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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 November 1, 2003
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12107
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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
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(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 December 8, 2003
- ---------------------------- ----------------------------------------
$.01 Par Value 96,465,749 Shares
ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income
Thirteen and Thirty-Nine Weeks Ended
November 1, 2003 and November 2, 2002......................3
Condensed Consolidated Balance Sheets
November 1, 2003 and February 1, 2003......................4
Condensed Consolidated Statements of Cash Flows
Thirty-Nine Weeks Ended
November 1, 2003 and November 2, 2002......................5
Notes to Condensed Consolidated Financial Statements................6
Report of Independent Accountants..................................12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............13
Item 3. Quantitative and Qualitative Disclosures About Market Risk...23
Item 4. Controls and Procedures......................................24
Part II. Other Information
Item 1. Legal Proceedings............................................25
Item 6. Exhibits and Reports on Form 8-K.............................27
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 Thirty-Nine Weeks Ended
----------------------- --------------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
----------- ----------- ----------- -----------
NET SALES $444,979 $419,329 $1,147,421 $1,061,274
Cost of Goods Sold, Occupancy and Buying Costs 261,114 252,593 691,035 648,234
-------- -------- ---------- ----------
GROSS INCOME 183,865 166,736 456,386 413,040
General, Administrative and Store Operating
Expenses 102,415 90,304 279,030 250,049
-------- -------- ---------- ----------
OPERATING INCOME 81,450 76,432 177,356 162,991
Interest Income, Net (757) (866) (2,610) (2,468)
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES 82,207 77,298 179,966 165,459
Provision for Income Taxes 31,750 29,610 69,140 63,340
-------- -------- ---------- ----------
NET INCOME $50,457 $47,688 $110,826 $102,119
======== ======== ========== ==========
NET INCOME PER SHARE:
BASIC $0.52 $0.49 $1.14 $1.04
======== ======== ========== ==========
DILUTED $0.51 $0.48 $1.11 $1.01
======== ======== ========== ==========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 96,407 97,648 97,076 98,478
======== ======== ========== ==========
DILUTED 99,102 99,568 100,095 100,994
======== ======== ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
November 1, February 1,
2003 2003
----------- -----------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and Equivalents $431,603 $420,063
Marketable Securities - 10,000
Receivables 4,597 10,572
Inventories 212,291 143,306
Store Supplies 28,990 25,671
Other 23,246 19,770
---------- ----------
TOTAL CURRENT ASSETS 700,727 629,382
PROPERTY AND EQUIPMENT, NET 458,950 392,941
OTHER ASSETS 596 725
---------- ----------
TOTAL ASSETS $1,160,273 $1,023,048
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $106,925 $79,291
Accrued Expenses 156,091 119,526
Income Taxes Payable 26,426 40,879
---------- ----------
TOTAL CURRENT LIABILITIES 289,442 239,696
DEFERRED INCOME TAXES 30,505 20,781
OTHER LONG-TERM LIABILITIES 19,253 13,044
SHAREHOLDERS' EQUITY:
Class A Common Stock - $.01 par value: 150,000,000 shares
authorized, 96,326,761 and 97,268,877 shares outstanding
at November 1, 2003 and February 1, 2003, respectively 1,033 1,033
Paid-In Capital 140,687 142,577
Retained Earnings 825,301 714,475
---------- ----------
967,021 858,085
Less: Treasury Stock, at Average Cost (145,948) (108,558)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 821,073 749,527
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,160,273 $1,023,048
========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Thirty-Nine Weeks Ended
-----------------------
November 1, November 2,
2003 2002
------------- -------------
OPERATING ACTIVITIES:
Net Income $110,826 $102,119
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 47,894 40,566
Noncash Charge for Deferred Compensation 4,083 1,651
Changes in Assets and Liabilities:
Inventories (68,985) (80,354)
Accounts Payable and Accrued Expenses 38,680 54,288
Income Taxes 4,776 15,964
Other Assets and Liabilities 167 (6,848)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 137,441 127,386
------------- -------------
INVESTING ACTIVITIES:
Capital Expenditures (83,631) (78,206)
Purchases of Marketable Securities - (5,000)
Proceeds from Maturities of Marketable Securities 10,000 71,220
------------- -------------
NET CASH USED FOR INVESTING ACTIVITIES (73,631) (11,986)
------------- -------------
FINANCING ACTIVITIES:
Change in Cash Overdraft (1,686) (1,030)
Stock Option Exercises and Other 18,162 733
Purchases of Treasury Stock (68,746) (42,691)
------------- -------------
NET CASH USED FOR FINANCING ACTIVITIES (52,270) (42,988)
NET INCREASE IN CASH AND EQUIVALENTS 11,540 72,412
Cash and Equivalents, Beginning of Year 420,063 167,664
------------- -------------
CASH AND EQUIVALENTS, END OF PERIOD $431,603 $240,076
============= =============
SIGNIFICANT NONCASH INVESTING ACTIVITIES:
Construction Allowance Receivables $3,187 $5,052
============= =============
Accrual for Construction in Progress $37,601 $30,298
============= =============
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
and all significant subsidiaries that are more than 50 percent owned and
controlled. All significant intercompany balances and transactions have
been eliminated in consolidation.
Certain amounts have been reclassified to conform with current year
presentation. The amounts reclassified did not have an effect on the
Company's results of operations or shareholders' equity.
The condensed consolidated financial statements as of November 1, 2003 and
for the thirteen and thirty-nine week periods ended November 1, 2003 and
November 2, 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 November 1, 2003 and
for the thirteen and thirty-nine week periods ended November 1, 2003 and
November 2, 2002 included herein have been reviewed by the independent
accounting firm of PricewaterhouseCoopers LLP and the report of such firm
follows the notes to the 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.
6
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.
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 were effective for the first quarter of 2003
and have been adopted by the Company (see Note 3).
Emerging Issues Task Force ("EITF") Issue No. 03-08, "Accounting for
Claims-Made Insurance and Retroactive Insurance Contracts by the Insured
Entity," discusses the accounting implications of retroactive and
prospective claims-made insurance policies. The consensus reached was that
a claims-made insurance policy that contains no retroactive provisions
should be accounted for on a prospective basis. However, if a claims-made
insurance policy contains a retroactive provision, the retroactive and
prospective provisions of the policy should be accounted for separately, if
practicable; otherwise, the claims-made insurance policy should be
accounted for entirely as a retroactive contract. This consensus was
effective for new insurance contracts entered into beginning with the third
quarter of fiscal 2003. The Company has evaluated the impact of this issue
and concluded that there was no effect to the financial statements.
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 related to options for
the thirteen and thirty-nine week periods ended November 1, 2003, and
November 2, 2002 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 Thirty-Nine Weeks Ended
--------------------------- ----------------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income:
As reported $50,457 $47,688 $110,826 $102,119
Stock-based compensation expense included in
reported net income, net of tax 868 217 2,515 1,020
Stock-based compensation expense determined
under fair value based method, net of tax(1) (6,557) (6,643) (19,418) (20,300)
------- ------- ------- -------
Pro forma $44,768 $41,261 $93,923 $82,840
======= ======= ======= =======
Basic earnings per share:
As reported $0.52 $0.49 $1.14 $1.04
Pro forma $0.46 $0.42 $0.97 $0.84
Diluted earnings per share:
As reported $0.51 $0.48 $1.11 $1.01
Pro forma $0.46 $0.42 $0.95 $0.83
(1) Includes stock-based compensation expense related to restricted
share awards actually recognized in earnings in each period
presented.
The weighted-average fair value of all options granted during the third
quarter of fiscal 2003 and fiscal 2002 were $14.35 and $12.07,
respectively. The fair value of each option, which is included in the pro
forma results above, was estimated using the Black-Scholes option-pricing
model. For purposes of the valuation, the following weighted-average
assumptions were used: no expected dividends in 2003 and 2002; price
volatility of 62% in 2003 and 53% in 2002; risk-free interest rates in the
range of 2.9% to 3.2% in 2003 and 4.3% in 2002; assumed forfeiture rates of
23% and 15% in 2003 and 2002, respectively; and expected lives of 4 years
in 2003 and 2002.
8
4. EARNINGS PER SHARE
Weighted-Average Shares Outstanding (in thousands):
Thirteen Weeks Ended
----------------------------------
November 1, November 2,
2003 2002
----------- -----------
Shares of Class A Common Stock issued 103,300 103,300
Treasury shares (6,893) (5,652)
------- -------
Basic shares 96,407 97,648
Dilutive effect of options and restricted shares 2,695 1,920
------- -------
Diluted shares 99,102 99,568
======= =======
Thirty-Nine Weeks Ended
----------------------------------
November 1, November 2,
2003 2002
----------- -----------
Shares of Class A Common Stock issued 103,300 103,300
Treasury shares (6,224) (4,822)
------- -------
Basic shares 97,076 98,478
Dilutive effect of options and restricted shares 3,019 2,516
------- -------
Diluted shares 100,095 100,994
======= =======
Options to purchase 6,019,000 and 6,005,000 shares of Class A Common Stock
during the thirteen and thirty-nine weeks ended November 1, 2003,
respectively, and 12,696,000 and 9,051,000 shares during the thirteen and
thirty-nine weeks ended November 2, 2002, respectively, were outstanding
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):
November 1, November 2,
2003 2002
----------- -----------
Property and equipment, at cost $ 686,879 $ 593,467
Accumulated depreciation and amortization (227,929) (176,777)
----------- -----------
Property and equipment, net $ 458,950 $ 416,690
=========== ===========
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 thirty-nine weeks
ended November 1, 2003 and November 2, 2002 approximated $64.7 million and
$48.0 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 (as defined in the New Credit
Agreement) 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 $62.3 million were outstanding
under the New Credit Agreement at November 1, 2003. Letters of credit
totaling approximately $49.9 million were outstanding under the $75 million
facility for the issuance of trade letters of credit at November 2, 2002.
No borrowings were outstanding under the New Credit Agreement at November
1, 2003 or under the Old Credit Agreement at November 2, 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 and thirty-nine weeks ended November 1, 2003 were
approximately $0.5 million and $1.5 million, respectively. These amounts
were approximately the same for the comparable periods in 2002. The amounts
do not include reimbursements to Shahid & Company, Inc. for expenses
incurred while performing these services.
10. CONTINGENCIES
The Company is involved in a number of legal proceedings that arise out of,
and are incidental to, the conduct of its business. Certain suits concern
issues such as discriminatory hiring practices, overtime compensation, and
allegations that associates are required to wear and pay for a "uniform."
The Company accrues amounts related to legal matters if reasonably
estimable and reviews these amounts at least quarterly. The Company 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.
The Company has standby letters of credit in the amount of $4.7 million
that are set to expire during the third quarter of fiscal 2004. 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 in 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 indemnification agreements.
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 November 1,
2003 and the related condensed consolidated statements of income for each of the
thirteen and thirty-nine week periods ended November 1, 2003 and November 2,
2002 and the condensed consolidated statements of cash flows for the thirty-nine
week periods ended November 1, 2003 and November 2, 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 condensed 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
November 11, 2003
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
During the third quarter of the 2003 fiscal year, net sales increased 6% to
$445.0 million from $419.3 million in the third quarter of 2002. Operating
income improved to $81.5 million in the third quarter of 2003 from $76.4 million
in the third quarter of 2002. Net income increased to $50.5 million in the third
quarter of 2003 as compared to $47.7 million in the third quarter of 2002. Net
income per diluted share was $.51 in the third quarter of 2003 compared to $.48
in the third quarter of 2002.
The following data represent the amounts shown in the Company's condensed
consolidated statements of income for the thirteen and thirty-nine week periods
ending November 1, 2003, and November 2, 2002, expressed as a percentage of net
sales:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
---------------------------- ----------------------------
November 1, November 2, November 1, November 2,
2003 2002 2003 2002
----------- ----------- ----------- -----------
NET SALES 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold, Occupancy and
Buying Costs 58.7 60.2 60.2 61.1
----------- ----------- ----------- -----------
GROSS INCOME 41.3 39.8 39.8 38.9
General, Administrative and Store
Operating Expenses 23.0 21.5 24.3 23.6
----------- ----------- ----------- -----------
OPERATING INCOME 18.3 18.2 15.5 15.4
Interest Income, Net (0.2) (0.2) (0.2) (0.2)
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 18.5 18.4 15.7 15.6
Provision for Income Taxes 7.1 7.1 6.0 6.0
----------- ----------- ----------- -----------
NET INCOME 11.3% 11.4% 9.7% 9.6%
=========== =========== =========== ===========
13
Financial Summary
The following summarized financial and statistical data compare the thirteen and
thirty-nine week periods ended November 1, 2003 to the comparable fiscal 2002
periods:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
----------------------------------------- -----------------------------------------
November 1, November 2, November 1, November 2,
2003 2002 Change 2003 2002 Change
----------- ----------- ----------- ----------- ----------- -----------
Decrease in comparable store (9)% (5)% (8)% (5)%
sales
Retail sales increase 15% 23% 16% 23%
attributable to new and
remodeled stores, magazine,
catalogue and Web sites
Retail sales per average gross $91 $100 (9)% $241 $260 (7)%
square foot
Retail sales per average store $659 $735 (10)% $1,748 $1,928 (9)%
(thousands)
Average store size at end of 7,233 7,339 (1)%
quarter (gross square feet)
Gross square feet at end of 4,709 4,110 15%
quarter (thousands)
Number of stores and
gross square feet by concept:
Abercrombie & Fitch:
Stores at beginning of period 346 316 340 309
Opened 6 10 14 20
Closed - - (2) (3)
----- ----- ------ ------
Stores at end of period 352 326 352 326
===== ===== ====== ======
Gross square feet at end of
period (thousands) 3,128 2,920
===== =====
abercrombie:
Stores at beginning of period 167 157 164 148
Opened 3 1 6 10
Closed - - - -
----- ----- ------ ------
Stores at end of period 170 158 170 158
===== ===== ====== ======
Gross square feet at end of
period (thousands) 753 705
===== =====
Hollister:
Stores at beginning of period 112 60 93 34
Opened 17 16 36 43
Closed - - - (1)
----- ----- ------ ------
Stores at end of period 129 76 129 76
===== ===== ====== ======
Gross square feet at end of
period (thousands) 828 485
===== =====
14
Net Sales
Third Quarter 2003
Net sales for the third quarter of 2003 were $445.0 million, an increase of 6%
over last year's third quarter net sales of $419.3 million. The increase was due
to the addition of new stores offset by a 9% decline in comparable store sales
("comps"), defined as sales in stores that have been open for at least one year.
By merchandise concept, third quarter comps for Abercrombie & Fitch adult stores
declined in the low-double digits, primarily due to the men's business remaining
difficult. Comps in the abercrombie kids' business, during the third quarter,
were negative in mid-single digits, with girls positive and boys negative.
Hollister comps increased in high-single digits during the third quarter.
Women's and girls' comps were significantly stronger than mens and boys in each
concept for the third quarter.
By region, third quarter comps were strongest on the West Coast, in Florida and
in the New York metropolitan area. Comps were weakest in the Midwest region.
The Company continued its strategy to be non-promotional to protect the brand
image. This strategy improved merchandise margins and average retail selling
price during the third quarter of 2003 as compared to the third quarter of 2002,
but at the expense of comps and transactions per store. For Abercrombie & Fitch,
the average dollar sale increased 3% in the third quarter of 2003 compared to
the third quarter of 2002, with transactions per average store down 15%. For
abercrombie, the average dollar sale remained flat in the third quarter of 2003
as compared to last year's third quarter while transactions per average store
declined 4%. Hollister's average dollar sale increased 9% in the third quarter
of 2003 compared to the third quarter of 2002, while transactions per average
store were flat.
From a merchandising standpoint, in Abercrombie & Fitch, women's knits, fleece
and skirts have been consistently strong categories. The men's business remains
tough as strong categories such as woven shirts and polos have not been able to
offset weakness in other categories.
In the abercrombie kids' business, girls had a mid-single positive comp for the
third quarter and had good performance in both the tops and bottoms categories.
The boys' business has been difficult. The best performing categories in boys
were graphic t-shirts and shorts.
In Hollister, girls continued to drive the business during the third quarter and
both tops and bottoms categories performed well. In guys, woven shirts, graphic
t-shirts and shorts were the best performing categories.
Sales from the e-commerce business grew by approximately 50% during the third
quarter of 2003 as compared to the third quarter of 2002. The Company launched
the Hollister e-commerce site at the beginning of July 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 5.5% and 4.2% of
net sales in the third quarter of 2003 and 2002, respectively.
15
Year-to-Date 2003
Year-to-date net sales in 2003 were $1.147 billion, an increase of 8% from
$1.061 billion for the same period in 2002. The net sales increase was
attributable to the net addition of 91 stores offset by an 8% comparable store
sales decrease.
Year-to-date comps by merchandise concept were as follows: Abercrombie & Fitch
comps declined in low-double digits while the abercrombie kids' business had a
mid-single digit decline. Hollister year-to-date comps were in the positive
low-double digits.
The women's business in each concept continued to be more significant than mens.
Year-to-date, womens and girls represented approximately 64% of net sales for
each of the Abercrombie & Fitch and abercrombie kids' businesses. Womens had a
low-single digit decline in comps year-to-date while girls had positive
mid-single digit comps. Hollister girls represented 68% of year-to-date net
sales and had positive comps in the high teens.
The e-commerce business (including the Hollister e-commerce site) grew by
approximately 36% during the year-to-date period as compared to last year. The
Company's catalogue, the A&F Quarterly and the Company's Web sites represented
4.9% of 2003 year-to-date net sales as compared to 4.5% last year.
Gross Income
Third Quarter 2003
The gross income rate (gross income divided by net sales) increased to 41.3%
during the third quarter of 2003 from 39.8% for the same period in 2002. The
increase largely resulted from higher initial markup (IMU) and an improved
markdown rate, partially offset by an increase in buying and occupancy costs, as
a percentage of net sales.
The Company continued to make progress in sourcing merchandise which resulted in
IMU improvement in all three concepts. Improvement was most dramatic in
Hollister and abercrombie where IMU increased by over 300 basis points in the
third quarter of 2003 compared to the third quarter of 2002.
The increase in buying and occupancy costs, as a percentage 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 markdown rate for the third quarter of 2003 was lower than the same period
last year due to tight control of inventory levels and a reduced level of
promotional activity. This year, the Company did not anniversary direct mail or
bounce-back promotions that occurred in early August and September 2002 for
Abercrombie & Fitch and abercrombie.
16
Year-to-Date 2003
The year-to-date gross income rate increased to 39.8% from 38.9% for the
comparable period in 2002. The increase was attributable to an increase in IMU
and a lower markdown rate, partially offset by an increase in buying and
occupancy costs, as a percentage of net sales.
As previously mentioned, improved sourcing has been an important factor in
improving the IMU in all three concepts. Improvement was most dramatic in
Hollister and abercrombie.
The markdown rate was lower for year-to-date 2003 than the comparable period in
2002 due to the Company's decision to have fewer promotions and to not
anniversary many of the 2002 year-to-date promotions.
Buying and occupancy costs year-to-date increased over the comparable period in
2002, as a percentage of net sales, due to the inability to leverage fixed
expenses with lower sales volume per average store.
General, Administrative and Store Operating Expenses
Third Quarter 2003
The general, administrative and store operating expense rate (general,
administrative and store operating expenses divided by net sales) was 23.0% in
the third quarter of 2003 compared to 21.5% in last year's third quarter. The
increase in rate versus last year resulted from an inability to get sufficient
leverage to offset the comp decrease, primarily in store payroll where average
payroll hours per store were relatively flat during the third quarter compared
to last year.
During the third quarter, productivity in the distribution center, as measured
in units processed per labor hour, was 45% higher than last year. This was on
top of a 41% improvement in the third quarter of 2002 as compared to 2001. For
the third quarter of 2003, more units were processed with 8% fewer labor hours
when compared to the third quarter of 2002.
Year-to-Date 2003
The general, administrative and store operating expense rate was 24.3% and 23.6%
for the year-to-date periods in 2003 and 2002, respectively.
The increased rate in 2003 resulted primarily from a drop in sales per average
store that could not be fully offset by lower expenses per average store in
areas such as packaging, supplies and credit card fees. Additionally, legal
expenses increased in the 2003 year-to-date period compared to 2002 as the
Company reserved expected defense costs for pending litigation. Partially
offsetting these costs were improvements in distribution center productivity,
reduced fulfillment costs and reduced marketing expenses, as a percentage of net
sales, due to savings from the lack of direct mail campaigns in 2003.
17
Operating Income
The third quarter and year-to-date operating income rates (operating income
divided by net sales) were 18.3% and 15.5% in 2003, up from 18.2% and 15.4% for
the comparable periods in 2002. The increases in operating income rates in these
periods were a result of increased gross income rates, partially offset by
higher general, administrative and store operating expense rates in these
periods.
Interest Income and Income Tax Expense
Third quarter and year-to-date net interest income was $0.8 million and $2.6
million, respectively, in 2003 as compared to net interest income of $0.9
million and $2.5 million, respectively, for the third quarter and year-to-date
periods last year. The Company continued to invest in tax-free securities.
The effective tax rate for the third quarter was 38.6% as compared to 38.3% for
the 2002 comparable period. Enacted state tax legislation in several states was
the primary cause of the rate increase. Year-to-date 2003, the effective tax
rate was 38.4% compared with 38.3% in the same period last year.
18
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 (in thousands):
November 1, November 2,
2003 2002
----------- -----------
Working capital $411,285 $265,207
=========== ===========
Capitalization:
Shareholders' equity $821,073 $655,151
=========== ===========
Net cash provided by operating activities, the Company's primary source of
liquidity, totaled $137.4 million for the thirty-nine weeks ended November 1,
2003 versus $127.4 million in the comparable period of 2002. Cash was provided
primarily by current year net income adjusted for depreciation and amortization.
Additionally, cash was provided from increases in accounts payable and accrued
expenses.
Accounts payable increased as a result of the overall increase in inventories
supporting the continued growth of the business. The Company ended the third
quarter 2003 with inventories down 2% per gross square foot compared to last
year's third quarter and intends to remain conservative in future inventory
commitments.
Accrued expenses also increased for items such as payroll and store marketing
related to the continued growth and development of the business. In addition,
legal expenses increased as the Company reserved expected defense costs for
pending litigation.
Uses of cash consisted mostly of increases in inventory. Although inventories
were down on a gross square footage basis compared to last year at quarter end,
the total inventory balance increased as a result of a 15% increase in gross
square feet.
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 "Capital Expenditures" section below) related primarily to new
stores. Cash inflows from investing activities consisted of maturities of
marketable securities. As of November 1, 2003, the Company held no marketable
securities with original maturities of greater than 90 days.
19
Financing activities for year-to-date 2003 consisted primarily of the repurchase
of 2.5 million shares of A&F's Class A Common Stock at an average cost of $27.03
pursuant to a previously authorized stock repurchase program. As of November 1,
2003, there were approximately 2.5 million shares which could still be purchased
as part of the 5 million share repurchase authorization. In addition to stock
repurchases, financing activities in the third quarter of 2003 consisted of
stock option exercises and overdrafts. These overdrafts at quarter end have been
reclassified in the balance sheet from cash to more appropriately be reflected
as liabilities.
In the third 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 $62.3 million were outstanding under
the New Credit Agreement at November 1, 2003. Letters of credit totaling
approximately $49.9 million were outstanding under the trade letter of credit
facility at November 2, 2002. No borrowings were outstanding under either the
New Credit Agreement at November 1, 2003 or the Old Credit Agreement at November
2, 2002.
The Company has standby letters of credit in the amount of $4.7 million that are
set to expire during the third quarter of fiscal 2004. 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 in 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:
November 1, 2003 November 2, 2002
---------------------------------- ---------------------------------
Number of Gross Square Number of Gross Square
Stores Feet (thousands) Stores Feet (thousands)
------------- ---------------- ------------- ----------------
Abercrombie & Fitch 352 3,128 326 2,920
abercrombie 170 753 158 705
Hollister 129 828 76 485
------------- ---------------- ------------- ----------------
Total 651 4,709 560 4,110
============= ================ ============= ================
20
Capital Expenditures
The cash outlay for capital expenditures totaled $83.6 million and $78.2 million
for the thirty-nine weeks ended November 1, 2003 and November 2, 2002,
respectively. The noncash accrual for construction in progress increased $24.9
million in 2003 and $5.0 million in 2002. The majority of capital expenditures
related to new stores during the first thirty-nine weeks of 2003. The balance of
capital expenditures related primarily to the completion of the home office
expansion project, improvements in the distribution center and information
technology expenditures for a new point of sale system which was completely
rolled-out to all stores during the third quarter of 2003.
The Company anticipates spending $115 to $120 million in 2003 for capital
expenditures, of which $65 to $75 million will be for new store construction.
The balance of capital expenditures primarily relates to the previously
mentioned infrastructure investments. The Company intends to add approximately
696,000 gross square feet in 2003, which will represent a 16% increase over
year-end 2002. The increase will result from the addition of 19 new Abercrombie
& Fitch stores, 9 new abercrombie stores and 79 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 the New 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 first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates for the
total selling season.
21
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
Emerging Issues Task Force ("EITF") Issue No. 03-08, "Accounting for Claims-Made
Insurance and Retroactive Insurance Contracts by the Insured Entity," discusses
the accounting implications of retroactive and prospective claims-made insurance
policies. The consensus reached was that a claims-made insurance policy that
contains no retroactive provisions should be accounted for on a prospective
basis. However, if a claims-made insurance policy contains a retroactive
provision, the retroactive and prospective provisions of the policy should be
accounted for separately, if practicable; otherwise, the claims-made insurance
policy should be accounted for entirely as a retroactive contract. This
consensus was effective for new insurance contracts entered into beginning with
the third quarter of fiscal 2003. The Company has evaluated the impact of this
issue and concluded that there is no effect to the financial statements.
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; litigation; 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.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of A&F's financial instruments as of November 1, 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.
23
ITEM 4. CONTROLS AND PROCEDURES
With the participation of A&F management, including the principal executive
officer and principal financial officer, A&F has evaluated the effectiveness of
A&F's disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the
period covered by this Quarterly Report on Form 10-Q. Based upon that
evaluation, A&F's principal executive officer and principal financial officer
have concluded that such disclosure controls and procedures were effective as of
the end of the period covered by this Quarterly Report on Form 10-Q to ensure
that material information relating to A&F and its consolidated subsidiaries is
made known to them, particularly during the period for which A&F's periodic
reports, including this Quarterly Report on Form 10-Q, are being prepared.
In addition, there were no changes during the period covered by this Quarterly
Report on Form 10-Q in A&F's internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act) that have materially affected,
or are reasonably likely to materially affect, A&F's internal control over
financial reporting.
24
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in lawsuits arising in the ordinary course of
business.
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 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. On November 14, 2003, the motions to dismiss the
Amended Complaint were denied.
A&F is aware of six actions that have been filed on behalf of purported classes
of employees and former employees of the Company alleging that the Company
required its associates to wear and pay for a "uniform" in violation of
applicable law. In each case, the plaintiff, on behalf of his or her purported
class, seeks injunctive relief and unspecified amounts of economic and
liquidated damages. Two of these cases, Jennifer M. Solis v. Abercrombie & Fitch
Stores, Inc. and A&F California, LLC and Sarah Stevenson v. Abercrombie & Fitch
Co., allege violations of California law and were filed on February 10, 2003 and
February 4, 2003 in the California Superior Courts for Los Angeles County and
San Francisco County, respectively. An answer was filed in the Solis case on
March 26, 2003. Pursuant to a Petition for Coordination, the Solis and the
Stevenson cases were coordinated by order issued November 17, 2003. Jadii Mohme
v. Abercrombie & Fitch, which alleges violations of Illinois law, was filed on
July 28, 2003 in the Illinois Circuit Court of St. Clair County. A first amended
complaint was filed in the Mohme case on September 10, 2003 to change the
defendant to "Abercrombie & Fitch Stores, Inc." from "Abercrombie & Fitch." An
answer to the first amended complaint was filed in the Mohme case on September
26, 2003. The parties are in the process of discovery. Shelby Port v.
Abercrombie & Fitch Stores, Inc., which alleges violations of Washington law,
was filed on or about July 18, 2003 in the Washington Superior Court of King
County. The defendant filed a motion to dismiss the complaint in the Port case
on September 5, 2003. That motion is pending. Holly Zemany v. Abercrombie &
Fitch, which alleges violations of Pennsylvania law, was filed on July 18, 2003
in the Pennsylvania Court of Common Pleas of Allegheny County. A first amended
complaint was filed in the Zemany case on September 9, 2003 to change the
defendant to "Abercrombie & Fitch Stores, Inc." from "Abercrombie & Fitch." The
defendant filed Preliminary Objections (similar to a motion to dismiss) in the
Zemany case on October 22, 2003. A second amended complaint was filed November
10, 2003, adding some factual allegations aimed at correcting some deficiencies
noted in the defendant's Preliminary Objections. Defendant refiled the
Preliminary Objections in the Zemany case on November 14, 2003, which are
pending.
25
In Michael Gualano v. Abercrombie & Fitch, which was filed in the United States
District Court for the Western District of Pennsylvania on March 14, 2003, the
plaintiff alleges that the "uniform," when purchased, drove associates' wages
below the federal minimum wage. The complaint purports to state a collective
action on behalf of all part-time associates nationwide under the Fair Labor
Standards Act. A first amended complaint was filed in the Gualano case on
September 9, 2003, to change the defendant to "Abercrombie & Fitch Stores, Inc."
from "Abercrombie & Fitch." An answer to the first amended complaint was filed
in the Gualano case on or about September 24, 2003 and the parties are in the
process of discovery.
A&F is aware of two actions that have been filed on behalf of purported classes
alleged to be discriminated against in hiring or employment decisions due to
race and/or national origin. Eduardo Gonzalez, et al. v. Abercrombie & Fitch Co.
was filed on June 16, 2003 in the United States District Court for the Northern
District of California. The plaintiffs subsequently amended their complaint to
add A&F California, LLC, Abercrombie & Fitch Stores, Inc. and A&F Ohio, Inc. as
defendants. The plaintiffs allege, on behalf of their purported class, that they
were discriminated against in hiring and employment decisions due to their race
and/or national origin. The plaintiffs seek, on behalf of their purported class,
injunctive relief and unspecified amounts of economic, compensatory and punitive
damages. Defendants filed an answer to the amended complaint in the Gonzalez
case on or about September 11, 2003. The parties are in the process of
discovery. A&F is aware that Brandy Hawk v. Abercrombie & Fitch Co. was filed
on or about November 19, 2003 in the United States District Court for the
District of New Jersey. The plaintiff alleges, on behalf of her purported
class, that she was discriminated against in hiring decisions due to her race.
Although plaintiff does not allege that she personally was discriminated
against based on national origin, she alleges that other members of the
purported class were discriminated against based on national origin. The
plaintiff seeks, on behalf of her purported class, injunctive relief and
unspecified amounts of economic, compensatory and punitive damages.
A&F is aware of two actions that have been filed against the Company involving
overtime compensation. In each action, the plaintiffs, on behalf of their
respective purported class, seek injunctive relief and unspecified amounts of
economic and liquidated damages. In Bryan T. Kimbell, Individually and on Behalf
of All Others Similarly Situated and on Behalf of the Public v. Abercrombie &
Fitch Stores, Inc., which was filed on July 10, 2002 in the California Superior
Court for Los Angeles County, the plaintiffs allege that California general and
store managers were entitled to receive overtime pay as "non-exempt" employees
under California wage and hour laws. An answer was filed in the Kimbell case on
September 4, 2002 and the parties are in the process of discovery. In Melissa
Mitchell, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch Stores,
Inc., which was filed on June 13, 2003 in the United States District Court for
the Southern District of Ohio, the plaintiffs allege that assistant managers and
store managers were not paid overtime compensation in violation of the Fair
Labor Standards Act and Ohio law. A&F filed a motion to dismiss the Mitchell
case on July 28, 2003, which is pending.
A&F believes that these actions 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.
26
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)
3.5 Certificate regarding adoption of amendment to Section 2.02 of
Amended and Restated Bylaws of A&F by Board of Directors on July
10, 2003
3.6 Amended and Restated Bylaws of A&F (reflecting amendments through
July 10, 2003) [for SEC reporting compliance purposes only]
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 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
27
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)
28
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), incorporated herein by
reference to Exhibit 10.4 to A&F's Quarterly Report on Form 10-Q
for the quarter ended May 3, 2003. (File No. 1-12107)
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), incorporated herein by
reference to Exhibit 10.7 to A&F's Quarterly Report on Form 10-Q
for the quarter ended May 3, 2003. (File No. 1-12107)
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, incorporated herein by reference to Exhibit 10.9 to
A&F's Quarterly Report on Form 10-Q for the quarter ended May 3,
2003. (File No. 1-12107)
15 Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Inclusion of Report of Independent Accountants.
29
31.1 Rule 13a-14(a)/15d-14(a) Certification (Principal Executive
Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Principal Financial
Officer)
32 Section 1350 Certifications (Principal Executive Officer and
Principal Financial Officer)
(b) Reports on Form 8-K.
--------------------
On October 22, 2003, A&F filed a Current Report on Form 8-K to
report under "Item 5. Other Events and Regulation FD Disclosure,"
the October 20, 2003 submission of her resignation as an A&F
director by Kathryn D. Sullivan, Ph.D.
30
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/ Seth R. Johnson
----------------------------------
Seth R. Johnson
Executive Vice President -
Chief Operating Officer*
Date: December 11, 2003
* Mr. Johnson has been duly authorized to sign on behalf of the Registrant as
its principal financial officer.
31
EXHIBIT INDEX
Exhibit No. Document
----------- -----------------------------------------
3.5 Certificate regarding adoption of amendment to Section 2.02 of
Amended and Restated Bylaws of A&F by Board of Directors on July
10, 2003
3.6 Amended and Restated Bylaws of A&F (reflecting amendments through
July 10, 2003) [for SEC reporting compliance purposes only]
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Inclusion of Report of Independent
Accountants.
31.1 Rule 13a-14(a)/15d-14(a) Certification (Principal Executive
Officer)
31.2 Rule 13a-14(a)/15d-14(a) Certification (Principal Financial
Officer)
32 Section 1350 Certifications (Principal Executive Officer and
Principal Financial Officer)
32