Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following management's discussion and analysis of financial condition and results of operations ("MD&A") should be read together with our audited consolidated financial statements and footnotes, which are included in this Annual Report on Form 10-K. We utilize a 52-53 week fiscal year ending on the Saturday closest to March 31. As such, Fiscal 2016 ended on April 2, 2016 and was a 53-week period; Fiscal 2015 ended on March 28, 2015 and was a 52-week period; and Fiscal 2014 ended on March 29, 2014 and was also a 52-week period. Fiscal 2017 will end on April 1, 2017 and will be a 52-week period.

INTRODUCTION

MD&A is provided as a supplement to the accompanying audited consolidated financial statements and footnotes to help provide an understanding of our results of operations, financial condition, and liquidity. MD&A is organized as follows:

•

Overview. This section provides a general description of our business, current trends and outlook, and a summary of our financial performance for Fiscal 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 Fiscal 2016 as compared to Fiscal 2015 and Fiscal 2015 as compared to Fiscal 2014.

•

Financial condition and liquidity. This section provides a discussion of our financial condition and liquidity as of April 2, 2016, which includes (i) an analysis of our financial condition compared to the prior fiscal year-end; (ii) an analysis of changes in our cash flows for Fiscal 2016 and Fiscal 2015 as compared to the respective prior fiscal year; (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 summary of our contractual and other obligations as of April 2, 2016.

•	Market risk management. This section discusses how we manage our risk exposures related to foreign currency exchange rates, interest rates, and our investments as of April 2, 2016.

•

Critical accounting policies. This section discusses accounting policies considered to be important to our results of operations and financial condition, which 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 to the accompanying audited consolidated financial statements.

•	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.

OVERVIEW

Our Business

Our Company is a global leader in the design, marketing, and distribution of premium lifestyle products, including apparel, accessories, home furnishings, and other licensed product categories. Our long-standing reputation and distinctive image have been consistently developed across an expanding number of products, brands, sales channels, and international markets. Our brand names include Ralph Lauren, Ralph Lauren Collection, Ralph Lauren Purple Label, Polo Ralph Lauren, Double RL, Lauren Ralph Lauren, Polo Ralph Lauren Children, Denim & Supply Ralph Lauren, Chaps, Club Monaco, and American Living, among others.

We classify our businesses into three segments: Wholesale, Retail, and Licensing. Our Wholesale business, which represented approximately 45% of our Fiscal 2016 net revenues, consists of sales made principally to major department stores and specialty stores around the world. Our Retail business, which represented approximately 53% of our Fiscal 2016 net revenues, consists of sales made directly to consumers through our integrated retail channel, which includes our retail stores, concession-based shop-within-shops, and our e-commerce operations around the world. Our Licensing business, which represented approximately 2% of our Fiscal 2016 net revenues, consists of royalty-based arrangements under which we license to unrelated third parties for specified periods the right to operate retail stores and/or to use our various trademarks in connection with the manufacture and sale of designated products, such as certain apparel, eyewear, fragrances, and home furnishings. Approximately

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37% of our Fiscal 2016 net revenues were earned outside of the U.S. See Note 21 to the accompanying audited consolidated financial statements for a summary of net revenues, operating income, and total assets by reportable segment, as well as net revenues and long-lived assets by geographic location.

Our business is typically affected by seasonal trends, with higher levels of wholesale sales in our second and fourth fiscal quarters and higher retail sales in our second and third fiscal quarters. These trends result primarily from the timing of seasonal wholesale shipments and key vacation travel, back-to-school, and holiday shopping periods impacting our Retail segment.

Current Trends and Outlook

The global economy continues to be in a heightened state of uncertainty, as productivity growth in both advanced and emerging countries remains low. Certain worldwide events, including political unrest, disease epidemics, monetary policy changes, and currency and commodity price volatility, as well as China's recent economic slowdown, continue to impact consumer confidence and the global economy as a whole, as well as the world's stock markets. While certain geographic regions are withstanding these pressures better than others, the level of consumer travel and spending on discretionary items remains constrained in certain markets, with trends likely to continue in 2016. Additionally, consumers are increasingly spending more of their discretionary income on “experiences,” such as dining and entertainment, over consumer goods. Consequently, consumer retail traffic remains relatively weak and inconsistent, which has led to increased competition and a desire to offset traffic declines with increased levels of conversion. Certain of our operations have experienced, and have been impacted by, these dynamics, with variations across the geographic regions and businesses in which we operate.

If the current economic conditions and challenging industry trends continue or worsen, the constrained level of worldwide consumer spending and modified consumption behavior may continue to have a negative effect on our sales, inventory levels, and operating margin in Fiscal 2017. Furthermore, our results have been, and are expected to continue to be, negatively impacted by unfavorable foreign exchange rate fluctuations. We have initiated various operating strategies to mitigate these challenges, and remain optimistic about our future growth prospects. Accordingly, we continue to invest in our longer-term growth initiatives, including our restructuring activities, as described within "Recent Developments" below, while continually monitoring macroeconomic risks and remaining focused on disciplined expense management. Although we continue to expect that the dilutive effects of investments that we are making in our business will create operating margin pressure in the near-term, we expect that these initiatives will create longer-term shareholder value. We will continue to monitor these risks and evaluate and adjust our operating strategies and foreign currency and cost management opportunities to mitigate the related impact on our results of operations, while remaining focused on the long-term growth of our business and protecting the value of our brand.

For a detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations, see Part I, Item 1A — "Risk Factors" included in this Annual Report on Form 10-K.

Summary of Financial Performance

Operating Results

In Fiscal 2016, we reported net revenues of $7.405 billion, net income of $396 million, and net income per diluted share of $4.62, as compared to net revenues of $7.620 billion, net income of $702 million, and net income per diluted share of $7.88 in Fiscal 2015. The comparability of our operating results has been affected by charges incurred in connection with the Global Reorganization Plan (as defined within "Recent Developments" below), other charges primarily related to a pending customs audit and the settlement of certain litigation claims, unfavorable foreign currency effects, and the 53rd week in Fiscal 2016, all as discussed further below.

During Fiscal 2016, net revenues declined 2.8% on a reported basis and increased 0.8% on a constant currency basis, as defined within "Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition" below. The decline in reported net revenues during Fiscal 2016 reflected lower net revenues from our wholesale and retail businesses, primarily driven by unfavorable foreign currency effects and a more competitive retail environment, partially offset by the favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $72 million. Our gross margin percentage declined by 100 basis points to 56.5% during Fiscal 2016, primarily driven by unfavorable foreign currency effects and certain non-cash charges recorded in connection with the Global Reorganization Plan, partially offset by increased profitability largely attributable to favorable channel mix. Selling, general, and administrative ("SG&A") expenses as a percentage of net revenues increased by 250 basis points to 45.8% during Fiscal 2016, primarily due to operating deleverage on lower net revenues due in part to unfavorable foreign currency effects, and increased investments in our stores, facilities, and infrastructure consistent with our longer-term initiatives.

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Net income declined by $306 million in Fiscal 2016 as compared to Fiscal 2015, primarily due to a $453 million decrease in operating income, partially offset by a $129 million decline in our provision for income taxes. The lower income tax provision for Fiscal 2016 was primarily driven by lower pretax income and a decline in our reported effective tax rate of 70 basis points. Net income per diluted share declined by $3.26 to $4.62 per share in Fiscal 2016 as compared to Fiscal 2015, primarily due to lower net income, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2016. Our operating results during Fiscal 2016 included $142 million of pretax charges recorded in connection with the Global Reorganization Plan, $48 million of other charges primarily related to a pending customs audit and the settlement of certain litigation claims, and $22 million of other non-cash impairment charges related to underperforming stores subject to potential future closure, which together had an after-tax effect of reducing net income by $150 million, or approximately $1.74 per diluted share. Partially offsetting these charges was the favorable impact of the 53rd week in Fiscal 2016, which increased net income by $8 million, or approximately $0.10 per diluted share. Net income per diluted share also included unfavorable foreign currency impacts of approximately $1.10 per diluted share in Fiscal 2016.

Financial Condition and Liquidity

We ended Fiscal 2016 in a net cash and investments position (cash and cash equivalents plus short-term and non-current investments, less total debt) of $559 million, compared to $620 million as of the end of Fiscal 2015. The decline in our net cash and investments position was primarily due to our use of cash to support Class A common stock repurchases of $500 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $418 million of capital expenditures, and to make cash dividend payments of $170 million, partially offset by our operating cash flows of $1.007 billion during Fiscal 2016.

We generated $1.007 billion of cash from operations during Fiscal 2016, compared to $894 million during Fiscal 2015. The increase in our operating cash flows was primarily due to a net favorable change related to our operating assets and liabilities, including our working capital, partially offset by a decline in net income before non-cash charges during Fiscal 2016 as compared to the prior fiscal year.

Our equity declined to $3.744 billion as of April 2, 2016, compared to $3.891 billion as of March 28, 2015, primarily due to our Class A common stock repurchases and dividends declared, partially offset by our comprehensive income and the net impact of stock-based compensation arrangements during Fiscal 2016.

Recent Developments

Global Reorganization Plan

On May 12, 2015, our Board of Directors approved a reorganization and restructuring plan comprised of the following major actions: (i) the reorganization of the Company from its historical channel and regional structure to an integrated global brand-based operating structure, which will streamline our business processes to better align our cost structure with our long-term growth strategy; (ii) a strategic store and shop-within-shop performance review conducted by region and brand; (iii) a targeted corporate functional area review; and (iv) the consolidation of certain of our luxury lines (collectively, the "Global Reorganization Plan"). The Global Reorganization Plan has resulted in a reduction in workforce and the closure of certain stores and shop-within-shops. Actions associated with the Global Reorganization Plan were substantially completed during Fiscal 2016 and are expected to result in improved operational efficiencies by reducing annual operating expenses by approximately $125 million.

In connection with the Global Reorganization Plan, we recorded total charges of $142 million during Fiscal 2016 (see Notes 10 and 11 to the accompanying audited consolidated financial statements) and expect to incur additional charges of approximately $5 million during Fiscal 2017.

In addition, we continue to develop and work towards finalizing our strategic growth plan for Fiscal 2017 and beyond, which once completed will likely result in additional restructuring activities and related charges.

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Transactions and Trends Affecting Comparability of Results of Operations and Financial Condition

The comparability of our operating results for the three fiscal years presented herein has been affected by certain events, including:

•	pretax asset impairment and restructuring and other charges recorded during the periods presented. A summary of the effect of these items on pretax income for each fiscal year is summarized below (references to "Notes" are to the notes to the accompanying audited consolidated financial statements):

		Fiscal Years Ended
		April 2, 2016				March 28, 2015				March 29, 2014
		(millions)
Impairments of assets (see Note 10)		$	(49	)		$	(7	)		$	(1	)
Restructuring and other charges (see Note 11)		(143		)		(10		)		(18		)

In addition to the charges presented above, we also incurred inventory-related charges of $20 million in connection with the Global Reorganization Plan during Fiscal 2016, which were recorded within cost of goods sold in the consolidated statements of income (see Note 11).

•	the inclusion of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $72 million and net income of $8 million, or approximately $0.10 per diluted share.

•

our acquisitions of previously licensed businesses, including the transition of the Ralph Lauren-branded apparel and accessories business in Australia and New Zealand (the "Australia and New Zealand Business") from a licensed to a wholly-owned operation (the "Australia and New Zealand Licensed Operations Acquisition") in July 2013; and the transition of the North American Chaps-branded men's sportswear business (the "Chaps Menswear Business") from a licensed to a wholly-owned operation (the "Chaps Menswear License Acquisition") in April 2013, which resulted in a $16 million gain recorded during the first quarter of Fiscal 2014.

Since we are a global company, the comparability of our operating results reported in U.S. Dollars is also affected by foreign currency exchange rate fluctuations because the underlying currencies in which we transact change in value over time compared to the U.S. Dollar. These rate fluctuations can have a significant effect on our reported results. As such, in addition to financial measures prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"), our discussions often contain references to constant currency measures, which are calculated by translating the current-year and prior-year reported amounts into comparable amounts using a single foreign exchange rate for each currency. We present constant currency financial information, which is a non-U.S. GAAP financial measure, as a supplement to our reported operating results. We use constant currency information to provide a framework to assess how our businesses performed excluding the effects of foreign currency exchange rate fluctuations. We believe this information is useful to investors to facilitate comparisons of operating results and better identify trends in our businesses. The constant currency performance measures should be viewed in addition to, and not in lieu of or superior to, our operating performance measures calculated in accordance with U.S. GAAP. Reconciliations between this non-U.S. GAAP financial measure and the most directly comparable U.S. GAAP measure are included in the "Results of Operations" section where applicable.

Our "Results of Operations" discussion that follows includes the significant changes in operating results arising from these items affecting comparability. However, unusual items or transactions may occur in any period. Accordingly, investors and other financial statement users should consider the types of events and transactions that have affected operating trends.

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RESULTS OF OPERATIONS

Fiscal 2016 Compared to Fiscal 2015

The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.

		Fiscal Years Ended
		April 2, 2016				March 28, 2015				$ Change				% / bps Change
		(millions, except per share data)
Net revenues		$	7,405			$	7,620			$	(215	)		(2.8	%)
Cost of goods sold(a)		(3,218		)		(3,242		)		24				(0.7	%)
Gross profit		4,187				4,378				(191		)		(4.4	%)
Gross profit as % of net revenues		56.5		%		57.5		%						(100 bps)
Selling, general, and administrative expenses(a)		(3,389		)		(3,301		)		(88		)		2.7	%
SG&A expenses as % of net revenues		45.8		%		43.3		%						250 bps
Amortization of intangible assets		(24		)		(25		)		1				(6.2	%)
Impairment of assets		(49		)		(7		)		(42		)		NM
Restructuring and other charges		(143		)		(10		)		(133		)		NM
Operating income		582				1,035				(453		)		(43.8	%)
Operating income as % of net revenues		7.9		%		13.6		%						(570 bps)
Foreign currency losses		(4		)		(26		)		22				(85.2	%)
Interest expense		(21		)		(17		)		(4		)		25.7	%
Interest and other income, net		6				6				—				(7.9	%)
Equity in losses of equity-method investees		(11		)		(11		)		—				(5.3	%)
Income before provision for income taxes		552				987				(435		)		(44.1	%)
Provision for income taxes		(156		)		(285		)		129				(45.5	%)
Effective tax rate(b)		28.2		%		28.9		%						(70 bps)
Net income		$	396			$	702			$	(306	)		(43.6	%)
Net income per common share:
Basic		$	4.65			$	7.96			$	(3.31	)		(41.6	%)
Diluted		$	4.62			$	7.88			$	(3.26	)		(41.4	%)

(a)	Includes total depreciation expense of $286 million and $269 million for Fiscal 2016 and Fiscal 2015, respectively.

(b)	Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income taxes.

NM Not meaningful.

Net Revenues. Net revenues decreased by $215 million, or 2.8%, to $7.405 billion in Fiscal 2016 from $7.620 billion in Fiscal 2015. This decrease included the favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $72 million. On a constant currency basis, net revenues increased by $60 million, or 0.8%.

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Net revenues for our three business segments, as well as a discussion of the changes in each segment's net revenues from the prior fiscal year, are provided below:

		Fiscal Years Ended								$ Change				Foreign Exchange Impact				$ Change				% Change
		April 2, 2016				March 28, 2015				As Reported					Constant Currency				As Reported			Constant Currency
		(millions)
Net Revenues:
Wholesale		$	3,297			$	3,495			$	(198	)		$	(105	)		$	(93	)		(5.7	%)		(2.7	%)
Retail		3,933				3,956				(23		)		(168		)		145				(0.6	%)		3.7	%
Licensing		175				169				6				(2		)		8				3.7	%		5.0	%
Total net revenues		$	7,405			$	7,620			$	(215	)		$	(275	)		$	60			(2.8	%)		0.8	%

Wholesale net revenues — Net revenues decreased by $198 million, or 5.7%, during Fiscal 2016 as compared to Fiscal 2015, inclusive of the favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $10 million on a reported basis. The decrease also included net unfavorable foreign currency effects of $105 million, primarily related to the weakening of the Euro and the Canadian Dollar against the U.S. Dollar. On a constant currency basis, net revenues decreased by $93 million, or 2.7%.

The $198 million net decline in Wholesale net revenues was driven by:

•

a $156 million, or 5.8%, net decrease related to our business in the Americas, reflecting lower sales across all of our major apparel and accessories businesses, due in part to a decline in foreign tourist traffic in major metropolitan locations, which contributed to a more competitive retail environment. The net decrease related to our business in the Americas also reflected net unfavorable foreign currency effects of $14 million due to the weakening of the Canadian Dollar against the U.S. Dollar; and

•	a $33 million, or 4.6%, net decrease related to our European business, reflecting net unfavorable foreign currency effects of $86 million, partially offset by increased sales across all of our major apparel and accessories businesses. On a constant currency basis, net revenues related to our European business increased by $53 million, or 7.3%.

Retail net revenues — Net revenues decreased by $23 million, or 0.6%, during Fiscal 2016 compared to Fiscal 2015, inclusive of the favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $62 million on a reported basis. The decrease also included net unfavorable foreign currency effects of $168 million, primarily related to the weakening of the Euro, the Japanese Yen, the Canadian Dollar, and the Korean Won against the U.S. Dollar. On a constant currency basis, net revenues increased by $145 million, or 3.7%.

The $23 million net decline in Retail net revenues was driven by:

•

a $220 million, or 7%, net decline in consolidated comparable store sales, including net unfavorable foreign currency effects of $123 million. Our total comparable store sales decreased by $97 million, or 3%, on a constant currency basis, primarily driven by lower sales from certain retail stores, partially offset by an increase from our Ralph Lauren e-commerce operations. Comparable store sales related to our e-commerce operations increased by approximately 2% on a reported basis and 3% on a constant currency basis over the related prior period, and had a favorable impact on our total comparable store sales of approximately 1% to 2% on both a reported and constant currency basis. Our consolidated comparable store sales excluding e-commerce declined by approximately 8% to 9% on a reported basis and 4% to 5% on a constant currency basis. All comparable store sales metrics were calculated on a 52-week basis.

Comparable store sales refer to the growth of sales in stores that are open for at least one full fiscal year. Sales for stores that are closed during a fiscal year are excluded from the calculation of comparable store sales. Sales for stores that are either relocated, enlarged (as defined by gross square footage expansion of 25% or greater), or generally closed for 30 or more consecutive days for renovation are also excluded from the calculation of comparable store sales until such stores have been in their new location or in their newly renovated state for at least one full fiscal year. Sales from our e-commerce sites are included within comparable store sales for those geographies that have been serviced by the related site for at least one full fiscal year. Consolidated comparable store sales information includes our Ralph Lauren stores (including concession-based shop-within-shops), factory stores, Club Monaco stores and e-commerce sites, and certain Ralph Lauren e-commerce sites. We use an integrated omni-channel strategy to operate our retail business, in which our e-commerce operations are interdependent with our physical stores.

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This decline was partially offset by:

•

a $197 million, or 28%, net increase in non-comparable store sales, inclusive of the favorable impact of the 53rd week in Fiscal 2016, which resulted in incremental net revenues of $62 million on a reported basis. The increase also included net unfavorable foreign currency effects of $45 million. On a constant currency basis, non-comparable store sales increased by $242 million, or 34%, primarily driven by new global store openings and the expansion of our e-commerce operations within the past twelve months, which more than offset the impact of store closings.

Our global average store count increased by 91 stores and concession shops during Fiscal 2016 compared with the prior fiscal year, due to new global store openings, primarily in Asia, partially offset by store closures. The following table details our retail store presence as of the periods presented:

		April 2, 2016			March 28, 2015
Stores:
Freestanding stores		493			466
Concession shops		583			536
Total stores		1,076			1,002

In addition to our stores, our Retail segment sells products online through our e-commerce channel, which includes:

•	Our North American e-commerce sites located at www.RalphLauren.com and www.ClubMonaco.com, as well as our Club Monaco site in Canada located at www.ClubMonaco.ca;

•	Our Ralph Lauren e-commerce sites in Europe, including www.RalphLauren.co.uk, www.RalphLauren.fr, and www.RalphLauren.de; and

•	Our Ralph Lauren e-commerce sites in Asia, including www.RalphLauren.co.jp, www.RalphLauren.co.kr, www.RalphLauren.asia, and www.RalphLauren.com.au.

Licensing revenues — Net revenues increased by $6 million, or 3.7%, during Fiscal 2016 as compared to Fiscal 2015, including net unfavorable foreign currency effects of $2 million, primarily related to the weakening of the Euro and the Japanese Yen against the U.S. Dollar. On a constant currency basis, net revenues increased by $8 million, or 5.0%.

Gross Profit. Gross profit decreased by $191 million, or 4.4%, to $4.187 billion in Fiscal 2016 from $4.378 billion in Fiscal 2015. Gross profit as a percentage of net revenues declined by 100 basis points to 56.5% in Fiscal 2016 from 57.5% in Fiscal 2015. This decline was primarily driven by unfavorable foreign currency effects and certain non-cash charges recorded in connection with the Global Reorganization Plan, partially offset by increased profitability largely attributable to favorable channel mix.

Gross profit as a percentage of net revenues is dependent upon a variety of factors, including changes in the relative sales mix among distribution channels, changes in the mix of products sold, the timing and level of promotional activities, foreign currency exchange rates, and fluctuations in material costs. These factors, among others, may cause gross profit as a percentage of net revenues to fluctuate from year to year.

Selling, General, and Administrative Expenses. SG&A expenses primarily include compensation and benefits, advertising and marketing, distribution, bad debt, information technology, facilities, legal, and other costs associated with finance and administration. SG&A expenses increased by $88 million, or 2.7%, to $3.389 billion in Fiscal 2016 from $3.301 billion in Fiscal 2015. This increase included a net favorable foreign currency effect of $110 million, primarily related to the weakening of the Euro, the Japanese Yen, and the Korean Won against the U.S. Dollar. SG&A expenses as a percentage of net revenues increased to 45.8% in Fiscal 2016 from 43.3% in Fiscal 2015. The 250 basis point increase was primarily due to operating deleverage on lower net revenues due in part to unfavorable foreign currency effects, as previously discussed, and an increase in operating expenses in support of the continued investment in, and expansion of, our retail businesses (which typically carry higher operating expense margins) through new store and concession shop openings (as previously discussed); increased investments in our facilities and infrastructure; increased advertising and marketing costs; and investments in new business initiatives. These increases were partially offset by our operational discipline and savings associated with our restructuring activities.

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The $88 million net increase in SG&A expenses by functional category is as follows:

		Fiscal 2016 Compared to Fiscal 2015
		(millions)
SG&A expense category:
Consulting fees		$	26
Depreciation expense		18
Rent and occupancy expenses		16
Compensation-related expenses		7
Marketing and advertising expenses		5
Other		16
Total change in SG&A expenses		$	88

During Fiscal 2017, we continue to expect a certain amount of operating expense deleverage due to foreign exchange rate volatility and continued investment in our long-term strategic growth initiatives, including expansion of the Polo-branded store concept around the world, retail store expansion, department store renovations, and continued investment in our infrastructure, partially offset by anticipated cost savings related to our restructuring activities (see "Recent Developments").

Amortization of Intangible Assets. Amortization of intangible assets decreased by $1 million, or 6.2%, to $24 million in Fiscal 2016 from $25 million in Fiscal 2015. This decrease reflected the absence of expense in the current fiscal year for certain customer relationship intangible assets that were fully amortized as of the end of Fiscal 2015.

Impairment of Assets. During Fiscal 2016, we recorded non-cash impairment charges of $49 million to write off certain fixed assets related to our domestic and international stores and shop-within-shops, of which $27 million was recorded in connection with the Global Reorganization Plan and $22 million was recorded in connection with underperforming stores subject to potential future closure. During Fiscal 2015, we recognized non-cash impairment charges of $7 million, primarily to write off certain fixed assets related to domestic and international retail stores (see Note 10 to the accompanying audited consolidated financial statements).

Restructuring and Other Charges. During Fiscal 2016, we recorded restructuring charges of $95 million in connection with the Global Reorganization Plan, consisting of severance and benefit costs, lease termination and store closure costs, other cash charges, and non-cash accelerated stock-based compensation expense. In addition, during Fiscal 2016, we recorded other charges of $48 million primarily related to a pending customs audit and the settlement of certain litigation claims. During Fiscal 2015, we recorded restructuring charges of $10 million, primarily related to severance and benefit costs associated with certain of our retail, wholesale, and corporate operations. (see Note 11 to the accompanying audited consolidated financial statements).

Operating Income. Operating income decreased by $453 million, or 43.8%, to $582 million in Fiscal 2016 from $1.035 billion in Fiscal 2015. This decrease included $142 million of charges recorded in connection with the Global Reorganization Plan, $48 million of other charges primarily related to a pending customs audit and the settlement of certain litigation claims, and $22 million of other non-cash impairment charges related to underperforming stores subject to potential future closure, all as previously discussed. This decrease also included a net unfavorable foreign currency effect of $112 million, primarily related to the weakening of the Euro, the Japanese Yen, and the Canadian Dollar against the U.S. Dollar. Operating income as a percentage of net revenues decreased 570 basis points, to 7.9% in Fiscal 2016 from 13.6% in Fiscal 2015. The overall decline in operating income as a percentage of net revenues was primarily driven by the decrease in our gross profit margin and the increase in SG&A expenses as a percentage of net revenues, both of which are inclusive of unfavorable foreign currency effects, as well as the increase in restructuring and other charges and impairment of assets, all as previously discussed.

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Operating income and margin for each of our three reportable segments are provided below:

		Fiscal Years Ended
	April 2, 2016						March 28, 2015
	Operating Income				Operating Margin		Operating Income				Operating Margin		$ Change				Margin Change
	(millions)						(millions)						(millions)
Segment:
Wholesale		$	822			24.9%		$	943			27.0%		$	(121	)		(210 bps)
Retail		359				9.1%		527				13.3%		(168		)		(420 bps)
Licensing		155				88.7%		152				90.4%		3				(170 bps)
		1,336						1,622						(286		)
Unallocated corporate expenses		(611		)				(577		)				(34		)
Unallocated restructuring and other charges		(143		)				(10		)				(133		)
Total operating income		$	582			7.9%		$	1,035			13.6%		$	(453	)		(570 bps)

Wholesale operating margin declined by 210 basis points, primarily due to the unfavorable impact of 130 basis points related to decreased profitability in our core wholesale businesses, largely driven by the impact of a more competitive domestic retail environment and an increase in SG&A expenses as a percentage of net revenues, partially offset by improved performance of certain of our international operations. The remaining decline in Wholesale operating margin was primarily attributable to net unfavorable foreign currency effects of 60 basis points, as well as a 20 basis point decline attributable to non-cash charges recorded in connection with the Global Reorganization Plan.

Retail operating margin declined by 420 basis points, primarily due to a 160 basis point decline attributable to non-cash charges largely recorded in connection with the Global Reorganization Plan and unfavorable foreign currency effects of 110 basis points. The remaining 150 basis point decline in Retail operating margin was primarily attributable to decreased profitability in our core retail businesses, largely driven by an increase in SG&A expenses as a percentage of net revenues.

Licensing operating margin declined by 170 basis points, primarily due to an increase in SG&A expenses as a percentage of net revenues.

Unallocated corporate expenses increased by $34 million, primarily due to higher compensation-related costs of $33 million, due in part to the introduction of new vesting provisions for certain stock-based compensation awards granted to retirement-eligible employees beginning in Fiscal 2016 (see Note 19 to the accompanying audited consolidated financial statements), and higher consulting fees of $27 million. These increases were partially offset by a decline in other operating expenses of $26 million due in part to operational discipline.

Unallocated restructuring and other charges increased by $133 million to $143 million in Fiscal 2016 from $10 million in Fiscal 2015, as previously described (see Note 11 to the accompanying audited consolidated financial statements).

Non-operating Expense, Net. Non-operating expense, net is comprised of net foreign currency gains (losses), interest expense, interest and other income, net, and equity in losses from our equity-method investees. Non-operating expense, net decreased by $18 million to $30 million in Fiscal 2016 from $48 million in Fiscal 2015. The decline in non-operating expense, net was primarily attributable to lower foreign currency losses of $22 million, largely related to the net favorable revaluation and settlement of foreign currency-denominated intercompany receivables and payables, inclusive of the impact of forward foreign currency exchange contracts, as compared to the prior fiscal year (foreign currency gains (losses) do not result from the translation of the operating results of our foreign subsidiaries to U.S. Dollars). This decrease was partially offset by higher interest expense of $4 million, primarily attributable to the 2.625% unsecured senior notes issued in August 2015.

Provision for Income Taxes. The provision for income taxes represents federal, foreign, state and local income taxes. The provision for income taxes decreased by $129 million, or 45.5%, to $156 million in Fiscal 2016 from $285 million in Fiscal 2015. The decrease in the provision for income taxes was primarily due to the decline in pretax income, coupled with a decrease in our reported effective tax rate of 70 basis points to 28.2% in Fiscal 2016 from 28.9% in Fiscal 2015. The lower effective tax rate for Fiscal 2016 was primarily due to income tax benefits resulting from the expiration of statutes of limitations, a change to the assessment period associated with certain tax liabilities, and provision to tax return adjustments, partially offset by the reversal of certain deferred tax assets that were determined to not be realizable and the absence of tax benefits derived from the legal entity

	43

restructuring of certain of our foreign operations during Fiscal 2015. The effective tax rate differs from the statutory tax rate due to the effect of state and local taxes, tax rates in foreign jurisdictions, and certain nondeductible expenses. Our effective tax rate will change from period to period based on various factors including, but not limited to, the geographic mix of earnings, the timing and amount of foreign dividends, enacted tax legislation, state and local taxes, tax audit findings and settlements, and the interaction of various global tax strategies.

Net Income. Net income declined by $306 million, or 43.6%, to $396 million in Fiscal 2016 from $702 million in Fiscal 2015. The decline in net income was primarily due to the $453 million decline in operating income, partially offset by the $129 million reduction in our provision for income taxes, as previously discussed. Our operating results during Fiscal 2016 were negatively impacted by $142 million of pretax charges recorded in connection with the Global Reorganization Plan, $48 million of other charges primarily related to a pending customs audit and the settlement of certain litigation claims, and $22 million of other non-cash impairment charges related to underperforming stores subject to potential future closure, which together had an after-tax effect of reducing net income by $150 million. Partially offsetting these charges was the favorable impact of the 53rd week in Fiscal 2016, which increased net income by $8 million. Net income also included unfavorable foreign currency impacts of $94 million during Fiscal 2016.

Net Income per Diluted Share. Net income per diluted share declined by $3.26, or 41.4%, to $4.62 per share in Fiscal 2016 from $7.88 per share in Fiscal 2015. The decline was due to lower net income, as previously discussed, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2016, driven by our share repurchases over the last twelve months. Net income per diluted share for Fiscal 2016 was negatively impacted by approximately $1.74 per share as a result of charges recorded in connection with the Global Reorganization Plan, other charges primarily related to a pending customs audit and the settlement of certain litigation claims, and other non-cash impairment charges related to underperforming stores subject to potential future closure, and favorably impacted by approximately $0.10 per share as a result of the 53rd week in Fiscal 2016, all as previously discussed. Net income per diluted share also included unfavorable foreign currency impacts of approximately $1.10 per share during Fiscal 2016.

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Fiscal 2015 Compared to Fiscal 2014

The following table summarizes our results of operations and expresses the percentage relationship to net revenues of certain financial statement captions. All percentages shown in the below table and the discussion that follows have been calculated using unrounded numbers.

		Fiscal Years Ended
		March 28, 2015				March 29, 2014				$ Change				% / bps Change
		(millions, except per share data)
Net revenues		$	7,620			$	7,450			$	170			2.3	%
Cost of goods sold(a)		(3,242		)		(3,140		)		(102		)		3.3	%
Gross profit		4,378				4,310				68				1.6	%
Gross profit as % of net revenues		57.5		%		57.9		%						(40 bps)
Selling, general, and administrative expenses(a)		(3,301		)		(3,142		)		(159		)		5.0	%
SG&A expenses as % of net revenues		43.3		%		42.2		%						110 bps
Amortization of intangible assets		(25		)		(35		)		10				(27.9	%)
Gain on acquisition of Chaps		—				16				(16		)		NM
Impairment of assets		(7		)		(1		)		(6		)		NM
Restructuring and other charges		(10		)		(18		)		8				(43.5	%)
Operating income		1,035				1,130				(95		)		(8.4	%)
Operating income as % of net revenues		13.6		%		15.2		%						(160 bps)
Foreign currency losses		(26		)		(8		)		(18		)		NM
Interest expense		(17		)		(20		)		3				(17.3	%)
Interest and other income, net		6				3				3				73.3	%
Equity in losses of equity-method investees		(11		)		(9		)		(2		)		22.8	%
Income before provision for income taxes		987				1,096				(109		)		(9.9	%)
Provision for income taxes		(285		)		(320		)		35				(11.0	%)
Effective tax rate(b)		28.9		%		29.2		%						(30 bps)
Net income		$	702			$	776			$	(74	)		(9.5	%)
Net income per common share:
Basic		$	7.96			$	8.55			$	(0.59	)		(6.9	%)
Diluted		$	7.88			$	8.43			$	(0.55	)		(6.5	%)

(a)	Includes total depreciation expense of $269 million and $223 million for Fiscal 2015 and Fiscal 2014, respectively.

(b)	Effective tax rate is calculated by dividing the provision for income taxes by income before provision for income taxes.

NM	Not meaningful.

Net Revenues. Net revenues increased by $170 million, or 2.3%, to $7.620 billion in Fiscal 2015 from $7.450 billion in Fiscal 2014. On a constant currency basis, net revenues increased by $301 million, or 4.0%.

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Net revenues for our three business segments, as well as a discussion of the changes in each segment's net revenues from the prior fiscal year, are provided below:

		Fiscal Years Ended								$ Change				Foreign Exchange Impact				$ Change				% Change
		March 28, 2015				March 29, 2014				As Reported					Constant Currency				As Reported			Constant Currency
		(millions)
Net Revenues:
Wholesale		$	3,495			$	3,486			$	9			$	(63	)		$	72			0.3	%		2.1	%
Retail		3,956				3,798				158				(65		)		223				4.2	%		5.9	%
Licensing		169				166				3				(3		)		6				1.8	%		3.3	%
Total net revenues		$	7,620			$	7,450			$	170			$	(131	)		$	301			2.3	%		4.0	%

Wholesale net revenues — Net revenues increased by $9 million, or 0.3%, during Fiscal 2015 as compared to Fiscal 2014, including net unfavorable foreign currency effects of $63 million, primarily related to the weakening of the Euro, the Canadian Dollar, and the Japanese Yen against the U.S. Dollar. On a constant currency basis, net revenues increased by $72 million, or 2.1%.

The $9 million net increase in Wholesale net revenues was driven by:

•

a $28 million net increase related to our business in the Americas, reflecting increased revenues from our womenswear and accessories businesses, partially offset by decreased revenues from our menswear business, due in part to higher prior period sales associated with the initial transition of the Chaps Menswear Business to a wholly-owned operation. The net increase related to our business in the Americas also reflected net unfavorable foreign currency effects of $9 million due to the weakening of the Canadian Dollar against the U.S. Dollar.

This net increase was partially offset by:

•	a $9 million net decrease related to our Asia businesses, primarily reflecting net unfavorable foreign currency effects of $4 million largely related to the weakening of the Japanese Yen against the U.S. Dollar, as well as the continued impact of our business model shift to the retail concession-based channel, partially offset by increased sales to our licensees; and

•	a $10 million net decrease related to our European business, primarily reflecting net unfavorable foreign currency effects of $50 million, partially offset by increased sales across all of our major apparel and accessories businesses.

Retail net revenues — Net revenues increased by $158 million, or 4.2%, during Fiscal 2015 compared to Fiscal 2014, including net unfavorable foreign currency effects of $65 million, primarily related to the weakening of the Japanese Yen and the Euro against the U.S. Dollar. On a constant currency basis, net revenues increased by $223 million, or 5.9%.

The $158 million net increase in Retail net revenues was driven by:

•

a $178 million, or a 23%, net increase in non-comparable store sales, including net unfavorable foreign currency effects of $17 million. On a constant currency basis, non-comparable store sales increased by $195 million, or 25%, primarily driven by new global store openings in Asia and Europe within the past twelve months, the expansion of our e-commerce operations, and new stores and concession shops assumed in connection with the Australia and New Zealand Licensed Operations Acquisition, which more than offset the impact of store closings.

This net increase was partially offset by:

•

a $20 million, or 1%, net decline in consolidated comparable store sales, including net unfavorable foreign currency effects of $48 million. Our total comparable store sales increased approximately $28 million, or 1%, on a constant currency basis, primarily driven by an increase from our Ralph Lauren e-commerce operations, partially offset by lower sales from certain retail stores and concession shops. Comparable store sales related to our e-commerce operations increased by approximately 16% on a reported basis and 17% on a constant currency basis over the related prior fiscal year period, and had a favorable impact on our total comparable store sales of approximately 3% to 4% on a reported basis and 2% to 3% on a constant currency basis. Our consolidated comparable store sales excluding e-commerce declined between 3% and 4% on a reported basis and declined between 2% and 3% on a constant currency basis.

	46

Our global average store count increased by 36 stores and concession shops during Fiscal 2015 compared with the prior fiscal year, due to new global store openings, primarily in Asia, partially offset by store closures. The following table details our retail store and e-commerce presence as of the periods presented:

		March 28, 2015			March 29, 2014
Stores:
Freestanding stores		466			433
Concession shops		536			503
Total stores		1,002			936
E-commerce Sites:
North American sites(a)		3			3
European sites(b)		3			3
Asian sites(c)		4			2
Total e-commerce sites		10			8

(a)	Includes www.RalphLauren.com, www.ClubMonaco.com, and www.ClubMonaco.ca.

(b)	Includes www.RalphLauren.co.uk, www.RalphLauren.fr, and www.RalphLauren.de.

(c)	Includes www.RalphLauren.co.jp and www.RalphLauren.co.kr, and, as of March 28, 2015, www.RalphLauren.asia and www.RalphLauren.com.au.

Licensing revenues — Net revenues increased by $3 million, or 1.8%, during Fiscal 2015 as compared to Fiscal 2014, including net unfavorable foreign currency effects of $3 million, primarily related to the weakening of the Euro and the Japanese Yen against the U.S. Dollar. On a constant currency basis, net revenues increased by $6 million, or 3.3%.

The $3 million increase in net revenues was primarily attributable to increased apparel and accessories-related revenues and home licensing revenues, partially offset by the impact of the transition of the previously licensed Australia and New Zealand Business to a wholly-owned operation.

Gross Profit. Gross profit increased by $68 million, or 1.6%, to $4.378 billion in Fiscal 2015 from $4.310 billion in Fiscal 2014. Gross profit as a percentage of net revenues decreased by 40 basis points to 57.5% in Fiscal 2015 from 57.9% in Fiscal 2014. This decline was primarily attributable to a more promotional retail environment and less favorable product mix, partially offset by a more favorable channel mix.

Selling, General, and Administrative Expenses. SG&A expenses increased by $159 million, or 5.0%, to $3.301 billion in Fiscal 2015 from $3.142 billion in Fiscal 2014. This increase included a net favorable foreign currency effect of $54 million, primarily related to the weakening of the Euro and the Japanese Yen against the U.S. Dollar. SG&A expenses as a percentage of net revenues increased to 43.3% in Fiscal 2015 from 42.2% in Fiscal 2014. The 110 basis point increase was primarily due to the increase in operating expenses in support of the growth of our retail businesses (which typically carry higher operating expense margins); increased investments in our facilities and infrastructure; increased advertising and marketing costs; incremental operating expenses attributable to our acquisition of the Australia and New Zealand Business; and investments in new business initiatives. These increases were partially offset by our operating leverage on higher net revenues and operational discipline.

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The $159 million net increase in SG&A expenses by functional category is as follows:

		Fiscal 2015 Compared to Fiscal 2014
		(millions)
SG&A expense category:
Compensation-related expenses(a)		$	62
Depreciation expense		46
Rent and occupancy expenses		26
Marketing and advertising expenses		19
Incremental operating expenses related to the Australia and New Zealand Business		10
Shipping and handling costs		7
Acquisition-related costs(b)		(7		)
Other		(4		)
Total change in SG&A expenses		$	159

(a)	Primarily due to increased salaries and related expenses to support our retail business growth.

(b)	Comprised of acquisition-related costs for the Chaps Menswear License Acquisition in April 2013 and for the Australia and New Zealand Licensed Operations Acquisition in July 2013 (see Note 5 to the accompanying audited consolidated financial statements).

Amortization of Intangible Assets. Amortization of intangible assets decreased by $10 million, or 27.9%, to $25 million in Fiscal 2015 from $35 million in Fiscal 2014. This decrease was primarily related to the licensed trademark intangible asset acquired in April 2013 in connection with the Chaps Menswear License Acquisition, which was fully amortized in Fiscal 2014 (see Note 5 to the accompanying audited consolidated financial statements).

Gain on Acquisition of Chaps. During Fiscal 2014, we recorded a $16 million gain on the Chaps Menswear License Acquisition, representing the difference between the acquisition date fair value of net assets acquired and the contractually-defined purchase price under our license agreement with Warnaco, which granted us the right to early-terminate the license upon PVH's acquisition of Warnaco in February 2013 (see Note 5 to the accompanying audited consolidated financial statements).

Impairment of Assets. During Fiscal 2015, we recorded non-cash impairment charges of $7 million, primarily to write off certain fixed assets related to our domestic and international retail stores. During Fiscal 2014, we recognized non-cash impairment charges of $1 million to write off certain long-lived assets related to our European operations (see Note 10 to the accompanying audited consolidated financial statements).

Restructuring and Other Charges. Restructuring and other charges declined by $8 million to $10 million in Fiscal 2015 from $18 million in Fiscal 2014. During Fiscal 2015, we recorded restructuring charges of $10 million, primarily related to severance and benefit costs associated with certain of our retail, wholesale, and corporate operations. During Fiscal 2014, we recorded restructuring charges of $8 million, primarily related to severance and benefit costs associated with our corporate operations. In addition, during Fiscal 2014, we recorded $10 million of accelerated stock-based compensation expense associated with certain new executive employment agreement provisions (see Note 11 to the accompanying audited consolidated financial statements).

Operating Income. Operating income decreased by $95 million, or 8.4%, to $1.035 billion in Fiscal 2015 from $1.130 billion in Fiscal 2014. Operating income as a percentage of net revenues decreased 160 basis points, to 13.6% in Fiscal 2015 from 15.2% in Fiscal 2014. The overall decline in operating income as a percentage of net revenues was primarily driven by the increase in SG&A as a percentage of net revenues and the absence of the prior year gain on the Chaps Menswear License Acquisition, as well as a lower gross profit margin, as previously discussed.

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Operating income and margin for each of our three reportable segments are provided below:

		Fiscal Years Ended
	March 28, 2015						March 29, 2014
	Operating Income				Operating Margin		Operating Income				Operating Margin		$ Change				Margin Change
	(millions)						(millions)						(millions)
Segment:
Wholesale		$	943			27.0%		$	963			27.6%		$	(20	)		(60 bps)
Retail		527				13.3%		572				15.1%		(45		)		(180 bps)
Licensing		152				90.4%		150				90.2%		2				20 bps
		1,622						1,685						(63		)
Unallocated corporate expenses		(577		)				(553		)				(24		)
Gain on acquisition of Chaps		—						16						(16		)
Unallocated restructuring and other charges		(10		)				(18		)				8
Total operating income		$	1,035			13.6%		$	1,130			15.2%		$	(95	)		(160 bps)

Wholesale operating margin declined by 60 basis points, primarily attributable to net unfavorable foreign currency effects. Operating expenses as a percentage of net revenues was flat in Fiscal 2015 compared to the prior fiscal year.

Retail operating margin declined by 180 basis points, primarily attributable to a 60 basis point increase in compensation-related expenses and a 50 basis point increase in depreciation expense, both primarily associated with our global store development efforts and new store openings, a 20 basis point increase in advertising and marketing expenses, and a 10 basis point increase in other operating expenses. The decline in the Retail operating margin also reflected a 40 basis point decrease due to other factors, including lower profitability from our existing retail operations, reflecting the impact of a more promotional retail environment, as previously discussed.

Licensing operating margin increased by 20 basis points, primarily due to our operating leverage on higher revenues.

Unallocated corporate expenses increased by $24 million, primarily due to higher compensation-related costs of $18 million, higher depreciation expense of $17 million largely due to the increased investment in our infrastructure, higher rent and occupancy expenses of $5 million, and higher corporate advertising and marketing costs of $3 million. These increases were partially offset by lower amortization expense of $9 million, the non-recurrence of prior year acquisition-related costs of $7 million, and a decline in other operating expenses of $3 million.

Gain on acquisition of Chaps was $16 million for Fiscal 2014, as previously described and in Note 5 to the accompanying audited consolidated financial statements.

Unallocated restructuring and other charges declined by $8 million to $10 million in Fiscal 2015 from $18 million in Fiscal 2014, as previously described (see Note 11 to the accompanying audited consolidated financial statements).

Non-operating Expense, Net. Non-operating expense, net increased by $14 million to $48 million in Fiscal 2015 from $34 million in Fiscal 2014. The higher non-operating expense, net was primarily attributed to (i) higher foreign currency losses, primarily related to the revaluation and settlement of foreign currency-denominated third-party and intercompany receivables and payables attributable to the weakening of the Japanese Yen, the Euro, and the Canadian Dollar against the U.S. Dollar, partially offset by gains recognized on forward foreign currency exchange contracts, and (ii) additional equity in losses from our equity-method investment in the Ralph Lauren Watch and Jewelry Company, Sárl (the "RL Watch Company"). These increases were partially offset by (i) higher interest and other income, net, primarily due to the increased balance of our investment portfolio, and (ii) lower interest expense associated with our current borrowings, including the 2.125% unsecured senior notes issued in September 2013 and commercial paper notes, as compared to the 4.5% interest rate on the Euro-denominated notes, which were repaid in October 2013 (see Note 13 to the accompanying audited consolidated financial statements).

Provision for Income Taxes. The provision for income taxes decreased by $35 million, or 11.0%, to $285 million in Fiscal 2015 from $320 million in Fiscal 2014. The decrease in the provision for income taxes was primarily due to the decline in pretax income, coupled with a decrease in our reported effective tax rate of 30 basis points to 28.9% in Fiscal 2015 from 29.2% in Fiscal 2014. The lower effective tax rate for Fiscal 2015 was primarily due to a greater proportion of earnings generated in lower-taxed

	49

jurisdictions, as well as an income tax benefit resulting from the legal entity restructuring of certain of our foreign operations in Fiscal 2015, partially offset by additional tax reserves associated with the conclusion of tax examinations during Fiscal 2015 and the absence of prior-year tax reserve reductions associated with the conclusion of a tax examination.

Net Income. Net income declined by $74 million, or 9.5%, to $702 million in Fiscal 2015 from $776 million in Fiscal 2014. The decline in net income was primarily due to the $95 million decline in operating income and higher foreign currency losses of $18 million, partially offset by the $35 million reduction in our provision for income taxes, all as previously discussed.

Net Income per Diluted Share. Net income per diluted share declined by $0.55, or 6.5%, to $7.88 per share in Fiscal 2015 from $8.43 per share in Fiscal 2014. The decline was due to lower net income, as previously discussed, partially offset by lower weighted-average diluted shares outstanding during Fiscal 2015, driven by our share repurchases during Fiscal 2015.

FINANCIAL CONDITION AND LIQUIDITY

Financial Condition

The following table presents our financial condition as of April 2, 2016 and March 28, 2015.

		April 2, 2016				March 28, 2015				$ Change
		(millions)
Cash and cash equivalents		$	456			$	500			$	(44	)
Short-term investments		629				644				(15		)
Non-current investments(a)		187				8				179
Short-term debt		(116		)		(234		)		118
Long-term debt(b)		(597		)		(298		)		(299		)
Net cash and investments(c)		$	559			$	620			$	(61	)
Equity		$	3,744			$	3,891			$	(147	)

(a)	Recorded within other non-current assets in our consolidated balance sheets.

(b)	See Note 13 to the accompanying audited consolidated financial statements for discussion of the carrying values of our long-term debt as of April 2, 2016 and March 28, 2015.

(c)	"Net cash and investments" is defined as cash and cash equivalents, plus short-term and non-current investments, less total debt.

The decline in our net cash and investments position at April 2, 2016 as compared to March 28, 2015 was primarily due to our use of cash to support our Class A common stock repurchases of $500 million, including withholdings in satisfaction of tax obligations for stock-based compensation awards, to invest in our business through $418 million in capital expenditures, and to make cash dividend payments of $170 million during Fiscal 2016, partially offset by our operating cash flows of $1.007 billion.

The decline in equity was attributable to our share repurchase activity and dividends declared, partially offset by our comprehensive income and the net impact of stock-based compensation arrangements during Fiscal 2016.

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Cash Flows

Fiscal 2016 Compared to Fiscal 2015

		Fiscal Years Ended
		April 2, 2016				March 28, 2015				$ Change
		(millions)
Net cash provided by operating activities		$	1,007			$	894			$	113
Net cash used in investing activities		(583		)		(689		)		106
Net cash used in financing activities		(473		)		(421		)		(52		)
Effect of exchange rate changes on cash and cash equivalents		5				(81		)		86
Net decrease in cash and cash equivalents		$	(44	)		$	(297	)		$	253

Net Cash Provided by Operating Activities. Net cash provided by operating activities increased to $1.007 billion during Fiscal 2016, from $894 million during Fiscal 2015. The $113 million net increase in cash provided by operating activities was primarily due to a net favorable change related to our operating assets and liabilities, including our working capital, partially offset by a decline in net income before non-cash charges. The net favorable change related to our working capital was primarily driven by:

•	a favorable change in our accounts receivable balance, largely driven by lower net revenues at the end of Fiscal 2016 and the timing of cash collections; and

•	favorable changes in our (i) prepaid expenses and other current assets and (ii) accounts payable and accrued liabilities balances, both largely driven by the timing of payments.

Net Cash Used in Investing Activities. Net cash used in investing activities was $583 million during Fiscal 2016, as compared to $689 million during Fiscal 2015. The $106 million net decrease in cash used in investing activities was primarily driven by a $142 million decline in cash used to purchase investments, less proceeds from sales and maturities of investments. During Fiscal 2016, we made net investment purchases of $143 million, as compared to net investment purchases of $285 million during Fiscal 2015.

The above decrease in cash used in investing activities was partially offset by a $27 million increase in capital expenditures. During Fiscal 2016, we spent $418 million on capital expenditures, as compared to $391 million during Fiscal 2015. Our capital expenditures during Fiscal 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, including the build-out of a new distribution center in High Point, North Carolina.

In Fiscal 2017, we expect to spend approximately $400 million in capital expenditures, primarily to support our global retail store expansion and further development of our infrastructure, including continued investment in a new global e-commerce platform. Our capital expenditures will also be focused on department store renovations and the continued implementation of SAP and other systems.

Net Cash Used in Financing Activities. Net cash used in financing activities was $473 million during Fiscal 2016, as compared to $421 million during Fiscal 2015. The $52 million increase in cash used in financing activities was primarily driven by:

•

a $54 million decrease in proceeds from debt issuances, less cash used to repay debt. During Fiscal 2016, we received net proceeds of $299 million from our issuance of 2.625% unsecured senior notes in August 2015 and $26 million in borrowings under our credit facilities, which were partially offset by net repayments of $145 million related to our commercial paper note issuances and repayments. During Fiscal 2015, we received net proceeds of $234 million related to our commercial paper note issuances and repayments; and

•	a $12 million increase in cash used to pay dividends, primarily due to an increase in the quarterly cash dividend on our common stock from $0.45 per share to $0.50 per share effective beginning in the fourth quarter of Fiscal 2015. During Fiscal 2016, we used $170 million to pay dividends, as compared to $158 million during Fiscal 2015.

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These increases in cash used in financing activities were partially offset by:

•

a $32 million decrease in cash used to repurchase shares of our Class A common stock. During Fiscal 2016, we used $480 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $20 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 Fiscal 2015, we used $500 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $32 million in shares of Class A common stock were surrendered or withheld for taxes.

Fiscal 2015 Compared to Fiscal 2014

		Fiscal Years Ended
		March 28, 2015				March 29, 2014				$ Change
		(millions)
Net cash provided by operating activities		$	894			$	907			$	(13	)
Net cash used in investing activities		(689		)		(488		)		(201		)
Net cash used in financing activities		(421		)		(599		)		178
Effect of exchange rate changes on cash and cash equivalents		(81		)		3				(84		)
Net decrease in cash and cash equivalents		$	(297	)		$	(177	)		$	(120	)

Net Cash Provided by Operating Activities. Net cash provided by operating activities decreased to $894 million during Fiscal 2015, from $907 million during Fiscal 2014. The net decrease in cash provided by operating activities was primarily due to the decline in net income before non-cash charges, partially offset by a net favorable change related to our operating assets and liabilities. The net favorable change related to our operating assets and liabilities was driven by foreign currency impacts, primarily related to the weakening of the Euro and the Japanese Yen against the U.S. Dollar during Fiscal 2015, partially offset by a decline in our working capital driven by:

•	unfavorable changes in income tax receivables and payables, as well as prepaid expenses and other current assets, both due to the timing of payments; and

•	a year-over-year increase in our inventory levels to support our new brands and new and expanded stores.

Net Cash Used in Investing Activities. Net cash used in investing activities was $689 million during Fiscal 2015, as compared to $488 million during Fiscal 2014. The $201 million net increase in cash used in investing activities was primarily driven by a $229 million increase in cash used to purchase investments, less proceeds from sales and maturities of investments. During Fiscal 2015, we made net purchases of investments of $285 million, as compared to net purchases of investments of $56 million during Fiscal 2014.

The above increase in cash used in investing activities was partially offset by a $28 million decline in cash used to fund acquisitions and ventures. During Fiscal 2015, we used $12 million of cash to support the funding of our joint venture, the RL Watch Company, and other investments. During Fiscal 2014, we used $40 million of cash, including $18 million to fund the Chaps Menswear License Acquisition, $15 million to fund the Australia and New Zealand Licensed Operations Acquisition, as well as amounts to support the continued funding of the RL Watch Company.

Net Cash Used in Financing Activities. Net cash used in financing activities was $421 million during Fiscal 2015, as compared to $599 million during Fiscal 2014. The $178 million decline in cash used in financing activities was primarily driven by:

•

a $203 million increase in proceeds from debt issuances, less cash used to repay debt. During Fiscal 2015, we received net proceeds of $234 million from commercial paper note issuances and repayments. During Fiscal 2014, we received $300 million in proceeds from our issuance of 2.125% unsecured senior notes in September 2013, a portion of which was used to repay the $269 million principal amount outstanding of the 4.5% Euro-denominated notes upon their maturity on October 4, 2013; and

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•

a $26 million decline in cash used to repurchase shares of our Class A common stock. During Fiscal 2015, we used $500 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $32 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 Fiscal 2014, we used $498 million to repurchase shares of Class A common stock pursuant to our common stock repurchase program, and an additional $60 million in shares of Class A common stock were surrendered or withheld for taxes.

The above decreases in cash used in financing activities were partially offset by:

•	a $26 million decline in excess tax benefits from stock-based compensation arrangements;

•	a $15 million increase in payments related to our capital lease obligations; and

•	a $9 million increase in cash used to pay dividends.

Sources of Liquidity

Our primary sources of liquidity are the cash flows generated from our operations, availability under our credit facilities, our issuances of commercial paper notes, our available cash and cash equivalents and short-term investments, and other available financing options.

During Fiscal 2016, we generated $1.007 billion of net cash flows from our operations. As of April 2, 2016, we had $1.085 billion in cash, cash equivalents, and short-term investments, of which $1.066 billion were held by our subsidiaries domiciled outside the U.S. We are not dependent on foreign cash to fund our domestic operations and do not expect to repatriate these balances to meet our domestic cash needs. However, if our plans change and we choose to repatriate any funds to the U.S. in the future, we would be subject to applicable U.S. and foreign taxes.

The following table presents our total availability, borrowings outstanding, and remaining availability under our credit facilities and Commercial Paper Program as of April 2, 2016:

		April 2, 2016
Description(a)		Total Availability				Borrowings Outstanding				Remaining Availability
		(millions)
Commercial Paper Program(b)		$	500			$	90		(c)	$	410
Global Credit Facility		500				9			(d)	491
Pan-Asia Credit Facilities		57				26			(c)	31

(a)	As defined in Note 13 to the accompanying audited consolidated financial statements.

(b)	Borrowings under the Commercial Paper Program are supported by the Global Credit Facility.

(c)	Classified as short-term debt within the consolidated balance sheet.

(d)	As of April 2, 2016, we were contingently liable for $9 million of outstanding letters of credit under the Global Credit Facility.

We believe that our Global Credit Facility is adequately diversified with no undue concentration in any one financial institution. In particular, as of April 2, 2016, there were nine financial institutions participating in the Global Credit Facility, with no one participant maintaining a maximum commitment percentage in excess of 20%. Borrowings under the Pan-Asia Credit Facilities are guaranteed by the parent company and are granted at the sole discretion of the participating regional branches of JPMorgan Chase (the "Banks"), subject to availability of the Banks' funds and satisfaction of certain regulatory requirements. We have no reason to believe that the participating institutions will be unable to fulfill their obligations to provide financing in accordance with the terms of the Global Credit Facility and the Pan-Asia Credit Facilities in the event of our election to draw funds in the foreseeable future.

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Our sources of liquidity are used to fund our ongoing cash requirements, including working capital requirements, global retail store and e-commerce development and expansion, construction and renovation of shop-within-shops, investment in infrastructure, including technology, acquisitions, joint ventures, payment of dividends, debt repayments, common stock repurchases, settlement of contingent liabilities (including uncertain tax positions), and other corporate activities, including our restructuring actions. We believe that our existing sources of cash, the availability under our credit facilities, and our ability to access capital markets will be sufficient to support our operating, capital, and debt service requirements for the foreseeable future, the ongoing development of our businesses, and our plans for further business expansion.

See Note 13 to the accompanying audited consolidated financial statements for additional information relating to our credit facilities.

Common Stock Repurchase Program

As of April 2, 2016, the remaining availability under our Class A common stock repurchase program was approximately $100 million. On May 11, 2016, our Board of Directors approved an expansion of the program that allows us to repurchase up to an additional $200 million of Class A common stock. Repurchases of shares of Class A common stock are subject to overall business and market conditions.

See Note 17 to the accompanying audited consolidated financial statements for additional information relating to our Class A common stock repurchase program.

Dividends

Since 2003, we have maintained a regular quarterly cash dividend program on our common stock. On November 5, 2013, our Board of Directors approved an increase to the quarterly cash dividend on our common stock from $0.40 per share to $0.45 per share. On February 3, 2015, our Board of Directors approved a further increase to the quarterly cash dividend on our common stock from $0.45 per share to $0.50 per share.

We intend to continue to pay regular quarterly dividends on our outstanding common stock. However, any decision to declare and pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, cash requirements, financial condition, and other factors that the Board of Directors may deem relevant.

See Note 17 to the accompanying audited consolidated financial statements for additional information relating to our quarterly cash dividend program.

Debt and Covenant Compliance

In September 2013, we completed a registered public debt offering and issued $300 million aggregate principal amount of unsecured senior notes due September 26, 2018, which bear interest at a fixed rate of 2.125%, payable semi-annually (the "2.125% Senior Notes"). In August 2015, we completed a second registered public debt offering and issued an additional $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 indenture and supplemental indentures governing the 2.125% Senior Notes and 2.625% Senior Notes (as supplemented, the "Indenture") contain certain covenants that restrict our 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 our property or assets to another party. However, the Indenture does not contain any financial covenants.

The Global Credit Facility contains a number of covenants, as described in Note 13 to the accompanying audited consolidated financial statements. As of April 2, 2016, no Event of Default (as such term is defined pursuant to the Global Credit Facility) has occurred under our Global Credit Facility. The Pan-Asia Credit Facilities do not contain any financial covenants.

See Note 13 to the accompanying audited consolidated financial statements for additional information relating to our debt and covenant compliance.

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Contractual and Other Obligations

Firm Commitments

The following table summarizes certain of our aggregate contractual obligations as of April 2, 2016, and the estimated timing and effect that such obligations are expected to have on our liquidity and cash flows in future periods. We expect to fund these firm commitments with operating cash flows generated in the normal course of business and, if necessary, through availability under our credit facilities or other accessible sources of financing.

		Fiscal 2017				Fiscal 2018-2019				Fiscal 2020-2021				Fiscal 2022 and Thereafter				Total
		(millions)
Senior Notes		$	—			$	300			$	300			$	—			$	600
Interest payments on Senior Notes		14				25				12				—				51
Capital leases		30				54				55				106				245
Operating leases		346				634				494				733				2,207
Inventory purchase commitments		525				416				—				—				941
Other commitments		58				43				38				10				149
Total		$	973			$	1,472			$	899			$	849			$	4,193

The following is a description of our material, firmly committed obligations as of April 2, 2016:

•	Senior Notes represents the principal amount of our outstanding 2.125% Senior Notes and 2.625% Senior Notes. Amounts do not include any fair value adjustments, call premiums, unamortized debt issuance costs, or interest payments (see below);

•	Interest payments on Senior Notes represent the semi-annual contractual interest payments due on our 2.125% Senior Notes and 2.625% Senior Notes;

•

Lease obligations represent the minimum lease rental payments due under noncancelable leases for our real estate and operating equipment. In addition to such amounts, we are normally required to pay taxes, insurance, and certain occupancy costs relating to our leased real estate properties, which are not included in the table above. Approximately 70% of these lease obligations relate to our retail operations. Information has been presented separately for capital and operating leases;

•	Inventory purchase commitments represent our legally-binding agreements to purchase fixed or minimum quantities of goods at determinable prices; and

•	Other commitments primarily represent our legally-binding obligations under sponsorship, licensing, and other marketing and advertising agreements; distribution-related agreements; information technology-related service agreements; and pension-related obligations.

Excluded from the above contractual obligations table is the non-current liability for unrecognized tax benefits of $81 million as of April 2, 2016, as we cannot make a reliable estimate of the period in which the liability will be settled, if ever. The above table also excludes the following: (i) amounts recorded in current liabilities in our consolidated balance sheet as of April 2, 2016, including borrowings outstanding of $90 million and $26 million under our Commercial Paper Program and Pan-Asia Credit Facilities, respectively, which will be paid within one year; and (ii) non-current liabilities that have no cash outflows associated with them (e.g., deferred revenue), or the cash outflows associated with them are uncertain or do not represent a "purchase obligation" as the term is used herein (e.g., deferred taxes and other miscellaneous items).

We also have certain contractual arrangements that would require us to make payments if certain events or circumstances occur. See Note 16 to the accompanying audited consolidated financial statements for a description of our contingent commitments not included in the above table.

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Off-Balance Sheet Arrangements

In addition to the commitments included in the above table, our other off-balance sheet firm commitments relating to our outstanding letters of credit amounted to approximately $10 million as of April 2, 2016. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships with unconsolidated entities that would be expected to have a material current or future effect on our consolidated financial statements.

MARKET RISK MANAGEMENT

As discussed in Note 15 to the accompanying audited consolidated financial statements, we are exposed to a variety of risks, including changes in foreign currency exchange rates relating to foreign currency-denominated balances, certain anticipated cash flows from our international operations, and possible declines in the value of reported net assets of certain of our foreign operations, as well as changes in the fair value of our fixed-rate debt relating to changes in interest rates. Consequently, at times, in the normal course of business, we employ established policies and procedures, including the use of derivative financial instruments, to manage such risks. We do not enter into derivative transactions for speculative or trading purposes.

As a result of the use of derivative instruments, we are exposed to the risk that counterparties to our contracts will fail to meet their contractual obligations. To mitigate this counterparty credit risk, we have 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. Our established policies and procedures for mitigating credit risk from derivative transactions include ongoing review and assessment of the creditworthiness of our counterparties. We also enter into master netting arrangements with counterparties, when possible, to mitigate credit risk associated with our derivative instruments. As a result of the above considerations, we do not believe that we are exposed to any undue concentration of counterparty risk with respect to our derivative contracts as of April 2, 2016. However, we do have in aggregate approximately $11 million of derivative instruments in net asset positions with two creditworthy financial institutions.

Foreign Currency Risk Management

We manage our exposure to changes in foreign currency exchange rates through the use of forward foreign currency exchange contracts. Refer to Note 15 to the accompanying audited consolidated financial statements for a summary of the notional amounts and fair values of our forward foreign currency exchange contracts outstanding as of April 2, 2016.

Forward Foreign Currency Exchange Contracts

We enter into forward foreign currency exchange contracts as hedges to reduce our risk related to exchange rate fluctuations on inventory transactions made in an entity's non-functional currency, intercompany royalty payments made by certain of our international operations, and other foreign currency-denominated operational and intercompany balances and cash flows. As part of our 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, and the Hong Kong Dollar, we hedge a portion of our foreign currency exposures anticipated over a two-year period. In doing so, we use forward foreign currency exchange contracts that generally have maturities of two months to two years to provide continuing coverage throughout the hedging period.

Our foreign exchange risk management activities are governed by our Company's established policies and procedures. These policies and procedures provide a framework that allows for the management of currency exposures while ensuring the activities are conducted within our established guidelines. Our policies include guidelines for the organizational structure of our risk management function and for internal controls over foreign exchange risk management activities, including, but not limited to, authorization levels, transaction limits, and credit quality controls, as well as various measurements for monitoring compliance. We monitor foreign exchange risk using different techniques, including a periodic review of market values and sensitivity analyses.

We record our forward foreign currency exchange contracts at fair value in our consolidated balance sheets. To the extent forward foreign currency exchange contracts designated as cash flow hedges are highly effective in offsetting changes in the value of the hedged item, the related gains or losses are initially deferred in equity as a component of accumulated other comprehensive income ("AOCI") and are subsequently recognized in our consolidated statements of income 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.

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•	Intercompany Royalties — recognized within foreign currency gains (losses) generally in the period in which the related payments being hedged occur.

We recognized net gains on forward foreign currency exchange contracts in earnings of approximately $32 million, $35 million, and $30 million during Fiscal 2016, Fiscal 2015, and Fiscal 2014, respectively.

Cross-Currency Swap Contracts

During Fiscal 2016, we entered into two pay-floating rate, receive-floating rate cross-currency swaps, with notional amounts of €280 million and €274 million, which we designated as hedges of our net investment in certain of our European subsidiaries (the "Cross-Currency Swaps"). The Cross-Currency Swaps, which mature on September 26, 2018 and August 18, 2020, respectively, swap the U.S. Dollar-denominated variable interest rate payments based on the 3-month London Interbank Offered Rate ("LIBOR") plus a fixed spread for Euro-denominated variable interest rate payments based on the 3-month Euro Interbank Offered Rate plus a fixed spread. As a result, the Cross-Currency Swaps, in conjunction with the Interest Rate Swaps (as defined below), economically convert our $300 million fixed-rate 2.125% and $300 million fixed-rate 2.625% obligations to €280 million and €274 million floating-rate Euro-denominated liabilities, respectively.

Sensitivity

We perform a sensitivity analysis to determine the effects that market risk exposures may have on the fair values of our forward foreign currency exchange and cross-currency swap contracts. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of hypothetical changes in foreign currency exchange rates. This analysis assumes a like movement by the foreign currencies in our hedge portfolio against the U.S. Dollar. As of April 2, 2016, a 10% appreciation or depreciation of the U.S. Dollar against the exchange rates for foreign currencies under contract would result in a net increase or decrease, respectively, in the fair value of our derivative portfolio of approximately $155 million. As our outstanding forward foreign currency exchange contracts are primarily designated as cash flow hedges of forecasted transactions, and as our cross-currency swap contracts are designated as hedges of our net investment in certain of our European subsidiaries, this hypothetical net change in fair value would be largely offset by the net change in the fair values of the underlying hedged items.

Interest Rate Risk Management

During Fiscal 2016, we entered into two pay-floating rate, receive-fixed rate interest rate swap contracts which we designated as hedges against changes in the respective fair values of our fixed-rate 2.125% Senior Notes and our fixed-rate 2.625% Senior Notes attributed to changes in the benchmark interest rate (the "Interest Rate Swaps"). The Interest Rate Swaps, which mature on September 26, 2018 and August 18, 2020, respectively, both have notional amounts of $300 million and swap the fixed interest rates on our 2.125% Senior Notes and 2.625% Senior Notes for variable interest rates based on 3-month LIBOR plus a fixed spread.

Sensitivity

As of April 2, 2016, notwithstanding the aforementioned Interest Rate Swaps, we had no variable-rate debt outstanding. As such, our exposure to changes in interest rates primarily relates to a change in the fair value of our fixed-rate Senior Notes, commercial paper notes, and borrowings outstanding under our credit facilities. As of April 2, 2016, the fair values of our Senior Notes, commercial paper notes, and borrowings outstanding under our credit facilities were $614 million, $90 million, and $26 million, respectively. A 25 basis point increase or decrease in the level of interest rates would decrease or increase, respectively, the aggregate fair value of our Senior Notes, commercial paper notes, and borrowings outstanding under our credit facilities by approximately $5 million. Such potential increases or decreases in the fair value of our debt would only be relevant if we were to retire all or a portion of the debt prior to its maturity, and are based on certain simplifying assumptions, including an immediate across-the-board increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.

Investment Risk Management

As of April 2, 2016, we had cash and cash equivalents on-hand of $456 million, consisting of deposits in interest bearing accounts and invested in money market funds and time deposits with original maturities of 90 days or less. Our other significant investments included $629 million of short-term investments, consisting of time deposits and corporate bonds with original maturities greater than 90 days; $46 million of restricted cash placed in escrow with certain banks as collateral, primarily to secure guarantees in connection with certain international tax matters; and $187 million of investments with maturities greater than one year, consisting of time deposits.

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We actively monitor our exposure to changes in the fair value of our global investment portfolio in accordance with our established policies and procedures, which include monitoring both general and issuer-specific economic conditions, as discussed further below. Our 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 our investment policy. See Note 15 to the accompanying audited consolidated financial statements for further detail of the composition of our investment portfolio as of April 2, 2016.

We evaluate investments held in unrealized loss positions, if any, for other-than-temporary impairment on a quarterly basis. This evaluation involves a variety of considerations, including assessments of risks and uncertainties associated with general economic conditions and distinct conditions affecting specific issuers. We consider the following factors: (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) anticipated future economic conditions and market forecasts, (v) our intent and ability to retain our 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 we will be required to sell our investment before recovery of market value. No material 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.

CRITICAL ACCOUNTING POLICIES

An accounting policy is considered to be critical if it is important to our results of operations, financial condition, and cash flows, and requires significant judgment and estimates on the part of management in its application. Our estimates are often based on complex judgments, assessments of probability, and assumptions that management believes to be reasonable, but that are inherently uncertain and unpredictable. It is also possible that other professionals, applying reasonable judgment to the same set of facts and circumstances, could develop and support a range of alternative estimated amounts. We believe that the following list represents our critical accounting policies. For a discussion of all of our significant accounting policies, including our critical accounting policies, see Note 3 to the accompanying audited consolidated financial statements.

Sales Reserves and Uncollectible Accounts

A significant area of judgment affecting reported revenue and net income involves estimating sales reserves, which represent the portion of gross revenues not expected to be realized. In particular, wholesale revenue is reduced by estimates of returns, discounts, end-of-season markdowns, and operational chargebacks. Retail revenue, including e-commerce sales, is also reduced by an estimate of returns.

In determining estimates of returns, discounts, end-of-season markdowns, and operational chargebacks, we analyze historical trends, seasonal results, current economic and market conditions, and retailer performance. We review and refine these estimates on a quarterly basis. Our historical estimates of these costs have not differed materially from actual results. A hypothetical 1% increase in our reserves for returns, discounts, end-of-season markdowns, and operational chargebacks as of April 2, 2016 would have decreased our Fiscal 2016 net revenues by approximately $2 million.

Similarly, we evaluate our accounts receivable balances to determine if they will ultimately be collected. Significant judgments and estimates are involved in this evaluation, including an analysis of specific risks on a customer-by-customer basis for larger accounts and customers, and a receivables aging analysis that determines the percentage of receivables that has historically been uncollected by aged category. Based on this information, we provide a reserve for the estimated amounts believed to be uncollectible. Although we believe that we have adequately provided for those risks as part of our bad debt reserve, a severe and prolonged adverse impact on our major customers' business operations could have a corresponding material adverse effect on our net sales, cash flows, and/or financial condition.

See "Accounts Receivable" in Note 3 to the accompanying audited consolidated financial statements for an analysis of the activity in our sales reserves and allowance for doubtful accounts for each of the three fiscal years presented.

Inventories

We hold inventory that is sold through wholesale distribution channels to major department stores and specialty retail stores. We also hold retail inventory that is sold in our own stores and e-commerce sites directly to consumers. Substantially all of our inventories are comprised of finished goods, which are stated at the lower of cost or estimated realizable value, with cost primarily determined on a weighted-average cost basis.

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The estimated net realizable value of inventory is determined based on an analysis of historical sales trends of our individual product lines, the impact of market trends and economic conditions, and a forecast of future demand, giving consideration to the value of current orders in-house for future sales of inventory, as well as plans to sell inventory through our factory stores, among other liquidation channels. Estimates may differ from actual results 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. Our historical estimates of these costs and the related provisions have not differed materially from actual results.

A hypothetical 1% increase in the level of our inventory reserves as of April 2, 2016 would have decreased our Fiscal 2016 gross profit by approximately $1 million.

Impairment of Goodwill and Other Intangible Assets

Goodwill and certain other intangible assets deemed to have indefinite useful lives are not amortized. Rather, goodwill and indefinite-lived intangible assets are assessed for impairment at least annually. Finite-lived intangible assets are amortized over their respective estimated useful lives and, along with other long-lived assets, are evaluated for impairment periodically whenever events or changes in circumstances indicate that their carrying values may not be fully recoverable.

We generally perform our annual goodwill impairment assessment using a qualitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its respective carrying value. However, in order to reassess the fair values of our reporting units, we periodically perform a quantitative impairment analysis in lieu of using the qualitative approach.

Performance of the qualitative assessment requires judgment in identifying and considering the significance of relevant key factors, events, and circumstances that affect the fair values of our reporting units. This requires consideration and assessment of external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between each reporting unit's fair value and carrying value as of the most recent date that a fair value measurement was performed. If the results of the qualitative assessment conclude that it is not more likely than not that the fair value of a reporting unit exceeds its carrying value, additional quantitative impairment testing is performed.

The quantitative goodwill impairment test is a two-step process. The first step is to identify the existence of potential impairment by comparing the fair value of a reporting unit with its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, the reporting unit's goodwill is considered not to be impaired and performance of the second step of the quantitative goodwill impairment test is unnecessary. However, if the carrying value of a reporting unit exceeds its fair value, the second step of the quantitative goodwill impairment test is performed to measure the amount of impairment loss to be recorded, if any. The second step of the quantitative goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying value of that goodwill. If the carrying value of the reporting unit's goodwill exceeds its implied fair value, an impairment loss is recognized in an amount equal to that excess.

Determining the fair value of a reporting unit under the first step of the quantitative goodwill impairment test and determining the fair values of individual assets and liabilities of a reporting unit (including any unrecognized intangible assets) under the second step of the quantitative goodwill impairment test requires judgment and often involves the use of significant estimates and assumptions. Similarly, estimates and assumptions are used when determining the fair values of other indefinite-lived intangible assets. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge. To assist management in the process of determining any potential goodwill impairment, we may review and consider appraisals from accredited independent valuation firms. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows (including timing), discount rates reflecting the risks inherent in future cash flows, perpetual growth rates, and determination of appropriate market comparables.

We performed our annual goodwill impairment assessment as of the beginning of the second quarter of Fiscal 2016 using the qualitative approach discussed above, while giving consideration to our most recent quantitative goodwill impairment test (the results of which indicated that the fair values of our reporting units significantly exceeded their respective carrying values). Based on the results of the qualitative impairment assessment performed, we concluded that it is more likely than not that the fair values of our reporting units significantly exceeded their respective carrying values and there were no reporting units at risk of impairment. Additionally, no goodwill impairment charges have been recorded during any of the three fiscal years presented.

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In evaluating finite-lived intangible assets for recoverability, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition where probable. 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.

It is possible that our conclusions regarding impairment or recoverability of goodwill or other intangible assets could change in future periods if, for example, (i) our businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions, (iii) business conditions or strategies change from our current assumptions, or (iv) the identification of our reporting units change, among other factors. Such changes could result in a future impairment charge of goodwill or other intangible assets, which could have a material effect on our consolidated financial position or results of operations.

Impairment of Other Long-Lived Assets

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, we use our best estimate of future cash flows expected to result from the use of the asset and its eventual disposition, where applicable. 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 of disposal are reported at the lower of carrying value or fair value, less costs to sell.

In determining future cash flows, we take various factors into account, including changes in merchandising strategy, the emphasis on retail store cost controls, the effects of macroeconomic trends such as consumer spending, and the impacts of more experienced retail store managers and increased local advertising. Since the determination of future cash flows is an estimate of future performance, future impairments may arise in the event that future cash flows do not meet expectations.

During Fiscal 2016, Fiscal 2015, and Fiscal 2014, we recorded non-cash impairment charges of $49 million, $7 million, and $1 million, respectively, to reduce the net carrying value of certain long-lived assets, primarily in our Retail segment, to their estimated fair values. See Note 10 to the accompanying audited consolidated financial statements for further discussion.

Income Taxes

In determining our income tax provision for financial reporting purposes, we establish a reserve for uncertain tax positions. If we consider that a tax position is more likely than not of being sustained upon audit, based solely on the technical merits of the position, we recognize the tax benefit. We measure 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 require significant judgment, and we often obtain assistance from external advisors. To the extent that our estimates change or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision in the period in which such determinations are made. If the initial assessment of a position fails to result in the recognition of a tax benefit, we will recognize 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.

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. 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 by assessing the adequacy of future expected taxable income, which typically involves the use of significant estimates. Such allowances are adjusted as events occur, or circumstances change, that warrant adjustments to those balances.

See Note 12 to the accompanying audited consolidated financial statements for further discussion of income taxes.

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Contingencies

We are periodically exposed to various contingencies in the ordinary course of conducting our business, including certain litigation, alleged information system security breaches, contractual disputes, employee relation matters, various tax or other governmental audits, and trademark and intellectual property matters and disputes. We record a liability for such contingencies to the extent that we conclude their occurrence is probable and the related losses are estimable. In addition, if it is reasonably possible that an unfavorable settlement of a contingency could exceed the established liability, we disclose the estimated impact on our liquidity, financial condition, and results of operations, if practicable. Management considers many factors in making these assessments. As the ultimate resolution of contingencies is inherently unpredictable, these assessments can involve a series of complex judgments about future events including, but not limited to, court rulings, negotiations between affected parties, and governmental actions. As a result, the accounting for loss contingencies relies heavily on management's judgment in developing the related estimates and assumptions.

Stock-Based Compensation

We expense all stock-based compensation awarded to employees and non-employee directors based on the grant date fair value of the awards over the requisite service period, adjusted for estimated forfeitures.

Stock Options

Stock options are granted to employees and non-employee directors with exercise prices equal to the fair market value of our Class A common stock on the date of grant. We use the Black-Scholes option-pricing model to estimate the grant date fair value of stock options, which requires the use of both subjective and objective assumptions. Certain key assumptions involve estimating future uncertain events. The key factors influencing the estimation process include the expected term of the option, expected volatility of our stock price, our expected dividend yield, and the risk-free interest rate, among others. Generally, once stock option values are determined, accounting practices do not permit them to be changed, even if the estimates used are different from actual results.

No stock options were granted in Fiscal 2016. See Note 19 to the accompanying audited consolidated financial statements for further discussion.

Restricted Stock and Restricted Stock Units ("RSUs")

We grant restricted shares of our Class A common stock to our non-employee directors, and service-based RSUs to certain of our senior executives, as well as certain of our other employees. In addition, we grant performance-based RSUs to such senior executives and other key executives, as well as certain of our other employees. The fair values of restricted stock shares and RSUs are based on the fair value of our unrestricted Class A common stock, adjusted to reflect the absence of dividends for those restricted securities that are not entitled to dividend equivalents prior to vesting. Compensation expense for performance-based RSUs is recognized over the employees' requisite service period when attainment of the performance goals is deemed probable, which involves judgment as to achievement of certain performance metrics.

Our performance-based RSU awards with a market condition in the form of a total shareholder return ("TSR") modifier are valued based on the expected attainment of performance at the end of a three-year performance period and TSR achieved relative to the S&P 500 index over the performance period. The fair value of these awards is estimated using a Monte Carlo simulation valuation model prepared by an independent third party. This pricing model utilizes multiple input variables that determine the probability of satisfying each market condition stipulated in the terms of the award to estimate its grant date fair value. Compensation expense, net of forfeitures, is updated for the Company's expected net income performance level against the related goal at the end of each reporting period.

Sensitivity

The assumptions used in calculating the grant date fair values of stock-based compensation awards represent our best estimates. In addition, judgment is required in estimating the number of stock-based awards that are expected to be forfeited. If actual results differ significantly from our estimates and assumptions, if we change the assumptions used to estimate the grant date fair value for future stock-based award grants, or if there are changes in market conditions, stock-based compensation expense and, therefore, our results of operations could be materially impacted. A hypothetical 10% change in our stock-based compensation expense would have affected our Fiscal 2016 net income by approximately $6 million.

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RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 to the accompanying audited consolidated financial statements for a description of certain recently issued accounting standards which may impact our consolidated financial statements in future reporting periods.