SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 28, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 001-13057
POLO RALPH LAUREN CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-2622036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
650 MADISON AVENUE, NEW YORK, NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-318-7000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrants were
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]
At August 12, 1997, 34,272,726 shares of the registrant's Class A Common Stock,
$.01 par value, were outstanding, 43,280,021 shares of the registrant's Class B
Common Stock, $.01 par value, were outstanding and 22,720,979 shares of the
registrant's Class C Common Stock, $.01 par value were outstanding.
POLO RALPH LAUREN CORPORATION
INDEX TO FORM 10-Q
PART 1. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 28, 1997 (Unaudited)
and March 29, 1997................................................... 3
Consolidated Statements of Income (Unaudited) for the three
months ended June 28, 1997 and June 29, 1996..................... 4
Consolidated Statements of Cash Flows (Unaudited) for the three
months ended June 28, 1997 and June 29, 1996..................... 5-6
Notes to Consolidated Financial Statements........................... 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 12-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................. 18
Item 5. Other Information.................................................... 18-19
Item 6. Exhibits and Reports on Form 8-K..................................... 19
2
POLO RALPH LAUREN CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 28, March 29,
1997 1997
---------- ---------
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $46,269 $29,599
Accounts receivable, net of allowances of $10,561 and $12,845, respectively 90,266 144,303
Inventories 291,687 222,147
Deferred tax asset 19,006 2,669
Prepaid expenses and other 19,365 37,621
-------- --------
Total current assets 466,593 436,339
Property and equipment, net 117,339 83,240
Investment in and advances to affiliate 5,000 17,977
Deferred tax asset 10,681 84
Other assets 68,849 39,103
-------- --------
$668,462 $576,743
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Current liabilities
Notes and acceptances payable - banks $9,520 $26,777
Current portion of long-term debt 872 22,248
Current portion of subordinated notes - 20,000
Dividend and Reorganization Notes payable 5,728 -
Accounts payable 72,914 89,417
Income taxes payable 3,688 2,357
Accrued expenses and other 71,866 63,168
-------- --------
Total current liabilities 164,588 223,967
Long-term debt - 47,875
Other noncurrent liabilities 22,632 20,216
Subordinated notes - 24,000
Stockholders' equity and partners' capital
Common Stock
Class A, par value $.01 per share; 500,000,000 shares
authorized; 34,272,726 shares issued and outstanding 343 -
Class B, par value $.01 per share; 100,000,000 shares
authorized; 43,280,021 shares issued and outstanding 433 -
Class C, par value $.01 per share; 70,000,000 shares
authorized; 22,720,979 shares issued and outstanding 227 -
Additional paid-in-capital 446,435 -
Retained earnings and partners' capital 33,804 260,685
-------- --------
Total stockholders' equity and partners' capital 481,242 260,685
-------- --------
$668,462 $576,743
======== ========
See accompanying notes to financial statements.
3
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(unaudited)
Three Months Ended
----------------------------------
June 28, June 29,
1997 1997
----------- -----------
Net sales $255,412 $199,255
Licensing revenue 32,532 24,553
----------- -----------
Net revenues 287,944 223,808
Cost of goods sold 142,526 120,235
----------- -----------
Gross profit 145,418 103,573
Selling, general and administrative expenses 116,674 82,305
----------- -----------
Income from operations 28,744 21,268
Interest expense 2,762 4,055
Equity in net loss of affiliate - 298
----------- -----------
Income before income taxes 25,982 16,915
(Benefit) provision for income taxes (18,656) 4,260
----------- -----------
Net income $44,638 $12,655
=========== ===========
Pro forma (Note 2) - (unaudited)
Historical income before income taxes $25,982 $16,915
Pro forma adjustments other than income taxes 3,163 4,436
----------- -----------
Pro forma income before income taxes 29,145 21,351
Pro forma provision for income taxes 11,949 8,963
----------- -----------
Pro forma net income $17,196 $12,388
=========== ===========
Pro forma net income per share $0.17 $0.12
=========== ===========
Pro forma common shares outstanding 100,222,444 100,222,444
=========== ===========
See accompanying notes to financial statements.
4
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED
----------------------
JUNE 28, JUNE 29,
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 44,638 $ 12,655
Adjustments to reconcile net income to net
cash provided by operating activities
Benefit from deferred income taxes (21,746) --
Equity in net loss of affiliate -- 298
Depreciation and amortization 5,878 3,044
Provision for doubtful accounts 281 188
Other 1,714 (138)
Changes in assets and liabilities, net of acquisition
Accounts receivable 55,376 41,463
Inventories (42,228) (26,946)
Prepaid expenses and other (928) (734)
Other assets (769) (2,448)
Accounts payable (23,998) (14,102)
Accrued expenses and other (1,202) 14,924
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 17,016 28,204
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition, net of cash acquired (8,551) --
Investment in joint venture (5,000) --
Purchases of property and equipment (10,301) (4,606)
Cash surrender value - officers' life insurance (655) (725)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (24,507) (5,331)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Repayments of) proceeds from short-term borrowings, net (17,257) 2,279
Repayments of borrowings against officers' life insurance policies (4,901) --
Repayments of long-term debt and subordinated notes (134,599) (6,399)
Payment of Dividend and Reorganization Notes (43,024) --
Proceeds from issuance of common stock, net 268,797 --
Distributions paid to partners (44,855) (27,771)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 24,161 (31,891)
--------- ---------
Net increase (decrease) in cash and cash equivalents 16,670 (9,018)
Effect of exchange rate changes on cash and cash equivalents -- 25
Cash and cash equivalents at beginning of period 29,599 13,568
--------- ---------
Cash and cash equivalents at end of period $ 46,269 $ 4,575
========= =========
5
POLO RALPH LAUREN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
THREE MONTHS ENDED
------------------
JUNE 28, JUNE 29,
1997 1996
------- --------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 2,802 $ 4,587
======= =======
Cash paid for income taxes $ 1,880 $ 1,207
======= =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Foreign tax credits distributed to stockholders/partners $ 509 $ 783
======= =======
Capital obligations for completed shop-within-shops $ 5,823
=======
Fair value of assets acquired $69,537
Less:
Cash paid 8,551
Fair market value of common stock issued for PRC Acquisition 697
-------
Liabilities assumed $60,289
=======
Fair market value of common stock issued for stock bonus award $ 667
=======
See accompanying notes to financial statements.
6
POLO RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 28, 1997 AND JUNE 29, 1996 IS UNAUDITED)
1 BASIS OF PRESENTATION
(A) UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in a manner consistent with that used in
the preparation of the fiscal 1997 audited combined financial statements of
Polo Ralph Lauren Corporation and subsidiaries ("Polo"). In the opinion of
management, the accompanying consolidated financial statements reflect all
adjustments, consisting only of normal and recurring adjustments, necessary
for a fair presentation of the financial position and results of operations
and cash flows for the periods presented.
Operating results for the three months ended June 28, 1997 and June 29,
1996 are not necessarily indicative of the results that may be expected for
a full year. In addition, the unaudited interim consolidated financial
statements do not include all information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles. These consolidated financial statements
should be read in conjunction with the Company's fiscal 1997 audited
combined financial statements.
(B) BASIS OF PRESENTATION
Polo Ralph Lauren Corporation ("PRLC") was incorporated in Delaware in
March 1997. Prior to the completion of Polo's initial public offering of
its Class A Common Stock (the "Offerings") on June 17, 1997, the partners
and certain of their affiliates contributed to PRLC all of the outstanding
stock of, and partnership interests in, the entities which comprise the
predecessor group of companies in exchange for various combinations of
common stock and cash (the "Reorganization"), effective June 9, 1997. The
accompanying combined financial statements for the three months ended June
29, 1996 include the accounts of Polo Ralph Lauren Enterprises, L.P.
("Enterprises"), Polo Ralph Lauren, L.P. ("Polo Partnership") and
subsidiaries, The Ralph Lauren Womenswear Company, L.P. and subsidiary
("Womenswear") and Polo Retail Corporation and subsidiaries ("PRC"), a 50%
joint venture with a previously nonaffiliated partner (collectively, the
"Predecessor Company"). The controlling interests of the Predecessor
Company were held by Mr. Ralph Lauren, with a 28.5% interest held by
certain investment funds affiliated with The Goldman Sachs Group, L.P.
(collectively, the "GS Group").
The accompanying consolidated financial statements as of and for the
three months ended June 28, 1997 include the combined results of operations
of the Predecessor Company through June 9, 1997 and the consolidated
results of operations of Polo (collectively, the "Company") thereafter
through June 28, 1997. The financial statements of PRLC have not been
included prior to its acquisition of the Predecessor Company because PRLC
was a shell company with no business operations.
7
The financial statements of the Predecessor Company are being presented
on a combined basis because of their common ownership. The combined
financial statements have been prepared as if the entities had operated as
a single consolidated group since their respective dates of organization.
All significant intercompany balances and transactions have been
eliminated. The equity method of accounting was used for the Company's
investment in PRC during the period in which 50% of PRC was owned by a
previously nonaffiliated partner (three months ended June 29, 1996).
Subsequent to the Company's acquisition of the remaining 50% interest in
PRC effective April 3, 1997, as discussed further in Note 1 (e) below, the
results of operations of PRC have been consolidated and the acquisition has
been accounted for as a purchase.
(C) DIVIDEND AND REORGANIZATION NOTES
On June 9, 1997, in connection with the Reorganization, the Company
declared a dividend and issued reorganization notes aggregating $43.0
million to Mr. Lauren and the GS Group representing estimated undistributed
earnings of the Predecessor Company through the closing of the
Reorganization ("Dividend and Reorganization Notes"). The Dividend and
Reorganization Notes were paid with a portion of the proceeds of the
Offerings (see Note 1 (d)). Effective June 9, 1997, the Company declared a
second dividend (the "Second Dividend") to Mr. Lauren and the GS Group in
the amount of $5.7 million representing the difference between the actual
amount of undistributed earnings through the closing of the Reorganization
and the estimated amount of the Dividend and Reorganization Notes. The
Second Dividend will be paid by the Company during its second fiscal
quarter.
(D) INITIAL PUBLIC OFFERING
On June 17, 1997, Polo completed the sale of 11,170,000 shares of its
Class A Common Stock at $26.00 per share in connection with the Offerings.
The net proceeds from the Offerings, after deducting underwriting discounts
and commissions and offering expenses, aggregated $268.8 million. The
proceeds from the Offerings were used as follows: (i) to repay borrowings
outstanding under the Company's New Credit Facility (as defined - see Note
4) in the amount of $163.5 million; (ii) to pay the Dividend and
Reorganization Notes in the amount of $43.0 million to Mr. Lauren and
related entities and the GS Group; and (iii) to repay subordinated notes
and interest thereon in the amount of $24.3 million to Mr. Lauren and the
GS Group. The remaining $38.0 million will be used to pay the Second
Dividend and for other general corporate purposes.
(E) ACQUISITIONS AND JOINT VENTURE
Concurrent with the Reorganization, the Company acquired from an entity
under common control the trademarks and rights under a licensing agreement
associated with its U.S. fragrance business and the interests it did not
already own in another related entity that holds the trademarks related to
its international licensing business in exchange for shares of its Class B
Common Stock ("Trademark Acquisition"). The operating results of these
entities have been included in the results of operations of the Predecessor
Company for all periods presented based on their common ownership.
Effective March 31, 1997, the Company entered into a joint venture
agreement with a
8
nonaffiliated partner to acquire real property in New York City. The
Company and its partners expect to own and operate a concept store in New
York City and are discussing a restaurant and other possible concepts at
the location. Concurrent with the signing of the agreement, the Company
made an initial contribution for its 50% interest in the joint venture in
the amount of $5.0 million. The Company accounts for its 50% interest in
the joint venture under the equity method commencing from the effective
date of the agreement.
On March 21, 1997, the Company entered into purchase agreements with
its joint venture partners to acquire the remaining 50% interest in PRC,
effective April 3, 1997, for consideration aggregating $10.4 million in
cash and Class A Common Stock of Polo ("PRC Acquisition"). The PRC
Acquisition was completed simultaneously with the Offerings.
2 SIGNIFICANT ACCOUNTING POLICIES
(A) PRO FORMA ADJUSTMENTS (UNAUDITED)
The pro forma statement of income data for the three months ended June
28, 1997 and June 29, 1996 presents the effects on the historical financial
statements of certain transactions as if they had occurred at March 31,
1996. The pro forma statement of income data reflects adjustments for: (i)
income taxes based upon pro forma pre-tax income as if the Company had been
subject to additional Federal, state and local income taxes, calculated
using a pro forma effective tax rate of 41.0% and 42.0% for the three
months ended June 28, 1997 and June 29, 1996, respectively (see Note 5);
(ii) the reduction of interest expense resulting from the application of
the net proceeds from the Offerings to outstanding indebtedness; and (iii)
the PRC Acquisition, including the consolidation of PRC's operations, the
amortization of goodwill over 25 years associated with the acquisition and
the elimination of the Company's equity in net loss of PRC for the three
months ended June 29, 1996.
(B) PRO FORMA NET INCOME PER SHARE (UNAUDITED)
Pro forma net income per share has been computed by dividing pro forma
net income by the weighted average number of shares outstanding during the
period, assuming the Offerings had been completed on March 31, 1996. For
comparison purposes only, the weighted average number of shares outstanding
immediately following the completion of the Offerings were considered to be
outstanding during the three months ended June 28, 1997 and June 29, 1996.
Outstanding stock options are not included in the calculation of weighted
average number of shares as the effect is not material.
(C) RECENTLY ISSUED PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. This Statement is effective for
the fiscal year ending March 28, 1998 as a result of the Company's adoption
of the 1997 Long-Term Stock Incentive Plan and the 1997 Stock Option Plan
for Non-Employee Directors (see Note 6). The Company has adopted only the
disclosure provision of SFAS No. 123 and accounts for stock-based
compensation in accordance with Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, which recognizes
compensation cost based on the intrinsic value of the equity instrument
awarded. The required disclosures will be presented in the Company's
9
Annual Report on Form 10-K for the fiscal year ending March 28, 1998.
In February 1997, the FASB issued SFAS No. 128, EARNINGS PER SHARE,
which establishes new standards for computing and presenting net income and
simplifies the standards for computing earnings per share ("EPS") currently
found in APB Opinion No. 15, EARNINGS PER SHARE. This Statement is
effective for interim and annual periods ending after December 15, 1997 and
restatement of all prior period EPS data is required. Early adoption of
this Statement is not permitted. Accordingly, the Company will begin
reporting EPS in accordance with SFAS No. 128 in its third quarter of the
fiscal year ending March 28, 1998. The impact of the adoption of this
Statement is not expected to be material.
3 INVENTORIES
JUNE 28, MARCH 29,
1997 1997
Raw materials $ 39,769 $ 32,781
Work-in-process 6,672 5,788
Finished goods 245,246 183,578
--------- ---------
$ 291,687 $ 222,147
Merchandise inventories of $128,658 and $93,874 at June 28, 1997 and March
29, 1997, respectively, were valued utilizing the retail method and are
included in finished goods.
4 FINANCING AGREEMENTS
On June 9, 1997, the Company entered into a new financing arrangement
(the "New Credit Facility") providing for a $375.0 million revolving line
of credit available for the issuance of letters of credit, acceptances or
direct borrowings. Upon the closing of the Offerings, the amount available
under the revolving line of credit was reduced to $225.0 million. The New
Credit Facility matures on December 31, 2002. Borrowings under the New
Credit Facility were used to refinance the Polo Partnership credit facility
of $104.5 million and to repay in full $56.7 million of aggregate
borrowings outstanding under the Womenswear credit facility and the PRC
credit facility. Such borrowings were repaid from the net proceeds of the
Offerings (see Note 1 (d)). Borrowings under the New Credit Facility bear
interest, as determined by the Company, at either the lender's Base Rate
(as defined) or at the London Interbank Offered Rate plus an interest
margin. The New Credit Facility is collateralized by trade accounts
receivable and requires, among other things, the maintenance of restrictive
covenants including net worth and leverage ratios, and sets limitations on
indebtedness and incurrences of liens, and restrictions on sales of assets
and transactions with affiliates. Additionally, the agreement provides
that an event of default will occur if Mr. Lauren and related entities fail
to maintain a specified minimum percentage of the voting power of Polo's
Common Stock (as herein defined).
5 INCOME TAXES
The entities which comprise the Predecessor Company included
principally partnerships which were not subject to Federal or certain state
income taxes. Concurrent with the Reorganization and the termination of the
Company's partnership status, the Company became
10
fully subject to such taxes. As a result and in accordance with the
provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES, the Company
recorded a deferred tax asset and a corresponding tax benefit in the amount
of $32.1 million in its consolidated financial statements during the three
months ended June 28, 1997. The deferred tax asset recorded is in addition
to $3.0 million of Federal, state and local deferred tax assets previously
recorded by the Company. The deferred income taxes reflect the net tax
effect of temporary differences, primarily uniform inventory
capitalization, depreciation, allowance for doubtful accounts and other
accruals, between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income tax purposes.
6 STOCK INCENTIVE PROGRAM
In connection with the Offerings, the Board of Directors of Polo
granted options to purchase an aggregate of 4,366,300 shares of Polo's
Class A Common Stock to certain employees of the Company under the 1997
Long-Term Stock Incentive Plan adopted on June 9, 1997. At June 28, 1997,
the Company had an additional 5,556,777 shares reserved for issuance under
this plan. The options vest in equal installments over three years for
officers and other executives of the Company and over two years for all
remaining employees and have an exercise price of $26.00 per share (equal
to the price of the Offerings). The options expire 10 years after the date
of grant. Additionally, on June 9, 1997, the Company adopted the 1997 Stock
Option Plan for Non-Employee Directors. At June 28, 1997, the Company had
500,000 shares reserved for issuance under this plan.
7 COMMON STOCK
Polo's Class B Common Stock is owned by Mr. Lauren and related entities
and its Class C Common Stock is owned by the GS Group. Shares of Class B
Common Stock are convertible at any time into shares of Class A Common
Stock on a one-for-one basis and may not be transferred to anyone other
than the related entities of Mr. Lauren. Shares of Class C Common Stock are
convertible at any time into shares of Class A Common Stock on a
one-for-one basis and may not be transferred to anyone other than among
members of the GS Group or any successor of a member of the GS Group. The
holders of Class A Common Stock generally have rights identical to holders
of Class B Common Stock and Class C Common Stock, except that holders of
Class A Common Stock and Class C Common Stock are entitled to one vote per
share and holders of Class B Common Stock are entitled to ten votes per
share. Class A Common Stock, Class B Common Stock and Class C Common
Stock are collectively referred to herein as "Common Stock."
11
POLO RALPH LAUREN CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO WHICH
ARE INCLUDED HEREIN. THE COMPANY UTILIZES A 52-53 WEEK FISCAL YEAR ENDING ON THE
SATURDAY NEAREST MARCH 31. ACCORDINGLY, FISCAL YEARS 1997 AND 1998 END ON MARCH
29, 1997 AND MARCH 28, 1998, RESPECTIVELY. DUE TO THE COLLABORATIVE AND ONGOING
NATURE OF THE COMPANY'S RELATIONSHIPS WITH ITS LICENSEES, SUCH LICENSEES ARE
REFERRED TO HEREIN AS "LICENSING PARTNERS" AND THE RELATIONSHIPS BETWEEN THE
COMPANY AND SUCH LICENSEES ARE REFERRED TO HEREIN AS "LICENSING ALLIANCES."
NOTWITHSTANDING THESE REFERENCES, HOWEVER, THE LEGAL RELATIONSHIP BETWEEN THE
COMPANY AND ITS LICENSEES IS ONE OF LICENSOR AND LICENSEE, AND NOT ONE OF
PARTNERSHIP.
CERTAIN STATEMENTS CONTAINED IN THIS REPORT CONSTITUTE "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995 (THE "REFORM ACT"). SEE PART II. OTHER INFORMATION. ITEM 5. - "STATEMENT
REGARDING FORWARD-LOOKING DISCLOSURE."
OVERVIEW
The Company began operations in 1968 as a designer and marketer of premium
quality men's clothing and sportswear. Since inception, the Company, through
internal operations and in conjunction with its licensing partners, has grown
through increased sales of existing product lines, the introduction of new
brands and products, expansion into international markets and development of its
retail operations. The Company's net revenues are generated from its four
integrated operations: wholesale, Home Collection, direct retail and licensing
alliances. Licensing revenue includes royalties received from Home Collection
licensing partners.
Prior to the Reorganization, the Company's operations were conducted
predominantly through a partnership structure. Accordingly, the earnings of the
Company (other than earnings of certain retail operations) were included in the
taxable income of the Company's partners for Federal and certain state income
tax purposes, and the Company has generally not been subject to income tax on
such earnings, other than certain state and local franchise and similar taxes.
In connection with the Reorganization on June 9, 1997, the Company became fully
subject to such taxes. As a result, the Company recorded a deferred tax asset
and a corresponding tax benefit in the amount of $32.1 million in its statement
of income during the three months ended June 28, 1997 in accordance with the
provisions of SFAS No. 109, ACCOUNTING FOR INCOME TAXES. The Company's pro forma
effective tax rate, excluding the non-recurring tax benefit discussed above, for
fiscal 1997 and fiscal 1998 was 42% and 41%, respectively. See Part II. Other
Information. Item 5. - "Statement Regarding Forward-Looking Disclosure." The
effect of taxes in Results of Operations is not discussed below because the
historic taxation of the operations of the Company is not meaningful with
respect to periods following the Reorganization.
12
PRO FORMA COMBINED STATEMENT OF INCOME FOR THE THREE MONTHS
ENDED JUNE 29, 1996 (UNAUDITED)
The following table sets forth for the three month period ended June 29,
1996: (i) actual combined statement of income; (ii) pro forma adjustments
to reflect the PRC Acquisition, the Offerings and the Reorganization as if they
had occurred on March 31, 1996; and (iii) pro forma combined statement of
income.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED JUNE 29, 1996
(UNAUDITED)
(IN THOUSANDS)
ACTUAL PRO FORMA PRO FORMA
COMBINED ADJUSTMENTS COMBINED
Net sales $ 199,255 $ 20,229 (1) $ 219,484
Licensing revenue 24,553 24,553
--------- ---------
Net revenues 223,808 244,037
Cost of goods sold 120,235 8,600 (1) 128,835
--------- ---------
Gross profit 103,573 115,202
Selling, general and
administrative expenses 82,305 11,638 (1)
217 (1) 94,160
-------- ---------
Income from operations 21,268 21,042
Interest expense (income) 4,055 (4,364)(1)(2) (309)
Equity in net loss of affiliate 298 (298)(1) -
--------- ---------
Income before income taxes 16,915 21,351
Provision for income taxes 4,260 4,703 (3) 8,963
--------- ---------
Net income $ 12,655 $ 12,388
========= =========
(1) Effective April 3, 1997, the Company acquired the remaining 50%
interest in PRC. The adjustments above reflect the PRC Acquisition
which is accounted for under the purchase method. As a result of
this transaction, the Company's combined statement of income has
been adjusted to reflect the consolidation of PRC's operations
from March 31, 1996, the amortization of goodwill over 25 years of
$217 and the elimination of the Company's equity in net loss of
PRC.
(2) Adjustment to reduce interest expense, assuming the application of
the proceeds from the Offerings were used to repay outstanding
indebtedness of the Company as of March 31, 1996.
(3) Adjustment to reflect income taxes based upon pro forma pre-tax
income as if the Company had been subject to additional Federal,
state and local income taxes, calculated using a pro forma
effective tax rate of 42%.
13
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations is
presented on a pro forma basis, assuming the PRC Acquisition had occurred as of
March 31, 1996. Additionally, as a result of the Offerings and the use of
proceeds thereon to reduce outstanding indebtedness of the Company, interest
expense incurred on a historical basis is not comparable to the prior period.
Therefore, interest expense is not discussed below. The table below sets forth
the percentage relationship to net revenues of certain items in the Company's
statements of income for the three months ended June 28, 1997 (historical) and
June 29, 1996 (pro forma):
HISTORICAL PRO FORMA
JUNE 28, JUNE 29,
1997 1996
---- ----
Net sales........................................ 88.7% 89.9%
Licensing revenue................................ 11.3 10.1
----- -----
Net revenues..................................... 100.0 100.0
----- -----
Gross profit..................................... 50.5 47.2
Selling, general and administrative expenses..... 40.5 38.6
----- -----
Income from operations........................... 10.0% 8.6%
===== =====
THREE MONTHS ENDED JUNE 28, 1997 COMPARED TO THREE MONTHS ENDED JUNE 29, 1996
NET SALES. Net sales increased 16.4% to $255.4 million in the three months
ended June 28, 1997 from $219.5 million in the three months ended June 29, 1996.
Wholesale net sales increased 15.2% to $130.2 million in the three months ended
June 28, 1997 from $113.0 million in the corresponding period of fiscal 1997.
Wholesale growth primarily reflects increased menswear sales resulting from
growth in the Company's basic stock replenishment program, improved sales in
existing brands and sales from the Company's third party trading business which
began operations in the fourth quarter of fiscal 1997. Wholesale growth also
reflects increased womenswear sales due to the introduction of Polo Sport in the
fourth quarter of fiscal 1997. Retail sales increased by 17.6% to $125.2 million
in the three months ended June 28, 1997 from $106.5 million in the corresponding
period in fiscal 1997. This increase is primarily attributable to the benefit of
three months of operations for three new Polo stores and ten new outlet stores
opened during fiscal 1997 aggregating $12.4 million and increases in comparable
store sales for the three months ended June 28, 1997 of 4.0% or $4.2 million.
Comparable store sales represent net sales of stores open in both reporting
periods for the full portion of such periods. At June 28, 1997, the Company
operated 28 Polo stores and 66 outlet stores.
LICENSING REVENUE. Licensing revenue increased 32.1% to $32.5 million in
the three months ended June 28, 1997 from $24.6 million in the corresponding
period of fiscal 1997. This increase reflects the benefit of a full three months
of licensing revenue in the three months ended June 28, 1997 from the launch of
Polo Jeans and the Lauren women's line in the second quarter of fiscal 1997.
Additionally, licensing revenue improved due to an overall increase in sales of
existing licensed
14
products, particularly Chaps and Home Collection.
GROSS PROFIT. Gross profit as a percentage of net revenues increased to
50.5% in the three months ended June 28, 1997 from 47.2% in the corresponding
period of fiscal 1997. This increase was attributable to improvements in each of
the Company's integrated operations. Wholesale gross margins increased
significantly in the three months ended June 28, 1997 over the comparable period
in fiscal 1997 primarily due to a planned reduction in off-price sales. This
improvement is a direct result of increased fulfillment of customer orders and
improved supply chain management. Retail gross margins increased slightly in the
three months ended June 28, 1997 as compared to the corresponding period in
fiscal 1997 primarily due to an improved initial markup. Licensing revenue,
which has no associated cost of goods sold, increased as a percentage of net
revenues to 11.3% in the three months ended June 28, 1997 from 10.1% in the
corresponding period in fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative ("SG&A") expenses increased to $116.7 million or 40.5% of net
revenues in the three months ended June 28, 1997 from $94.2 million or 38.6% of
net revenues in the corresponding period of fiscal 1997. This increase as a
percentage of net revenues was primarily attributable to additional personnel
and start-up costs associated with the expansion of the Company's retail
operations, increased advertising, marketing and public relations expenditures
to support the Company's brands and increased depreciation expense associated
with the Company's shop-within-shops development program during fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's main sources of liquidity historically have been cash flows
from operations, credit facilities and partners' financing. The Company's
capital requirements primarily result from working capital needs, investing
activities including construction and renovation of shop-within-shops, retail
expansion and other corporate activities.
Net cash provided by operating activities decreased to $17.0 million during
the three months ended June 28, 1997 from $28.2 million during the comparable
period in fiscal 1997, primarily as a result of the accelerated timing of trade
accounts payable and certain other liabilities. Decreases in accounts receivable
and increases in inventories during each of the periods presented were primarily
due to seasonality. Net cash used for investing activities increased to $24.5
million during the three months ended June 28, 1997 from $5.3 million during the
comparable period in fiscal 1997. This increase principally reflects the use of
$8.6 million in cash to acquire the operations of PRC, a $5.0 million investment
in a joint venture with a nonaffiliated partner and an increase in capital
expenditures during the three months ended June 28, 1997. Net cash provided by
financing activities increased to $24.2 million during the three months ended
June 28, 1997 from net cash used for financing activities of $32.9 million
during the comparable period in fiscal 1997. This improvement primarily reflects
the net proceeds received from the Offerings, offset by the application of the
net proceeds to repay outstanding indebtedness, an increase in scheduled debt
repayments and an increase in partner distributions.
As a result of the Offerings, the Company's immediate cash flow needs
reflect the elimination of distributions to the partners. Partially offsetting
these changes will be the application of funds for the
15
payment of additional Federal, state and local income taxes.
Simultaneous with the closing of the Reorganization, the Company entered
into the New Credit Facility and borrowed funds to refinance the amounts
outstanding under the Polo Partnership's credit facility of $104.5 million and
to repay in full $56.7 million of aggregate borrowings outstanding under the
Womenswear credit facility and the PRC credit facility, thereby terminating such
credit facilities. The New Credit Facility consists of a $375.0 million
revolving line of credit available for the issuance of letters of credit,
acceptances and direct borrowings and matures on December 31, 2002. Upon
completion of the Offerings, the amount available under the revolving line of
credit was reduced to $225.0 million. Borrowings under the New Credit Facility
bear interest, as determined by the Company, at either the lender's Base Rate
(as defined) or at the London Interbank Offered Rate plus an interest margin.
The agreement contains customary representations, warranties, covenants and
events of default for bank financings for borrowers similar to the Company,
including covenants regarding maintenance of net worth and leverage ratios,
limitations on indebtedness and incurrences of liens, and restrictions on sales
of assets and transactions with affiliates. Additionally, the agreement provides
that an event of default will occur if Mr. Lauren and related entities fail to
maintain a specified minimum percentage of the voting power of Polo's Common
Stock. As of June 28, 1997, the Company had $9.5 million outstanding in direct
borrowings and had $38.5 million in outstanding letters of credit under the New
Credit Facility. The weighted average interest rate on outstanding direct
borrowings under the New Credit Facility was 6.7% at June 28, 1997.
Capital expenditures were $10.3 million and $4.6 million in the three
months ended June 28, 1997 and June 29, 1996, respectively. The increase in
capital expenditures in the three months ended June 28, 1997 represents
primarily expenditures associated with the Company's shop-within-shops
development program which includes new shops, renovations and expansions as well
as expenditures incurred in connection with the expansion of the Company's
retail operations. The Company plans to invest approximately $150.0 million over
the next two fiscal years for its retail stores including flagship stores, the
shop-within-shops development program and other capital projects. See Part II.
Other Information. Item 5. - "Statement Regarding Forward-Looking Disclosure."
On June 17, 1997, the Company completed the sale of 11,170,000 shares of
its Class A Common Stock at $26.00 per share in its Offerings. The net proceeds
from the Offerings, after deducting underwriting discounts and commissions and
offering expenses, aggregated $268.8 million. The net proceeds from the
Offerings increased liquidity of the Company by reducing indebtedness as
follows: (i) to repay borrowings outstanding under the Company's New Credit
Facility in the amount of $163.5 million; (ii) to pay the Dividend and
Reorganization Notes in the amount of $43.0 million to Mr. Lauren and related
entities and the GS Group; and (iii) to repay subordinated notes and interest
thereon in the amount of $24.3 million to Mr. Lauren and the GS Group. The
remaining $38.0 million will be used to pay the Second Dividend and for other
general corporate purposes. Management believes that cash remaining from the
Offerings, cash from ongoing operations and funds available under the New Credit
Facility will be sufficient to satisfy the Company's current level of operations
and capital requirements for the foreseeable future. See Part II. Other
Information. Item 5. "Statement Regarding Forward-Looking Disclosure."
16
SEASONALITY OF BUSINESS
The Company's business is affected by seasonal trends, with higher levels
of wholesale sales in its second and fourth quarters and higher retail sales in
its 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 PRC
Acquisition and growth in the Company's retail operations and licensing revenue,
historical quarterly operating trends and working capital requirements may not
accurately reflect 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.
EXCHANGE RATES
Inventory purchases from contract manufacturers in the Far East are
primarily denominated in United States dollars; however, purchase prices for the
Company's products may be affected by fluctuations in the exchange rate between
the United States dollar and the local currencies of the contract manufacturers,
which may have the effect of increasing the Company's cost of goods sold in the
future. During the last two years, exchange rate fluctuations have not had a
material impact on the Company's inventory cost. Additionally, certain
international licensing revenue could be materially affected by currency
fluctuations. From time to time, the Company hedges certain exposures to foreign
currency exchange rate changes arising in the ordinary course of business.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
This Statement establishes standards for reporting of comprehensive income and
its components (revenues, expenses, gains and losses) in the financial
statements. SFAS No. 130 requires an enterprise to: (i) reconcile net income to
comprehensive income; (ii) classify items of other comprehensive income (e.g.,
foreign currency translation adjustments, unearned compensation, etc.) by their
nature in a financial statement; and (iii) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in-capital in the equity section of a statement of financial position. SFAS
No.130 is effective for the Company's fiscal year ending March 27, 1999.
In June 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION. This Statement establishes standards for
reporting selected financial data and descriptive information about an
enterprises' reportable operating segments (as defined). This Statement also
requires the reconciliation of total segment information presented to the
corresponding amounts in the general purpose financial statements. Additionally,
SFAS No. 131 establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is effective for
the Company's fiscal year ending March 27, 1999. The Company has not yet
determined what additional disclosures, if any, may be required in connection
with adopting this Statement.
17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in a purported national class action lawsuit
filed in the Delaware Supreme Court in July 1997. The plaintiff has brought the
action allegedly on behalf of a class of persons who purchased products at the
Company's outlet stores throughout the United States at any time since July 15,
1991. The complaint alleges that advertising and marketing practices used by the
Company in connection with the sales of its products at its outlet stores
violate guidelines established by the Federal Trade Commission and the consumer
protection statutes of Delaware and other states with statutes similar to
Delaware's Consumer Fraud Act and Delaware's Consumer Contracts Act. The lawsuit
seeks, on behalf of the class, compensatory and punitive damages as well as
attorneys fees. The Company intends to vigorously defend this lawsuit and
believes that it has substantial and meritorious defenses.
The Company is involved from time to time in various legal proceedings
arising in the ordinary course of business. In the opinion of the Company's
management, the resolution of any matter currently pending will not have a
material effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 1, 1997, the sole stockholder of PRLC consented to (i) an
amendment and restatement of the Certificate of Incorporation of PRLC, (ii)
PRLC's merging with an affiliated corporation to change the domicile of the
entity which previously was the general partner of Enterprises and Polo
Partnership to Delaware and (iii) PRLC's entering into certain agreements, all
necessary to effect the Reorganization.
On June 6, 1997, the sole stockholder of PRLC consented to (i) a further
amendment and restatement of the Certificate of Incorporation of PRLC, (ii) a
stock split of then outstanding shares of Class B Common Stock and (iii) an
exchange of the outstanding share of Class A Common Stock for a share of Class B
Common Stock, all necessary to effect the Reorganization.
On June 9, 1997, the sole stockholder of PRLC consented to (i) a further
amendment and restatement of the Certificate of Incorporation of PRLC, (ii) the
amendment and restatement of the By-laws of PRLC and (iii) PRLC's entering into
certain further agreements and transactions, all necessary to effect the
Reorganization which occurred on such date.
ITEM 5. OTHER INFORMATION.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
Certain statements in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, and in oral statements made by or with the approval of an authorized
executive officer constitute "forward-looking statements" within the
18
meaning of the Reform Act. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors, which may cause the actual
results, performance or achievements of the Company 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 changes in the competitive marketplace,
including the introduction of new products or pricing changes by the Company's
competitors; changes in global economic conditions; risks associated with the
Company's dependence on sales to a limited number of large department store
customers and risks related to extending credit to customers; risks associated
with the Company's dependence on its licensing partners for a substantial
portion of its net income and risks associated with a lack of operational and
financial control over licensed businesses; risks associated with
consolidations, restructurings and other ownership changes in the retail
industry; uncertainties relating to the Company's ability to implement its
growth strategy; risks associated with the possible adverse impact of the
Company's unaffiliated manufacturers inability to manufacture in a timely
manner, to meet quality standards or to use acceptable labor practices; risks
associated with changes in social, political, economic and other conditions
affecting foreign operations and sourcing; and, the possible adverse impact of
changes in import restrictions. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits--
10.1 Employment Agreement between Polo Ralph Lauren Corporation
and Donna Barbieri dated July 31, 1997.
27.1 Financial Data Schedule
(b) Reports on Form 8-K--
A Current Report on Form 8-K dated June 9, 1997 was filed with the
Securities and Exchange Commission on June 19, 1997, which contained
Item 5.
19
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
Date: August 12, 1997 By: /s/Nancy A. Platoni Poli
----------------------------
Nancy A. Platoni Poli
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 31st day of July, 1997, between Polo Ralph
Lauren Corporation, a Delaware corporation (the "Company"), and Donna A.
Barbieri (the "Executive").
The Executive is presently employed by the Company as Group President
of its Retail Outlet Stores and Creative Services operations.
The Company recognizes that the Executive's contribution to the growth
and success of the Company will be substantial. The Company desires to provide
for the continued employment of the Executive and to make employment
arrangements which will reinforce and encourage the attention and dedication to
the Company of the Executive as a member of the Company's management, in the
best interest of the Company. The Executive is willing to commit herself to
serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth below.
Accordingly, in consideration of the premises and the respective covenants and
agreements of the parties herein contained, and intending to be legally bound
hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. TERM. The employment of the Executive by the Company as provided in
Section 1 pursuant to this Agreement will be effective on the date hereof.
Executive will serve at the direction and pleasure of the board of directors of
the Company (such board or such other managing board or committee as is vested
with authority to hire and/or discharge executive officers of the Company
hereinafter referred to as the "Board").
1
3. POSITION AND DUTIES. The Executive shall serve in the capacity
described above and shall have such responsibilities, duties and authority as
she may have as of the date hereof (or which arise from any position to which
she may be appointed after the date hereof) and as may from time to time be
assigned to the Executive by the Board that are consistent with such
responsibilities, duties and authority. The Executive shall devote substantially
all her working time and efforts to the business and affairs of the Company.
4. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the period of the Executive's employment hereunder,
the Company shall pay to the Executive an annual base salary determined by the
Board. Such salary shall be paid in substantially equal installments on a basis
consistent with the Company's payroll practices and shall be subject to review
by the Board in accordance with the Company's policies for executives.
(b) INCENTIVE COMPENSATION. The Board may in its discretion include
as part of the Executive's compensation in any fiscal year a bonus or incentive
compensation program.
(c) EXPENSES. During the term of the Executive's employment hereunder,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable and customary expenses incurred by the Executive in performing
services hereunder, including all expenses of travel and living expenses while
away from home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company.
(d) OTHER BENEFITS. During the term of Executive's employment
hereunder, Executive shall be entitled to participate in or receive benefits
under any medical, pension, profit sharing or other employee benefit plan or
arrangement generally made available by the Company now or in the future to its
executives and key management employees (or to their family members), subject to
and on a basis consistent with the terms, conditions and overall administration
of such plans and arrangements. Nothing paid to the Executive under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Executive pursuant to paragraph (a)
of this Section.
2
(d) VACATIONS. The Executive shall be entitled to reasonable vacations
consistent with past practice.
5. TERMINATION.
(a) TERMINATION BY COMPANY. The Executive's employment hereunder may
be terminated by the Board at any time with or without cause.
(b) TERMINATION BY THE EXECUTIVE. The Executive may terminate her
employment hereunder for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean (A) the assignment to the Executive of a title or duties
inconsistent with those of a senior executive of the Company; (B) a reduction by
the Board of the Executive's base salary; or (C) a failure by the Company to
comply with any material provision of this Agreement which has not been cured
within thirty (30) days after notice of such noncompliance has been given by the
Executive to the Company. Any exercise of rights pursuant to clauses (A), (B) or
(C) of this paragraph 5(b) shall be exercised within sixty (60) days of the date
Executive becomes aware of the action giving rise to such rights.
(c) Any termination of the Executive's employment by the Company or by
the Executive (other than termination pursuant to Section 6(d)(i) hereof) shall
be communicated by written Notice of Termination to the other party hereto in
accordance with Section 11 hereof. If termination is pursuant to Sections
6(d)(ii)- (iii) or 5(b) hereof, the "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated.
6. COMPENSATION UPON TERMINATION.
(a) If Company shall terminate Executive's employment for any reason
other than an Enumerated Reason as set forth in Section 6(d) hereof or if
Executive resigns for Good Reason pursuant to Section 5(b) hereof, then so long
as Executive complies with Section 8 hereof Executive shall be entitled to the
following:
3
(i) Continued base salary payments (less applicable
withholdings) for a period of thirty-six (36) months from the date of
termination at the rate and in the manner in effect on such date;
(ii) Continued participation in the Company's health benefit
plans, provided if Executive is provided with similar coverage by a
successor employer, any such coverage by the Company shall cease;
(iii) Continued use of her Company automobile until the then
existing auto lease term expires; and
(iv) Waiver of the collateral interest securing return to the
Company of premiums for Executive's existing Split Dollar Life
Insurance Policy.
If a Change of Control shall have occurred prior to the date of
termination, Executive shall be entitled at her option, exercisable in writing
within fifteen days of the date of termination, to receive the equivalent of the
thirty-six (36) months' salary continuation pursuant to subsection (i) above in
two equal lump sum installments, the first payable within 30 days of the date of
termination and the second on the first anniversary of the date of termination.
As used herein, the term "Change of Control" shall mean Ralph Lauren or members
of her family (or trusts created for their benefit) no longer control 50% or
more of the voting power of the then outstanding securities (or other equity
interests) of the Company entitled to vote for the election of members to the
Board.
(b) If the Executive's employment is terminated by her death, the
Company shall pay any amounts due to the Executive through the date of her
death.
(c) If the Executive's employment shall be terminated by the Company
pursuant to Section 6(d)(ii) or (iii) for an Enumerated Reason or by the
Executive for other than Good Reason, the Company shall pay the Executive her
full salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and the Company shall have no further obligations
to the Executive under this Agreement but Executive shall be bound by Sections 8
(b)-(e) hereof.
4
(d) The term "Enumerated Reason" with respect to termination by the
Company of Executive's employment shall mean any one of the following reasons:
(i) DEATH. The Executive's employment hereunder shall
terminate upon her death.
(ii) DISABILITY. If, as a result of the Executive's incapacity
due to physical or mental illness, the Executive shall have been absent
from her duties hereunder on a full-time basis for the entire period of
six consecutive months, and within thirty (30) days after written
Notice of Termination is given (which may occur before or after the end
of such six month period) shall not have returned to the performance of
her duties hereunder on a full-time basis, the Company may terminate
the Executive's employment hereunder.
(iii) CAUSE. The Company shall have "Cause" to terminate the
Executive's employment hereunder upon (1) the willful and continued
failure by the Executive to substantially perform her duties hereunder
after demand for substantial performance is delivered by the Company
that specifically identifies the manner in which the Company believes
the Executive has not substantially performed her duties, or (2)
Executive's conviction of, or plea of guilty or nolo contendre to, any
crime (whether or not involving the Company) constituting a felony or
(3) the willful engaging by the Executive in misconduct which is
materially injurious to the Company, monetarily or otherwise
(including, but not limited to, conduct that constitutes competitive
activity, as defined in Section 8) or which subjects, or if generally
known, would subject the Company to public ridicule or embarrassment.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted
to be done, by him not in good faith and without reasonable belief that
her action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to
have been terminated for Cause without (x) reasonable written notice to
the Executive setting forth the reasons for the Company's intention to
terminate for Cause, (y) an opportunity for the Executive, together
with her counsel, to be heard before the Board, and (z) delivery to the
Executive of a Notice of Termination, as defined in Section 5(c)
hereof, from the Board finding
5
that in the good faith opinion of the Board the Executive was guilty of
any of the conduct set forth above in clauses (1)-(3) hereof, and
specifying the particulars thereof in detail.
7. MITIGATION. Executive shall have no duty to mitigate the payments
provided for in Section 6(a) by seeking other employment or otherwise and such
payment shall not be subject to reduction for any compensation received by
Executive from employment in any capacity following the termination of
Executive's employment with the Company.
8. NONCOMPETITION/CONFIDENTIALITY.
(a) Executive agrees not to accept other employment during the term of
this Agreement without the written approval of the Board.
(b) Executive agrees that for the duration of her employment and for a
period of thirty-six (36) months from the date of termination thereof, she will
not, on her own behalf or on behalf of any other person or entity, hire,
solicit, or encourage to leave the employ of the Company or its subsidiaries or
affiliates any person who is an employee of any of such companies.
(c) Executive agrees that for the duration of her employment and for a
period of thirty-six (36) months from the date of termination thereof, Executive
will take no action which is intended, or would reasonably be expected, to harm,
the Company or any of its subsidiaries or affiliates or their reputation or
which would reasonably be expected to lead to unwanted or unfavorable publicity
to the Company or any of its subsidiaries or affiliates.
(d) The Executive will not at any time (whether during or after her
employment with the Company) disclose or use for her own benefit or purposes or
the benefit or purposes of any other person, entity or enterprise, other than
the Company or any of its affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans or the
business and affairs of the Company generally, or any affiliate of the Company;
PROVIDED that the foregoing shall not apply to information which is not unique
to the Company or
6
which is generally known to the industry or the public other than as a result of
the Executive's breach of this covenant. The Executive agrees that upon
termination of her employment with the Company for any reason she will return to
the Company immediately all memoranda, books, papers, plans, information,
letters and other data, and all copies thereof or therefrom, in any way relating
to the business of the Company and its affiliates.
(e) The Executive acknowledges and agrees that the Company's remedies
at law for a breach or threatened breach of any of the provisions of this
Section 8 would be inadequate and, in recognition of this fact, the Executive
agrees that in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available.
9. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as herein before
defined and any successor to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this Section 9 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts are payable
to him hereunder all such amounts unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
7
10. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered with receipt
acknowledged or five business days after having been mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Ms. Donna A. Barbieri
6 Saint Malo Drive
Pinebrook, New Jersey 07058
If to the Company:
Polo Ralph Lauren Corporation
650 Madison Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
11. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of New York without regard to its conflicts of law principles.
8
12. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
the City of New York in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that the Company shall be
entitled to seek a restraining order or injunction in any court of competent
jurisdiction to prevent any continuation of any violation of the provisions of
Section 8 of this Agreement and the Executive hereby consents that such
restraining order or injunction may be granted without the necessity of the
Company's posting any bond, and provided further that the Executive shall be
entitled to seek specific performance of her right to be paid until the date of
termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement. Fees and expenses payable to the American
Arbitration Association and the arbitor shall be shared equally by the Company
and by the Executive but the parties shall otherwise bear their own costs in
connection with the arbitration; PROVIDED that the arbitrator shall be entitled
to include as part of the award to the prevailing party the reasonable legal
fees and expenses incurred by such party an amount not to exceed $25,000.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
9
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set her hand, as of the 31st day of
July, 1997.
POLO RALPH LAUREN CORPORATION
By: /s/ Michael J. Newman
--------------------------------------
Michael J. Newman, Vice Chairman
/s/ Donna A. Barbieri
--------------------------------------
Executive: Donna A. Barbieri
10
5
0001037038
POLO RALPH LAUREN
1,000
3-MOS
MAR-28-1998
JUN-28-1997
46,269
0
100,827
10,561
291,687
466,593
213,004
95,665
668,462
164,588
0
0
0
1,003
480,239
668,462
255,412
287,944
142,526
142,526
116,674
0
2,762
25,982
(18,656)
44,638
0
0
0
44,638
0.17
0
EPS is presented on a pro forma basis. See Notes 2.a. and 2.b. to the
consolidated financial statements for the quarter ended June 28, 1997 on Form
10-Q for basis of presentation.
