UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q/A
(AMENDMENT NO. 1)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 1, 2004
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 June 4, 2004
--------------------- ---------------------------
$.01 Par Value 94,893,462 Shares
EXPLANATORY NOTE
This Amendment No. 1 to this Quarterly Report on Form 10-Q/A ("Form 10-Q/A") is
being filed in order to correct the previously issued condensed consolidated
financial statements of Abercrombie & Fitch Co. (the "Company") for the
quarterly period ended May 1, 2004 initially filed with the Securities and
Exchange Commission (the "SEC") on June 9, 2004 (the "Original Filing"). The
corrections are to properly account for landlord construction allowances in
accordance with Statement of Financial Accounting Standards No.13, "Accounting
for Leases" and Financial Accounting Standards Board Technical Bulletin No.
88-1, "Issues Relating to Accounting for Leases"; and rent holidays in
accordance with Financial Accounting Standards Board Technical Bulletin No.
85-3, "Accounting for Operating Leases with Scheduled Rent Increases." See Note
2: "Restatement and Reclassification of Financial Statements" under Notes to
Condensed Consolidated Financial Statements included in Item 1, "Financial
Statements" of this Form 10-Q/A for additional discussion and a summary of the
effect of these changes on the Company's condensed consolidated financial
statements as of May 1, 2004 and January 31, 2004 and for the interim periods
ended May 1, 2004 and May 3, 2003.
This Form 10-Q/A amends and restates only Items 1, 2 and 4 of Part I and Item 6
of Part II of the Original Filing to reflect the effects of this restatement of
our financial statements for the period presented or as deemed necessary in
connection with the completion of restated financial statements. The remaining
Items contained within this Amendment No. 1 on Form 10-Q/A consist of all other
Items originally contained on Form 10-Q for the fiscal quarter ended May 1,
2004. These remaining Items are not amended hereby, but are included for the
convenience of the reader. Except for the forgoing amended information, this
Form 10-Q/A continues to describe conditions as of the date of the Original
Filing, and we have not updated the disclosures contained herein to reflect
events that occurred at a later date.
In connection with the preparation of this Form 10-Q/A, the Company concluded
that it was appropriate to classify our investments in auction rate securities
as marketable securities. Previously, such investments had been classified as
cash and equivalents. Accordingly, we have revised the classification to report
these investments as marketable securities on the consolidated balance sheets as
of May 1, 2004 and January 31, 2004. The Company has also made corresponding
adjustments to the consolidated statements of cash flows for the thirteen weeks
ended May 1, 2004 and May 3, 2003, to reflect the gross purchases and sales of
these investments as investing activities rather than as a component of cash and
equivalents. See Note 2: "Restatement and Reclassification of Financial
Statements" under Notes to Condensed Consolidated Financial Statements included
in Item 1, "Financial Statements" of this Form 10-Q/A for additional discussion
on the effects of the change in classification.
2
ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Income - (Restated)
Thirteen Weeks Ended
May 1, 2004 and May 3, 2003 .............................................................. 4
Condensed Consolidated Balance Sheets - (Restated)
May 1, 2004 and January 31, 2004.......................................................... 5
Condensed Consolidated Statements of Cash Flows - (Restated)
Thirteen Weeks Ended
May 1, 2004 and May 3, 2003............................................................... 6
Notes to Condensed Consolidated Financial Statements - (Restated).................................. 7
Report of Independent Registered Public Accounting Firm............................................ 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................... 29
Item 4. Controls and Procedures...................................................................... 30
Part II. Other Information
Item 1. Legal Proceedings ........................................................................... 32
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities............. 34
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 35
Item 6. Exhibits and Reports on Form 8-K............................................................. 36
3
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 1, 2004 May 3, 2003
-------------- -------------
(Restated, See Note 2)
NET SALES $ 411,930 $ 346,722
Cost of Goods Sold, Occupancy and Buying Costs 246,939 218,144
--------- ---------
GROSS INCOME 164,991 128,578
General, Administrative and Store Operating
Expenses 118,269 87,898
--------- ---------
OPERATING INCOME 46,722 40,680
Interest Income, Net (985) (991)
--------- ---------
INCOME BEFORE INCOME TAXES 47,707 41,671
Provision for Income Taxes 18,390 15,886
--------- ---------
NET INCOME $ 29,317 $ 25,785
========= =========
NET INCOME PER SHARE:
BASIC $ 0.31 $ 0.26
========= =========
DILUTED $ 0.30 $ 0.26
========= =========
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC 94,709 97,634
========= =========
DILUTED 96,872 99,835
========= =========
DIVIDENDS PER SHARE $ 0.13 $ 0.00
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
May 1, January 31,
2004 2004
----------- -----------
(Restated, See Note 2)
ASSETS
CURRENT ASSETS:
Cash and Equivalents $ 51,220 $ 56,373
Marketable Securities 486,135 464,700
Receivables 13,286 7,197
Inventories 132,268 170,703
Store Supplies 30,370 29,993
Other 24,612 23,689
----------- -----------
TOTAL CURRENT ASSETS 737,891 752,655
PROPERTY AND EQUIPMENT, NET 631,598 630,022
OTHER ASSETS 496 552
----------- -----------
TOTAL ASSETS $ 1,369,985 $ 1,383,229
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable & Outstanding Checks $ 67,764 $ 91,364
Accrued Expenses 182,714 163,389
Deferred Lease Credits 27,989 26,627
Income Taxes Payable 4,165 29,692
----------- -----------
TOTAL CURRENT LIABILITIES 282,632 311,072
DEFERRED INCOME TAXES 34,898 31,236
LONG-TERM DEFERRED LEASE CREDITS 150,992 154,768
OTHER LONG-TERM LIABILITIES 27,034 28,388
SHAREHOLDERS' EQUITY:
Class A Common Stock - $.01 par value: 150,000,000 shares
authorized, 94,788,337 and 94,607,499 shares outstanding
at May 1, 2004 and January 31, 2004, respectively 1,033 1,033
Paid-In Capital 138,144 139,139
Retained Earnings 923,538 906,085
----------- -----------
1,062,715 1,046,257
Less: Treasury Stock, at Average Cost (188,286) (188,492)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 874,429 857,765
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,369,985 $ 1,383,229
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
Thirteen Weeks Ended
-----------------------------------
May 1, May 3,
2004 2003
------------ -----------
(Restated, See Note 2)
OPERATING ACTIVITIES:
Net Income $ 29,317 $ 25,785
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 26,606 21,178
Amortization of Deferred Lease Credits (7,113) (5,582)
Noncash Charge for Deferred Compensation 1,893 1,282
Deferred Taxes (1,170) 7,685
Lessor Construction Allowances 8,498 8,693
Changes in Assets and Liabilities:
Inventories 38,435 (2,413)
Accounts Payable and Accrued Expenses 9,200 (6,229)
Income Taxes (15,695) (24,466)
Other Assets and Liabilities (11,246) (1,624)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 78,725 24,309
----------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (41,299) (25,067)
Purchases of Marketable Securities (1,231,050) (961,145)
Proceeds from Sales of Marketable Securities 1,209,615 981,621
----------- -----------
NET CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES (62,734) (4,591)
----------- -----------
FINANCING ACTIVITIES:
Change in Cash Overdraft (1,918) (7,249)
Purchases of Treasury Stock (18,634) -
Dividends Paid (11,865) -
Stock Option Exercises and Other 11,273 9,647
----------- -----------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES (21,144) 2,398
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (5,153) 22,116
Cash and Equivalents, Beginning of Year 56,373 43,355
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 51,220 $ 65,471
=========== ===========
SIGNIFICANT NONCASH INVESTING ACTIVITIES:
Change in Accrual for Construction in Progress ($ 11,877) $ 10,829
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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 May 1, 2004 and for
the thirteen week periods ended May 1, 2004 and May 3, 2003 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/A for the fiscal year ended January 31, 2004 (the "2003 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 1, 2004 and for
the thirteen week periods ended May 1, 2004 and May 3, 2003 included
herein have been reviewed by the independent registered public 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.
7
2. RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's fiscal 2003 consolidated
financial statements, the Company reviewed its accounting practices with
respect to leasing transactions and determined that its then-current
method of accounting for construction allowances was not in accordance
with Statement of Financial Accounting Standards No.13, "Accounting for
Leases" and Financial Accounting Standards Board Technical Bulletin No.
88-1, "Issues Relating to Accounting for Leases"; and its then-current
method of accounting for rent holidays was not in accordance with
Financial Accounting Standards Board Technical Bulletin No. 85-3,
"Accounting for Operating Leases with Scheduled Rent Increases." As a
result, the Company restated its consolidated financial statements as of
January 31, 2004 and February 1, 2003 and for the fiscal years ended
January 31, 2004, February 1, 2003 and February 2, 2002; and its
consolidated financial statements as of and for the interim periods ended
October 30, 2004, July 31, 2004, May 1, 2004, November 1, 2003, August 2,
2003 and May 3, 2003.
Historically, the Company's consolidated balance sheets have reflected the
unamortized portion of construction allowances received from landlords of
properties leased by the Company for its stores as a reduction of property
and equipment instead of as a deferred lease credit. Excluding tax
impacts, the effect of the revised accounting for construction allowances
requires the Company to increase property and equipment and establish a
corresponding deferred lease credit. Further, historically, the Company's
consolidated statements of cash flows have reflected construction
allowances as a reduction of capital expenditures within investing
activities rather than as an increase in deferred lease credits within
operating activities. The impact of the revised accounting is to increase
both net cash provided by operating activities and net cash used for
investing activities by equal amounts.
In addition, the Company has historically recognized the straight line
rent expense for leases beginning on the commencement date of the lease
rather than on the date the Company takes possession. This approach had
the effect of excluding the build-out period of the Company's stores from
the calculation of the period over which it expenses rent. The build-out
period is generally three to four months prior to store opening date.
Excluding tax impacts, the effect of the revised accounting for rent
holidays requires the Company to increase accrued expenses and adjust
retained earnings on the consolidated balance sheets, as well as correct
amortization in cost of goods sold, occupancy and buying costs in the
consolidated statements of income.
The cumulative effect of these accounting changes is a reduction of
retained earnings of $11.0 million as of the beginning of fiscal 2001 and
decreases to retained earnings of $2.1 million, $181 thousand and $272
thousand as of the end of the fiscal years 2001, 2002 and 2003,
respectively.
The following is a summary of the effects of these changes on the
Company's consolidated balance sheets as of May 1, 2004 and January 31,
2004, as well as the effect of these changes on the Company's consolidated
statements of income and cash flows for the fiscal quarter ended May 1,
2004 and May 3, 2003 (thousands, except per share amounts):
8
Consolidated Statements of Income
As Previously
Reported Adjustments As Restated
------------- ----------- -----------
Thirteen weeks ended May 1, 2004
Cost of Goods Sold, Occupancy and Buying Costs $ 246,340 $ 599 $ 246,939
Gross Income 165,590 (599) 164,991
Operating Income 47,321 (599) 46,722
Income Before Income Taxes 48,306 (599) 47,707
Provision for Income Taxes 18,630 (240) 18,390
Net Income 29,676 (359) 29,317
Net Income Per Share - Basic $ 0.31 $ - $ 0.31
Net Income Per Share - Diluted $ 0.31 $ (0.01) $ 0.30
Thirteen weeks ended May 3, 2003
Cost of Goods Sold, Occupancy and Buying Costs $ 218,534 $ (390) $ 218,144
Gross Income 128,188 390 128,578
Operating Income 40,290 390 40,680
Income Before Income Taxes 41,281 390 41,671
Provision for Income Taxes 15,730 156 15,886
Net Income 25,551 234 25,785
Net Income Per Share - Basic $ 0.26 $ - $ 0.26
Net Income Per Share - Diluted $ 0.26 $ - $ 0.26
Consolidated Balance Sheets
As Previously
Reported Adjustments As Restated
------------- ----------- -----------
May 1, 2004
Property and Equipment, Net $ 450,154 $ 181,444 $ 631,598
Total Assets 1,188,541 181,444 1,369,985
Accrued Expenses 157,165 25,549 182,714
Deferred Lease Credits - 27,989 27,989
Income Taxes Payable 25,581 (21,416) 4,165
Total Current Liabilities 250,510 32,122 282,632
Deferred Income Taxes 22,717 12,181 34,898
Long-Term Deferred Lease Credits - 150,992 150,992
Retained Earnings 937,389 (13,851) 923,538
Total Shareholders' Equity 888,280 (13,851) 874,429
Total Liabilities and Shareholders' Equity 1,188,541 181,444 1,369,985
January 31, 2004
Property and Equipment, Net $ 445,956 $ 184,066 $ 630,022
Total Assets 1,199,163 184,066 1,383,229
Accrued Expenses 138,232 25,157 163,389
Deferred Lease Credits - 26,627 26,627
Income Taxes Payable 50,406 (20,714) 29,692
Total Current Liabilities 280,002 31,070 311,072
Deferred Income Taxes 19,516 11,720 31,236
Long-Term Deferred Lease Credits - 154,768 154,768
Retained Earnings 919,577 (13,492) 906,085
Total Shareholders' Equity 871,257 (13,492) 857,765
Total Liabilities and Shareholders' Equity 1,199,163 184,066 1,383,229
9
Consolidated Statements of Cash Flows
As Previously
Reported(1) Adjustments As Restated
------------- ----------- -----------
Thirteen weeks ended May 1, 2004
Net Cash Provided by Operating Activites $ 70,227 $ 8,498 $ 78,725
Net Cash Used for Investing Activites (54,236) (8,498) (62,734)
Thirteen weeks ended May 3, 2003
Net Cash Provided by Operating Activites $ 15,616 $ 8,693 $ 24,309
Net Cash Provided by (Used for) Investing Activites 4,102 (8,693) (4,591)
(1) The "As Previously Reported" amounts for "Net Cash Used for Investing
Activities" have been adjusted to account for the effects of
reclassification of certain securities, as discussed below.
Further, the Company concluded that it was appropriate to classify our
investments in auction rate securities as marketable securities.
Previously, such investments had been classified as cash and equivalents.
Accordingly, we have revised the classification to report these
investments as marketable securities on the consolidated balance sheets as
of May 1, 2004 and January 31, 2004. The Company has also made
corresponding adjustments to the consolidated statements of cash flows for
the thirteen weeks ended May 1, 2004 and May 3, 2003, to reflect the gross
purchases and sales of these investments as investing activities rather
than as a component of cash and equivalents.
As of May 1, 2004 and January 31, 2004, $476.1 million and $454.7 million,
respectively, of these investments were classified as cash and equivalents
on the consolidated balance sheets. These balances are in addition to the
marketable securities balances previously reported.
For the thirteen weeks ended May 1, 2004 and May 3, 2003, net cash (used
for) provided by investing activities related to these investments of
($21.4) million and $10.5 million, respectively, were included in cash and
equivalents in our consolidated statements of cash flows. These investing
activities related to marketable securities are in addition to those
previously reported.
3. STOCK-BASED COMPENSATION
The Company reports stock-based compensation through the disclosure-only
requirements of Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," as amended by SFAS No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure-an
Amendment of FASB Statement 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 week periods ended May 1, 2004, and May 3, 2003 had been
determined based on
10
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 1, 2004 May 3, 2003
----------- -----------
Net income:
As reported $ 29,317 $ 25,785
Stock-based compensation expense included in
reported net income, net of tax 1,162 794
Stock-based compensation expense determined
under fair value based method, net of tax(1) (6,171) (6,885)
----------- -----------
Pro forma $ 24,308 $ 19,694
=========== ===========
Basic earnings per share:
As reported $ 0.31 $ 0.26
Pro forma $ 0.26 $ 0.20
Diluted earnings per share:
As reported $ 0.30 $ 0.26
Pro forma $ 0.25 $ 0.20
(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 first
quarter of fiscal 2004 and fiscal 2003 were $12.64 and $13.91,
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: a 1.43% dividend yield in 2004 and no expected
dividends in 2003; price volatility of 60% in 2004 and 63% in 2003;
risk-free interest rates of 2.6% in 2004 and 2.9% in 2003; assumed
forfeiture rates of 23% in 2004 and 2003, and expected lives of 4 years in
2004 and 2003.
11
4. EARNINGS PER SHARE
Weighted-Average Shares Outstanding (in thousands):
May 1, 2004 May 3, 2003
----------- -----------
Shares of Class A Common Stock issued 103,300 103,300
Treasury shares (8,591) (5,666)
------- -------
Basic shares 94,709 97,634
Dilutive effect of options and restricted shares 2,163 2,201
------- -------
Diluted shares 96,872 99,835
======= =======
Options to purchase 5,580,000 and 5,762,000 shares of Class A Common Stock
during the thirteen week periods ended May 1, 2004 and May 3, 2003,
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
Inventories are principally valued at the lower of average cost or market,
on a first-in-first-out basis, utilizing the retail method. An initial
markup is applied to inventory at cost in order to establish a
cost-to-retail ratio. Permanent markdowns, when taken, reduce both the
retail and cost components of inventory on hand so as to maintain the
already established cost-to-retail relationship.
The fiscal year is comprised of two principal selling seasons: spring (the
first and second quarters) and fall (the third and fourth quarters). The
Company further reduces inventory at season end by recording an additional
markdown reserve using the retail carrying value of inventory from the
season just passed. Markdowns on this carryover inventory represent
estimated future anticipated selling price declines. Additionally,
inventory valuation at the end of the first and third quarters reflects
adjustments for inventory markdowns for the total season. Further, as part
of inventory valuation, inventory shrinkage estimates are made, based on
historical trends, that reduce the inventory value for lost or stolen
items.
The inventory reserve for markdowns and valuations was $18.2 million, $4.7
million, and $16.8 million at May 1, 2004, January 31, 2004, and May 3,
2003, respectively. The shrink reserve was $10.9 million, $3.3 million,
and $11.7 million at May 1, 2004, January 31, 2004, and May 3, 2003,
respectively. These inventory valuations are seasonal and the amounts at
the end of the first quarter of 2004 and 2003 reflect adjustments for
inventory markdowns for the total selling season. The inventory valuations
at January 31, 2004 reflect adjustments for inventory markdowns for the
end of the fall season.
12
6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (in thousands):
May 1, January 31,
2004 2004
--------- -----------
Property and equipment, at cost $ 976,330 $ 961,817
Accumulated depreciation and amortization (344,732) (331,795)
--------- -----------
Property and equipment, net $ 631,598 $ 630,022
========= ===========
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 1, 2004 and May 3, 2003, approximated $35.1 million and $33.0
million, respectively.
8. LONG-TERM DEBT
The Company entered into a $250 million syndicated unsecured credit
agreement (the "Credit Agreement") on November 14, 2002. The primary
purposes of the Credit Agreement are for trade and stand-by letters of
credit and working capital. The Credit Agreement is due to expire on
November 14, 2005. The Credit Agreement has several borrowing options,
including interest rates that are based on the agent bank's "Alternate
Base Rate," or a LIBO Rate. Facility fees payable under the 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
consolidated EBITDAR for the trailing four-fiscal-quarter period and
currently accrues at .225% of the committed amounts per annum. The 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 Credit Agreement also contains financial
covenants requiring a minimum ratio, on a consolidated basis, 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 $31.7 million and $39.1 million
were outstanding under the Credit Agreement at May 1, 2004 and at May 3,
2003, respectively. No borrowings were outstanding under the Credit
Agreement at May 1, 2004 and at May 3, 2003.
13
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 week periods ended May 1, 2004 and May 3, 2003 were
approximately $0.6 million and $0.5 million, respectively. 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.
In 2003, five actions were filed under various states' laws 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. Two of the actions have been
ordered coordinated. In each case, the plaintiff, on behalf of his or her
purported class, seeks injunctive relief and unspecified amounts of
economic and liquidated damages. For certain of the cases, the parties are
in the process of discovery. In one case, the Company has filed a motion
to dismiss; while in all other cases, answers have been filed.
In 2003, an action was filed in which 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. The parties are in the process of discovery.
In each of 2003 and 2002, one action was 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. The Company has
filed a motion to dismiss in one of the cases. In the other case, the
parties are in the process of discovery.
The Company does not believe it is feasible to predict the outcome of the
legal proceedings described above and intends to vigorously defend against
each of them. The timing of the final resolution of each of these
proceedings is also uncertain. Accordingly, the Company cannot estimate a
range of potential loss, if any, for any of these legal proceedings.
In 2003, one action was filed on behalf of a purported class alleged to be
discriminated against in hiring or employment decisions due to race and/or
national origin. The plaintiffs in the action seek, on behalf of their
purported class, injunctive relief and unspecified amounts of economic,
compensatory and punitive damages. The parties are in the process of
discovery. Additionally, the EEOC is conducting nationwide investigations
relating to allegations of discrimination based on race, national origin
and gender.
14
The Company accrues amounts related to legal matters if reasonably
estimable and reviews these amounts at least quarterly. During the first
quarter of fiscal 2004, the Company recorded an $8.0 million charge (net
of expected proceeds of $10 million from insurance) resulting from an
increase in expected defense costs related to the purported class action
employment discrimination suit. The Company does not believe it is
feasible to predict the outcome of this proceeding and intends to
vigorously defend against it. However, if judgment is rendered in this
proceeding which is unfavorable to the Company, the amount could
potentially be material to the financial statements.
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. SUBSEQUENT EVENTS
A&F announced on May 18, 2004, that Seth R. Johnson, Executive Vice
President and Chief Operating Officer of A&F, will retire from the Company
effective June 18, 2004. Under the terms of the Retirement Agreement (the
"Agreement"), the Company will provide retirement benefits equal to his
base salary immediately prior to his retirement date, less ordinary and
necessary withholding taxes, in weekly installments over the two year
period commencing on June 18, 2004 and ending June 18, 2006. In addition
to the retirement benefits, the Agreement provides additional
consideration in the form of: (a) a pro rata portion of Mr. Johnson's 2004
Incentive Compensation Performance Plan (the "Plan") incentive payment
attributable to the period commencing on the first day of fiscal 2004
through June 18, 2004 (to be paid in normal course after calculations are
finalized in accordance with the terms of the Plan); (b) a cash payment
equal to the market value (at the close of the market on June 18, 2004) of
Mr. Johnson's unvested restricted shares; (c) an additional cash payment
to be paid on June 20, 2005 equal to the market value as of the close of
the market on June 17, 2005 of 25,000 shares of Class A Common Stock of
A&F appropriately adjusted for any stock splits or dividends; and (d) an
additional cash payment to be paid on June 19, 2006 equal to the market
value as of the close of the market on June 16, 2006, of 45,000 shares of
Class A Common Stock of A&F appropriately adjusted for any stock splits or
dividends. The Company anticipates the aggregate cost of the Agreement
will be approximately $5.0 to $5.5 million. On May 28, 2004, the Company
announced that Mr. Johnson resigned from the Board of Directors effective
July 26, 2004.
On May 20, 2004 the Company announced the declaration of a quarterly
dividend, of $0.125 per share of Class A Common Stock, which will be paid
on June 22, 2004 to stockholders of record as of June 1, 2004.
15
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:
We have reviewed the accompanying restated condensed consolidated balance sheet
of Abercrombie & Fitch Co. and its subsidiaries as of May 1, 2004, and the
related restated condensed consolidated statements of income for each of the
thirteen week periods ended May 1, 2004 and May 3, 2003 and the restated
condensed consolidated statements of cash flows for the thirteen week periods
ended May 1, 2004 and May 3, 2003. These interim financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 the
standards of the Public Company Accounting Oversight Board, 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 the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet as of
January 31, 2004, 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 17, 2004, except for Note 2, as to
which the date is April 4, 2005 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of January 31, 2004, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ PricewaterhouseCoopers
Columbus, Ohio
May 11, 2004, except for Note 2, as to which
the date is April 4, 2005
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESTATEMENT AND RECLASSIFICATION OF FINANCIAL STATEMENTS
Subsequent to the issuance of the Company's fiscal 2003 consolidated financial
statements, the Company reviewed its accounting practices with respect to
leasing transactions and determined that its then-current method of accounting
for construction allowances was not in accordance with Statement of Financial
Accounting Standards No.13, "Accounting for Leases" and Financial Accounting
Standards Board Technical Bulletin No. 88-1, "Issues Relating to Accounting for
Leases"; and its then-current method of accounting for rent holidays was not in
accordance with Financial Accounting Standards Board Technical Bulletin No.
85-3, "Accounting for Operating Leases with Scheduled Rent Increases." As a
result, the Company restated its consolidated financial statements as of January
31, 2004 and February 1, 2003 and for the fiscal years ended January 31, 2004,
February 1, 2003 and February 2, 2002; and its consolidated financial statements
as of and for the interim periods ended October 30, 2004, July 31, 2004, May 1,
2004, November 1, 2003, August 2, 2003 and May 3, 2003.
Historically, the Company's consolidated balance sheets have reflected the
unamortized portion of construction allowances received from landlords of
properties leased by the Company for its stores as a reduction of property and
equipment instead of as a deferred lease credit. Excluding tax impacts, the
effect of the revised accounting for construction allowances requires the
Company to increase property and equipment and establish a corresponding
deferred lease credit. Further, historically, the Company's consolidated
statements of cash flows have reflected construction allowances as a reduction
of capital expenditures within investing activities rather than as an increase
in deferred lease credits within operating activities. The impact of the revised
accounting is to increase both net cash provided by operating activities and net
cash used for investing activities by equal amounts.
In addition, the Company has historically recognized the straight line rent
expense for leases beginning on the commencement date of the lease rather than
on the date the Company takes possession. This approach had the effect of
excluding the build-out period of the Company's stores from the calculation of
the period over which it expenses rent. The build-out period is generally three
to four months prior to store opening date. Excluding tax impacts, the effect of
the revised accounting for rent holidays requires the Company to increase
accrued expenses and adjust retained earnings on the consolidated balance
sheets, as well as correct amortization in cost of goods sold, occupancy and
buying costs in the consolidated statements of income.
The cumulative effect of these accounting changes is a reduction of retained
earnings of $11.0 million as of the beginning of fiscal 2001 and decreases to
retained earnings of $2.1 million, $181 thousand and $272 thousand as of the end
of the fiscal years 2001, 2002 and 2003, respectively.
See Note 2: "Restatement and Reclassification of Financial Statements" under
Notes to Condensed Consolidated Financial Statements included in Item 1,
"Financial Statements" of this Form 10-Q/A for a summary of the effect of these
changes on the Company's consolidated financial statements as of May 1, 2004 and
January 31, 2004 and for the fiscal quarters ended May 1, 2004 and May 3, 2003.
The accompanying Management's Discussion and Analysis gives effect to these
corrections.
In addition, the Company concluded that it was appropriate to classify our
investments in auction rate securities as marketable securities. Previously,
such investments had been classified as cash and equivalents. Accordingly, we
have revised the classification to report these investments as marketable
securities on the consolidated balance sheets as of May 1, 2004 and January 31,
2004. The Company has also made corresponding adjustments to the consolidated
statements of cash flows for the thirteen weeks ended May 1, 2004 and May 3,
2003, to reflect the gross purchases and sales of these investments as
investing activities rather than as a component of cash and equivalents. See
Note 2: "Restatement and Reclassification of Financial Statements" under Notes
to Condensed Consolidated Financial Statements included in Item 1, "Financial
Statements" of this Form 10-Q/A for additional discussion on the effects of the
change in classification.
17
OVERVIEW
The Company operates three brands: Abercrombie & Fitch, a fashion-oriented
casual apparel business directed at men and women with a youthful lifestyle,
targeted at 18 to 22 year-old college students; abercrombie, fashion-oriented
casual apparel in the tradition of Abercrombie & Fitch style and quality,
targeted at 7 to 14 year-old boys and girls; and Hollister, a West Coast
oriented lifestyle brand targeted at 14 to 17 year-old high school guys and
girls, at lower price points than Abercrombie & Fitch. All three brands also
offer Web sites where products comparable to those carried at the corresponding
stores can be purchased.
RESULTS OF OPERATIONS
During the first quarter of the 2004 fiscal year, net sales increased 19% to
$411.9 million from $346.7 million in the first quarter of 2003. Operating
income improved to $46.7 million in the first quarter of 2004 from $40.7 million
in the first quarter of 2003. Net income increased to $29.3 million in the first
quarter of 2004 compared to $25.8 million in the first quarter of 2003. Net
income per diluted share was $.30 in the first quarter of 2004 compared to $.26
in the first quarter of 2003.
The following data represent the amounts shown in the Company's condensed
consolidated statements of income for the thirteen week periods ended May 1,
2004, and May 3, 2003, expressed as a percentage of net sales:
May 1, 2004 May 3, 2003
----------- -----------
NET SALES 100.0% 100.0%
Cost of Goods Sold, Occupancy and
Buying Costs 59.9 62.9
----- -----
GROSS INCOME 40.1 37.1
General, Administrative and Store
Operating Expenses 28.7 25.4
----- -----
OPERATING INCOME 11.4 11.7
Interest Income, Net (0.2) (0.3)
----- -----
INCOME BEFORE INCOME TAXES 11.6 12.0
Provision for Income Taxes 4.5 4.6
----- -----
NET INCOME 7.1% 7.4%
===== =====
18
Financial Summary
The following summarized financial and statistical data compares the thirteen
week period ended May 1, 2004 to the comparable period of fiscal 2003:
Thirteen Weeks Ended
---------------------------
May 1, 2004 May 3, 2003 % Change
----------- ----------- --------
Net sales (millions) $ 412 $ 347 19%
Increase/(decrease) in
comparable store sales - (6)%
Retail sales increase
attributable to new and
remodeled stores, magazine,
catalogue and Web sites 19% 17%
Retail sales per average gross $ 76 $ 76 -
square foot
Retail sales per average store $ 549 $ 551 -
(thousands)
Average store size at period-end 7,174 7,296 (2)%
(gross square feet)
Gross square feet at period-end 5,065 4,392 15%
(thousands)
Number of stores and gross square feet
by brands
Abercrombie & Fitch:
Stores at beginning of period 357 340
Opened 4 3
Closed (2) (1)
----------- -----------
Stores at end of period 359 342
=========== ===========
Gross square feet (thousands) 3,169 3,053
=========== ===========
abercrombie:
Stores at beginning of period 171 164
Opened 1 1
Closed (2) -
----------- -----------
Stores at end of period 170 165
=========== ===========
Gross square feet (thousands) 750 731
=========== ===========
Hollister:
Stores at beginning of period 172 93
Opened 5 2
Closed - -
----------- -----------
Stores at end of period 177 95
=========== ===========
Gross square feet (thousands) 1,146 608
=========== ===========
19
Net Sales
Net sales for the first quarter of 2004 were $411.9 million, an increase of 19%
over last year's first quarter net sales of $346.7 million. Comparable store
sales, defined as sales in stores that have been open for at least one year,
were flat for the quarter.
By merchandise brand, comparable store sales for the quarter versus the same
quarter last year were as follows: Abercrombie & Fitch declined 2% with both
mens and womens comparable store sales declining by a low single-digit
percentage. In abercrombie, comparable store sales decreased 1% with girls
comparable store sales achieving a mid-single digit positive increase and boys
declining in the mid-teens. In Hollister, comparable store sales increased by 9%
with both girls and guys achieving a positive high-single digit increase for the
quarter.
On a regional basis, comparable store sales results were strongest in the West
and Southeast and weakest in the Midwest. Stores located in Florida, Southern
California and the New York metropolitan area had the best comparable store
sales performance.
In Abercrombie & Fitch, womens had comparable store sales increases in the first
quarter versus the comparable quarter last year in skirts and denim, which were
offset by decreases in shorts and graphic knits. The men's business improved
during the first quarter compared to the fiscal 2003 first quarter. Woven shirts
and polos had strong comparable store sales increases while graphic t-shirts and
shorts declined.
In the kids' business, girls comparable store sales increased during the first
quarter of 2004 compared to the same quarter last year in knits, skirts and
denim. These increases were somewhat offset by weak sales in graphic tees and
shorts. Boys had comparable store sales increases in denim, woven shirts, and
accessories, but these increases were not sufficient to offset other weaker
performing categories.
In Hollister, girls also achieved slightly stronger comparable store sales than
guys. In girls, tees, skirts and denim had significant comparable store sales
increases during the quarter, while comparable store sales in the graphic knits
and pants declined. In guys, sports shirts and denim had significant positive
comparable store sales increases; however, knit tops and shorts declined.
Sales in the e-commerce business grew by approximately 73% during the first
quarter of the 2004 fiscal year compared to the same period during the 2003
fiscal year. The direct to consumer business (which includes the Company's
catalogue and the Company's Web sites) accounted for 6.4% of net sales in the
first quarter of the 2004 fiscal year compared to 4.7% in the first quarter of
fiscal 2003. The first quarter 2004 results include sales from the Hollister Web
site that was launched during the 2003 back-to-school period.
Current Trends and Outlook
Although the Company is planning for comparable store sales to continue to
improve in the future, it cannot predict whether this will occur in the 2004
fiscal year or any subsequent year due to the uncertain competitive and economic
environment.
20
The Company entered fiscal 2004 with a focus on driving top line revenue. In
order to offer customers more new items more frequently and achieve high
margins, inventory levels were kept tight in order to turn the inventory faster.
The Company also continued to have a less promotional look in the stores.
Markdowns were cleared in the normal course of business. During the first
quarter, the Company utilized its lifestyle-only direct mail, national magazine
ads, and billboards to promote the Abercrombie & Fitch brand. In addition to
emphasizing top line growth, management will continue to focus on operational
controls which have been an important factor in the Company's success.
Gross Income
The Company's gross income may not be comparable to those of other retailers
since all significant costs related to the Company's distribution network,
excluding direct shipping costs related to the e-commerce and catalogue sales,
are included in general, administrative and store operating expenses (see
"General, Administrative and Store Operating Expenses" section below).
Gross income for the first quarter of the 2004 fiscal year was $165.0 million
compared to $128.6 million in the comparable period during the 2003 fiscal year.
The gross income rate (gross income divided by net sales) for the first quarter
of the 2004 fiscal year was 40.1%, up 300 basis points from last year's rate of
37.1%. The increase in gross income rate resulted largely from an increase in
initial markup (IMU), partially offset by a higher markdown rate as a percent of
net sales. Continued progress in sourcing efficiency has been an important
factor in improving IMU. All three brands had IMU improvements in excess of 300
basis points and are operating at similar margins.
The markdown rate, as a percentage of net sales, exceeded last year's rate
reflecting the Company's strategy to turn merchandise quickly enabling the
addition of more new items to the sales floor.
Due to a combination of the reduced cost in ending inventory from successful
sourcing efforts and a shift in the timing of the deliveries, the Company ended
the first quarter of the 2004 fiscal year with inventories, at cost, down 21%
per gross square foot versus the first quarter of the 2003 fiscal year.
21
General, Administrative and Store Operating Expenses
General, administrative and store operating expenses during the first quarter of
the 2004 fiscal year were $118.3 million compared to $87.9 million during the
same period in the 2003 fiscal year. The first quarter of the 2004 fiscal year
general, administrative and store operating expense rate (general,
administrative and store operating expenses divided by net sales) was 28.7%
compared to 25.4% in the first quarter of the 2003 fiscal year. The increase in
rate versus the 2003 comparable period is primarily due to the following: higher
legal expense due to a charge of $ 8.0 million related to expected defense costs
in a legal proceeding (see Note 10 of the Notes to Condensed Consolidated
Financial Statements); higher home office expenses, largely due to higher bonus
accruals resulting from improved financial performance; and higher store
expenses due to an increase in aggregate payroll. Wage levels, in all three
brands, were held relatively flat compared to first quarter of 2003.
The distribution center achieved record level productivity during the first
quarter of the 2004 fiscal year. Productivity, as measured in units processed
per labor hour, was 12% higher than the first quarter of the 2003 fiscal year.
Costs related to the distribution center, excluding direct shipping costs
related to the e-commerce and catalogue sales, included in general,
administrative and store operating expenses were $4.5 million for the first
quarter of the 2004 fiscal year compared to $4.3 million for the first quarter
of the 2003 fiscal year.
Operating Income
Operating income for the first quarter of the 2004 fiscal year increased to
$46.7 million from $40.7 million in the 2003 fiscal year first quarter, an
increase of 14.7%. The increase was primarily due to sales increases due to new
stores and higher gross margin, partially offset by higher home office expenses
and store expenses. The operating income rate (operating income divided by net
sales) was 11.4% for the first quarter of the 2004 fiscal year compared to 11.7%
for the first quarter of the 2003 fiscal year. Higher general, administrative
and store operating expenses, expressed as a percentage of net sales, reduced
the operating income rate in the first quarter of 2004. This decline was
partially offset by higher merchandise margins during the quarter.
Interest Income and Income Tax Expense
First quarter net interest income was $1.0 million in 2004 which was flat versus
last year. The Company continued to invest in tax-free securities. The effective
tax rate for the first quarter was 38.6% compared to 38.1% for the 2003
comparable period.
Off-Balance Sheet Arrangements and Contractual Obligations
The Company does not have any off-balance sheet arrangements or debt
obligations. The contractual obligations of the Company as of May 1, 2004 have
not significantly changed from the ones disclosed in the Company's Annual Report
on Form 10-K/A for the fiscal year ended January 31, 2004. There have been
changes in the ordinary course of the Company's business during the quarterly
period ended May 1, 2004 in the Company's contractual obligations included
within both the "operating leases" category and the "purchase obligations and
other" category.
22
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):
May 1, 2004 January 31, 2004
----------- ----------------
Working capital $ 455,259 $ 441,583
=========== ================
Capitalization:
Shareholders' equity $ 874,429 $ 857,765
=========== ================
Net cash provided by operating activities, the Company's primary source of
liquidity, totaled $78.7 million for the thirteen weeks ended May 1, 2004 versus
$24.3 million in the comparable period of 2003. Cash was provided primarily by
current year net income adjusted for depreciation and amortization and by
decreases in inventories and increases in lessor construction allowances and
accrued expenses. Uses of cash primarily consisted of increased cash outflows in
income taxes payable, accounts payable and other assets and liabilities.
Inventories decreased as a result of the reduced cost in ending inventory from
successful sourcing efforts and a shift in the timing of the deliveries which
caused more delivery flow in May versus April compared with last year. As a
result, the Company ended the first quarter of 2004 with inventories down 21%
per gross square foot compared to last year's first quarter. Accrued expenses
also increased for items such as payroll and property taxes, related primarily
to the growth in the store base and accrued expenses resulting from an increase
in expected defense costs related to pending litigation.
Income taxes payable decreased as a result of payments made during the first
quarter and accounts payable decreased as a result of the decrease in
inventories. Other assets and liabilities increased primarily as a result of an
increase in accounts receivables related to expected proceeds from an insurance
claim pertaining to legal expenses.
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 and construction in process and purchases of marketable securities. Cash
inflows from investing activities consisted of proceeds from the sale of
marketable securities. As of May 1, 2004, the Company held $486.1 million of
marketable securities with original maturities of greater than 90 days.
Financing activities for the first quarter of 2004 consisted of the repurchase
of 599 thousand shares of A&F's Class A Common Stock at an average cost of
$31.11 for a total of $18.6 million
23
pursuant to a previously authorized stock repurchase program. The repurchase
during the first quarter completed the 5 million share repurchase authorized by
the Board of Directors on August 8, 2002. In addition to stock repurchases,
financing activities in the first quarter of 2004 included $11.9 million for the
payment of the first quarterly $0.125 dividend on March 30, 2004, $11.3 million
received in connection with stock option exercises and $1.9 million for cash
overdrafts which are outstanding checks reclassified from cash to accounts
payable.
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.
Letters of credit totaling approximately $31.7 million and $39.1 million were
outstanding under the Credit Agreement at May 1, 2004 and May 3, 2003,
respectively. No borrowings were outstanding under the Credit Agreement at May
1, 2004 and May 3, 2003.
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 brand were as follows:
May 1, 2004 May 3, 2003
----------------------------- -----------------------------
Number Gross Square Number Gross Square
of Stores Feet (thousands) of Stores Feet (thousands)
--------- --------------- --------- ---------------
Abercrombie & Fitch 359 3,169 342 3,053
abercrombie 170 750 165 731
Hollister 177 1,146 95 608
--- ----- --- -----
Total 706 5,065 602 4,392
=== ===== === =====
24
Capital Expenditures and Landlord Construction Allowances
Capital expenditures totaled $41.3 million and $25.1 million for the thirteen
weeks ended May 1, 2004 and May 3, 2003, respectively. Additionally, the
non-cash accrual for construction in progress decreased $11.9 million in the
first quarter of the 2004 and increased $10.8 million in the first quarter of
2003. Capital expenditures related primarily to new store construction,
including the non-cash accrual for construction in progress. The balance of
capital expenditures related primarily to miscellaneous store remodeling
projects.
Construction allowances are an integral part of the decision making process for
assessing the viability of new store leases. In making the decision whether to
invest in a store location, the Company calculates the estimated future return
on its investment based on the cost of construction, less any construction
allowances to be received from the landlord. The Company received $8.5 million
and $8.7 million in construction allowances during the first quarters of the
2004 and 2003 fiscal years, respectively. For accounting purposes, the Company
treats construction allowances as a deferred lease credit which reduces rent
expense in accordance with Statement of Financial Accounting Standards No.13,
"Accounting for Leases" and Financial Accounting Standards Board Technical
Bulletin No. 88-1, "Issues Relating to Accounting for Leases".
The Company anticipates spending $175.0 million to $185.0 million in the 2004
fiscal year for capital expenditures, of which $135.0 million to $145.0 million
will be for new/remodel store construction. The balance of the capital
expenditures will primarily relate to home office and distribution center
projects and other miscellaneous projects.
The Company intends to add approximately 700,000 gross square feet of store
space in the 2004 fiscal year, which will represent a 14% increase over year-end
2003. It is anticipated the increase will result from the addition of
approximately 11 new Abercrombie & Fitch stores, 8 new abercrombie stores and 85
new Hollister stores. In addition, the Company recently announced plans for a
new lifestyle brand that will target an older customer than its current brands.
The Company expects to open four test stores in August 2004. Additionally, the
Company plans to remodel 10 to 15 Abercrombie & Fitch stores.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Abercrombie & Fitch stores opened during the 2004
fiscal year will approximate $635,000 per store, net of construction allowances.
In addition, initial inventory purchases are expected to average approximately
$300,000 per store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for abercrombie stores opened during the 2004 fiscal year
will approximate $510,000 per store, net of construction allowances. In
addition, initial inventory purchases are expected to average approximately
$115,000 per store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Hollister stores opened during the 2004 fiscal year
will approximate $615,000 per store, net of construction allowances. In
addition, initial inventory purchases are expected to average approximately
$215,000 per store.
25
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 Item 8 of
A&F's Annual Report on Form 10-K/A for the fiscal year ended January 31, 2004
(Note 3). 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.
Revenue Recognition - The Company recognizes retail sales at the time the
customer takes possession of the merchandise and purchases are paid for,
primarily with either cash or credit card. Catalogue and e-commerce sales are
recorded upon customer receipt of merchandise. Amounts relating to shipping and
handling billed to customers in a sale transaction are classified as revenue and
the direct shipping costs are classified as cost of goods sold. Employee
discounts are classified as a reduction of revenue. The Company reserves for
sales returns through estimates based on historical experience and various other
assumptions that management believes to be reasonable.
Inventory Valuation - Inventories are principally valued at the lower of average
cost or market, on a first-in first-out basis, utilizing the retail method. The
retail method of inventory valuation is an averaging technique applied to
different categories of inventory. At the Company, the averaging is determined
at the stock keeping unit ("SKU") level by averaging all costs for each SKU. An
initial markup is applied to inventory at cost in order to establish a
cost-to-retail ratio. Permanent markdowns, when taken, reduce both the retail
and cost components of inventory on hand so as to maintain the already
established cost-to-retail relationship. The use of the retail method and the
recording of markdowns effectively values inventory at the lower of cost or
market. The Company further reduces inventory by recording an additional
markdown reserve using the retail carrying value of inventory from the season
just passed. Markdowns on this carryover inventory represent estimated future
anticipated selling price declines.
Additionally, as part of inventory valuation, an inventory shrinkage estimate is
made each period that reduces the value of inventory for lost or stolen items.
Inherent in the retail method calculation are certain significant judgments and
estimates including, among others, initial markup, markdowns and shrinkage,
which could significantly impact the ending inventory valuation at cost as well
as the resulting gross margins. Management believes that this inventory
valuation method is appropriate since it preserves the cost-to-retail
relationship in ending inventory.
26
Income Taxes - Income taxes are calculated in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method.
Deferred tax assets and liabilities are recognized based on the difference
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Inherent in the measurement of
deferred balances are certain judgments and interpretations of enacted tax law
and published guidance with respect to applicability to the Company's
operations. Significant examples of this concept include capitalization policies
for various tangible and intangible costs, income and expense recognition and
inventory valuation methods. No valuation allowance has been provided for
deferred tax assets because management believes the full amount of the net
deferred tax assets will be realized in the future. The effective tax rate
utilized by the Company reflects management's judgment of the expected tax
liabilities within the various taxing jurisdictions.
Contingencies - In the normal course of business, the Company must make
continuing estimates of potential future legal obligations and liabilities,
which requires the use of management's judgment on the outcome of various
issues. Management may also use outside legal advice to assist in the estimating
process. However, the ultimate outcome of various legal issues could be
different than management estimates, and adjustments may be required.
27
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/A
or made by management of A&F involve risks and uncertainties and are subject to
change based on various important factors, many of which may be beyond the
Company's control. Words such as "estimate," "project," "plan," "believe,"
"expect," "anticipate," "intend," and similar expressions may identify
forward-looking statements. The following factors, in addition to those included
in the disclosure under the heading "RISK FACTORS" in "ITEM 1. BUSINESS" of
A&F's Annual Report on Form 10-K/A for the fiscal year ended January 31, 2004,
in some cases have affected and in the future could affect the Company's
financial performance and could cause actual results for the 2004 fiscal year
and beyond to differ materially from those expressed or implied in any of the
forward-looking statements included in this Quarterly Report on Form 10-Q/A 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;
- postal rate increases and changes;
- paper and printing costs;
- 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.
Future economic and industry trends that could potentially impact revenue and
profitability are difficult to predict. Therefore, there can be no assurance
that the forward-looking statements included in this Quarterly Report on Form
10-Q/A will prove to be accurate. In light of the significant uncertainties in
the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person, that the objectives of the Company will be achieved. The
forward-looking statements herein are based on information presently available
to the management of the Company. Except as may be required by applicable law,
the Company assumes no obligation to publicly update or revise its
forward-looking statements even if experience or future changes make it clear
that any projected results expressed or implied therein will not be realized.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk of the Company's financial instruments as of May 1, 2004 has not
significantly changed since January 31, 2004. The Company's market risk profile
as of January 31, 2004 is disclosed in "Item 7A - Quantitative and Qualitative
Disclosures about Market Risk" of A&F's Annual Report on Form 10-K/A for the
fiscal year ended January 31, 2004.
29
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-l5(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) that are designed to provide reasonable assurance that
information required to be disclosed in the reports that the Company files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission's
rules and forms, and that such information is accumulated and communicated to
the Company's management, including the Chairman and Chief Executive Officer and
the Senior Vice President - Chief Financial Officer, as appropriate, to allow
timely decisions regarding required financial disclosures. Because of inherent
limitations, disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of disclosure controls and procedures are met.
The Company's management, with the participation of the Chairman and Chief
Executive Officer and the Senior Vice President - Chief Financial Officer,
conducted an evaluation of the effectiveness of the Company's design and
operation of its disclosure controls and procedures as of the end of the period
covered by this Form 10-Q/A. The evaluation included consideration of facts and
circumstances surrounding corrections of the Company's lease accounting
practices. These corrections resulted in the restatement of the Company's
consolidated financial statements as of May 1,2004 and January 31, 2004 and for
the interim periods ended May 1, 2004 and May 3, 2003 as described in Note 2:
"Restatement and Reclassification of Financial Statements" under Notes to
Condensed Consolidated Financial Statements included in Item 1, "Financial
Statements" of this Form 10-Q/A. As a result of the restatements and the
related material weakness discussed below, the Chief Executive Officer and
the Chief Financial Officer concluded that, as of May 1,2004, the Company's
disclosure controls and procedures were not effective at a reasonable level of
assurance. Notwithstanding this material weakness discussed below, the
Company's management has concluded that the restated consolidated financial
statements included in this report present fairly, in all material respects the
Company's financial position and results of operations and cash flows for the
periods presented in conformity with generally accepted accounting principles.
30
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be
prevented or detected. As of May 1, 2004, the Company's controls over the
selection and application of its lease accounting policies related to
construction allowances and the recording of rent between the date the Company
takes possession of the property and the commencement date of the lease were
ineffective to ensure that such leasing transactions were recorded in
accordance with generally accepted accounting principles. Specifically, because
of the deficiency in the Company's controls over the selection and application
of its lease accounting policies, the Company failed to identify and properly
classify and account for property and equipment, deferred lease
credits from landlords, rent expense, depreciation expense and the related
impact of these items on cash provided by operating activities and cash used for
investing activities in the consolidated statements of cash flows, which
resulted in restatements of the Company's consolidated financial statements as
of May 1, 2004 and January 31, 2004. Additionally, if the control deficiency is
not remediated it could result in a misstatement of the aforementioned
financial statement accounts and disclosures that would result in a material
misstatement to annual or interim financial statements that would not be
prevented or detected. Accordingly, management of the Company has
concluded that this control deficiency constitutes a material weakness and
that internal control over financial reporting was not effective as of
May 1, 2004.
Changes in Internal Control Over Financial Reporting
In the first quarter of 2005, the Company remediated the material weakness in
internal control over financial reporting by correcting its method of accounting
for construction allowances and recording of rent between the date the Company
takes possession of the property and the commencement date of the lease. The
Company implemented controls to ensure that all leases are reviewed and
accounted for in accordance with Statement of Financial Accounting Standards No.
13, "Accounting for Leases" and Financial Accounting Standards Board Technical
Bulletin No. 88-1, "Issues Relating to Accounting for Leases"; and Financial
Accounting Standards Board Technical Bulletin No. 85-3, "Accounting for
Operating Leases with Scheduled Rent Increases."
Other than the foregoing, there have been no changes in the Company's internal
control over financial reporting that occurred since May 1, 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
31
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. On December 2, 2003, A&F moved for
reconsideration or reargument of the November 14, 2003 order denying the motions
to dismiss. The motions for reconsideration or reargument were fully briefed and
submitted to the Court on January 9, 2004. The motions were denied on February
23, 2004.
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 18, 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. 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." A second amended complaint was
filed November 10, 2003, adding some factual allegations. Defendant filed an
answer to the second amended complaint on January 22, 2004.
32
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 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. The case was transferred from the Western Division to the
Eastern Division of the Southern District of Ohio on April 21, 2004. A&F
subsequently renewed its motion to dismiss, which is pending.
The Company does not believe it is feasible to predict the outcome of the legal
proceedings described above and intends to defend vigorously against them. The
timing of the final resolution of each of these proceedings is also uncertain.
Accordingly the Company cannot estimate a range of potential loss, if any, for
any of these legal proceedings.
A&F is aware of one action that has been filed on behalf of a purported class
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. A second amended complaint, which added two additional plaintiffs, was
filed on or about January 9, 2004. Defendant filed an answer to the second
amended complaint on or about January 26, 2004. During the first quarter of
fiscal 2004, the Company recorded an $8.0 million charge (net of expected
proceeds of $10 million from insurance) resulting from an increase in expected
defense costs related to this purported class action employment discrimination
suit. The Company does not believe it is feasible to predict the outcome of this
proceeding and intends to vigorously defend against it. However, if judgment is
rendered in this proceeding which is unfavorable to the Company, the amount
could potentially be material to the Company's financial statements. The parties
are in the process of discovery. In addition, the EEOC is conducting nationwide
investigations relating to allegations of discrimination based on race, national
origin and gender.
33
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
(e) The following table provides information regarding A&F's purchase of its
Class A Common Stock during each fiscal month of the quarterly period ended May
1, 2004:
Total Number of
Total Shares Purchased Maximum Number
Number of Average as Part of Publicly of Shares that May
Shares Price Paid Announced Yet be Purchased
Period Purchased Per Share Program under the Program(1)
---------------------- --------- ---------- ------------------- -------------------
February 1 through 28,
2004 11,804 (2) $ - - 599,000
February 29, 2004
through April 3, 2004 599,000 $ 31.11 599,000 -
April 4 through May 1,
2004 - $ - - -
--------- ------- ------- -------
Total 599,000 $ 31.11 599,000 -
========= ======= ======= =======
(1) The number shown represents, as of the end of each period, the maximum
number of shares of Class A Common Stock that may be yet repurchased under
A&F's publicly announced stock repurchase authorization. A&F announced the
authorization of the repurchase of 5,000,000 shares of Class A Common Stock,
in addition to the 850,000 shares then remaining available under the
authorization to repurchase 6,000,000 shares announced on February 14, 2000,
for a total of 5,850,000 shares authorized for repurchase as of August 8,
2002. By January 31, 2004, the Company had repurchased 5,251,000 of the
total shares authorized for repurchase as of August 8, 2002. During the
quarterly period ended May 1, 2004, A&F repurchased the 599,000 shares of
Class A Common Stock which remained available under this stock repurchase
authorization and, as a result, the authorization has expired.
(2) Reflects shares of Class A Common Stock withheld from employees for payment
of taxes due upon the vesting of restricted share awards.
34
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 2004, A&F held its annual meeting of shareholders at Abercrombie &
Fitch executive offices locates at 6301 Fitch Path, New Albany, Ohio. At the
close of business on the March 26, 2004 record date, 94,445,669 shares of Class
A Common Stock of A&F were outstanding and entitled to vote. At the Annual
Meeting, 87,410,124 or 92.55% of the outstanding shares of Class A Common Stock
entitled to vote were represented by proxy or in person. At the Annual Meeting,
Messrs. John A. Golden, Seth R. Johnson and Edward F. Limato were re-elected to
A&F's Board of Directors, each to serve for a three-year term expiring in 2007.
The vote on the election of directors was as follows:
Votes For Votes Withheld Broker Non-Votes
---------- -------------- -----------------
John A. Golden 78,696,917 8,713,207 -
Seth R. Johnson 59,626,443 27,783,681 -
Edward F. Limato 84,308,567 3,101,557 -
The following individuals also continue to serve on the Board of Directors:
Messrs. James B. Bachmann, Russell M. Gertmenian, Archie M. Griffin, Michael S.
Jeffries, John W. Kessler, and Sam N. Shahid, Jr. and Ms. Lauren J. Brisky.
35
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 quarterly period 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 fiscal 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 quarterly
period 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 fiscal 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, incorporated herein by reference to Exhibit 3.5
to A&F's Quarterly Report on Form 10-Q for the quarterly
period ended November 1, 2003 (File No. 1-12107)
3.6 Certificate regarding adoption of amendments to Sections 1.02,
1.06, 3.01, 3.05, 4.02, 4.03, 4.04, 4.05, 4.06, 6.01 and 6.02
of Amended and Restated Bylaws of A&F by Board of Directors on
May 20, 2004
3.7 Amended and Restated Bylaws of A&F (reflecting amendments
through May 20, 2004) [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, A&F, 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 A&F,
each direct and indirect domestic subsidiary of A&F 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)
36
4.3 First Amendment and Waiver, dated as of January 26, 2004, to
the Credit Agreement, dated as of November 14, 2002, among
Abercrombie & Fitch Management Co., A&F, the Lenders party
thereto and National City Bank, as Administrative Agent,
incorporated herein by reference to Exhibit 4.3 to A&F's
Annual Report on Form 10-K/A for the fiscal year ended January
31, 2004 (File No. 1-12107)
4.4 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)
4.5 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)
4.6 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 quarterly period ended
July 31, 1999. (File No. 1-12107)
4.7 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 quarterly period ended August 4, 2001. (File No.
1-12107)
37
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 quarterly period
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 fiscal 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 fiscal 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 quarterly period ended May 3, 2003. (File No.
1-12107)
10.5 Amended and Restated Employment Agreement, dated as of January
30, 2003, by and between A&F and Michael S. Jeffries,
including as Exhibit A thereto the Supplemental Executive
Retirement Plan (Michael S. Jeffries), 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 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 quarterly period ended May 3, 2003. (File No.
1-12107)
10.7 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
fiscal year ended February 1, 2003. (File No. 1-12107)
10.8 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 quarterly period
ended May 3, 2003. (File No. 1-12107)
10.9 Retirement Agreement, executed on May 20, 2004, by and between
Seth R. Johnson and A&F
10.10 Employment Agreement, entered into as of May 17, 2004, by and
between A&F and Robert S. Singer, including as Exhibit A
thereto the Supplemental Executive Retirement Plan II (Robert
S. Singer), effective May 17, 2004
38
15. Letter re: Unaudited Interim Financial Information to Securities and
Exchange Commission re: Inclusion of Report of Independent Registered
Public Accounting Firm.
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 February 23, 2004, A&F filed a Current Report on Form 8-K to report under
"Item 5. Other Events and Regulation FD Disclosure," the issuance of a news
release announcing that Susan J. Riley had been named Senior Vice President
- Chief Financial Officer of A&F.
39
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.
Date: April 11, 2005 By /s/ SUSAN J. RILEY
---------------------------------
Susan J. Riley,
Senior Vice President - Chief
Financial Officer
* Ms. Riley has been duly authorized to sign on behalf of the Registrant as its
principal financial officer.
40
EXHIBIT INDEX
Exhibit No. Document
*3.6 Certificate regarding adoption of amendments to Sections 1.02,
1.06, 3.01, 3.05, 4.02, 4.03, 4.04, 4.05, 4.06, 6.01 and 6.02 of
Amended and Restated Bylaws of A&F by Board of Directors on May
20, 2004
*3.7 Amended and Restated Bylaws of A&F (reflecting amendments through
May 20, 2004) [for SEC reporting compliance purposes only]
*10.9 Retirement Agreement, executed on May 20, 2004, by and between
Seth R. Johnson and A&F
*10.10 Employment Agreement, entered into as of May 17, 2004, by and
between A&F and Robert S. Singer, including as Exhibit A thereto
the Supplemental Executive Retirement Plan II (Robert S. Singer),
effective May 17, 2004
15 Letter re: Unaudited Interim Financial Information to Securities
and Exchange Commission re: Inclusion of Report of Independent
Registered Public Accounting Firm
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)
* Exhibit was previously filed with the original filing of this Quarterly
Report on Form 10-Q on June 9, 2004.
41