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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________________to __________________
Commission file number 1-12107
ABERCROMBIE & FITCH CO.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1469076
- ------------------------------ -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6301 Fitch Path, New Albany, OH 43054
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 283-6500
Not Applicable
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] [No]
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Exchange Act). Yes [X] [No]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at May 30, 2003
- ------------------------- --------------------------------
$.01 Par Value 97,638,333 Shares
ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Thirteen Weeks Ended
May 3, 2003 and May 4, 2002................................... 3
Condensed Consolidated Balance Sheets
May 3, 2003 and February 1, 2003.............................. 4
Condensed Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 3, 2003 and May 4, 2002................................... 5
Notes to Condensed Consolidated Financial Statements................... 6
Report of Independent Accountants...................................... 12
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition................. 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 20
Item 4. Controls and Procedures............................................ 21
Part II. Other Information
Item 1. Legal Proceedings.................................................. 22
Item 4. Submission of Matters to a Vote of Security Holders................ 23
Item 5. Other Matters...................................................... 23
Item 6. Exhibits and Reports on Form 8-K................................... 24
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
Thirteen Weeks Ended
----------------------
May 3, May 4,
2003 2002
--------- ---------
NET SALES $ 346,722 $ 312,792
Cost of Goods Sold, Occupancy and Buying Costs 218,534 198,363
--------- ---------
GROSS INCOME 128,188 114,429
General, Administrative and Store Operating Expenses 87,898 77,442
--------- ---------
OPERATING INCOME 40,290 36,987
Interest Income, Net (991) (872)
--------- ---------
INCOME BEFORE INCOME TAXES 41,281 37,859
Provision for Income Taxes 15,730 14,570
--------- ---------
NET INCOME $ 25,551 $ 23,289
========= =========
NET INCOME PER SHARE:
BASIC $ 0.26 $ 0.24
========= =========
DILUTED $ 0.26 $ 0.23
========= =========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 97,634 99,023
========= =========
DILUTED 99,835 102,130
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
May 3, February 1,
2003 2003
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and Equivalents $ 409,924 $ 391,035
Marketable Securities - 10,000
Receivables 7,550 10,462
Inventories 145,719 144,218
Store Supplies 26,462 25,671
Other 19,562 19,770
----------- -----------
TOTAL CURRENT ASSETS 609,217 601,156
PROPERTY AND EQUIPMENT, NET 408,759 392,941
OTHER ASSETS 665 725
----------- -----------
TOTAL ASSETS $ 1,018,641 $ 994,822
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 40,535 $ 50,153
Accrued Expenses 136,011 120,438
Income Taxes Payable 17,890 40,879
----------- -----------
TOTAL CURRENT LIABILITIES 194,436 211,470
DEFERRED INCOME TAXES 23,715 20,781
OTHER LONG-TERM LIABILITIES 13,432 13,044
SHAREHOLDERS' EQUITY:
Class A Common Stock - $.01 par value: 150,000,000 shares
authorized, 98,003,864 and 97,268,877 shares outstanding at
May 3, 2003 and February 1, 2003, respectively 1,033 1,033
Paid-In Capital 144,100 142,577
Retained Earnings 740,026 714,475
----------- -----------
885,159 858,085
Less: Treasury Stock, at Average Cost (98,101) (108,558)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 787,058 749,527
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,018,641 $ 994,822
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Thirteen Weeks Ended
------------------------
May 3, May 4,
2003 2002
--------- ---------
OPERATING ACTIVITIES:
Net income $ 25,551 $ 23,289
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 15,896 12,389
Noncash Charge for Deferred Compensation 1,282 580
Changes in Assets and Liabilities:
Inventories (1,501) (8,290)
Accounts Payable and Accrued Expenses (6,941) 3,849
Income Taxes (16,937) (5,599)
Other Assets and Liabilities (1,734) 2,844
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,616 29,062
--------- ---------
INVESTING ACTIVITIES:
Capital Expenditures (16,374) (25,265)
Proceeds from Maturities of Marketable Securities 10,000 56,220
--------- ---------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (6,374) 30,955
--------- ---------
FINANCING ACTIVITIES:
Stock Option Exercises and Other 9,647 (1,704)
--------- ---------
NET INCREASE IN CASH AND EQUIVALENTS 18,889 58,313
Cash and Equivalents, Beginning of Year 391,035 167,664
--------- ---------
CASH AND EQUIVALENTS, END OF PERIOD $ 409,924 $ 225,977
========= =========
SIGNIFICANT NONCASH INVESTING ACTIVITIES:
Construction Allowance Receivables $ 4,226 $ 10,519
========= =========
Accrual for Construction in Progress $ 23,509 $ 30,112
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ABERCROMBIE & FITCH
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. ("A&F"), through its subsidiaries
(collectively, A&F and its subsidiaries are referred to as "Abercrombie
& Fitch" or the "Company"), is a specialty retailer of high quality,
casual apparel for men, women and kids with an active, youthful
lifestyle.
The condensed consolidated financial statements include the accounts of
A&F. All significant intercompany balances and transactions have been
eliminated in consolidation.
The condensed consolidated financial statements as of May 3, 2003 and
for the thirteen week periods ended May 3, 2003 and May 4, 2002 are
unaudited and are presented pursuant to the rules and regulations of
the Securities and Exchange Commission. Accordingly, these condensed
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto contained in
A&F's Annual Report on Form 10-K for the fiscal year ended February 1,
2003 (the "2002 fiscal year"). In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments (which are of a normal recurring nature) necessary to
present fairly the financial position and results of operations and
cash flows for the interim periods, but are not necessarily indicative
of the results of operations for a full fiscal year.
The condensed consolidated financial statements as of May 3, 2003 and
for the thirteen week periods ended May 3, 2003 and May 4, 2002
included herein have been reviewed by the independent accounting firm
of PricewaterhouseCoopers LLP and the report of such firm follows the
notes to condensed consolidated financial statements.
PricewaterhouseCoopers LLP is not subject to the liability provisions
of Section 11 of the Securities Act of 1933 (the "Act") for its report
on the condensed consolidated financial statements because that report
is not a "report" within the meaning of Sections 7 and 11 of the Act.
2. ADOPTION OF ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 143,
"Accounting for Asset Retirement Obligations," was effective February
2, 2003 for the Company. The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the
period in which it is a cost by increasing the carrying amount of the
related long-lived asset. Over time, the liability is accreted to its
present value each period, and the capitalized cost is depreciated over
the useful life of the related obligation for its recorded amount or
the entity incurs a gain or loss upon settlement. Because costs
associated with exiting leased properties at the end of lease terms are
minimal, the adoption of SFAS No. 143 had no impact on the Company's
results of operations or its financial position.
6
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment of FASB No. 123," was issued on December 31,
2002. Pursuant to this standard, companies that chose to adopt the
accounting provisions of FASB Statement No. 123, "Accounting for
Stock-Based Compensation," were permitted to select from three
transition methods (prospective, modified prospective and retroactive
restatement).
Companies that chose not to adopt the accounting provisions of SFAS No.
123 were affected by the new disclosure requirements of SFAS No. 148.
The new interim disclosure provisions are effective for the first
quarter of 2003 and have been adopted by the Company (see Note 3).
7
3. STOCK-BASED COMPENSATION
The Company reports stock-based compensation through the
disclosure-only requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an Amendment to FASB
No. 123," but elects to measure compensation expense using the
intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense for options has been recognized as
all options are granted at fair market value at the grant date. The
Company does recognize compensation expense related to restricted share
awards. If compensation expense in the first quarters of 2003 and 2002
related to options had been determined based on the estimated fair
value of options granted, consistent with the methodology in SFAS No.
123, the pro forma effect on net income and net income per basic and
diluted share would have been as follows:
(Thousands except per share amounts)
Thirteen Weeks Ended
---------------------------
May 3, May 4,
2003 2002
-------- --------
Net income:
As reported $ 25,551 $ 23,289
Stock-based compensation expense included in reported net
income, net of tax 794 357
Stock-based compensation expense determined under fair value
based method, net of tax(1) (6,355) (6,498)
-------- --------
Pro forma $ 19,990 $ 17,147
======== ========
Basic earnings per share:
As reported $ 0.26 $ 0.24
Pro forma $ 0.20 $ 0.17
Diluted earnings per share:
As reported $ 0.26 $ 0.23
Pro forma $ 0.20 $ 0.17
(1) Includes stock-based compensation expense related to restricted share awards
actually recognized in earnings in each period presented.
The pro forma effect on net income for the first quarters of 2003 and
2002 is not representative of the pro forma effect on net income in
future years because it takes into consideration pro forma compensation
expense related only to those grants made subsequent to May 19, 1998.
8
The weighted-average fair value of all options granted during the first
quarter of 2003 and fiscal 2002 was $13.91 and $12.07, respectively.
The fair value of each option was estimated using the Black-Scholes
option-pricing model, which is included in the pro forma results above.
For purposes of the valuation, the following weighted-average
assumptions were used: no expected dividends in 2003 and 2002; price
volatility of 63% in 2003 and 53% in 2002; risk-free interest rates of
2.9% in 2003 and 4.3% in 2002; assumed forfeiture rates of 23% and 15%
in 2003 and 2002; and expected lives of 4 years in 2003 and 2002.
4. EARNINGS PER SHARE
Weighted-Average Shares Outstanding (in thousands):
Thirteen Weeks Ended
--------------------------
May 3, May 4,
2003 2002
------- -------
Shares of Class A Common Stock issued 103,300 103,300
Treasury shares (5,666) (4,277)
------- -------
Basic shares 97,634 99,023
Dilutive effect of options and restricted shares 2,201 3,107
------- -------
Diluted shares 99,835 102,130
======= =======
Options to purchase 5,762,000 and 6,102,000 shares of Class A Common
Stock were outstanding at May 3, 2003 and May 4, 2002, respectively,
but were not included in the computation of net income per diluted
share because the options' exercise prices were greater than the
average market price of the underlying shares.
5. INVENTORIES
The fiscal year of A&F and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and
Fall (the third and fourth quarters). Valuation of finished goods
inventories is based principally upon the lower of average cost or
market determined on a first-in, first-out basis utilizing the retail
method. Inventory valuation at the end of the first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates
for the total selling season.
9
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (in thousands):
May 3, February 1,
2003 2003
---------- ----------
Property and equipment, at cost $ 615,179 $ 585,642
Accumulated depreciation and amortization (206,420) (192,701)
---------- ----------
Property and equipment, net $ 408,759 $ 392,941
========== ==========
7. INCOME TAXES
The provision for income taxes is based on the current estimate of the
annual effective tax rate. Income taxes paid during the thirteen weeks
ended May 3, 2003 and May 4, 2002 approximated $33.0 million and $20.2
million, respectively.
8. LONG-TERM DEBT
The Company entered into a $250 million syndicated unsecured credit
agreement (the "New Credit Agreement") on November 14, 2002 to replace
both a $150 million syndicated unsecured credit agreement (the "Old
Credit Agreement") and a separate $75 million facility for the issuance
of trade letters of credit. The primary purposes of the New Credit
Agreement are for trade and stand-by letters of credit and working
capital. The New Credit Agreement is due to expire on November 14,
2005. The New Credit Agreement has several borrowing options, including
interest rates that are based on the agent bank's "Alternative Base
Rate," or a LIBO Rate. Facility fees payable under the New Credit
Agreement are based on the Company's ratio (the "leverage ratio") of
the sum of total debt plus 800% of forward minimum rent commitments to
EBITDAR for the trailing four-fiscal-quarter period and currently
accrues at .225% of the committed amounts per annum. The New Credit
Agreement contains limitations on indebtedness, liens, sale-leaseback
transactions, significant corporate changes including mergers and
acquisitions with third parties, investments, restricted payments
(including dividends and stock repurchases), hedging transactions and
transactions with affiliates. The New Credit Agreement also contains
financial covenants requiring a minimum ratio of EBITDAR for the
trailing four-fiscal-quarter period to the sum of interest expense and
minimum rent for such period, as well as a maximum leverage ratio.
Letters of credit totaling approximately $39.1 million were outstanding
under the New Credit Agreement at May 3, 2003. Letters of credit
totaling approximately $34.8 million were outstanding under the $75
million facility for the issuance of trade letters of credit at May 4,
2002. No borrowings were outstanding under the New Credit Agreement at
May 3, 2003 or under the Old Credit Agreement at May 4, 2002.
10
9. RELATED PARTY TRANSACTIONS
Shahid & Company, Inc. has provided advertising and design services for
the Company since 1995. Sam N. Shahid, Jr., who serves on A&F's Board
of Directors, has been President and Creative Director of Shahid &
Company, Inc. since 1993. Fees paid to Shahid & Company, Inc. for
services provided during the thirteen weeks ended May 3, 2003 and May
4, 2002 were approximately $.5 million in both periods.
10. CONTINGENCIES
The Company is involved in a number of legal proceedings. Although it
is not possible to predict with any certainty the eventual outcome of
any legal proceedings, it is the opinion of management that the
ultimate resolution of these matters will not have a material impact on
the Company's results of operations, cash flows or financial position.
The Company has standby letters of credit in the amount of $4.7 million
that expire during the 2003 fiscal year but automatically renew for a
period of one year. The beneficiary, a merchandise supplier, has the
right to draw upon the standby letters of credit if the Company has
authorized or filed a voluntary petition into bankruptcy. To date, the
beneficiary has not drawn upon the standby letters of credit.
The Company enters into agreements with professional services firms, in
the ordinary course of business and, in most agreements, indemnifies
these firms from any harm. There is no financial impact on the Company
related to these indemnifications.
11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:
We have reviewed the accompanying condensed consolidated balance sheet of
Abercrombie & Fitch Co. (the "Company") and its subsidiaries as of May 3, 2003
and the related condensed consolidated statements of income for each of the
thirteen-week periods ended May 3, 2003 and May 4, 2002 and the condensed
consolidated statements of cash flows for the thirteen-week periods ended May 3,
2003 and May 4, 2002. These interim financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of February
1, 2003, and the related consolidated statements of income, of shareholders'
equity, and of cash flows for the year then ended (not presented herein), and in
our report dated February 18, 2003 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet information as of February 1, 2003,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
May 13, 2003
12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the first quarter of the 2003 fiscal year, net sales increased 11% to
$346.7 million from $312.8 million in the first quarter of 2002. Operating
income improved to $40.3 million in the first quarter of 2003 from $37.0 million
in the first quarter of 2002. A&F recorded its 43rd consecutive comparable
quarter of record earnings as net income increased to $25.6 million in the first
quarter of 2003 as compared to $23.3 million in the first quarter of 2002.
Earnings per diluted share were $.26 in the first quarter of 2003 compared to
$.23 in the first quarter of 2002.
The following data represent the amounts shown in the Company's condensed
consolidated statements of income for the first quarter of the 2003 and 2002
fiscal years expressed as a percentage of net sales:
Thirteen Weeks Ended
---------------------------
May 3, 2003 May 4, 2002
----------- -----------
NET SALES 100.0% 100.0%
Cost of Goods Sold, Occupancy and
Buying Costs 63.0 63.4
----- -----
GROSS INCOME 37.0 36.6
General, Administrative and Store
Operating Expenses 25.4 24.8
----- -----
OPERATING INCOME 11.6 11.8
Interest Income, Net (0.3) (0.3)
----- -----
INCOME BEFORE INCOME TAXES 11.9 12.1
Provision for Income Taxes 4.5 4.7
----- -----
NET INCOME 7.4% 7.4%
===== =====
13
Financial Summary
The following summarized financial and statistical data compares the thirteen
week period ended May 3, 2003 to the comparable fiscal 2002 period:
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 3, 2003 MAY 4, 2002 % CHANGE
----------- ----------- --------
Increase (decrease) in
comparable store sales (6)% (6)%
Retail sales increase
attributable to new and
remodeled stores, magazine,
catalogue and Web sites 17% 25%
Retail sales per average gross
square foot $ 76 $ 80 (5)%
Retail sales per average store
(thousands) $ 551 $ 593 (7)%
Average store size at end of
quarter (gross square feet) 7,296 7,440 (2)%
Gross square feet at end of
quarter (thousands) 4,392 3,772 16%
Number of Stores and Gross Square Feet by Concept:
Abercrombie & Fitch:
Stores at beginning of period 340 309
Opened 3 4
Closed (1) (2)
-------- --------
Stores at end of period 342 311
Gross square feet (thousands) 3,053 2,815
======== ========
abercrombie:
Stores at beginning of period 164 148
Opened 1 5
Closed - -
-------- --------
Stores at end of period 165 153
Gross square feet (thousands) 731 683
======== ========
Hollister Co.:
Stores at beginning of period 93 34
Opened 2 10
Closed - (1)
-------- --------
Stores at end of period 95 43
Gross square feet (thousands) 608 274
======== ========
14
Net Sales
Net sales for the first quarter of 2003 increased 11% to $346.7 million from
$312.8 million for the first quarter of 2002. The increase was due to the
addition of new stores offset by a 6% decline in comparable store sales
("comps"), defined as sales in stores that have been open for at least one year.
By merchandise concept, comps for the quarter were as follows: Abercrombie &
Fitch's comps declined slightly above the Company's average, with womens posting
a positive comp and mens a negative comp. Comps for the kids' business,
abercrombie, were similar to the adult business with girls posting a positive
comp in the mid-single digits during the quarter and boys a negative comp. Comps
in Hollister were double-digit positive and both girls and guys were positive.
By regions, comps were strongest in the West and weakest in the Midwest.
Given continued uncertainty in the economy, the Company entered the first
quarter of fiscal 2003 maintaining a conservative approach to managing the
business. This strategy was designed to protect both the bottom line and the
aspirational quality of the brands. Overall, the Company took a much less
aggressive approach to promotions compared to the first quarter of 2002.
From a merchandising standpoint, womens continued to outperform mens. Key
classifications in womens during the quarter included pants, skirts, shorts and
woven shirts. Mens continued to be difficult and there remained no solid fashion
trend industry-wide. However, woven shirts and graphic t-shirts performed well
during the quarter in mens.
In the kids' business, knit tops, woven tops, skirts and shorts performed very
well in girls. Boys continued to be difficult.
In Hollister, girls continued to be more significant than guys, representing
approximately 69% of the overall business. For the quarter, the best performing
girls' classifications were woven shirts, knit tops, skirts and pants. In guys,
woven shirts, graphic t-shirts, shorts and accessories performed best.
Sales in the adult and kids e-commerce business grew by approximately 14% during
the first quarter of fiscal 2003 as compared to 2002. The Company remains on
track to add a Hollister e-commerce business for back-to-school 2003. The direct
business (which includes the Company's catalogue, the A&F Quarterly (a
catalogue/magazine) and the Company's Web sites) accounted for 4.7% and 5.3% of
net sales in the first quarter of each 2003 and 2002, respectively.
Gross Income
The gross income rate (gross income divided by net sales) for the first quarter
of fiscal year 2003 was 37.0%, up 40 basis points from last year's rate of
36.6%. The increase in gross income rate resulted largely from an increase in
initial markup (IMU) and a lower markdown rate, partially offset by an increase
in buying and occupancy costs, as a percent of sales.
Continued progress in sourcing has been an important factor in improving the IMU
in all three
15
concepts. The Company continued to make progress increasing the IMU in
Hollister, where IMU improved over 500 basis points versus the first quarter of
2002.
The markdown rate was lower for the first quarter of 2003 than the first quarter
of 2002 due to the Company's decision to have fewer in-store promotions and to
not anniversary first quarter 2002's direct mail promotions.
The increase in buying and occupancy costs, as a percent of net sales, reflected
the inability to leverage fixed costs such as rent, depreciation and other real
estate related charges due to a comp store decrease.
The Company ended the first quarter of 2003 with inventories up 7% per gross
square foot versus the first quarter of 2002 at cost.
General, Administrative and Store Operating Expenses
The first quarter 2003 general, administrative and store operating expense rate
(general, administrative and store operating expenses divided by net sales) was
25.4% compared to 24.8% in the first quarter of 2002. The increase in rate,
versus 2002, resulted primarily from an increase in store expenses as a
percentage of net sales due to the inability to leverage payroll due to lower
sales per average store.
During the first quarter of 2003, store payroll hours were reduced by 1% per
average Abercrombie & Fitch adult store but increased by 1% per average kids
store. Store payroll hours were increased in Hollister reflecting the strong
increase in volume per store. The control of payroll hours helped mitigate the
effect of negative comps on the store expense rate.
Efficiencies were recognized in the distribution center and in the direct
business. During the first quarter of fiscal 2003, productivity, as measured in
units processed per labor hour in the distribution center, was 38% higher than
the first quarter of 2002. This improvement was on top of a 50% improvement in
the first quarter of 2002 compared to the first quarter of 2001. For the
quarter, more units were processed than the comparable period in 2002 with 24%
fewer labor hours.
In the first quarter of 2003, fulfillment costs per order in the direct business
were down by over 30% compared to the first quarter of 2002.
Operating Income
The operating income rate (operating income divided by net sales) was 11.6% for
the first quarter of fiscal 2003 compared to 11.8% for the same period in 2002.
The decline is primarily due to higher general, administrative and store
operating expenses partially offset by the gross income rate increase.
Interest Income and Income Tax Expense
First quarter net interest income was $1.0 million in 2003 as compared with net
interest income of $0.9 million for the comparable period in 2002.
16
The effective tax rate for the first quarter of 2003 was 38.1% as compared to
38.5% for 2002's comparable period. The reduction in the rate was primarily due
to greater use of tax-free investments in the first quarter of 2003 as compared
to the first quarter of 2002.
FINANCIAL CONDITION
Liquidity and Capital Resources
Cash provided by operating activities provides the resources to support
operations, including projected growth, seasonal requirements and capital
expenditures. A summary of the Company's working capital position and
capitalization follows (thousands):
May 3, February 1,
2003 2003
---------- ----------
Working capital $ 414,781 $ 389,686
========== ==========
Capitalization:
Shareholders' equity $ 787,058 $ 749,527
========== ==========
Net cash provided by operating activities, the Company's primary source of
liquidity, totaled $15.6 million for the thirteen weeks ended May 3, 2003 versus
$29.1 million in the comparable period of 2002. Cash was provided primarily by
current year net income adjusted for depreciation and amortization.
Uses of cash primarily consisted of increased cash outflows in income taxes
payable and accounts payable and accrued expenses.
The use of cash related to income taxes was due to the change in methodology
used to make estimated tax payments during 2002. This change affected the timing
of payments relating to 2002. This was partially offset by an increase in
deferred income taxes during the quarter primarily due to differences in tax and
book depreciation methods.
A use of cash also resulted from the decrease in accounts payable, which was
primarily due to the timing of payments. This was partially offset by increases
in accrued expenses, such as payroll and property taxes, related primarily to
the growth in the store base.
The Company's operations are seasonal in nature and typically peak during the
back-to-school and Christmas selling periods. Accordingly, cash requirements for
inventory expenditures are highest during these periods.
Cash outflows for investing activities were for capital expenditures (see the
discussion in the "Captial Expenditures" section below) related primarily to new
stores. Cash inflows from investing activities consisted of maturities of
marketable securities. As of May 3, 2003, the Company held no marketable
securities with original maturities of greater than 90 days.
17
Financing activities consisted primarily of stock option exercises and
restricted stock issuances. No shares were repurchased during the first quarter
of 2003 or 2002. As of May 3, 2003, A&F was authorized to repurchase up to
5,000,000 shares under the current stock repurchase program.
In the first quarter of 2002, the Company had available a $150 million
syndicated unsecured credit agreement (the "Old Credit Agreement"). The Company
also had a $75 million facility for trade letters of credit.
Effective November 14, 2002, the Company entered into a new $250 million
syndicated unsecured credit agreement (the "New Credit Agreement"), which
replaced both the Old Credit Agreement and the trade letter of credit facility.
Additional details regarding the New Credit Agreement can be found in the Notes
to Condensed Consolidated Financial Statements (Note 8).
Letters of credit totaling approximately $39.1 million were outstanding under
the New Credit Agreement at May 3, 2003. Letters of credit totaling
approximately $34.8 million were outstanding under the trade letter of credit
facility at May 4, 2002. No borrowings were outstanding under either the New
Credit Agreement at May 3, 2003 or the Old Credit Agreement at May 4, 2002.
The Company has standby letters of credit in the amount of $4.7 million that
expire during the 2003 fiscal year but automatically renew for a period of one
year. The beneficiary, a merchandise supplier, has the right to draw upon the
standby letters of credit if the Company has authorized or filed a voluntary
petition into bankruptcy. To date, the beneficiary has not drawn upon the
standby letters of credit.
Store Count and Gross Square Feet
Store count and gross square footage by concept were as follows:
May 3, 2003 May 4, 2002
----------- -----------
Number of Gross Square Number of Gross Square
Stores Feet (thousands) Stores Feet (thousands)
--------- ---------------- --------- ----------------
Abercrombie & Fitch 342 3,053 311 2,815
abercrombie 165 731 153 683
Hollister Co. 95 608 43 274
--- ----- --- -----
Total 602 4,392 507 3,772
=== ===== === =====
Capital Expenditures
The cash outlay for capital expenditures totaled $16.4 million and $25.3 million
for the thirteen weeks ended May 3, 2003 and May 4, 2002, respectively. The
noncash accrual for construction in progress increased $10.8 million in the
first quarter of 2003 and $4.8 million in the first quarter of 2002. Capital
expenditures related to new stores, including the noncash accrual for
construction in progress, accounted for approximately $16 million during the
first quarter of 2003. The balance of capital expenditures related primarily to
improvements in the distribution center and information technology expenditures
for a new point of sale system.
18
The Company anticipates spending $120 to $130 million in 2003 for capital
expenditures, of which $70 to $80 million will be for new stores construction.
The balance of capital expenditures primarily relates to infrastructure
investments. The Company intends to add approximately 726,000 gross square feet
in 2003, which will represent a 17% increase over year-end 2002. It is
anticipated the increase will result from the addition of approximately 20 new
Abercrombie & Fitch stores, 10 new abercrombie stores and 80 new Hollister Co.
stores.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Abercrombie & Fitch stores to be opened in 2003 will
approximate $630,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $330,000 per
store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for abercrombie stores to be opened in 2003 will
approximate $485,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $130,000 per
store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Hollister Co. stores to be opened in 2003 will
approximate $650,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $230,000 per
store.
The Company expects that substantially all future capital expenditures will be
funded with cash from operations. In addition, the Company has $250 million
available (less outstanding letters of credit) under its credit agreement to
support operations.
Critical Accounting Policies and Estimates
The Company's significant and critical accounting policies and estimates can be
found in the Notes to Consolidated Financial Statements contained in A&F's
Annual Report on Form 10-K for the fiscal year ended February 1, 2003 (Note 2).
Additionally, the Company believes that the following policies are critical to
the portrayal of the Company's financial condition and results of operations for
interim periods.
Inventory Valuation - Inventory valuation at the end of the first and third
quarters reflects adjustments for inventory markdowns and shrinkage estimates
for the total selling season.
Income Taxes - At the end of each interim period, the Company makes its best
estimate of the base effective tax rate expected to be applicable for the full
fiscal year. This base rate is adjusted on a quarterly basis for the effect of
the tax-free investments.
Recently Adopted Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations," was effective February 2, 2003 for the Company.
The standard requires entities to record the fair value of a liability for an
asset retirement obligation in the period in which it is a cost by increasing
the carrying amount of the related long-lived asset.
19
Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related obligation
for its recorded amount or the entity incurs a gain or loss upon settlement.
Because costs associated with exiting leased properties at the end of lease
terms are minimal, the adoption of SFAS No. 143 had no impact on the Company's
results of operations or its financial position.
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment of FASB No. 123," was issued on December 31, 2002.
Pursuant to this standard, companies that chose to adopt the accounting
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
were permitted to select from three transition methods (prospective, modified
prospective and retroactive restatement).
Companies that chose not to adopt the accounting provisions of SFAS No. 123 were
affected by the new disclosure requirements of SFAS No. 148. The new interim
disclosure provisions are effective for the first quarter of 2003 and have been
adopted by the Company (Note 3).
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
A&F cautions that any forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) contained in this Form 10-Q or
made by management of A&F involve risks and uncertainties and are subject to
change based on various important factors. The following factors, among others,
in some cases have affected and in the future could affect the Company's
financial performance and actual results and could cause actual results for 2003
and beyond to differ materially from those expressed or implied in any of the
forward-looking statements included in this Form 10-Q or otherwise made by
management: changes in consumer spending patterns and consumer preferences; the
effects of political and economic events and conditions domestically and in
foreign jurisdictions in which the Company operates, including, but not limited
to, acts of terrorism or war; the impact of competition and pricing; changes in
weather patterns; market price of key raw materials; ability to source product
from its global supplier base; political stability; currency and exchange risks
and changes in existing or potential duties, tariffs or quotas; availability of
suitable store locations at appropriate terms; ability to develop new
merchandise; and ability to hire, train and retain associates.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of A&F's financial instruments as of May 3, 2003 has not
significantly changed since February 1, 2003. A&F's market risk profile as of
February 1, 2003 is disclosed in Item 7A - Quantitative and Qualitative
Disclosures about Market Risk of A&F's Annual Report on Form 10-K for the fiscal
year ended February 1, 2003.
20
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, A&F management,
including the Chief Executive Officer and the Chief Financial Officer, conducted
an evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Rule 13a-14(c) under the
Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of the date of that evaluation to
ensure that material information relating to the Company is made known to them,
particularly during the period for which this Quarterly Report on Form 10-Q has
been prepared. There have been no significant changes in internal controls, or
in other factors that could significantly affect internal controls, subsequent
to the date the Chief Executive Officer and Chief Financial Officer completed
their evaluation.
21
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in lawsuits arising in the ordinary course of
business.
On January 13, 1999, a complaint was filed against many national retailers in
the United States District Court for the Central District of California. The
complaint (1) purported to be filed on behalf of a class of unnamed garment
workers, (2) related to labor practices allegedly employed on the island of
Saipan, Commonwealth of the Northern Mariana Islands, by apparel manufacturers
unrelated to the Company, some of which have sold goods to the Company, and (3)
sought injunctive, unspecified monetary damages and other relief. On September
29, 1999, the action was transferred to the United States District Court for the
District of Hawaii. Thereafter, the plaintiffs moved for leave to amend their
complaint to add A&F and others as additional defendants. That motion was
granted and, on April 28, 2000, an amended complaint was filed which added A&F
and others as defendants, but did not otherwise substantively alter either the
claims alleged or the relief sought by the plaintiffs. A&F joined with other
retailer defendants in moving to dismiss the amended complaint. Certain of the
other defendants also moved to transfer the action to Saipan. On June 23, 2000,
the District Court of Hawaii ordered the case to be transferred to the United
States District Court for the Northern Mariana Islands. Plaintiffs filed a
Petition for Writ of Mandamus challenging the transfer and on March 22, 2001,
the Ninth Circuit Court of Appeals issued an order denying the Petition for Writ
of Mandamus, thus allowing the case to be transferred to the United States
District Court for the Northern Mariana Islands. The defendants' motion to
dismiss the first amended complaint for failure to state a claim upon which
relief can be granted was denied in part and granted in part on November 26,
2001. As to the partial granting of the motion, the Court also granted the
plaintiffs leave to amend to cure any pleading defects in a second amended
complaint. Plaintiffs filed their motion for class certification on December 13,
2001 and their second amended complaint, which added neither new parties nor
claims but realleged claims previously dismissed, on December 17, 2001. The
motion for class certification was heard on February 14, 2002. The motion for
preliminary approval of settlement as to certain other retailer defendants was
also heard the same date. A motion to dismiss the second amended complaint was
heard on March 19, 2002. On May 10, 2002, the Court granted in part and denied
in part the motion to dismiss the second amended complaint as to the remaining
RICO claim and granted the motion to dismiss the second amended complaint as to
the Common Law Peonage claim, the Anti-Peonage statutory claim, and the Alien
Tort Claims Act claim. Plaintiffs were given leave to file a third amended
complaint. The motions for class certification and preliminary approval of
settlement as to certain other retailer defendants were also granted. A third
amended complaint was filed on July 25, 2002. On April 24, 2003, the United
States District Court for the Northern Mariana Islands entered a Final Judgment
and Order of Dismissal approving settlement and dismissing the action against
the Company with prejudice.
A&F is aware of 20 actions that have been filed against A&F and certain of its
officers and directors on behalf of a purported, but as yet uncertified, class
of shareholders who purchased A&F's Class A Common Stock between October 8, 1999
and October 13, 1999. These 20 actions have been filed in the United States
District Courts for the Southern District of New York and the Southern District
of Ohio, Eastern Division, alleging violations of the federal securities laws
and seeking unspecified damages. On April 12, 2000, the Judicial Panel on
Multidistrict Litigation issued a Transfer Order transferring the 20 pending
actions to the Southern District of New York for consolidated pretrial
proceedings under the caption In re Abercrombie & Fitch
22
Securities Litigation. On November 16, 2000, the Court signed an Order
appointing the Hicks Group, a group of seven unrelated investors in A&F's
securities, as lead plaintiff, and appointing lead counsel in the consolidated
action. On December 14, 2000, plaintiffs filed a Consolidated Amended Class
Action Complaint (the "Amended Complaint") in which they did not name as
defendants Lazard Freres & Co. and Todd Slater, who had formerly been named as
defendants in certain of the 20 complaints. A&F and other defendants filed
motions to dismiss the Amended Complaint on February 14, 2001.
A&F is aware of three actions that have been filed where a purported class of
employees and former employees of the Company allege that the Company required
its associates to wear a "uniform" which in two of the three actions is
allegedly in violation of California law. These two complaints were served on
February 4, 2003 and February 10, 2003 in the Superior Courts of San Francisco
County and Los Angeles County, respectively. In the third action, which was
filed in the United States District Court for the Western District of
Pennsylvania on March 14, 2003, the "uniform," which when purchased, allegedly
drove associates' wages below the federal minimum wage. In each claim, the
plaintiff, on behalf of his or her class, seeks injunctive relief and economic,
liquidated damages in an unspecified amount.
A&F believes that the actions against it are without merit and intends to defend
vigorously against them. However, A&F does not believe it is feasible to predict
the outcome of these proceedings. The timing of the final resolution of these
proceedings is also uncertain.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 2003, A&F held its annual meeting of shareholders at Abercrombie &
Fitch Headquarters, 6301 Fitch Path, New Albany, Ohio. At such meeting, Messrs.
Michael S. Jeffries and John W. Kessler were re-elected to A&F's Board of
Directors, each to serve for a three-year term expiring in 2006. The vote on the
election of directors was as follows:
For Withheld Broker Non-Votes
---------- ---------- ----------------
Michael S. Jeffries 85,303,761 5,968,222 0
John W. Kessler 55,832,297 35,512,526 0
The following individuals also continue to serve on the Board of Directors:
Messrs. Russell M. Gertmenian, John A. Golden, Archie M. Griffin, Seth R.
Johnson and Sam N. Shahid, Jr. and Ms. Kathryn D. Sullivan, Ph.D.
Item 5. OTHER INFORMATION
The Abercrombie & Fitch Co. Savings and Retirement Plan (the "401(k) Plan") was
subject to a "blackout period," as defined in Regulation BTR - Blackout Trading
Restriction, because of the transfer in the administration of the 401(k) Plan
from Merrill Lynch to Fidelity Investments. The blackout period commenced on
April 4, 2003 (at 4:00 p.m. EST) and ended May 5, 2003. During the blackout
period, participants in the 401(k) Plan were unable to change the amount of
their payroll deductions, request distributions or modify their investment
elections.
The shares of Class A Common Stock of A&F, which constitute the only outstanding
equity securities of A&F, were subject to the blackout period. A&F's executive
officers and directors were subject to the trading prohibitions imposed by
Section 306(a) of the Sarbanes-Oxley Act of
23
2002 in respect of the Class A Common Stock (and derivative securities related
to the Class A Common Stock).
The person designated by A&F to respond to inquiries about the blackout period
was Scott Sterling, Sr. Director of Compensation and Benefits, c/o Abercrombie &
Fitch Co., 6301 Fitch Path, New Albany, Ohio 43054, telephone number (614)
283-6831.
Because A&F was involved in determining the blackout period, no notification was
required to be given of the blackout period from the administrator of the 401(k)
Plan to A&F, as required by Section 101(i)(2)(E) of the Employment Retirement
Income Security Act of 1974.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Certificate of Incorporation and Bylaws.
3.1 Amended and Restated Certificate of Incorporation of
A&F as filed with the Delaware Secretary of State on
August 27, 1996, incorporated herein by reference to
Exhibit 3.1 to A&F's Quarterly Report on Form 10-Q
for the quarter ended November 2, 1996. (File No.
1-12107)
3.2 Certificate of Designation of Series A Participating
Cumulative Preferred Stock of A&F as filed with the
Delaware Secretary of State on July 21, 1998,
incorporated herein by reference to Exhibit 3.2 to
A&F's Annual Report on Form 10-K for the year ended
January 30, 1999. (File No. 1-12107)
3.3 Certificate of Decrease of Shares Designated as Class
B Common Stock of A&F as filed with the Delaware
Secretary of State on July 30, 1999, incorporated
herein by reference to Exhibit 3.3 to A&F's Quarterly
Report on Form 10-Q for the quarter ended July 31,
1999. (File No. 1-12107)
3.4 Amended and Restated Bylaws of A&F, effective January
31, 2002, incorporated herein by reference to Exhibit
3.4 to A&F's Annual Report on Form 10-K for the year
ended February 2, 2002. (File No. 1-12107)
4. Instruments Defining the Rights of Security Holders.
4.1 Credit Agreement, dated as of November 14, 2002,
among Abercrombie & Fitch Management Co., as
Borrower, Abercrombie & Fitch Co., as Guarantor, the
Lenders party thereto, and National City Bank, as
Administrative Agent and Lead Arranger (the "Credit
Agreement"), incorporated herein by reference to
Exhibit 4.1 to A&F's Current Report on Form 8-K dated
November 26, 2002. (File No. 1-12107)
4.2 Guarantee Agreement, dated as of November 14, 2002,
among Abercrombie & Fitch Co., each direct and
indirect domestic subsidiary of Abercrombie & Fitch
Co. other than Abercrombie & Fitch Management Co.,
and National City Bank, as Administrative Agent for
the Lenders party to the Credit Agreement,
incorporated herein by reference to Exhibit 4.2 to
A&F's Current Report on Form 8-K dated November 26,
2002. (File No. 1-12107)
4.3 Rights Agreement, dated as of July 16, 1998, between
A&F and First Chicago Trust Company of New York, as
Rights Agent, incorporated herein
24
by reference to Exhibit 1 to A&F's Registration
Statement on Form 8-A dated July 21, 1998. (File No.
1-12107)
4.4 Amendment No. 1 to Rights Agreement, dated as of
April 21, 1999, between A&F and First Chicago Trust
Company of New York, as Rights Agent, incorporated
herein by reference to Exhibit 2 to A&F's Amendment
No. 1 to Form 8-A dated April 23, 1999. (File No.
1-12107)
4.5 Certificate of adjustment of number of Rights
associated with each share of Class A Common Stock,
dated May 27, 1999, incorporated herein by reference
to Exhibit 4.6 to A&F's Quarterly Report on Form 10-Q
for the quarter ended July 31, 1999. (File No.
1-12107)
4.6 Appointment and Acceptance of Successor Rights Agent,
effective as of the opening of business on October 8,
2001, between A&F and National City Bank,
incorporated herein by reference to Exhibit 4.6 to
A&F's Quarterly Report on Form 10-Q for the quarter
ended August 4, 2001. (File No. 1-12107)
10. Material Contracts.
10.1 Abercrombie & Fitch Co. Incentive Compensation
Performance Plan, incorporated herein by reference to
Exhibit 10.1 to A&F's Quarterly Report on Form 10-Q
for the quarter ended May 4, 2002. (File No. 1-12107)
10.2 1998 Restatement of the Abercrombie & Fitch Co. 1996
Stock Option and Performance Incentive Plan (reflects
amendments through December 7, 1999 and the
two-for-one stock split distributed June 15, 1999 to
stockholders of record on May 25, 1999), incorporated
herein by reference to Exhibit 10.2 to A&F's Annual
Report on Form 10-K for the year ended January 29,
2000. (File No. 1-12107)
10.3 1998 Restatement of the Abercrombie & Fitch Co. 1996
Stock Plan for Non-Associate Directors (reflects
amendments through January 30, 2003 and the
two-for-one stock split distributed June 15, 1999 to
stockholders of record on May 25, 1999), incorporated
herein by reference to Exhibit 10.3 to A&F's Annual
Report on Form 10-K for the year ended February 1,
2003. (File No. 1-12107)
10.4 Abercrombie & Fitch Co. 2002 Stock Plan for
Associates (as amended and restated May 22, 2003).
10.5 Amended and Restated Employment Agreement, dated as
of January 30, 2003, by and between Abercrombie &
Fitch Co. and Michael S. Jeffries, including as
Exhibit A thereto the Supplemental Executive
Retirement Plan effective February 2, 2003,
incorporated herein by reference to Exhibit 10.1 to
A&F's Current Report on Form 8-K dated February 11,
2003. (File No. 1-12107)
10.6 Employment Agreement by and between A&F and Seth R.
Johnson dated as of December 5, 1997, incorporated
herein by reference to Exhibit 10.10 to A&F's
Amendment No. 4 to Form S-4 Registration Statement
filed on April 14, 1998 (Registration No. 333-46423).
10.7 Abercrombie & Fitch Co. Directors' Deferred
Compensation Plan (as amended and restated May 22,
2003).
25
10.8 Abercrombie & Fitch Nonqualified Savings and
Supplemental Retirement Plan (formerly known as the
Abercrombie & Fitch Co. Supplemental Retirement
Plan), as amended and restated effective January 1,
2001, incorporated herein by reference to Exhibit
10.9 to A&F's Annual Report on Form 10-K for the year
ended February 1, 2003. (File No. 1-12107)
10.9 Abercrombie & Fitch Co. 2003 Stock Plan for
Non-Associate Directors.
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Inclusion of Report of Independent Accountants.
99.1 Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Title 18, United States Code, Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On February 12, 2003, A&F furnished information to the SEC on a Current
Report on Form 8-K dated February 11, 2003, reporting under "Item 9.
Regulation FD Disclosure," that on January 30, 2003, A&F had entered into
an Amended and Restated Employment Agreement with Michael S. Jeffries, the
Chairman and Chief Executive Officer of A&F.
On May 8, 2003, A&F furnished information to the SEC on a Current Report on
Form 8-K dated May 8, 2003, reporting under "Item 9. Regulation FD
Disclosure," that on May 8, 2003, A&F issued a new release reporting net
sales for the four-week period ended May 3, 2003 and the fiscal
year-to-date.
On May 13, 2003, A&F furnished information to the SEC on a Current Report
on Form 8-K dated May 13, 2003, reporting under "Item 9. Regulation FD
Disclosure," (which information was also deemed provided under "Item 12.
Results of Operations and Financial Condition") that on May 13, 2003, A&F
issued a news release reporting earnings for the fiscal quarter ended May
3, 2003.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABERCROMBIE & FITCH CO.
(Registrant)
By /S/ Wesley S. McDonald
-------------------------------
Wesley S. McDonald,
Vice President and Chief
Financial Officer*
Date: June 12, 2003
* Mr. McDonald has been duly authorized to sign on behalf of the Registrant as
its principal financial officer.
27
CERTIFICATIONS
I, Michael S. Jeffries, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Abercrombie & Fitch Co.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: June 12, 2003 /S/ Michael S. Jeffries
--------------------------------------------
Printed Name: Michael S. Jeffries
Title: Chairman and Chief Executive Officer
28
I, Wesley S. McDonald, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Abercrombie & Fitch Co.;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Date: June 12, 2003 /S/ Wesley S. McDonald
------------------------------------------------
Printed Name: Wesley S. McDonald
Title: Vice President - Chief Financial Officer
29
EXHIBIT INDEX
Exhibit No. Document
- ----------- -------------------------------------------------------------
10.4 Abercrombie & Fitch Co. 2002 Stock Plan for Associates (as
amended and restated May 22, 2003).
10.7 Abercrombie & Fitch Co. Directors' Deferred Compensation Plan
(as amended and restated May 22, 2003).
10.9 Abercrombie & Fitch Co. 2003 Stock Plan for Non-Associate
Directors.
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Inclusion of Report of
Independent Accountants.
99.1 Certifications of Chief Executive Officer and Chief Financial
Officer Pursuant to Title 18, United States Code, Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
30