<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 1, 1999
-----------
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
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ABERCROMBIE & FITCH CO.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 31-1469076
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Four Limited Parkway East, Reynoldsburg, OH 43068
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (614) 577-6500
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock Outstanding at June 1, 1999
$.01 Par Value 51,629,831 Shares
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ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Income
Thirteen Weeks Ended
May 1, 1999 and May 2, 1998............................. 3
Consolidated Balance Sheets
May 1, 1999 and January 30, 1999........................ 4
Consolidated Statements of Cash Flows
Thirteen Weeks Ended
May 1, 1999 and May 2, 1998............................. 5
Notes to Consolidated Financial Statements....................... 6
Report of Independent Accountants................................ 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition........... 10
Part II. Other Information
Item 1. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 6. Exhibits and Reports on Form 8-K............................ 17
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ABERCROMBIE & FITCH CO.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
NET SALES $188,294 $134,230
Cost of Goods Sold, Occupancy
and Buying Costs 116,390 85,019
-------- --------
GROSS INCOME 71,904 49,211
General, Administrative and
Store Operating Expenses 52,955 38,872
-------- --------
OPERATING INCOME 18,949 10,339
Interest Income, Net (1,887) (169)
-------- --------
INCOME BEFORE INCOME TAXES 20,836 10,508
Provision for Income Taxes 8,330 4,200
-------- --------
NET INCOME $ 12,506 $ 6,308
======== ========
NET INCOME PER SHARE:
Basic $ 0.24 $ 0.12
Diluted $ 0.23 $ 0.12
======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 51,597 51,207
Diluted 54,336 52,476
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
ABERCROMBIE & FITCH CO.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(Thousands)
<CAPTION>
May 1, January 30,
1999 1999
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and Equivalents $134,735 $163,564
Accounts Receivable 3,792 4,101
Inventories 59,581 43,992
Store Supplies 6,369 5,887
Other 705 691
-------- --------
TOTAL CURRENT ASSETS 205,182 218,235
PROPERTY AND EQUIPMENT, NET 87,652 89,558
DEFERRED INCOME TAXES 10,737 10,737
OTHER ASSETS 593 631
-------- --------
TOTAL ASSETS $304,164 $319,161
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts Payable $ 24,975 $ 24,759
Accrued Expenses 62,421 63,882
Income Taxes Payable 10,813 33,587
-------- --------
TOTAL CURRENT LIABILITIES 98,209 122,228
LONG-TERM DEBT -- --
OTHER LONG-TERM LIABILITIES 11,339 10,828
SHAREHOLDERS' EQUITY:
Common Stock 517 517
Paid-In Capital 138,852 144,142
Retained Earnings 55,637 43,131
-------- --------
195,006 187,790
Less: Treasury Stock, at Average Cost (390) (1,685)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 194,616 186,105
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $304,164 $319,161
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
ABERCROMBIE & FITCH CO.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
<CAPTION>
Thirteen Weeks Ended
----------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,506 $ 6,308
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization 7,157 5,128
Noncash Charge for Deferred Compensation 1,772 3,801
Changes in Assets and Liabilities:
Inventories (15,589) (2,780)
Accounts Payable and Accrued Expenses (1,245) (774)
Income Taxes (22,774) (14,480)
Other Assets and Liabilities 194 1,021
-------- --------
NET CASH USED FOR OPERATING ACTIVITIES (17,979) (1,776)
-------- --------
CASH USED FOR INVESTING ACTIVITIES
Capital Expenditures (5,251) (4,341)
-------- --------
FINANCING ACTIVITIES:
Issuance of Common Stock -- 25,875
Decrease in Receivable from The Limited -- (10,235)
Exercise of Stock Options and Other 2,941 481
Purchase of Treasury Stock (8,540) --
Repayment of Long-Term Debt -- (50,000)
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (5,599) (33,879)
-------- --------
NET DECREASE IN CASH AND EQUIVALENTS (28,829) (39,996)
Cash and Equivalents, Beginning of Year 163,564 42,667
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $134,735 $ 2,671
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. (the "Company") is a specialty retailer of high
quality, casual apparel for men and women with an active, youthful
lifestyle.
The consolidated financial statements include the accounts of the
Company and all significant subsidiaries which are more than 50 percent
owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
The consolidated financial statements as of and for the periods ended
May 1, 1999 and May 2, 1998 are unaudited and are presented pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, these consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto contained in the Company's 1998 Annual Report on Form 10-K. In
the opinion of management, the accompanying consolidated financial
statements reflect all adjustments (which are of a normal recurring
nature) necessary to present fairly the financial position and results
of operations and cash flows for the interim periods, but are not
necessarily indicative of the results of operations for a full fiscal
year.
The consolidated financial statements as of May 1, 1999 and for the
thirteen week periods ended May 1, 1999 and May 2, 1998 included herein
have been reviewed by the independent accounting firm of
PricewaterhouseCoopers LLP and the report of such firm follows the
notes to consolidated financial statements.
2. EARNINGS PER SHARE
Weighted Average Common Shares Outstanding (thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
May 1, May 2,
1999 1998
------- -------
<S> <C> <C>
Common shares issued 51,650 51,235
Treasury shares (53) (28)
------- -------
Basic shares 51,597 51,207
------- -------
Dilutive effect of stock options and restricted shares 2,739 1,269
Diluted shares 54,336 52,476
======= =======
</TABLE>
6
<PAGE> 7
3. INVENTORIES
The fiscal year of the Company and its subsidiaries is comprised of two
principal selling seasons: Spring (the first and second quarters) and
Fall (the third and fourth quarters). Valuation of finished goods
inventories is based principally upon the lower of average cost or
market determined on a first-in, first-out basis utilizing the retail
method. Inventory valuation at the end of the first and third quarters
reflects adjustments for inventory markdowns and shrinkage estimates
for the total selling season.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (thousands):
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
-------- --------
<S> <C> <C>
Property and equipment, at cost $157,868 $152,618
Accumulated depreciation and amortization (70,216) (63,060)
-------- --------
Property and equipment, net $ 87,652 $ 89,558
======== ========
</TABLE>
5. INCOME TAXES
For the current period, the provision for income taxes is based on the
current estimate of the annual effective tax rate. During 1998 the
Company was included in The Limited's consolidated federal and certain
state income tax groups for income tax purposes. Under this
arrangement, the Company was responsible for and paid to The Limited
its proportionate share of income taxes calculated upon its federal
taxable income at the estimated annual effective tax rate. Income taxes
paid during the thirteen weeks ended May 1, 1999 and May 2, 1998
approximated $30.8 million and $18.1 million.
6. LONG-TERM DEBT
The Company entered into a $150 million syndicated unsecured credit
agreement (the "Agreement"), on April 30, 1998 (the "Effective Date").
Borrowings outstanding under the Agreement are due April 30, 2003. The
Agreement has several borrowing options, including interest rates that
are based on the bank agent's "Alternate Base Rate", a LIBO Rate or a
rate submitted under a bidding process. Facility fees payable under the
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
trailing four-quarters EBITDAR and currently accrues at .275% of the
committed amount per annum. The Agreement contains limitations on debt,
liens, restricted payments (including dividends), mergers and
acquisitions, sale-leaseback transactions, investments, acquisitions,
hedging transactions, and transactions with affiliates. It also
contains financial covenants requiring a minimum ratio of EBITDAR to
interest expense and minimum rent and a maximum leverage ratio. No
amounts were outstanding under the Agreement at May 1, 1999.
On April 15, 1998, the Company repaid $50 million of long-term debt to
The Limited. This occurred through the issuance of 600,000 shares of
Class A common stock to The Limited with the remaining balance paid
with cash from operations.
7
<PAGE> 8
7. RELATED PARTY TRANSACTIONS
Effective May 19, 1998, The Limited completed a tax-free exchange offer
to establish the Company as an independent company. Subsequent to the
exchange offer, the Company and The Limited entered into various
service agreements for terms ranging from one to three years. By the
end of April 1999, the Company had hired associates with the
appropriate expertise or contracted with outside parties to replace
those services which expired in May 1999. Service agreements were also
entered into for the continued use by the Company of its distribution
and home office space and transportation and logistic services. These
agreements are generally for a term of three years. The cost of these
services generally is equal to The Limited's cost in providing the
relevant services plus 5% of such costs.
Prior to the completion of the exchange offer, cash activity was
provided through The Limited's centralized cash management systems and
was reflected in the Company's intercompany account. On May 19, 1998,
all intercompany balances were settled.
Shahid & Company, Inc. has provided advertising and design services for
the Company since 1995. Sam N. Shahid Jr., who serves on the Board of
Directors for the Company, has been President and Creative Director of
Shahid & Company, Inc. since 1993. Fees paid to Shahid & Company, Inc.
for services provided during the first quarter of 1999 were
approximately $.3 million.
8. SUBSEQUENT EVENT
The Board of Directors declared a two-for-one stock split on the
Company's Class A common stock, payable June 15, 1999 to shareholders
of record at the close of business on May 25, 1999. The pro forma
effect on the Company's earnings per share and balance sheet follows:
As reported Pro forma
----------- ---------
Basic earnings per share for the period
ended May 1, 1999 $0.24 $0.12
Earnings per diluted share for the period
ended May 1, 1999 $0.23 $0.12
Basic earnings per share for the period
ended May 2, 1998 $0.12 $0.06
Earnings per diluted share for the period
ended May 2, 1998 $0.12 $0.06
Common stock as of May 1, 1999 (thousands) $517 $1,033
Paid-in capital as of May 1, 1999 (thousands) $138,852 $138,336
8
<PAGE> 9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Audit Committee of
The Board of Directors of
Abercrombie & Fitch Co.
We have reviewed the condensed consolidated balance sheet of Abercrombie & Fitch
Co. and Subsidiaries (the "Company") at May 1, 1999, and the related condensed
consolidated statements of income and cash flows for the thirteen-weeks ended
May 1, 1999 and May 2, 1998. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 30, 1999, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated
February 16, 1999, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of January 30, 1999, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
May 11, 1999
<PAGE> 10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
During the first quarter of 1999, net sales increased 40% to $188.3 million from
$134.2 million a year ago. Operating income improved to $18.9 million in the
first quarter of 1999 from $10.3 million in the first quarter of 1998. Earnings
per diluted share were $.23 in the first quarter of 1999 compared to $.12 a year
ago.
Financial Summary
- -----------------
The following summarized financial and statistical data compares the thirteen
week period ended May 1, 1999 to the comparable 1998 period:
<TABLE>
<CAPTION>
1999 1998 % CHANGE
------- ------- ----------
<S> <C> <C> <C>
Increase in comparable store
sales 22% 48%
Retail sales increase
attributable to new and
remodeled stores 18% 33%
Retail sales per average gross
square foot $ 101 $ 86 17%
Retail sales per average store
(thousands) $ 928 $ 838 11%
Average store size at end of 9,155 9,709 (6%)
quarter (gross square feet)
Gross square feet at end of
quarter (thousands) 1,831 1,534 19%
NUMBER OF STORES:
Beginning of year 196 156
Opened 4 3
Closed -- (1)
------ ------
End of period 200 158
====== ======
</TABLE>
Net Sales
- ---------
Net sales for the first quarter of 1999 increased 40% to $188.3 million from
$134.2 million in 1998. The increase was due to a comparable store sales
increase of 22%, driven primarily by significantly higher transactions per store
as compared to the first quarter of 1998. Comparable store sales increases were
strong in both the men's and women's businesses with strong performances in
knits and shorts. The A&F Quarterly, a catalogue/magazine, accounted for 2.4% of
net sales in the first quarter of 1999 as compared to 2.0% last year.
10
<PAGE> 11
Gross Income
- ------------
Gross income, expressed as a percentage of net sales, increased to 38.2% during
the first quarter of 1999 from 36.7% for the same period in 1998. The increase
was attributable to leverage in occupancy costs due to the increase in
comparable store sales. Merchandise margins (representing gross income before
the deduction of buying and occupancy costs) declined slightly due to a planned
increase in the markdown rate, expressed as a percentage of net sales, over last
year.
General, Administrative and Store Operating Expenses
- ----------------------------------------------------
General, administrative and store operating expenses, expressed as a percentage
of net sales, were 28.1% in the first quarter of 1999 and 29.0% for the
comparable period in 1998. The improvement resulted primarily from the favorable
leveraging of fixed expenses due to higher sales volume.
Operating Income
- ----------------
First quarter operating income, expressed as a percentage of net sales, was
10.1% in 1999, up from 7.7% for the comparable period in 1998. The improvement
in operating income is a result of both higher gross income and lower general,
administrative and store operating expenses, as a percentage of net sales.
Interest Income/Expense
- -----------------------
First quarter 1999 net interest income was $1.9 million as compared with net
interest income of $169 thousand for the first quarter last year. Net interest
income in 1999 was primarily from short-term investments. First quarter 1998 net
interest income was primarily from short-term investments offset by interest
expense on the $50 million long-term debt that was repaid during the first
quarter of 1998.
11
<PAGE> 12
FINANCIAL CONDITION
Liquidity and Capital Resources
- -------------------------------
Cash provided by operating activities and the Company's $150 million credit
agreement provide the resources to support operations, including seasonal
requirements and capital expenditures. A summary of the Company's working
capital position and capitalization follows (thousands):
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
-------- ----------
<S> <C> <C>
Working capital $106,973 $ 96,007
======== ========
Capitalization:
Long-term debt -- --
Shareholders' equity $194,616 $186,105
-------- --------
Total capitalization $194,616 $186,105
======== ========
</TABLE>
Net cash used for operating activities totaled $18.0 million for the thirteen
weeks ended May 1, 1999 versus $1.8 million in the comparable period in 1998.
Cash was provided primarily from the increase in net income. Cash requirements
for inventory increased over the period, supporting the 40% sales growth and
reflecting earlier deliveries of summer merchandise compared to last year.
Additionally, cash used for income taxes increased due to the first quarter tax
payments made on higher fourth quarter earnings.
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.
Investing activities were all for capital expenditures, which are primarily for
new and remodeled stores.
Financing activities in the first quarter of 1998 consisted primarily of the
repayment of $50 million long-term debt to The Limited. This occurred through
the issuance of 600,000 shares of Class A common stock to The Limited with the
remaining balance paid with cash from operations.
Pursuant to the previously authorized stock repurchase program, the Company
repurchased 100,000 shares of the Company's common stock during the first
quarter of 1999.
Capital Expenditures
- --------------------
Capital expenditures, primarily for new and remodeled stores, totaled $5.3
million for the thirteen weeks ended May 1, 1999 compared to $4.3 million for
the comparable period of 1998.
The Company anticipates spending $85 to $95 million in 1999 for capital
expenditures, of which $45 to $50 million will be for new stores, remodeling
and/or expansion of existing stores and related improvements. The balance of
capital expenditures will chiefly be related to the construction of a new office
and distribution center which is expected to be completed by mid-2001. The
Company intends to add approximately 400,000 gross retail square feet in 1999,
which will represent a 22% increase over year-end 1998. It is anticipated the
increase will result from the
12
<PAGE> 13
addition of approximately 36 new Abercrombie & Fitch stores, 20 "abercrombie"
kids' stores and the remodeling and/or expansion of 11 stores.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for Abercrombie & Fitch stores opened in 1999 will
approximate $710,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $300,000 per
store.
The Company estimates that the average cost for leasehold improvements and
furniture and fixtures for "abercrombie" kids' stores opened in 1999 will
approximate $450,000 per store, after giving effect to landlord allowances. In
addition, inventory purchases are expected to average approximately $150,000 per
store.
The Company expects that substantially all future capital expenditures will be
funded with cash from operations. In addition, the Company has available a $150
million credit agreement to support operations.
Information Systems and "Year 2000" Compliance: Year 2000 Readiness Disclosures
- -------------------------------------------------------------------------------
Potential Year 2000 issues will arise primarily from computer programs which
only have a two-digit date field, rather than four, to define the applicable
year of business transactions. Because such computer programs will be unable to
properly interpret dates beyond the year 1999, a systems failure or other
computer errors may ensue. The Company relies on computer-based technology and
utilizes a variety of proprietary and third party hardware and software. The
Company's critical information technology (IT) functions include point-of-sale
equipment, merchandise and non-merchandise procurement and business and
accounting management.
In order to address the Year 2000 issue, the Company has developed a Year 2000
plan that focuses on three areas: IT systems, facilities and distribution
equipment and vendor relations. The plan includes five stages, including (i)
awareness, (ii) assessment, (iii) renovation, (iv) validation and (v)
implementation. In addition to renovation of legacy systems, new financial
software packages are being implemented. The Company is using both internal and
external resources to complete its Year 2000 initiatives.
Year 2000 remediation of existing systems and implementation of new systems,
including validation and implementation, was substantially completed by the end
of the first fiscal quarter.
The Company procures its merchandise and supplies from a vast network of vendors
located both within and outside the United States. The Company has identified
key vendors and suppliers and made inquiries to determine their Year 2000
compliance status. The Company is currently assessing the responses from these
vendors and suppliers and is looking to obtain appropriate assurances from these
vendors regarding their Year 2000 compliance status.
The Company also utilizes various facilities, distribution equipment and
transportation and logistic services from The Limited and is in the process of
assessing their Year 2000 compliance status.
13
<PAGE> 14
The Company believes that the most likely worst case scenario is that there will
be some minor disruption of systems that will affect the supply and distribution
channels on a short-term basis rather than impacting the Company in the
long-term. The Company is in the process of developing contingency plans, such
as alternative sourcing, and identifying the actions that would need to be taken
if critical systems or service providers were not Year 2000 compliant. Given the
uncertainty as to the exact nature and extent of problems that may arise, the
Company's contingency planning will focus on minimizing any significant
disruptions by committing resources to respond to specific problems that may
arise. At the present time, the Company is not aware of any Year 2000 issues
that it expects might materially affect its products, services, competitive
position or financial performance. However, despite the Company's significant
efforts to make its systems and facilities Year 2000 compliant, the ability of
third party service providers, vendors and certain other third parties,
including governmental entities and utility companies to be Year 2000 compliant
is beyond the Company's control. Accordingly, the Company can give no assurances
that the failure of systems of other companies on which the Company's systems
rely or that the failure of key suppliers or other third parties to comply with
Year 2000 requirements will not have a material adverse effect on the Company.
Total expenditures related to remediation, testing, conversion, replacement and
upgrading system applications are not expected to exceed $4.0 million. Of the
total, approximately $1.0 million will be expenses associated with remediation
and testing of existing systems. Total incremental expenses, including
depreciation and amortization of new package systems, remediation to bring
current systems into compliance and writing off legacy systems are not expected
to have a material impact on the Company's financial condition in any year
during the conversion process through 2000. As of May 1, 1999, the Company has
incurred expenses of approximately $3.8 million, consisting of internal staff
costs as well as outside consulting and other expenditures. In 1998, a
significant amount of total internal staff resources were directed towards Year
2000 projects. In 1999, internal resources and costs are not expected to change
significantly but will be redirected from Year 2000 projects to other Company
initiatives.
Relationship with The Limited
- -----------------------------
Effective May 19, 1998, The Limited completed a tax-free exchange offer to
establish the Company as an independent company. Subsequent to the exchange
offer, the Company and The Limited entered into various service agreements for
terms ranging from one to three years. By the end of April 1999, the Company
had hired associates with the appropriate expertise or contracted with outside
parties to replace those services which expired in May 1999. Service agreements
were also entered into for the continued use by the Company of its distribution
and home office space and transportation and logistic services. These
agreements are generally for a term of three years. The cost of these services
generally is equal to The Limited's cost in providing the relevant services plus
5% of such costs.
14
<PAGE> 15
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report or made by management of the Company involve risks and uncertainties
and are subject to change based on various important factors. The foregoing
statements as to costs and dates relating to the Year 2000 effort are
forward-looking and are based on the Company's best estimates that may be
updated as additional information becomes available. The Company's
forward-looking statements are also based on assumptions about many important
factors, including the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the failure
of vendors to deliver merchandise or perform services required by the Company
and the collateral effects of the Year 2000 issues on the Company's business
partners and customers. While the Company believes its assumptions are
reasonable, it cautions that it is impossible to predict the impact of certain
factors that could cause actual costs or timetables to differ materially from
the expected results. In addition to Year 2000 issues, 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 1999 and beyond to differ materially from those expressed or implied
in any such forward-looking statements: changes in consumer spending patterns,
consumer preferences and overall economic conditions, the impact of competition
and pricing, changes in weather patterns, 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 and train associates.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is a defendant in lawsuits arising in the ordinary course
of business.
On November 13, 1997, the United States District Court for the Southern
District of Ohio, Eastern Division, dismissed with prejudice an amended
complaint that had been filed against the Company by the American
Textile Manufacturers Institute ("ATMI"), a textile industry trade
association. The amended complaint alleged that the defendants violated
the federal False Claims Act by submitting false country of origin
records to the U.S. Customs Service. On November 26, 1997, ATMI served
a motion to alter or amend judgment and a motion to disqualify the
presiding judge and to vacate the order of dismissal. The motion to
disqualify was denied on December 22, 1997, but as a matter of his
personal discretion, the presiding judge elected to recuse himself from
further proceedings and this matter was transferred to a judge of the
United States District Court for the Southern District of Ohio, Western
Division. On May 21, 1998, this judge denied all pending motions
seeking to alter, amend or vacate the judgment that had been entered in
favor of the Company. On June 5, 1998, ATMI appealed to the United
States Court of Appeals for the Sixth Circuit, where the matter remains
pending.
On June 2, 1998, the Company filed suit against American Eagle
Outfitters alleging an intentional and systematic copying of the
Abercrombie & Fitch brand, its images and business practices, including
the design and look of the Company's merchandise, marketing and
catalogue/magazine. The lawsuit was filed in Federal District Court in
Columbus, Ohio, and seeks to enjoin American Eagle's practices, recover
lost profits and obtain punitive damages. American Eagle filed a motion
for summary judgment in the lawsuit which the Company has opposed. The
motion is pending before the District Court for decision.
Although it is not possible to predict with certainty the eventual
outcome of any litigation, in the opinion of management, the foregoing
proceedings are not expected to have a material adverse effect on the
Company's financial position or results of operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 20, 1999, the Company held its annual meeting of shareholders at
its corporate headquarters, Four Limited Parkway East, Reynoldsburg,
Ohio. At such meeting, (i) Messrs. Russell M. Gertmenian and Sam N.
Shahid, Jr. were elected to the Company's Board of Directors, each to
serve for a three year term expiring in 2002 and (ii) amendments to the
1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and
Performance Incentive Plan were approved. The votes on the foregoing
matters are as follows:
16
<PAGE> 17
(i) Elections of Messrs. Gertmenian and Shahid
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Russell M. Gertmenian 39,864,217 5,895,423
Sam N. Shahid, Jr 40,587,711 5,171,929
</TABLE>
(ii) Approval of the amendments to the 1998 Restatement of the
Abercrombie & Fitch Co. 1996 Stock Option and Performance
Incentive Plan
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
42,906,343 2,820,880 32,417
</TABLE>
The following individuals continue to serve on the Board of Directors: Messrs.
George Foos, Michael S. Jeffries, John W. Kessler, John A. Golden and Seth R.
Johnson.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
---------
3. Articles of Incorporation and Bylaws
3.1 Amended and Restated Certificate of Incorporation of
the Company as filed with the Delaware Secretary of
State on August 27, 1996, incorporated by reference
to Exhibit 3.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 2, 1996.
3.2 Certificate of Designation of Series A Participating
Cumulative Preferred Stock of the Company as filed
with the Delaware Secretary of State on July 21,
1998, incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the year
ended January 30, 1999.
3.3 Bylaws of the Company incorporated by reference to
Exhibit 3.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended November 2, 1996.
4. Instruments Defining the Rights of Security Holders
4.1 Specimen Certificate of Class A Common Stock of the
Company incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(File No. 333-8231) (the "Form S-1").
4.2 Credit Agreement dated as of April 30, 1998 among
Abercrombie & Fitch Stores, Inc., as Borrower, the
Company, as Guarantor, the Lenders party thereto, The
Chase Manhattan Bank, as Administrative Agent, and
Chase Securities, Inc., as Arranger, incorporated by
reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K dated April 30, 1998.
4.3 Rights Agreement dated as of July 16, 1998 between
Abercrombie & Fitch Co. and First Chicago Trust
Company of New York, incorporated by reference to
Exhibit 1 to the Company's Current Report on Form 8-A
dated July 21, 1998.
17
<PAGE> 18
4.4 Amendment No. 1 to the Rights Agreement dated as of
April 21, 1999 between Abercrombie & Fitch Co. and
First Chicago Trust Company of New York, incorporated
by reference to Exhibit 2 to the Company's Amendment
No. 1 to Form 8-A dated April 23, 1999.
10. Material Contracts
10.1 Abercrombie & Fitch Co. Incentive Compensation
Performance Plan incorporated by reference to Exhibit
A to the Company's Proxy Statement dated April 14,
1997.
10.2 1998 Restatement of the Abercrombie & Fitch Co. 1996
Stock Option and Performance Incentive Plan, as
amended through May 20, 1999, incorporated by
reference to Exhibit A to the Company's Proxy
Statement dated April 22, 1999.
10.3 1998 Restatement of the Abercrombie & Fitch Co. 1996
Stock Plan for Non-Associate Directors incorporated
by reference to Exhibit B to the Company's Proxy
Statement dated May 29, 1998.
10.4 Employment Agreement by and between the Company and
Michael S. Jeffries dated as of May 13, 1997 with
exhibits and amendment incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended November 1, 1997.
10.5 Employment Agreement by and between the Company and
Michele Donnan-Martin dated December 5, 1997
incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-4 (File
No. 333-46423) (the "Form S-4").
10.6 Employment Agreement by and between the Company and
Seth R. Johnson dated December 5, 1997 incorporated
by reference to Exhibit 10.10 to the Form S-4.
10.7 Tax Disaffiliation Agreement dated as of May 19, 1998
between The Limited, Inc. and the Company
incorporated by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 2, 1998.
10.8 Amended and Restated Services Agreement dated as of
May 19, 1998 between The Limited, Inc. and the
Company incorporated by reference to Exhibit 10.8 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended May 2, 1998.
10.9 Shared Facilities Agreement dated September 27, 1996
by and between the Company and The Limited, Inc.
incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended November 2, 1996.
10.10 Sublease Agreement by and between Victoria's Secret
Stores, Inc. and the Company, dated June 1, 1995,
(the "Sublease Agreement") incorporated by reference
to Exhibit 10.3 to the Form S-1.
10.11 Amendment No. 1 to the Sublease Agreement dated as of
May 19, 1998 incorporated by reference to Exhibit
10.11 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 2, 1998.
10.12 Employment Agreement by and between the Company and
Charles W. Martin dated December 5, 1997 incorporated
by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the year ended January 30,
1999.
18
<PAGE> 19
10.13 Description of Arrangement between Diane Chang and
the Company incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K for
the year ended January 30, 1999.
10.14 Abercrombie & Fitch, Inc. Directors' Deferred
Compensation Plan incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form
10-K for the year ended January 30, 1999.
15. Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of Report
of Independent Accountants
27. Financial Data Schedule
(b) Reports on Form 8-K.
--------------------
None
19
<PAGE> 20
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABERCROMBIE & FITCH CO.
(Registrant)
By /S/ Seth R. Johnson
-----------------------------
Seth R. Johnson,
Vice President and Chief
Financial Officer*
Date: June 14, 1999
- ----------
* Mr. Johnson is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.
20
<PAGE> 21
EXHIBIT INDEX
-------------
Exhibit No. Document
- ----------- --------
15 Letter re: Unaudited Interim Financial Information to
Securities and Exchange Commission re: Incorporation of Report
of Independent Accountants.
27 Financial Data Schedule.
<PAGE> 1
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated May 11, 1999 on our review of the interim
consolidated financial information of Abercrombie & Fitch Co. and Subsidiaries
(the "Company") as of and for the thirteen-week period ended May 1, 1999 and
included in this Form 10-Q is incorporated by reference in the Company's
registration statements on Form S-8, Registration Nos. 333-15941, 333-15943,
333-15945, 333-60189 and 333-60203. Pursuant to Rule 436(c) under the
Securities Act of 1933, this report should not be considered a part of the
registration statement prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
Very truly yours,
/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Columbus, Ohio
June 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of Abercrombie & Fitch Co. for the quarter
ended May 1, 1999 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 134,735
<SECURITIES> 0
<RECEIVABLES> 3,792
<ALLOWANCES> 0
<INVENTORY> 59,581
<CURRENT-ASSETS> 205,182
<PP&E> 157,868
<DEPRECIATION> 70,216
<TOTAL-ASSETS> 304,164
<CURRENT-LIABILITIES> 98,209
<BONDS> 0
0
0
<COMMON> 517
<OTHER-SE> 194,099
<TOTAL-LIABILITY-AND-EQUITY> 304,164
<SALES> 188,294
<TOTAL-REVENUES> 188,294
<CGS> 116,390
<TOTAL-COSTS> 116,390
<OTHER-EXPENSES> 52,955
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,887)
<INCOME-PRETAX> 20,836
<INCOME-TAX> 8,330
<INCOME-CONTINUING> 12,506
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,506
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.23
</TABLE>
