Administrative Agent, The Bank of New York, Fleet National Bank, SunTrust Bank, and Wachovia Bank N.A., as Syndication Agents, J.P. Morgan Securities Inc., as Sole Bookrunner and Sole Lead Arranger. (Incorporated by reference to the Company’s Current Report on Form 8-K filed on October 12, 2004.)

~~31.1~~		Certification of Ralph Lauren, ~~required by~~Chairman and Chief Executive Officer, pursuant to 17 CFR 240.13a-14(a).

	31.2			Certification of Tracey T. Travis, ~~required by~~Senior Vice President and Chief Financial Officer, pursuant to 17 CFR 24013a-14(a).

	32.1			Certification of Ralph Lauren, Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	32.2			Certification of Tracey T. Travis, Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or Securities Exchange Act of 1934.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	~~POLO RALPH LAUREN CORPORATION~~Polo Ralph Lauren Corporation


	By:	/s/ TRACEY T. TRAVIS



	Tracey T. Travis
	Senior Vice President ~~of Finance~~ and
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

Date: ~~February 10,~~August 11, 2005


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

		For the Quarterly Period Ended ~~January 1,~~July 2, 2005

or

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


Delaware		13-2622036
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
650 Madison Avenue, New York, New York (Address of principal executive offices)		10022 (Zip Code)


			January 1,			April 3,					July 2,			April 2,
			2005			2004					2005			2005

ASSETS	ASSETS								ASSETS
Cash and cash equivalents	Cash and cash equivalents		$	362,931		$	343,477		Cash and cash equivalents		$	522,327		$	350,485
Accounts receivable, net of allowances of $97,935 and $107,593				334,347			441,724
Inventories, net				425,071			363,691
Accounts receivable, net of allowances of $86,446 and $111,042									Accounts receivable, net of allowances of $86,446 and $111,042			275,598			455,682
Inventories									Inventories			467,610			430,082
Deferred tax assets	Deferred tax assets			36,008			21,565		Deferred tax assets			70,730			74,821
Prepaid expenses and other	Prepaid expenses and other			105,767			100,862		Prepaid expenses and other			111,220			102,693

	Total current assets			1,264,124			1,271,319		Total current assets			1,447,485			1,413,763
Property and equipment, net	Property and equipment, net			467,340			397,328		Property and equipment, net			488,728			487,894
Deferred tax assets	Deferred tax assets			52,851			61,579		Deferred tax assets			34,634			35,973
Goodwill	Goodwill			597,987			341,603		Goodwill			547,752			558,858
Intangibles, net	Intangibles, net			18,377			17,640		Intangibles, net			46,043			46,991
Other assets	Other assets			189,369			180,772		Other assets			179,172			183,190

	Total assets		$	2,590,048		$	2,270,241		Total assets		$	2,743,814		$	2,726,669


LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY								LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	Accounts payable		$	154,447		$	187,355		Accounts payable		$	160,324		$	184,394
Income tax payable	Income tax payable			71,663			77,736		Income tax payable			55,689			72,148
Accrued expenses and other	Accrued expenses and other			303,149			236,039		Accrued expenses and other			375,744			365,868

	Total current liabilities			529,259			501,130		Total current liabilities			591,757			622,410
Long-term debt	Long-term debt			307,981			277,345		Long-term debt			269,149			290,960
Other non current liabilities				99,601			69,693
Commitments and Contingencies (Note 11):
Other non-current liabilities									Other non-current liabilities			139,785			137,591
Commitments and contingencies (Note 12):									Commitments and contingencies (Note 12):
Stockholders’ equity:	Stockholders’ equity:								Stockholders’ equity:
	Common stock								Common stock
		Class A, par value $.01 per share; 500,000,000 shares authorized; 63,499,061 and 61,498,183 shares issued		647			620			Class A, par value $.01 per share; 500,000,000 shares authorized; 65,014,942 and 64,016,034 shares issued and outstanding		666			652
		Class B, par value $.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding		433			433			Class B, par value $.01 per share; 100,000,000 shares authorized; 43,280,021 shares issued and outstanding		433			433
	Additional paid-in-capital			647,721			563,457		Additional paid-in-capital			715,784			664,279
	Retained earnings			1,079,467			927,390		Retained earnings			1,133,048			1,090,310
	Treasury stock, Class A, at cost (4,177,600 and 4,145,800 shares)			(80,027	)		(78,975	)	Treasury stock, Class A, at cost (4,215,908 and 4,177,600 shares)			(81,629	)		(80,027	)
	Accumulated other comprehensive income			39,559			23,942		Accumulated other comprehensive income			19,341			29,973
	Unearned compensation			(34,593	)		(14,794	)	Unearned compensation			(44,520	)		(29,912	)

	Total stockholders’ equity			1,653,207			1,422,073		Total stockholders’ equity			1,743,123			1,675,708

		Total liabilities & stockholders’ equity	$	2,590,048		$	2,270,241			Total liabilities and stockholders’ equity	$	2,743,814		$	2,726,669


													Three Months Ended

	Three Months Ended						Nine Months Ended						July 2,			July 3,
													2005			2004
	January 1,			December 27,			January 1,			December 27,
	2005			2003			2005			2003						(As restated
																see note 2)
Net sales	$	830,058		$	578,131		$	2,187,407		$	1,627,461		$	694,603		$	549,064
Licensing revenue		57,935			67,234			177,016			203,412			57,339			56,942

Net revenues		887,993			645,365			2,364,423			1,830,873			751,942			606,006
Cost of goods sold		449,960			312,363			1,181,535			898,553			337,514			290,478

Gross profit		438,033			333,002			1,182,888			932,320			414,428			315,528
Selling, general and administrative expenses		322,981			256,614			921,931			767,453			334,207			295,043
Restructuring charge		218			15,930			1,846			15,930			—			731

Total expenses														334,207			295,774
Income from operations		114,834			60,458			259,111			148,937			80,221			19,754
Foreign currency (gains) losses		(400	)		3,552			(3,334	)		(531	)		(41	)		211
Interest expense		2,951			2,969			8,165			9,721			2,510			2,435
Interest income		(955	)		(459	)		(2,494	)		(2,097	)		(2,943	)		(808	)

Income before provision for income taxes and other (income) expense, net		113,238			54,396			256,774			141,844			80,695			17,916
Provision for income taxes		40,199			19,854			91,342			51,773			30,343			6,316
Other (income) expense, net		(1,803	)		(816	)		(3,220	)		(4,352	)		(355	)		(1,125	)

Net income	$	74,842		$	35,358		$	168,652		$	94,423		$	50,707		$	12,725

Net income per share — Basic	$	0.73		$	0.36		$	1.67		$	0.96		$	0.49		$	0.13

Net income per share — Diluted	$	0.72		$	0.35		$	1.63		$	0.94		$	0.48		$	0.12

Weighted average common shares outstanding — Basic		101,896			99,072			101,190			98,718
Weighted-average common shares outstanding — Basic														103,048			100,481

Weighted average common shares outstanding — Diluted		104,325			101,291			103,566			100,403
Weighted-average common shares outstanding — Diluted														105,491			102,802

Dividends declared per share	$	0.05		$	0.05		$	0.15		$	0.15		$	0.05		$	0.05


												Three Months Ended

			Nine Months Ended									July 2,			July 3,
												2005			2004
			January 1,			December 27,
			2005			2003									(As restated
															see note 2)
Cash flows from operating activities	Cash flows from operating activities								Cash flows from operating activities
Net income	Net income		$	168,652		$	94,423		Net income			$	50,707		$	12,725
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:								Adjustments to reconcile net income to net cash provided by operating activities:
	Deferred income taxes benefit			(1,253	)		(6,242	)	Benefit from deferred income taxes				(6,964	)		(1,678	)
	Depreciation and amortization			73,342			59,104		Depreciation and amortization				27,661			23,154
	Stock compensation expense			9,350			2,825		Stock compensation expense				4,869			1,162
	Tax benefit of exercised stock options			12,922			2,055		Tax benefit from stock option exercises				6,490			2,142
	Provision for losses on accounts receivable			4,242			971		Provision for losses on accounts receivable				207			901
	Disposal of property and equipment			3,927			858		Loss on disposal of property and equipment				210			693
	Restructuring charge (non cash)			—			15,930		Changes in other non-current liabilities				9,340			(325	)
	Changes in non-current liabilities			32,149			(16,238	)	Foreign currency gains				(1,318	)		—
	Foreign currency gains			(3,334	)		(145	)	Other				(2,776	)		(1,923	)
	Other			(5,013	)		(428	)	Changes in assets and liabilities (net of acquisitions):
	Changes in assets and liabilities (excluding acquisitions):									Accounts receivable			174,991			186,678
		Accounts receivable		108,561			91,292			Inventories			(47,225	)		(31,168	)
		Inventories		(21,385	)		(47,015	)		Prepaid expenses and other			(3,546	)		29,639
		Prepaid expenses and other		3,576			(21,395	)		Other assets			(1,407	)		(2,237	)
		Other assets		(15,720	)		(30,255	)		Accounts payable			(22,640	)		(56,354	)
		Accounts payable		(36,485	)		(18,789	)		Income taxes payable			(16,432	)		(39,553	)
		Income taxes payable		1,827			(834	)		Accrued expenses and other			18,540			(10,934	)
		Accrued expenses and other		24,626			56,584

Net cash provided by operating activities	Net cash provided by operating activities			359,984			182,701		Net cash provided by operating activities				190,707			112,922

Cash flows from investing activities	Cash flows from investing activities								Cash flows from investing activities
	Acquisition, net of cash acquired			(243,834	)		(4,519	)
	Purchases of property and equipment			(124,907	)		(69,650	)
	Equity investments			—			(5,427	)	Acquisition, net of cash acquired				—			(239,971	)
	Purchase of other intangibles						(7,500	)	Purchases of property and equipment				(32,607	)		(36,017	)

Net cash used in investing activities	Net cash used in investing activities			(368,741	)		(87,096	)	Net cash used in investing activities				(32,607	)		(275,988	)

Cash flows from financing activities	Cash flows from financing activities								Cash flows from financing activities
	Payment of dividends			(15,137	)		(9,877	)	Payment of dividends				(5,193	)		(5,023	)
	Repurchases of common stock			(1,052	)		(1,047	)	Repurchases of common stock				(1,602	)		(369	)
	Payment of deferred financing costs			(1,106	)		—		Payments of capital lease liability				(654	)		(322	)
	Proceeds from exercise of stock options			42,228			18,685		Proceeds from exercise of stock options				25,552			13,187
	Repayments of short-term bank borrowings			—			(100,943	)

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities			24,933			(93,182	)	Net cash provided by (used in) financing activities				18,103			7,473

Effect of exchange rate changes on cash and cash equivalents and net investment in foreign subsidiaries				3,278			(8,326	)
Effect of exchange rate changes on cash and cash equivalents									Effect of exchange rate changes on cash and cash equivalents				(4,361	)		683

Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents			19,454			(5,903	)	Net increase (decrease) in cash and cash equivalents				171,842			(154,910	)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period			343,477			343,606		Cash and cash equivalents at beginning of period				350,485			352,335

Cash and cash equivalents at end of period	Cash and cash equivalents at end of period		$	362,931		$	337,703		Cash and cash equivalents at end of period			$	522,327		$	197,425

Supplemental cash flow information	Supplemental cash flow information								Supplemental cash flow information
	Cash paid for interest		$	13,378		$	6,546		Cash paid for interest			$	4,137		$	2,423

	Cash paid for income taxes		$	69,528		$	20,840		Cash paid for income taxes			$	41,735		$	38,734

Supplemental schedule of non-cash investing and financing activities	Supplemental schedule of non-cash investing and financing activities								Supplemental schedule of non-cash investing and financing activities
	Fair value of assets acquired excluding cash		$	275,518		$	—		Fair value of assets acquired, excluding cash			$	—		$	266,369
	Less: Cash paid			244,120			—		Less: Cash paid				—			239,971
Acquisition obligation				20,000			—
											Acquisition obligation		—			15,000
	Liabilities assumed		$	11,398		$	—
									Liabilities assumed			$	—		$	11,398


		Page

PART I. FINANCIAL INFORMATION (Unaudited)
Item 1.	Financial Statements
	Consolidated Balance Sheets as of July 2, 2005 and April 2, 2005		2
	~~Consolidated Balance Sheets as of January 1, 2005 and April 3, 2004~~		2
	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003~~July 3, 2004		3
	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~January 1,~~July 2, 2005 and ~~December 27, 2003~~July 3, 2004		4
	Notes to Consolidated Financial Statements		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2225
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		38
Item 4.	Controls and Procedures		38

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		3940
Item 2.	Changes in Securities and Use of Proceeds		39
~~Item 4.~~	~~Submission Matters to a Vote of Security-holders~~
~~Item 6.~~	~~Exhibits and Reports on Form 8-K~~		40
Item 6.	Exhibits and Reports on Form 8-K		40
Signatures			41
~~EX-10.1~~EX-10.1: EMPLOYMENT AGREEMENT
~~EX-31.1~~EX-31.1: CERTIFICATION
~~EX-31.2~~EX-31.2: CERTIFICATION
~~EX-32.1~~EX-32.1: CERTIFICATION
~~EX-32.2~~EX-32.2: CERTIFICATION


	*~~Foreign Currency Translation~~Accumulated Other Comprehensive Income*



		For the Three				For the Nine					For the Three
		Months Ended				Months Ended					Months Ended

		January 1,		December 27,		January 1,		December 27,			July 2,		July 3,
		2005		2003		2005		2003			2005		2004

											(In thousands, except
		(In thousands, except per share amounts)									per share amounts)
Net income as reported	Net income as reported	$	74,842	$	35,358	$	168,652	$	94,423	Net income as reported	$	50,707	$	12,725
Add: stock-based employee compensation expense included in reported net income, net of tax	Add: stock-based employee compensation expense included in reported net income, net of tax		2,903		785		6,018		1,779	Add: stock-based employee compensation expense included in reported net income, net of tax		3,058		752
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax	Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		6,368		4,634		16,343		13,325	Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of tax		6,749		3,849

Pro forma net income	Pro forma net income	$	71,377	$	31,509	$	158,327	$	82,877	Pro forma net income	$	47,016	$	9,628

Net income per share as reported —	Net income per share as reported —									Net income per share as reported —
	Basic	$	0.73	$	0.36	$	1.67	$	0.96	Basic	$	0.49	$	0.13
	Diluted	$	0.72	$	0.35	$	1.63	$	0.94	Diluted	$	0.48	$	0.12
Pro forma net income per share —	Pro forma net income per share —									Pro forma net income per share —
	Basic	$	0.70	$	0.32	$	1.56	$	0.84	Basic	$	0.46	$	0.10
	Diluted	$	0.69	$	0.31	$	1.54	$	0.83	Diluted	$	0.45	$	0.09


2.	*~~Fiscal Year~~*Restatement of Previously Issued Financial Statements


	Three Months Ended July 3, 2004

				Lease
	As Previously			Accounting			RL Media
	Reported			Adjustments			Consolidation			As Restated

Consolidated Statement of Income
Net sales	$	535,808		$	—		$	13,256		$	549,064
Net revenues		592,750			—			13,256			606,006
Cost of goods sold		285,650			—			4,828			290,478
Gross profit		307,100			—			8,428			315,528
Selling, general and administrative expenses		285,764			1,783			7,496			295,043
Income from operations		20,605			(1,783	)		932			19,754
Interest expense, net		1,630			—			(3	)		1,627
Income before provision for income taxes and other (income) expense, net		18,764			(1,783	)		935			17,916
Provision for income taxes		6,849			(725	)		192			6,316
Other (income) expense, net		(1,488	)		—			363			(1,125	)
Net income		13,403			(1,058	)		380			12,725
Net income per share — Diluted		0.13			(0.01	)		—			0.12


								Credit Card
								Receivable and
				Lease				Other
	As Previously			Accounting		RL Media		Cash Flow
	Reported			Adjustments		Consolidation		Adjustments			As Restated

Consolidated Statements of Cash Flows
For the three months ended July 3, 2004:
Net cash provided by operating activities	$	98,169		$	79	$	574	$	14,100		$	112,922
Net cash used in investing activities		275,216			79		—		693			275,988
Net cash provided by financing activities		7,795			—		—		(322	)		7,473
Net (decrease) increase in cash and cash equivalents		(168,569	)		—		574		13,085			(154,910	)



	For the Three
	Months		Ended		For the Nine				For the Three
					Months Ended				Months Ended

	January 1,		December 27,		January 1,		December 27,		July 2,		July 3,
	2005		2003		2005		2003		2005		2004

	Actual								Actual
Net revenue	$	887,993	$	687,703	$	2,418,176	$	1,979,393	$	751,942	$	659,759
Net income		74,842		37,564		174,253		105,468		50,707		13,881
Net income per share — Basic	$	0.73	$	0.38	$	1.72	$	1.07	$	0.49	$	0.14
Net income per share — Diluted	$	0.72	$	0.37	$	1.68	$	1.05	$	0.48	$	0.14


	Wholesale		Retail		Licensing		Total		Wholesale			Retail			Licensing		Total

Balance at April 3, 2004	$	151.1	$	74.0	$	116.5	$	341.6
Balance at April 2, 2005									$	367.9		$	74.5		$	116.5	$	558.9
Purchases		240.6		—		—		240.6		—			—			—		—
Effect of foreign exchange and other adjustments		13.4		2.4		—		15.8		(10.7	)		(0.4	)		—		(11.1	)

Balance at January 1, 2005	$	405.1	$	76.4	$	116.5	$	598.0
Balance at July 2, 2005									$	357.2		$	74.1		$	116.5	$	547.8



	January 1, 2005							April 3, 2004									July 2, 2005							April 2, 2005

	Gross							Gross									Gross							Gross
	Carrying		Accum.					Carrying		Accum.					Estimated		Carrying		Accum.					Carrying		Accum.					Estimated
	Amount		Amort.			Net		Amount		Amort.			Net		Lives		Amount		Amort.			Net		Amount		Amort.			Net		Lives

Licensed trademarks	$	17,400	$	(2,690	)	$	14,710	$	17,400	$	(1,260	)	$	16,140		10 years	$	17,400	$	(3,560	)	$	13,840	$	17,400	$	(3,125	)	$	14,275		10 years
Non-compete agreements		2,600		(433	)		2,167		—		—			—		3 years		2,500		(833	)		1,667		2,500		(625	)		1,875		3 years
Customer relationships																		29,900		(1,199	)		28,701		29,900		(897	)		29,003		25 years
Domain name																		353		(18	)		335		353		(12	)		341		15 years


				Lease and Other
	Severance and			Contract
	Termination			Termination
	Benefits			Costs			Total

Balance at April 3, 2004	$	3,316		$	1,859		$	5,175
Fiscal 2005 provision		1,846			—			1,846
Fiscal 2005 spending		(4,849	)		(642	)		(5,491	)

Balance at January 1, 2005	$	313		$	1,217		$	1,530


1.	~~Significant Accounting Policies~~Fiscal Year


	*Principles of Consolidation*


	*Financial Reporting*


	*Use of Estimates*


				Lease and Other
	Severance and			Contract
	Termination			Termination
	Benefits			Costs			Total

Balance at April 2, 2005	$	141		$	891		$	1,032
Provision		—			—			—
Utilization		(60	)		(313	)		(373	)

Balance at July 2, 2005	$	81		$	578		$	659


	Lease and
	Contract
	Termination
	Costs

Balance at April 3, 2004	$	6,360
Fiscal 2005 spending		(1,994	)

Balance at January 1, 2005	$	4,366


	Lease and
	Contract
	Termination
	Costs

Balance at April 2, 2005	$	4,066
Fiscal 2006 spending		(563	)

Balance at July 2, 2005	$	3,503


			Unrealized Losses			Changes in Fair			Unrealized Losses		Unrealized Losses
			on Hedging			Value During the			on Hedges		on Hedging
			Derivatives as of			Nine-Months Ended			Reclassified into		Derivatives as of
			April 3, 2004			January 1, 2005			Earnings		January 1, 2005

Derivatives designated as hedges of:
	Inventory purchases		$	(6.9	)	$	(9.0	)	$	9.0	$	(6.9	)
	Intercompany royalty payments			(10.7	)		(6.5	)		—		(17.2	)
	Net investment in foreign subsidiaries			(60.2	)		(32.8	)		—		(93.0	)

		Before-tax totals	$	(77.8	)	$	(48.3	)	$	9.0	$	(117.1	)

		After-tax totals	$	(50.7	)	$	(32.2	)	$	8.3	$	(74.6	)


			Unrealized							Unrealized
			Gains (Losses)			Changes in Fair		Unrealized Losses		Gains (Losses)
			on Hedging			Value During the		on Hedges		on Hedging
			Derivatives as of			Three-Months Ended		Reclassified into		Derivatives as of
			April 2, 2005			July 2, 2005		Earnings		July 2, 2005

Derivatives designated as hedges of:
	Inventory purchases		$	1.9		$	5.8	$	1.4	$	9.1
	Intercompany royalty payments			(13.8	)		4.1		—		(9.7	)
	Net investment in foreign subsidiaries			(77.4	)		21.8		—		(55.6	)

		Before-tax totals	$	(89.3	)	$	31.7	$	1.4	$	(56.2	)

		After-tax totals	$	(55.1	)	$	21.7	$	1.3	$	(32.1	)


	•	~~the increase in sales from the newly implemented Lauren line of $278.7 million during the nine months ended January 1, 2005;~~

	•	~~the inclusion of sales from the newly acquired Childrenswear line of $132.5 million during the nine months ended January 1, 2005 (acquired July 2, 2004);~~

	•	~~$17.9 million from the favorable impact of Euro currency fluctuations;~~

	•	partially offsetting these increases is a $14.7 million decrease in men’s wholesale sales, resulting primarily from planned reductions in sales as we continue to reposition the brand in appropriate stores.


	•	8.9% and 6.5% increases, respectively, in comparable store sales for full price and outlet stores. Excluding the effect of foreign currency exchange rate fluctuations, comparable store sales increased 7.4% and 4.7% for full price and outlet stores, respectively;

	•	~~the stronger Euro, which accounted for approximately $12.0 million of the increase in net sales; and~~

	•	~~new store openings, net of store closings.~~


	•	~~loss of $27.6 million of royalties from Lauren licenses, which were terminated as of the end of the third quarter of Fiscal 2004;~~

	•	~~loss of $8.9 million of royalties from Childrenswear licenses, which were terminated as of the end of the first quarter of Fiscal 2005;~~

	•	~~partially offset by growth in our international and home licensing businesses.~~


	•	~~higher selling salaries and related costs of $32.5 million in connection with the increase in retail sales;~~

	•	~~incremental expenses of $26.8 million associated with a full year’s expenses for the Lauren wholesale line, exclusive of additional corporate and overhead expenses incurred;~~

	•	~~expenses of $24.4 million attributable to the recently acquired Childrenswear line;~~

	•	approximately $14.8 million of the increase in the nine months ended January 1, 2005 was due to the impact of foreign currency exchange rate fluctuations, primarily due to the strengthening of the Euro;

	•	the remainder of the increase in SG&A results from a number of factors, including higher distribution costs as a result of volume increases, costs associated with the Sarbanes-Oxley Act and incremental advertising related to the addition of the Lauren and Children’s lines.


	•	The increase in the wholesale operating results was primarily the result of sales generated by Lauren and Childrenswear lines and improvements in the gross margin rate, partially offset by the sales decrease in men’s wholesale.

	•	The increase in retail operating results was driven by increased net sales and improved gross margin rate, partially offset by the higher selling salaries and related costs incurred in connection with the sales increase.

	•	~~The decrease in licensing operating results was primarily due to the loss of royalties from the former Lauren and Childrenswear licenses.~~