UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 2003
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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.
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(Exact name of registrant as specified in its charter)
Delaware 31-1469076
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6301 Fitch Path, New Albany, Ohio 43054
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 283-6500
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Class A Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Series A Participating Cumulative Preferred
Stock Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None.
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 and (2) has been subject to the filing requirements for
the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
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Aggregate market value of the registrant's Class A Common Stock (the only
outstanding common equity of the registrant) held by non-affiliates of the
registrant as of August 3, 2002: $2,011,542,267.
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Number of shares outstanding of the registrant's common stock as of March 27,
2003: 97,773,670 shares of Class A Common Stock.
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DOCUMENT INCORPORATED BY REFERENCE:
Portions of the registrant's definitive proxy statement for the Annual Meeting
of Stockholders to be held on May 22, 2003 are incorporated by reference into
Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. BUSINESS.
GENERAL.
Abercrombie & Fitch Co., a Delaware corporation ("A&F"), through its
subsidiaries (collectively, A&F and its subsidiaries are referred to as
"Abercrombie & Fitch" or the "Company"), is a specialty retailer which operates
stores selling casual apparel, personal care and other accessories for men,
women and kids under the Abercrombie & Fitch, abercrombie and Hollister Co.
brands. As of February 1, 2003, the Company operated 597 stores in the United
States.
A&F's Internet Web site is www.abercrombie.com (this uniform resource locator,
or URL, is an inactive textual reference only and is not intended to incorporate
A&F's Web site into this Annual Report on Form 10-K). Since November 15, 2002,
A&F has made available free of charge, on its Web site, its annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after A&F electronically files such material with, or furnishes it to, the
Securities and Exchange Commission.
DESCRIPTION OF OPERATIONS.
General.
The Abercrombie & Fitch brand was established in 1892 and became well known as a
supplier of rugged, high-quality outdoor gear. Famous for outfitting the safaris
of Teddy Roosevelt and Ernest Hemingway and the expeditions of Admiral Byrd to
the North and South Poles, Abercrombie & Fitch goods were renowned for their
durability and dependability - and Abercrombie & Fitch placed a premium on
complete customer satisfaction with each item sold. In 1992, a new management
team began repositioning Abercrombie & Fitch as a more fashion-oriented casual
apparel business directed at men and women with a youthful lifestyle, targeted
at 18 to 22-year-old college students. In reestablishing the Abercrombie & Fitch
brand, the Company combined its historical image for quality with a new emphasis
on casual American style and youthfulness.
In 1997, the Company introduced the A&F Quarterly (a catalogue/magazine), which
is a lifestyle magazine focused on the college experience, and subsequently
added a catalogue format. The Company launched a web-based store featuring
lifestyle pieces, such as AFTV, located at its Internet Web site,
www.abercrombie.com, in 1998. Products comparable to those carried at
Abercrombie & Fitch stores can be purchased through the Quarterly, the
catalogue, and on its Web site.
The Company launched abercrombie, which targets 7 to 14-year-old boys and girls,
in 1998. These stores offer fashion-oriented casual apparel in the tradition of
Abercrombie & Fitch style and quality. A lifestyle web-based store located at
www.abercrombiekids.com (this uniform resource locator, or URL, is an inactive
textual reference only and is not intended to incorporate the Web site into this
Annual Report on Form 10-K) was introduced in 2000, where products comparable to
those carried at abercrombie can be purchased on-line.
The Hollister Co. brand was launched in 2000. Hollister Co. is 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. Hollister Co. has
established a lifestyle Internet Web site at www.hollisterco.com (this uniform
resource locator, or URL, is an inactive textual reference only and is not
intended to incorporate the Web site into this Annual Report on Form
2
10-K) but, as yet, no merchandise is available through the Web site. Merchandise
is planned to be available by July 2003.
At the end of fiscal year 2002, the Company operated 597 stores. The following
table shows the changes in the number of retail stores operated by the Company
for the past five fiscal years:
Fiscal Beginning
Year of Year Opened Closed End of Year
---- ------- ------ ------ -----------
1998 156 41 (1) 196
1999 196 54 - 250
2000 250 104 - 354
2001 354 138 (1) 491
2002 491 112 (6) 597
Financial Information about Segments.
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company determined its operating segments on the same basis that is used
internally to evaluate performance and allocate resources. The operating
segments identified by the Company, Abercrombie & Fitch, abercrombie and
Hollister Co., have been aggregated and are reported as one reportable segment.
The Company aggregates the operating segments because they meet the aggregation
criteria set forth in SFAS No. 131. Operating segments may be aggregated if they
are similar in each of the following areas: economic characteristics, nature of
products, nature of production processes, distribution method and nature of
regulatory environment.
Further information on the reportable segment and operating segments of the
Company may be found in ITEM 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this Annual Report on Form 10-K.
Suppliers.
During fiscal year 2002, the Company purchased merchandise from approximately
186 suppliers and factories located throughout the world. In fiscal year 2002,
the Company sourced approximately 9% of its apparel through Koos Manufacturing,
8% through Direct Source Industries and 6% through Wooliston Garment, Inc. In
addition to purchases from Koos Manufacturing, Direct Source Industries and
Wooliston Garment, Inc., the Company purchased merchandise directly in foreign
markets with other vendors. Additional merchandise was purchased in the domestic
market, some of which is manufactured overseas. Excluding purchases from Koos
Manufacturing, Direct Source Industries and Wooliston Garment, Inc., no more
than 5% of the merchandise purchased by the Company originated from any single
manufacturer. The Company pursues a global sourcing strategy that includes
relationships with vendors in over 40 countries. Any event causing a sudden
disruption in these sourcing operations, either political or financial, could
have an adverse effect on the Company's operations. Substantially all of the
Company's foreign purchases of merchandise are negotiated and paid for in U.S.
dollars.
3
Distribution and Merchandise Inventory.
Most of the merchandise and related materials for the Company's stores are
shipped to its distribution center in New Albany, Ohio where the merchandise is
received and inspected. Merchandise and related materials are distributed to the
Company's stores using contract carriers.
The Company's policy is to maintain sufficient quantities of inventory on hand
in its retail stores and distribution center so that it can offer customers a
full selection of current merchandise. The Company emphasizes rapid turnover and
takes markdowns where required to keep merchandise fresh and current with
fashion trends.
Seasonal Business.
The Company views the retail apparel market as having two principal selling
seasons, Spring and Fall. As is generally the case in the apparel industry, the
Company experiences its peak sales activity during the Fall season. This
seasonal sales pattern results in increased inventory during the back-to-school
and Christmas selling periods. During fiscal year 2002, the highest inventory
level approximated $221.5 million at the November 2002 month-end and the lowest
inventory level approximated $132.2 million at the February 2002 month-end.
Store Operations and Expansion.
The Company's stores and point-of-sale marketing are designed to convey the
principal elements and personality of each brand. The store design, furniture,
fixtures and music are all carefully planned and coordinated to create a
shopping experience that is consistent with the Abercrombie & Fitch, abercrombie
or Hollister lifestyle.
The Company's sales associates, or brand representatives, are a central element
in creating the entertaining, yet comfortable, atmosphere of the stores. In
addition to providing a high level of customer service, the brand
representatives reflect the casual, energetic attitude of the brand and culture.
The Company maintains a uniform appearance throughout its store base, for each
concept, in terms of merchandise display and location on the selling floor.
Store managers receive detailed store plans that dictate fixture and merchandise
placement to ensure uniform execution of the merchandising strategy at the store
level. Standardization, by concept, of store design and merchandise presentation
also creates a cost savings in store furnishings, maximizes usage and
productivity of selling space and allows the Company to efficiently open new
stores.
Trademarks.
The Abercrombie & Fitch, abercrombie and Hollister Co. trademarks, and certain
other trademarks, either have been registered or are the subject of pending
trademark applications with the United States Patent and Trademark Office and
with registries of many foreign countries. The Company believes that its
products are identified by its trademarks and, thus, its trademarks are of
significant value. Each registered trademark has a duration of 20 years and is
subject to an indefinite number of renewals for a like period upon appropriate
application. The Company intends to continue the use of each of its trademarks
and to renew each of its registered trademarks.
4
Other Information.
Additional information about the Company's business, including its revenues and
profits for the last three years, plus gross square footage is set forth under
the caption ITEM 7-Management's Discussion and Analysis of Financial Condition
and Results of Operations included in this Annual Report on Form 10-K.
COMPETITION.
The sale of apparel and personal care products through retail stores, catalogues
and e-commerce is a highly competitive business with numerous competitors,
including individual and chain fashion specialty stores and department stores.
Fashion, price, service, store location, selection and quality are the principal
competitive factors in retail store sales and on-line sales.
The Company is unable to estimate the number of competitors or its relative
competitive position due to the large number of companies selling apparel and
personal care products through retail stores, catalogues and e-commerce.
ASSOCIATE RELATIONS.
On March 28, 2003, the Company employed approximately 22,000 associates (none of
whom were party to a collective bargaining agreement), approximately 18,700 of
whom were part-time. In addition, temporary associates are hired during peak
periods, such as the Holiday season.
The Company believes its relationship with associates is good.
ITEM 2. PROPERTIES.
The Company's headquarters and support functions (consisting of office,
distribution and shipping facilities) are located in New Albany, Ohio and owned
by the Company.
All of the retail stores operated by the Company are located in leased
facilities, primarily in shopping centers throughout the continental United
States. The leases expire at various dates principally between 2003 and 2015.
Typically, when space is leased for a retail store in a shopping center, all
improvements, including interior walls, floors, ceilings, fixtures and
decorations, are supplied by the tenant. In certain cases, the landlord of the
property may provide a construction allowance to fund all or a portion of the
cost of improvements. The cost of improvements varies widely, depending on the
size and location of the store. Rental terms for new locations usually include a
fixed minimum rent plus a percentage of sales in excess of a specified amount.
Certain operating costs such as common area maintenance, utilities, insurance
and taxes are typically paid by the tenant.
5
As of February 1, 2003, the Company's 597 stores were located in 48 states and
the District of Columbia as follows:
Alabama - 13 Hawaii - 1 Massachusetts - 18 New Mexico - 2 South Dakota - 1
Arizona - 11 Idaho - 1 Michigan - 24 New York - 33 Tennessee - 15
Arkansas - 4 Illinois - 33 Minnesota - 11 North Carolina - 20 Texas - 43
California - 53 Indiana - 19 Mississippi - 5 North Dakota - 1 Utah - 4
Colorado - 11 Iowa - 3 Missouri - 15 Ohio - 30 Vermont - 2
Connecticut - 11 Kansas - 7 Montana - 2 Oklahoma - 8 Virginia - 15
Delaware - 1 Kentucky - 10 Nebraska - 4 Oregon - 4 Washington - 15
District of Columbia - 2 Louisiana - 11 Nevada - 4 Pennsylvania - 27 West Virginia - 1
Florida - 26 Maine - 3 New Hampshire - 4 Rhode Island - 3 Wisconsin - 13
Georgia - 22 Maryland - 7 New Jersey - 18 South Carolina - 6
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant in lawsuits arising in the ordinary course of
business.
On January 13, 1999, a complaint was filed against many national retailers in
the United States District Court for the Central District of California. The
complaint (1) purported to be filed on behalf of a class of unnamed garment
workers, (2) related to labor practices allegedly employed on the island of
Saipan, Commonwealth of the Northern Mariana Islands, by apparel manufacturers
unrelated to the Company, some of which have sold goods to the Company, and (3)
sought injunctive, unspecified monetary and other relief. On September 29, 1999,
the action was transferred to the United States District Court for the District
of Hawaii. Thereafter, the plaintiffs moved for leave to amend their complaint
to add A&F and others as additional defendants. That motion was granted and, on
April 28, 2000, an amended complaint was filed which added A&F and others as
defendants, but did not otherwise substantively alter either the claims alleged
or the relief sought by the plaintiffs. A&F joined with other retailer
defendants in moving to dismiss the amended complaint. Certain of the other
defendants also moved to transfer the action to Saipan. On June 23, 2000, the
District Court of Hawaii ordered the case to be transferred to the United States
District Court for the District of the Northern Mariana Islands. Plaintiffs
filed a Petition for Writ of Mandamus challenging the transfer and on March 22,
2001, the Ninth Circuit Court of Appeals issued an order denying the Petition
for Writ of Mandamus, thus allowing the case to be transferred to the United
States District Court for the Northern Mariana Islands. The defendants' motion
to dismiss the first amended complaint for failure to state a claim upon which
relief can be granted was denied in part and granted in part on November 26,
2001. As to the partial granting of the motion, the Court also granted the
plaintiffs leave to amend to cure any pleading defects in a second amended
complaint. Plaintiffs filed their motion for class certification on December 13,
2001 and their second amended complaint, which added neither new parties nor
claims but realleged claims previously dismissed, on December 17, 2001. The
motion for class certification was heard on February 14, 2002. The motion for
preliminary approval of settlement as to certain other retailer defendants was
also heard the same date. A motion to dismiss the second amended complaint was
heard on March 19, 2002. On May 10, 2002, the Court granted in part and denied
in part the motion to dismiss the second amended complaint as to the remaining
RICO claim and granted the motion to dismiss the second amended complaint as to
the Common Law Peonage claim, the Anti-Peonage statutory claim, and the Alien
Tort Claims Act claim. Plaintiffs were given leave to file a third amended
complaint. The motions for class certification and preliminary approval of
settlement as to certain other retailer defendants were also granted. A third
amended complaint was filed on July 25, 2002. This case was recently submitted
to the Court for approval of a settlement that includes A&F. The settlement does
not involve any admission of wrongdoing and involves no payment by A&F.
Conditional approval was granted on October 31,
6
2002 and the fairness hearing was on March 22, 2003. There has been no ruling on
the fairness hearing as of the date of this Annual Report on Form 10-K.
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.
A&F is aware of three actions that have been filed where a purported class of
employees and former employees of the Company allege that the Company required
its associates to wear a "uniform" which in two of the three actions is
allegedly in violation of California law. These two complaints were served on
February 4, 2003 and February 10, 2003 in the Superior Courts of San Francisco
County and Los Angeles County, respectively. In the third action, which was
filed in the United States District Court for the Western District of
Pennsylvania on March 14, 2003, the "uniform," which when purchased, allegedly
drove associates' wages below the federal minimum wage. In each claim, the
plaintiff, on behalf of his or her class, seeks injunctive relief and economic,
liquidated damages in an unspecified amount.
A&F believes that the actions against it are without merit and intends to defend
vigorously against them. However, A&F does not believe it is feasible to predict
the outcome of these proceedings. The timing of the final resolution of these
proceedings is also uncertain.
In addition, the United States Securities and Exchange Commission (the "SEC")
initiated a formal investigation regarding trading in the securities of A&F and
the disclosure of sales forecasts in October 1999, and the Ohio Division of
Securities requested information from A&F regarding these same matters. A&F was
notified on April 3, 2003 that the SEC investigation has been terminated and no
enforcement action has been recommended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive officers of A&F
as of March 27, 2003.
Michael S. Jeffries, 58, has been Chairman and Chief Executive Officer of A&F
since May 1998. From February 1992 to May 1998, Mr. Jeffries held the position
of President and Chief Executive Officer of A&F. Mr. Jeffries has also been a
director of A&F since 1996.
7
Seth R. Johnson, 49, has been Executive Vice President-Chief Operating Officer
of A&F since February 2000. Prior thereto, Mr. Johnson had been Vice
President-Chief Financial Officer of A&F since 1992. Mr. Johnson has been a
director of A&F since 1998.
Diane Chang, 47, has been Senior Vice President-Sourcing of A&F since February
2000. Prior thereto, she held the position of Vice President-Sourcing of A&F
from May 1998 to February 2000 and for six and one-half years prior thereto, Ms.
Chang held the position of Senior Vice President-Manufacturing at J. Crew, Inc,
a clothing retailer.
Leslee K. O'Neill, 42, has been Senior Vice President-Planning & Allocation of
A&F since February 2000. Prior thereto, Ms. O'Neill held the position of Vice
President-Planning & Allocation of A&F from February 1994 to February 2000.
Wesley S. McDonald, 40, has been Vice President-Chief Financial Officer of A&F
since June 2000. Prior thereto, Mr. McDonald held a variety of positions in
finance and distribution at Target Corporation, a general merchandise retailer,
from 1988 to May 2000. His last position at Target Corporation was
Director-Information Systems Finance and Administration.
The executive officers serve at the pleasure of the Board of Directors of A&F
and, in the case of Messrs. Jeffries and Johnson, pursuant to employment
agreements.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
A&F's Class A Common Stock is traded on the New York Stock Exchange under the
symbol "ANF." The following is a summary of the high and low sales prices of
A&F's Class A Common Stock as reported on the New York Stock Exchange for the
2002 and 2001 fiscal years:
Sales Price
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High Low
-------------------- --------------------
2002 Fiscal Year
------------------------------
4th Quarter $27.84 $17.76
3rd Quarter $25.18 $15.92
2nd Quarter $33.00 $20.51
1st Quarter $33.30 $23.04
2001 Fiscal Year
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4th Quarter $30.40 $18.06
3rd Quarter $38.50 $16.21
2nd Quarter $47.50 $33.10
1st Quarter $37.90 $26.28
A&F has not paid dividends on its shares of Class A Common Stock in the past and
does not presently plan to pay dividends on the shares. It is presently
anticipated that earnings will be retained and reinvested to support the growth
of the Company's business. The payment of any future dividends on shares will be
determined by the A&F Board of Directors in light of conditions then existing,
including earnings, financial condition and capital requirements, restrictions
in financing agreements, business conditions and other factors.
On March 27, 2003, there were approximately 5,000 shareholders of record.
However, when including active associates who participate in A&F's stock
purchase plan, associates who own shares through A&F-sponsored retirement plans
and others holding shares in broker accounts under street name, A&F estimates
the shareholder base at approximately 55,000.
9
ITEM 6. SELECTED FINANCIAL DATA.
ABERCROMBIE & FITCH
FINANCIAL SUMMARY
(Thousands except per share and per square foot amounts, ratios and store and
associate data)
FISCAL YEAR 2002 2001 2000* 1999 1998
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SUMMARY OF OPERATIONS
Net Sales $1,595,757 $1,364,853 $1,237,604 $1,030,858 $805,180
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Gross Income $656,049 $558,034 $509,375 $450,383 $331,354
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Operating Income $312,617 $271,458 $253,652 $242,064 $166,958
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Operating Income as a
Percentage of Net Sales 19.6% 19.9% 20.5% 23.5% 20.7%
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Net Income $194,935 $168,672 $158,133 $149,604 $102,062
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Net Income as a
Percentage of Net Sales 12.2% 12.4% 12.8% 14.5% 12.7%
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PER SHARE RESULTS (1)
Net Income Per Basic Share $1.99 $1.70 $1.58 $1.45 $.99
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Net Income Per Diluted Share $1.94 $1.65 $1.55 $1.39 $.96
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Weighted Average Diluted Shares
Outstanding 100,631 102,524 102,156 107,641 106,202
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OTHER FINANCIAL INFORMATION
Total Assets $994,822 $770,546 $589,577 $458,166 $319,161
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Return on Average Assets 22% 25% 30% 38% 41%
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Capital Expenditures $92,976 $126,515 $153,481 $73,377 $37,483
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Long-Term Debt - - - - -
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Shareholders' Equity $749,527 $595,434 $422,700 $311,094 $186,105
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Return on Average Shareholders' Equity 29% 33% 43% 60% 83%
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Comparable Store Sales Increase
(Decrease) (5%) (9%) (7%) 10% 35%
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Retail Sales Per Average Gross Square
Foot $379 $401 $474 $505 $476
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STORES AND ASSOCIATES AT END OF YEAR
Total Number of Stores Open 597 491 354 250 196
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Gross Square Feet 4,358,000 3,673,000 2,849,000 2,174,000 1,791,000
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Number of Associates 22,000 16,700 13,900 11,300 9,500
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*Fifty-three week fiscal year.
(1) Per share amounts have been restated to reflect the two-for-one stock
split on A&F's Class A Common Stock, distributed on June 15, 1999.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Net sales for the fourth quarter of the 2002 fiscal year were $534.5 million, an
increase of 15% from $466.6 million for the fourth quarter of 2001. Operating
income for the fourth quarter of 2002 was $149.6 million compared to $128.6
million in 2001. A&F recorded its 42nd consecutive comparable quarter of record
earnings as net income increased to $92.8 million in the fourth quarter of 2002
as compared to $79.2 million in 2001. Earnings per diluted share for the fourth
quarter of 2002 were $.93, up 19% from $.78 in 2001.
Net sales for the 2002 fiscal year reached $1.6 billion, an increase of 17% over
fiscal 2001 net sales of $1.4 billion. Operating income for the 2002 fiscal year
increased 15% to $312.6 million from $271.5 million in fiscal 2001. Net income
per diluted share was $1.94 for the 2002 fiscal year compared to $1.65 in 2001,
an increase of 18%.
The following data represent the Company's consolidated statements of income for
the last 3 fiscal years expressed as a percentage of net sales:
2002 2001 2000
---- ---- ----
NET SALES 100.0% 100.0% 100.0%
Cost of Goods Sold, Occupancy and Buying
Costs 58.9 59.1 58.8
----- ----- -----
GROSS INCOME 41.1 40.9 41.2
General, Administrative and Store Operating
Expenses 21.5 21.0 20.7
----- ----- -----
OPERATING INCOME 19.6 19.9 20.5
Interest Income, Net (0.2) (0.4) (0.6)
----- ----- -----
INCOME BEFORE INCOME TAXES 19.8 20.3 21.1
Provision for Income Taxes 7.6 7.9 8.3
----- ----- -----
NET INCOME 12.2 12.4 12.8
===== ===== =====
11
FINANCIAL SUMMARY
The following summarized financial data compares the 2002 fiscal year to the
comparable periods for 2001 and 2000:
% Change
-----------------------------
2002 2001 2000 2001-2002 2000-2001
------------- ------------- ----------- -------------- --------------
Net sales (millions) $1,595.8 $1,364.9 $1,237.6 17% 10%
Decrease in comparable
store sales (5%) (9%) (7%)
Retail sales increase attributable
to new and remodeled stores,
magazine, catalogue and Web sites 22% 19% 27%
Retail sales per average gross
square foot $379 $401 $474 (5%) (15%)
Retail sales per average store
(thousands) $2,797 $3,095 $3,944 (10%) (22%)
Average store size at year-end
(gross square feet) 7,300 7,480 8,047 (2%) (7%)
Gross square feet at year-end
(thousands) 4,358 3,673 2,849 19% 29%
Number of stores and gross square feet by concept:
Abercrombie & Fitch:
Stores at beginning of period 309 265 215
Opened 33 45 50
Closed (2) (1) -
------------ ----------- ----------
Stores at end of period 340 309 265
============ =========== ==========
Gross square feet (thousands) 3,036 2,798 2,443
============ =========== ==========
abercrombie:
Stores at beginning of period 148 84 35
Opened 19 64 49
Closed (3) - -
------------ ----------- ----------
Stores at end of period 164 148 84
============ =========== ==========
Gross square feet (thousands) 727 662 375
============ =========== ==========
Hollister Co.:
Stores at beginning of period 34 5 -
Opened 60 29 5
Closed (1) - -
------------ ----------- ----------
Stores at end of period 93 34 5
============ =========== ==========
Gross square feet (thousands) 595 213 31
============ =========== ==========
12
NET SALES
Fourth Quarter 2002
Net sales for the fourth quarter of fiscal 2002 were $534.5 million, up 15% over
2001's fourth quarter net sales of $466.6 million. Comparable store sales
decreased 4% for the quarter.
By merchandise concept, comparable store sales ("comps"), defined as sales in
stores that have been open for at least one year, for the quarter were as
follows: Abercrombie & Fitch's comps declined in the mid-single digits, with
womens posting a positive comp and mens a negative comp. Comps for the kids'
business, abercrombie, were similar to the adult business with girls posting a
positive comp increase during the quarter and boys a negative comp. Comps in
Hollister were positive in double digits.
By regions, comps were strongest in the West and weakest in the Midwest.
Given continued uncertainty in the economy, the Company entered the fourth
quarter of fiscal 2002 with an approach designed to protect both the bottom line
and the aspirational quality of the brands. The Company continued to
strategically use direct mail and bounce-back promotions, but, overall, a much
less aggressive approach to promotions was undertaken compared to 2001.
The pre-Christmas selling environment was very challenging and, as expected,
comp store sales were negative for the fourth quarter prior to Christmas. Comps
improved significantly after Christmas, resulting in a flat comp for December
2002. January 2003 comps were positive 3%, which reflected strong sales of
winter clearance, and positive results from the initial spring assortment.
From a merchandising standpoint, womens continued to outperform mens. Key
classifications in womens during the quarter included woven shirts, knit tops,
outerwear, pants, sweats and underwear. Mens continued to be difficult and there
remained no solid trend industry-wide. However, knit tops and woven shirts
performed well during the quarter.
As for the kids' business, knit tops, sweats, woven tops, pants and outerwear
performed very well in girls. In boys, denim and sweats performed best. As in
the adult business, boys continued to be difficult.
In Hollister, girls continued to be more significant than guys, representing
approximately 65% of the overall business. For the quarter, the best performing
girls classifications were woven shirts, knit tops, sweats, skirts and denim. In
guys, denim, knit tops, graphic t-shirts, sweatshirts and accessories performed
best.
Sales in the e-commerce business grew by over 25% during the fourth quarter of
fiscal 2002 as compared to 2001. The Company remains on track to add a Hollister
e-commerce business for back-to-school 2003. The direct business (which includes
the Company's catalogue, the A&F Quarterly (a catalogue/magazine) and the
Company's Web sites) accounted for 5.0% of net sales in the fourth quarter of
2002 as compared to 4.5% in 2001.
Fourth Quarter 2001
Fourth quarter 2001 net sales increased 6% to $466.6 million from $439.4 million
in 2000. The increase was due to the addition of new stores offset by a 9%
decline in comps as compared with the previous year's 13-week period ended
February 3, 2001. The fourth quarter of 2001 was highly promotional and a number
of
13
promotional strategies, including direct mail, bouncebacks and selective price
point reductions, were employed to improve the sales trend from the third
quarter 2001.
By merchandise concept, Abercrombie & Fitch's comps declined in the high-single
digits with women's comps roughly flat for the quarter while men's comps were
negative double digits. Comps for our kids' business followed a similar trend to
the adult business with girls' comps much stronger than boys' comps.
By regions, comps were strongest in the Northeast and the West Coast and weakest
in the Southeast and Midwest.
From a merchandising standpoint, womens outperformed mens and generated strong
comp increases in denim, graphic tees and skirts. Newer women's classifications,
such as gymwear and lingerie performed well. Mens was difficult with no solid
industry-wide trend. Similar to womens, men's denim consistently performed well
and comps were strong through Christmas. However, men's outerwear and sweater
classifications had significant decreases.
In the kids' business, strong girls' categories were denim, skirts, knits and
accessories while sweaters and outerwear classifications were weak. Boys' strong
classifications were knits and denim.
In the adult e-commerce business, sales grew by over 27% during the fourth
quarter of 2001 compared to 2000. The Company's catalogue, the A&F Quarterly and
the Company's Web sites accounted for 4.5% of net sales in the fourth quarter of
2001 as compared to 5.0% in 2000. The decrease is primarily due to the Company
not producing an A&F Quarterly in the fourth quarter of 2001.
Fiscal 2002
Net sales for fiscal year 2002 reached $1.6 billion, up 17% over fiscal year
2001. The sales increase was attributable to the net addition of 106 stores
offset by a 5% comparable store sales decrease. The decline in comps was
primarily due to the weak performance in both the mens and boys. Men's comps
decreased in low-double digits for fiscal year 2002 while boys' comps decreased
in the mid-teens. For Spring 2003, the Company continues to maintain a cautious
approach in mens, focusing on delivering more new items more frequently. The
men's assortment for spring features a "vintage look" which is emphasized in
washes, colors and marketing. As in mens, a cautious approach will be maintained
in boys.
Overall, the women's and girls' businesses continued to increase in share of the
total business and accounted for greater than 57% of the adult and kids'
businesses, respectively, in fiscal year 2002. For the year, women's comps were
negative low-single digits while girls' comps were positive mid-single digits.
The Company will continue to focus on providing more frequent newness in both
womens and girls in 2003. Items will flow into the stores faster and remain in
stores for a shorter time period. This strategy gives the customer more new
items without an increase in inventory investment.
Hollister continued to perform well. For fiscal year 2002, sales per square foot
in Hollister stores were approximately 86% of the sales per square foot in
Abercrombie & Fitch stores in the same malls.
The Company's catalogue, the A&F Quarterly and the Company's Web sites
represented 4.7% of 2002 net sales compared to 4.2% in 2001.
14
Fiscal 2001
Net sales for the 2001 fiscal year increased 10% to $1.36 billion from $1.24
billion in 2000. The sales increase was attributable to the net addition of 137
stores offset by a 9% comparable store sales decrease. The decline in comps was
largely due to continued weakness in mens. Men's comps decreased in the
high-teens for the year; however, denim, knits and gymwear performed well.
Comps were up in the mid-single digits in womens for the 2001 fiscal year. The
strongest performing categories were denim, knits, skirts, gymwear and women's
accessories. Overall, womens increased as a percentage of the overall business.
In fiscal 2001, womens accounted for 55% of the total adult business.
In 2001, the kids' business had a mid-teen decline in comparable store sales for
the year with girls performing better than boys. As in the adult business, girls
outperformed boys.
For the 2001 fiscal year, sales per square foot in Hollister stores were
approximately 75% of the sales per square foot in Abercrombie & Fitch stores in
the same malls.
The Company's catalogue, the A&F Quarterly and the Company's Web sites
represented 4.2% of fiscal 2001 net sales compared to 3.8% of 2000 net sales.
Operating improvements in e-commerce fulfillment helped reduce the number of
backorders, increasing sales by improving in-stocks. The Company produced only
three A&F Quarterly's in fiscal 2001 versus four in 2000, dampening the increase
over the prior year in the direct business.
GROSS INCOME
Fourth Quarter 2002
The gross income rate (gross income divided by net sales) for the fourth quarter
of fiscal year 2002 was 45.5%, up 80 basis points from last year's rate of
44.7%. The increase in gross income rate resulted largely from an increase in
initial markup (IMU), partially offset by an increase in buying and occupancy
costs, as a percent of sales.
Continued progress in sourcing has been an important factor in improving the IMU
in all three concepts. The Company continued to make progress increasing the IMU
in Hollister, where IMU improved over 700 basis points versus the fourth quarter
of 2001.
Additionally, the Company's less aggressive approach to promotions during the
fourth quarter of fiscal 2002 resulted in selling at higher average retail
prices compared to the fourth quarter of 2001.
The increase in buying and occupancy costs, as a percent of sales, reflected the
inability to leverage fixed costs such as rent, depreciation and other real
estate related charges with a comp store decrease.
The Company ended the fourth quarter of 2002 with inventories up 12% per gross
square foot versus the fourth quarter of 2001 at cost.
15
Fourth Quarter 2001
The gross income rate during the fourth quarter of 2001 was 44.7%, down from
46.2% for the same period in 2000. The decrease was primarily due to an increase
in the markdown rate, attributable to the expected higher level of promotional
business. The planned promotional strategies for the quarter resulted in selling
at lower average retail prices. For the quarter, average unit retail prices
decreased in the low-double digits.
Additionally, buying and occupancy costs, expressed as a percentage of net
sales, increased as a result of the inability to leverage fixed expenses with
lower sales volume per average store. These decreases were partially offset by
higher IMU and tight control of inventory. The increase in IMU was a result of
continued improvement in the sourcing of merchandise, particularly in womens.
The tight control of inventory resulted in inventories being down 30% per gross
square foot at year-end 2001 as compared with year-end 2000. These low levels of
inventory provided downside profit protection as season-end merchandise was
significantly lower on a per square foot basis in the fourth quarter of 2001 as
compared to the same period in 2000.
Fiscal 2002
For fiscal 2002, the gross income rate was 41.1% versus 40.9% in 2001. The
increase was driven by improvements in IMU that were almost fully offset by
increased buying and occupancy costs, as a percentage of sales.
Tight control of inventory also protected gross income as the Company chased
inventory through most of the first half of 2002.
Fiscal 2001
For the 2001 fiscal year, the gross income rate decreased to 40.9% from 41.2% in
2000. The decrease was primarily attributable to higher buying and occupancy
costs. Buying and occupancy costs increased, as a percentage of net sales, due
to the deleveraging created by the decrease in comparable store sales. The
decrease was almost entirely offset by higher IMU as a result of continued
improvements in sourcing merchandise that reduced costs. The other factors in
protecting gross income were tight control of inventory, which resulted in
disciplined markdown control, and lower inventory shrinkage as a result of the
Company's continued emphasis on in-store operational controls.
GENERAL, ADMINISTRATIVE AND STORE OPERATING EXPENSES
Fourth Quarter 2002
The fourth quarter 2002 general, administrative and store operating expense rate
(general, administrative and store operating expenses divided by net sales) was
17.5% compared to 17.1% in the fourth quarter of 2001. The increase in rate
versus 2001 resulted primarily from an increase in home office expenses, largely
due to higher bonuses resulting from improved financial performance.
During the fourth quarter of 2002, store payroll hours were reduced by 9% per
average Abercrombie & Fitch adult store and 3% per average kids store. Store
hours are managed on a weekly basis in order to match hours with sales volume.
The control of payroll hours helped mitigate the effect of negative comps on the
store expense rate.
16
Efficiencies were also recognized in the distribution center and in the direct
business. During the fourth quarter of fiscal 2002, productivity, as measured in
units processed per labor hour, was 39% higher than the fourth quarter of 2001.
For the quarter, more units were processed than the comparable period in 2001
with 20% fewer labor hours.
In the fourth quarter of 2002, fulfillment costs per order in the direct
business were down by over 19% compared to the fourth quarter of 2001.
Fourth Quarter 2001
The fourth quarter 2001 general, administrative and store operating expense rate
improved to 17.1% as compared to 17.9% in the fourth quarter of 2000. The
Company continued to tightly control expenses in both the stores and the home
office. These cost controls included limiting headcount additions, reducing home
office travel and store payroll hours, and decreasing relocation and recruiting
expenses.
Savings were also recognized in the new distribution center and in the direct
business. During the fourth quarter 2001, productivity in the distribution
center, as measured in units processed per labor hour, was over 50% higher than
fourth quarter 2000. In the direct business, fulfillment costs per order were
down by over 10%. These savings in general, administrative and store operating
expenses were partially offset by marketing costs incurred as part of the
promotional strategy implemented during the fourth quarter of 2001.
Fourth quarter 2000's general, administrative and store operating expenses were
unfavorably affected by one-time expenses related to the move to the new
distribution center and home office and the inclusion of a 14th week in the
fourth quarter of 2000.
Fiscal 2002
The full year general, administrative and store operating expense rate in 2002
was 21.5% versus 21.0% in 2001. The 2002 rate increase resulted from an increase
in store expenses, as a percentage of sales, due to the inability to leverage
fixed costs on a comp store sales decrease, as well as higher legal and
incentive compensation expenses.
Fiscal 2001
The full year general, administrative and store operating expense rate in 2001
was 21.0% versus 20.7% in 2000. The rate increase in 2001 was primarily due to
the inability to leverage fixed expenses as a result of the decrease in sales
volume per average store. The increase was partially offset by the Company's
focus on discretionary expense controls.
OPERATING INCOME
Fourth Quarter 2002
The operating income rate (operating income divided by net sales) was 28.0% for
the fourth quarter of fiscal 2002 compared to 27.6% for the same period in 2001.
Less aggressive promotional activities and higher average selling prices
increased the gross income rate in the current year's fourth quarter. This
improvement was offset somewhat by a higher general, administrative and store
operating expense rate.
17
Fiscal 2002
The operating income rate for the fiscal year 2002 was 19.6% versus 19.9% in
fiscal year 2001. The decline was attributable to a higher general,
administrative and store operating expense rate due to the inability to leverage
fixed costs on a comp store decrease. The increased expense rate was partially
offset by a gross income rate increase.
Fourth Quarter 2001 and Fiscal 2001
The operating income rate was 27.6% and 19.9% for the fourth quarter and fiscal
year of 2001, respectively, compared to 28.2% and 20.5% for the same periods in
2000. The decline in operating income rate in these periods was primarily due to
lower gross income percentages resulting from planned promotional strategies
executed in the fourth quarter of 2001. Lower general, administrative and store
operating expenses, expressed as a percentage of net sales, partially offset the
lower gross income rate in the fourth quarter of 2001. For the year, higher
general, administrative and store operating expenses, expressed as a percentage
of net sales, added to the decrease in operating income rate.
INTEREST INCOME AND INCOME TAXES
Fourth quarter and year-to-date net interest income were $1.3 and $3.8 million
in 2002 as compared with net interest income of $1.2 and $5.1 million for the
comparable periods in 2001. The decrease in net interest income in the
year-to-date period was a result of the Company's strategy at the beginning of
2002 to invest cash in tax-free securities due to the decline in short-term
market interest rates. Previously, the Company primarily invested in the
commercial paper market.
The tax-free investments contributed to a lower effective tax rate of 38.5% and
38.4% for the fourth quarter and year-to-date periods of 2002 as compared to
39.0% for both of 2001's comparable periods.
Net interest income was $1.2 million in the fourth quarter of 2001 and $5.1
million for the 2001 fiscal year compared with net interest income of $2.5
million and $7.8 million for the corresponding periods in 2000. The decrease in
net interest income for both the quarter and the year was due to the decline in
market interest rates. Net interest income in 2001 and 2000 was primarily from
short-term investments.
FINANCIAL CONDITION
The Company's continuing growth in net income affords it financial strength and
flexibility. A more detailed discussion of liquidity, capital resources and
capital requirements follows.
18
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):
2002 2001 2000
--------------- --------------- -------------
Working capital $389,686 $241,616 $146,939
=============== =============== =============
Capitalization
Shareholders' equity $749,527 $595,434 $422,700
=============== =============== =============
The Company considers the following to be measures of liquidity and capital
resources:
2002 2001 2000
-------------- --------------- --------------
Current ratio (current assets divided by current 2.84 2.48 1.94
liabilities)
Operating cash flow (in thousands) $293,146 $233,202 $151,189
============== =============== ==============
Net cash provided by operating activities is the Company's primary source of
liquidity and has grown steadily the past three years from $151.2 million in
2000 to $233.2 million in 2001 to $293.1 million in 2002. Current year net
income adjusted for depreciation and amortization was the primary source of
cash.
Additionally, in 2002, cash was provided from increases in accounts payable and
accrued expenses and income taxes payable.
Accounts payable increased in 2002 due to both the increased level of inventory
and timing of payments versus 2001.
Accrued expenses increased in 2002 due to the following: higher incentive
compensation expenses, resulting from the Company's improved financial
performance; higher store expenses and gift card liability, consistent with the
increase in store openings; and higher legal expenses.
The increase in income taxes payable in the current year was due primarily to a
change in the methodology being used to make estimated tax payments throughout
2002. This methodology was modified to more closely reflect interim liabilities
under the annualization method. In addition, the favorable impact of the
Company's stock-based compensation was significantly reduced reflecting the
lower stock prices during 2002 as compared to 2001.
Net deferred income taxes increased in 2002 primarily as a result of increasing
differences between book and tax depreciation methods due to the accelerated
growth of store openings the past few years and "bonus" accelerated depreciation
allowed under the Job Creation and Worker Assistance Act of 2002.
Inventories increased $35.3 million during 2002 and represented the primary use
of cash. Inventories at fiscal 2002 year-end were 12% higher on a gross square
foot basis versus fiscal 2001 year-end.
19
Other uses of cash were directly related to store growth and primarily consisted
of increases in capitalized store supplies and prepaid rent related to stores
(classified in other current assets).
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 related to investing activities were primarily for capital
expenditures (see the discussion in the "Capital Expenditures" section below)
related to new stores (net of construction allowances) with approximately $20
million invested in information technology and distribution center projects.
Investing activities also included purchases and maturities of marketable
securities. As of February 1, 2003, the Company held marketable securities with
original maturities of three to five months. The decrease in note receivable
resulted from the repayment of a promissory note by the Chairman (see Note 9 to
the Consolidated Financial Statements).
Financing activities during 2002, 2001 and 2000 consisted primarily of the
repurchase of 1,850,000 shares, 600,000 shares, and 3,550,000 shares,
respectively, of A&F's Class A Common Stock pursuant to previously authorized
stock repurchase programs.
The 2002 repurchase completed a previously authorized 6,000,000 share repurchase
program. At its August 2002 Board meeting, the Board of Directors authorized the
repurchase of an additional 5,000,000 shares of the Company's Class A Common
Stock. As of February 1, 2003, the total number of shares authorized and
available for repurchase was 5,000,000. In addition to stock repurchases,
financing activities also consisted of stock option exercises and restricted
stock issuances.
During the first nine months of 2002, the Company had available a $150 million
syndicated unsecured credit agreement. The Company also had a $75 million
facility for trade letters of credit. The trade letters of credit were issued to
numerous overseas suppliers and served as guarantees to the suppliers.
Effective November 14, 2002, the Company entered into a new $250 million
syndicated unsecured credit agreement (the "New Credit Agreement"), which
replaced both the then existing credit agreement (the "Old Credit Agreement")
and the trade letter of credit facility. Additional details regarding the New
Credit Agreement can be found in the Notes to Consolidated Financial Statements
(see Note 8).
Letters of credit totaling approximately $41.8 million were outstanding under
the New Credit Agreement at February 1, 2003. Letters of credit totaling
approximately $49.9 million were outstanding under the trade letter of credit
facility at February 2, 2002. No borrowings were outstanding under the New
Credit Agreement at February 1, 2003 or under the Old Credit Agreement at
February 2, 2002.
The Company has standby letters of credit in the amount of $4.7 million that
expire in one year. The beneficiary, a merchandise supplier, has the right to
draw upon the standby letters of credit if the Company has authorized or filed a
voluntary petition in bankruptcy. To date, the beneficiary has not drawn upon
the standby letters of credit.
20
As of February 1, 2003, the Company was committed to noncancelable leases with
remaining terms of one to fourteen years. These commitments include store leases
with initial terms ranging primarily from ten to fifteen years. A summary of
minimum rent commitments under noncancelable leases follows (dollars in
thousands):
Payments Due by Period
----------------------
Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
$889,328 $120,313 $352,910 $186,434 $229,671
STORES AND GROSS SQUARE FEET
Store count and gross square footage by concept were as follows:
February 1, 2003 February 2, 2002
---------------- ----------------
Number of Gross Square Number of Gross Square
Stores Feet (millions) Stores Feet (millions)
------ --------------- ------ ---------------
Abercrombie & Fitch 340 3,036 309 2,798
abercrombie 164 727 148 662
Hollister Co. 93 595 34 213
----- ------ ----- ------
Total 597 4,358 491 3,673
----- ------ ----- ------
CAPITAL EXPENDITURES
Capital expenditures, net of construction allowances, totaled $93.0 million,
$126.5 million and $153.5 million for 2002, 2001 and 2000, respectively.
Additionally, the noncash accrual for construction in progress decreased $12.7
million in 2002 and increased $1.0 million and $9.5 million in 2001 and 2000,
respectively. Capital expenditures in 2002 related to new store construction
with approximately $20 million invested in information technology and
distribution center projects. Capital expenditures in 2001 and 2000 related to
the construction of a new office and distribution center, including the noncash
accrual for construction in progress, accounted for approximately $17 million
and $92 million of total capital expenditures in 2001 and 2000, respectively.
The office and distribution center were completed in 2001. The balance of
capital expenditures related primarily to new stores.
The Company anticipates spending $120 to $130 million in 2003 for capital
expenditures, of which $70 to $80 million will be for new stores construction.
The balance of expenditures primarily relates to improving the in-store
information technology structure, which should be complete for back-to-school,
and distribution center expansion. In addition, the Company has begun
construction planning for additional home office space to accommodate the growth
of Hollister.
The Company intends to add approximately 726,000 gross square feet for the three
concepts in 2003, which will represent a 17% increase over year-end 2002. It is
anticipated the increase will result from the addition of approximately 30 new
Abercrombie & Fitch stores, 10 new abercrombie stores and 70 new Hollister Co.
stores. Additionally, the Company plans to remodel 10 Abercrombie & Fitch
stores.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Abercrombie & Fitch stores opened in 2003 will
approximate $630,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $330,000 per
store.
21
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for abercrombie stores opened in 2003 will approximate
$485,000 per store, after giving effect to landlord allowances. In addition,
inventory purchases are expected to average approximately $130,000 per store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Hollister Co. stores opened in 2003 will approximate
$650,000 per store, after giving effect to landlord allowances. In addition,
inventory purchases are expected to average approximately $230,000 per store.
The Company expects that substantially all future capital expenditures will be
funded with cash from operations. In addition, the Company has $250 million
available (less outstanding letters of credit) under its credit agreement to
support operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States ("GAAP"). The preparation of these financial statements
requires the Company to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues and expenses. Since actual results may
differ from those estimates, the Company revises its estimates and assumptions
as new information becomes available.
The Company's significant accounting policies can be found in the Notes to
Consolidated Financial Statements (see Note 2). The Company believes that the
following policies are most critical to the portrayal of the Company's financial
condition and results of operations.
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 related 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 A&F, 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 provides a conservative inventory
valuation as it preserves the cost-to-retail relationship in ending inventory.
22
Property and Equipment - Depreciation and amortization of property and equipment
are computed for financial reporting purposes on a straight-line basis, using
service lives ranging principally from 10-15 years for leasehold improvements
and 3-10 years for other property and equipment. Beneficial leaseholds represent
the present value of the excess of fair market rent over contractual rent of
existing stores at the 1988 purchase of the Abercrombie & Fitch business by The
Limited, Inc. (now known as Limited Brands, Inc., "The Limited") and are being
amortized over the lives of the related leases. The cost of assets sold or
retired and the related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net income.
Maintenance and repairs are charged to expense as incurred. Major renewals and
betterments that extend service lives are capitalized. Long-lived assets are
reviewed at the store level at least annually for impairment or whenever events
or changes in circumstances indicate that full recoverability is questionable.
Factors used in the evaluation include, but are not limited to, management's
plans for future operations, recent operating results and projected cash flows.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
The standard was effective February 3, 2002 for the Company. SFAS No. 142
addresses how intangible assets that are acquired individually or with a group
of other assets should be accounted for in financial statements upon their
acquisition. It also addresses how goodwill and other intangible assets should
be accounted for after they have been initially recognized in the financial
statements. The adoption of SFAS No. 142 did not have an impact on the Company's
results of operations or its financial position in 2002.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was effective
February 2, 2003 for the Company. The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
obligation for its recorded amount or the entity incurs a gain or loss upon
settlement. Because costs associated with exiting leased properties at the end
of lease terms are minimal, management anticipates that the adoption of SFAS No.
143 will not have a significant effect on the Company's results of operations or
its financial position.
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets," was
effective February 3, 2002 for the Company. The standard addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The adoption of SFAS No. 144 did not have a material impact on the Company's
results of operations or its financial position in 2002.
23
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, including indirect guarantees of
indebtedness of others, an interpretation of FASB Statements No. 5, 57, and 107
and rescission of FASB Interpretation No. 34," that requires recognition of a
liability (at fair value) for guarantee contracts that have any of the following
characteristics:
- Contracts that contingently require the guarantor to make payments
based on changes in an underlying, as defined by SFAS No. 133;
- Contracts that contingently require the guarantor to make payments
based on another entity's failure to perform under an obligating
agreement;
- Indemnification agreements;
- Indirect guarantees of the indebtedness of others.
In addition to the disclosures required by current GAAP related to guarantees,
this interpretation requires additional disclosures including:
- Details about the nature of the guarantee;
- The maximum potential amount of future payments (undiscounted);
- The current carrying amount of the liability for guarantor's obligation
under the guarantee;
- The nature of any recourse provisions.
Guarantees issued or modified after December 31, 2002 must follow the new
accounting. The disclosure requirements were effective for the 2002 financial
statements and did not have an impact on the Company's results of operations or
its financial position in 2002. The recognition provisions will be adopted by
the Company in 2003 and are not expected to have a significant impact on the
Company's financial statements.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," was effective February 2,
2003 for the Company. The standard rescinds FASB Statements No. 4 and 64 that
deal with issues relating to the extinguishment of debt. The standard also
rescinds FASB Statement No. 44 that deals with intangible assets of motor
carriers. The standard modifies FASB Statement No. 13, "Accounting for Leases,"
so that certain capital lease modifications must be accounted for by lessees as
sale-leaseback transactions. Additionally, the standard identifies amendments
that should have been made to previously existing pronouncements and formally
amends the appropriate pronouncements. The provisions of this standard related
to the rescission of SFAS No. 4 are in effect in 2003. The remaining provisions
of the statement were adopted by the Company for transactions occurring after
May 15, 2002.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," requires that a liability for a cost associated with an exit or
disposal activity be recognized and measured initially at fair value when the
liability is incurred. The provisions of the standard are effective for exit or
disposal activities initiated after December 31, 2002. The adoption of SFAS No.
146 did not have a significant impact on the Company's financial statements.
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment to FASB No. 123," was issued on December 31, 2002.
Pursuant to this standard, companies that choose to adopt the accounting
provisions of FASB No. 123, "Accounting for Stock-Based Compensation," will be
permitted to select from three transition methods (prospective, modified
prospective, and retroactive restatement).
24
Companies that choose not to adopt the accounting provisions of FASB No. 123
will be affected by the new disclosure requirements of FASB No. 148. The new
disclosures include tabular presentation of the following information for all
periods presented:
1. Net income and EPS (basic and diluted), as reported;
2. Compensation expense (if any), net of tax, included in reported net
income;
3. Compensation expense that would have been included in net income had
the company adopted the accounting provisions of FASB No. 123 for all
awards granted, modified or settled since December 15, 1994;
4. Pro forma net income and earnings per share.
The transition and annual disclosure provisions of FASB No. 148 are effective
for the 2002 financial statements. The new interim disclosure provisions are
effective in the first quarter of 2003.
Emerging Issues Task Force ("EITF") Issue 02-16, "Accounting by a Customer
(Including a Reseller) For Cash Consideration Received from a Vendor," addresses
the accounting treatment for cash vendor allowances received. The adoption of
EITF Issue 02-16 in 2003 did not have an impact on the Company's financial
position or results of operations.
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented based
upon historical cost. While it is difficult to accurately measure the impact of
inflation due to the imprecise nature of the estimates required, the Company
believes that the effects of inflation, if any, on its results of operations and
financial condition have been minor.
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-K or
made by management of A&F involve risks and uncertainties and are subject to
change based on various important factors. The following factors, among others,
in some cases have affected and in the future could affect the Company's
financial performance and actual results and could cause actual results for 2003
and beyond to differ materially from those expressed or implied in any of the
forward-looking statements included in this Form 10-K or otherwise made by
management: changes in consumer spending patterns and consumer preferences; the
effects of political and economic events and conditions domestically and in
foreign jurisdictions in which the Company operates, including, but not limited
to, acts of terrorism or war; the impact of competition and pricing; changes in
weather patterns; market price of key raw materials; ability to source product
from its global supplier base; political stability; currency and exchange risks
and changes in existing or potential duties, tariffs or quotas; availability of
suitable store locations at appropriate terms; ability to develop new
merchandise; and ability to hire, train and retain associates.
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company maintains its cash and equivalents in financial instruments with
original maturities of 90 days or less. The Company also holds marketable
securities with original maturities of three to five months. These financial
instruments bear interest at fixed rates and are subject to interest rate risk
through lost income should interest rates increase. The Company does not enter
into financial instruments for trading purposes.
As of February 1, 2003, the Company had no long-term debt outstanding. Future
borrowings would bear interest at negotiated rates and would be subject to
interest rate risk. The Company does not believe that a hypothetical adverse
change of 10% in interest rates would have a material affect on the Company's
financial condition.
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ABERCROMBIE & FITCH
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
2002 2001 2000
------------- ------------- -------------
NET SALES $1,595,757 $1,364,853 $1,237,604
Cost of Goods Sold, Occupancy and Buying Costs 939,708 806,819 728,229
------------- ------------- -------------
GROSS INCOME 656,049 558,034 509,375
General, Administrative and Store Operating Expenses 343,432 286,576 255,723
------------- ------------- -------------
OPERATING INCOME 312,617 271,458 253,652
Interest Income, Net (3,768) (5,064) (7,801)
------------- ------------- -------------
INCOME BEFORE INCOME TAXES 316,385 276,522 261,453
Provision for Income Taxes 121,450 107,850 103,320
------------- ------------- -------------
NET INCOME $194,935 $168,672 $158,133
============= ============= =============
NET INCOME PER SHARE:
BASIC $1.99 $1.70 $1.58
============= ============= =============
DILUTED $1.94 $1.65 $1.55
============= ============= =============
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
27
ABERCROMBIE & FITCH
CONSOLIDATED BALANCE SHEETS
(Thousands)
February 1, February 2,
2003 2002
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and Equivalents $391,035 $167,664
Marketable Securities 10,000 71,220
Receivables 10,462 20,456
Inventories 144,218 108,876
Store Supplies 25,671 21,524
Other 19,770 15,455
---------------- ----------------
TOTAL CURRENT ASSETS 601,156 405,195
PROPERTY AND EQUIPMENT, NET 392,941 365,112
OTHER ASSETS 725 239
---------------- ----------------
TOTAL ASSETS $994,822 $770,546
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $50,153 $31,897
Accrued Expenses 120,438 109,586
Income Taxes Payable 40,879 22,096
---------------- ----------------
TOTAL CURRENT LIABILITIES 211,470 163,579
DEFERRED INCOME TAXES 20,781 1,165
OTHER LONG-TERM LIABILITIES 13,044 10,368
SHAREHOLDERS' EQUITY:
Common Stock - $.01 par value: 150,000,000 shares authorized, 97,268,877
and 98,871,478 shares outstanding at February 1, 2003 and February 2,
2002, respectively 1,033 1,033
Paid-In Capital 142,577 141,394
Retained Earnings 714,475 519,540
---------------- ----------------
858,085 661,967
Less: Treasury Stock, at Average Cost (108,558) (66,533)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY 749,527 595,434
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $994,822 $770,546
================ ================
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
28
ABERCROMBIE & FITCH
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands)
Common Stock
-------------------------
Treasury Total
Shares Par Paid-In Retained Stock, at Shareholders'
Outstanding Value Capital Earnings Average Cost Equity
--------------- --------- ------------ ------------- ------------- ----------------
Balance, January 29, 2000 102,004 $1,033 $147,305 $192,735 $(29,979) $311,094
Purchase of Treasury Stock (3,550) - - - (43,929) (43,929)
Net Income - - - 158,133 - 158,133
Tax Benefit from Exercise of Stock
Options and Vesting of Restricted
Stock - - 462 - - 462
Stock Options, Restricted Stock
and Other 342 - (11,277) - 8,217 (3,060)
--------------- --------- ------------ ------------- ------------- ----------------
Balance, February 3, 2001 98,796 $1,033 $136,490 $350,868 $(65,691) $422,700
Purchase of Treasury Stock (600) - - - (11,069) (11,069)
Net Income - - - 168,672 - 168,672
Tax Benefit from Exercise of Stock
Options and Vesting of Restricted
Stock - - 5,056 - - 5,056
Stock Options, Restricted Stock
and Other 677 - (152) - 10,227 10,075
--------------- --------- ------------ ------------- ------------- ----------------
Balance, February 2, 2002 98,873 $1,033 $141,394 $519,540 $(66,533) $595,434
Purchase of Treasury Stock (1,850) - - - (42,691) (42,691)
Net Income - - - 194,935 - 194,935
Tax Benefit from Exercise of Stock
Options and Vesting of Restricted
Stock - - 164 - - 164
Stock Options, Restricted Stock
and Other 246 - 1,019 - 666 1,685
--------------- --------- ------------ ------------- ------------- ----------------
Balance, February 1, 2003 97,269 $1,033 $142,577 $714,475 $(108,558) $749,527
=============== ========= ============ ============= ============= ================
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
29
ABERCROMBIE & FITCH
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
2002 2001 2000
---------- ----------- ---------
OPERATING ACTIVITIES:
Net income $194,935 $168,672 $158,133
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 56,925 41,155 30,731
Noncash Charge for Deferred Compensation 2,295 3,936 4,340
Changes in Assets and Liabilities:
Inventories (35,342) 12,121 (45,735)
Accounts Payable and Accrued Expenses 41,766 5,272 21,626
Income Taxes 38,235 13,787 (8,420)
Other Assets and Liabilities (5,668) (11,741) (9,486)
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 293,146 233,202 151,189
--------- --------- ---------
INVESTING ACTIVITIES:
Capital Expenditures (92,976) (126,515) (153,481)
Proceeds from Maturities of Marketable Securities 61,220 - 45,601
Purchase of Marketable Securities - (71,220) -
Collection (Issuances) of Note Receivable 4,954 (454) (3,000)
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (26,802) (198,189) (110,880)
--------- --------- ---------
FINANCING ACTIVITIES:
Purchase of Treasury Stock (42,691) (11,069) (43,929)
Other Changes in Shareholders' Equity (282) 6,139 (6,707)
--------- --------- ---------
NET CASH USED FOR FINANCING ACTIVITIES (42,973) (4,930) (50,636)
--------- --------- ---------
NET INCREASE/(DECREASE) IN CASH AND EQUIVALENTS 223,371 30,083 (10,327)
Cash and Equivalents, Beginning of Year 167,664 137,581 147,908
--------- --------- ---------
CASH AND EQUIVALENTS, END OF YEAR $391,035 $167,664 $137,581
========= ========= =========
SIGNIFICANT NONCASH INVESTING ACTIVITIES:
Construction Allowance Receivables $8,778 $14,030 $8,668
========= ========= =========
Accrual for Construction in Progress $12,680 $25,338 $24,371
========= ========= =========
The accompanying Notes are an integral part
of these Consolidated Financial Statements.
30
ABERCROMBIE & FITCH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. ("A&F"), through its wholly-owned subsidiaries
(collectively, A&F and its wholly-owned 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 business was established in 1892.
The accompanying consolidated financial statements include the historical
financial statements of, and transactions applicable to, A&F and its
wholly-owned subsidiaries and reflect the assets, liabilities, results of
operations and cash flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of A&F. All
significant intercompany balances and transactions have been eliminated
in consolidation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are designated in the financial statements and notes by the
calendar year in which the fiscal year commences. The results for fiscal
years 2002 and 2001 represent the fifty-two week periods ended February
1, 2003 and February 2, 2002. The results for fiscal year 2000 represent
the fifty-three week period ended February 3, 2001.
CASH AND EQUIVALENTS
Cash and equivalents include amounts on deposit with financial
institutions and investments with original maturities of less than 90
days.
MARKETABLE SECURITIES
All investments with original maturities of greater than 90 days are
accounted for in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." The Company determines the appropriate
classification at the time of purchase. At February 1, 2003, the Company
held investments in marketable securities that were classified as held to
maturity based on the Company's positive intent and ability to hold the
securities to maturity. Primarily all securities held by the Company at
February 1, 2003 were municipal debt securities that mature within one
year and are stated at amortized cost that approximates market value.
31
INVENTORIES
Inventories are principally valued at the lower of average cost or
market, on a first-in first-out basis, utilizing the retail method.
STORE SUPPLIES
The initial inventory of supplies for new stores including, but not
limited to, hangers, signage, security tags and point-of-sale supplies
are capitalized at the store opening date. Subsequent shipments are
expensed except for new merchandise presentation programs, which are
capitalized.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed for
financial reporting purposes on a straight-line basis, using service
lives ranging principally from 10-15 years for leasehold improvements and
3-10 years for other property and equipment. Beneficial leaseholds
represent the present value of the excess of fair market rent over
contractual rent of existing stores as of the 1988 purchase of the
Abercrombie & Fitch business by The Limited, Inc. (now known as Limited
Brands, Inc. "The Limited") and are being amortized over the lives of the
related leases. The cost of assets sold or retired and the related
accumulated depreciation or amortization are removed from the accounts
with any resulting gain or loss included in net income. Maintenance and
repairs are charged to expense as incurred. Major renewals and
betterments that extend service lives are capitalized. Long-lived assets
are reviewed at the store level at least annually for impairment or
whenever events or changes in circumstances indicate that full
recoverability of net assets through future cash flows is in question.
Factors used in the evaluation include, but are not limited to,
management's plans for future operations, recent operating results and
projected cash flows.
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.
Deferred tax assets and liabilities are measured using enacted tax rates
in effect in the years in which those temporary differences are expected
to reverse. Under SFAS No. 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date.
SHAREHOLDERS' EQUITY
At February 1, 2003 and February 2, 2002, there were 150 million shares
of $.01 par value Class A Common Stock authorized, of which 97.3 million
and 98.9 million shares were outstanding at February 1, 2003 and February
2, 2002, respectively, and 106.4 million shares of $.01 par value Class B
Common Stock authorized, none of which were outstanding at February 1,
2003 or February 2, 2002. In addition, 15 million shares of $.01 par
value Preferred Stock were authorized, none of which have been issued.
See Note 13 for information about Preferred Stock Purchase Rights.
32
Holders of Class A Common Stock generally have identical rights to
holders of Class B Common Stock, except that holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common
Stock are entitled to three votes per share on all matters submitted to a
vote of shareholders.
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 related 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.
CATALOGUE AND ADVERTISING COSTS
Costs related to the A&F Quarterly, a catalogue/magazine, primarily
consist of catalogue production and mailing costs and are expensed as
incurred. Advertising costs consist of in-store photographs and
advertising in selected national publications and are expensed when the
photographs or publications first appear. Catalogue and advertising costs
amounted to $33.4 million in 2002, $30.7 million in 2001 and $30.4
million in 2000.
STORE PREOPENING EXPENSES
Preopening expenses related to new store openings are charged to
operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded values of current assets and current liabilities, including
receivables, marketable securities and accounts payable, approximate fair
value due to the short maturity and because the average interest rate
approximates current market origination rates.
STOCK-BASED COMPENSATION
The Company reports stock-based compensation through the disclosure-only
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation,"
as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an Amendment to FASB No. 123," but
elects to measure compensation expense using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation
expense for options has been recognized as all options are granted at
fair market value at the grant date. The Company does recognize
compensation expense related to restricted share awards. If compensation
expense related to options had been determined based on the estimated
fair value of options granted in 2002, 2001 and 2000, 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:
33
(Thousands except per share amounts)
--------------- --------------- ---------------
2002 2001 2000
--------------- --------------- ---------------
Net income:
As reported $194,935 $168,672 $158,133
Stock-based compensation expense included in
reported net income, net of tax 1,414 2,401 2,626
Stock-based compensation expense determined under
fair value based method, net of tax(1)
(25,979) (22,453) (21,706)
--------------- --------------- ---------------
Pro forma $170,370 $148,620 $139,053
=============== =============== ===============
Basic earnings per share:
As reported $1.99 $1.70 $1.58
Pro forma $1.74 $1.50 $1.39
Diluted earnings per share:
As reported $1.94 $1.65 $1.55
Pro forma $1.73 $1.48 $1.38
(1) Includes stock-based compensation expense related to
restricted share awards actually recognized in earnings
in each period presented.
The pro forma effect on net income for 2002, 2001 and 2000 is not
representative of the pro forma effect on net income in future years
because it takes into consideration pro forma compensation expense
related only to those grants made subsequent to May 19, 1998.
The weighted-average fair value of all options granted during fiscal
2002, 2001 and 2000 was $12.07, $14.96 and $8.90, respectively. The fair
value of each option was estimated using the Black-Scholes option-pricing
model, which are included in the pro forma results above. For purposes of
the valuation the following weighted-average assumptions were used: no
expected dividends in 2002, 2001 and 2000; price volatility of 53% in
2002, 54% in 2001 and 50% in 2000; risk-free interest rates of 4.3%, 4.7%
and 6.2% in 2002, 2001 and 2000, respectively; assumed forfeiture rates
of 15% in 2002 and 2001 and 10% in 2000; and expected lives of 5 years in
2002, 2001 and 2000.
EARNINGS PER SHARE
Net income per share is computed in accordance with SFAS No. 128,
"Earnings Per Share." Net income per basic share is computed based on the
weighted-average number of outstanding shares of common stock. Net income
per diluted share includes the weighted-average effect of dilutive stock
options and restricted shares.
34
Weighted-Average Shares Outstanding (thousands):
2002 2001 2000
---------- ----------- ----------
Shares of common stock issued 103,300 103,300 103,300
Treasury shares (5,129) (4,198) (3,239)
---------- ----------- ----------
Basic shares 98,171 99,102 100,061
Dilutive effect of options and restricted shares 2,460 3,422 2,095
---------- ----------- ----------
Diluted shares 100,631 102,524 102,156
========== =========== ==========
Options to purchase 9,218,000, 5,630,000 and 9,100,000 shares of Class A
Common Stock were outstanding at year-end 2002, 2001 and 2000,
respectively, but were not included in the computation of net income per
diluted share because the options' exercise prices were greater than the
average market price of the underlying shares.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Since
actual results may differ from those estimates, the Company revises its
estimates and assumptions as new information becomes available.
RECLASSIFICATIONS
Certain amounts have been reclassified to conform to current year
presentation. The amounts reclassified did not have an effect on the
Company's results of operations or shareholders' equity.
3. ISSUANCES OF ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets." The standard was effective
February 3, 2002 for the Company. SFAS No. 142 addresses how intangible
assets that are acquired individually or with a group of other assets
should be accounted for in financial statements upon their acquisition.
It also addresses how goodwill and other intangible assets should be
accounted for after they have been initially recognized in the financial
statements. The adoption of SFAS No. 142 did not have an impact on the
Company's results of operations or its financial position in 2002.
SFAS No. 143, "Accounting for Asset Retirement Obligations," was
effective February 2, 2003 for the Company. The standard requires
entities to record the fair value of a liability for an asset retirement
obligation in the period in which it is a cost by increasing the carrying
amount of the related long-lived asset. Over time, the liability is
accreted to its present value each period, and the capitalized cost is
depreciated over the useful life of the related obligation for its
recorded amount or the entity incurs a gain or loss upon settlement.
Because costs associated with exiting leased properties at the end of
lease terms are minimal, management anticipates that the adoption of SFAS
No. 143 will not have a significant effect on the Company's results of
operations or its financial position.
35
SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets," was effective February 3, 2002 for the Company. The standard
addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. The adoption of SFAS No. 144 did not have
an impact on the Company's results of operations or its financial
position in 2002.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including indirect
guarantees of indebtedness of others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB Interpretation No.
34," that requires recognition of a liability (at fair value) for
guarantee contracts that have any of the following characteristics:
- Contracts that contingently require the guarantor to make payments
based on changes in an underlying, as defined by SFAS No. 133;
- Contracts that contingently require the guarantor to make payments
based on another entity's failure to perform under an obligating
agreement;
- Indemnification agreements;
- Indirect guarantees of the indebtedness of others.
In addition to the disclosures required by current GAAP related to
guarantees, this interpretation requires additional disclosures
including:
- Details about the nature of the guarantee;
- The maximum potential amount of future payments (undiscounted);
- The current carrying amount of the liability for the guarantor's
obligation under the guarantee;
- The nature of any recourse provisions.
Guarantees issued or modified after December 31, 2002 must follow the new
accounting. The disclosure requirements were effective for the 2002
financial statements and did not have an impact on the Company's results
of operations or its financial position in 2002. The recognition
provisions will be adopted by the Company in 2003 and are not expected to
have a significant impact on the Company's financial statements.
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections," was effective
February 2, 2003 for the Company. The standard rescinds FASB Statements
No. 4 and 64 that deal with issues relating to the extinguishment of
debt. The standard also rescinds FASB Statement No. 44 that deals with
intangible assets of motor carriers. The standard modifies FASB Statement
No. 13, "Accounting for Leases," so that certain capital lease
modifications must be accounted for by lessees as sale-leaseback
transactions. Additionally, the standard identifies amendments that
should have been made to previously existing pronouncements and formally
amends the appropriate pronouncements. The provisions of this standard
related to the rescission of SFAS No. 4 are in effect in 2003. The
remaining provisions of the statement were adopted by the Company for
transactions occurring after May 15, 2002.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," requires that a liability for a cost associated with an exit
or disposal activity be recognized and measured initially at fair value
when the liability is incurred. The provisions of the standard are
effective for exit or
36
disposal activities initiated after December 31, 2002. The adoption of
SFAS No. 146 did not have a significant impact on the Company's financial
statements.
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure-an Amendment to FASB No. 123," was issued on December 31,
2002. Pursuant to this standard, companies that choose to adopt the
accounting provisions of FASB No. 123, "Accounting for Stock-Based
Compensation," will be permitted to select from three transition methods
(prospective, modified prospective, and retroactive restatement).
Companies that choose not to adopt the accounting provisions of FASB No.
123 will be affected by the new disclosure requirements of FASB No. 148.
The new disclosures include tabular presentation of the following
information for all periods presented:
1. Net income and earnings per share (basic and diluted),
as reported;
2. Compensation expense (if any), net of tax, included in reported
net income;
3. Compensation expense that would have been included in net income
had the Company adopted the accounting provisions of FASB No.
123 for all awards granted, modified or settled since December
15, 1994;
4. Pro forma net income and earnings per share.
The transition and annual disclosure provisions of FASB No. 148 are
effective for the 2002 financial statements. The new interim disclosure
provisions are effective in the first quarter of 2003.
Emerging Issues Task Force ("EITF") Issue 02-16, "Accounting by a
Customer (Including a Reseller) For Cash Consideration Received from a
Vendor," addresses the accounting treatment for cash vendor allowances
received. The adoption of EITF Issue 02-16 in 2003 did not have an impact
on the Company's financial position or results of operations.
4. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of (thousands):
2002 2001
---------------- -------------
Land $15,450 $15,414
Building 92,680 91,531
Furniture, fixtures and equipment 386,289 316,035
Beneficial leaseholds 7,349 7,349
Leasehold improvements 46,969 42,273
Construction in progress 36,905 28,721
---------------- -------------
Total $585,642 $501,323
Less: Accumulated depreciation and amortization 192,701 136,211
---------------- -------------
Property and equipment, net $392,941 $365,112
================ =============
37
5. LEASED FACILITIES AND COMMITMENTS
Annual store rent is comprised of a fixed minimum amount, plus contingent
rent based on a percentage of sales exceeding a stipulated amount. Store
lease terms generally require additional payments covering taxes, common
area costs and certain other expenses.
A summary of rent expense follows (thousands):
2002 2001 2000
------------------- ----------------- -------------------
Store rent:
Fixed minimum $105,751 $83,608 $65,716
Contingent 4,886 4,897 7,079
------------------- ----------------- -------------------
Total store rent $110,637 $88,505 $72,795
Buildings, equipment and other 1,133 1,566 2,777
------------------- ----------------- -------------------
Total rent expense $111,770 $90,071 $75,572
=================== ================= ===================
At February 1, 2003, the Company was committed to noncancelable leases
with remaining terms of one to fourteen years. These commitments include
store leases with initial terms ranging primarily from ten to fifteen
years. A summary of minimum rent commitments under noncancelable leases
follows (thousands):
2003 $120,313
2004 121,316
2005 118,695
2006 112,899
2007 99,381
Thereafter 316,724
6. ACCRUED EXPENSES
Accrued expenses consisted of the following (thousands):
2002 2001
--------------- -------------
Unredeemed gift card revenue $23,454 $17,031
Rent and landlord charges 18,465 16,247
Compensation and benefits 15,857 9,492
Accrual for construction in progress 12,680 25,338
Catalogue and advertising costs 9,701 11,178
Taxes, other than income 5,512 3,552
Other 34,769 26,748
--------------- -------------
Total $120,438 $109,586
=============== =============
38
7. INCOME TAXES
The provision for income taxes consisted of (thousands):
2002 2001 2000
------------------- ----------------- ------------------
Currently Payable:
Federal $90,069 $80,126 $80,856
State 12,034 14,567 18,403
------------------- ----------------- ------------------
$102,103 $94,693 $99,259
------------------- ----------------- ------------------
Deferred:
Federal 17,699 11,133 2,814
State 1,648 2,024 1,247
------------------- ----------------- ------------------
$19,347 $13,157 $4,061
------------------- ----------------- ------------------
Total provision $121,450 $107,850 $103,320
=================== ================= ==================
A reconciliation between the statutory Federal income tax rate and the
effective income tax rate follows:
2002 2001 2000
------------------ --------------- ----------------
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal income
tax effect 3.5% 3.9% 4.1%
Other items, net (0.1)% 0.1% 0.4%
------------------ --------------- ----------------
Total 38.4% 39.0% 39.5%
================== =============== ================
Income taxes payable included net current deferred tax assets of $6.0
million and $4.9 million at February 1, 2003 and February 2, 2002,
respectively.
Under a tax sharing arrangement with The Limited, who owned 84.2% of the
outstanding Common Stock through May 19, 1998, the Company was
responsible for and paid to The Limited its proportionate share of income
taxes calculated upon its separate taxable income at the estimated annual
effective tax rate for periods prior to May 19, 1998. Amounts paid to The
Limited totaled $1.4 million, $20 thousand and $829 thousand in 2002,
2001 and 2000, respectively. Amounts paid directly to taxing authorities
were $82.3 million, $94.3 million and $111.7 million in 2002, 2001 and
2000, respectively. The amount paid to The Limited during 2002
constituted a final tax sharing payment pursuant to an agreement to
terminate the tax sharing agreement entered into with The Limited as of
May 19, 1998. As a result, the Company has been indemnified by the
Limited for any federal, state or local income taxes asserted with
respect to The Limited for all periods prior to May 19, 1998.
39
The effect of temporary differences which give rise to deferred income
tax assets (liabilities) was as follows (thousands):
2002 2001
------------ ------------
Deferred tax assets:
Deferred compensation $8,113 $8,833
Accrued expenses 6,754 7,216
Inventory 2,960 1,747
Rent 1,314 1,525
Other 124 139
------------ ------------
Total deferred tax assets 19,265 19,460
------------ ------------
Deferred tax liabilities:
Property and equipment (25,954) (8,307)
Store supplies (8,061) (7,417)
------------ ------------
Total deferred tax liabilities (34,015) (15,724)
------------ ------------
Net deferred income tax assets
(liabilities) $(14,750) $3,736
============ ============
No valuation allowance has been provided for deferred tax assets because
management believes that it is more likely than not that the full amount
of the net deferred tax assets will be realized in the future.
8. LONG-TERM DEBT
The Company entered into a $250 million syndicated unsecured credit
agreement (the "New Credit Agreement") on November 14, 2002 to replace
both a $150 million syndicated unsecured credit agreement (the "Old
Credit Agreement") and a separate $75 million facility for the issuance
of trade letters of credit. The primary purposes of the New Credit
Agreement are for trade and stand-by letters of credit and working
capital. The New Credit Agreement is due to expire on November 14, 2005.
The New Credit Agreement has several borrowing options, including
interest rates that are based on the agent bank's "Alternate Base Rate,"
or a LIBO Rate. Facility fees payable under the New Credit Agreement are
based on the Company's ratio (the "leverage ratio") of the sum of total
debt plus 800% of forward minimum rent commitments to EBITDAR for the
trailing four-fiscal-quarter period and currently accrues at .225% of the
committed amounts per annum. The New Credit Agreement contains
limitations on indebtedness, liens, sale-leaseback transactions,
significant corporate changes including mergers and acquisitions with
third parties, investments, restricted payments (including dividends and
stock repurchases), hedging transactions and transactions with
affiliates. The New Credit Agreement also contains financial covenants
requiring a minimum ratio of EBITDAR for the trailing four-fiscal-quarter
period to the sum of interest expense and minimum rent for such period,
as well as a maximum leverage ratio. Letters of credit totaling
approximately $41.8 million were outstanding under the New Credit
Agreement at February 1, 2003. Letters of credit totaling approximately
$49.9 million were outstanding under the $75 million facility for the
issuance of trade letters of credit at February 2, 2002. No borrowings
were outstanding under the New Credit Agreement at February 1, 2003 or
under the Old Credit Agreement at February 2, 2002.
40
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 fiscal years 2002, 2001 and 2000 were approximately $1.9
million, $1.8 million and $1.7 million, respectively. These amounts do
not include reimbursements to Shahid & Company, Inc. for expense incurred
while performing these services.
On January 1, 2002, A&F loaned the amount of $4,953,833 to its Chairman,
a major shareholder of A&F, pursuant to the terms of a replacement
promissory note, which provided that such amount was due and payable on
December 31, 2002. The outstanding principal under the note did not bear
interest as the net sales threshold, per the terms of the note, was met.
This note was paid in full by the Chairman on December 31, 2002.
This note constituted a replacement of, and substitute for, several
promissory notes dated from November 17, 1999 through May 18, 2001.
10. STOCK OPTIONS AND RESTRICTED SHARES
Under A&F's stock plans, associates and non-associate directors may be
granted up to a total of 21.4 million restricted shares and options to
purchase A&F's common stock at the market price on the date of grant. In
2002, associates of the Company were granted options covering
approximately 3.5 million shares, with vesting periods from four to five
years. Options covering a total of 44,000 shares were granted to
non-associate directors in 2002, all of which vest over four years. All
options have a maximum term of ten years.
Options Outstanding at February 1, 2003
Options Outstanding Options Exercisable
----------------------------------------------------------------------- ---------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercisable
Prices Outstanding Life Price Exercisable Price
----------------- --------------- --------------- ------------- --------------- --------------
$8 - $23 4,304,000 5.2 $12.98 2,575,000 $12.01
$23 - $38 6,596,000 7.7 $26.40 1,713,000 $26.29
$38 - $52 5,159,000 6.5 $43.54 268,000 $41.19
----------------- --------------- --------------- ------------- --------------- --------------
$8 - $52 16,059,000 6.6 $28.31 4,556,000 $19.10
================= =============== =============== ============= =============== ==============
41
A summary of option activity for 2002, 2001 and 2000 follows:
---------------------------- ---------------------------- -----------------------------
2002 2001 2000
---------------------------- ---------------------------- -----------------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Option Price Shares Option Price Shares Option Price
-------------- ------------- -------------- ------------- -------------- -------------
Outstanding at beginning of year 12,961,000 $28.65 12,994,000 $28.01 12,809,000 $28.03
Granted 3,583,000 26.53 648,000 29.38 1,414,000 17.25
Exercised (93,000) 16.44 (521,000) 15.00 (193,000) 14.57
Canceled (392,000) 26.31 (160,000) 24.09 (1,036,000) 16.06
-------------- ------------ -------------- ------------ -------------- -------------
Outstanding at end of year 16,059,000 $28.31 12,961,000 $28.65 12,994,000 $28.01
============== ============ ============== ============ ============== =============
Options exercisable at year-end 4,556,000 $19.10 3,065,000 $18.49 2,164,000 $16.13
============== ============ ============== ============ ============== =============
A total of 1,046,000, 19,000 and 102,000 restricted shares were granted
in 2002, 2001 and 2000, respectively, with a total market value at grant
date of $28.0 million, $.6 million and $2.3 million, respectively. Of the
restricted shares granted in 2002, 1,000,000 shares were awarded to the
Company's Chairman, which become vested on December 31, 2008 provided the
Chairman remains continuously employed by the Company through such date.
The remaining restricted share grants generally vest either on a
graduated scale over four years or 100% at the end of a fixed vesting
period, principally five years. The market value of restricted shares is
being amortized as compensation expense over the vesting period,
generally four to five years. Compensation expenses related to restricted
share awards amounted to $2.3 million, $3.9 million and $4.3 million in
2002, 2001 and 2000, respectively.
11. RETIREMENT BENEFITS
The Company participates in a qualified defined contribution retirement
plan and a nonqualified supplemental retirement plan. Participation in
the qualified plan is available to all associates who have completed
1,000 or more hours of service with the Company during certain 12-month
periods and attained the age of 21. Participation in the nonqualified
plan is subject to service and compensation requirements. The Company's
contributions to these plans are based on a percentage of associates'
eligible annual compensation. The cost of these plans was $5.6 million in
2002, $3.9 million in 2001 and $3.0 million in 2000.
Effective February 2, 2003, the Company established a Supplemental
Executive Retirement Plan to provide additional retirement income to its
Chairman. Subject to service requirements, the Chairman will receive a
monthly prorated share of his final average compensation (as defined in
the Plan) for life.
12. CONTINGENCIES
The Company is involved in a number of legal proceedings. Although it is
not possible to predict with any certainty the eventual outcome of any
legal proceedings, it is the opinion of management that the ultimate
resolution of these matters will not have a material impact on the
Company's results of operations, cash flows or financial position.
42
The Company has standby letters of credit in the amount of $4.7 million
that expire in 1 year. The beneficiary, a merchandise supplier, has the
right to draw upon the standby letters of credit if the Company has
authorized or filed a voluntary petition 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 indemnifications.
13. PREFERRED STOCK PURCHASE RIGHTS
On July 16, 1998, A&F's Board of Directors declared a dividend of .50 of
a Series A Participating Cumulative Preferred Stock Purchase Right
(Right) for each outstanding share of Class A Common Stock, par value
$.01 per share (Common Stock), of A&F. The dividend was paid to
shareholders of record on July 28, 1998. Shares of Common Stock issued
after July 28, 1998 and prior to the Distribution Date described below
will be issued with a Right attached. Under certain conditions, each
whole Right may be exercised to purchase one one-thousandth of a share of
Series A Participating Cumulative Preferred Stock at an initial price of
$250. The Rights initially will be attached to the shares of Common
Stock. The Rights will separate from the Common Stock and a Distribution
Date will occur upon the earlier of 10 business days after a public
announcement that a person or group has acquired beneficial ownership of
20% or more of A&F's outstanding shares of Common Stock and become an
"Acquiring Person" (Share Acquisition Date) or 10 business days (or such
later date as the Board shall determine before any person has become an
Acquiring Person) after commencement of a tender or exchange offer which
would result in a person or group beneficially owning 20% or more of
A&F's outstanding Common Stock. The Rights are not exercisable until the
Distribution Date.
In the event that any person becomes an Acquiring Person, each holder of
a Right (other than the Acquiring Person and certain affiliated persons)
will be entitled to purchase, upon exercise of the Right, shares of
Common Stock having a market value two times the exercise price of the
Right. At any time after any person becomes an Acquiring Person (but
before any person becomes the beneficial owner of 50% or more of the
outstanding shares), A&F's Board of Directors may exchange all or part of
the Rights (other than Rights beneficially owned by an Acquiring Person
and certain affiliated persons) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right. In the event that, at any
time following the Share Acquisition Date, A&F is acquired in a merger or
other business combination transaction in which A&F is not the surviving
corporation, the Common Stock is exchanged for other securities or assets
or 50% or more of A&F's assets or earning power is sold or transferred,
the holder of a Right will be entitled to buy, for the exercise price of
the Rights, the number of shares of Common Stock of the acquiring company
which at the time of such transaction will have a market value of two
times the exercise price of the Right.
The Rights, which do not have any voting rights, expire on July 16, 2008,
and may be redeemed by A&F at a price of $.01 per whole Right at any time
before a person becomes an Acquiring Person.
Rights holders have no rights as a shareholder of A&F, including the
right to vote and to receive dividends.
43
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial results for 2002 and 2001 follow
(thousands except per share amounts):
2002 Quarter First Second Third Fourth
------------------------------------- ------------- -------------- -------------- --------------
Net sales $312,792 $329,154 $419,329 $534,482
Gross income 114,429 131,874 166,736 243,010
Net income 23,289 31,141 47,687 92,818
Net income per basic share $.24 $.32 $.49 $.95
Net income per diluted share $.23 $.31 $.48 $.93
2001 Quarter First Second Third Fourth
------------------------------------- ------------- -------------- -------------- --------------
Net sales $263,680 $280,116 $354,473 $466,584
Gross income 97,840 108,327 143,403 208,464
Net income 20,603 25,038 43,863 79,168
Net income per basic share $.21 $.25 $.44 $.80
Net income per diluted share $.20 $.24 $.43 $.78
44
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Abercrombie & Fitch Co:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity and cash flows present
fairly, in all material respects, the financial position of Abercrombie & Fitch
Co. and its subsidiaries at February 1, 2003 and February 2, 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended February 1, 2003 in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Columbus, Ohio
February 18, 2003
45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors of A&F is set forth under the captions "ELECTION
OF DIRECTORS - Nominees and Directors", "- Business Experience", "- Information
Concerning the Board of Directors" and "- Security Ownership of Directors and
Management" and "EXECUTIVE COMPENSATION - Employment Agreements and Other
Transactions with Certain Executive Officers" in A&F's definitive proxy
statement for the Annual Meeting of Stockholders to be held on May 22, 2003 (the
"Proxy Statement") and is incorporated herein by reference. Information
regarding executive officers of A&F is set forth under the captions "ELECTION OF
DIRECTORS - Business Experience", " - Executive Officers", and "- Security
Ownership of Directors and Management" and "EXECUTIVE COMPENSATION - Employment
Agreements and Other Transactions with Certain Executive Officers" in the Proxy
Statement and is incorporated herein by reference. In addition, information
regarding executive officers of A&F is included in this Annual Report on Form
10-K under the caption "SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT"
in Part I and is incorporated herein by reference. No disclosure is required to
be made under Item 405 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is set forth under the captions
"EXECUTIVE COMPENSATION" and "ELECTION OF DIRECTORS - Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement and is incorporated
herein by reference. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.
Information regarding the security ownership of certain beneficial owners and
management is set forth under the captions "PRINCIPAL HOLDERS OF SHARES" and
"ELECTION OF DIRECTORS - Security Ownership of Directors and Management" in the
Proxy Statement and is incorporated herein by reference.
Abercrombie & Fitch Co. ("A&F") has three equity compensation plans under which
its shares of Class A Common Stock, $0.01 par value ("Common Stock"), are
authorized for issuance to eligible directors, officers and employees in
exchange for consideration in the form of goods or services: (i) the 1996 Stock
Option and Performance Incentive Plan (1998 Restatement) (the "1998 Associates
Plan"); (ii) the 1996 Stock Plan for Non-Associate Directors (1998 Restatement)
(the "Non-Associate Directors Plan"); and (iii) the 2002 Stock Option Plan for
Associates (the "2002 Associates Plan"). The 1998 Associates Plan and the
Non-Associate Directors Plan have been approved by the stockholders of A&F while
the 2002 Associates Plan has not.
The following table summarizes equity compensation plan information for the 1998
Associates Plan and the Non-Associate Directors Plan as a group and for the 2002
Associates Plan, in each case as of February 1, 2003.
47
NUMBER OF SHARES OF
COMMON STOCK
REMAINING AVAILABLE
NUMBER OF SHARES OF FOR FUTURE ISSUANCE
COMMON STOCK UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE COMPENSATION PLANS
EXERCISE OF EXERCISE PRICE OF (EXCLUDING SHARES
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (a))
(a)* (b)* (c)*
-------------------- --------------------- --------------------
PLAN CATEGORY
Equity compensation plans approved by
stockholders 13,656,546(1) $28.80(2) 549,783(3)
Equity compensation plans not approved by
stockholders 3,488,053 $26.53 1,511,947
Total 17,144,599 $28.34 2,061,730
-----------------
*Reflects adjustments for changes in A&F's capitalization.
(1) Includes 12,321,376 shares of Common Stock issuable upon exercise of
options granted under the 1998 Associates Plan, 69,489 shares of Common
Stock issuable upon vesting of awards of restricted shares of Common Stock
granted under the 1998 Associates Plan, 250,000 shares of Common Stock
issuable upon exercise of options granted under the Non-Associate Directors
Plan and 15,681 shares of Common Stock reflecting share equivalents
attributable to compensation deferred by non-associate directors
participating in A&F's Directors' Deferred Compensation Plan and
distributable in the form of shares of Common Stock under the Non-Associate
Directors Plan. Also includes the right of Michael S. Jeffries to receive
1,000,000 shares of Common Stock as a career share award under the 1998
Associates Plan in accordance with the terms of his amended and restated
employment agreement dated as of January 30, 2003. This award vests
December 31, 2008 if Mr. Jeffries remains employed with A&F. A pro rata
portion of the award may vest earlier upon Mr. Jeffries' death or permanent
and total disability or termination of his employment by A&F without cause
or by Mr. Jeffries with good reason and will vest in full upon a change of
control of A&F. Mr. Jeffries will not receive any of the shares of Common
Stock subject to the career share award until after the award has vested
and the delivery date specified in the amended and restated employment
agreement occurred.
(2) Represents weighted-average exercise price of options outstanding under the
1998 Associates Plan and the Non-Associate Directors Plan.
(3) Includes 491,902 shares of Common Stock remaining available for future
issuance under the 1998 Associates Plan (no more than 189,172 of which may
be the subject of awards which are not options or stock appreciation
rights) and 57,881 shares of Common Stock remaining available for future
issuance under the Non-Associate Directors Plan, in each case excluding the
shares of Common Stock shown in footnote (1).
2002 STOCK OPTION PLAN FOR ASSOCIATES
In January 2002, the Board of Directors of A&F adopted the 2002 Associates Plan,
which is administered by the Compensation Committee. The 2002 Associates Plan
reserves for issuance up to 5,000,000 shares of Common Stock of A&F upon the
exercise of non-qualified stock options ("NSOs") granted and to be granted under
the 2002 Associates Plan. Shares of Common Stock issuable upon the exercise of
NSOs
48
will be made available from shares currently held or subsequently acquired
by A&F as treasury shares. The number of shares of Common Stock authorized for
issuance under the 2002 Associates Plan and the number of shares subject to
previously granted but unexercised NSOs will be subject to adjustment for any
future stock splits, stock dividends or other changes in A&F's corporate
structure affecting the shares of Common Stock.
Eligibility for Participation
Associates of A&F and its subsidiaries who are selected by the Compensation
Committee are eligible to participate in the 2002 Associates Plan. No NSOs may
be granted under the 2002 Associates Plan to outside directors.
Terms of NSOs
The exercise price of NSOs granted under the 2002 Associates Plan has been and
will be equal to 100% of the fair market value of A&F's Common Stock on the
grant date. Payment of the exercise price may be made in cash, or at the
discretion of the Compensation Committee, shares of Common Stock already owned
by the option holder. Each NSO has and will have a term of ten years from its
grant date. The Compensation Committee will determine the vesting schedule for
each NSO at the time of grant and may accelerate the exercisability of any NSO
at any time. The NSOs become fully exercisable in the event of defined changes
of control of A&F. If an option holder's employment is terminated by reason of
total disability, the NSOs may thereafter be exercised in full for the first
nine months that the option holder receives benefits under A&F's long-term
disability program, subject to their stated term. If an option holder's
employment is terminated by reason of death, the NSOs may thereafter be
exercised in full for a period of one year after the date of the option holder's
death or any other period which the Compensation Committee determines, subject
to their stated term. If an option holder's employment is terminated for any
other reason, any exercisable NSOs held by the option holder at the date of
termination may be exercised for the period specified in the option agreement or
as otherwise determined by the Compensation Committee. At the discretion of the
Compensation Committee, the NSOs may have a tax withholding feature.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is set
forth under the captions "ELECTION OF DIRECTORS - Business Experience" "-
Compensation Committee Interlocks and Insider Participation" and "EXECUTIVE
COMPENSATION - Employment Agreements and Other Transactions with Certain
Executive Officers" in the Proxy Statement and is incorporated herein by
reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing of this report, A&F management,
including the Chief Executive Officer and Chief Financial Officer, conducted an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as defined in Exchange Act Rule 13a-14(c)
under the Securities Exchange Act of 1934. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of the date of that
evaluation to ensure that material information relating to the Company is made
known to them, particularly during the period for which this Annual Report on
Form 10-K has been prepared. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.
49
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) List of Financial Statements.
The following consolidated financial statements of Abercrombie & Fitch
and the related notes are filed as a part of this report pursuant to ITEM
8:
Consolidated Statements of Income for the fiscal years ended February 1,
2003, February 2, 2002 and February 3, 2001.
Consolidated Balance Sheets as of February 1, 2003 and February 2, 2002.
Consolidated Statements of Shareholders' Equity for the fiscal years
ended February 1, 2003, February 2, 2002 and February 3, 2001.
Consolidated Statements of Cash Flows for the fiscal years ended February
1, 2003, February 2, 2002 and February 3, 2001.
Notes to Consolidated Financial Statements.
Report of Independent Accountants.
(a)(2) List of Financial Statement Schedules.
All schedules are omitted because the required information is either
presented in the consolidated financial statements or notes thereto, or
is not applicable, required or material.
(a)(3) List of Exhibits.
3. Certificate of Incorporation and Bylaws
3.1 Amended and Restated Certificate of Incorporation of A&F as
filed with the Delaware Secretary of State on August 27, 1996,
incorporated herein by reference to Exhibit 3.1 to A&F's
Quarterly Report on Form 10-Q for the quarter ended November
2, 1996. (File No. 1-12107)
3.2 Certificate of Designation of Series A Participating
Cumulative Preferred Stock of A&F as filed with the Delaware
Secretary of State on July 21, 1998, incorporated herein by
reference to Exhibit 3.2 to A&F's Annual Report on Form 10-K
for the year ended January 30, 1999. (File No. 1-12107)
3.3 Certificate of Decrease of Shares Designated as Class B Common
Stock as filed with the Delaware Secretary of State on July
30, 1999, incorporated herein by reference to Exhibit 3.3 to
A&F's Quarterly Report on Form 10-Q for the quarter ended July
31, 1999. (File No. 1-12107)
3.4 Amended and Restated Bylaws of A&F, effective January 31,
2002, incorporated herein by reference to Exhibit 3.4 to A&F's
Annual Report on Form 10-K for the year ended February 2,
2002. (File No. 1-12107)
50
4. Instruments Defining the Rights of Security Holders.
4.1 Credit Agreement, dated as of November 14, 2002, among
Abercrombie & Fitch Management Co., as Borrower, Abercrombie &
Fitch Co., as Guarantor, the Lenders party thereto, and
National City Bank, as Administrative Agent and Lead Arranger
(the "Credit Agreement"), incorporated herein by reference to
Exhibit 4.1 to A&F's Current Report on Form 8-K dated November
26, 2002. (File No. 1-12107)
4.2 Guarantee Agreement, dated as of November 14, 2002, among
Abercrombie & Fitch Co., each direct and indirect domestic
subsidiary of Abercrombie & Fitch Co. other than Abercrombie &
Fitch Management Co., and National City Bank, as
administrative agent for the Lenders party to the Credit
Agreement, incorporated herein by reference to Exhibit 4.2 to
A&F's Current Report on Form 8-K dated November 26, 2002.
(File No. 1-12107)
4.3 Rights Agreement, dated as of July 16, 1998, between A&F and
First Chicago Trust Company of New York, as Rights Agent,
incorporated herein by reference to Exhibit 1 to A&F's
Registration Statement on Form 8-A dated July 21, 1998. (File
No. 1-12107)
4.4 Amendment No. 1 to Rights Agreement, dated as of April 21,
1999, between A&F and First Chicago Trust Company of New York,
as Rights Agent, incorporated herein by reference to Exhibit 2
to A&F's Amendment No. 1 to Form 8-A dated April 23, 1999.
(File No. 1-12107)
4.5 Certificate of adjustment of number of Rights associated with
each share of Class A Common Stock, dated May 27, 1999,
incorporated herein by reference to Exhibit 4.6 to A&F's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1999. (File No. 1-12107)
4.6 Appointment and Acceptance of Successor Rights Agent,
effective as of the opening of business on October 8, 2001,
between A&F and National City Bank, incorporated herein by
reference to Exhibit 4.6 to A&F's Quarterly Report on Form
10-Q for the quarter ended August 4, 2001. (File No. 1-12107)
10. Material Contracts.
10.1 Abercrombie & Fitch Co. Incentive Compensation Performance
Plan, incorporated herein by reference to Exhibit 10.1 to
A&F's Quarterly Report on Form 10-Q for the quarter ended May
4, 2002. (File No. 1-12107)
10.2 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock
Option and Performance Incentive Plan (reflects amendments
through December 7, 1999 and the two-for-one stock split
distributed June 15, 1999 to stockholders of record on May 25,
1999), incorporated herein by reference to Exhibit 10.2 to
A&F's Annual Report on Form 10-K for the year ended January
29, 2000. (File No. 1-12107)
10.3 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock
Plan for Non-Associate Directors (reflects amendments through
January 30, 2003 and the two-for-one stock split distributed
June 15, 1999 to stockholders of record on May 25, 1999).
10.4 Abercrombie & Fitch Co. 2002 Stock Option Plan for Associates,
incorporated herein by reference to Exhibit 10.4 to A&F's
Annual Report on Form 10-K for the
51
year ended February 2, 2002. (File No. 1-12107)
10.5 Amended and Restated Employment Agreement, dated as of January
30, 2003, by and between Abercrombie & Fitch Co. and Michael
S. Jeffries, including as Exhibit A thereto the Supplemental
Executive Retirement Plan effective February 2, 2003,
incorporated herein by reference to Exhibit 10.1 to A&F's
Current Report on Form 8-K dated February 11, 2003. (File No.
1-12107)
10.6 Employment Agreement by and between A&F and Seth R. Johnson
dated as of December 5, 1997, incorporated herein by reference
to Exhibit 10.10 to A&F's Amendment No. 4 to Form S-4
Registration Statement filed on April 14, 1998 (Registration
No. 333-46423).
10.7 Abercrombie & Fitch, Inc. Directors' Deferred Compensation
Plan, incorporated herein by reference to Exhibit 10.14 to
A&F's Annual Report on Form 10-K for the year ended January
30, 1999. (File No. 1-12107)
10.8 Replacement Promissory Note, dated January 1, 2002, issued by
Michael S. Jeffries to A&F, incorporated herein by reference
to Exhibit 10.9 to A&F's Annual Report on Form 10-K for the
year ended February 2, 2002. (File No. 1-12107)
10.9 Abercrombie & Fitch Nonqualified Savings and Supplemental
Retirement Plan (formerly know as the Abercrombie & Fitch Co.
Supplemental Retirement Plan), as amended and restated
effective January 1, 2001.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
24. Powers of Attorney.
99.1 Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Title 18, United States Code, Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K.
On November 27, 2002, A&F filed a Current Report on Form 8-K dated
November 26, 2002, reporting under "Item 5. Other Events and Regulation
FD Disclosure," that A&F and its subsidiary Abercrombie & Fitch
Management Co. ("A&F Management") had entered into a new Credit Agreement
on November 14, 2002, among A&F Management, as Borrower, A&F as
Guarantor, the Lenders party thereto, and National City Bank, as
Administrative Agent and Lead Arranger.
On February 12, 2003, A&F filed a Current Report on Form 8-K dated
February 11, 2003, reporting under "Item 9. Regulation FD Disclosure,"
that, on January 30, 2003, A&F had entered into an Amended and Restated
Employment Agreement with Michael S. Jeffries, the Chairman and Chief
Executive Officer of A&F.
(c) Exhibits.
The exhibits to this report are listed in section (a)(3) of Item 14
above.
52
(d) Financial Statement Schedules.
Not applicable.
53
SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) 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.
Date: April 17, 2003
ABERCROMBIE & FITCH CO.
By /s/ WESLEY S. MCDONALD
-------------------------------
Wesley S. McDonald,
Vice President - Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on April 9, 2003.
Signature Title
--------- -----
/s/ MICHAEL S. JEFFRIES* Chairman, Chief Executive Officer and Director
------------------------------------
Michael S. Jeffries
/s/ SETH R. JOHNSON Executive Vice President - Chief Operating Officer
------------------------------------ and Director
Seth R. Johnson
/s/ RUSSELL M. GERTMENIAN* Director
--------------------------
Russell M. Gertmenian
/s/ JOHN A. GOLDEN* Director
------------------------------------
John A. Golden
/s/ ARCHIE M. GRIFFIN* Director
------------------------------------
Archie M. Griffin
/s/ JOHN W. KESSLER* Director
------------------------------------
John W. Kessler
/s/ SAM N. SHAHID* Director
------------------------------------
Sam N. Shahid, Jr.
/s/ KATHRYN D. SULLIVAN, Ph.D.* Director
-------------------------------
Kathryn D. Sullivan, Ph.D.
/s/ WESLEY S. MCDONALD Vice President - Chief Financial Officer (Principal
------------------------------------ Financial and Accounting Officer)
Wesley S. McDonald
*The undersigned, by signing his name hereto, does hereby sign this report on
behalf of each of the above-indicated directors and executive officers of the
registrant pursuant to powers of attorney executed by such directors and
executive officers.
By /s/ WESLEY S. MCDONALD
----------------------
Wesley S. McDonald
Attorney-in-fact
54
CERTIFICATIONS
I, Michael S. Jeffries, certify that:
1. I have reviewed this annual report on Form 10-K of Abercrombie & Fitch
Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 17, 2003 /s/ Michael S. Jeffries
-------------------------------------------------
Printed Name: Michael S. Jeffries
Title: Chairman and Chief Executive Officer
55
CERTIFICATIONS
I, Wesley S. McDonald, certify that:
1. I have reviewed this annual report on Form 10-K of Abercrombie & Fitch
Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 17, 2003 /s/ Wesley S. McDonald
---------------------------------------------------
Printed Name: Wesley S. McDonald
Title: Vice President and Chief Financial Officer
56
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2003
---------
ABERCROMBIE & FITCH CO.
(Exact name of registrant as specified in its charter)
---------
EXHIBITS
---------
EXHIBIT INDEX
Exhibit No. Document
----------- ----------------------------------------------------------------
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).
10.9 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.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Powers of Attorney.
99.1 Certificate of Chief Executive Officer and Chief Financial Officer Pursuant to
Title 18, United States Code, Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.