-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UrcHg9TF252QvGPvG1hz82/OqD9pWPm5HXXkC/kRgOJul3ja9/4erf3UnosQbMUj OZDWDSn6OyWPawHADH5tIw== 0000950109-97-007533.txt : 19971216 0000950109-97-007533.hdr.sgml : 19971216 ACCESSION NUMBER: 0000950109-97-007533 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971101 FILED AS OF DATE: 19971215 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABERCROMBIE & FITCH CO /DE/ CENTRAL INDEX KEY: 0001018840 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 311469076 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12107 FILM NUMBER: 97738601 BUSINESS ADDRESS: STREET 1: FOUR LIMITED PARKWAY CITY: REYNOLDSBURG STATE: OH ZIP: 43068 BUSINESS PHONE: 6144797101 MAIL ADDRESS: STREET 1: THREE LIMITED PARKWAY CITY: COLUMBUS STATE: OH ZIP: 43230 10-Q 1 ABERCROMBIE & FITCH CO. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended November 1, 1997 ---------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to _________________ Commission file number 1-12107 ------- ABERCROMBIE & FITCH CO. -------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 31-1469076 - ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Four Limited Parkway East, Reynoldsburg, OH 43068 ------------------------------------------------- (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 November 25, 1997 - ---------------------------- -------------------------------------- $.01 Par Value 8,008,176 Shares Class B Common Stock Outstanding at November 25, 1997 - ---------------------------- -------------------------------------- $.01 Par Value 43,000,000 Shares ABERCROMBIE & FITCH CO. TABLE OF CONTENTS
Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income Thirteen and Thirty-nine Weeks Ended November 1, 1997 and November 2, 1996.......................3 Consolidated Balance Sheets November 1, 1997 and February 1, 1997.......................4 Consolidated Statements of Cash Flows Thirty-nine Weeks Ended November 1, 1997 and November 2, 1996.......................5 Notes to Consolidated Financial Statements...........................6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition..............10 Part II. Other Information Item 1. Legal Proceedings..............................................15 Item 5. Other Information .............................................15 Item 6. Exhibits and Reports on Form 8-K...............................15
2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS ABERCROMBIE & FITCH CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Thousands except per share amounts) (Unaudited)
Thirteen Weeks Ended Thirty-nine Weeks Ended -------------------------------- -------------------------------- November 1, November 2, November 1, November 2, 1997 1996 1997 1996 --------------- --------------- --------------- --------------- NET SALES $148,516 $ 87,688 $309,472 $196,139 Cost of Goods Sold, Occupancy and Buying Costs 95,526 56,731 204,755 132,236 --------------- --------------- --------------- --------------- GROSS INCOME 52,990 30,957 104,717 63,903 General, Administrative and Store Operating Expenses 34,581 21,732 79,738 53,252 --------------- --------------- --------------- --------------- OPERATING INCOME 18,409 9,225 24,979 10,651 Interest Expense, Net 1,076 2,643 3,278 3,794 --------------- --------------- --------------- --------------- INCOME BEFORE INCOME TAXES 17,333 6,582 21,701 6,857 Provision for Income Taxes 6,930 2,600 8,680 2,700 --------------- --------------- --------------- --------------- NET INCOME $ 10,403 $ 3,982 $ 13,021 $ 4,157 =============== =============== =============== =============== NET INCOME PER SHARE $ .20 $ .09 $ .25 $ .09 =============== =============== =============== =============== WEIGHTED AVERAGE SHARES OUTSTANDING 51,594 45,945 51,328 43,982 =============== =============== =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. 3 ABERCROMBIE & FITCH CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands)
November 1, February 1, 1997 1997 ----------------- ----------------- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash $2,623 $1,945 Accounts Receivable 2,433 2,102 Inventories 55,583 34,943 Store Supplies 5,173 5,300 Other 1,292 588 ----------------- ----------------- TOTAL CURRENT ASSETS 67,104 44,878 PROPERTY AND EQUIPMENT, NET 66,696 58,992 DEFERRED INCOME TAXES 4,191 1,885 OTHER ASSETS 6 6 ----------------- ----------------- TOTAL ASSETS $137,997 $105,761 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts Payable $15,645 $6,414 Accrued Expenses 38,031 22,388 Intercompany Payable 1,441 5,417 Income Taxes Payable 8,157 9,371 ----------------- ----------------- TOTAL CURRENT LIABILITIES 63,274 43,590 LONG-TERM DEBT 50,000 50,000 OTHER LONG-TERM LIABILITIES 1,266 933 SHAREHOLDERS' EQUITY: Common Stock 511 511 Paid-in Capital 117,973 117,980 Retained Deficit (94,232) (107,253) ----------------- ----------------- 24,252 11,238 Less Treasury Stock, at Average Cost (795) -- ----------------- ----------------- TOTAL SHAREHOLDERS' EQUITY 23,457 11,238 ----------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $137,997 $105,761 ================= =================
The accompanying notes are an integral part of these consolidated financial statements. 4 ABERCROMBIE & FITCH CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) (Unaudited)
Thirty-nine Weeks Ended ------------------------------------ November 1, November 2, 1997 1996 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $13,021 $4,157 Impact of Other Operating Activities on Cash Flows: Depreciation and Amortization 11,764 8,423 Changes in Assets and Liabilities Inventories (20,640) (20,951) Accounts Payable and Accrued Expenses 24,874 11,696 Income Taxes (3,520) (3,001) Other Assets and Liabilities (151) 56 ----------------- ----------------- NET CASH PROVIDED FROM OPERATING ACTIVITIES 25,348 380 ----------------- ----------------- CASH USED FOR INVESTING ACTIVITIES Capital Expenditures (19,892) (12,910) ----------------- ----------------- FINANCING ACTIVITIES: Increase (Decrease) in Intercompany Payable (3,976) 15,172 Other Equity Changes (802) - Dividend Paid to Parent - (27,000) Proceeds from Credit Agreement - 150,000 Repayment of Trademark Obligations - (32,000) Repayment of Intercompany Debt - (91,000) Repayment of Borrowings Under Credit Agreement - (120,267) Net Proceeds from Sale of Stock - 118,567 ----------------- ----------------- NET CASH PROVIDED FROM (USED FOR) FINANCING ACTIVITIES (4,778) 13,472 ----------------- ----------------- NET INCREASE IN CASH 678 942 Cash, Beginning of Year 1,945 874 ----------------- ----------------- CASH, END OF PERIOD $2,623 $1,816 ================= =================
In the thirty-nine weeks ended November 2, 1996, non-cash financing activities included the distribution of a note representing preexisting obligations of Abercrombie & Fitch's operating subsidiary in respect of certain trademarks in the amount of $32 million by Abercrombie & Fitch's trademark subsidiary to The Limited Inc., distribution of the $50 million long-term mirror note and the conversion of $8.6 million of intercompany debt into the working capital note. The accompanying notes are an integral part of these consolidated financial statements. 5 ABERCROMBIE & FITCH CO. AND SUBSIDIARIES 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 accompanying consolidated financial statements include the historical financial statements of, and transactions applicable to Abercrombie & Fitch Co. and its subsidiaries and reflect the assets, liabilities, results of operations and cash flows on a historical cost basis. An initial public offering of 8.05 million shares of the Company's Class A common stock was consummated in the third quarter of 1996 and, as a result, approximately 84% of the outstanding common stock of the Company is owned by The Limited, Inc. ("The Limited"). The common stock issued to The Limited (43 million Class B shares) in connection with the incorporation of the Company has been reflected as outstanding for all periods presented. The consolidated financial statements as of November 1, 1997 and for the thirteen and thirty-nine week periods ended November 1, 1997 and November 2, 1996 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 1996 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 November 1, 1997, and for the thirteen and thirty-nine week periods ended November 1, 1997 and November 2, 1996 included herein have been reviewed by the independent accounting firm of Coopers & Lybrand L.L.P. and the report of such firm follows the notes to consolidated financial statements. 2. ADOPTION OF ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings -------- Per Share." The Company will adopt the requirements for earnings per --------- share in the fourth quarter of 1997, the effect of which will not be material to the Company's consolidated financial statements. 6 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):
November 1, February 1, 1997 1997 ----------- ----------- Property and equipment, at cost $120,099 $101,919 Accumulated depreciation and amortization (53,403) (42,927) ----------- ----------- Property and equipment, net $66,696 $58,992 =========== ===========
5. INCOME TAXES The Company is included in The Limited's consolidated federal and certain state income tax groups for income tax reporting purposes and is responsible for its proportionate share of income taxes calculated upon its federal taxable income at a current estimate of the Company's annual effective tax rate. Income taxes paid during the thirty-nine weeks ended November 1, 1997 and November 2, 1996 approximated $12.2 million and $5.7 million. 6. LONG-TERM DEBT Long-term debt consists of a note which represents the Company's portion of certain long-term debt of The Limited with interest rate (7.8%) and maturity of the note (May 15, 2002) paralleling that of corresponding debt of The Limited. Interest paid during the thirty-nine weeks ended November 1, 1997 and November 2, 1996, including interest on the intercompany cash management account (see Note 7), approximated $5.4 million and $2.5 million. 7 7. INTERCOMPANY RELATIONSHIP WITH PARENT The Limited provides various services to the Company including, but not limited to, store design and construction supervision, real estate management, travel and flight support and merchandise sourcing. To the extent expenditures are specifically identifiable they are charged to the Company. All other related support expenses are charged to the Company and other divisions of The Limited based upon various allocation methods. The Company participates in The Limited's centralized cash management system whereby cash received from operations is transferred to The Limited's centralized cash accounts and cash disbursements are funded from the centralized cash accounts on a daily basis. Prior to the initial capitalization of the Company, the intercompany cash management account was non-interest bearing. After the initial capitalization of the Company on July 11, 1996, the intercompany cash management account became an interest earning asset or interest bearing liability of the Company depending upon the level of cash receipts and disbursements. Interest on the intercompany cash management account is calculated based on 30-day commercial paper rates for "AA" rated companies as reported in the Federal Reserve's H.15 statistical release. The average outstanding balance of the non-interest bearing intercompany payable to The Limited in the twenty-six week period ended August 3, 1996 approximated $64.5 million. A summary of the intercompany payment activity during the non-interest-bearing period for the twenty-six week period ended August 3, 1996 follows: Balance at February 3, 1996 $86,045 Mast and Gryphon purchases 23,178 Other transactions with related parties 9,667 Centralized cash management (16,417) Settlement of current period income taxes 5,700 Payment to The Limited (91,000) Conversion to Working Capital Note (8,616) ------------- Balance at August 3, 1996 $8,557 =============
The Company's proprietary credit card processing is performed by Alliance Data Systems which is approximately 40%-owned by The Limited. The Company and The Limited are parties to a corporate agreement under which the Company granted to The Limited a continuing option to purchase, under certain circumstances, additional shares of Class B Common Stock or shares of nonvoting capital stock of the Company. The Corporate Agreement further provides that, upon request of The Limited, the Company will use its best efforts to effect the registration of any of the shares of Class B Common Stock and nonvoting capital stock held by The Limited for sale. 8 [LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE] REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors of Abercrombie & Fitch Co. We have reviewed the condensed consolidated balance sheet of Abercrombie & Fitch Co. at November 1, 1997, and the related condensed consolidated statements of operations and cash flows for the thirteen-week and thirty-nine-week periods ended November 1, 1997 and November 2, 1996. 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 February 1, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 24, 1997, 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 February 1, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Columbus, Ohio November 17, 1997 9 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS During the third quarter of 1997, net sales increased 69% to $148.5 million from $87.7 million a year ago. Earnings per share were $.20 in the third quarter of 1997 compared to $.09 in 1996. Year-to-date earnings per share were $.25 in 1997 compared to $.08 per share on an adjusted basis. The adjusted results for the prior year periods presented reflect: 1) 51.05 million shares outstanding to give effect to the 8.05 million shares issued to the public, and 2) interest expense on the Company's ongoing capital structure and seasonal borrowings. Seasonal borrowings are provided through The Limited's centralized cash management system and are reflected in the Company's intercompany balances with The Limited. The following summarized statements of operations data compare the thirteen and thirty-nine week periods ended November 1, 1997 and November 2, 1996 to the adjusted information for the comparable 1996 periods (in thousands except per share data):
Thirteen Weeks Ended ------------------------------------------------ November 1, November 2, November 2, 1997 1996 1996 ------------- ------------- --------------- (Adjusted) Operating income $18,409 $ 9,225 $ 9,225 Interest expense, net 1,076 1,343 2,643 ------------- ------------- --------------- Income before income taxes 17,333 7,882 6,582 Provision for income taxes 6,930 3,150 2,600 ------------- ------------- --------------- Net income $10,403 $ 4,732 $ 3,982 ============= ============= =============== Net income per share $.20 $.09 $.09 ============= ============= =============== Weighted average shares outstanding 51,594 51,050 45,945 ============= ============= ===============
10
Thirty-nine Weeks Ended ---------------------------------------------- November 1, November 2, November 2, 1997 1996 1996 ------------- ------------- --------------- (Adjusted) Operating income $24,979 $10,651 $10,651 Interest expense, net 3,278 3,891 3,794 ------------- ------------- --------------- Income before income taxes 21,701 6,760 6,857 Provision for income taxes 8,680 2,700 2,700 ------------- ------------- --------------- Net income $13,021 $ 4,060 $ 4,157 ============= ============= =============== Net income per share $.25 $.08 $.09 ============= ============= =============== Weighted average shares outstanding 51,328 51,050 43,982 ============= ============= ===============
Financial Summary - ----------------- The following summarized financial and statistical data compares the third quarter and year-to-date periods ended November 1, 1997 to the comparable 1996 periods:
Third Quarter Year - to - Date --------------------------------- ------------------------------ 1997 1996 Change 1997 1996 Change ---------- ---------- --------- --------- --------- -------- Increase in comparable store sales 25% 19% 19% 17% Sales increase attributable to new and remodeled stores 44% 35% 39% 35% Sales per average selling square foot $130 $99 31% $283 $227 25% Sales per average store $1,031 $779 32% $2,243 $1,791 25% (thousands) Average store size at end of quarter (selling square feet) 7,906 7,849 1% Selling square feet at end of quarter (thousands) 1,178 934 26% Number of stores: Beginning of period 139 106 127 100 Opened 10 13 22 19 ---------- ---------- --------- --------- End of period 149 119 149 119 ========== ========== ========= =========
11 Net Sales - --------- Net sales for the third quarter of 1997 increased 69% to $148.5 million from $87.7 million in the year earlier period. Net sales per average selling square foot increased 31%. The increase in net sales was due to both a comparable store sales increase of 25% and from opening 30 new stores as compared to the third quarter of 1996. Comparable store sales increases were strong in both men's and women's businesses. Year-to-date net sales were $309.5 million, an increase of 58%, from $196.1 million for the same period in 1996. Sales growth resulted from a comparable store sales increase of 19% and the addition of new stores. Net sales per selling square foot for the Company increased 25%. Gross Income - ------------ Gross income, as a percentage of net sales, increased to 35.7% for the third quarter of 1997 from 35.3% for the same period in 1996. The increase was primarily attributable to a reduction in buying and occupancy costs, as a percentage of net sales, due to higher sales productivity associated with the increase in comparable store sales. The 1997 year-to-date gross income, expressed as a percentage of net sales, increased 1.2% to 33.8%, from 32.6% for the comparable period in 1996. This improvement was attributable to higher merchandise margins and lower buying and occupancy costs, as a percentage of net sales. General, Administrative and Store Operating Expenses - ---------------------------------------------------- General, administrative and store operating expenses, expressed as a percentage of net sales, were 23.3% in the third quarter of 1997 as compared to 24.8% for the same period in 1996. The improvement resulted primarily from expense leverage associated with the strong comparable store sales growth. General, administrative and store operating expenses, expressed as a percentage of net sales, were 25.8% and 27.2% for the year-to-date periods in 1997 and 1996, respectively. The improvement resulted from management's continued emphasis on expense control and the favorable leveraging of expenses, primarily store expenses, over higher sales volume. Operating Income - ---------------- Third quarter and year-to-date operating income, expressed as a percentage of net sales, were 12.4% and 8.1%, in 1997, up from 10.5% and 5.4% for the comparable periods in 1996. The improvement in operating income in these periods is a result of higher gross income and lower general, administrative and store operating expenses, expressed as a percentage of net sales. 12 Interest Expense - ---------------- Third quarter interest expense of $1.1 million was down $0.2 million from adjusted 1996 third quarter interest expense. The Company's year-to-date interest expense was $3.3 million, down $0.6 million from the adjusted $3.9 million in 1996. Interest expense in the third quarter of 1997 and adjusted 1996 third quarter included $975 thousand associated with the $50 million long- term debt. The balance was primarily from interest on short-term borrowings (see Note 7 of the Company's Consolidated Financial Statements). FINANCIAL CONDITION Liquidity and Capital Resources - ------------------------------- Cash provided from operating activities and cash funding from The Limited's centralized cash management system provide the resources to support operations including projected growth, seasonal working capital requirements and capital expenditures. A summary of certain measures of the Company's liquidity and long-term ongoing capitalization follows (thousands):
November 1, February 1, 1997 1997 --------------- --------------- Working Capital $3,830 $1,288 =============== =============== Capitalization: Long-term Debt $50,000 $50,000 Shareholders' Equity 23,457 11,238 --------------- --------------- Total Capitalization $73,457 $61,238 =============== ===============
The $25.3 million net cash provided from operating activities for the thirty- nine weeks ended November 1, 1997 increased from $0.4 million for the comparable period last year due primarily to the increase in net income and an increase in accounts payable and accrued expenses. Depreciation and amortization increased $3.3 million as compared to 1996 as a result of depreciation related to new stores and other property additions. Investing activities were for capital expenditures, primarily for new stores. In 1996, financing activities were due to intercompany transactions and proceeds of $150 million from the Credit Agreement which were used to repay $91 million of intercompany debt and $32 million of Trademark Obligations and fund a $27 million dividend to The Limited. 13 Abercrombie & Fitch'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. Capital Expenditures - -------------------- Capital expenditures, primarily for new and remodeled stores totaled $19.9 million for the thirty-nine weeks ended November 1, 1997 versus $12.9 million for the comparable period of 1996. The Company estimates the average cost for leasehold improvements, furniture and fixtures for stores opened in 1997 will be approximately $780,000 per store, after giving effect to landlord allowances. Additionally, inventory purchases at cost are expected to average approximately $285,000. The Company anticipates spending $28-$32 million in 1997 for capital expenditures, of which $27-$29 million will be for new stores, the remodeling and/or expansion of existing stores and related improvements. The Company intends to add approximately 222,000 net selling square feet in 1997, which will represent a 22% increase over year-end 1996. It is anticipated that the increase will result from the addition of 30 new stores and remodeling and/or expansion of three stores. The Company expects capital expenditures will be funded principally by net cash provided by operating activities. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on various important factors which may be beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, 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 on appropriate terms, ability to develop new merchandise, ability to hire and train associates, and other factors that may be described in the Company's filings with the Securities and Exchange Commission. The Company does not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. 14 PART II - OTHER INFORMATION Item 1. LEGAL PROCEEDINGS The Company is a defendant in a variety of 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 previously transferred to that court by the United States District Court, Central District of California. The amended complaint, which had been filed against the Company, The Limited and certain of The Limited's other subsidiaries by the American Textile Manufacturers Institute ("ATMI"), a textile industry trade association, alleged that the defendants violated the federal False Claims Act by submitting false country of origin records to the US 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 Company is vigorously opposing these motions. 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 5. OTHER INFORMATION The Company's Certificate of Incorporation includes provisions relating to potential conflicts of interest that may arise between the Company and The Limited. Such provisions were adopted in light of the fact that the Company and The Limited and its subsidiaries are engaged in retail businesses and may pursue similar opportunities in the ordinary course of business. Among other things, these provisions generally eliminate the liability of directors and officers of the Company with respect to certain matters involving The Limited and its subsidiaries, including matters that may constitute corporate opportunities of The Limited, its subsidiaries or the Company. Any person purchasing or acquiring an interest in shares of capital stock of the Company will be deemed to have consented to such provisions relating to conflicts of interest and corporate opportunities, and such consent may restrict such person's ability to challenge transactions carried out in compliance with such provisions. Investors should review the Company's Certificate of Incorporation before making any investment in shares of the Company's capital stock. 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 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 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. 15 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 Certificate of Incorporation of The Limited, Inc. incorporated by reference to Exhibit 4.2 to the Company's Form S-1. 4.3 Bylaws of The Limited, Inc. incorporated by reference to Exhibit 4.3 to the Company's Form S-1. 4.4 Corporate Agreement by and between Abercrombie & Fitch Co. and The Limited, Inc., dated October 1, 1996 incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 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 Abercrombie & Fitch Co. 1997 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan incorporated by reference to Exhibit B to the Company's Proxy Statement dated April 14, 1997. 10.3 Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors incorporated by reference to Exhibit C to the Company's Proxy Statement dated April 14, 1997. 10.4 Employment Agreement by and between Abercrombie & Fitch Co. and Michael S. Jeffries dated as of May 13, 1997 with exhibits and amendment. 11. Statement re: Computation of Per Share Earnings. 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. 16 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: December 15, 1997 - ---------------------------------- * Mr. Johnson is the principal financial officer and has been duly authorized to sign on behalf of the Registrant. 17 EXHIBIT INDEX ------------- Exhibit No. Document - ----------- ---------------------------------- 10.4 Employment Agreement by and between Abercrombie & Fitch Co. and Michael S. Jeffries dated as of May 13, 1997 with exhibits and amendment. 11 Statement re: Computation of Per Share Earnings. 15 Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Report of Independent Accountants. 27 Financial Data Schedule. EX-10.4 2 EMPLOYMENT AGREEMENT EXHIBIT 10.4 ------------ EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into as of May 13, 1997, by and between Abercrombie & Fitch Co., a Delaware company (the "Company"), and Michael S. Jeffries (the "Executive") (hereinafter collectively referred to as "the parties"). WHEREAS, the Executive has heretofore been employed by Abercrombie & Fitch Services Corporation ("Services") and the Company as the President and Chief Executive Officer of the Company and is experienced in all phases of its business and possesses an intimate knowledge of the business and affairs of the Company and its policies, procedures, methods and personnel; and WHEREAS, the Company has determined that it is essential and in its best interests to retain the services of its key management personnel and to ensure their continued dedication and efforts; and WHEREAS, the Board of Directors of the Company (the "Board") has determined that it is in its best interest of the Company to secure the continued services and employment of the Executive and the Executive is willing to render such services on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the respective agreements of the parties contained herein, the parties hereby agree as follows: 1. Term. The initial term of employment under this Agreement shall be for ---- the period commencing on the date hereof (the "Commencement Date") and ending on the sixth anniversary of the Commencement Date (the "Initial Term"); provided, -------- however, that upon the expiration of the Initial Term, this Agreement shall be - ------- automatically extended for a period of one year, unless either the Company or the Executive shall have given written notice to the other at least ninety (90) days prior thereto that the term of this Agreement shall not be so extended. 2. Employment. ---------- (a) Position. The Executive shall be employed by Services and the -------- Company as the President and Chief Executive Officer of the Company. The Executive shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons employed in a similar executive capacity. The Executive shall report directly to Leslie H. Wexner, as Chairman of the Board, or his successor as Chairman. (b) Obligations. The Executive agrees to devote his full business ----------- time and attention to the business and affairs of the Company. The foregoing, however, shall not preclude the Executive from serving on corporate, civil or charitable boards or committees or managing personal investments, so long as such activities do not interfere with the performance of the Executive's responsibilities hereunder. 3. Base Salary. The Company agrees to pay or cause to be paid to the ----------- Executive from March 2, 1997 and during the term of this Agreement a base salary at the rate of $600,000 per year or such larger amount as the Board may from time to time determine (hereinafter referred to as the "Base Salary"). Such Base Salary shall be payable in accordance with the Company's customary practices applicable to its executives. 4. Equity Compensation. Subject to approval of the Company's 1997 Stock ------------------- Option and Performance Incentive Plan by the Company's stockholders at the annual meeting of stockholders on May 20, 1997, the Company shall grant to the Executive rights to receive 500,000 shares of Class A Common Stock of the Company and options to acquire an aggregate of 1,000,000 shares of Class A Common Stock of the Company pursuant to the terms of the agreements attached hereto as Exhibits A, B and C. The Company shall use its reasonable best efforts to maintain and keep current a Form S-8 (or any successor form) pursuant to which such shares of Common Stock shall be registered. 5. Employee Benefits. The Executive shall be entitled to participate in all ----------------- employee benefit plans, practices and programs maintained by the Company and made available to senior executives generally and as may be in effect from time to time. The Executive's participation in such plans, practices and programs shall be on the same basis and terms as are applicable to senior executives of the Company generally. 6. Bonus. The Executive shall be entitled to participate in the Company's ----- Incentive Compensation Plan on such terms and conditions as may be determined from time to time by the Board, provided that the Executive's bonus opportunity shall be at least 100% of Base Salary upon attainment of target. 7. Other Benefits. -------------- (a) Life Insurance. -------------- (1) The Company shall maintain term life insurance coverage on the life of the Executive in the amount of $10,000,000 the proceeds of which shall be payable to the beneficiary or beneficiaries designated by the Executive. The Company shall pay the premiums with respect to such term life insurance policy for a period of eight (8) years commencing on the Commencement Date; provided, -------- however, that the Company shall no longer be obligated to maintain such coverage - ------- and pay such premiums in the event that the Executive's employment is or was terminated by the Company with Cause (as defined in Section 9(b) hereof) or by the Executive without Good Reason (as defined in Section 9(c) hereof). Such policy shall provide for its conversion to an individual policy owned by the Executive subsequent to termination of his employment. The Executive agrees to undergo any reasonable physical examination and other procedures as may be necessary to maintain such policy. 2 (2) During the term of this Agreement, the Company shall be entitled to maintain a "key man" term life insurance policy on the life of the Executive, the proceeds of which shall be payable to the Company or its designees. The Executive agrees to undergo any reasonable physical examination and other procedures as may be necessary to maintain such policy. (b) Expenses. The Executive shall be entitled to receive prompt -------- reimbursement of all expenses reasonably incurred by him in connection with the performance of his duties hereunder or for promoting, pursuing or otherwise furthering the business or interests of the Company. (c) Office and Facilities. The Executive shall be provided with an --------------------- appropriate office and with such secretarial and other support facilities as are commensurate with the Executive's status with the Company and adequate for the performance of his duties hereunder. 8. Vacation. The Executive shall be entitled to annual vacation in -------- accordance with the policies as periodically established by the Board for similarly situated executives of the Company. 9. Termination. The Executive's employment hereunder may be terminated under ----------- the following circumstances: (a) Disability. The Company shall be entitled to terminate the ---------- Executive's employment after having established the Executive's Disability. For purposes of this Agreement, "Disability" means a physical or mental infirmity which impairs the Executive's ability to substantially perform his duties under this Agreement for a period of at least six (6) months in any twelve (12) month calendar period as determined in accordance with the The Limited, Inc. Long-Term Disability Plan. (b) Cause. The Company shall be entitled to terminate the Executive's ----- employment for "Cause" without prior written notice. For purposes of this Agreement, "Cause" shall mean that the Executive (1) has plead "guilty" or "no contest" to or has been convicted of an act which is defined as a felony under federal or state law, or (2) engaged in willful misconduct which could reasonably be expected to harm the Company's business or its reputation. For this purpose, an act or failure to act shall be considered "willful misconduct" only if done, or omitted to be done, by the Executive in bad faith and without a reasonable belief that such act or failure to act was in the best interests of the Company. The Executive shall not be terminated for Cause unless he has been given written notice by the Board of its intention to so terminate his employment, such notice to state in detail the particular act or acts or failure or failures to act that constitute the grounds on which the proposed termination for Cause is based. If such notice is given, the Executive shall be entitled to a hearing before the Board, and to be accompanied by his counsel, at which he shall be entitled to contest the Board's findings. Such hearing shall be held within fifteen (15) days of notice to the Company by the Executive, provided he requests such hearing within thirty (30) days of the written notice from the Board of its intention to terminate his employment. If the Executive fails to request such hearing within the thirty (30)-day period specified in the preceding sentence, his employment shall be terminated for Cause effective upon the expiration of such period. If the Executive requests such hearing and, within ten (10) days following such hearing, the Executive is furnished with a copy of a resolution, duly adopted by the affirmative vote of a majority of the members of the Board, finding that in the good-faith opinion of the Board, the Executive was guilty of conduct constituting Cause (as defined herein), specifying the particulars thereof in reasonable detail, the Executive shall thereupon be terminated for Cause. Any such resolution shall be accompanied by a certificate of the Secretary or another appropriate officer of the Company which shall state that such resolution was duly adopted by the affirmative vote of a majority of the members of the Board at a duly convened meeting called for such purpose. 3 (c) Termination by the Executive. The Executive may terminate his ---------------------------- employment hereunder for "Good Reason" by delivering to the Company (1) a Preliminary Notice of Good Reason (as defined below), and (2) not earlier than thirty (30) days from the delivery of such Preliminary Notice, a Notice of Termination. For purposes of this Agreement, "Good Reason" means (i) the failure to continue the Executive as President and Chief Executive Officer of the Company; (ii) the failure of the Board to nominate the Executive for election to the Board at the Company's annual stockholder meeting; (iii) the assignment to the Executive of any duties materially inconsistent with, or the failure to assign to the Executive duties materially consistent with, the Executive's positions, duties, authority, responsibilities and reporting requirements as set forth in Section 2 hereof; (iv) a reduction in or a material delay in payment of the Executive's total cash compensation and benefits from those required to be provided in accordance with the provisions of this Agreement; (v) the Company, the Board or any person controlling the Company requires the Executive to be based outside of the United States, other than on travel reasonably required to carry out the Executive's obligations under the Agreement or (vi) the failure of the Company to obtain the assumption in writing of its obligation to perform this Agreement by any successor to all or substantially all of the assets of the Company not later than the effective date of a merger, consolidation, sale or similar transaction; provided, however, that -------- ------- "Good Reason" shall not include (A) acts not taken in bad faith which are cured by the Company in all respects not later than thirty (30) days from the date of receipt by the Company of a written notice from the Executive identifying in reasonable detail the act or acts constituting "Good Reason" (a "Preliminary Notice of Good Reason") or (B) acts taken by the Company to reassign the Executive's duties and/or titles to another person or persons if the Executive has suffered a physical or mental infirmity which renders him unable to substantially perform his duties under this Agreement, provided that any such acts may be taken by the Company only after receiving an opinion of a physician reasonably acceptable to the Executive or his legal representative stating that there is no reasonable likelihood that the Executive will be able to return to full-time employment with the Company performing his duties hereunder within six (6) months. A Preliminary Notice of Good Reason shall not, by itself, constitute a Notice of Termination. 4 (d) Notice of Termination. Subject to Section 9(b), any purported --------------------- termination by the Company or by the Executive shall be communicated by a written Notice of Termination to the other two weeks prior to the Termination Date (as defined below). For purposes of this Agreement, a "Notice of Termination" shall mean a notice which indicates the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. For purposes of this Agreement, no such purported termination of employment shall be effective without such Notice of Termination. (e) Termination Date, Etc. "Termination Date" shall mean in the case ---------------------- of the Executive's death, his date of death, or in all other cases, the date specified in the Notice of Termination; provided, however, that if the -------- ------- Executive's employment is terminated by the Company due to Disability, the date specified in the Notice of Termination shall be at least thirty (30) days from the date the Notice of Termination is given to the Executive. 10. Compensation Upon Termination. ----------------------------- (a) If during the term of this Agreement (including any extensions thereof), the Executive's employment is terminated by the Company for Cause, by the Executive other than for Good Reason or by reason of the Executive's death, or if the Executive gives written notice not to extend the term of this Agreement, the Company's sole obligation hereunder shall be to pay the Executive the following amounts earned hereunder but not paid as of the Termination Date: (i) Base Salary, (ii) reimbursement for any and all monies advanced or expenses incurred in connection with the Executive's employment for reasonable and necessary expenses incurred by the Executive on behalf of the Company through the Termination Date, and (iii) any compensation which has been earned but not paid, including any amounts which the Executive had previously deferred (including any interest earned or credited thereon) (collectively, "Accrued Compensation"), provided, however, that if the Executive has given written -------- ------- notice not to extend the term of this Agreement, the Company shall continue to pay the premiums provided for in Section 7(a) for the time period set forth therein. The Executive's entitlement to any other benefits shall be determined in accordance with the Company's employee benefit plans then in effect. (b) If the Executive's employment is terminated by reason of the Company's written notice to the Executive of its decision not to extend the Initial Term of this Agreement as contemplated in Section 1 hereof, by the Company other than for Cause or by the Executive for Good Reason, the Company's sole obligation hereunder shall be as follows: (i) the Company shall pay the Executive the Accrued Compensation; (ii) the Company shall continue to pay the Executive the Base Salary for a period of one (1) year following the Termination Date, and 5 (iii) the Company shall continue to pay the premiums provided for in Section 7(a) hereof for the time period set forth therein. (c) If the Executive's employment is terminated by the Company by reason of the Executive's Disability, the Company's sole obligation hereunder shall be as follows: (i) the Company shall pay the Executive the Accrued Compensation; (ii) the Company shall continue to pay the Executive 100% of the Base Salary for the first twenty four months following the Termination Date and 80% of the Base Salary for the third twelve months following the Termination Date; provided, however, that such Base -------- ------- Salary shall be reduced by the amount of any benefits the Executive receives by reason of his Disability under the Company's relevant disability plan or plans; and (iii) the Company shall continue to pay the premiums provided for in Section 7(a) hereof for the time period set forth therein. (d) During the period the Executive is receiving salary continuation pursuant to Section 10(b)(ii) or 10(c)(ii) hereof, the Company shall, at its expense, provide to the Executive and his beneficiaries medical and dental benefits substantially similar in the aggregate to those provided to the Executive immediately prior to the date of the Executive's termination of employment; provided, however, that the Company's obligation with respect to the -------- ------- foregoing benefits shall be reduced to the extent that the Executive or his beneficiaries obtains any such benefits pursuant to a subsequent employer's benefit plans. (e) The Executive shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise and no such payment shall be offset or reduced by the amount of any compensation provided to the Executive in any subsequent employment. 11. Employee Covenants. ------------------ (a) Unauthorized Disclosure. The Executive shall not, during the term ----------------------- of this Agreement and thereafter, make any Unauthorized Disclosure. For purposes of this Agreement, "Unauthorized Disclosure" shall mean disclosure by the Executive without the prior written consent of the Board to any person, other than an employee of the Company or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Company or as may be legally required, of any information relating to the business or prospects of the Company (including, but not limited to, any confidential information with respect to any of the Company's customers, products, methods of distribution, strategies, business and marketing plans and business policies and practices); provided, however, that such term shall not include the use or disclosure by the - -------- ------- Executive, without consent, of any information known generally to the public (other than as a result of disclosure by him in violation of this Section 11(a)). This confidentiality covenant has no temporal, geographical or territorial restriction. 6 (b) Non-Competition. During the Non-Competition/No-Raid Period --------------- described below, the Executive shall not, directly or indirectly, without the prior written consent of the Company, own, manage, operate, join, control, be employed by, consult with or participate in the ownership, management, operation or control of, or be connected with (as a stockholder, partner, or otherwise), any business, individual, partner, firm, corporation, or other entity that competes, directly or indirectly, with the Company or any affiliate of the Company; provided, however, that the "beneficial ownership" by the Executive -------- ------- after his termination of employment with the Company, either individually or as a member of a "group," as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), of not more than two percent (2%) of the voting stock of any publicly held corporation shall not be a violation of this Agreement. (c) Non-Solicitation. During the Non-Competition/No-Raid Period ---------------- described below, the Executive shall not, either directly or indirectly, alone or in conjunction with another party, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company, its subsidiaries and/or affiliates, with any person who at any time was an employee, customer or supplier of the Company, its subsidiaries and/or affiliates or otherwise had a business relationship with the Company, its subsidiaries and/or affiliates. For purposes of this Agreement, the "Non-Competition/No-Raid Period" means the period the Executive is employed by the Company plus one (1) year thereafter. (d) Remedies. The Executive agrees that any breach of the terms of -------- this Section 11 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive and/or any and all persons and/or entities acting for and/or with the Executive, without having to prove damages, in addition to any other remedies to which the Company may be entitled at law or in equity. The terms of this paragraph shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach hereof, including but not limited to the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants not to compete and solicit are reasonable and that the Company would not have entered into this Agreement but for the inclusion of such covenants herein. Should a court or arbitrator determine, however, that any provision of the covenants is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that the covenant should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. The provisions of this Section 11 shall survive any termination of this Agreement, and the existence of any claim or cause of action by the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by 7 the Company of the covenants and agreements of this Section 11; provided, -------- however, that this paragraph shall not, in and of itself, preclude the Executive - ------- from defending himself against the enforceability of the covenants and agreements of this Section 11. 12. Certain Additional Payments. --------------------------- (a) In the event it shall be determined that any payment or distribution of any type to or for the benefit of the Executive by the Company, any of its affiliates, or any person who acquires ownership or effective control of the Company or ownership of a substantial portion of the Company's assets (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder) or any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), is subject to the excise tax imposed by Section 4999 of the Code or any similar successor provision or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments (not including any Gross-Up Payment). (b) All determinations as to whether any of the Total Payments are "parachute payments" (within the meaning of Section 280G of the Code), whether a Gross-Up Payment is required, the amount of such Gross-Up Payment and any amounts relevant to the last sentence of Subsection 12(a), shall be made by an independent accounting firm selected by the Company from among the largest six accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide its determination (the "Determination"), together with detailed supporting calculations, regarding the amount of any Gross-Up Payment and any other relevant matter, both to the Company and the Executive, within five (5) days of the Termination Date, if applicable, or such earlier time as is requested by the Company or the Executive (if the Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax). Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that the Company should have made Gross-Up Payments ("Underpayment"), or that Gross-Up Payments will have been made by the Company which should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. In the case of an Overpayment, the Executive shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment. 8 13. Successors and Assigns. ---------------------- (a) This Agreement shall be binding upon and shall inure to the benefit of the Company, its successors and assigns and the Company shall require any successor or assign to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place. The term "the Company" as used herein shall include any such successors and assigns. The term "successors and assigns" as used herein shall mean a corporation or other entity acquiring or otherwise succeeding to, directly or indirectly, all or substantially all the assets and business of the Company (including this Agreement) whether by operation of law or otherwise. (b) Neither this Agreement nor any right or interest hereunder shall be assignable or transferable by the Executive, his beneficiaries or legal representatives, except by will or by the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal personal representative. 14. Arbitration. Except with respect to the remedies set forth in ----------- Section 11(d) hereof, if in the event of any controversy or claim between the Company or any of its affiliates and the Executive arising out of or relating to this Agreement, either party delivers to the other party a written demand for arbitration of a controversy or claim then such claim or controversy shall be submitted to binding arbitration. The binding arbitration shall be administered by the American Arbitration Association under its Commercial Arbitration Rules. The arbitration shall take place in Columbus, Ohio. Each of the Company and the Employee shall appoint one person to act as an arbitrator, and a third arbitrator shall be chosen by the first two arbitrators (such three arbitrators, the "Panel"). The Panel shall have no authority to award punitive damages against the Company or the Executive. The arbitrator shall have no authority to add to, alter, amend or refuse to enforce any portion of the disputed agreements. The Company and the Executive each waive any right to a jury trial or to petition for stay in any action or proceeding of any kind arising out of or relating to this Agreement. 15. Fees and Expenses. The Company shall pay the legal fees reasonably ----------------- incurred by the Executive in connection with the negotiation and execution of this Agreement up to a maximum of $25,000, payable upon submission of the billing statement or paid receipt for such services rendered by the Executive's counsel. In addition, the Company agrees to pay promptly upon presentation of an invoice from the Executive, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of (a) any contest by the Company of the validity or enforceability of, or liability under, any provision of this Agreement, (b) any effort to enforce the Executive's rights hereunder or (c) any dispute between the Executive and the Corporation relating to this Agreement, but only if such contest, effort or dispute results in a judgment, award or settlement in Executive's favor in any material respect. 9 16. Notice. For the purposes of this Agreement, notices and all other ------ communications provided for in the Agreement (including the Notice of Termination) shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail, return receipt requested, postage prepaid, or upon receipt if overnight delivery service or facsimile is used, addressed as follows: To the Executive: - ---------------- Michael S. Jeffries XXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXX To the Company: - -------------- Abercrombie & Fitch Four Limited Parkway Reynoldsburg, Ohio 43068 Attn: Secretary With a Copy to: -------------- The Limited, Inc. 3 Limited Parkway Columbus, Ohio 43230 Attn: Secretary 17. Settlement of Claims. The Company's obligation to make the payments -------------------- provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. 18. Miscellaneous. No provision of this Agreement may be modified, waived ------------- or discharged unless such waiver, modification or discharge is agreed to in writing and signed by the Executive and the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. 19. Governing Law. This Agreement shall be governed by and construed and ------------- enforced in accordance with the laws of the State of Ohio without giving effect to the conflict of law principles thereof. 10 20. Severability. The provisions of this Agreement shall be deemed ------------ severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. 21. Entire Agreement. This Agreement and the agreements attached hereto ---------------- as Exhibits A, B and C constitute the entire agreement between the parties hereto and supersede all prior agreements, if any, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. This Agreement may be executed in one or more counterparts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as of the day and year first above written. ABERCROMBIE & FITCH, CO. By: /s/ Leslie H. Wexner ----------------------------- Leslie H. Wexner Chairman of the Board /s/ Michael S. Jeffries -------------------------------- MICHAEL S. JEFFRIES 11 EXHIBIT A RESTRICTED STOCK AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Restricted Stock Agreement, dated as of May 13, 1997, is entered into by and between Abercrombie & Fitch Co. (the "Company") and the associate or director of the Company whose name appears below (the "Associate") in order to set forth the terms and conditions of Restricted Shares granted to the Associate under The Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan- 1997 Restatement ("the Plan"). Associate's Name: MICHAEL JEFFRIES Division: ABERCROMBIE & FITCH Social Security #: XXXXXXXXXXXXXXXXXXXX Address: XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXX Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Associate Restricted Shares of the Company's Common Stock, as outlined below.
(E) Date and Number of Shares as to which Restricted Period (B) Date (C) Total Terminates if Performance ---- No. of (D) Date of Satisfaction Requirements Have Been (A) Plan Name of Grant Shares of Performance Requirements Satisfied* --------- -------- --------- ------------------------------ --------- 1996 5/13/97 500,000 (1) As to the first 2/1/99: 200,000 200,000 shares, as of February 1, 1999, if the Company's aggregate gross revenue for the Company's 1997 and 1998 fiscal years is equal to or greater than $xxx million. (2) As to the remaining 300,000 2/1/2000: 75,000, plus ---- shares (or the entire that number of shares as 500,000 shares if the to which the Restricted -- requirement described in Period (i) has not (D)(1) has not been terminated, and (ii) satisfied), as of the would have earliest of the following terminated in any dates: February 1, 2000, if earlier year(s) if the Company's aggregate the performance gross revenue for the requirements Company's 1999 fiscal year had been satisfied in is equal to or greater such earlier year(s) than $xxx million; [or]
- -------------------------------- * The number of shares as to which the Restricted Period will terminate as of the dates shown may not exceed the number of shares as to which the performance requirements described in column (D) have been satisfied. EXHIBIT A RESTRICTED STOCK AGREEMENT ACKNOWLEDGEMENT OF RECEIPT February 1, 2001, if the 2/1/2001: 75,000, plus that Company's aggregate gross revenue ---- for the Company's 2000 fiscal number of shares as to which year is equal to or greater the Restricted Period (i) has than $xxx million; not terminated, and (ii) would have terminated in any earlier [or] year(s) if the performance requirements had been satisfied in such earlier year(s) February 1, 2002, if the 2/1/2002: 75,000, plus Company's aggregate gross revenue ---- for the Company's 2001 fiscal that number of shares as year is equal to or greater to which the Restricted than $xxx million; Period (i) has not terminated, and (ii) [or] would have terminated in any earlier year(s) if the performance requirements had been satisfied in such earlier year(s) February 1, 2003, if the 2/1/2003: 75,000, plus that Company's aggregate gross ---- revenue for the Company's number of shares as to which 2002 fiscal year is equal the Restricted Period (i) has to or greater than $xxx not terminated, and (ii) million. would have terminated in any earlier year(s) if the performance requirements had been satisfied in such earlier year(s)
This Agreement is subject to stockholder approval of the Plan at the Company's annual meeting on May 20, 1997. Subject to such approval, the Company has the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Company and the Associate have executed this Agreement as of the Date of Grant set forth above. ABERCROMBIE & FITCH ASSOCIATE By: /s/ Leslie H. Wexner /s/ Michael S. Jeffries ------------------------------- ------------------------------ Leslie H. Wexner, Chairman Michael S. Jeffries AMENDMENT TO MAY 13, 1997 RESTRICTED STOCK AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Restricted Stock Agreement - Amendment (the "Amendment") dated as of October 22, 1997, is entered into by and between Abercrombie & Fitch Co. (the "Company") and the associate or director of the Company whose name appears below (the "Associate") solely to amend the Performance Requirements outlined in the May 13, 1997 Restricted Stock Agreement (the "May 13 Agreement"), granted to the Associate under The Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan-1997 Restatement ("the Plan"). Associate's Name: MICHAEL JEFFRIES Division: ABERCROMBIE & FITCH Social Security #: XXXXXXXXXXXXXXXXXXXX Address: XXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXXXXX The Company hereby amends the Performance Requirements required for earning the second 300,000 Associate Restricted Shares of the Company's Common Stock, granted in the May 13 Agreement as outlined below:
(D) Date of Satisfaction of Performance Requirements --------------------------------------- (3) The remaining 300,000 shares may be earned earlier than provided in (D)(2) of the May 13 Agreement, as follows: 100,000 shares will be earned as of February 1, 1998 if the Company's aggregate gross revenue for the Company's fiscal fourth quarter 1997 is equal to or greater than $xxx million; 100,000 shares will be earned as of August 1, 1998 if the Company's aggregate gross revenue for the Company's 1998 fiscal spring season (i.e. February through July) is equal to or greater than $xxx million; and 100,000 shares will be earned as of February 1, 1999 if the Company's aggregate gross revenue for the Company's 1998 fiscal fall season (i.e. August through January) is equal to or greater than $xxx million. To the extent that the performance requirements described in this clause have not been satisfied, the performance requirements in (D)(2) of the May 13 Agreement shall continue to apply to the remaining shares which have not yet been earned.
This Amendment shall not affect the vesting provisions of section (E) of the May 13 Agreement and, except as expressly provided herein, the terms of the May 13 Agreement shall remain unchanged. The Company has the corporate power and authority to enter into this Amendment and to perform its obligations hereunder. The Company and the Associate have executed this Amendment as of the date set forth above. ABERCROMBIE & FITCH ASSOCIATE By: /s/ Leslie H. Wexner /s/ Michael S. Jeffries ------------------------------- ----------------------------- Leslie H. Wexner, Chairman Michael S. Jeffries EXHIBIT B STOCK OPTION AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Stock Option Agreement, dated as of May 13, 1997, is entered into by and between Abercrombie & Fitch Co. (the "Company") and the associate or director of the Company whose name appears below (the "Associate") in order to set forth the terms and conditions of Options granted to the Associate under The Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan--1997 Restatement ("the Plan"). Associate's Name: MICHAEL JEFFRIES Division: ABERCROMBIE & FITCH Social Security #: XXXXXXXXXXXXXX Address: XXXXXXXXXXXXXX XXXXXXXXXXXXXX Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Associate an Option to purchase shares of Common Stock of the Company, as outlined below. This Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. The Option shall become exercisable with respect to 50,000 of the shares subject thereto on each of the first day of February in 1998, 1999, 2000 and 2001 (such shares, the "Time Vesting Shares"), and with respect to 320,000 of the shares subject thereto on the earlier of February 28, 2005 or the Associate's retirement from the Company after reaching age 60; provided, however, that with respect to such 320,000 --------- ------- shares, the Option may become exercisable earlier in accordance with the schedules below if the applicable Performance Requirement described below is met. Such exercisability may also be accelerated as set forth in the attached Terms and Conditions.
Accelerated Exercise Schedule Upon Attainment of Applicable Performance Requirement ------------------------- Total No. of Performance Vesting Plan Name Date of Grant Shares Option Price Requirement Date Shares - --------- ------------- ------ ------------ ----------- ---- ------ 1996 NQ 5/13/97 520,000 $16.00 (1) NONE 2/1/98 50,000 2/1/99 50,000 2/1/00 50,000 2/1/01 50,000 --------------------------------------------------------- (2) The Company's 2/1/99 40,000 earnings per share ("EPS") for its 2/1/00 40,000 fiscal year ending in 1998 equals or 2/1/01 40,000 exceeds $xxx 2/1/02 40,000 --------------------------------------------------------- (3) The Company's 2/1/00 40,000 EPS for its fiscal year ending in 1999 2/1/01 40,000 equals or exceeds $xxx 2/1/02 40,000 2/1/03 40,000
STOCK OPTION AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Agreement is subject to stockholder approval of the Plan at the Company's annual meeting of stockholders on May 20, 1997. Subject to such approval, the Company has the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Company and the Associate have executed this Agreement as of the Date of Grant set forth above. ABERCROMBIE & FITCH ASSOCIATE By: /s/ Leslie H. Wexner /s/ Michael S. Jeffries ---------------------------------- ------------------------------- Leslie H. Wexner, Chairman Michael S. Jeffries EXHIBIT C STOCK OPTION AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Stock Option Agreement, dated as of May 13, 1997, is entered into by and between Abercrombie & Fitch Co. (the "Company"), and the associate or director of the Company whose name appears below (the "Associate") in order to set forth the terms and conditions of Options granted to the Associate under The Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan--1997 Restatement ("the Plan"). Associate's Name: MICHAEL JEFFRIES Division: ABERCROMBIE & FITCH Social Security #: XXXXXXXXXXXXXXXX Address: XXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXX Subject to the attached Terms and Conditions and the terms of the Plan, which are incorporated herein by reference, the Company hereby grants to the Associate an Option to purchase shares of Common Stock of the Company, as outlined below. This Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. The Option shall become exercisable with respect to 100% of the shares subject thereto on the earlier of the date nine (9) years and six (6) months from the Date of Grant or the Associate's retirement from the Company after reaching age 60; provided, --------- however, that all or a portion of the Option may become exercisable earlier in - ------- accordance with the schedules below if the applicable Performance Requirement described below is met. Such exercisability may also be accelerated as set forth in the attached Terms and Conditions.
Accelerated Exercise Schedule Upon Attainment of Applicable Performance Requirement ------------------------- Total No. of Performance Vesting Plan Name Date of Grant Shares Option Price Requirement Date Shares - --------- ------------- ------ ------------ ----------- ---- ------ 1996 NQ 5/13/97 480,000 $16.00 (1) The Company's 2/1/01 40,000 earnings per share ("EPS") for its 2/1/02 40,000 fiscal year ending in 2000 equals or 2/1/03 40,000 exceeds $xxx 2/1/04 40,000 --------------------------------------------------------- (2) The Company's 2/1/02 40,000 EPS for its fiscal year ending in 2/1/03 40,000 2001 equals or exceeds $xxx 2/1/04 40,000 2/1/05 40,000 --------------------------------------------------------- (3) The Company's 2/1/03 40,000 EPS for its fiscal year ending in 2/1/04 40,000 2002 equals or exceeds $xxx 2/1/05 40,000 2/1/06 40,000
EXHIBIT C STOCK OPTION AGREEMENT ACKNOWLEDGEMENT OF RECEIPT This Agreement is subject to stockholder approval of the Plan at the Company's annual meeting on May 20, 1997. Subject to such approval, the Company has the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The Company and the Associate have executed this Agreement as of the Date of Grant set forth above. ABERCROMBIE & FITCH ASSOCIATE By: /s/ Leslie H. Wexner /s/ Michael S. Jeffries ------------------------------- ------------------------------ Leslie H. Wexner, Chairman Michael S. Jeffries EX-11 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 ---------- ABERCROMBIE & FITCH CO. AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS (Thousands except per share amounts)
Thirteen Weeks Ended --------------------------------- November 1, November 2, 1997 1996 --------------- ---------------- Net income $10,403 $3,982 =============== ================ Common shares outstanding: Weighted average 51,050 45,919 Dilutive effect of stock options 587 26 Weighted average treasury shares (43) - --------------- ---------------- Weighted average used to calculate net income per share 51,594 45,945 =============== ================ Net income per share $.20 $.09 =============== ================ Thirty-nine Weeks Ended --------------------------------- November 1, November 2, 1997 1996 --------------- ---------------- Net income $13,021 $ 4,157 =============== ================ Common shares outstanding: Weighted average 51,050 43,973 Dilutive effect of stock options 316 9 Weighted average treasury shares (38) - --------------- ---------------- Weighted average used to calculate net income per share 51,328 43,982 =============== ================ Net income per share $.25 $.09 =============== ================
EX-15 4 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 ---------- [LETTERHEAD OF COOPERS & LYBRAND APPEARS HERE] Securities and Exchange Commission 450 5th Street, N.W. Judiciary Plaza Washington, D.C. 20549 We are aware that our report dated November 17, 1997, on our review of the interim consolidated financial information of Abercrombie & Fitch Co. for the thirteen-week and thirty-nine-week periods ended November 1, 1997 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 and 333-15945. 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. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Columbus, Ohio December 11, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) OF ABERCROMBIE & FITCH CO. AND SUBSIDIARIES FOR THE QUARTER ENDED NOVEMBER 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JAN-31-1998 FEB-02-1997 NOV-01-1997 2,623 0 2,433 0 55,583 67,104 120,099 53,403 137,997 63,274 50,000 0 0 511 22,946 137,997 309,472 309,472 204,755 204,755 79,738 0 3,278 21,701 8,680 13,021 0 0 0 13,021 .25 .25
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