NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Description of Business
|
Ralph Lauren Corporation ("RLC") is a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, footwear, accessories, home furnishings, and other licensed product categories. RLC's long-standing reputation and distinctive image have been developed across an expanding number of products, brands, sales channels, and international markets. RLC's brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Chaps, and Club Monaco, among others. RLC and its subsidiaries are collectively referred to herein as the "Company," "we," "us," "our," and "ourselves," unless the context indicates otherwise.
The Company diversifies its business by geography (North America, Europe, and Asia, among other regions) and channel of distribution (wholesale, retail, and licensing). This allows the Company to maintain a dynamic balance as its operating results do not depend solely on the performance of any single geographic area or channel of distribution. The Company's wholesale sales are made principally to major department stores and specialty stores around the world, as well as to certain third party-owned stores to which the Company has licensed the right to operate in defined geographic territories using its trademarks. The Company also sells directly to consumers through its integrated retail channel, which includes its retail stores, concession-based shop-within-shops, and digital commerce operations around the world. In addition, the Company licenses to third parties for specified periods the right to access its various trademarks in connection with the licensees' manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings.
The Company organizes its business into the following
three
reportable segments: North America, Europe, and Asia. In addition to these reportable segments, the Company also has other non-reportable segments. See
Note 19
for further discussion of the Company's segment reporting structure.
Basis of Consolidation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") and present the consolidated financial position, income (loss), comprehensive income (loss), and cash flows of the Company, including all entities in which the Company has a controlling financial interest and is determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Fiscal Year
The Company utilizes a
52-53
week fiscal year ending on the Saturday closest to March 31. As such, fiscal year
2019
ended on
March 30, 2019
and was a
52
-week period ("Fiscal
2019
"); fiscal year
2018
ended on
March 31, 2018
and was a
52
-week period ("Fiscal
2018
"); fiscal year
2017
ended on
April 1, 2017
and was a
52
-week period ("Fiscal
2017
"); and fiscal year
2020
will end on March 28, 2020 and will be a 52-week period ("Fiscal
2020
").
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and notes thereto. Actual results could differ materially from those estimates.
Significant estimates inherent in the preparation of the consolidated financial statements include reserves for bad debt, customer returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances; the realizability of inventory; reserves for litigation and other contingencies; useful lives and impairments of long-lived tangible and intangible assets; fair value measurements; accounting for income taxes and related uncertain tax positions; valuation of stock-based compensation awards and related estimated forfeiture rates; reserves for restructuring activity; and accounting for business combinations, among others.
Reclassifications
Certain reclassifications have been made to the prior periods' financial information in order to conform to the current period's presentation.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
3.
|
Summary of Significant Accounting Policies
|
Revenue Recognition
The Company recognizes revenue across all segments of the business when it satisfies its performance obligations by transferring control of promised products or services to its customers, which occurs either at a point in time or over time, depending on when the customer obtains the ability to direct the use of and obtain substantially all of the remaining benefits from the products or services. The amount of revenue recognized considers terms of sale that create variability in the amount of consideration that the Company ultimately expects to be entitled to in exchange for the products or services, and is subject to an overall constraint that a significant revenue reversal will not occur in future periods. Sales and other related taxes collected from customers and remitted to government authorities are excluded from revenue.
Revenue within the Company's wholesale business is generally recognized upon shipment of products, at which point title passes and risk of loss is transferred to the customer. In certain arrangements where the Company retains the risk of loss during shipment, revenue is recognized upon receipt of products by the customer. Wholesale revenue is recorded net of estimates of returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances. Returns and allowances require pre-approval from management and discounts are based on trade terms. Estimates for end-of-season markdown reserves are based on historical trends, actual and forecasted seasonal results, an evaluation of current economic and market conditions, retailer performance, and, in certain cases, contractual terms. Estimates for operational chargebacks are based on actual customer notifications of order fulfillment discrepancies and historical trends. The Company reviews and refines these estimates on at least a quarterly basis. The Company's historical estimates of these amounts have not differed materially from actual results.
Revenue within the Company's retail business is recognized when the customer takes physical possession of the products, which occurs either at the point of sale for merchandise purchased at the Company's retail stores and concession-based shop-within-shops, or upon receipt of shipment for merchandise ordered through direct-to-consumer digital commerce sites. Such revenues are recorded net of estimated returns based on historical trends. Payment is due at the point of sale.
Gift cards issued to customers by the Company are recorded as a liability until they are redeemed, at which point revenue is recognized. The Company also estimates and recognizes revenue for gift card balances not expected to ever be redeemed (referred to as "breakage") to the extent that it does not have a legal obligation to remit the value of such unredeemed gift cards to the relevant jurisdiction as unclaimed or abandoned property. Such estimates are based upon historical redemption trends, with breakage income recognized in proportion to the pattern of actual customer redemptions.
Revenue from the Company's licensing arrangements is recognized over time during the period that licensees are provided access to the Company's trademarks (i.e., symbolic intellectual property) and benefit from such access through their sales of licensed products. These arrangements require licensees to pay a sales-based royalty, which for certain arrangements may be subject to a contractually-guaranteed minimum royalty amount. Payments are generally due quarterly and, depending on time of receipt, may be recorded as a liability until recognized as revenue. The Company recognizes revenue for its sales-based royalty arrangements (including those for which the royalty exceeds any contractually-guaranteed minimum royalty amount) as licensed products are sold by the licensee. If a sales-based royalty is not ultimately expected to exceed a contractually-guaranteed minimum royalty amount, the minimum is recognized as revenue ratably over the contractual period. This sales-based output measure of progress and pattern of recognition best represents the value transferred to the licensee over the term of the arrangement, as well as the consideration that the Company is entitled to receive in exchange for providing access to its trademarks. As of
March 30, 2019
, contractually-guaranteed minimum royalty amounts expected to be recognized as revenue during future periods were as follows:
|
|
|
|
|
|
|
|
Contractually-Guaranteed
Minimum Royalties
(a)
|
|
|
(millions)
|
Fiscal 2020
|
|
$
|
93.5
|
|
Fiscal 2021
|
|
86.1
|
|
Fiscal 2022
|
|
47.7
|
|
Fiscal 2023 and thereafter
|
|
30.0
|
|
Total
|
|
$
|
257.3
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(a)
|
Amounts presented do not contemplate anticipated contract renewals or royalties earned in excess of the contractually guaranteed minimums.
|
See
Note 4
for discussion of the Company's adoption of the new revenue recognition accounting standard as of the beginning of the first quarter of Fiscal 2019 and the resulting impact to its consolidated financial statements.
Disaggregated Net Revenues
The following tables disaggregate the Company's net revenues into categories that depict how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors for the fiscal periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
March 30, 2019
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Other
|
|
Total
|
|
|
(millions)
|
Sales Channel
(a)
:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
1,514.4
|
|
|
$
|
778.8
|
|
|
$
|
71.1
|
|
|
$
|
28.2
|
|
|
$
|
2,392.5
|
|
Retail
|
|
1,688.5
|
|
|
881.1
|
|
|
969.9
|
|
|
208.3
|
|
|
3,747.8
|
|
Licensing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
172.7
|
|
|
172.7
|
|
Total
|
|
$
|
3,202.9
|
|
|
$
|
1,659.9
|
|
|
$
|
1,041.0
|
|
|
$
|
409.2
|
|
|
$
|
6,313.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
March 31, 2018
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Other
|
|
Total
|
|
|
(millions)
|
Sales Channel
(a)
:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
1,571.4
|
|
|
$
|
727.1
|
|
|
$
|
59.6
|
|
|
$
|
31.1
|
|
|
$
|
2,389.2
|
|
Retail
|
|
1,659.6
|
|
|
857.9
|
|
|
874.1
|
|
|
224.8
|
|
|
3,616.4
|
|
Licensing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
176.7
|
|
|
176.7
|
|
Total
|
|
$
|
3,231.0
|
|
|
$
|
1,585.0
|
|
|
$
|
933.7
|
|
|
$
|
432.6
|
|
|
$
|
6,182.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
April 1, 2017
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Other
|
|
Total
|
|
|
(millions)
|
Sales Channel
(a)
:
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
$
|
2,006.5
|
|
|
$
|
712.0
|
|
|
$
|
48.0
|
|
|
$
|
25.8
|
|
|
$
|
2,792.3
|
|
Retail
|
|
1,776.5
|
|
|
831.4
|
|
|
834.5
|
|
|
234.4
|
|
|
3,676.8
|
|
Licensing
|
|
—
|
|
|
—
|
|
|
—
|
|
|
183.7
|
|
|
183.7
|
|
Total
|
|
$
|
3,783.0
|
|
|
$
|
1,543.4
|
|
|
$
|
882.5
|
|
|
$
|
443.9
|
|
|
$
|
6,652.8
|
|
|
|
(a)
|
Net revenues from the Company's wholesale and retail businesses are recognized at a point in time. Net revenues from the Company's licensing business are recognized over time.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Income
Deferred income represents cash payments received in advance of the Company's transfer of control of products or services to its customers and is generally comprised of unredeemed gift cards, net of breakage, and advance royalty payments from licensees. The Company's deferred income balances were
$14.8 million
and
$31.7 million
as of
March 30, 2019
and
March 31, 2018
, respectively, and were primarily recorded within accrued expenses and other current liabilities within the consolidated balance sheets. During
Fiscal 2019
, the Company recognized
$18.4 million
of net revenues from amounts recorded as deferred income as of
March 31, 2018
. The change in deferred income during Fiscal 2019 also reflected a reduction of
$6.1 million
related to the Company's initial adoption of the new revenue recognition accounting standard (see
Note 4
). The majority of the deferred income balance as of
March 30, 2019
is expected to be recognized as revenue within the next twelve months.
Cost of Goods Sold and Selling Expenses
Cost of goods sold includes the expenses incurred to acquire and produce inventory for sale, including product costs, freight-in, and import costs, as well as changes in reserves for shrinkage and inventory realizability. Gains and losses associated with forward foreign currency exchange contracts that are designated as qualifying cash flow hedges of inventory transactions are also recognized within cost of goods sold when the hedged inventory is sold. The costs of selling merchandise, including those associated with preparing merchandise for sale, such as picking, packing, warehousing, and order charges ("handling costs"), are included in selling, general, and administrative ("SG&A") expenses in the consolidated statements of operations.
Shipping and Handling Costs
The costs associated with shipping goods to customers are accounted for as fulfillment activities and reflected as a component of SG&A expenses in the consolidated statements of operations. Shipping and handling costs (described above) billed to customers are included in revenue. A summary of shipping and handling costs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Shipping costs
|
|
$
|
49.1
|
|
|
$
|
39.1
|
|
|
$
|
42.8
|
|
Handling costs
|
|
153.1
|
|
|
155.4
|
|
|
170.1
|
|
Advertising and Marketing Costs
Advertising costs, including the costs to produce advertising, are expensed when the advertisement is first exhibited. Advertising costs paid to wholesale customers under cooperative advertising programs are not included in advertising costs, but rather are reflected as a reduction of revenue since generally the benefits are not sufficiently separable from the purchases of the Company's products by customers. Costs associated with the marketing and promotion of the Company's products are included within SG&A expenses.
Advertising and marketing expenses amounted to
$272.8 million
,
$241.1 million
, and
$219.9 million
in
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively. Deferred advertising, marketing, and promotional costs, which principally relate to advertisements that have not yet been exhibited or services that have not yet been received, were
$9.6 million
and
$6.8 million
at the end of
Fiscal 2019
and
Fiscal 2018
, respectively, and were recorded within prepaid expenses and other current assets in the Company's consolidated balance sheets.
Foreign Currency Translation and Transactions
The financial position and operating results of the Company's foreign operations are primarily consolidated using their respective local currency as the functional currency. Local currency assets and liabilities are translated to U.S. Dollars at the rates of exchange in effect on the balance sheet date, and local currency revenues and expenses are translated to U.S. Dollars at average rates of exchange in effect during the period. The resulting translation gains or losses are included in the consolidated statements of comprehensive income (loss) as a component of other comprehensive income (loss) ("OCI") and in the consolidated statements of equity within accumulated other comprehensive income (loss) ("AOCI"). Gains and losses on the translation of intercompany loans made to foreign subsidiaries that are of a long-term investment nature are also included within this component of equity.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company also recognizes gains and losses on both third-party and intercompany transactions that are denominated in a currency other than the respective entity's functional currency. Such foreign currency transaction gains and losses are recognized in earnings within other income (expense), net, in the consolidated statements of operations, inclusive of the effects of any related hedging activities, and reflected net losses of
$2.8 million
in
Fiscal 2019
and net gains of
$4.5 million
and
$1.1 million
in
Fiscal 2018
and
Fiscal 2017
, respectively.
Comprehensive Income (Loss)
Comprehensive income (loss), which is reported in the consolidated statements of comprehensive income (loss) and consolidated statements of equity, consists of net income (loss) and other gains and losses affecting equity that, under U.S. GAAP, are excluded from net income (loss). The components of OCI for the Company consist of foreign currency translation gains (losses); net realized and unrealized gains (losses) on cash flow hedges, such as forward foreign currency exchange contracts; net realized and unrealized gains (losses) on available-for-sale investments; and net realized and unrealized gains (losses) related to the Company's defined benefit plans.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to common shares by the weighted-average number of common shares outstanding during the period. Weighted-average common shares include shares of the Company's Class A and Class B common stock. Diluted net income (loss) per common share adjusts basic net income (loss) per common share for the dilutive effects of outstanding stock options, restricted stock units ("RSUs"), and any other potentially dilutive instruments, only in the periods in which such effects are dilutive.
The weighted-average number of common shares outstanding used to calculate basic net income (loss) per common share is reconciled to shares used to calculate diluted net income (loss) per common share as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
|
(millions)
|
|
Basic shares
|
|
80.6
|
|
|
81.7
|
|
|
82.7
|
|
|
Dilutive effect of stock options and RSUs
|
|
1.1
|
|
|
0.8
|
|
|
—
|
|
(a)
|
Diluted shares
|
|
81.7
|
|
|
82.5
|
|
|
82.7
|
|
|
|
|
(a)
|
Incremental shares of
0.7 million
attributable to outstanding stock options and RSUs were excluded from the computation of diluted shares for Fiscal 2017, as such shares would not be dilutive as a result of the net loss incurred.
|
All earnings per share amounts have been calculated using unrounded numbers. Options to purchase shares of the Company's Class A common stock at an exercise price greater than the average market price of the common stock during the reporting period are anti-dilutive and therefore not included in the computation of diluted net income (loss) per common share. In addition, the Company has outstanding performance-based and market-based RSUs, which are included in the computation of diluted shares only to the extent that the underlying performance or market conditions (i) have been satisfied as of the end of the reporting period or (ii) would be considered satisfied if the end of the reporting period were the end of the related contingency period and the result would be dilutive. As of the end of
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, there were
1.4 million
,
2.0 million
, and
2.2 million
, respectively, of additional shares issuable upon exercise of anti-dilutive options and contingent vesting of performance-based RSUs, that were excluded from the diluted shares calculations.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
The Company recognizes expense for all stock-based compensation awards granted to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for forfeitures which are estimated based on an analysis of historical experience and expected future trends. The Company uses the Black-Scholes valuation model to estimate the grant date fair value of any stock option awards. The grant date fair value of the Company's market-based RSU awards, for which vesting is dependent upon total shareholder return ("TSR") of its Class A common stock over a three-year performance period relative to that of a pre-established peer group, is estimated using a Monte Carlo simulation model. The grant date fair values of restricted stock awards, service-based RSUs, and performance-based RSUs are determined based on the fair value of the Company's Class A common stock on the date of grant, adjusted to reflect the absence of dividends for any awards for which dividend equivalent amounts do not accrue while outstanding and unvested. Compensation expense for all performance-based RSUs is recognized over the requisite service period when attainment of the performance goal is deemed probable, net of estimated forfeitures. Compensation expense for market-based RSUs, net of estimated forfeitures, is recognized over the requisite service period regardless of whether, and the extent to which, the market condition is ultimately satisfied. The Company recognizes compensation expense on an accelerated basis for all awards with graded vesting terms, including stock options, restricted stock, and certain RSUs. For RSU awards with cliff vesting terms, compensation expense is recognized on a straight-line basis. For certain RSU awards granted to retirement-eligible employees, or employees who will become retirement-eligible prior to the end of the awards' respective stated vesting periods, the related stock-based compensation expense is recognized on an accelerated basis over a term commensurate with the period that the employee is required to provide service in order to vest in the award. See
Note 17
for further discussion of the Company's stock-based compensation plans.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments with original maturities of 90 days or less, including investments in time deposits and debt securities. Investments in debt securities are diversified among high-credit quality securities in accordance with the Company's risk-management policies.
Restricted Cash
The Company is periodically required to place cash in escrow with various banks as collateral, primarily to secure guarantees of corresponding amounts made by the banks to international tax authorities on behalf of the Company, such as to secure refunds of value-added tax payments in certain international tax jurisdictions or in the case of certain international tax audits, as well as to secure guarantees related to certain real estate leases. Such cash is classified as restricted cash and reported as a component of either prepaid expenses and other current assets or other non-current assets in the Company's consolidated balance sheets.
Investments
The Company's investment objectives include capital preservation, maintaining adequate liquidity, diversification to minimize liquidity and credit risk, and achievement of maximum returns within the guidelines set forth in the Company's investment policy.
Short-term investments consist of investments which the Company expects to convert into cash within one year, including time deposits and debt securities, which have original maturities greater than 90 days. Non-current investments, which are classified within other non-current assets in the consolidated balance sheets, consist of those investments which the Company does not expect to convert into cash within one year.
The Company classifies all of its investments at the time of purchase as available-for-sale. These investments are recorded at fair value with unrealized gains or losses classified as a component of AOCI in the consolidated balance sheets, and related realized gains or losses classified as a component of other income (expense), net, in the consolidated statements of operations. Cash inflows and outflows related to the sale and purchase of investments are classified as investing activities in the Company's consolidated statements of cash flows.
Equity-method Investments
Investments in companies in which the Company has significant influence, but less than a controlling financial interest, are accounted for using the equity method. Significant influence is generally presumed to exist when the Company owns between 20% and 50% of the investee.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the equity method of accounting, the following amounts are recorded in the Company's consolidated financial statements: the Company's investment in and amounts due to and from the investee are included in the consolidated balance sheets; the Company's share of the investee's earnings (losses) is included in the consolidated statements of operations; and dividends, cash distributions, loans, or other cash received from the investee and additional cash investments, loan repayments, or other cash paid to the investee are included in the consolidated statements of cash flows.
Equity in gains and losses of equity-method investees are recognized in earnings within other income (expense), net, in the Company's consolidated statements of operations, and reflected net gains of
$2.9 million
in
Fiscal 2019
and net losses of
$4.5 million
and
$5.2 million
in
Fiscal 2018
and
Fiscal 2017
, respectively.
Impairment Assessment
The Company evaluates investments held in unrealized loss positions, if any, for other-than-temporary impairment on a quarterly basis. Such evaluation involves a variety of considerations, including assessments of the risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers. Factors considered by the Company include (i) the length of time and the extent to which the fair value has been below cost; (ii) the financial condition, credit worthiness, and near-term prospects of the issuer; (iii) the length of time to maturity; (iv) future economic conditions and market forecasts; (v) the Company's intent and ability to retain its investment for a period of time sufficient to allow for recovery of market value; and (vi) an assessment of whether it is more likely than not that the Company will be required to sell its investment before recovery of market value. See
Note 13
for further information relating to the Company's investments.
Accounts Receivable
In the normal course of business, the Company extends credit to wholesale customers that satisfy defined credit criteria. Payment is generally due within
30 to 120 days
and does not include a significant financing component. Accounts receivable is recorded at carrying value, which approximates fair value, and is presented in the Company's consolidated balance sheets net of certain reserves and allowances. These reserves and allowances consist of (i) reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances (see the "
Revenue Recognition
" section above for further discussion of related accounting policies) and (ii) allowances for doubtful accounts.
A rollforward of the activity in the Company's reserves for returns, discounts, end-of-season markdowns, operational chargebacks, and certain cooperative advertising allowances is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Beginning reserve balance
|
|
$
|
202.5
|
|
|
$
|
202.8
|
|
|
$
|
239.7
|
|
Amount charged against revenue to increase reserve
|
|
543.8
|
|
|
585.0
|
|
|
666.6
|
|
Amount credited against customer accounts to decrease reserve
|
|
(563.0
|
)
|
|
(596.6
|
)
|
|
(698.8
|
)
|
Foreign currency translation
|
|
(6.8
|
)
|
|
11.3
|
|
|
(4.7
|
)
|
Ending reserve balance
|
|
$
|
176.5
|
|
|
$
|
202.5
|
|
|
$
|
202.8
|
|
An allowance for doubtful accounts is determined through an analysis of accounts receivable aging, assessments of collectability based on an evaluation of historical and anticipated trends, the financial condition of the Company's customers, and an evaluation of the impact of economic conditions, among other factors.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A rollforward of the activity in the Company's allowance for doubtful accounts is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Beginning reserve balance
|
|
$
|
19.7
|
|
|
$
|
11.6
|
|
|
$
|
14.5
|
|
Amount recorded to expense to increase reserve
(a)
|
|
0.4
|
|
|
10.2
|
|
|
6.2
|
|
Amount written-off against customer accounts to decrease reserve
|
|
(3.5
|
)
|
|
(3.2
|
)
|
|
(8.5
|
)
|
Foreign currency translation
|
|
(0.9
|
)
|
|
1.1
|
|
|
(0.6
|
)
|
Ending reserve balance
|
|
$
|
15.7
|
|
|
$
|
19.7
|
|
|
$
|
11.6
|
|
|
|
(a)
|
Amounts recorded to bad debt expense are included within SG&A expenses in the consolidated statements of operations.
|
Concentration of Credit Risk
The Company sells its wholesale merchandise primarily to major department and specialty stores around the world, and extends credit based on an evaluation of each customer's financial capacity and condition, usually without requiring collateral. In the Company's wholesale business, concentration of credit risk is relatively limited due to the large number of customers and their dispersion across many geographic areas. However, the Company has
three
key wholesale customers that generate significant sales volume. During
Fiscal 2019
, the Company's sales to its largest wholesale customer, Macy's, Inc. ("Macy's"), accounted for approximately
8%
of total net revenues. Further, during
Fiscal 2019
, sales to the Company's
three
largest wholesale customers, including Macy's, accounted for approximately
19%
of total net revenues. Substantially all of the Company's sales to its
three
largest wholesale customers related to its North America segment. As of
March 30, 2019
, these
three
key wholesale customers constituted approximately
33%
of total gross accounts receivable.
Inventories
The Company holds inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores. The Company also holds retail inventory that is sold in its own stores and digital commerce sites directly to consumers. Substantially all of the Company's inventories are comprised of finished goods, which are stated at the lower of cost or estimated realizable value, with cost determined on a weighted-average cost basis.
The estimated realizable value of inventory is determined based on an analysis of historical sales trends of the Company's individual product lines, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current in-house orders for future sales of inventory, as well as plans to sell inventory through the Company's factory stores, among other liquidation channels. Actual results may differ from estimates due to the quantity, quality, and mix of products in inventory, consumer and retailer preferences, and market conditions. Reserves for inventory shrinkage, representing the risk of physical loss of inventory, are estimated based on historical experience and are adjusted based upon physical inventory counts. The Company's historical estimates of these costs and its related provisions have not differed materially from actual results.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method based upon the estimated useful lives of depreciable assets, which range from
three
to
seven
years for furniture and fixtures, machinery and equipment, and capitalized software; and from
ten
to
forty
years for buildings and improvements. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the respective assets or the term of the related lease.
Property and equipment, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. In evaluating long-lived assets for recoverability, including finite-lived intangibles as described below, the Company uses its best estimate of future cash flows expected to result from the use of the asset and its eventual disposition. To the extent that estimated future undiscounted net cash flows attributable to the asset are less than its carrying value, an impairment loss is recognized equal to the difference between the carrying value of such asset and its fair value, considering external market participant assumptions. Assets to be disposed of and for which there is a committed plan for disposal are reported at the lower of carrying value or fair value, less costs to sell.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill and Other Intangible Assets
At acquisition, the Company estimates and records the fair value of purchased intangible assets, which typically consist of reacquired license agreements, customer relationships, non-compete agreements, and/or order backlog. The fair values of these intangible assets are estimated based on management's assessment, considering independent third-party appraisals when necessary. The excess of the purchase consideration over the fair value of net assets acquired, both tangible and intangible, is recorded as goodwill. Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and such indefinite-lived intangible assets are assessed for impairment at least annually. The Company generally performs its annual goodwill and indefinite-lived intangible assets impairment analyses using a qualitative approach to determine whether it is more likely than not that the fair values of such assets are less than their respective carrying values. If, based on the results of the qualitative assessment, it is concluded that it is not more likely than not that the fair value of the asset exceeds its carrying value, a quantitative test is performed. Under the quantitative test, if the carrying value of the asset exceeds its fair value, an impairment loss is recognized in the amount of the excess. The Company also periodically performs a quantitative test to assess its goodwill for impairment in lieu of using the qualitative approach in order to reassess the fair values of its reporting units.
Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets as noted above, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. See discussion of the Company's accounting policy for long-lived asset impairment as previously described under the caption "
Property and Equipment, Net.
"
Income Taxes
Income taxes are provided using the asset and liability method. Under this method, income taxes (i.e., deferred tax assets and liabilities, current taxes payable/refunds receivable, and tax expense) are recorded based on amounts refundable or payable in the current year and include the results of any difference between U.S. GAAP and tax reporting. Deferred income taxes reflect the tax effect of certain net operating losses, capital losses, general business credit carryforwards, and the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. The Company accounts for the financial effect of changes in tax laws or rates in the period of enactment.
In addition, valuation allowances are established when management determines that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Tax valuation allowances are analyzed periodically and adjusted as events occur or circumstances change that warrant adjustments.
In determining the income tax benefit (provision) for financial reporting purposes, the Company establishes a reserve for uncertain tax positions. If the Company considers that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, it recognizes the tax benefit. The Company measures the tax benefit by determining the largest amount that is greater than 50% likely of being realized upon settlement, presuming that the tax position is examined by the appropriate taxing authority that has full knowledge of all relevant information. These assessments can be complex and the Company often obtains assistance from external advisors. To the extent that the Company's estimates change or the final tax outcome of these matters is different than the amounts recorded, such differences will impact the income tax benefit (provision) in the period in which such determinations are made. If the initial assessment fails to result in the recognition of a tax benefit, the Company regularly monitors its position and subsequently recognizes the tax benefit if (i) there are changes in tax law or analogous case law that sufficiently raise the likelihood of prevailing on the technical merits of the position to more likely than not; (ii) the statute of limitations expires; or (iii) there is a completion of an audit resulting in a settlement of that tax year with the appropriate agency. Uncertain tax positions are classified as current only when the Company expects to pay cash within the next twelve months. Interest and penalties are recorded within the income tax benefit (provision) in the Company's consolidated statements of operations and are classified on the consolidated balance sheets together with the related liability for unrecognized tax benefits.
See
Note 10
for further discussion of the Company's income taxes.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
The Company leases certain facilities and equipment, including the vast majority of its retail stores. Certain of the Company's lease agreements contain renewal options, rent escalation clauses, and/or landlord incentives. Renewal terms generally reflect market rates at the time of renewal. Rent expense for noncancelable operating leases with scheduled rent increases and/or landlord incentives is recognized on a straight-line basis over the lease term, including any applicable rent holidays, beginning on the earlier of the lease commencement date or the date the Company takes control of the leased space. The excess of straight-line rent expense over the scheduled payment amounts and landlord incentives is recorded as a deferred rent obligation. As of the end of
Fiscal 2019
and
Fiscal 2018
, deferred rent obligations of
$242.4 million
and
$249.5 million
, respectively, were classified primarily within other non-current liabilities in the Company's consolidated balance sheets.
Assets under capital leases are recorded within property and equipment, net in the consolidated balance sheets based on their nature and are depreciated over the lease term, with the related minimum lease payments allocated between a reduction of the lease liability and the recognition of interest expense.
In certain lease arrangements, the Company is involved with the construction of the building or leasehold improvements (generally on property owned by the landlord). If the Company concludes that it has substantively all of the risks of ownership during construction of a leased property and therefore is deemed the owner of the project for accounting purposes, it records an asset and related financing obligation in the amount of the total project costs related to construction-in-progress and the fair value of the pre-existing property. Once construction is complete, the Company considers the requirements for sale-leaseback treatment, including the transfer back of all risks of ownership and whether it has any continuing involvement with the leased property. If the arrangement does not qualify for sale-leaseback treatment, the Company continues to amortize the financing obligation and depreciate the building over the lease term.
Derivative Financial Instruments
The Company records all derivative financial instruments on its consolidated balance sheets at fair value. Changes in the fair value of derivative instruments that qualify for hedge accounting are either (i) offset against the changes in fair value of the related hedged assets, liabilities, or firm commitments through earnings or (ii) recognized in equity as a component of AOCI until the hedged item is recognized in earnings, depending on whether the derivative is being used to hedge against changes in fair value or cash flows and net investments, respectively.
Each derivative instrument that qualifies for hedge accounting is expected to be highly effective in reducing and offsetting the risk associated with the related exposure being hedged. For each derivative instrument that is designated as a hedge, the Company formally documents the related risk management objective and strategy, including identification of the hedging instrument, the hedged item, and the risk exposure, as well as how hedge effectiveness will be assessed over the instrument's term. To assess hedge effectiveness at the inception of a hedging relationship, the Company generally uses regression analysis, a statistical method, to compare changes in the fair value of the derivative instrument to changes in the fair value or cash flows of the related hedged item. The extent to which a hedging instrument has been and is expected to remain highly effective in achieving offsetting changes in fair value or cash flows is assessed by the Company on at least a quarterly basis.
As a result of its use of derivative instruments, the Company is exposed to the risk that counterparties to such contracts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected financial institutions based upon an evaluation of their credit ratings and certain other factors, adhering to established limits for credit exposure. The Company's established policies and procedures for mitigating credit risk from derivative transactions include ongoing review and assessment of its counterparties' creditworthiness. The Company also enters into master netting arrangements with counterparties, when possible, to mitigate credit risk associated with its derivative instruments. In the event of default or termination (as such terms are defined within the respective master netting arrangement), these arrangements allow the Company to net-settle amounts payable and receivable related to multiple derivative transactions with the same counterparty. The master netting arrangements specify a number of events of default and termination, including, among others, the failure to make timely payments.
The fair values of the Company's derivative instruments are recorded on its consolidated balance sheets on a gross basis. For cash flow reporting purposes, proceeds received or amounts paid upon the settlement of a derivative instrument are classified in the same manner as the related item being hedged, primarily within cash flows from operating activities.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flow Hedges
The Company uses forward foreign currency exchange contracts to reduce its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency and the settlement of foreign currency-denominated balances. To the extent forward foreign currency exchange contracts are designated as qualifying cash flow hedges, the related gains or losses are initially deferred in equity as a component of AOCI and are subsequently recognized in the consolidated statements of operations as follows:
|
|
•
|
Forecasted Inventory Transactions
— recognized as part of the cost of the inventory being hedged within cost of goods sold when the related inventory is sold to a third party.
|
|
|
•
|
Settlement of Foreign Currency Balances
— recognized within other income (expense), net, during the period that the hedged balance is remeasured through earnings, generally through its settlement when the related payment occurs.
|
If it is determined that a derivative instrument has not been highly effective, and will continue not to be highly effective in hedging the designated exposure, hedge accounting is discontinued and further gains (losses) are immediately recognized in earnings within other income (expense), net. Upon discontinuance of hedge accounting, the cumulative change in fair value of the derivative instrument previously recorded in AOCI is recognized in earnings when the related hedged item affects earnings, consistent with the originally-documented hedging strategy, unless the forecasted transaction is no longer probable of occurring, in which case the accumulated amount is immediately recognized in earnings within other income (expense), net.
Hedges of Net Investments in Foreign Operations
The Company periodically uses cross-currency swap contracts and forward foreign currency exchange contracts to reduce risk associated with exchange rate fluctuations on certain of its net investments in foreign subsidiaries. Changes in the fair values of such derivative instruments that are designated as qualifying hedges of net investments in foreign operations are recorded in equity as a component of AOCI in the same manner as foreign currency translation adjustments. In assessing the effectiveness of such hedges, the Company uses a method based on changes in spot rates to measure the impact of foreign currency exchange rate fluctuations on both its foreign subsidiary net investment and the related derivative hedging instrument. Under this method, changes in the fair value of the hedging instrument other than those due to changes in the spot rate are initially recorded in AOCI as a translation adjustment, and are amortized into earnings as interest expense using a systematic and rational method over the instrument's term. Changes in fair value associated with the effective portion (i.e., those due to changes in the spot rate) are recorded in AOCI as a translation adjustment and are released and recognized in earnings only upon the sale or liquidation of the hedged net investment.
Fair Value Hedges
Changes in the fair value of a derivative instrument that is designated as a fair value hedge, along with offsetting changes in the fair value of the related hedged item attributable to the hedged risk, are recorded in earnings. To the extent that the change in the fair value of the hedged item does not fully offset the change in the fair value of the hedging instrument, the resulting net impact is reflected in earnings within the income statement line item associated with the hedged item.
Undesignated Hedges
All of the Company's undesignated hedges are entered into to hedge specific economic risks, particularly foreign currency exchange rate risk related to foreign currency-denominated balances. Changes in the fair value of undesignated derivative instruments are immediately recognized in earnings within other income (expense), net.
See
Note 13
for further discussion of the Company's derivative financial instruments.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
4.
|
Recently Issued Accounting Standards
|
Implementation Costs in Cloud Computing Arrangements
In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"). ASU 2018-15 addresses diversity in practice surrounding the accounting for costs incurred to implement a cloud computing hosting arrangement that is a service contract by establishing a model for capitalizing or expensing such costs, depending on their nature and the stage of the implementation project during which they are incurred. Any capitalized costs are to be amortized over the reasonably certain term of the hosting arrangement and presented in the same line as the service arrangement's fees within the statement of operations. ASU 2018-15 also requires enhanced qualitative and quantitative disclosures surrounding hosting arrangements that are service contracts. ASU 2018-15 is effective for the Company beginning in its fiscal year ending March 27, 2021 ("Fiscal 2021"), with early adoption permitted, and may be adopted on either a retrospective or prospective basis. Although the impact of adopting ASU 2018-15 will depend on the Company's cloud computing arrangements in place at that time, other than the new disclosure requirements, the Company does not currently expect that it will have a material impact on its consolidated financial statements.
Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"). ASU 2017-12 amends existing hedge accounting guidance by better aligning an entity's financial reporting with its risk management activities and by simplifying its application. Among its provisions, ASU 2017-12 eliminates the requirement to separately measure and report ineffectiveness for instruments that qualify for hedge accounting and generally requires that the entire change in fair value of such instruments ultimately be presented in the same income statement line as the respective hedged item. Additionally, the updated guidance reduces the overall complexity of the hedge accounting model, including easing documentation and effectiveness assessment requirements and modifying the treatment of components excluded from the assessment of hedge effectiveness. The new guidance also broadens the scope of risks eligible to qualify for hedge accounting and enhances the understandability of hedge results through amended disclosure requirements. ASU 2017-12 is to be applied using a modified retrospective transition approach, except for the amended presentation and disclosure requirements, which are to be applied prospectively.
The Company early-adopted ASU 2017-12 as of the beginning of the first quarter of Fiscal 2019, which resulted in a cumulative adjustment of
$0.7 million
, net of tax, to increase its opening retained earnings balance. Overall, the adoption of ASU 2017-12 did not have a material impact on the Company's consolidated financial statements.
Intra-Entity Transfers of Assets Other Than Inventory
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" ("ASU 2016-16"). ASU 2016-16 requires recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs, rather than when the asset has been sold to a third party. The Company adopted ASU 2016-16 as of the beginning of the first quarter of Fiscal 2019 using the modified retrospective method, which resulted in a cumulative adjustment of
$0.6 million
to reduce its opening retained earnings balance. Overall, the adoption of ASU 2016-16 did not have a material impact on the Company's consolidated financial statements.
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). ASU 2016-13, which was further updated and clarified by the FASB through issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset's lifetime based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectibility. This "expected loss" model will result in earlier recognition of credit losses than the current "as incurred" model, under which losses are recognized only upon an occurrence of an event that gives rise to the incurrence of a probable loss. ASU 2016-13 is effective for the Company beginning in its Fiscal 2021, with early adoption permitted, and is to be adopted on a modified retrospective basis. The Company is currently evaluating the impact that ASU 2016-13 will have on its consolidated financial statements.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Leases
In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). ASU 2016-02 requires that a lessee's rights and fixed payment obligations under most leases be recognized as right-of-use ("ROU") assets and lease liabilities on the consolidated balance sheet. ASU 2016-02 retains a dual model for classifying leases as either finance or operating, which governs the pattern of expense recognition to be reflected in the consolidated statement of operations. Variable lease payments based on performance, such as percentage-of-sales-based payments, will not be included in the measurement of ROU assets and lease liabilities. Rather, consistent with current practice, such amounts will be recognized as an expense in the period incurred. After its original issuance, the FASB issued several additional related ASUs to address implementation concerns and further amend and clarify certain guidance within ASU 2016-02.
The Company will adopt ASU 2016-02 in the first quarter of its fiscal year ending March 28, 2020 ("Fiscal 2020") using a modified retrospective approach under which the cumulative effect of initially applying the standard will be recognized as an adjustment to its opening Fiscal 2020 retained earnings, with no restatement of prior year amounts. In connection therewith, the Company will apply an optional package of practical expedients intended to ease transition to the standard for existing leases by, among its provisions, allowing the Company to carry forward its original lease classification conclusions without reassessment. The Company also intends to elect application of the practical expedient to not separate non-lease components from lease components for purposes of measuring its lease-related balances.
Based on assessment efforts to date, the Company estimates that the adoption of ASU 2016-02 will result in initial increases in its long-term assets and liabilities of approximately
$1.6 billion
to
$1.8 billion
relating to its existing lease commitments that will become subject to balance sheet recognition. These balances will fluctuate over time as the Company's lease portfolio changes as a result of ongoing lease-related activity. The standard also requires enhanced quantitative and qualitative lease-related disclosures. Recognition of lease expense in the consolidated statement of operations will not significantly change (see Note 3).
In connection with the adoption of ASU 2016-02, the Company has assessed the transition impact related to a certain real estate lease for which it has been deemed the owner of the related leased asset for accounting purposes under existing accounting guidance (commonly referred to as a "build-to-suit" lease arrangement), but no longer actively uses the related space. Although the Company no longer generates revenue or any other cash flows through its rights underlying the leased asset, it has not been considered impaired under existing accounting guidance as the asset's fair value from an ownership perspective (and not from the perspective of a sublessor) exceeds its carrying value. However, in accordance with and upon transitioning to ASU 2016-02, the Company will derecognize the remaining lease asset and liability balances that had been recognized solely as a result of the arrangement's build-to-suit designation, as the related construction activities that gave rise to such designation have since ended, and will establish a ROU asset and related lease liability measured based on its remaining fixed payment obligations. The initial ROU asset will then be assessed for impairment based on the aggregate estimated cash flows that could be generated by transferring the lease to a market participant sublessee for the remainder of its term, which are expected to be materially lower than the aggregate remaining minimum lease payments underlying the ROU asset. Accordingly, the Company expects to impair the initial ROU asset by approximately
$170 million
to
$190 million
to its estimated fair value, which will be recorded as a reduction to its opening retained earnings balance upon adoption, net of related income tax effects.
The Company also anticipates recording other initial ROU asset impairment adjustments of approximately
$20 million
to
$30 million
upon adoption of ASU 2016-02 related to certain underperforming retail locations for which the fair value of the respective store's lease is lower than the carrying value of the related initial ROU asset. These impairments will be recorded as an adjustment to reduce the Company's opening retained earnings balance, net of related income tax effects. Leasehold improvements related to these underperforming retail locations were fully impaired prior to the adoption of ASU 2016-02, as their carrying values were determined not to be recoverable.
Revenue from Contracts with Customers
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). ASU 2014-09 provides a single, comprehensive accounting model for revenues arising from contracts with customers that supersedes most previously existing revenue recognition guidance, including industry-specific guidance. Under this model, revenue, representing the amount that an entity expects to be entitled to in exchange for providing promised goods or services (i.e., performance obligations), is recognized upon control of promised goods or services transferring to a customer. ASU 2014-09 also requires enhanced qualitative and quantitative revenue-related disclosures. After its original issuance, the FASB issued several additional related ASUs to address implementation concerns and further amend and clarify certain guidance within ASU 2014-09.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company adopted ASU 2014-09 as of the beginning of the first quarter of Fiscal 2019 using the modified retrospective method and applied the standard to all contracts as of the adoption date. The adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements, as the performance obligations underlying its core revenue streams (i.e., its retail and wholesale businesses) and the timing of recognition thereof, remain substantially unchanged. Revenues for these businesses are generated through the sale of finished products, and continue to be recognized at the point in time when merchandise is transferred to the customer and in an amount that considers the impacts of estimated returns, end-of-season markdowns, and other allowances that are variable in nature. For its licensing business, the Company continues to recognize revenue, including any contractually-guaranteed minimum royalty amounts, over time consistent with historical practice.
The Company's adoption of ASU 2014-09 did have an impact on its accounting for certain ancillary items. Specifically, certain costs associated with the marketing of merchandise to wholesale customers for a particular selling season are now expensed as incurred, rather than deferred and expensed over the course of the season. Additionally, revenue related to gift card breakage is now recognized in proportion to the pattern of actual customer redemptions, rather than when the likelihood of redemption becomes remote. As a result of applying these changes and in order to transition to ASU 2014-09, the Company reduced (i) prepaid expenses and other current assets by
$12.1 million
related to certain previously deferred wholesale marketing costs and (ii) accrued expenses and other current liabilities by
$6.1 million
related to outstanding gift cards, which together resulted in a net cumulative adjustment to reduce its opening retained earnings balance by
$5.2 million
, net of tax, as of the beginning of the first quarter of Fiscal 2019. In addition to these changes, inventory amounts associated with estimated sales returns, which were
$18.4 million
as of
March 30, 2019
, are now presented within prepaid expenses and other current assets in the consolidated balance sheet, rather than within inventories. Other than these changes, the Company's adoption of ASU 2014-09 did not have a material impact on its consolidated balance sheet as of
March 30, 2019
or its consolidated statements of operations, comprehensive income (loss), and cash flows during
Fiscal 2019
. Prior periods have not been restated and continue to be reported under the accounting standards in effect during those periods.
See Note 3 for a detailed discussion of the Company's revenue recognition accounting policy.
|
|
5.
|
Property and Equipment
|
Property and equipment, net consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Land and improvements
|
|
$
|
15.3
|
|
|
$
|
16.8
|
|
Buildings and improvements
|
|
387.8
|
|
|
458.1
|
|
Furniture and fixtures
|
|
626.4
|
|
|
647.2
|
|
Machinery and equipment
|
|
350.4
|
|
|
393.8
|
|
Capitalized software
|
|
534.0
|
|
|
523.1
|
|
Leasehold improvements
|
|
1,169.4
|
|
|
1,147.1
|
|
Construction in progress
|
|
58.7
|
|
|
41.5
|
|
|
|
3,142.0
|
|
|
3,227.6
|
|
Less: accumulated depreciation
|
|
(2,102.8
|
)
|
|
(2,041.3
|
)
|
Property and equipment, net
|
|
$
|
1,039.2
|
|
|
$
|
1,186.3
|
|
Depreciation expense was
$257.8 million
,
$271.2 million
, and
$283.4 million
during
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively, and is recorded primarily within SG&A expenses in the consolidated statements of operations.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
6.
|
Goodwill and Other Intangible Assets
|
Goodwill
The following table details the changes in goodwill for each of the Company's segments during
Fiscal 2019
and
Fiscal 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
Europe
|
|
Asia
|
|
Other Non-reportable Segments
(a)
|
|
Total
(a)
|
|
|
(millions)
|
Balance at April 1, 2017
|
|
$
|
421.8
|
|
|
$
|
275.9
|
|
|
$
|
74.9
|
|
|
$
|
132.0
|
|
|
$
|
904.6
|
|
Foreign currency translation
|
|
—
|
|
|
42.0
|
|
|
3.9
|
|
|
—
|
|
|
45.9
|
|
Balance at March 31, 2018
|
|
421.8
|
|
|
317.9
|
|
|
78.8
|
|
|
132.0
|
|
|
950.5
|
|
Foreign currency translation
|
|
—
|
|
|
(27.9
|
)
|
|
(3.0
|
)
|
|
—
|
|
|
(30.9
|
)
|
Balance at March 30, 2019
|
|
$
|
421.8
|
|
|
$
|
290.0
|
|
|
$
|
75.8
|
|
|
$
|
132.0
|
|
|
$
|
919.6
|
|
|
|
(a)
|
The goodwill balance for each period presented is net of accumulated impairment charges of
$5.2 million
related to the Company's other non-reportable segments.
|
Based on the results of the Company's goodwill impairment testing, the Company recorded an impairment charge of
$5.2 million
during Fiscal 2017 to fully write off the carrying value of reallocated goodwill related to one of its reporting units. No goodwill impairment charges were recorded during
Fiscal 2019
or
Fiscal 2018
. See
Note 12
for further discussion of the Company's goodwill impairment testing.
Other Intangible Assets
Other intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
March 31, 2018
|
|
|
Gross Carrying Amount
|
|
Accum. Amort.
|
|
Net
|
|
Gross Carrying Amount
|
|
Accum. Amort.
|
|
Net
|
|
|
(millions)
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Re-acquired licensed trademarks
|
|
$
|
231.3
|
|
|
$
|
(146.8
|
)
|
|
$
|
84.5
|
|
|
$
|
232.7
|
|
|
$
|
(140.0
|
)
|
|
$
|
92.7
|
|
Customer relationships
|
|
253.2
|
|
|
(184.0
|
)
|
|
69.2
|
|
|
256.5
|
|
|
(171.4
|
)
|
|
85.1
|
|
Other
|
|
10.1
|
|
|
(7.4
|
)
|
|
2.7
|
|
|
10.1
|
|
|
(7.2
|
)
|
|
2.9
|
|
Total intangible assets subject to amortization
|
|
494.6
|
|
|
(338.2
|
)
|
|
156.4
|
|
|
499.3
|
|
|
(318.6
|
)
|
|
180.7
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and brands
|
|
7.3
|
|
|
N/A
|
|
|
7.3
|
|
|
7.3
|
|
|
N/A
|
|
|
7.3
|
|
Total intangible assets
|
|
$
|
501.9
|
|
|
$
|
(338.2
|
)
|
|
$
|
163.7
|
|
|
$
|
506.6
|
|
|
$
|
(318.6
|
)
|
|
$
|
188.0
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Amortization Expense
Amortization expense was
$23.5 million
,
$24.0 million
, and
$24.1 million
during
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively, and is recorded within SG&A expenses in the consolidated statements of operations.
Based on the balance of the Company's finite-lived intangible assets subject to amortization as of
March 30, 2019
, the expected amortization expense for each of the next five fiscal years and thereafter is as follows:
|
|
|
|
|
|
|
|
Amortization Expense
|
|
|
(millions)
|
Fiscal 2020
|
|
$
|
22.7
|
|
Fiscal 2021
|
|
19.8
|
|
Fiscal 2022
|
|
17.9
|
|
Fiscal 2023
|
|
14.4
|
|
Fiscal 2024
|
|
13.2
|
|
Fiscal 2025 and thereafter
|
|
68.4
|
|
Total
|
|
$
|
156.4
|
|
The expected future amortization expense above reflects weighted-average estimated remaining useful lives of
10.8 years
for re-acquired licensed trademarks,
8.0 years
for customer relationships, and
9.7 years
for the Company's finite-lived intangible assets in total.
|
|
7.
|
Other Assets and Liabilities
|
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Other taxes receivable
|
|
$
|
137.9
|
|
|
$
|
171.4
|
|
Prepaid rent expense
|
|
38.0
|
|
|
37.0
|
|
Non-trade receivables
|
|
30.8
|
|
|
16.6
|
|
Assets held-for-sale (see Note 12)
|
|
20.8
|
|
|
—
|
|
Derivative financial instruments
|
|
19.8
|
|
|
12.3
|
|
Prepaid software maintenance
|
|
19.8
|
|
|
8.7
|
|
Inventory return asset (see Note 4)
|
|
18.4
|
|
|
—
|
|
Restricted cash
|
|
11.9
|
|
|
15.5
|
|
Prepaid advertising and marketing
|
|
9.6
|
|
|
6.8
|
|
Tenant allowances receivable
|
|
8.2
|
|
|
4.3
|
|
Other prepaid expenses and current assets
|
|
44.1
|
|
|
51.1
|
|
Total prepaid expenses and other current assets
|
|
$
|
359.3
|
|
|
$
|
323.7
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other non-current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Non-current investments
|
|
$
|
44.9
|
|
|
$
|
86.2
|
|
Restricted cash
|
|
30.5
|
|
|
35.4
|
|
Security deposits
|
|
24.5
|
|
|
27.3
|
|
Derivative financial instruments
|
|
12.2
|
|
|
—
|
|
Other non-current assets
|
|
46.4
|
|
|
34.6
|
|
Total other non-current assets
|
|
$
|
158.5
|
|
|
$
|
183.5
|
|
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Accrued operating expenses
|
|
$
|
235.2
|
|
|
$
|
225.8
|
|
Accrued payroll and benefits
|
|
232.5
|
|
|
227.8
|
|
Other taxes payable
|
|
158.3
|
|
|
194.2
|
|
Accrued inventory
|
|
141.0
|
|
|
174.0
|
|
Restructuring reserve
|
|
60.4
|
|
|
69.6
|
|
Dividends payable
|
|
48.8
|
|
|
40.6
|
|
Accrued capital expenditures
|
|
47.6
|
|
|
37.0
|
|
Capital lease obligations
|
|
22.3
|
|
|
19.5
|
|
Deferred income
|
|
14.1
|
|
|
30.4
|
|
Derivative financial instruments
|
|
3.6
|
|
|
60.8
|
|
Other accrued expenses and current liabilities
|
|
4.6
|
|
|
3.7
|
|
Total accrued expenses and other current liabilities
|
|
$
|
968.4
|
|
|
$
|
1,083.4
|
|
Other non-current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Capital lease obligations
|
|
$
|
212.6
|
|
|
$
|
236.4
|
|
Deferred rent obligations
|
|
202.7
|
|
|
212.2
|
|
Deferred tax liabilities
|
|
50.2
|
|
|
36.5
|
|
Derivative financial instruments
|
|
11.9
|
|
|
49.2
|
|
Restructuring reserve
|
|
11.4
|
|
|
27.9
|
|
Other non-current liabilities
|
|
52.1
|
|
|
44.5
|
|
Total other non-current liabilities
|
|
$
|
540.9
|
|
|
$
|
606.7
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During
Fiscal 2019
, the Company recorded non-cash impairment charges of
$21.2 million
to write off certain fixed assets related to its domestic and international stores, shop-within-shops, and corporate offices, of which
$10.7 million
was recorded in connection with its restructuring plans (see
Note 9
) and
$10.5 million
was recorded in connection with underperforming retail locations as a result of its on-going store portfolio evaluation. Additionally, as a result of its decision to sell a certain corporate fixed asset in connection with its cost savings initiative, the Company recorded a non-cash impairment charge of
$4.6 million
during Fiscal 2019 to reduce the carrying value of the asset held-for-sale to its estimated fair value, less costs to sell.
During
Fiscal 2018
, the Company recorded non-cash impairment charges of
$41.2 million
to write off certain fixed assets related to its domestic and international stores, shop-within-shops, and corporate offices, of which
$16.0 million
was recorded in connection with the Way Forward Plan (see
Note 9
) and
$25.2 million
was recorded in connection with underperforming retail locations as a result of its on-going store portfolio evaluation. Additionally, as a result of a change in the planned usage of a certain intangible asset, the Company recorded a non-cash impairment charge of
$8.8 million
during Fiscal 2018 to reduce the carrying value of the intangible asset to its estimated fair value.
During
Fiscal 2017
, the Company recorded non-cash impairment charges of
$248.6 million
, to write off certain fixed assets related to its domestic and international stores, shop-within-shops, and corporate offices, as well as its in-house global digital commerce platform which was in development, of which
$234.6 million
was recorded in connection with the Way Forward Plan (see
Note 9
) and
$14.0 million
was recorded in connection with underperforming retail locations that were subject to potential future closure. Additionally, as a result of the realignment of its segment reporting structure, the Company recorded a non-cash goodwill impairment charge of
$5.2 million
during Fiscal 2017.
See
Note 12
for further discussion of the non-cash impairment charges recorded during the fiscal years presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
9.
|
Restructuring and Other Charges
|
A description of significant restructuring and other activities and related costs is included below.
Fiscal 2019 Restructuring Plan
On June 4, 2018, the Company's Board of Directors approved a restructuring plan associated with the Company's strategic objective of operating with discipline to drive sustainable growth (the "Fiscal 2019 Restructuring Plan"). The Fiscal 2019 Restructuring Plan includes the following restructuring-related activities: (i) rightsizing and consolidation of the Company's global distribution network and corporate offices; (ii) targeted severance-related actions; and (iii) closure of certain of its stores and shop-within-shops. Actions associated with the Fiscal 2019 Restructuring Plan were largely completed during Fiscal 2019, with certain activities shifting into Fiscal 2020.
In connection with the Fiscal 2019 Restructuring Plan, the Company expects to incur total estimated charges of approximately
$125 million
to
$150 million
, comprised of cash-related charges of approximately
$90 million
to
$110 million
and non-cash charges of approximately
$35 million
to
$40 million
.
A summary of the charges recorded in connection with the Fiscal 2019 Restructuring Plan is as follows:
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
March 30,
2019
|
|
|
(millions)
|
Cash-related restructuring charges:
|
|
|
Severance and benefit costs
|
|
$
|
60.2
|
|
Lease termination and store closure costs
|
|
1.8
|
|
Other cash charges
|
|
7.4
|
|
Total cash-related restructuring charges
|
|
69.4
|
|
Non-cash charges:
|
|
|
Impairment of assets (see Note 8)
|
|
10.3
|
|
Inventory-related charges
(a)
|
|
6.0
|
|
Loss on sale of property
(b)
|
|
11.6
|
|
Total non-cash charges
|
|
27.9
|
|
Total charges
|
|
$
|
97.3
|
|
|
|
(a)
|
Inventory-related charges are recorded within cost of goods sold in the consolidated statements of operations.
|
|
|
(b)
|
Loss on sale of property, which is recorded within restructuring and other charges in the consolidated statements of operations, was recorded in connection with the sale of one of the Company's distribution centers in North America. Total cash proceeds from the sale were
$20.0 million
.
|
A summary of current period activity in the restructuring reserve related to the Fiscal 2019 Restructuring Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Benefit Costs
|
|
Lease Termination
and Store
Closure Costs
|
|
Other Cash Charges
|
|
Total
|
|
|
(millions)
|
Balance at March 31, 2018
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions charged to expense
|
|
60.2
|
|
|
1.8
|
|
|
7.4
|
|
|
69.4
|
|
Cash payments charged against reserve
|
|
(19.0
|
)
|
|
(2.1
|
)
|
|
(7.3
|
)
|
|
(28.4
|
)
|
Non-cash adjustments
|
|
(0.2
|
)
|
|
0.8
|
|
|
—
|
|
|
0.6
|
|
Balance at March 30, 2019
|
|
$
|
41.0
|
|
|
$
|
0.5
|
|
|
$
|
0.1
|
|
|
$
|
41.6
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Way Forward Plan
On June 2, 2016, the Company's Board of Directors approved a restructuring plan with the objective of delivering sustainable, profitable sales growth and long-term value creation for shareholders (the "Way Forward Plan"). The Company is refocusing on its core brands and evolving its product, marketing, and shopping experience to increase desirability and relevance. It is also evolving its operating model to enable sustainable, profitable sales growth by significantly improving quality of sales, reducing supply chain lead times, improving its sourcing, and executing a disciplined multi-channel distribution and expansion strategy. As part of the Way Forward Plan, the Company is rightsizing its cost structure and implementing a return on investment-driven financial model to free up resources to invest in the brand and drive high-quality sales. The Way Forward Plan included strengthening the Company's leadership team and creating a more nimble organization by moving from an average of nine to six layers of management. The Way Forward Plan also included the discontinuance of the Company's Denim & Supply brand and the integration of its denim product offerings into its Polo Ralph Lauren brand. Collectively, these actions, which were substantially completed during Fiscal 2017, resulted in a reduction in workforce and the closure of certain stores and shop-within-shops.
On March 30, 2017, the Company's Board of Directors approved the following additional restructuring-related activities associated with the Way Forward Plan: (i) the restructuring of its in-house global digital commerce platform which was in development and shifting to a more cost-effective, flexible platform through a new agreement with Salesforce's Commerce Cloud, formerly known as Demandware; (ii) the closure of its Polo store at 711 Fifth Avenue in New York City; and (iii) the further streamlining of the organization and the execution of other key corporate actions in line with the Company's Way Forward Plan. These actions are an important part of the Company's efforts to achieve its stated objective to return to sustainable, profitable growth and invest in the future. These additional restructuring-related activities were largely completed during Fiscal 2018 and resulted in a further reduction in workforce and the closure of certain corporate office and store locations.
In connection with the Way Forward Plan, the Company has incurred total cumulative charges of
$838.6 million
, including
$155.2 million
recorded during Fiscal 2017 associated with the destruction of inventory. Additionally, as the Company did not legally assign a certain lease agreement for which it has been deemed the owner of the leased asset for accounting purposes prior to the end of Fiscal 2019, an impairment of approximately
$170 million
to
$190 million
is expected to be recorded as an adjustment to reduce the Company's opening retained earnings balance as of the beginning of Fiscal 2020 in connection with its adoption of ASU 2016-02 (see Note 4). Accordingly, actions associated with the Way Forward Plan are now complete and no additional charges are expected to be incurred in connection with this plan.
A summary of the charges recorded in connection with the Way Forward Plan during the fiscal periods presented, as well as the cumulative charges recorded since its inception, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
Cumulative Charges
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
|
(millions)
|
Cash-related restructuring charges:
|
|
|
|
|
|
|
|
|
Severance and benefits costs
|
|
$
|
7.0
|
|
|
$
|
39.0
|
|
|
$
|
182.7
|
|
|
$
|
228.7
|
|
Lease termination and store closure costs
|
|
1.4
|
|
|
33.2
|
|
|
87.3
|
|
|
121.9
|
|
Other cash charges
|
|
0.8
|
|
|
6.3
|
|
|
19.1
|
|
|
26.2
|
|
Total cash-related restructuring charges
|
|
9.2
|
|
|
78.5
|
|
|
289.1
|
|
|
376.8
|
|
Non-cash charges:
|
|
|
|
|
|
|
|
|
Impairment of assets (see Note 8)
|
|
0.4
|
|
|
16.0
|
|
|
234.6
|
|
|
251.0
|
|
Inventory-related charges
(a)
|
|
1.2
|
|
|
7.6
|
|
|
197.9
|
|
|
206.7
|
|
Accelerated stock-based compensation expense
(b)
|
|
—
|
|
|
0.7
|
|
|
—
|
|
|
0.7
|
|
Other non-cash charges
|
|
3.4
|
|
|
—
|
|
|
—
|
|
|
3.4
|
|
Total non-cash charges
|
|
5.0
|
|
|
24.3
|
|
|
432.5
|
|
|
461.8
|
|
Total charges
|
|
$
|
14.2
|
|
|
$
|
102.8
|
|
|
$
|
721.6
|
|
|
$
|
838.6
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(a)
|
Includes charges of
$155.2 million
associated with the destruction of inventory out of current liquidation channels during Fiscal 2017. Inventory-related charges are recorded within cost of goods sold in the consolidated statements of operations.
|
|
|
(b)
|
Accelerated stock-based compensation expense, which is recorded within restructuring and other charges in the consolidated statements of operations, was recorded in connection with vesting provisions associated with certain separation agreements.
|
A summary of the activity in the restructuring reserve related to the Way Forward Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Benefits Costs
|
|
Lease Termination
and Store
Closure Costs
|
|
Other Cash Charges
|
|
Total
|
|
|
(millions)
|
Balance at April 1, 2017
|
|
$
|
94.3
|
|
|
$
|
34.3
|
|
|
$
|
6.6
|
|
|
$
|
135.2
|
|
Additions charged to expense
|
|
39.0
|
|
|
33.2
|
|
|
6.3
|
|
|
78.5
|
|
Cash payments charged against reserve
|
|
(97.9
|
)
|
|
(22.8
|
)
|
|
(11.1
|
)
|
|
(131.8
|
)
|
Non-cash adjustments
|
|
2.2
|
|
|
8.8
|
|
|
—
|
|
|
11.0
|
|
Balance at March 31, 2018
|
|
37.6
|
|
|
53.5
|
|
|
1.8
|
|
|
92.9
|
|
Additions charged to expense
|
|
7.0
|
|
|
1.4
|
|
|
0.8
|
|
|
9.2
|
|
Cash payments charged against reserve
|
|
(37.7
|
)
|
|
(33.6
|
)
|
|
(2.2
|
)
|
|
(73.5
|
)
|
Non-cash adjustments
|
|
(0.4
|
)
|
|
0.6
|
|
|
—
|
|
|
0.2
|
|
Balance at March 30, 2019
|
|
$
|
6.5
|
|
|
$
|
21.9
|
|
|
$
|
0.4
|
|
|
$
|
28.8
|
|
Other Restructuring Plans
During Fiscal 2017, the Company recorded cash-related restructuring of
$4.9 million
related to the Company's restructuring plan initiated during its fiscal year ended April 2, 2016 ("Fiscal 2016"), primarily consisting of severance and benefits costs. As of
March 30, 2019
and
March 31, 2018
, the remaining restructuring reserve related to this restructuring plan was
$1.4 million
and
$4.6 million
, respectively, reflecting
$3.2 million
of cash payments made during
Fiscal 2019
. Refer to Note 9 of the Fiscal 2018 10-K for additional discussion regarding this restructuring plan.
Other Charges
During Fiscal 2019, the Company recorded other charges of
$14.1 million
related to depreciation expense associated with the Company's former Polo store at 711 Fifth Avenue in New York City, recorded after the store closed during the first quarter of Fiscal 2018 in connection with the Way Forward Plan. Although the Company is no longer generating revenue or has any other economic activity associated with its former Polo store, it continues to incur depreciation expense due to its involvement at the time of construction. Additionally, during Fiscal 2019, the Company recorded other charges of
$4.2 million
primarily related to its customs audit (see
Note 14
), as well as
$18.2 million
primarily related to its new sabbatical leave program, which entitles eligible employees to periodic paid leave based on the attainment of certain employment tenure milestones. Other than this initial charge to establish its estimated liability for services rendered to-date, the Company does not expect there will be a significant, ongoing impact to the consolidated financial statements in future periods related to its sabbatical leave program.
During Fiscal 2018, the Company recorded other charges of
$14.1 million
related to depreciation expense associated with the Company's former Polo store at 711 Fifth Avenue in New York City,
$10.2 million
related to its customs audit (see
Note 14
), and
$6.7 million
(inclusive of accelerated stock-based compensation expense of
$2.1 million
) primarily related to the departure of Mr. Stefan Larsson as the Company's President and Chief Executive Officer and as a member of its Board of Directors, effective as of May 1, 2017. Refer to the Form 8-K filed on February 2, 2017 for additional discussion regarding the departure of Mr. Larsson. These other charges recorded in Fiscal 2018 were partially offset by the favorable impact of
$2.2 million
related to the reversal of reserves associated with the settlement of certain non-income tax issues.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During Fiscal 2017, the Company recorded other charges of
$13.2 million
related to the anticipated settlement of certain non-income tax issues and
$11.4 million
(inclusive of accelerated stock-based compensation expense of
$4.3 million
) related to Mr. Larsson's departure.
U.S. Tax Reform
On December 22, 2017, President Trump signed into law new tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "TCJA"), which became effective January 1, 2018. The TCJA significantly revised U.S. tax law by, among other provisions, lowering the U.S. federal statutory income tax rate from
35%
to
21%
, creating a territorial tax system that includes a one-time mandatory transition tax on previously deferred foreign earnings, and eliminating or reducing certain income tax deductions.
ASC Topic 740, "Income Taxes," requires the effects of changes in tax laws to be recognized in the period in which the legislation is enacted. However, due to the complexity and significance of the TCJA's provisions, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118") on December 22, 2017, which allowed companies to record the tax effects of the TCJA on a provisional basis based on a reasonable estimate, and then, if necessary, subsequently adjust such amounts during a limited measurement period as additional information became available and further analyses were completed. The measurement period ends when a company has obtained, prepared, and analyzed the information necessary to finalize its accounting, not to extend beyond one year from enactment.
During the third quarter of Fiscal 2018, the Company recorded charges of
$231.3 million
within its income tax provision in connection with the TCJA, of which
$215.5 million
related to the mandatory transition tax, and
$15.8 million
related to the revaluation of the Company's deferred tax assets and liabilities. Subsequently, as a result of finalizing its full Fiscal 2018 operating results, the issuance of new interpretive guidance, and other analyses performed, the Company recorded measurement period adjustments during the fourth quarter of Fiscal 2018, whereby it reversed
$6.2 million
of the charges related to the mandatory transition tax and
$5.5 million
related to the revaluation of its deferred taxes. These reversals were partially offset by an incremental charge of
$1.8 million
related to the expected future remittance of certain previously deferred foreign earnings. Collectively, these net charges of
$221.4 million
, which were recorded on a provisional basis, increased the Company's effective tax rate by
4,520 basis points
during Fiscal 2018.
During the second quarter of Fiscal 2019, the Company recorded an additional measurement period adjustment as a result of the issuance of new interpretive guidance related to stock-based compensation for certain executives, whereby it recorded an income tax benefit and corresponding deferred tax asset of
$4.7 million
. Subsequently, during the third quarter of Fiscal 2019, the Company completed its analyses and recorded its final measurement period adjustments, whereby it recorded incremental charges of
$32.3 million
within its income tax provision, substantially all of which related to the mandatory transition tax. These measurement period adjustments increased the Company's effective tax rate by
470 basis points
during Fiscal 2019. Approximately
$241 million
of the cumulative TCJA enactment-related charges recorded related to the mandatory transition tax (see Note 14).
Additionally, during the fourth quarter of Fiscal 2018 the Company reevaluated its permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. In connection with this decision, the Company repatriated
$252 million
of cash to the U.S. from certain of its foreign subsidiaries during the fourth quarter of Fiscal 2018, and it repatriated an additional
$875 million
during Fiscal 2019. The mandatory transition tax does not apply to undistributed foreign earnings generated after December 31, 2017, and therefore the Company intends to permanently reinvest such earnings. See "
Deferred Taxes
" for additional discussion.
Additionally, the Company has decided to account for the minimum tax on global intangible low-taxed income ("GILTI") in the period in which it is incurred and therefore has not provided any deferred tax impacts of GILTI in its consolidated financial statements for Fiscal 2019.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Taxes on Income (Loss)
Domestic and foreign pretax income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Domestic
|
|
$
|
66.6
|
|
|
$
|
16.4
|
|
|
$
|
(155.3
|
)
|
Foreign
|
|
515.9
|
|
|
472.8
|
|
|
50.4
|
|
Total income (loss) before income taxes
|
|
$
|
582.5
|
|
|
$
|
489.2
|
|
|
$
|
(104.9
|
)
|
Benefits (provisions) for current and deferred income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Current:
|
|
|
|
|
|
|
Federal
(a)
|
|
$
|
(37.3
|
)
|
|
$
|
(154.6
|
)
|
|
$
|
29.1
|
|
State and local
(a)
|
|
(11.9
|
)
|
|
(5.0
|
)
|
|
2.3
|
|
Foreign
|
|
(93.9
|
)
|
|
(82.7
|
)
|
|
(64.7
|
)
|
|
|
(143.1
|
)
|
|
(242.3
|
)
|
|
(33.3
|
)
|
Deferred:
|
|
|
|
|
|
|
Federal
|
|
(5.0
|
)
|
|
(64.1
|
)
|
|
25.1
|
|
State and local
|
|
(6.9
|
)
|
|
(12.6
|
)
|
|
2.9
|
|
Foreign
|
|
3.4
|
|
|
(7.4
|
)
|
|
10.9
|
|
|
|
(8.5
|
)
|
|
(84.1
|
)
|
|
38.9
|
|
Total income tax benefit (provision)
|
|
$
|
(151.6
|
)
|
|
$
|
(326.4
|
)
|
|
$
|
5.6
|
|
|
|
(a)
|
Excludes federal, state, and local tax provisions of
$17.3 million
in Fiscal 2017 resulting from stock-based compensation arrangements, which was recorded within equity. In Fiscal 2018, the Company adopted ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which requires such excess tax benefits and shortfalls be reflected prospectively in the income tax benefit (provision) in the statement of operations.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tax Rate Reconciliation
The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Benefit (provision) for income taxes at the U.S. federal statutory rate
(a)
|
|
$
|
(122.3
|
)
|
|
$
|
(154.3
|
)
|
|
$
|
36.7
|
|
Change due to:
|
|
|
|
|
|
|
State and local income taxes, net of federal benefit
|
|
(12.4
|
)
|
|
(1.6
|
)
|
|
2.7
|
|
Foreign income taxed at different rates, net of U.S. foreign tax credits
|
|
27.6
|
|
|
74.7
|
|
|
(25.4
|
)
|
Unrecognized tax benefits and settlements of tax examinations
|
|
(3.4
|
)
|
|
(14.4
|
)
|
|
0.5
|
|
Changes in valuation allowance on deferred tax assets
|
|
(1.4
|
)
|
|
2.5
|
|
|
(7.3
|
)
|
TCJA enactment-related charges
|
|
(27.6
|
)
|
|
(221.4
|
)
|
|
—
|
|
Compensation-related adjustments
|
|
(11.6
|
)
|
|
(15.4
|
)
|
|
—
|
|
Other
|
|
(0.5
|
)
|
|
3.5
|
|
|
(1.6
|
)
|
Total income tax benefit (provision)
|
|
$
|
(151.6
|
)
|
|
$
|
(326.4
|
)
|
|
$
|
5.6
|
|
Effective tax rate
(b)
|
|
26.0
|
%
|
|
66.7
|
%
|
|
5.3
|
%
|
|
|
(a)
|
The U.S. federal statutory income tax rate was
21.0%
during Fiscal 2019. The previous statutory rate of
35.0%
, which was in effect during the Company's Fiscal 2017, was reduced to
21.0%
by the TCJA effective January 1, 2018, resulting in a blended statutory rate of
31.5%
for the Company's Fiscal 2018.
|
|
|
(b)
|
Effective tax rate is calculated by dividing the income tax benefit (provision) by income (loss) before income taxes.
|
The Company's Fiscal 2019 effective tax rate was higher than the U.S. federal statutory income tax rate of
21%
primarily due to the SAB 118 measurement period adjustments recorded, as previously discussed, state and local income taxes, and compensation-related adjustments, partially offset by the favorable impact of the proportion of earnings generated in lower taxed jurisdictions. The Company's Fiscal 2018 effective tax rate was higher than the blended statutory rate of
31.5%
primarily due to the enactment-related charges recorded in connection with the TCJA, as previously discussed, the negative impact of the adoption of ASU 2016-09, and the unfavorable impact of additional income tax reserves associated with certain income tax audits, partially offset by the favorable impact of the proportion of earnings generated in lower taxed foreign jurisdictions versus the U.S. and tax benefits associated with adjustments recorded on deferred tax assets and provision to tax return adjustments. The Company's Fiscal 2017 effective tax rate was lower than the statutory rate of
35%
primarily due to the tax impact of earnings in foreign jurisdictions, valuation allowances and adjustments recorded on deferred tax assets, and income tax reserves largely associated with an income tax settlement and certain income tax audits, partially offset by the reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Taxes
Significant components of the Company's deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Goodwill and other intangible assets
|
|
$
|
(149.8
|
)
|
|
$
|
(149.2
|
)
|
Property and equipment
|
|
(24.6
|
)
|
|
(36.2
|
)
|
Cumulative translation adjustment and hedges
|
|
(7.8
|
)
|
|
15.0
|
|
Undistributed foreign earnings
|
|
(4.7
|
)
|
|
(7.1
|
)
|
Deferred compensation
|
|
53.4
|
|
|
45.7
|
|
Net operating loss carryforwards
|
|
48.9
|
|
|
54.8
|
|
Lease obligations
|
|
44.6
|
|
|
49.6
|
|
Receivable allowances and reserves
|
|
25.6
|
|
|
38.5
|
|
Inventory basis difference
|
|
19.0
|
|
|
16.0
|
|
Accrued expenses
|
|
11.8
|
|
|
12.1
|
|
Transfer pricing
|
|
9.0
|
|
|
9.0
|
|
Unrecognized tax benefits
|
|
8.1
|
|
|
10.8
|
|
Deferred rent
|
|
7.3
|
|
|
6.9
|
|
Deferred income
|
|
1.2
|
|
|
5.2
|
|
Other
|
|
13.2
|
|
|
14.4
|
|
Valuation allowance
|
|
(38.4
|
)
|
|
(35.4
|
)
|
Net deferred tax assets
(a)
|
|
$
|
16.8
|
|
|
$
|
50.1
|
|
|
|
(a)
|
Net deferred tax balances as of
March 30, 2019
and
March 31, 2018
were comprised of non-current deferred tax assets of
$67.0 million
and
$86.6 million
, respectively, recorded within deferred tax assets, and non-current deferred tax liabilities of
$50.2 million
and
$36.5 million
, respectively, recorded within other non-current liabilities in the consolidated balance sheets.
|
The Company has available state and foreign net operating loss carryforwards of
$2.1 million
and
$10.7 million
(both net of tax), respectively, for tax purposes to offset future taxable income. The net operating loss carryforwards expire beginning in Fiscal
2020
.
The Company also has available state and foreign net operating loss carryforwards of
$7.1 million
and
$29.1 million
(both net of tax), respectively, for which no net deferred tax asset has been recognized. A full valuation allowance has been recorded against these carryforwards since the Company does not believe that it will more likely than not be able to utilize these carryforwards to offset future taxable income. Subsequent recognition of these deferred tax assets would result in an income tax benefit in the year of such recognition. The valuation allowance relating to state net operating loss carryforwards increased by
$4.7 million
(net of tax) as a result of net operating losses in certain jurisdictions where the Company does not believe that it will more likely than not be able to utilize these carryforwards in the future. The valuation allowance relating to foreign net operating loss carryforwards decreased by
$1.7 million
as a result of net operating losses in certain jurisdictions where the Company believes that it will be more likely than not to be able to utilize these carryforwards in the future.
Given recent changes to the taxation of undistributed foreign earnings in connection with the TCJA, the Company has reevaluated its permanent reinvestment assertion and determined that undistributed foreign earnings that were subject to the TCJA's one-time mandatory transition tax were no longer considered to be permanently reinvested, effective December 31, 2017. The mandatory transition tax does not apply to undistributed foreign earnings generated after December 31, 2017. Accordingly, provision has not been made for U.S. or additional foreign taxes on approximately
$548 million
of undistributed earnings of foreign subsidiaries generated after December 31, 2017, as such earnings are expected to be permanently reinvested. These earnings could become subject to tax if they were remitted as dividends, if foreign earnings were lent to RLC, a subsidiary or a U.S. affiliate of RLC, or if the stock of the subsidiaries were sold. Determination of the amount of unrecognized deferred tax liability with respect to such earnings is not practicable.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Uncertain Income Tax Benefits
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
Activity
Reconciliations of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties, for
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Unrecognized tax benefits beginning balance
|
|
$
|
64.2
|
|
|
$
|
49.9
|
|
|
$
|
49.7
|
|
Additions related to current period tax positions
|
|
4.9
|
|
|
6.8
|
|
|
5.3
|
|
Additions related to prior period tax positions
|
|
11.7
|
|
|
9.5
|
|
|
15.3
|
|
Reductions related to prior period tax positions
|
|
(5.5
|
)
|
|
(1.3
|
)
|
|
(3.4
|
)
|
Reductions related to expiration of statutes of limitations
|
|
(4.1
|
)
|
|
(3.3
|
)
|
|
(4.1
|
)
|
Reductions related to settlements with taxing authorities
|
|
(3.1
|
)
|
|
(0.7
|
)
|
|
(12.0
|
)
|
Additions (reductions) related to foreign currency translation
|
|
(2.9
|
)
|
|
3.3
|
|
|
(0.9
|
)
|
Unrecognized tax benefits ending balance
|
|
$
|
65.2
|
|
|
$
|
64.2
|
|
|
$
|
49.9
|
|
The Company classifies interest and penalties related to unrecognized tax benefits as part of its provision for income taxes. Reconciliations of the beginning and ending amounts of accrued interest and penalties related to unrecognized tax benefits for
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
|
(millions)
|
|
Accrued interest and penalties beginning balance
|
|
$
|
15.0
|
|
|
$
|
12.8
|
|
|
$
|
30.9
|
|
|
Net additions charged to expense
|
|
3.0
|
|
|
3.8
|
|
|
2.3
|
|
|
Reductions related to prior period tax positions
|
|
(3.4
|
)
|
|
(1.6
|
)
|
|
(18.3
|
)
|
(a)
|
Reductions related to settlements with taxing authorities
|
|
(0.8
|
)
|
|
(0.3
|
)
|
|
(0.8
|
)
|
|
Additions (reductions) related to foreign currency translation
|
|
(0.2
|
)
|
|
0.3
|
|
|
(1.3
|
)
|
|
Accrued interest and penalties ending balance
|
|
$
|
13.6
|
|
|
$
|
15.0
|
|
|
$
|
12.8
|
|
|
|
|
(a)
|
Includes a
$15.9 million
reversal of an income tax reserve resulting from a change in tax law that impacted an interest assessment on a prior year withholding tax.
|
The total amount of unrecognized tax benefits, including interest and penalties, was
$78.8 million
and
$79.2 million
as of
March 30, 2019
and
March 31, 2018
, respectively, and was included within the non-current liability for unrecognized tax benefits in the consolidated balance sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate was
$70.7 million
and
$68.4 million
as of
March 30, 2019
and
March 31, 2018
, respectively.
Future Changes in Unrecognized Tax Benefits
The total amount of unrecognized tax benefits relating to the Company's tax positions is subject to change based on future events including, but not limited to, settlements of ongoing tax audits and assessments and the expiration of applicable statutes of limitations. Although the outcomes and timing of such events are highly uncertain, the Company does not anticipate that the balance of gross unrecognized tax benefits, excluding interest and penalties, will change significantly during the next twelve months. However, changes in the occurrence, expected outcomes, and timing of such events could cause the Company's current estimate to change materially in the future.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company files a consolidated U.S. federal income tax return, as well as tax returns in various state, local, and foreign jurisdictions. The Company is generally no longer subject to examinations by the relevant tax authorities for years prior to its fiscal year ended April 3, 2010.
Debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
$300 million 2.125% Senior Notes
(a)
|
|
$
|
—
|
|
|
$
|
298.1
|
|
$300 million 2.625% Senior Notes
(b)
|
|
293.4
|
|
|
288.0
|
|
$400 million 3.750% Senior Notes
(c)
|
|
395.7
|
|
|
—
|
|
Borrowings outstanding under credit facilities
|
|
—
|
|
|
10.1
|
|
Total debt
|
|
689.1
|
|
|
596.2
|
|
Less: short-term debt and current portion of long-term debt
|
|
—
|
|
|
308.2
|
|
Total long-term debt
|
|
$
|
689.1
|
|
|
$
|
288.0
|
|
|
|
(a)
|
The carrying value of the 2.125% Senior Notes as of
March 31, 2018
reflects adjustments of
$1.6 million
associated with the Company's related interest rate swap contract (see
Note 13
), and is also presented net of unamortized debt issuance costs and discount of
$0.3 million
.
|
|
|
(b)
|
The carrying value of the 2.625% Senior Notes as of
March 30, 2019
and
March 31, 2018
reflects adjustments of
$5.9 million
and
$10.8 million
, respectively, associated with the Company's related interest rate swap contract (see
Note 13
). The carrying value of the 2.625% Senior Notes is also presented net of unamortized debt issuance costs and discount of
$0.7 million
and
$1.2 million
as of
March 30, 2019
and
March 31, 2018
, respectively.
|
|
|
(c)
|
The carrying value of the 3.750% Senior Notes is presented net of unamortized debt issuance costs and discount of
$4.3 million
as of
March 30, 2019
.
|
Senior Notes
In August 2015, the Company completed a registered public debt offering and issued
$300 million
aggregate principal amount of unsecured senior notes due
August 18, 2020
, which bear interest at a fixed rate of
2.625%
, payable semi-annually (the "2.625% Senior Notes"). The 2.625% Senior Notes were issued at a price equal to
99.795%
of their principal amount. The proceeds from this offering were used for general corporate purposes.
In August 2018, the Company completed another registered public debt offering and issued an additional
$400 million
aggregate principal amount of unsecured senior notes due
September 15, 2025
, which bear interest at a fixed rate of
3.750%
, payable semi-annually (the "3.750% Senior Notes"). The 3.750% Senior Notes were issued at a price equal to
99.521%
of their principal amount. The proceeds from this offering were used for general corporate purposes, including repayment of the Company's previously outstanding
$300 million
principal amount of unsecured
2.125%
senior notes that matured
September 26, 2018
(the "2.125% Senior Notes").
The Company has the option to redeem the 2.625% Senior Notes and 3.750% Senior Notes (collectively, the "Senior Notes"), in whole or in part, at any time at a price equal to accrued and unpaid interest on the redemption date, plus the greater of (i)
100%
of the principal amount of the series of Senior Notes to be redeemed or (ii) the sum of the present value of Remaining Scheduled Payments, as defined in the supplemental indentures governing such Senior Notes (together with the indenture governing the Senior Notes, the "Indenture").
The Indenture contains certain covenants that restrict the Company's ability, subject to specified exceptions, to incur certain liens; enter into sale and leaseback transactions; consolidate or merge with another party; or sell, lease, or convey all or substantially all of the Company's property or assets to another party. However, the Indenture does not contain any financial covenants.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Commercial Paper
In May 2014, the Company initiated a commercial paper borrowing program (the "Commercial Paper Program") that allowed it to issue up to
$300 million
of unsecured commercial paper notes through private placement using third-party broker-dealers. In May 2015, the Company expanded its Commercial Paper Program to allow for a total issuance of up to
$500 million
of unsecured commercial paper notes.
Borrowings under the Commercial Paper Program are supported by the Global Credit Facility, as defined below. Accordingly, the Company does not expect combined borrowings outstanding under the Commercial Paper Program and Global Credit Facility to exceed
$500 million
. Commercial Paper Program borrowings may be used to support the Company's general working capital and corporate needs. Maturities of commercial paper notes vary, but cannot exceed
397
days from the date of issuance. Commercial paper notes issued under the Commercial Paper Program rank equally with the Company's other forms of unsecured indebtedness. As of
March 30, 2019
, there were
no
borrowings outstanding under the Commercial Paper Program.
Revolving Credit Facilities
Global Credit Facility
In February 2015, the Company entered into an amended and restated credit facility (which was further amended in March 2016) that provides for a
$500 million
senior unsecured revolving line of credit through
February 11, 2020
(the "Global Credit Facility") under terms and conditions substantially similar to those previously in effect. The Global Credit Facility is also used to support the issuance of letters of credit and the maintenance of the Commercial Paper Program. Borrowings under the Global Credit Facility may be denominated in U.S. Dollars and other currencies, including Euros, Hong Kong Dollars, and Japanese Yen. The Company has the ability to expand its borrowing availability under the Global Credit Facility to
$750 million
, subject to the agreement of one or more new or existing lenders under the facility to increase their commitments. There are no mandatory reductions in borrowing ability throughout the term of the Global Credit Facility. As of
March 30, 2019
, there were
no
borrowings outstanding under the Global Credit Facility and the Company was contingently liable for
$10.2 million
of outstanding letters of credit.
U.S. Dollar-denominated borrowings under the Global Credit Facility bear interest, at the Company's option, either at (a) a base rate, by reference to the greatest of: (i) the annual prime commercial lending rate of JPMorgan Chase Bank, N.A. in effect from time to time, (ii) the weighted-average overnight Federal funds rate plus
50 basis points
, or (iii) the one-month London Interbank Offered Rate ("LIBOR") plus
100 basis points
; or (b) LIBOR, adjusted for the Federal Reserve Board's Eurocurrency liabilities maximum reserve percentage, plus a spread of
87.5 basis points
, subject to adjustment based on the Company's credit ratings ("Adjusted LIBOR"). Foreign currency-denominated borrowings bear interest at Adjusted LIBOR.
In addition to paying interest on any outstanding borrowings under the Global Credit Facility, the Company is required to pay a commitment fee to the lenders under the Global Credit Facility with respect to the unutilized commitments. The commitment fee rate of
7
basis points under the terms of the Global Credit Facility is subject to adjustment based on the Company's credit ratings.
The Global Credit Facility contains a number of covenants that, among other things, restrict the Company's ability, subject to specified exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with or acquire other companies; liquidate or dissolve itself; engage in businesses that are not in a related line of business; make loans, advances, or guarantees; engage in transactions with affiliates; and make certain investments. The Global Credit Facility also requires the Company to maintain a maximum ratio of Adjusted Debt to Consolidated EBITDAR (the "leverage ratio") of no greater than 3.75 as of the date of measurement for the four most recent consecutive fiscal quarters. Adjusted Debt is defined generally as consolidated debt outstanding plus four times consolidated rent expense for the four most recent consecutive fiscal quarters. Consolidated EBITDAR is defined generally as consolidated net income plus (i) income tax expense, (ii) net interest expense, (iii) depreciation and amortization expense, (iv) consolidated rent expense, (v) restructuring and other non-recurring expenses, and (vi) acquisition-related costs.
As of
March 30, 2019
,
no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under the Company's Global Credit Facility
.
Upon the occurrence of an Event of Default under the Global Credit Facility, the lenders may cease making loans, terminate the Global Credit Facility, and declare all amounts outstanding to be immediately due and payable. The Global Credit Facility specifies a number of events of default (many of which are subject to applicable grace periods), including, among others, the failure to make timely principal, interest, and fee payments or to satisfy the covenants, including the financial covenant described above.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Additionally, the Global Credit Facility provides that an Event of Default will occur if Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family fail to maintain a specified minimum percentage of the voting power of the Company's common stock.
Pan-Asia Credit Facilities
Certain of the Company's subsidiaries in Asia have uncommitted credit facilities with regional branches of JPMorgan Chase (the "Banks") in China and South Korea (the "Pan-Asia Credit Facilities"). These credit facilities are subject to annual renewal and may be used to fund general working capital and corporate needs of the Company's operations in the respective countries. Borrowings under the Pan-Asia Credit Facilities are guaranteed by the parent company and are granted at the sole discretion of the Banks, subject to availability of the Banks' funds and satisfaction of certain regulatory requirements. The Pan-Asia Credit Facilities do not contain any financial covenants. The Company's Pan-Asia Credit Facilities by country are as follows:
|
|
•
|
China Credit Facility
— provides Ralph Lauren Trading (Shanghai) Co., Ltd. with a revolving line of credit of up to
50 million
Chinese Renminbi (approximately
$7 million
) through
April 3, 2020
, which is also able to be used to support bank guarantees.
|
|
|
•
|
South Korea Credit Facility
— provides Ralph Lauren (Korea) Ltd. with a revolving line of credit of up to
30 billion
South Korean Won (approximately
$26 million
) through
October 31, 2019
.
|
During the first quarter of Fiscal 2019, the Company repaid approximately
$10 million
in borrowings that were previously outstanding under its Pan-Asia Credit Facilities. As of
March 30, 2019
, there were
no
borrowings outstanding under the Pan-Asia Credit Facilities.
|
|
12.
|
Fair Value Measurements
|
U.S. GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
|
|
•
|
Level 1
— inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
•
|
Level 2
— inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.
|
|
|
•
|
Level 3
— inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.
|
The following table summarizes the Company's financial assets and liabilities that are measured and recorded at fair value on a recurring basis, excluding accrued interest components:
|
|
|
|
|
|
|
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
(millions)
|
Investments in commercial paper
(a)(b)
|
|
$
|
290.7
|
|
|
$
|
234.2
|
|
Derivative assets
(a)
|
|
32.0
|
|
|
12.3
|
|
Derivative liabilities
(a)
|
|
15.5
|
|
|
110.0
|
|
|
|
(a)
|
Based on Level 2 measurements.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(b)
|
As of
March 30, 2019
,
$54.7 million
was included within cash and cash equivalents and
$236.0 million
was included within short-term investments in the consolidated balance sheet. As of
March 31, 2018
,
$15.0 million
was included within cash and cash equivalents and
$219.2 million
was included within short-term investments in the consolidated balance sheet.
|
The Company's investments in commercial paper are classified as available-for-sale and recorded at fair value in its consolidated balance sheets using external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company's investments. To the extent the Company invests in bonds, such investments are also classified as available-for-sale and recorded at fair value in its consolidated balance sheets based on quoted prices in active markets.
The Company's derivative financial instruments are recorded at fair value in its consolidated balance sheets and are valued using pricing models that are primarily based on market observable external inputs, including spot and forward currency exchange rates, benchmark interest rates, and discount rates consistent with the instrument's tenor, and consider the impact of the Company's own credit risk, if any. Changes in counterparty credit risk are also considered in the valuation of derivative financial instruments.
The Company's cash and cash equivalents, restricted cash, and time deposits are recorded at carrying value, which generally approximates fair value based on Level 1 measurements.
The Company's debt instruments are recorded at their carrying values in its consolidated balance sheets, which may differ from their respective fair values. The fair values of the senior notes are estimated based on external pricing data, including available quoted market prices, and with reference to comparable debt instruments with similar interest rates, credit ratings, and trading frequency, among other factors. The fair values of the Company's commercial paper notes and borrowings outstanding under its credit facilities, if any, are estimated using external pricing data, based on interest rates and credit ratings for similar issuances with the same remaining term as the Company's outstanding borrowings. Due to their short-term nature, the fair values of the Company's commercial paper notes and borrowings outstanding under its credit facilities, if any, generally approximate their carrying values.
The following table summarizes the carrying values and the estimated fair values of the Company's debt instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
March 31, 2018
|
|
|
Carrying Value
|
|
Fair Value
(a)
|
|
Carrying Value
|
|
Fair Value
(a)
|
|
|
(millions)
|
$300 million 2.125% Senior Notes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
298.1
|
|
(b)
|
$
|
299.4
|
|
$300 million 2.625% Senior Notes
|
|
293.4
|
|
(b)
|
299.1
|
|
|
288.0
|
|
(b)
|
298.7
|
|
$400 million 3.750% Senior Notes
|
|
395.7
|
|
(b)
|
410.0
|
|
|
—
|
|
|
—
|
|
Borrowings outstanding under credit facilities
|
|
—
|
|
|
—
|
|
|
10.1
|
|
|
10.1
|
|
|
|
(a)
|
Based on Level 2 measurements.
|
|
|
(b)
|
See
Note 11
for discussion of the carrying values of the Company's senior notes.
|
Unrealized gains or losses resulting from changes in the fair value of the Company's debt do not result in the realization or expenditure of cash, unless the debt is retired prior to its maturity.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Non-financial Assets and Liabilities
The Company's non-financial assets, which primarily consist of goodwill, other intangible assets, and property and equipment, are not required to be measured at fair value on a recurring basis and are reported at carrying value. However, on a periodic basis or whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable (and at least annually for goodwill and indefinite-lived intangible assets), non-financial assets are assessed for impairment and, if applicable, written down to and recorded at fair value, considering external market participant assumptions.
During
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, the Company recorded non-cash impairment charges of
$21.2 million
,
$41.2 million
, and
$248.6 million
, respectively, to fully write off the carrying values of certain long-lived assets based upon their assumed fair values of
zero
. As a result of its decision to sell a certain corporate fixed asset in connection with its cost savings initiative, the Company also recorded a non-cash impairment charge of
$4.6 million
during Fiscal 2019 to reduce the carrying value of the asset held-for-sale to its estimated fair value less costs to sell of
$20.8 million
as of March 30, 2019. The Company anticipates completing the sale of this asset during Fiscal 2020. Additionally, as a result of a change in the planned usage of a certain intangible asset, the Company recorded a non-cash impairment charge of
$8.8 million
during Fiscal 2018 to reduce the carrying value of the intangible asset from
$11.7 million
to its estimated fair value of
$2.9 million
as of March 31, 2018. The fair values of these long-lived and intangible assets were determined based on Level 3 measurements. Inputs to these fair value measurements included estimates of the amount and timing of the assets' net future discounted cash flows based on historical experience, current trends, market conditions, and comparable sales, as applicable. See
Note 8
for further discussion of the non-cash impairment charges recorded by the Company during the fiscal years presented.
In
Fiscal 2019
, the Company performed its annual goodwill impairment assessment as of the beginning of the second quarter of the fiscal year using a qualitative approach. In performing the assessment, the Company identified and considered the significance of relevant key factors, events, and circumstances that affected the fair values and/or carrying amounts of its reporting units with allocated goodwill. These factors included external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as the Company's actual and expected financial performance. Additionally, the results of the Company's most recent quantitative goodwill impairment test indicated that the fair values of these reporting units significantly exceeded their respective carrying values. Based on the results of its qualitative goodwill impairment assessment, the Company concluded that it is not more likely than not that the fair values of its reporting units are less than their respective carrying values, and there were no reporting units at risk of impairment.
No
goodwill impairment charges were recorded during any of the three fiscal years presented in connection with the Company's annual goodwill impairment assessments.
Subsequent to the Company's Fiscal 2017 annual goodwill impairment assessment, the Company realigned its segment reporting structure during the fourth quarter of Fiscal 2017 as a result of significant organizational changes implemented in connection with the Way Forward Plan. As a result of the realignment of its segment reporting structure, the Company reallocated the carrying amount of goodwill to its new reporting units based upon each reporting unit's relative fair value as of the first day of the Company's fourth quarter of Fiscal 2017. In connection with this reallocation, the Company performed an interim assessment of the recoverability of goodwill assigned to its new reporting units using a quantitative approach. The estimated fair values of the Company's new reporting units were determined using discounted cash flows and market comparisons. Based on the results of the quantitative impairment assessment performed, the Company concluded that the fair value of one of its new reporting units was less than its carrying value. As a result, a goodwill impairment charge of
$5.2 million
was recorded during Fiscal 2017 to fully write off the carrying value of the reporting unit's reallocated goodwill. The fair values of the remaining new reporting units significantly exceeded their respective carrying values and were not at risk of impairment.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
13.
|
Financial Instruments
|
Derivative Financial Instruments
The Company is exposed to changes in foreign currency exchange rates, primarily relating to certain anticipated cash flows and the value of the reported net assets of its international operations, as well as changes in the fair value of its fixed-rate debt obligations attributed to changes in a benchmark interest rate. Consequently, the Company uses derivative financial instruments to manage and mitigate such risks. The Company does not enter into derivative transactions for speculative or trading purposes.
The following table summarizes the Company's outstanding derivative instruments on a gross basis as recorded in its consolidated balance sheets as of
March 30, 2019
and
March 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amounts
|
|
Derivative Assets
|
|
Derivative Liabilities
|
Derivative Instrument
(a)
|
|
March 30, 2019
|
|
March 31, 2018
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
|
|
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
|
(millions)
|
Designated Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FC — Cash flow hedges
|
|
$
|
636.3
|
|
|
$
|
514.5
|
|
|
PP
|
|
$
|
19.5
|
|
|
PP
|
|
$
|
1.1
|
|
|
AE
|
|
$
|
2.3
|
|
|
(e)
|
|
$
|
13.5
|
|
IRS — Fixed-rate debt
|
|
300.0
|
|
|
600.0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
ONCL
|
|
5.9
|
|
|
(f)
|
|
12.4
|
|
Net investment hedges
(c)
|
|
695.3
|
|
|
1,081.2
|
|
|
ONCA
|
|
12.2
|
|
|
PP
|
|
0.1
|
|
|
ONCL
|
|
6.0
|
|
|
(g)
|
|
82.6
|
|
Total Designated Hedges
|
|
1,631.6
|
|
|
2,195.7
|
|
|
|
|
31.7
|
|
|
|
|
1.2
|
|
|
|
|
14.2
|
|
|
|
|
108.5
|
|
Undesignated Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FC — Undesignated hedges
(d)
|
|
146.6
|
|
|
459.2
|
|
|
PP
|
|
0.3
|
|
|
PP
|
|
11.1
|
|
|
AE
|
|
1.3
|
|
|
AE
|
|
1.5
|
|
Total Hedges
|
|
$
|
1,778.2
|
|
|
$
|
2,654.9
|
|
|
|
|
$
|
32.0
|
|
|
|
|
$
|
12.3
|
|
|
|
|
$
|
15.5
|
|
|
|
|
$
|
110.0
|
|
|
|
(a)
|
FC = Forward foreign currency exchange contracts; IRS = Interest rate swap contracts.
|
|
|
(b)
|
PP = Prepaid expenses and other current assets; AE = Accrued expenses and other current liabilities; ONCA = Other non-current assets; ONCL = Other non-current liabilities.
|
|
|
(c)
|
Includes cross-currency swaps and forward foreign currency exchange contracts designated as hedges of the Company's net investment in certain foreign operations.
|
|
|
(d)
|
Primarily includes undesignated hedges of foreign currency-denominated intercompany loans and other intercompany balances.
|
|
|
(e)
|
$12.9 million
included within accrued expenses and other current liabilities and
$0.6 million
included within other non-current liabilities.
|
|
|
(f)
|
$1.6 million
included within accrued expenses and other current liabilities and
$10.8 million
included within other non-current liabilities.
|
|
|
(g)
|
$44.8 million
included within accrued expenses and other current liabilities and
$37.8 million
included within other non-current liabilities.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company records and presents the fair values of all of its derivative assets and liabilities in its consolidated balance sheets on a gross basis, even when they are subject to master netting arrangements. However, if the Company were to offset and record the asset and liability balances of all of its derivative instruments on a net basis in accordance with the terms of each of its master netting arrangements, spread across
eight
separate counterparties, the amounts presented in the consolidated balance sheets as of
March 30, 2019
and
March 31, 2018
would be adjusted from the current gross presentation as detailed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 30, 2019
|
|
March 31, 2018
|
|
|
Gross Amounts Presented in the Balance Sheet
|
|
Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements
|
|
Net
Amount
|
|
Gross Amounts Presented in the Balance Sheet
|
|
Gross Amounts Not Offset in the Balance Sheet that are Subject to Master Netting Agreements
|
|
Net
Amount
|
|
|
(millions)
|
Derivative assets
|
|
$
|
32.0
|
|
|
$
|
(4.8
|
)
|
|
$
|
27.2
|
|
|
$
|
12.3
|
|
|
$
|
(10.7
|
)
|
|
$
|
1.6
|
|
Derivative liabilities
|
|
15.5
|
|
|
(4.8
|
)
|
|
10.7
|
|
|
110.0
|
|
|
(10.7
|
)
|
|
99.3
|
|
The Company's master netting arrangements do not require cash collateral to be pledged by the Company or its counterparties. See
Note 3
for further discussion of the Company's master netting arrangements.
The following tables summarize the pretax impact of gains and losses from the Company's designated derivative instruments on its consolidated financial statements for the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
Recognized in OCI
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Designated Hedges:
|
|
|
|
|
|
|
FC — Cash flow hedges
|
|
$
|
47.5
|
|
|
$
|
(45.5
|
)
|
|
$
|
30.4
|
|
Net investment hedges — effective portion
|
|
64.5
|
|
|
(90.9
|
)
|
|
37.7
|
|
Net investment hedges — portion excluded from assessment of hedge effectiveness
|
|
1.6
|
|
|
—
|
|
|
—
|
|
Total Designated Hedges
|
|
$
|
113.6
|
|
|
$
|
(136.4
|
)
|
|
$
|
68.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gains (Losses)
from Cash Flow Hedges Reclassified from AOCI to Earnings
|
|
|
Fiscal Years Ended
|
|
|
March 30, 2019
|
|
March 31, 2018
|
|
April 1, 2017
|
|
|
Cost of
goods sold
|
|
Other income (expense), net
|
|
Cost of
goods sold
|
|
Other income (expense), net
|
|
Cost of
goods sold
|
|
Other income (expense), net
|
|
|
(millions)
|
Total amounts presented in the consolidated statements of operations in which the effects of related cash flow hedges are recorded
|
|
$
|
(2,427.0
|
)
|
|
$
|
0.6
|
|
|
$
|
(2,430.6
|
)
|
|
$
|
(3.1
|
)
|
|
$
|
(3,001.7
|
)
|
|
$
|
(7.5
|
)
|
Effects of cash flow hedging:
|
|
|
|
|
|
|
|
|
|
|
|
|
FC — Cash flow hedges
|
|
5.0
|
|
|
1.7
|
|
|
(8.2
|
)
|
|
(2.9
|
)
|
|
0.5
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) from Net Investment Hedges Recognized in Earnings
|
|
Location of
Gains (Losses) Recognized in Earnings
|
|
|
Fiscal Years Ended
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
|
(millions)
|
|
|
Net Investment Hedges:
|
|
|
|
|
|
|
|
|
Net investment hedges — portion excluded from assessment of hedge effectiveness
(a)
|
|
$
|
19.0
|
|
|
$
|
10.5
|
|
|
$
|
12.2
|
|
|
Interest expense
|
Total Net Investment Hedges
|
|
$
|
19.0
|
|
|
$
|
10.5
|
|
|
$
|
12.2
|
|
|
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
(a)
|
Amounts recognized in OCI related to the effective portion of the Company's net investment hedges would be recognized in earnings only upon the sale or liquidation of the hedged net investment.
|
As of
March 30, 2019
, it is estimated that
$22.7 million
of pretax n
et gains on both outstanding and matured derivative instruments designated as qualifying cash flow hedges deferred in AOCI will be recognized in earnings over the next twelve months. The amounts ultimately recognized in earnings will depend on exchange rates in effect when outstanding derivative instruments are settled.
The following table summarizes the pretax impact of gains and losses from the Company's undesignated derivative instruments on its consolidated financial statements for the fiscal years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
Recognized in Earnings
|
|
Location of
Gains (Losses)
Recognized
in Earnings
|
|
|
Fiscal Years Ended
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
|
(millions)
|
|
|
Undesignated Hedges:
|
|
|
|
|
|
|
|
|
FC — Undesignated hedges
|
|
$
|
3.1
|
|
|
$
|
2.4
|
|
|
$
|
(3.6
|
)
|
|
Other income (expense), net
|
Total Undesignated Hedges
|
|
$
|
3.1
|
|
|
$
|
2.4
|
|
|
$
|
(3.6
|
)
|
|
|
Risk Management Strategies
Forward Foreign Currency Exchange Contracts
The Company uses forward foreign currency exchange contracts to reduce its risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, the settlement of foreign currency-denominated balances, and the translation of certain foreign operations' net assets into U.S. dollars. As part of its overall strategy to manage the level of exposure to the risk of foreign currency exchange rate fluctuations, primarily to changes in the value of the Euro, the Japanese Yen, the South Korean Won, the Australian Dollar, the Canadian Dollar, the British Pound Sterling, the Swiss Franc, the Swedish Krona, the Chinese Renminbi, the New Taiwan Dollar, and the Hong Kong Dollar, the Company hedges a portion of its foreign currency exposures anticipated over a
two
-year period. In doing so, the Company uses forward foreign currency exchange contracts that generally have maturities of
two months
to
two years
to provide continuing coverage throughout the hedging period of the respective exposure.
Interest Rate Swap Contracts
During Fiscal 2016, the Company entered into two pay-floating rate, receive-fixed rate interest rate swap contracts which it designated as hedges against changes in the respective fair values of its fixed-rate
2.125%
Senior Notes and its fixed-rate
2.625%
Senior Notes, attributed to changes in a benchmark interest rate (the "Interest Rate Swaps"). The interest rate swap related to the
2.125%
Senior Notes (the "2.125% Interest Rate Swap"), which matured on
September 26, 2018
in conjunction with the maturity of the related debt, had a notional amount of
$300 million
and swapped the fixed interest rate on the
2.125%
Senior Notes for a variable interest rate based on the 3-month LIBOR plus a fixed spread. The interest rate swap related to the
2.625%
Senior Notes (the "2.625% Interest Rate Swap"), which matures on
August 18, 2020
and also has a notional amount of
$300 million
, swaps the fixed interest rate on the
2.625%
Senior Notes for a variable interest rate based on 3-month LIBOR plus a fixed spread. Changes in the fair values of the Interest Rate Swaps were offset by changes in the fair values of the
2.125%
Senior Notes and
2.625%
Senior Notes attributed to changes in the benchmark interest rate, with
no
resulting net impact reflected in earnings during any of the fiscal years presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the carrying values of the
2.125%
and
2.625%
Senior Notes and the impacts of the related fair value hedging adjustments as of
March 30, 2019
and
March 31, 2018
, as applicable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value of
the Hedged Item
|
|
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Value of the Hedged Item
|
Hedged Item
|
|
Balance Sheet Line in which the Hedged Item is Included
|
|
March 30,
2019
|
|
March 31,
2018
|
|
March 30,
2019
|
|
March 31,
2018
|
|
|
|
|
(millions)
|
$300 million 2.125% Senior Notes
|
|
Current portion of long-term debt
|
|
N/A
|
|
|
$
|
298.1
|
|
|
N/A
|
|
|
$
|
(1.6
|
)
|
$300 million 2.625% Senior Notes
|
|
Long-term debt
|
|
$
|
293.4
|
|
|
288.0
|
|
|
$
|
(5.9
|
)
|
|
(10.8
|
)
|
Cross-Currency Swap Contracts
During Fiscal 2016, the Company entered into two pay-floating rate, receive-floating rate cross-currency swap contracts, with notional amounts of
€280 million
and
€274 million
, that were designated as hedges of its net investment in certain of its European subsidiaries. The
€280 million
notional cross-currency swap, which was settled during the second quarter of Fiscal 2019, swapped the U.S. Dollar-denominated variable interest rate payments based on 3-month LIBOR plus a fixed spread (as paid under the 2.125% Interest Rate Swap discussed above) for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate ("EURIBOR") plus a fixed spread, which, in conjunction with the 2.125% Interest Rate Swap, economically converted the Company's previously-outstanding
$300 million
fixed-rate
2.125%
Senior Notes obligation to a
€280 million
floating-rate Euro-denominated obligation. Similarly, the
€274 million
notional cross-currency swap, which matures on
August 18, 2020
, swaps the U.S. Dollar-denominated variable interest rate payments based on 3-month LIBOR plus a fixed spread (as paid under the 2.625% Interest Rate Swap discussed above) for Euro-denominated variable interest rate payments based on 3-month EURIBOR plus a fixed spread, which in conjunction with the 2.625% Interest Rate Swap, economically converts the Company's
$300 million
fixed-rate
2.625%
Senior Notes obligation to a
€274 million
floating-rate Euro-denominated obligation.
Additionally, in August 2018, the Company entered into pay-fixed rate, receive-fixed rate cross-currency swap contracts with an aggregate notional amount of
€346 million
that were designated as hedges of its net investment in certain of its European subsidiaries. These contracts, which mature on
September 15, 2025
, swap the U.S. Dollar-denominated fixed interest rate payments on the Company's
3.750%
Senior Notes for Euro-denominated
1.29%
fixed interest rate payments, thereby economically converting the Company's
$400 million
fixed-rate
3.750%
Senior Notes obligation to a
€346 million
fixed-rate
1.29%
Euro-denominated obligation.
See Note 3 for further discussion of the Company's accounting policies relating to its derivative financial instruments.
Investments
As of
March 30, 2019
, the Company's short-term investments consisted of
$1.167 billion
of time deposits and
$236.0 million
of commercial paper, and its non-current investments consisted of
$44.9 million
of time deposits. As of
March 31, 2018
, the Company's short-term investments consisted of
$480.2 million
of time deposits and
$219.2 million
of commercial paper, and its non-current investments consisted of
$86.2 million
of time deposits.
No significant realized or unrealized gains or losses on available-for-sale investments or other-than-temporary impairment charges were recorded in any of the fiscal years presented.
See Note 3 for further discussion of the Company's accounting policies relating to its investments.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
14.
|
Commitments and Contingencies
|
Leases
The Company operates most of its retail stores under various leasing arrangements. The Company also occupies various office and warehouse facilities and uses certain equipment under numerous lease agreements. Such leasing arrangements are accounted for as either operating leases or capital leases. In this context, capital leases include leases whereby the Company is considered to have the substantive risks of ownership during construction of a leased property. Information on the Company's operating and capital leasing activities is set forth below.
Operating Leases
The Company is typically required to make minimum rental payments, and often contingent rental payments, under its operating leases. Many of the Company's retail store leases provide for contingent rental payments based upon sales, and certain rental agreements require payment based solely on a percentage of sales. Terms of the Company's leases generally contain renewal options, rent escalation clauses, and landlord incentives. Rent expense, net of sublease income, was
$449.3 million
,
$443.1 million
, and
$460.5 million
in
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively. Such amounts include contingent rental charges of
$192.0 million
,
$175.9 million
, and
$164.0 million
in
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively. In addition to such amounts, the Company is normally required to pay taxes, insurance, and certain occupancy costs relating to the leased real estate properties.
As of
March 30, 2019
, future minimum rental payments under noncancelable operating leases with lease terms in excess of one year were as follows:
|
|
|
|
|
|
|
|
Minimum Operating
Lease Payments
(a)
|
|
|
(millions)
|
Fiscal 2020
|
|
$
|
339.0
|
|
Fiscal 2021
|
|
315.4
|
|
Fiscal 2022
|
|
272.0
|
|
Fiscal 2023
|
|
235.8
|
|
Fiscal 2024
|
|
234.8
|
|
Fiscal 2025 and thereafter
|
|
650.5
|
|
Total net minimum rental payments
|
|
$
|
2,047.5
|
|
|
|
(a)
|
Net of sublease income, which is not significant in any period.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital Leases
Assets under capital leases, including build-to-suit leases, amounted to
$221.3 million
and
$243.2 million
at the end of
Fiscal 2019
and
Fiscal 2018
, respectively, net of accumulated depreciation of
$115.5 million
and
$104.5 million
, respectively. Such assets are classified within property and equipment, net in the consolidated balance sheets based on their nature.
As of
March 30, 2019
, future minimum rental payments under noncancelable capital leases, including build-to-suit leases, with lease terms in excess of one year were as follows:
|
|
|
|
|
|
|
|
Minimum Capital
Lease Payments
(a)
|
|
|
(millions)
|
Fiscal 2020
|
|
$
|
31.8
|
|
Fiscal 2021
|
|
32.1
|
|
Fiscal 2022
|
|
36.9
|
|
Fiscal 2023
|
|
36.4
|
|
Fiscal 2024
|
|
17.0
|
|
Fiscal 2025 and thereafter
|
|
159.4
|
|
Total net minimum rental payments
|
|
313.6
|
|
Less: amount representing interest
|
|
(91.4
|
)
|
Present value of net minimum rental payments
|
|
$
|
222.2
|
|
|
|
(a)
|
Net of sublease income, which is not significant in any period.
|
U.S. Tax Reform
In connection with the TCJA's provision that subjects previously deferred foreign earnings to a one-time mandatory transition tax, the Company recorded cumulative charges of approximately
$241 million
within its income tax provision since enactment (as described in
Note 10
). The remaining related income tax payable obligation of
$160.7 million
as of
March 30, 2019
, which was reduced by foreign tax credits and other federal income tax activity, is expected to be paid as follows:
|
|
|
|
|
|
|
|
Mandatory Transition
Tax Payments
(a)
|
|
|
(millions)
|
Fiscal 2020
|
|
$
|
14.0
|
|
Fiscal 2021
|
|
14.0
|
|
Fiscal 2022
|
|
14.0
|
|
Fiscal 2023
|
|
14.0
|
|
Fiscal 2024
|
|
26.2
|
|
Fiscal 2025 and thereafter
|
|
78.5
|
|
Total mandatory transition tax payments
|
|
$
|
160.7
|
|
|
|
(a)
|
Included within current and non-current income tax payable in the consolidated balance sheets based upon the estimated timing of payments.
|
See
Note 10
for further discussion of the TCJA and its enactment-related impacts on the Company's consolidated financial statements.
Employee Agreements
The Company has employment agreements with certain executives in the normal course of business which provide for compensation and certain other benefits. These agreements also provide for severance payments under certain circumstances.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other Commitments
Other off-balance sheet firm commitments amounted to
$905.9 million
as of
March 30, 2019
, including inventory purchase commitments of
$747.8 million
, outstanding letters of credit of
$11.5 million
, interest payments related to the Company's Senior Notes of
$109.3 million
, and other commitments of
$37.3 million
, comprised of the Company's legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements, distribution-related agreements, information technology-related service agreements, and pension-related obligations.
Customs Audit
In September 2014, one of the Company's international subsidiaries received a pre-assessment notice from the relevant customs officials concerning the method used to determine the dutiable value of imported inventory. The notice communicated the customs officials' assertion that the Company should have applied an alternative duty method, which could have resulted in up to
$46 million
in incremental duty and non-creditable value-added tax, including
$11 million
in interest and penalties. The Company believed that the alternative duty method claimed by the customs officials was not applicable to the Company's facts and circumstances and contested their asserted methodology.
In October 2014, the Company filed an appeal of the pre-assessment notice in accordance with the standard procedures established by the relevant customs authorities. In response to the filing of the Company's appeal of the pre-assessment notice, the review committee instructed the customs officials to reconsider their assertion of the alternative duty method and conduct a re-audit to evaluate the facts and circumstances noted in the pre-assessment notice. In December 2015, the Company received the results of the re-audit conducted and a customs audit assessment notice in the amount of
$34.1 million
, which the Company recorded within restructuring and other charges in its consolidated statements of operations during the third quarter of Fiscal 2016. Although the Company disagreed with the assessment notice, in order to secure the Company's rights, the Company was required to pay the assessment amount and then subsequently file an appeal with the customs authorities.
In October 2017, the tax tribunal presiding over the Company's appeal instructed the customs officials to reconsider their assertions under the alternative duty method and conduct a second re-audit to evaluate the facts and circumstances noted in the pre-assessment notice. In March 2018, the Company received the results of the second re-audit conducted and a related net refund in the amount of
$15.6 million
. Additionally, in March 2018 and May 2018, the Company filed voluntary disclosure requests to the relevant customs authorities for certain post-audit periods and made related payments of
$40.6 million
and
$7.1 million
, respectively, in order to secure its rights to recover value-added tax of
$14.8 million
and
$3.3 million
, respectively. In connection with the re-audit refund received and the non-tax portion of the voluntary disclosure payment made, the Company recorded net charges of
$10.2 million
and
$3.8 million
, respectively, within restructuring and other charges in its consolidated statements of operations during the fourth quarter of Fiscal 2018 and first quarter of Fiscal 2019, respectively (see
Note 9
).
Although the Company believes its original filing position was appropriate, in June 2018, the Company decided to resolve the dispute and not further appeal the re-audit decision within the courts for the periods covered by the re-audit in order to avoid incurring additional management time, costs, and uncertainty associated with litigation, as the customs officials' revised methodology results in an incremental annual duty charge that is not material to the Company.
Other Matters
The Company is involved, from time to time, in litigation, other legal claims, and proceedings involving matters associated with or incidental to its business, including, among other things, matters involving credit card fraud, trademark and other intellectual property, licensing, importation and exportation of its products, taxation, unclaimed property, and employee relations. The Company believes at present that the resolution of currently pending matters will not individually or in the aggregate have a material adverse effect on its consolidated financial statements. However, the Company's assessment of any current litigation or other legal claims could potentially change in light of the discovery of facts not presently known or determinations by judges, juries, or other finders of fact which are not in accord with management's evaluation of the possible liability or outcome of such litigation or claims.
In the normal course of business, the Company enters into agreements that provide general indemnifications. The Company has not made any significant indemnification payments under such agreements in the past, and does not currently anticipate incurring any material indemnification payments.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Capital Stock
The Company's capital stock consists of
two
classes of common stock. There are
500 million
shares of Class A common stock and
100 million
shares of Class B common stock authorized to be issued. Shares of Class A and Class B common stock have substantially identical rights, except with respect to voting rights. Holders of Class A common stock are entitled to
one
vote per share and holders of Class B common stock are entitled to
ten
votes per share. Holders of both classes of stock vote together as a single class on all matters presented to the stockholders for their approval, except with respect to the election and removal of directors or as otherwise required by applicable law. All outstanding shares of Class B common stock are owned by Mr. Ralph Lauren, the Company's Executive Chairman and Chief Creative Officer, and entities controlled by the Lauren family, and are convertible at any time into shares of Class A common stock on a
one-for-one
basis.
Common Stock Repurchase Program
In June 2016, as part of its common stock repurchase program, the Company entered into an accelerated share repurchase program with a third-party financial institution under which it made an upfront payment of
$100 million
in exchange for an initial delivery of
0.9 million
shares of its Class A common stock, representing
90%
of the total shares ultimately expected to be delivered over the program's term (the "ASR Program"). The initial shares received, which had an aggregate cost of
$90 million
based on the June 20, 2016 closing share price, were immediately retired and recorded as an increase to treasury stock.
In September 2016, at the ASR Program's conclusion, the Company received
0.1 million
additional shares and recorded a related
$10 million
increase to treasury stock. The number of additional shares delivered was based on the volume-weighted average price per share of the Company's Class A common stock over the term of the ASR Program, less an agreed upon discount. The average price per share paid for all of the shares delivered under the ASR Program was
$98.48
.
A summary of the Company's repurchases of Class A common stock under its common stock repurchase program, including the ASR Program, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(in millions)
|
Cost of shares repurchased
|
|
$
|
470.0
|
|
|
$
|
—
|
|
|
$
|
200.0
|
|
Number of shares repurchased
|
|
3.8
|
|
|
0.0
|
|
|
2.2
|
|
As of
March 30, 2019
, the remaining availability under the Company's Class A common stock repurchase program was approximately
$630 million
, reflecting the
June 4, 2018
approval by the Company's Board of Directors to expand the program by up to an additional
$1.000 billion
of Class A common stock repurchases. On
May 13, 2019
, the Company's Board of Directors approved a further expansion of the common stock repurchase program that allows it to repurchase up to an additional
$600 million
of Class A common stock. Repurchases of shares of Class A common stock are subject to overall business and market conditions.
In addition, during
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
,
0.3 million
,
0.2 million
, and
0.2 million
shares of Class A common stock, respectively, at a cost of
$32.6 million
,
$17.1 million
, and
$15.2 million
, respectively, were surrendered to or withheld by the Company in satisfaction of withholding taxes in connection with the vesting of awards under the Company's 1997 Long-Term Stock Incentive Plan, as amended (the "1997 Incentive Plan"), and its Amended and Restated 2010 Long-Term Stock Incentive Plan (the "2010 Incentive Plan").
Repurchased and surrendered shares are accounted for as treasury stock at cost and held in treasury for future use.
Dividends
Since 2003, the Company has maintained a regular quarterly cash dividend program on its common stock. On
June 4, 2018
, the Company's Board of Directors approved an increase to the Company's quarterly cash dividend on its common stock from
$0.50
to
$0.625
per share. On
May 13, 2019
, the Company's Board of Directors approved a further increase to the Company's quarterly cash dividend on its common stock from
$0.625
to
$0.6875
per share. Dividends paid amounted to
$190.7 million
,
$162.4 million
, and
$164.8 million
in
Fiscal 2019
,
Fiscal 2018
, and
Fiscal 2017
, respectively.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
16.
|
Accumulated Other Comprehensive Income (Loss)
|
The following table presents OCI activity, net of tax, which is accumulated in equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Gains (Losses)
(a)
|
|
Net Unrealized Gains (Losses) on Cash Flow Hedges
(b)
|
|
Net Unrealized Gains (Losses) on Defined Benefit Plans
(c)
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
|
|
(millions)
|
Balance at April 2, 2016
|
|
$
|
(157.6
|
)
|
|
$
|
(12.0
|
)
|
|
$
|
(11.9
|
)
|
|
$
|
(181.5
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
(48.6
|
)
|
|
28.2
|
|
|
1.8
|
|
|
(18.6
|
)
|
Amounts reclassified from AOCI to earnings
|
|
—
|
|
|
(1.6
|
)
|
|
3.3
|
|
|
1.7
|
|
Other comprehensive income (loss), net of tax
|
|
(48.6
|
)
|
|
26.6
|
|
|
5.1
|
|
|
(16.9
|
)
|
Balance at April 1, 2017
|
|
(206.2
|
)
|
|
14.6
|
|
|
(6.8
|
)
|
|
(198.4
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
126.9
|
|
|
(40.5
|
)
|
|
0.9
|
|
|
87.3
|
|
Amounts reclassified from AOCI to earnings
|
|
—
|
|
|
9.9
|
|
|
2.7
|
|
|
12.6
|
|
Other comprehensive income (loss), net of tax
|
|
126.9
|
|
|
(30.6
|
)
|
|
3.6
|
|
|
99.9
|
|
Balance at March 31, 2018
|
|
(79.3
|
)
|
|
(16.0
|
)
|
|
(3.2
|
)
|
|
(98.5
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
OCI before reclassifications
|
|
(39.2
|
)
|
|
42.2
|
|
|
(2.0
|
)
|
|
1.0
|
|
Amounts reclassified from AOCI to earnings
|
|
—
|
|
|
(6.0
|
)
|
|
0.1
|
|
|
(5.9
|
)
|
Other comprehensive income (loss), net of tax
|
|
(39.2
|
)
|
|
36.2
|
|
|
(1.9
|
)
|
|
(4.9
|
)
|
Balance at March 30, 2019
|
|
$
|
(118.5
|
)
|
|
$
|
20.2
|
|
|
$
|
(5.1
|
)
|
|
$
|
(103.4
|
)
|
|
|
(a)
|
OCI before reclassifications to earnings related to foreign currency translation gains (losses) includes income tax provisions of
$10.8 million
and
$15.0 million
for
Fiscal 2019
and
Fiscal 2017
, respectively, and includes an income tax benefit of
$23.3 million
for
Fiscal 2018
. OCI before reclassifications to earnings includes gains of
$50.2 million
(net of a
$15.9 million
income tax provision) and
$23.4 million
(net of a
$14.3 million
income tax provision) for
Fiscal 2019
and
Fiscal 2017
, respectively, and includes a loss of
$59.6 million
(net of a
$31.3 million
income tax benefit) for
Fiscal 2018
, related to the effective portion of changes in the fair values of instruments designated as hedges of the Company's net investment in certain foreign operations (see
Note 13
).
|
|
|
(b)
|
OCI before reclassifications to earnings related to net unrealized gains (losses) on cash flow hedges are presented net of income tax provisions of
$5.3 million
and
$2.2 million
for
Fiscal 2019
and
Fiscal 2017
, respectively, and are presented net of an income tax benefit of
$5.0 million
for
Fiscal 2018
. The tax effects on amounts reclassified from AOCI to earnings are presented in a table below.
|
|
|
(c)
|
Activity is presented net of taxes, which were immaterial for all periods presented.
|
The following table presents reclassifications from AOCI to earnings for cash flow hedges, by component:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
Location of Gains (Losses)
Reclassified from AOCI
to Earnings
|
|
|
(millions)
|
|
|
Gains (losses) on cash flow hedges
(a)
:
|
|
|
|
|
|
|
|
|
FC — Cash flow hedges
|
|
$
|
5.0
|
|
|
$
|
(8.2
|
)
|
|
$
|
0.5
|
|
|
Cost of goods sold
|
FC — Cash flow hedges
|
|
1.7
|
|
|
(2.9
|
)
|
|
0.5
|
|
|
Other income (expense), net
|
Tax effect
|
|
(0.7
|
)
|
|
1.2
|
|
|
0.6
|
|
|
Income tax benefit (provision)
|
Net of tax
|
|
$
|
6.0
|
|
|
$
|
(9.9
|
)
|
|
$
|
1.6
|
|
|
|
|
|
(a)
|
FC = Forward foreign currency exchange contracts.
|
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
17.
|
Stock-based Compensation
|
Long-term Stock Incentive Plans
The Company's stock-based compensation awards are currently issued under the 2010 Incentive Plan, which was approved by its stockholders on August 5, 2010. However, any prior awards granted under the 1997 Incentive Plan remain subject to the terms of that plan. Any awards that expire, are forfeited, or are surrendered to the Company in satisfaction of taxes are available for issuance under the 2010 Incentive Plan. On September 1, 2016, the Company registered with the Securities and Exchange Commission an additional
0.9 million
shares of its Class A common stock for issuance pursuant to the 2010 Incentive Plan. As of
March 30, 2019
,
2.9 million
shares remained available for future issuance under the Company's incentive plans.
Stock-based compensation awards that may be made under the 2010 Incentive Plan include, but are not limited to, (i) stock options, (ii) restricted stock, and (iii) RSUs. During the fiscal periods presented, annual grants consisted entirely of restricted stock and RSUs. Additionally, for RSUs granted to retirement-eligible employees, or employees who become retirement-eligible prior to the end of the awards' respective stated vesting periods, vesting continues post-retirement for all or a portion of the remaining unvested RSUs.
Impact on Results
A summary of total stock-based compensation expense and the related income tax benefits recognized is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended
|
|
|
March 30,
2019
|
|
March 31,
2018
|
|
April 1,
2017
|
|
|
(millions)
|
Compensation expense
(a)
|
|
$
|
88.6
|
|
|
$
|
74.5
|
|
|
$
|
63.6
|
|
Income tax benefit
|
|
(13.1
|
)
|
|
(25.3
|
)
|
|
(22.6
|
)
|
|
|
(a)
|
Fiscal 2018
and
Fiscal 2017
includes
$2.8 million
, and
$4.3 million
, respectively, of accelerated stock-based compensation expense recorded within restructuring and other charges in the consolidated statements of operations (see
Note 9
). All other stock-based compensation expense was recorded within SG&A expenses.
|
The Company issues its annual grants of stock-based compensation awards in the first half of each fiscal year. Due to the timing of the annual grants and other factors, including the timing and magnitude of forfeiture and performance goal achievement adjustments, as well as changes to the size and composition of the eligible employee population, stock-based compensation expense recognized during any given fiscal period is not indicative of the level of compensation expense expected to be incurred in future periods.
Stock Options
Stock options are granted to employees and non-employee directors with exercise prices equal to the fair market value of the Company's Class A common stock on the date of grant. Generally, options become exercisable ratably (graded-vesting schedule) over a
three
-year vesting period, subject to the employee's continuing employment. Stock options generally expire
seven years
from the date of grant. No stock options were granted during any of the fiscal years presented.
RALPH LAUREN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of stock option activity during
Fiscal 2019
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
(a)
|
|
|
(thousands)
|
|
|
|
(years)
|
|
(millions)
|
Options outstanding at March 31, 2018
|
|
1,151
|
|
|
$
|
157.86
|
|
|
2.1
|
|
$
|
—
|
|
Granted
|
|
—
|
|
|
N/A
|
|
|
|
|
|
Exercised
|
|
(162
|
)
|
|
134.64
|
|
|
|
|
|
Cancelled/Forfeited
|
|
(155
|
)
|
|
156.98
|
|
|
|
|
|
Options outstanding at March 30, 2019
|
|
834
|
|
|
$
|
162.53
|
|
|
1.5
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Options vested at March 30, 2019
(b)
|
|
834
|
|
|
$
|
162.53
|
|
|
1.5
|
|
$
|
—
|
|
Options exercisable at March 30, 2019
|
|
834
|
|
|
$
|
162.53
|
|
|
1.5
|
|
$
|
—
|
|
|
|
(a)
|
Aggregate intrinsic value is the amount by which the market price of the Company's Class A common stock at the end of the period exceeds the exercise price of the stock option, multiplied by the number of options.
|
|
|
(b)
|
There were
no
nonvested stock options as of
March 30, 2019
. Accordingly, there was
no
related unrecognized compensation expense as of
March 30, 2019
.
|
Additional information pertaining to the Company's stock option plans is as follows: