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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended November 2, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                       to                                      
 
Commission file number 1-12107
 
 
ABERCROMBIE & FITCH CO.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
  
31-1469076
(I.R.S. Employer
Identification No.)
 
6301 Fitch Path, New Albany, OH
(Address of principal executive offices)
   
43054
(Zip Code)
 
Registrant’s telephone number, including area code (614) 283-6500
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No  ¨
 
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  x
No   ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class A Common Stock
  
Outstanding at December 11, 2002
$.01 Par Value
  
97,248,530 Shares
 

Table of Contents
ABERCROMBIE & FITCH CO.
 
TABLE OF CONTENTS
 
      
Page No.
Part I.    Financial Information
       
Item 1.    Financial Statements
       
    
3
    
4
    
5
    
6
    
11
    
12
    
20
Item 4.     Control and Procedures
    
20
Part II.    Other Information
       
Item 1.     Legal Proceedings
    
21
    
23
 

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Table of Contents
PART I – FINANCIAL INFORMATION
 
Item 1. FINANCIAL STATEMENTS
 
ABERCROMBIE & FITCH
 
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 
(Thousands except per share amounts)
 
(Unaudited)
 
    
Thirteen Weeks Ended
   
Thirty-nine Weeks Ended
    
November 2, 2002
   
November 3, 2001
   
November 2, 2002
   
November 3, 2001
NET SALES
   
$
419,329
   
$
354,473
   
$
1,061,274
   
$
898,269
Cost of Goods Sold, Occupancy and Buying Costs
   
 
252,593
   
 
211,070
   
 
648,234
   
 
548,699
    
  
  
  
GROSS INCOME
   
 
166,736
   
 
143,403
   
 
413,040
   
 
349,570
General, Administrative and Store Operating Expenses
   
 
90,304
   
 
72,511
   
 
250,049
   
 
206,685
    
  
  
  
OPERATING INCOME
   
 
76,432
   
 
70,892
   
 
162,991
   
 
142,885
Interest Income, Net
   
 
866
   
 
1,001
   
 
2,468
   
 
3,849
    
  
  
  
INCOME BEFORE INCOME TAXES
   
 
77,298
   
 
71,893
   
 
165,459
   
 
146,734
Provision for Income Taxes
   
 
29,610
   
 
28,030
   
 
63,340
   
 
57,230
    
  
  
  
NET INCOME
   
$
47,688
   
$
43,863
   
$
102,119
   
$
89,504
    
  
  
  
NET INCOME PER SHARE:
                            
Basic
   
$
0.49
   
$
0.44
   
$
1.04
   
$
0.90
    
  
  
  
Diluted
   
$
0.48
   
$
0.43
   
$
1.01
   
$
0.87
    
  
  
  
WEIGHTED AVERAGE SHARES OUTSTANDING:
                            
Basic
   
 
97,648
   
 
99,201
   
 
98,478
   
 
99,178
    
  
  
  
Diluted
   
 
99,568
   
 
101,692
   
 
100,994
   
 
102,866
    
  
  
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

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Table of Contents
ABERCROMBIE & FITCH
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
(Thousands)
 
    
November 2,
2002
     
February 2, 2002
  
    
(Unaudited)
         
ASSETS
                  
CURRENT ASSETS:
                  
Cash and Equivalents
   
$
240,076
 
   
$
167,664
 
Marketable Securities
   
 
5,000
 
   
 
71,220
 
Receivables
   
 
11,433
 
   
 
20,456
 
Inventories
   
 
189,230
 
   
 
108,876
 
Store Supplies
   
 
24,004
 
   
 
21,524
 
Other
   
 
19,860
 
   
 
15,455
 
    
  
TOTAL CURRENT ASSETS
   
 
489,603
 
   
 
405,195
 
PROPERTY AND EQUIPMENT, NET
   
 
416,690
 
   
 
365,112
 
OTHER ASSETS
   
 
59
 
   
 
239
 
    
  
TOTAL ASSETS
   
$
906,352
 
   
$
770,546
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
CURRENT LIABILITIES:
                  
Accounts Payable
   
$
67,300
 
   
$
31,897
 
Accrued Expenses
   
 
134,552
 
   
 
109,586
 
Income Taxes Payable
   
 
22,544
 
   
 
22,096
 
    
  
TOTAL CURRENT LIABILITIES
   
 
224,396
 
   
 
163,579
 
DEFERRED INCOME TAXES
   
 
16,625
 
   
 
1,165
 
OTHER LONG-TERM LIABILITIES
   
 
10,180
 
   
 
10,368
 
SHAREHOLDERS’ EQUITY:
                  
Common Stock
   
 
1,033
 
   
 
1,033
 
Paid-In Capital
   
 
142,423
 
   
 
141,394
 
Retained Earnings
   
 
621,659
 
   
 
519,540
 
    
  
    
 
765,115
 
   
 
661,967
 
Less: Treasury Stock, at Average Cost
   
 
(109,964
)
   
 
(66,533
)
    
  
TOTAL SHAREHOLDERS’ EQUITY
   
 
655,151
 
   
 
595,434
 
    
  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
   
$
906,352
 
   
$
770,546
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

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Table of Contents
ABERCROMBIE & FITCH
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Thousands)
 
(Unaudited)
 
    
Thirty-nine Weeks Ended
  
    
November 2,
2002
     
November 3,
2001
  
OPERATING ACTIVITIES:
                  
Net Income
   
$
102,119
 
   
$
89,504
 
Impact of Other Operating Activities on Cash Flows:
                  
Depreciation and Amortization
   
 
40,566
 
   
 
29,196
 
Noncash Charge for Deferred Compensation
   
 
1,651
 
   
 
3,099
 
Changes in Assets and Liabilities:
                  
Inventories
   
 
(80,354
)
   
 
(32,207
)
Accounts Payable and Accrued Expenses
   
 
53,258
 
   
 
10,745
 
Income Taxes
   
 
15,964
 
   
 
(7,919
)
Other Assets and Liabilities
   
 
(6,848
)
   
 
(7,379
)
    
  
NET CASH PROVIDED BY OPERATING ACTIVITIES
   
 
126,356
 
   
 
85,037
 
    
  
INVESTING ACTIVITIES:
                  
Capital Expenditures
   
 
(78,206
)
   
 
(114,351
)
Purchases of Marketable Securities
   
 
(5,000
)
   
 
(31,486
)
Proceeds from Maturities of Marketable Securities
   
 
71,220
 
   
 
—  
 
Notes Receivable
   
 
—  
 
   
 
(317
)
    
  
NET CASH USED FOR INVESTING ACTIVITIES
   
 
(11,986
)
   
 
(146,154
)
    
  
FINANCING ACTIVITIES:
                  
Stock Option Exercises and Other
   
 
733
 
   
 
6,086
 
Purchases of Treasury Stock
   
 
(42,691
)
   
 
(11,069
)
    
  
NET CASH USED FOR FINANCING ACTIVITIES
   
 
(41,958
)
   
 
(4,983
)
    
  
NET INCREASE /(DECREASE) IN CASH AND EQUIVALENTS
   
 
72,412
 
   
 
(66,100
)
Cash and Equivalents, Beginning of Year
   
 
167,664
 
   
 
137,581
 
    
  
CASH AND EQUIVALENTS, END OF PERIOD
   
$
240,076
 
   
$
71,481
 
    
  
SIGNIFICANT NONCASH INVESTING ACTIVITIES:
                  
Accrual for Construction in Progress
   
$
30,298
 
   
$
42,273
 
    
  
Construction Allowance Receivable
   
$
5,052
 
   
$
20,608
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

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ABERCROMBIE & FITCH
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1.
 
BASIS OF PRESENTATION
 
Abercrombie & Fitch Co. (“A&F”), through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a specialty retailer of high quality, casual apparel for men, women and kids with an active, youthful lifestyle.
 
The condensed consolidated financial statements include the accounts of A&F and all significant subsidiaries that are more than 50 percent owned and controlled. All significant intercompany balances and transactions have been eliminated in consolidation.
 
The condensed consolidated financial statements as of November 2, 2002 and for the thirteen and thirty-nine week periods ended November 2, 2002 and November 3, 2001 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes contained in A&F’s Annual Report on Form 10-K for the fiscal year ended February 2, 2002 (the “2001 fiscal year”). In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations for a full fiscal year.
 
The condensed consolidated financial statements as of November 2, 2002 and for the thirteen and thirty-nine week periods ended November 2, 2002 and November 3, 2001 included herein have been reviewed by the independent accounting firm of PricewaterhouseCoopers LLP and the report of such firm follows the notes to condensed consolidated financial statements. PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the “Act”) for its report on the condensed consolidated financial statements because that report is not a “report” within the meaning of Sections 7 and 11 of the Act.
 
Certain prior period amounts have been reclassified to conform with current year presentation.
 
2.
 
ISSUANCES OF ACCOUNTING STANDARDS
 
Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations,” will be effective for fiscal years beginning after June 15, 2002 (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

6

Table of Contents
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 of A&F 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. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” will be effective for fiscal years beginning after May 15, 2002 (February 2, 2003 for the Company). The standard rescinds Financial Accounting Standards Board (“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, will be applied in fiscal years beginning after May 15, 2002. The Company is in the process of evaluating the impact of those provisions on its financial statements and will adopt such provisions in the first quarter of fiscal year 2003. The remaining provisions of this statement were adopted by the Company for transactions occurring after May 15, 2002 and have not resulted in a significant impact to the Company’s financial statements.
 
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, with earlier application encouraged. The Company is in the process of evaluating the impact of this statement on its financial statements and will adopt the provisions of this statement in the first quarter of fiscal year 2003.
 
3.
 
EARNINGS PER SHARE
 
Weighted Average Shares Outstanding (in thousands):
 
    
Thirteen Weeks Ended
  
    
November 2,
2002
     
November 3,
2001
  
Shares of Class A Common Stock issued
   
103,300
 
   
103,300