þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended October 1, 2016
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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13-2622036
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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650 Madison Avenue,
New York, New York
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10022
(Zip Code)
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(Address of principal executive offices)
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Large accelerated filer
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þ
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Accelerated filer
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o
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Non-accelerated filer
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o
(Do not check if a smaller reporting company)
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Smaller reporting company
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o
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Page
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PART I. FINANCIAL INFORMATION (Unaudited)
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Item 1.
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Financial Statements:
|
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||
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||
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||
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Item 2.
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||
Item 3.
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Item 4.
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PART II. OTHER INFORMATION
|
||
Item 1.
|
||
Item 1A.
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||
Item 2.
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Item 5.
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Item 6.
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||
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EX-10.1
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EX-12.1
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EX-31.1
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EX-31.2
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EX-32.1
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EX-32.2
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EX-101
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INSTANCE DOCUMENT
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EX-101
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SCHEMA DOCUMENT
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EX-101
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CALCULATION LINKBASE DOCUMENT
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EX-101
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LABELS LINKBASE DOCUMENT
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EX-101
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PRESENTATION LINKBASE DOCUMENT
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EX-101
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DEFINITION LINKBASE DOCUMENT
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2
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October 1,
2016 |
|
April 2,
2016 |
||||
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|
(millions)
(unaudited)
|
||||||
ASSETS
|
||||||||
Current assets:
|
|
|
|
|
||||
Cash and cash equivalents
|
|
$
|
434
|
|
|
$
|
456
|
|
Short-term investments
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|
531
|
|
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629
|
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||
Accounts receivable, net of allowances of $245 million and $254 million
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490
|
|
|
517
|
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||
Inventories
|
|
1,173
|
|
|
1,125
|
|
||
Income tax receivable
|
|
59
|
|
|
58
|
|
||
Prepaid expenses and other current assets
|
|
289
|
|
|
268
|
|
||
Total current assets
|
|
2,976
|
|
|
3,053
|
|
||
Property and equipment, net
|
|
1,564
|
|
|
1,583
|
|
||
Deferred tax assets
|
|
118
|
|
|
119
|
|
||
Goodwill
|
|
936
|
|
|
918
|
|
||
Intangible assets, net
|
|
235
|
|
|
244
|
|
||
Other non-current assets
|
|
238
|
|
|
296
|
|
||
Total assets
|
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$
|
6,067
|
|
|
$
|
6,213
|
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LIABILITIES AND EQUITY
|
||||||||
Current liabilities:
|
|
|
|
|
||||
Short-term debt
|
|
$
|
95
|
|
|
$
|
116
|
|
Accounts payable
|
|
159
|
|
|
151
|
|
||
Income tax payable
|
|
20
|
|
|
33
|
|
||
Accrued expenses and other current liabilities
|
|
943
|
|
|
898
|
|
||
Total current liabilities
|
|
1,217
|
|
|
1,198
|
|
||
Long-term debt
|
|
597
|
|
|
597
|
|
||
Non-current liability for unrecognized tax benefits
|
|
74
|
|
|
81
|
|
||
Other non-current liabilities
|
|
581
|
|
|
593
|
|
||
Commitments and contingencies (Note 13)
|
|
|
|
|
||||
Total liabilities
|
|
2,469
|
|
|
2,469
|
|
||
Equity:
|
|
|
|
|
||||
Class A common stock, par value $.01 per share; 101.5 million and 101.0 million shares issued; 56.3 million and 57.0 million shares outstanding
|
|
1
|
|
|
1
|
|
||
Class B common stock, par value $.01 per share; 25.9 million shares issued and outstanding
|
|
—
|
|
|
—
|
|
||
Additional paid-in-capital
|
|
2,284
|
|
|
2,258
|
|
||
Retained earnings
|
|
5,956
|
|
|
6,015
|
|
||
Treasury stock, Class A, at cost; 45.2 million and 44.0 million shares
|
|
(4,463
|
)
|
|
(4,349
|
)
|
||
Accumulated other comprehensive loss
|
|
(180
|
)
|
|
(181
|
)
|
||
Total equity
|
|
3,598
|
|
|
3,744
|
|
||
Total liabilities and equity
|
|
$
|
6,067
|
|
|
$
|
6,213
|
|
|
3
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
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|
(millions, except per share data)
(unaudited)
|
||||||||||||||
Net sales
|
|
$
|
1,773
|
|
|
$
|
1,923
|
|
|
$
|
3,287
|
|
|
$
|
3,500
|
|
Licensing revenue
|
|
48
|
|
|
47
|
|
|
86
|
|
|
88
|
|
||||
Net revenues
|
|
1,821
|
|
|
1,970
|
|
|
3,373
|
|
|
3,588
|
|
||||
Cost of goods sold
(a)
|
|
(867
|
)
|
|
(857
|
)
|
|
(1,524
|
)
|
|
(1,509
|
)
|
||||
Gross profit
|
|
954
|
|
|
1,113
|
|
|
1,849
|
|
|
2,079
|
|
||||
Selling, general, and administrative expenses
(a)
|
|
(803
|
)
|
|
(839
|
)
|
|
(1,618
|
)
|
|
(1,661
|
)
|
||||
Amortization of intangible assets
|
|
(6
|
)
|
|
(6
|
)
|
|
(12
|
)
|
|
(12
|
)
|
||||
Impairment of assets
|
|
(27
|
)
|
|
(7
|
)
|
|
(46
|
)
|
|
(15
|
)
|
||||
Restructuring and other charges
|
|
(42
|
)
|
|
(31
|
)
|
|
(128
|
)
|
|
(65
|
)
|
||||
Total other operating expenses, net
|
|
(878
|
)
|
|
(883
|
)
|
|
(1,804
|
)
|
|
(1,753
|
)
|
||||
Operating income
|
|
76
|
|
|
230
|
|
|
45
|
|
|
326
|
|
||||
Foreign currency gains (losses)
|
|
1
|
|
|
(5
|
)
|
|
3
|
|
|
(6
|
)
|
||||
Interest expense
|
|
(4
|
)
|
|
(4
|
)
|
|
(7
|
)
|
|
(8
|
)
|
||||
Interest and other income, net
|
|
2
|
|
|
1
|
|
|
3
|
|
|
3
|
|
||||
Equity in losses of equity-method investees
|
|
(2
|
)
|
|
(3
|
)
|
|
(4
|
)
|
|
(6
|
)
|
||||
Income before income taxes
|
|
73
|
|
|
219
|
|
|
40
|
|
|
309
|
|
||||
Provision for income taxes
|
|
(28
|
)
|
|
(59
|
)
|
|
(17
|
)
|
|
(85
|
)
|
||||
Net income
|
|
$
|
45
|
|
|
$
|
160
|
|
|
$
|
23
|
|
|
$
|
224
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
$
|
0.55
|
|
|
$
|
1.87
|
|
|
$
|
0.28
|
|
|
$
|
2.60
|
|
Diluted
|
|
$
|
0.55
|
|
|
$
|
1.86
|
|
|
$
|
0.28
|
|
|
$
|
2.58
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
||||||||
Basic
|
|
82.7
|
|
|
85.6
|
|
|
83.0
|
|
|
86.1
|
|
||||
Diluted
|
|
83.2
|
|
|
86.0
|
|
|
83.7
|
|
|
86.8
|
|
||||
Dividends declared per share
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
$
|
1.00
|
|
|
$
|
1.00
|
|
(a)
Includes total depreciation expense of:
|
|
$
|
(70
|
)
|
|
$
|
(71
|
)
|
|
$
|
(142
|
)
|
|
$
|
(139
|
)
|
|
4
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
(unaudited)
|
||||||||||||||
Net income
|
|
$
|
45
|
|
|
$
|
160
|
|
|
$
|
23
|
|
|
$
|
224
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency translation gains (losses)
|
|
11
|
|
|
(6
|
)
|
|
2
|
|
|
13
|
|
||||
Net losses on cash flow hedges
|
|
—
|
|
|
(8
|
)
|
|
(2
|
)
|
|
(16
|
)
|
||||
Net gains on defined benefit plans
|
|
1
|
|
|
1
|
|
|
1
|
|
|
1
|
|
||||
Other comprehensive income (loss), net of tax
|
|
12
|
|
|
(13
|
)
|
|
1
|
|
|
(2
|
)
|
||||
Total comprehensive income
|
|
$
|
57
|
|
|
$
|
147
|
|
|
$
|
24
|
|
|
$
|
222
|
|
|
5
|
|
|
|
Six Months Ended
|
||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
||||
|
|
(millions)
(unaudited)
|
||||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income
|
|
$
|
23
|
|
|
$
|
224
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
||||
Depreciation and amortization expense
|
|
154
|
|
|
151
|
|
||
Deferred income tax benefit
|
|
(9
|
)
|
|
(38
|
)
|
||
Equity in losses of equity-method investees
|
|
4
|
|
|
6
|
|
||
Non-cash stock-based compensation expense
|
|
32
|
|
|
54
|
|
||
Non-cash impairment of assets
|
|
46
|
|
|
15
|
|
||
Non-cash restructuring-related inventory charges
|
|
135
|
|
|
3
|
|
||
Excess tax benefits from stock-based compensation arrangements
|
|
—
|
|
|
(7
|
)
|
||
Other non-cash charges
|
|
10
|
|
|
4
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
||||
Accounts receivable
|
|
22
|
|
|
59
|
|
||
Inventories
|
|
(173
|
)
|
|
(342
|
)
|
||
Prepaid expenses and other current assets
|
|
(27
|
)
|
|
24
|
|
||
Accounts payable and accrued liabilities
|
|
60
|
|
|
207
|
|
||
Income tax receivables and payables
|
|
(22
|
)
|
|
(30
|
)
|
||
Deferred income
|
|
(12
|
)
|
|
(10
|
)
|
||
Other balance sheet changes
|
|
(11
|
)
|
|
46
|
|
||
Net cash provided by operating activities
|
|
232
|
|
|
366
|
|
||
Cash flows from investing activities:
|
|
|
|
|
||||
Capital expenditures
|
|
(165
|
)
|
|
(202
|
)
|
||
Purchases of investments
|
|
(392
|
)
|
|
(607
|
)
|
||
Proceeds from sales and maturities of investments
|
|
547
|
|
|
515
|
|
||
Acquisitions and ventures
|
|
(3
|
)
|
|
(12
|
)
|
||
Change in restricted cash deposits
|
|
—
|
|
|
(5
|
)
|
||
Net cash used in investing activities
|
|
(13
|
)
|
|
(311
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
||||
Proceeds from issuance of short-term debt
|
|
2,945
|
|
|
2,568
|
|
||
Repayments of short-term debt
|
|
(2,966
|
)
|
|
(2,672
|
)
|
||
Proceeds from issuance of long-term debt
|
|
—
|
|
|
299
|
|
||
Payments of capital lease obligations
|
|
(13
|
)
|
|
(12
|
)
|
||
Payments of dividends
|
|
(82
|
)
|
|
(86
|
)
|
||
Repurchases of common stock, including shares surrendered for tax withholdings
|
|
(115
|
)
|
|
(299
|
)
|
||
Proceeds from exercise of stock options
|
|
4
|
|
|
21
|
|
||
Excess tax benefits from stock-based compensation arrangements
|
|
—
|
|
|
7
|
|
||
Other financing activities
|
|
—
|
|
|
(2
|
)
|
||
Net cash used in financing activities
|
|
(227
|
)
|
|
(176
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
|
(14
|
)
|
|
1
|
|
||
Net decrease in cash and cash equivalents
|
|
(22
|
)
|
|
(120
|
)
|
||
Cash and cash equivalents at beginning of period
|
|
456
|
|
|
500
|
|
||
Cash and cash equivalents at end of period
|
|
$
|
434
|
|
|
$
|
380
|
|
|
6
|
|
1.
|
Description of Business
|
2.
|
Basis of Presentation
|
|
7
|
|
3.
|
Summary of Significant Accounting Policies
|
|
8
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||
|
|
(millions)
|
||||||||||
Basic shares
|
|
82.7
|
|
|
85.6
|
|
|
83.0
|
|
|
86.1
|
|
Dilutive effect of stock options, restricted stock, and RSUs
|
|
0.5
|
|
|
0.4
|
|
|
0.7
|
|
|
0.7
|
|
Diluted shares
|
|
83.2
|
|
|
86.0
|
|
|
83.7
|
|
|
86.8
|
|
|
9
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Beginning reserve balance
|
|
$
|
207
|
|
|
$
|
210
|
|
|
$
|
240
|
|
|
$
|
240
|
|
Amount charged against revenue to increase reserve
|
|
196
|
|
|
239
|
|
|
328
|
|
|
389
|
|
||||
Amount credited against customer accounts to decrease reserve
|
|
(174
|
)
|
|
(203
|
)
|
|
(339
|
)
|
|
(384
|
)
|
||||
Foreign currency translation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
||||
Ending reserve balance
|
|
$
|
229
|
|
|
$
|
246
|
|
|
$
|
229
|
|
|
$
|
246
|
|
|
10
|
|
•
|
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.
|
•
|
Intercompany Royalties
— recognized within foreign currency gains (losses) generally in the period in which the related payments being hedged occur.
|
|
11
|
|
4.
|
Recently Issued Accounting Standards
|
|
12
|
|
5.
|
Property and Equipment
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Land and improvements
|
|
$
|
17
|
|
|
$
|
17
|
|
Buildings and improvements
|
|
460
|
|
|
460
|
|
||
Furniture and fixtures
|
|
722
|
|
|
727
|
|
||
Machinery and equipment
|
|
375
|
|
|
359
|
|
||
Capitalized software
|
|
489
|
|
|
460
|
|
||
Leasehold improvements
|
|
1,261
|
|
|
1,248
|
|
||
Construction in progress
|
|
235
|
|
|
216
|
|
||
|
|
3,559
|
|
|
3,487
|
|
||
Less: accumulated depreciation
|
|
(1,995
|
)
|
|
(1,904
|
)
|
||
Property and equipment, net
|
|
$
|
1,564
|
|
|
$
|
1,583
|
|
|
13
|
|
6.
|
Other Assets and Liabilities
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Other taxes receivable
|
|
$
|
123
|
|
|
$
|
112
|
|
Prepaid rent expense
|
|
47
|
|
|
37
|
|
||
Derivative financial instruments
|
|
20
|
|
|
16
|
|
||
Tenant allowances receivable
|
|
17
|
|
|
13
|
|
||
Prepaid samples
|
|
12
|
|
|
9
|
|
||
Restricted cash
|
|
9
|
|
|
17
|
|
||
Prepaid advertising and marketing
|
|
9
|
|
|
7
|
|
||
Other prepaid expenses and current assets
|
|
52
|
|
|
57
|
|
||
Total prepaid expenses and other current assets
|
|
$
|
289
|
|
|
$
|
268
|
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Non-current investments
|
|
$
|
122
|
|
|
$
|
187
|
|
Restricted cash
|
|
37
|
|
|
29
|
|
||
Security deposits
|
|
31
|
|
|
32
|
|
||
Derivative financial instruments
|
|
7
|
|
|
6
|
|
||
Other non-current assets
|
|
41
|
|
|
42
|
|
||
Total other non-current assets
|
|
$
|
238
|
|
|
$
|
296
|
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Accrued operating expenses
|
|
$
|
188
|
|
|
$
|
186
|
|
Accrued payroll and benefits
|
|
160
|
|
|
149
|
|
||
Accrued inventory
|
|
155
|
|
|
176
|
|
||
Other taxes payable
|
|
150
|
|
|
139
|
|
||
Restructuring reserve
|
|
102
|
|
|
40
|
|
||
Accrued capital expenditures
|
|
59
|
|
|
65
|
|
||
Dividends payable
|
|
41
|
|
|
41
|
|
||
Deferred income
|
|
38
|
|
|
50
|
|
||
Derivative financial instruments
|
|
25
|
|
|
26
|
|
||
Capital lease obligations
|
|
22
|
|
|
21
|
|
||
Other accrued expenses and current liabilities
|
|
3
|
|
|
5
|
|
||
Total accrued expenses and other current liabilities
|
|
$
|
943
|
|
|
$
|
898
|
|
|
14
|
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Capital lease obligations
|
|
$
|
259
|
|
|
$
|
266
|
|
Deferred rent obligations
|
|
218
|
|
|
222
|
|
||
Derivative financial instruments
|
|
33
|
|
|
33
|
|
||
Deferred tax liabilities
|
|
13
|
|
|
17
|
|
||
Deferred compensation
|
|
8
|
|
|
8
|
|
||
Other non-current liabilities
|
|
50
|
|
|
47
|
|
||
Total other non-current liabilities
|
|
$
|
581
|
|
|
$
|
593
|
|
7.
|
Impairment of Assets
|
8.
|
Restructuring and Other Charges
|
|
15
|
|
|
|
October 1, 2016
|
||||||
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
(millions)
|
||||||
Cash-related restructuring charges:
|
|
|
|
|
||||
Severance and benefit costs
|
|
$
|
25
|
|
|
$
|
102
|
|
Lease termination and store closure costs
|
|
13
|
|
|
15
|
|
||
Other cash charges
|
|
4
|
|
|
6
|
|
||
Total cash-related restructuring charges
|
|
42
|
|
|
123
|
|
||
Non-cash charges:
|
|
|
|
|
||||
Impairment of assets (see Note 7)
|
|
27
|
|
|
46
|
|
||
Inventory-related charges
(a)
|
|
81
|
|
|
135
|
|
||
Total non-cash charges
|
|
108
|
|
|
181
|
|
||
Total charges
|
|
$
|
150
|
|
|
$
|
304
|
|
|
(a)
|
Includes charges of
$64 million
and
$114 million
associated with the reduction of inventory out of current liquidation channels for the
three-month and six-month periods ended
October 1, 2016
, respectively. Inventory-related charges are recorded within cost of goods sold in the consolidated statements of operations.
|
|
|
Severance and Benefit Costs
|
|
Lease Termination
and Store
Closure Costs
|
|
Other Cash Charges
|
|
Total
|
||||||||
|
|
(millions)
|
||||||||||||||
Balance at April 2, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Additions charged to expense
|
|
102
|
|
|
15
|
|
|
6
|
|
|
123
|
|
||||
Cash payments charged against reserve
|
|
(39
|
)
|
|
(2
|
)
|
|
(5
|
)
|
|
(46
|
)
|
||||
Balance at October 1, 2016
|
|
$
|
63
|
|
|
$
|
13
|
|
|
$
|
1
|
|
|
$
|
77
|
|
|
16
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
||||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
|
Cumulative Charges
|
||||||||||
|
|
(millions)
|
||||||||||||||||||
Cash-related restructuring charges:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Severance and benefit costs
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
$
|
38
|
|
|
$
|
69
|
|
Lease termination and store closure costs
|
|
—
|
|
|
6
|
|
|
—
|
|
|
7
|
|
|
8
|
|
|||||
Other cash charges
(a)
|
|
—
|
|
|
7
|
|
|
—
|
|
|
8
|
|
|
14
|
|
|||||
Total cash-related restructuring charges
|
|
—
|
|
|
19
|
|
|
5
|
|
|
53
|
|
|
91
|
|
|||||
Non-cash charges:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Impairment of assets (see Note 7)
|
|
—
|
|
|
7
|
|
|
—
|
|
|
15
|
|
|
27
|
|
|||||
Accelerated stock-based compensation expense
(b)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|||||
Inventory-related charges
(c)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
20
|
|
|||||
Total non-cash charges
|
|
—
|
|
|
7
|
|
|
—
|
|
|
18
|
|
|
56
|
|
|||||
Total charges
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
5
|
|
|
$
|
71
|
|
|
$
|
147
|
|
|
(a)
|
Other cash charges primarily consisted of consulting fees recorded in connection with the Global Reorganization Plan.
|
(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.
|
(c)
|
Inventory-related charges are recorded within cost of goods sold in the consolidated statements of operations.
|
|
|
Severance and Benefit Costs
|
|
Lease Termination
and Store
Closure Costs
|
|
Other Cash Charges
|
|
Total
|
||||||||
|
|
(millions)
|
||||||||||||||
Balance at April 2, 2016
|
|
$
|
31
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
$
|
40
|
|
Additions charged to expense
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
||||
Cash payments charged against reserve
|
|
(17
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(20
|
)
|
||||
Balance at October 1, 2016
|
|
$
|
19
|
|
|
$
|
5
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
17
|
|
9.
|
Income Taxes
|
|
18
|
|
10.
|
Debt
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
$300 million 2.125% Senior Notes
(a)
|
|
$
|
300
|
|
|
$
|
301
|
|
$300 million 2.625% Senior Notes
(b)
|
|
297
|
|
|
296
|
|
||
Commercial paper notes
|
|
95
|
|
|
90
|
|
||
Borrowings outstanding under credit facilities
|
|
—
|
|
|
26
|
|
||
Total debt
|
|
692
|
|
|
713
|
|
||
Less: short-term debt
|
|
95
|
|
|
116
|
|
||
Total long-term debt
|
|
$
|
597
|
|
|
$
|
597
|
|
|
(a)
|
During Fiscal 2016, the Company entered into an interest rate swap contract which it designated as a hedge against changes in the fair value of its fixed-rate 2.125% Senior Notes (see
Note 12
). Accordingly, the carrying value of the 2.125% Senior Notes as of
October 1, 2016
and
April 2, 2016
reflects adjustments of
$1 million
and
$2 million
, respectively, for the change in fair value attributable to the benchmark interest rate. The carrying value of the 2.125% Senior Notes is also net of unamortized debt issuance costs and discount of
$1 million
as of both
October 1, 2016
and
April 2, 2016
.
|
(b)
|
During Fiscal 2016, the Company entered into an interest rate swap contract which it designated as a hedge against changes in the fair value of its fixed-rate 2.625% Senior Notes (see
Note 12
). Accordingly, the carrying value of the 2.625% Senior Notes as of
October 1, 2016
and
April 2, 2016
reflects adjustments of
$1 million
and
$2 million
, respectively, for the change in fair value attributable to the benchmark interest rate. The carrying value of the 2.625% Senior Notes is also net of unamortized debt issuance costs and discount of
$2 million
as of both
October 1, 2016
and
April 2, 2016
.
|
|
19
|
|
•
|
China Credit Facility
— provides Ralph Lauren Trading (Shanghai) Co., Ltd. with a revolving line of credit of up to
100 million
Chinese Renminbi (approximately
$15 million
) through
April 6, 2017
, and may also be used to support bank guarantees. As of
October 1, 2016
, bank guarantees supported by this facility were not material.
|
|
20
|
|
•
|
South Korea Credit Facility
— provides Ralph Lauren (Korea) Ltd. with a revolving line of credit of up to
47 billion
South Korean Won (approximately
$43 million
) through
October 31, 2017
.
|
11.
|
Fair Value Measurements
|
•
|
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.
|
|
|
October 1,
2016 |
|
April 2,
2016 |
||||
|
|
(millions)
|
||||||
Financial assets recorded at fair value:
|
|
|
|
|
||||
Corporate bonds — non-U.S.
(a)
|
|
$
|
8
|
|
|
$
|
8
|
|
Derivative financial instruments
(b)
|
|
27
|
|
|
22
|
|
||
Total
|
|
$
|
35
|
|
|
$
|
30
|
|
Financial liabilities recorded at fair value:
|
|
|
|
|
||||
Derivative financial instruments
(b)
|
|
$
|
58
|
|
|
$
|
59
|
|
Total
|
|
$
|
58
|
|
|
$
|
59
|
|
|
(a)
|
Based on Level 1 measurements.
|
(b)
|
Based on Level 2 measurements.
|
|
21
|
|
|
|
October 1, 2016
|
|
April 2, 2016
|
||||||||||||
|
|
Carrying Value
|
|
Fair Value
(a)
|
|
Carrying Value
|
|
Fair Value
(a)
|
||||||||
|
|
(millions)
|
||||||||||||||
$300 million 2.125% Senior Notes
|
|
$
|
300
|
|
(b)
|
$
|
305
|
|
|
$
|
301
|
|
(b)
|
$
|
306
|
|
$300 million 2.625% Senior Notes
|
|
297
|
|
(b)
|
310
|
|
|
296
|
|
(b)
|
308
|
|
||||
Commercial paper notes
|
|
95
|
|
|
95
|
|
|
90
|
|
|
90
|
|
||||
Borrowings outstanding under credit facilities
|
|
—
|
|
|
—
|
|
|
26
|
|
|
26
|
|
|
(a)
|
Based on Level 2 measurements.
|
(b)
|
See
Note 10
for discussion of the carrying values of the Company's Senior Notes as of
October 1, 2016
and
April 2, 2016
.
|
|
22
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Aggregate carrying value of long-lived assets written down to fair value
|
|
$
|
27
|
|
|
$
|
7
|
|
|
$
|
46
|
|
|
$
|
15
|
|
Impairment charges (see Note 7)
|
|
(27
|
)
|
|
(7
|
)
|
|
(46
|
)
|
|
(15
|
)
|
12.
|
Financial Instruments
|
|
|
Notional Amounts
|
|
Derivative Assets
|
|
Derivative Liabilities
|
||||||||||||||||||||||||||
Derivative Instrument
(a)
|
|
October 1,
2016 |
|
April 2,
2016 |
|
October 1,
2016 |
|
April 2,
2016 |
|
October 1,
2016 |
|
April 2,
2016 |
||||||||||||||||||||
|
|
|
|
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
|
Balance
Sheet
Line
(b)
|
|
Fair
Value
|
||||||||||||
|
|
(millions)
|
||||||||||||||||||||||||||||||
Designated Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
FC — Inventory purchases
|
|
$
|
414
|
|
|
$
|
532
|
|
|
PP
|
|
$
|
4
|
|
|
PP
|
|
$
|
1
|
|
|
AE
|
|
$
|
3
|
|
|
AE
|
|
$
|
14
|
|
FC — Other
(c)
|
|
174
|
|
|
210
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
(e)
|
|
20
|
|
|
AE
|
|
9
|
|
||||||
IRS — Fixed-rate debt
|
|
600
|
|
|
600
|
|
|
ONCA
|
|
1
|
|
|
ONCA
|
|
2
|
|
|
ONCL
|
|
1
|
|
|
ONCL
|
|
2
|
|
||||||
CCS — NI
|
|
621
|
|
|
630
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
ONCL
|
|
24
|
|
|
ONCL
|
|
31
|
|
||||||
Total Designated Hedges
|
|
$
|
1,809
|
|
|
$
|
1,972
|
|
|
|
|
$
|
5
|
|
|
|
|
$
|
3
|
|
|
|
|
$
|
48
|
|
|
|
|
$
|
56
|
|
Undesignated Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
FC — Other
(d)
|
|
$
|
581
|
|
|
$
|
541
|
|
|
(f)
|
|
$
|
22
|
|
|
(g)
|
|
$
|
19
|
|
|
(h)
|
|
$
|
10
|
|
|
AE
|
|
$
|
3
|
|
Total Hedges
|
|
$
|
2,390
|
|
|
$
|
2,513
|
|
|
|
|
$
|
27
|
|
|
|
|
$
|
22
|
|
|
|
|
$
|
58
|
|
|
|
|
$
|
59
|
|
|
23
|
|
|
(a)
|
FC = Forward foreign currency exchange contracts; IRS = Interest rate swap contracts; CCS = Cross-currency swap contracts; NI = Net investment hedges.
|
(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)
|
Primarily includes designated hedges of foreign currency-denominated intercompany royalty payments and other operational exposures.
|
(d)
|
Primarily includes undesignated hedges of foreign currency-denominated intercompany loans and other intercompany balances.
|
(e)
|
$16 million
included within accrued expenses and other current liabilities and
$4 million
included within other non-current liabilities.
|
(f)
|
$16 million
included within prepaid expenses and other current assets and
$6 million
included within other non-current assets.
|
(g)
|
$15 million
included within prepaid expenses and other current assets and
$4 million
included within other non-current assets.
|
(h)
|
$6 million
included within accrued expenses and other current liabilities and
$4 million
included within other non-current liabilities.
|
|
|
October 1, 2016
|
|
April 2, 2016
|
||||||||||||||||||||
Derivative Instrument
|
|
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
|
|
$
|
27
|
|
|
$
|
(23
|
)
|
|
$
|
4
|
|
|
$
|
22
|
|
|
$
|
(11
|
)
|
|
$
|
11
|
|
Derivative liabilities
|
|
$
|
58
|
|
|
$
|
(23
|
)
|
|
$
|
35
|
|
|
$
|
59
|
|
|
$
|
(11
|
)
|
|
$
|
48
|
|
|
24
|
|
|
|
Gains (Losses) Recognized in OCI
|
|
|
||||||||||||||
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
||||||||||||
Derivative Instrument
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
|
|
||||||||
|
|
(millions)
|
|
|
||||||||||||||
Designated Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
||||||||
FC — Inventory purchases
|
|
$
|
(5
|
)
|
|
$
|
4
|
|
|
$
|
6
|
|
|
$
|
2
|
|
|
|
FC — Other
|
|
(1
|
)
|
|
(3
|
)
|
|
(17
|
)
|
|
(2
|
)
|
|
|
||||
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(11
|
)
|
|
$
|
—
|
|
|
|
Designated Hedges of Net Investments:
|
|
|
|
|
|
|
|
|
|
|
||||||||
CCS
(a)
|
|
$
|
(6
|
)
|
|
$
|
(1
|
)
|
|
$
|
7
|
|
|
$
|
(13
|
)
|
|
|
Total Designated Hedges
|
|
$
|
(12
|
)
|
|
$
|
—
|
|
|
$
|
(4
|
)
|
|
$
|
(13
|
)
|
|
|
|
|
Gains (Losses) Reclassified from AOCI to Earnings
|
|
Location of Gains (Losses)
Reclassified from
AOCI to Earnings
|
||||||||||||||
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|||||||||||||
Derivative Instrument
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
|
|||||||||
|
|
(millions)
|
|
|
||||||||||||||
Designated Cash Flow Hedges:
|
|
|
|
|
|
|
|
|
|
|
||||||||
FC — Inventory purchases
|
|
$
|
(4
|
)
|
|
$
|
9
|
|
|
$
|
(1
|
)
|
|
$
|
16
|
|
|
Cost of goods sold
|
FC — Other
|
|
(1
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
Foreign currency gains (losses)
|
||||
|
|
$
|
(5
|
)
|
|
$
|
9
|
|
|
$
|
(7
|
)
|
|
$
|
16
|
|
|
|
|
(a)
|
Amounts recognized in OCI would be recognized in earnings only upon the sale or liquidation of the hedged net investment.
|
|
|
Gains (Losses) Recognized in Earnings
|
|
Location of Gains (Losses)
Recognized in Earnings
|
||||||||||||||
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|||||||||||||
Derivative Instrument
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
|
|||||||||
|
|
(millions)
|
|
|
||||||||||||||
Undesignated Hedges:
|
|
|
|
|
|
|
|
|
|
|
||||||||
FC — Other
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(11
|
)
|
|
$
|
2
|
|
|
Foreign currency gains (losses)
|
Total Undesignated Hedges
|
|
$
|
(3
|
)
|
|
$
|
(2
|
)
|
|
$
|
(11
|
)
|
|
$
|
2
|
|
|
|
|
25
|
|
|
26
|
|
13.
|
Commitments and Contingencies
|
|
27
|
|
14.
|
Equity
|
|
|
Six Months Ended
|
||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
||||
|
|
(millions)
|
||||||
Balance at beginning of period
|
|
$
|
3,744
|
|
|
$
|
3,891
|
|
Comprehensive income
|
|
24
|
|
|
222
|
|
||
Dividends declared
|
|
(82
|
)
|
|
(85
|
)
|
||
Repurchases of common stock, including shares surrendered for tax withholdings
|
|
(115
|
)
|
|
(299
|
)
|
||
Stock-based compensation
|
|
32
|
|
|
54
|
|
||
Shares issued and tax benefits (shortfalls) recognized pursuant to stock-based compensation arrangements
|
|
(5
|
)
|
|
28
|
|
||
Balance at end of period
|
|
$
|
3,598
|
|
|
$
|
3,811
|
|
|
|
Six Months Ended
|
||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
||||
|
|
(millions)
|
||||||
Cost of shares repurchased
|
|
$
|
100
|
|
|
$
|
280
|
|
Number of shares repurchased
|
|
1.0
|
|
|
2.2
|
|
|
28
|
|
15.
|
Accumulated Other Comprehensive Income (Loss)
|
|
|
Foreign Currency Translation Gains
(Losses)
(a)
|
|
Net Unrealized Gains (Losses) on Cash Flow Hedges
(b)
|
|
Net Unrealized Losses on Defined
Benefit Plans
(c)
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
||||||||
|
|
(millions)
|
||||||||||||||
Balance at March 28, 2015
|
|
$
|
(193
|
)
|
|
$
|
43
|
|
|
$
|
(15
|
)
|
|
$
|
(165
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
||||||||
OCI before reclassifications
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
||||
Amounts reclassified from AOCI to earnings
|
|
—
|
|
|
(16
|
)
|
|
1
|
|
|
(15
|
)
|
||||
Other comprehensive income (loss), net of tax
|
|
13
|
|
|
(16
|
)
|
|
1
|
|
|
(2
|
)
|
||||
Balance at September 26, 2015
|
|
$
|
(180
|
)
|
|
$
|
27
|
|
|
$
|
(14
|
)
|
|
$
|
(167
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at April 2, 2016
|
|
$
|
(157
|
)
|
|
$
|
(12
|
)
|
|
$
|
(12
|
)
|
|
$
|
(181
|
)
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
||||||||
OCI before reclassifications
|
|
2
|
|
|
(8
|
)
|
|
—
|
|
|
(6
|
)
|
||||
Amounts reclassified from AOCI to earnings
|
|
—
|
|
|
6
|
|
|
1
|
|
|
7
|
|
||||
Other comprehensive income (loss), net of tax
|
|
2
|
|
|
(2
|
)
|
|
1
|
|
|
1
|
|
||||
Balance at October 1, 2016
|
|
$
|
(155
|
)
|
|
$
|
(14
|
)
|
|
$
|
(11
|
)
|
|
$
|
(180
|
)
|
|
(a)
|
OCI before reclassifications to earnings related to foreign currency translation gains (losses) is net of an income tax provision of
$2 million
for the
six months ended
October 1, 2016
, and includes an income tax benefit of
$4 million
for the
six months ended
September 26, 2015
. OCI before reclassifications to earnings for the
six-month periods ended
October 1, 2016
and
September 26, 2015
include a gain of
$4 million
(net of a
$3 million
income tax provision) and a loss of
$8 million
(net of a
$5 million
income tax benefit), respectively, related to the effective portion of changes in the fair values of the Cross-Currency Swaps designated as hedges of the Company's net investment in certain of its European subsidiaries (see
Note 12
).
|
(b)
|
OCI before reclassifications to earnings related to net unrealized gains (losses) on cash flow hedges is net of an income tax benefit of
$3 million
for the
six months ended
October 1, 2016
. The tax effect on OCI before reclassifications to earnings for the
six months ended
September 26, 2015
was immaterial. 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 both periods presented.
|
|
29
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Location of Gains (Losses)
Reclassified from AOCI
to Earnings
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
|
|||||||||
|
|
(millions)
|
|
|
||||||||||||||
Gains (losses) on cash flow hedges
(a)
:
|
|
|
|
|
|
|
|
|
|
|
||||||||
FC
—
Inventory purchases
|
|
$
|
(4
|
)
|
|
$
|
9
|
|
|
$
|
(1
|
)
|
|
$
|
16
|
|
|
Cost of goods sold
|
FC
—
Other
|
|
(1
|
)
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
Foreign currency gains (losses)
|
||||
Tax effect
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
Provision for income taxes
|
||||
Net of tax
|
|
$
|
(5
|
)
|
|
$
|
9
|
|
|
$
|
(6
|
)
|
|
$
|
16
|
|
|
|
|
(a)
|
FC = Forward foreign currency exchange contracts.
|
16.
|
Stock-based Compensation
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Compensation expense
|
|
$
|
14
|
|
|
$
|
22
|
|
|
$
|
32
|
|
|
$
|
54
|
|
Income tax benefit
|
|
$
|
(6
|
)
|
|
$
|
(8
|
)
|
|
$
|
(12
|
)
|
|
$
|
(20
|
)
|
|
30
|
|
|
|
Number of Options
|
|
|
|
(thousands)
|
|
Options outstanding at April 2, 2016
|
|
2,418
|
|
Granted
|
|
—
|
|
Exercised
|
|
(65
|
)
|
Cancelled/Forfeited
|
|
(224
|
)
|
Options outstanding at October 1, 2016
|
|
2,129
|
|
|
|
Number of Shares
|
||||
|
|
Restricted Stock
|
|
Service-based RSUs
|
||
|
|
(thousands)
|
||||
Nonvested at April 2, 2016
|
|
14
|
|
|
490
|
|
Granted
|
|
—
|
|
|
645
|
|
Vested
|
|
—
|
|
|
(141
|
)
|
Forfeited
|
|
—
|
|
|
(88
|
)
|
Nonvested at October 1, 2016
|
|
14
|
|
|
906
|
|
|
31
|
|
|
|
Number of Shares
|
||||
|
|
Performance-based
RSUs — without
TSR Modifier
|
|
Performance-based
RSUs — with
TSR Modifier
|
||
|
|
(thousands)
|
||||
Nonvested at April 2, 2016
|
|
691
|
|
|
142
|
|
Granted
|
|
411
|
|
|
—
|
|
Change due to performance/market condition achievement
|
|
(14
|
)
|
|
(25
|
)
|
Vested
|
|
(216
|
)
|
|
(49
|
)
|
Forfeited
|
|
(74
|
)
|
|
(7
|
)
|
Nonvested at October 1, 2016
|
|
798
|
|
|
61
|
|
17.
|
Segment Information
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Net revenues:
|
|
|
|
|
|
|
|
|
||||||||
Wholesale
|
|
$
|
831
|
|
|
$
|
927
|
|
|
$
|
1,438
|
|
|
$
|
1,569
|
|
Retail
|
|
942
|
|
|
996
|
|
|
1,849
|
|
|
1,931
|
|
||||
Licensing
|
|
48
|
|
|
47
|
|
|
86
|
|
|
88
|
|
||||
Total net revenues
|
|
$
|
1,821
|
|
|
$
|
1,970
|
|
|
$
|
3,373
|
|
|
$
|
3,588
|
|
|
32
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Operating income:
|
|
|
|
|
|
|
|
|
||||||||
Wholesale
(a)
|
|
$
|
203
|
|
|
$
|
247
|
|
|
$
|
336
|
|
|
$
|
384
|
|
Retail
(b)
|
|
19
|
|
|
123
|
|
|
82
|
|
|
233
|
|
||||
Licensing
|
|
44
|
|
|
42
|
|
|
78
|
|
|
78
|
|
||||
|
|
266
|
|
|
412
|
|
|
496
|
|
|
695
|
|
||||
Unallocated corporate expenses
|
|
(148
|
)
|
|
(151
|
)
|
|
(323
|
)
|
|
(304
|
)
|
||||
Unallocated restructuring and other charges
(c)
|
|
(42
|
)
|
|
(31
|
)
|
|
(128
|
)
|
|
(65
|
)
|
||||
Total operating income
|
|
$
|
76
|
|
|
$
|
230
|
|
|
$
|
45
|
|
|
$
|
326
|
|
|
(a)
|
During the
three-month and six-month periods ended
October 1, 2016
, the Company recorded non-cash inventory-related charges of
$8 million
and
$18 million
, respectively, and asset impairment charges of
$7 million
and
$8 million
, respectively. During the
three-month and six-month periods ended
September 26, 2015
, the Company recorded non-cash asset impairment charges of
$2 million
and
$5 million
, respectively. These charges were recorded in connection with the Company's restructuring plans. See Notes 7 and 8 for additional information.
|
(b)
|
During the
three-month and six-month periods ended
October 1, 2016
, the Company recorded non-cash inventory-related charges of
$73 million
and
$117 million
, respectively, and asset impairment charges of
$20 million
and
$38 million
, respectively. During the
six months ended
September 26, 2015
, the Company recorded non-cash inventory-related charges of
$3 million
, and during the
three-month and six-month periods ended
September 26, 2015
, recorded asset impairment charges of
$5 million
and
$10 million
, respectively. These charges were recorded in connection with the Company's restructuring plans. See Notes 7 and 8 for additional information.
|
(c)
|
The
three-month and six-month periods ended
October 1, 2016
and
September 26, 2015
included certain unallocated restructuring and other charges (see
Note 8
), which are detailed below:
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
|
(millions)
|
||||||||||||||
|
Unallocated restructuring and other charges:
|
|
|
|
|
|
|
|
|
||||||||
|
Wholesale-related
|
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
|
$
|
(23
|
)
|
|
$
|
(10
|
)
|
|
Retail-related
|
|
(11
|
)
|
|
(8
|
)
|
|
(26
|
)
|
|
(19
|
)
|
||||
|
Licensing-related
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
||||
|
Corporate operations-related
|
|
(23
|
)
|
|
(9
|
)
|
|
(77
|
)
|
|
(23
|
)
|
||||
|
Unallocated restructuring charges
|
|
(42
|
)
|
|
(19
|
)
|
|
(128
|
)
|
|
(53
|
)
|
||||
|
Other charges (see Note 8)
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
||||
|
Total unallocated restructuring and other charges
|
|
$
|
(42
|
)
|
|
$
|
(31
|
)
|
|
$
|
(128
|
)
|
|
$
|
(65
|
)
|
|
33
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
||||||||
Wholesale
|
|
$
|
12
|
|
|
$
|
15
|
|
|
$
|
29
|
|
|
$
|
30
|
|
Retail
|
|
37
|
|
|
39
|
|
|
74
|
|
|
78
|
|
||||
Licensing
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
||||
Unallocated corporate
|
|
26
|
|
|
23
|
|
|
50
|
|
|
43
|
|
||||
Total depreciation and amortization
|
|
$
|
76
|
|
|
$
|
77
|
|
|
$
|
154
|
|
|
$
|
151
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Net revenues
(a)
:
|
|
|
|
|
|
|
|
|
||||||||
The Americas
(b)
|
|
$
|
1,155
|
|
|
$
|
1,319
|
|
|
$
|
2,116
|
|
|
$
|
2,398
|
|
Europe
(c)
|
|
449
|
|
|
431
|
|
|
829
|
|
|
764
|
|
||||
Asia
(d)
|
|
217
|
|
|
220
|
|
|
428
|
|
|
426
|
|
||||
Total net revenues
|
|
$
|
1,821
|
|
|
$
|
1,970
|
|
|
$
|
3,373
|
|
|
$
|
3,588
|
|
|
(a)
|
Net revenues for certain of the Company's licensed operations are included within the geographic location of the reporting subsidiary which holds the respective license.
|
(b)
|
Includes the U.S., Canada, and Latin America. Net revenues earned in the U.S. during the
three-month and six-month periods ended
October 1, 2016
were
$1.092 billion
and
$2.002 billion
, respectively, and
$1.247 billion
and
$2.276 billion
during the
three-month and six-month periods ended
September 26, 2015
, respectively.
|
(c)
|
Includes the Middle East.
|
(d)
|
Includes Australia and New Zealand.
|
|
34
|
|
18.
|
Additional Financial Information
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Cash paid for interest
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
5
|
|
Cash paid for income taxes
|
|
$
|
33
|
|
|
$
|
82
|
|
|
$
|
50
|
|
|
$
|
125
|
|
|
35
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition and Results of Operations.
|
•
|
the loss of key personnel, including Mr. Ralph Lauren, or other changes in our executive and senior management team or to our operating structure, and our ability to effectively transfer knowledge during periods of transition;
|
•
|
our ability to successfully implement our long-term growth strategy, which entails evolving our operating model to enable sustainable, profitable sales growth by significantly reducing supply chain lead times, employing best-in-class sourcing, and capitalizing on our repositioning initiatives in certain brands, regions, and merchandise categories;
|
•
|
our ability to achieve anticipated operating enhancements and/or cost reductions from our restructuring plans, which could include the potential sale, discontinuance, or consolidation of certain of our brands;
|
•
|
the impact to our business resulting from potential costs and obligations related to the early termination of our long-term, non-cancellable leases;
|
•
|
our efforts to improve the efficiency of our distribution system and to continue to enhance, upgrade, and/or transition our global information technology systems and our global e-commerce platform;
|
•
|
our ability to secure our facilities and systems and those of our third-party service providers from, among other things, cybersecurity breaches, acts of vandalism, computer viruses, or similar Internet or email events;
|
•
|
our exposure to currency exchange rate fluctuations from both a transactional and translational perspective;
|
•
|
the impact to our business resulting from increases in the costs of raw materials, transportation, and labor;
|
•
|
our ability to continue to maintain our brand image and reputation and protect our trademarks;
|
•
|
the impact to our business resulting from the United Kingdom's referendum vote to exit the European Union and the uncertainty surrounding the terms and conditions of such a withdrawal, as well as the related impact to global stock markets and currency exchange rates;
|
•
|
the impact of the volatile state of the global economy, stock markets, and other global economic conditions on us, our customers, our suppliers, and our vendors and on our ability and their ability to access sources of liquidity;
|
•
|
the impact to our business resulting from changes in consumers' ability or preferences to purchase premium lifestyle products that we offer for sale and our ability to forecast consumer demand, which could result in either a build-up or shortage of inventory;
|
•
|
changes in the competitive marketplace, including the introduction of new products or pricing changes by our competitors, and consolidations, liquidations, restructurings, and other ownership changes in the retail industry;
|
•
|
a variety of legal, regulatory, tax, political, and economic risks, including risks related to the importation and exportation of products, tariffs, and other trade barriers which our international operations are subject to and other risks associated with our international operations, such as compliance with the Foreign Corrupt Practices Act or violations of other anti-bribery and corruption laws prohibiting improper payments, and the burdens of complying with a variety of foreign laws and regulations, including tax laws, trade and labor restrictions, and related laws that may reduce the flexibility of our business;
|
•
|
the impact to our business of events of unrest and instability that are currently taking place in certain parts of the world, as well as from any terrorist action, retaliation, and the threat of further action or retaliation;
|
|
36
|
|
•
|
our ability to continue to expand or grow our business internationally and the impact of related changes in our customer, channel, and geographic sales mix as a result;
|
•
|
changes in our tax obligations and effective tax rates;
|
•
|
changes in the business of, and our relationships with, major department store customers and licensing partners;
|
•
|
our intention to introduce new products or enter into or renew alliances and exclusive relationships;
|
•
|
our ability to access sources of liquidity to provide for our cash needs, including our debt obligations, payment of dividends, capital expenditures, and potential repurchases of our Class A common stock;
|
•
|
our ability to open new retail stores, concession shops, and e-commerce sites in an effort to expand our direct-to-consumer presence;
|
•
|
our ability to make certain strategic acquisitions and successfully integrate the acquired businesses into our existing operations;
|
•
|
the potential impact to the trading prices of our securities if our Class A common stock share repurchase activity and/or cash dividend rate differs from investors' expectations;
|
•
|
our ability to maintain our credit profile and ratings within the financial community; and
|
•
|
the potential impact on our operations and on our suppliers and customers resulting from natural or man-made disasters.
|
|
37
|
|
•
|
Overview.
This section provides a general description of our business, current trends and outlook, and a summary of our financial performance for the
three-month and six-month periods ended
October 1, 2016
. In addition, this section includes a discussion of recent developments and transactions affecting comparability that we believe are important in understanding our results of operations and financial condition, and in anticipating future trends.
|
•
|
Results of operations.
This section provides an analysis of our results of operations for the
three-month and six-month periods ended
October 1, 2016
as compared to the
three-month and six-month periods ended
September 26, 2015
.
|
•
|
Financial condition and liquidity.
This section provides a discussion of our financial condition and liquidity as of
October 1, 2016
, which includes (i) an analysis of our financial condition as compared to the prior fiscal year-end; (ii) an analysis of changes in our cash flows for the
six-month period ended
October 1, 2016
as compared to the
six-month period ended
September 26, 2015
; (iii) an analysis of our liquidity, including the availability under our commercial paper borrowing program and credit facilities, common stock repurchases, payments of dividends, and our outstanding debt and covenant compliance; and (iv) a description of material changes in our contractual and other obligations since
April 2, 2016
, if any.
|
•
|
Market risk management.
This section discusses any significant changes in our risk exposures related to foreign currency exchange rates, interest rates, and our investments since
April 2, 2016
.
|
•
|
Critical accounting policies.
This section discusses any significant changes in our critical accounting policies since
April 2, 2016
. Critical accounting policies typically require significant judgment and estimation on the part of management in their application. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 3 of the Fiscal
2016
10-K.
|
•
|
Recently issued accounting standards.
This section discusses the potential impact on our reported results of operations and financial condition of certain accounting standards that have been recently issued or proposed.
|
|
38
|
|
|
39
|
|
|
40
|
|
|
41
|
|
•
|
Charges incurred in connection with our restructuring plans, as well as certain other charges, as summarized below (references to "Notes" are to the notes to the accompanying consolidated financial statements):
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
October 1,
2016 |
|
September 26,
2015 |
||||||||
|
|
(millions)
|
||||||||||||||
Impairment of assets (see Note 7)
|
|
$
|
(27
|
)
|
|
$
|
(7
|
)
|
|
$
|
(46
|
)
|
|
$
|
(15
|
)
|
Restructuring and other charges (see Note 8)
|
|
(42
|
)
|
|
(31
|
)
|
|
(128
|
)
|
|
(65
|
)
|
||||
Inventory-related charges (see Note 8)
(a)
|
|
(81
|
)
|
|
—
|
|
|
(135
|
)
|
|
(3
|
)
|
||||
Total charges
|
|
$
|
(150
|
)
|
|
$
|
(38
|
)
|
|
$
|
(309
|
)
|
|
$
|
(83
|
)
|
|
|
42
|
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
$
Change
|
|
% / bps
Change
|
|||||||
|
|
(millions, except per share data)
|
|
|
|||||||||||
Net revenues
|
|
$
|
1,821
|
|
|
$
|
1,970
|
|
|
$
|
(149
|
)
|
|
(7.6
|
%)
|
Cost of goods sold
(a)
|
|
(867
|
)
|
|
(857
|
)
|
|
(10
|
)
|
|
1.1
|
%
|
|||
Gross profit
|
|
954
|
|
|
1,113
|
|
|
(159
|
)
|
|
(14.3
|
%)
|
|||
Gross profit as % of net revenues
|
|
52.4
|
%
|
|
56.5
|
%
|
|
|
|
(410 bps)
|
|
||||
Selling, general, and administrative expenses
(a)
|
|
(803
|
)
|
|
(839
|
)
|
|
36
|
|
|
(4.5
|
%)
|
|||
SG&A expenses as % of net revenues
|
|
44.1
|
%
|
|
42.7
|
%
|
|
|
|
140 bps
|
|
||||
Amortization of intangible assets
|
|
(6
|
)
|
|
(6
|
)
|
|
—
|
|
|
5.1
|
%
|
|||
Impairment of assets
|
|
(27
|
)
|
|
(7
|
)
|
|
(20
|
)
|
|
NM
|
|
|||
Restructuring and other charges
|
|
(42
|
)
|
|
(31
|
)
|
|
(11
|
)
|
|
36.2
|
%
|
|||
Operating income
|
|
76
|
|
|
230
|
|
|
(154
|
)
|
|
(66.8
|
%)
|
|||
Operating income as % of net revenues
|
|
4.2
|
%
|
|
11.7
|
%
|
|
|
|
(750 bps)
|
|
||||
Foreign currency gains (losses)
|
|
1
|
|
|
(5
|
)
|
|
6
|
|
|
NM
|
|
|||
Interest expense
|
|
(4
|
)
|
|
(4
|
)
|
|
—
|
|
|
(9.4
|
%)
|
|||
Interest and other income, net
|
|
2
|
|
|
1
|
|
|
1
|
|
|
86.5
|
%
|
|||
Equity in losses of equity-method investees
|
|
(2
|
)
|
|
(3
|
)
|
|
1
|
|
|
(37.1
|
%)
|
|||
Income before income taxes
|
|
73
|
|
|
219
|
|
|
(146
|
)
|
|
(66.4
|
%)
|
|||
Provision for income taxes
|
|
(28
|
)
|
|
(59
|
)
|
|
31
|
|
|
(52.9
|
%)
|
|||
Effective tax rate
(b)
|
|
38.0
|
%
|
|
27.1
|
%
|
|
|
|
1,090 bps
|
|
||||
Net income
|
|
$
|
45
|
|
|
$
|
160
|
|
|
$
|
(115
|
)
|
|
(71.4
|
%)
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|||||||
Basic
|
|
$
|
0.55
|
|
|
$
|
1.87
|
|
|
$
|
(1.32
|
)
|
|
(70.6
|
%)
|
Diluted
|
|
$
|
0.55
|
|
|
$
|
1.86
|
|
|
$
|
(1.31
|
)
|
|
(70.4
|
%)
|
|
(a)
|
Includes total depreciation expense of
$70 million
and
$71 million
for the three-month periods ended
October 1, 2016
and
September 26, 2015
, respectively.
|
(b)
|
Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.
|
|
43
|
|
|
|
Three Months Ended
|
|
$ Change
|
|
Foreign Exchange Impact
|
|
$ Change
|
|
% Change
|
||||||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
As
Reported
|
|
|
Constant
Currency
|
|
As
Reported
|
|
Constant
Currency
|
|||||||||||||
|
|
(millions)
|
|
|
|
|
||||||||||||||||||||
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Wholesale
|
|
$
|
831
|
|
|
$
|
927
|
|
|
$
|
(96
|
)
|
|
$
|
(2
|
)
|
|
$
|
(94
|
)
|
|
(10.4
|
%)
|
|
(10.1
|
%)
|
Retail
|
|
942
|
|
|
996
|
|
|
(54
|
)
|
|
9
|
|
|
(63
|
)
|
|
(5.4
|
%)
|
|
(6.4
|
%)
|
|||||
Licensing
|
|
48
|
|
|
47
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1.6
|
%
|
|
(0.2
|
%)
|
|||||
Total net revenues
|
|
$
|
1,821
|
|
|
$
|
1,970
|
|
|
$
|
(149
|
)
|
|
$
|
8
|
|
|
$
|
(157
|
)
|
|
(7.6
|
%)
|
|
(8.0
|
%)
|
•
|
a $64 million net decline in consolidated comparable store sales, including net favorable foreign currency effects of $7 million. Our total comparable store sales decreased by $71 million on a constant currency basis, driven by lower sales from certain of our domestic and international retail stores due in part to a decline in traffic, as well as lower levels of promotional activity within our international businesses. The following table summarizes our comparable store sales percentages on both a reported and constant currency basis.
|
|
|
As
Reported
|
|
Constant
Currency
|
||
E-commerce comparable store sales
|
|
(7
|
%)
|
|
(6
|
%)
|
Comparable store sales excluding e-commerce
|
|
(8
|
%)
|
|
(9
|
%)
|
Total comparable store sales
|
|
(8
|
%)
|
|
(9
|
%)
|
|
44
|
|
•
|
a $10 million, or 6%, net increase in non-comparable store sales, including net favorable foreign currency effects of $2 million. On a constant currency basis, non-comparable store sales increased by $8 million, or 5%, primarily driven by new global store openings within the past twelve months, which more than offset the impact of store closings.
|
|
|
October 1,
2016 |
|
September 26,
2015 |
||
Stores:
|
|
|
|
|
||
Freestanding stores
|
|
485
|
|
|
480
|
|
Concession shops
|
|
620
|
|
|
576
|
|
Total stores
|
|
1,105
|
|
|
1,056
|
|
|
45
|
|
|
|
Three Months Ended October 1, 2016 Compared to
Three Months Ended September 26, 2015 |
||
|
|
(millions)
|
||
SG&A expense category:
|
|
|
||
Compensation-related expenses
|
|
$
|
(29
|
)
|
Marketing and advertising expenses
|
|
(7
|
)
|
|
Consulting fees
|
|
(3
|
)
|
|
Other
|
|
3
|
|
|
Total change in SG&A expenses
|
|
$
|
(36
|
)
|
|
46
|
|
|
|
Three Months Ended
|
|
|
|
|
||||||||||||
|
October 1, 2016
|
|
September 26, 2015
|
|
|
|
|
|||||||||||
|
Operating
Income
|
|
Operating
Margin
|
|
Operating
Income
|
|
Operating
Margin
|
|
$
Change
|
|
Margin
Change
|
|||||||
|
(millions)
|
|
|
|
(millions)
|
|
|
|
(millions)
|
|
|
|||||||
Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wholesale
|
|
$
|
203
|
|
|
24.5%
|
|
$
|
247
|
|
|
26.6%
|
|
$
|
(44
|
)
|
|
(210 bps)
|
Retail
|
|
19
|
|
|
2.0%
|
|
123
|
|
|
12.3%
|
|
(104
|
)
|
|
(1,030 bps)
|
|||
Licensing
|
|
44
|
|
|
92.3%
|
|
42
|
|
|
89.3%
|
|
2
|
|
|
300 bps
|
|||
|
|
266
|
|
|
|
|
412
|
|
|
|
|
(146
|
)
|
|
|
|||
Unallocated corporate expenses
|
|
(148
|
)
|
|
|
|
(151
|
)
|
|
|
|
3
|
|
|
|
|||
Unallocated restructuring and other charges
|
|
(42
|
)
|
|
|
|
(31
|
)
|
|
|
|
(11
|
)
|
|
|
|||
Total operating income
|
|
$
|
76
|
|
|
4.2%
|
|
$
|
230
|
|
|
11.7%
|
|
$
|
(154
|
)
|
|
(750 bps)
|
|
47
|
|
|
48
|
|
|
|
Six Months Ended
|
|
|
|
|
|||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
$
Change
|
|
% / bps
Change
|
|||||||
|
|
(millions, except per share data)
|
|
|
|||||||||||
Net revenues
|
|
$
|
3,373
|
|
|
$
|
3,588
|
|
|
$
|
(215
|
)
|
|
(6.0
|
%)
|
Cost of goods sold
(a)
|
|
(1,524
|
)
|
|
(1,509
|
)
|
|
(15
|
)
|
|
1.0
|
%
|
|||
Gross profit
|
|
1,849
|
|
|
2,079
|
|
|
(230
|
)
|
|
(11.1
|
%)
|
|||
Gross profit as % of net revenues
|
|
54.8
|
%
|
|
57.9
|
%
|
|
|
|
(310 bps)
|
|
||||
Selling, general, and administrative expenses
(a)
|
|
(1,618
|
)
|
|
(1,661
|
)
|
|
43
|
|
|
(2.6
|
%)
|
|||
SG&A expenses as % of net revenues
|
|
48.0
|
%
|
|
46.3
|
%
|
|
|
|
170 bps
|
|
||||
Amortization of intangible assets
|
|
(12
|
)
|
|
(12
|
)
|
|
—
|
|
|
4.4
|
%
|
|||
Impairment of assets
|
|
(46
|
)
|
|
(15
|
)
|
|
(31
|
)
|
|
NM
|
|
|||
Restructuring and other charges
|
|
(128
|
)
|
|
(65
|
)
|
|
(63
|
)
|
|
96.4
|
%
|
|||
Operating income
|
|
45
|
|
|
326
|
|
|
(281
|
)
|
|
(86.2
|
%)
|
|||
Operating income as % of net revenues
|
|
1.3
|
%
|
|
9.1
|
%
|
|
|
|
(780 bps)
|
|
||||
Foreign currency gains (losses)
|
|
3
|
|
|
(6
|
)
|
|
9
|
|
|
NM
|
|
|||
Interest expense
|
|
(7
|
)
|
|
(8
|
)
|
|
1
|
|
|
(7.6
|
%)
|
|||
Interest and other income, net
|
|
3
|
|
|
3
|
|
|
—
|
|
|
15.6
|
%
|
|||
Equity in losses of equity-method investees
|
|
(4
|
)
|
|
(6
|
)
|
|
2
|
|
|
(36.7
|
%)
|
|||
Income before income taxes
|
|
40
|
|
|
309
|
|
|
(269
|
)
|
|
(86.9
|
%)
|
|||
Provision for income taxes
|
|
(17
|
)
|
|
(85
|
)
|
|
68
|
|
|
(80.0
|
%)
|
|||
Effective tax rate
(b)
|
|
42.2
|
%
|
|
27.6
|
%
|
|
|
|
1,460 bps
|
|
||||
Net income
|
|
$
|
23
|
|
|
$
|
224
|
|
|
$
|
(201
|
)
|
|
(89.5
|
%)
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|||||||
Basic
|
|
$
|
0.28
|
|
|
$
|
2.60
|
|
|
$
|
(2.32
|
)
|
|
(89.2
|
%)
|
Diluted
|
|
$
|
0.28
|
|
|
$
|
2.58
|
|
|
$
|
(2.30
|
)
|
|
(89.1
|
%)
|
|
(a)
|
Includes total depreciation expense of
$142 million
and
$139 million
for the
six-month periods ended
October 1, 2016
and
September 26, 2015
, respectively.
|
(b)
|
Effective tax rate is calculated by dividing the provision for income taxes by income before income taxes.
|
|
49
|
|
|
|
Six Months Ended
|
|
$ Change
|
|
Foreign Exchange Impact
|
|
$ Change
|
|
% Change
|
||||||||||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
As
Reported
|
|
|
Constant
Currency
|
|
As
Reported
|
|
Constant
Currency
|
|||||||||||||
|
|
(millions)
|
|
|
|
|
||||||||||||||||||||
Net Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Wholesale
|
|
$
|
1,438
|
|
|
$
|
1,569
|
|
|
$
|
(131
|
)
|
|
$
|
(4
|
)
|
|
$
|
(127
|
)
|
|
(8.3
|
%)
|
|
(8.1
|
%)
|
Retail
|
|
1,849
|
|
|
1,931
|
|
|
(82
|
)
|
|
13
|
|
|
(95
|
)
|
|
(4.2
|
%)
|
|
(4.9
|
%)
|
|||||
Licensing
|
|
86
|
|
|
88
|
|
|
(2
|
)
|
|
1
|
|
|
(3
|
)
|
|
(3.0
|
%)
|
|
(4.1
|
%)
|
|||||
Total net revenues
|
|
$
|
3,373
|
|
|
$
|
3,588
|
|
|
$
|
(215
|
)
|
|
$
|
10
|
|
|
$
|
(225
|
)
|
|
(6.0
|
%)
|
|
(6.3
|
%)
|
•
|
a $110 million net decline in consolidated comparable store sales, including net favorable foreign currency effects of $12 million. Our total comparable store sales decreased by $122 million on a constant currency basis, driven by lower sales from certain of our domestic and international retail stores due in part to a decline in traffic, as well as lower levels of promotional activity within our international businesses. The following table summarizes our comparable store sales percentages on both a reported and constant currency basis.
|
|
|
As
Reported
|
|
Constant
Currency
|
||
E-commerce comparable store sales
|
|
(7
|
%)
|
|
(6
|
%)
|
Comparable store sales excluding e-commerce
|
|
(7
|
%)
|
|
(8
|
%)
|
Total comparable store sales
|
|
(7
|
%)
|
|
(8
|
%)
|
•
|
a $28 million, or 8%, net increase in non-comparable store sales, including net favorable foreign currency effects of $1 million. On a constant currency basis, non-comparable store sales increased by $27 million, or 8%, primarily driven by new global store openings within the past twelve months, which more than offset the impact of store closings.
|
|
50
|
|
|
|
Six Months Ended October 1, 2016 Compared to
Six Months Ended September 26, 2015
|
||
|
|
(millions)
|
||
SG&A expense category:
|
|
|
||
Compensation-related expenses
|
|
$
|
(27
|
)
|
Marketing and advertising expenses
|
|
(16
|
)
|
|
Consulting fees
|
|
(7
|
)
|
|
Other
|
|
7
|
|
|
Total change in SG&A expenses
|
|
$
|
(43
|
)
|
|
51
|
|
|
|
Six Months Ended
|
|
|
|
|
||||||||||||
|
October 1, 2016
|
|
September 26, 2015
|
|
|
|
|
|||||||||||
|
Operating
Income
|
|
Operating
Margin
|
|
Operating
Income
|
|
Operating
Margin
|
|
$
Change
|
|
Margin
Change
|
|||||||
|
(millions)
|
|
|
|
(millions)
|
|
|
|
(millions)
|
|
|
|||||||
Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Wholesale
|
|
$
|
336
|
|
|
23.4%
|
|
$
|
384
|
|
|
24.4%
|
|
$
|
(48
|
)
|
|
(100 bps)
|
Retail
|
|
82
|
|
|
4.4%
|
|
233
|
|
|
12.0%
|
|
(151
|
)
|
|
(760 bps)
|
|||
Licensing
|
|
78
|
|
|
91.1%
|
|
78
|
|
|
89.0%
|
|
—
|
|
|
210 bps
|
|||
|
|
496
|
|
|
|
|
695
|
|
|
|
|
(199
|
)
|
|
|
|||
Unallocated corporate expenses
|
|
(323
|
)
|
|
|
|
(304
|
)
|
|
|
|
(19
|
)
|
|
|
|||
Unallocated restructuring and other charges
|
|
(128
|
)
|
|
|
|
(65
|
)
|
|
|
|
(63
|
)
|
|
|
|||
Total operating income
|
|
$
|
45
|
|
|
1.3%
|
|
$
|
326
|
|
|
9.1%
|
|
$
|
(281
|
)
|
|
(780 bps)
|
|
52
|
|
|
53
|
|
|
|
October 1,
2016 |
|
April 2,
2016 |
|
$
Change |
||||||
|
|
(millions)
|
||||||||||
Cash and cash equivalents
|
|
$
|
434
|
|
|
$
|
456
|
|
|
$
|
(22
|
)
|
Short-term investments
|
|
531
|
|
|
629
|
|
|
(98
|
)
|
|||
Non-current investments
(a)
|
|
122
|
|
|
187
|
|
|
(65
|
)
|
|||
Short-term debt
|
|
(95
|
)
|
|
(116
|
)
|
|
21
|
|
|||
Long-term debt
(b)
|
|
(597
|
)
|
|
(597
|
)
|
|
—
|
|
|||
Net cash and investments
(c)
|
|
$
|
395
|
|
|
$
|
559
|
|
|
$
|
(164
|
)
|
Equity
|
|
$
|
3,598
|
|
|
$
|
3,744
|
|
|
$
|
(146
|
)
|
|
(a)
|
Recorded within other non-current assets in our consolidated balance sheets.
|
(b)
|
See
Note 10
to the accompanying consolidated financial statements for discussion of the carrying value of our long-term debt as of
October 1, 2016
and
April 2, 2016
.
|
(c)
|
"Net cash and investments" is defined as cash and cash equivalents, plus short-term and non-current investments, less total debt.
|
|
|
Six Months Ended
|
|
|
||||||||
|
|
October 1,
2016 |
|
September 26,
2015 |
|
$
Change |
||||||
|
|
(millions)
|
||||||||||
Net cash provided by operating activities
|
|
$
|
232
|
|
|
$
|
366
|
|
|
$
|
(134
|
)
|
Net cash used in investing activities
|
|
(13
|
)
|
|
(311
|
)
|
|
298
|
|
|||
Net cash used in financing activities
|
|
(227
|
)
|
|
(176
|
)
|
|
(51
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
|
(14
|
)
|
|
1
|
|
|
(15
|
)
|
|||
Net decrease in cash and cash equivalents
|
|
$
|
(22
|
)
|
|
$
|
(120
|
)
|
|
$
|
98
|
|
|
54
|
|
•
|
unfavorable changes in our (i) accounts payable and accrued liabilities and (ii) prepaid expenses and other current assets, both largely driven by the timing of payments; and
|
•
|
an unfavorable change in our accounts receivable, largely driven by the timing of cash collections.
|
•
|
a
$247 million
increase in proceeds from sales and maturities of investments, less cash used to purchase investments. During the
six months ended October 1, 2016
, we made net investment sales of
$155 million
, as compared to net investment purchases of
$92 million
during the
six months ended September 26, 2015
; and
|
•
|
a
$37 million
decline in capital expenditures. During the
six months ended October 1, 2016
, we spent
$165 million
on capital expenditures, as compared to
$202 million
during the
six months ended September 26, 2015
. Our capital expenditures during the
six months ended October 1, 2016
primarily related to our global retail store expansion, department store renovations, enhancements to our global information technology systems, and further development of our infrastructure.
|
•
|
a
$216 million
increase in cash used to repay debt, less proceeds from debt issuances. During the
six months ended October 1, 2016
, we repaid
$26 million
of borrowings previously outstanding under our credit facilities and received
$5 million
in net proceeds related to our commercial paper note issuances and repayments. On a comparative basis, during the
six months ended September 26, 2015
, we received
$299 million
in proceeds from our issuance of 2.625% unsecured senior notes in August 2015, which was partially offset by net repayments of
$104 million
related to our commercial paper note issuances and repayments; and
|
•
|
a
$17 million
decline in proceeds from the exercise of stock options.
|
•
|
a
$184 million
decline in cash used to repurchase shares of our Class A common stock. During the
six months ended October 1, 2016
, we used
$100 million
to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional
$15 million
in shares of Class A common stock were surrendered or withheld in satisfaction of withholding taxes in connection with the vesting of awards under our long-term stock incentive plans. On a comparative basis, during the
six months ended September 26, 2015
, we used
$280 million
to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional
$19 million
in shares of Class A common stock were surrendered or withheld for taxes.
|
|
55
|
|
|
|
October 1, 2016
|
||||||||||
Description
(a)
|
|
Total
Availability
|
|
Borrowings
Outstanding
|
|
Remaining
Availability
|
||||||
|
|
(millions)
|
||||||||||
Global Credit Facility and Commercial Paper Program
(b)
|
|
$
|
500
|
|
|
$
|
103
|
|
(c)
|
$
|
397
|
|
Pan-Asia Credit Facilities
|
|
58
|
|
|
—
|
|
|
58
|
|
|
(a)
|
As defined in
Note 10
to the accompanying consolidated financial statements.
|
(b)
|
Borrowings under the Commercial Paper Program are supported by the Global Credit Facility. Accordingly, we do not expect combined borrowings outstanding under the Commercial Paper Program and the Global Credit Facility to exceed $500 million.
|
(c)
|
Comprised of
$95 million
of borrowings outstanding under the Commercial Paper Program, which are classified as short-term debt within the consolidated balance sheet, and
$8 million
of outstanding letters of credit for which we were contingently liable under the Global Credit Facility as of
October 1, 2016
.
|
|
56
|
|
|
57
|
|
|
58
|
|
|
59
|
|
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk.
|
Item 4.
|
Controls and Procedures.
|
|
60
|
|
Item 1.
|
Legal Proceedings.
|
Item 1A.
|
Risk Factors.
|
•
|
the burdens of complying with a variety of foreign laws and regulations, including trade, labor, and product safety trading restrictions;
|
•
|
compliance with U.S. and other country laws relating to foreign operations, including, but not limited to, the Foreign Corrupt Practices Act, which prohibits U.S. companies from making improper payments to foreign officials for the purpose of obtaining or retaining business, and the U.K. Bribery Act, which prohibits U.K. and related companies from any form of bribery;
|
•
|
unexpected changes in laws, judicial processes, or regulatory requirements;
|
•
|
adapting to local customs and culture; and
|
•
|
new tariffs or other barriers in certain international markets.
|
•
|
political instability and terrorist attacks;
|
•
|
changes in diplomatic and trade relationships; and
|
•
|
general economic fluctuations in specific countries or markets.
|
|
61
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds.
|
(a)
|
Sales of Unregistered Securities
|
(b)
|
Not Applicable
|
(c)
|
Stock Repurchases
|
|
Total Number of Shares Purchased
|
|
Average Price Paid per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
|
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs
(a)
|
||||||
|
|
|
|
|
|
|
(millions)
|
||||||
July 3, 2016 to July 30, 2016
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
200
|
|
July 31, 2016 to August 27, 2016
|
—
|
|
|
—
|
|
|
—
|
|
|
200
|
|
||
August 28, 2016 to October 1, 2016
|
81,106
|
|
(b)
|
98.44
|
|
|
79,891
|
|
(c)
|
200
|
|
||
|
81,106
|
|
|
|
|
79,891
|
|
|
|
|
(a)
|
Repurchases of shares of Class A common stock are subject to overall business and market conditions.
|
(b)
|
Includes 1,215 shares surrendered to or withheld by the Company in satisfaction of withholding taxes in connection with the vesting of awards issued under its long-term stock incentive plans.
|
(c)
|
Represents additional shares delivered to the Company at the conclusion of its accelerated share repurchase program, which was entered into during June 2016. See Note 14 to the accompanying consolidated financial statements.
|
Item 5.
|
Other Information.
|
|
62
|
|
Item 6.
|
Exhibits.
|
3.1
|
Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Registration Statement on Form S-1/A (File No. 333-24733) filed June 10, 1997).
|
3.2
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1 to the Form 8-K filed August 16, 2011).
|
3.3
|
Third Amended and Restated By-laws of the Company (filed as Exhibit 3.1 to the Form 8-K filed February 5, 2014).
|
10.1*
|
Amendment No. 1 to the Amended and Restated Employment Agreement, dated as of November 9, 2016, between the Company and Valérie Hermann.†
|
12.1*
|
Computation of Ratio of Earnings to Fixed Charges.
|
31.1*
|
Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a).
|
31.2*
|
Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a).
|
32.1*
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2*
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101*
|
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets at October 1, 2016 and April 2, 2016, (ii) the Consolidated Statements of Operations for the three-month and six-month periods ended October 1, 2016 and September 26, 2015, (iii) the Consolidated Statements of Comprehensive Income for the three-month and six-month periods ended October 1, 2016 and September 26, 2015, (iv) the Consolidated Statements of Cash Flows for the six-month periods ended October 1, 2016 and September 26, 2015, and (v) the Notes to the Consolidated Financial Statements.
|
|
|
63
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RALPH LAUREN CORPORATION
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By:
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/
S
/ JANE HAMILTON NIELSEN
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Jane Hamilton Nielsen
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Date: November 10, 2016
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64
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1.
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Section 2.1(e)(A) of the Employment Agreement is amended to read in its entirety as follows, effective as of the Effective Date:
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2.
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Section 2.3(a)(i) of the Employment Agreement is amended to read in its entirety as follows, effective as of the Effective Date:
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3.
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The "Title" section of the term sheet dated April 4, 2016, and attached to the Employment Agreement (the "Term Sheet") shall be amended in its entirety to read as follows, effective as of the Effective Date:
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4.
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A new section entitled "One Time Special Equity Award" shall be added to the Term Sheet, which shall read as follows, effective as of the Effective Date:
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5.
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Except as amended and/or modified by this Amendment, the Employment Agreement is hereby ratified and confirmed and all other terms of the Employment Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment.
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RALPH LAUREN CORPORATION
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By:
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/s/ ROSEANN LYNCH
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Name: Roseann Lynch
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Title: Corporate Senior Vice President, Chief Talent Officer, Global People and Development
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Date:
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November 9, 2016
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EXECUTIVE
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/s/ VALERIE HERMANN
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Valerie Hermann
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Date:
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November 3, 2016
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Six Months Ended
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Fiscal Years Ended
(a)
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||||||||||||||||||||
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October 1, 2016
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April 2, 2016
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March 28, 2015
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March 29, 2014
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March 30, 2013
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March 31, 2012
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(millions)
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||||||||||||||||||||||
Earnings, as defined:
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Income before income taxes
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$
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40
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$
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552
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$
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987
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$
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1,096
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$
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1,089
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$
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1,015
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Add:
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Equity in losses of equity-method investees
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4
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11
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11
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9
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10
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9
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Fixed charges
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85
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178
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172
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170
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162
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164
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Subtract:
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Income attributable to noncontrolling interests
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—
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—
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—
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—
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1
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—
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Earnings available to cover fixed charges
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$
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129
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$
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741
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$
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1,170
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$
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1,275
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$
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1,260
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$
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1,188
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Fixed Charges:
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Interest expense
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$
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7
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$
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21
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$
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17
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$
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19
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$
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19
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$
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22
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Interest component of rent expense
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78
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157
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155
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151
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143
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142
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Total fixed charges
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$
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85
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$
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178
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$
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172
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$
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170
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$
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162
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$
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164
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Ratio of earnings to fixed charges
(b)
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1.5
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4.2
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6.8
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7.5
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7.8
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7.3
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(a)
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Fiscal year ended April 2, 2016 consisted of 53 weeks. All other fiscal years presented consisted of 52 weeks.
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(b)
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All ratios shown in the above table have been calculated using unrounded numbers.
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/s/ STEFAN LARSSON
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Stefan Larsson
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President and Chief Executive Officer
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(Principal Executive Officer)
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Date: November 10, 2016
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/s/ JANE HAMILTON NIELSEN
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Jane Hamilton Nielsen
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Date: November 10, 2016
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/s/ STEFAN LARSSON
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Stefan Larsson
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November 10, 2016
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/s/ JANE HAMILTON NIELSEN
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Jane Hamilton Nielsen
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November 10, 2016
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