-----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, BzGZqGPyWny3gVUNDtGqzXUlLpjz4vg3Z4Z05DMJp4KIzu/fQFSXUE2Gy1yCV5bB RmDtGYtCX3RslacFptzdeQ== 0000950152-98-007565.txt : 19990309 0000950152-98-007565.hdr.sgml : 19990309 ACCESSION NUMBER: 0000950152-98-007565 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABERCROMBIE & FITCH CO /DE/ CENTRAL INDEX KEY: 0001018840 STANDARD INDUSTRIAL CLASSIFICATION: 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: 98708607 BUSINESS ADDRESS: STREET 1: FOUR LIMITED PARKWAY EAST CITY: REYNOLDSBURG STATE: OH ZIP: 43068 BUSINESS PHONE: 6145776500 MAIL ADDRESS: STREET 1: FOUR LIMITED PARKWAY EAST CITY: COLUMBUS STATE: OH ZIP: 43068 10-Q 1 ABERCROMBIE & FITCH CO. QUARTERLY REPORT/FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended August 1, 1998 -------------- 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 September 1, 1998 - - -------------------- -------------------------------- $.01 Par Value 51,644,187 Shares 2 ABERCROMBIE & FITCH CO. TABLE OF CONTENTS
Page No. -------- Part I. Financial Information Item 1. Financial Statements Consolidated Statements of Income Thirteen and Twenty-six Weeks Ended August 1, 1998 and August 2, 1997..........................................................3 Consolidated Balance Sheets August 1, 1998 and January 31, 1998........................................................4 Consolidated Statements of Cash Flows Twenty-six Weeks Ended August 1, 1998 and August 2, 1997..........................................................5 Notes to Consolidated Financial Statements..........................................................6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.............................................11 Part II. Other Information Item 1. Legal Proceedings.............................................................................17 Item 4. Submission of Matters to a Vote of Security Holders...........................................17 Item 6. Exhibits and Reports on Form 8-K..............................................................18
2 3 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 Twenty-six Weeks Ended ------------------------- ------------------------- August 1, August 2, August 1, August 2, 1998 1997 1998 1997 -------- ------- --------- -------- NET SALES $147,127 $86,640 $281,357 $160,956 Cost of Goods Sold, Occupancy and Buying Costs 91,933 58,854 176,952 109,229 -------- ------- -------- -------- GROSS INCOME 55,194 27,786 104,405 51,727 General, Administrative and Store Operating Expenses 38,096 23,196 76,968 45,157 -------- ------- -------- -------- OPERATING INCOME 17,098 4,590 27,437 6,570 Interest (Income)/Expense, Net (570) 1,167 (739) 2,202 -------- ------- -------- -------- INCOME BEFORE INCOME TAXES 17,668 3,423 28,176 4,368 Provision for Income Taxes 7,070 1,370 11,270 1,750 -------- ------- -------- -------- NET INCOME $ 10,598 $ 2,053 $ 16,906 $ 2,618 ======== ======= ======== ======== NET INCOME PER SHARE: Basic $.21 $.04 $.33 $.05 ======== ======= ======== ======== Diluted $.20 $.04 $.32 $.05 ======== ======= ======== ======== WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 51,635 51,005 51,421 51,014 ======== ======= ======== ======== Diluted 53,116 51,322 52,796 51,195 ======== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 3 4 ABERCROMBIE & FITCH CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands)
August 1, January 31, 1998 1998 -------- -------- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash & Equivalents $ 45,855 $ 42,667 Accounts Receivable 3,681 1,695 Inventories 75,889 33,927 Store Supplies 5,916 5,592 Intercompany Receivable - 23,785 Other 950 1,296 -------- -------- TOTAL CURRENT ASSETS 132,291 108,962 PROPERTY AND EQUIPMENT, NET 73,987 70,517 DEFERRED INCOME TAXES 4,239 3,759 OTHER ASSETS 706 - -------- -------- TOTAL ASSETS $211,223 $183,238 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ CURRENT LIABILITIES: Accounts Payable $ 36,085 $ 15,968 Accrued Expenses 55,377 35,143 Income Taxes Payable 3,201 15,851 -------- -------- TOTAL CURRENT LIABILITIES 94,663 66,962 LONG-TERM DEBT - 50,000 OTHER LONG-TERM LIABILITIES 14,502 7,501 SHAREHOLDERS' EQUITY: Common Stock 517 511 Paid-In Capital 143,891 117,972 Retained Deficit (42,025) (58,931) -------- -------- 102,383 59,552 Less: Treasury Stock, at Average Cost (325) (777) -------- -------- TOTAL SHAREHOLDERS' EQUITY 102,058 58,775 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $211,223 $183,238 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 5 ABERCROMBIE & FITCH CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) (Unaudited)
Twenty-six Weeks Ended ----------------------------- August 1, August 2, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 16,906 $ 2,618 Impact of Other Operating Activities on Cash Flows: Depreciation and Amortization 9,952 7,080 Non-Cash Charge for Deferred Compensation 6,573 - Changes in Assets and Liabilities: Inventories (41,962) (25,743) Accounts Payable and Accrued Expenses 40,351 13,566 Income Taxes (13,130) (9,452) Other Assets and Liabilities (310) (2,462) -------- -------- NET CASH PROVIDED BY/(USED FOR) OPERATING ACTIVITIES 18,380 (14,393) -------- -------- CASH USED FOR INVESTING ACTIVITIES Capital Expenditures (15,354) (12,790) -------- -------- FINANCING ACTIVITIES: Issuance of Common Stock 25,875 - Settlement of Intercompany Balance 23,785 - Increase in Intercompany Balance - 28,391 Purchase of Treasury Stock - (852) Stock Options and Other 502 16 Repayment of Long-Term Debt (50,000) - -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 162 27,555 -------- -------- NET INCREASE IN CASH AND EQUIVALENTS 3,188 372 Cash and Equivalents, Beginning of Year 42,667 1,945 -------- -------- CASH AND EQUIVALENTS, END OF PERIOD $ 45,855 $ 2,317 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 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 consolidated financial statements include the accounts of the Company and all significant subsidiaries which are more than 50 percent owned and controlled. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements as of August 1, 1998 and for the thirteen and twenty-six week periods ended August 1, 1998 and August 2, 1997 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 1997 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 August 1, 1998, and for the thirteen and twenty-six week periods ended August 1, 1998 and August 2, 1997 included herein have been reviewed by the independent accounting firm of PricewaterhouseCoopers LLP and the report of such firm follows the notes to consolidated financial statements. 2. ADOPTION OF ACCOUNTING STANDARDS In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP requires that certain external costs, internal payroll and payroll related costs be capitalized during the application development stage of a software development project and amortized over the software's useful life. The Company will adopt the SOP in the first quarter of 1999. 6 7 3. CONSUMMATION OF EXCHANGE OFFER On May 19, 1998, The Limited, Inc. ("The Limited") completed a tax-free exchange offer to establish the Company as an independent company. The Limited accepted 47,075,052 shares of its common stock that were exchanged at a ratio of .86 of a share of Abercrombie & Fitch stock for each Limited share accepted for exchange. In addition, on June 1, 1998, The Limited effected a pro rata spin-off to its shareholders of its remaining 3,115,455 Abercrombie & Fitch shares. Limited shareholders of record at the close of trading on May 29, 1998 received .013673 of a share of Abercrombie & Fitch stock for each Limited share owned at that time. 4. EARNINGS PER SHARE Weighted Average Common Shares Outstanding (thousands):
Thirteen Weeks Ended -------------------------- August 1, August 2, 1998 1997 ------ ------ Common shares issued 51,650 51,050 Treasury shares (15) (45) ------ ------ Basic shares 51,635 51,005 Dilutive effect of options and restricted shares 1,481 317 ------ ------ Diluted shares 53,116 51,322 ====== ====== Twenty-six Weeks Ended -------------------------- August 1, August 2, 1998 1997 ------ ------ Common shares issued 51,442 51,050 Treasury shares (21) (36) ------ ------ Basic shares 51,421 51,014 Dilutive effect of options and restricted shares 1,375 181 ------ ------ Diluted shares 52,796 51,195 ====== ======
5. 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. 7 8 6. PROPERTY AND EQUIPMENT, NET Property and equipment, net, consisted of (thousands):
August 1, January 31, 1998 1998 -------- -------- Property and equipment, at cost $126,203 $124,000 Accumulated depreciation and amortization (52,216) (53,483) -------- -------- Property and equipment, net $ 73,987 $ 70,517 ======== ========
7. INCOME TAXES The Company is included in The Limited's consolidated federal and certain state income tax groups for income tax reporting purposes through the completion of the split-off. Under this arrangement, the Company 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 twenty-six weeks ended August 1, 1998 and August 2, 1997 approximated $24.4 million and $12.2 million, respectively. 8. LONG-TERM DEBT The Company entered into a $150 million syndicated unsecured credit agreement (the "Agreement"), on April 30, 1998 (the "Effective Date"). Borrowings outstanding under the Agreement are due April 30, 2003. The Agreement has several borrowing options, including interest rates that are based on the bank agent's "Alternate Base Rate", a LIBO Rate or a rate submitted under a bidding process. Facility fees payable under the Agreement are based on the Company's ratio (the "leverage ratio") of the sum of total debt plus 800% of forward minimum rent commitments to trailing four-quarters EBITDAR and currently accrues at .275% of the committed amount per annum. The Agreement contains limitations on debt, liens, restricted payments (including dividends), mergers and acquisitions, sale-leaseback transactions, investments, acquisitions, hedging transactions, and transactions with affiliates and financial covenants requiring a minimum ratio of EBITDAR to interest expense and minimum rent and a maximum leverage ratio. No amounts were outstanding under the Agreement at August 1, 1998. Long-term debt at January 31, 1998 consisted of a 7.80% unsecured note in the amount of $50 million that represented the Company's proportionate share of certain long-term debt of The Limited. The interest rate and maturity of the note paralleled that of corresponding debt of The Limited. During the first quarter of 1998, the Company repaid the $50 million long-term note owed to The Limited, Inc. by issuing 600,000 shares of Class A common stock at a price of $43.125 per share and paid $24,125,000 in cash. 8 9 9. RELATIONSHIP WITH THE LIMITED Subsequent to the exchange offer, The Limited continues to provide various services to the Company including, but not limited to, information technology, tax, store planning/design, transportation and import and shipping services. The cost of these services generally is equal to The Limited's cost in providing the relevant services plus 5% of such costs. The Limited will cease to provide a substantial majority of these services on May 19, 1999 (the first anniversary of the closing of the exchange offer establishing the Company as an independent company). Prior to the completion of the exchange offer, cash activity was provided through The Limited's centralized cash management systems and was reflected in the Company's intercompany account. On May 19, 1998, all intercompany balances were settled. 9 10 [PRICEWATERHOUSECOOPERS LOGO] REPORT OF INDEPENDENT ACCOUNTANTS To the Audit Committee of The Board of Directors of Abercrombie & Fitch Co. We have reviewed the condensed consolidated balance sheet of Abercrombie & Fitch Co. and Subsidiaries (the Company) at August 1, 1998, and the related condensed consolidated statements of income and cash flows for the thirteen-week and twenty-six-week periods ended August 1, 1998 and August 2, 1997. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 31, 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Columbus, Ohio August 11, 1998 10 11 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS During the second quarter of 1998, net sales increased 70% to $147.1 million from $86.6 million a year ago. Operating income improved to $17.1 million in the second quarter of 1998 from $4.6 million in the second quarter of 1997. Earnings per diluted share were $.20 in the second quarter of 1998 compared to $.04 a year ago. Year-to-date earnings per diluted share were $.32 in 1998 compared to $.05 in 1997. Financial Summary The following summarized financial and statistical data compares the thirteen and twenty-six week periods ended August 1, 1998 to the comparable 1997 periods:
SECOND QUARTER YEAR-TO-DATE ------------------------------------------ ------------------------------------------ 1998 1997 CHANGE 1998 1997 CHANGE ---- ----- ----- ------ ------ ----- Increase in comparable store 45% 15% 46% 14% sales Retail sales increase 25% 36% 29% 34% attributable to new and remodeled stores Retail sales per average selling $114 $81 41% $218 $153 42% square foot Retail sales per average store $878 $639 37% $1,688 $1,210 40% (thousands) Average store size at end of 7,561 7,921 (5)% quarter (selling square feet) Selling square feet at end of 1,293 1,101 17% quarter (thousands) Number of stores: Beginning of period 158 132 156 127 Opened 14 7 17 12 Closed (1) - (2) - ----- ----- ------ ------ End of period 171 139 171 139 ===== ===== ====== ======
11 12 Net Sales Net sales for the second quarter of 1998 increased 70% to $147.1 million from $86.6 million in the year earlier period. The increase was due to a comparable store sales increase of 45%, driven primarily by significantly higher transactions per store as compared to the second quarter of 1997. Comparable store sales increases were strong in both the men's and women's businesses. The men's business was driven by a very strong performance in knits, caps and activewear, with women's having significant increases in knits, shirts, pants and denim. Additionally, the A&F Quarterly accounted for 1.8% of net sales in the second quarter of 1998. Year-to-date net sales were $281.4 million, an increase of 75%, from $161.0 million for the same period in 1997. Sales growth resulted from a comparable store sales increase of 46% and the net addition of 32 new stores. Net retail sales per average selling square foot for the Company increased 42%, principally from an increase in the number of transactions per store. The A&F Quarterly represented 1.9% of 1998 year-to-date net sales. Gross Income Gross income, expressed as a percentage of net sales, increased to 37.5% for the second quarter of 1998 from 32.1% for the same period in 1997. The increase was attributable to significant leverage in buying and occupancy costs, as a percentage of net sales, associated with increased comparable store sales as well as improved merchandise margins (representing gross income before the deduction of buying and occupancy costs). The 1998 year-to-date gross income, expressed as a percentage of net sales, increased to 37.1% from 32.1% for the comparable period in 1997. Merchandise margins increased as a percentage of net sales due to higher initial markups (IMU) while buying and occupancy costs declined due to leverage achieved from comparable store sales increases. General, Administrative and Store Operating Expenses General, administrative and store operating expenses, expressed as a percentage of net sales, were 25.9% in the second quarter of 1998 as compared to 26.8% for the same period in 1997. The improvement resulted primarily from the favorable leveraging of store expenses due to higher sales volume. Included in the second quarter 1998 general, administrative and store operating expenses were approximately $1.5 million in costs associated with the year 2000 initiative. General, administrative and store operating expenses, expressed as a percentage of net sales, were 27.4% and 28.1% for the year-to-date periods in 1998 and 1997, 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. 12 13 Operating Income Second quarter and year-to-date operating income, expressed as a percentage of net sales, were 11.6% and 9.8%, in 1998, up from 5.3% and 4.1% for the comparable periods in 1997. 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. Interest Expense Second quarter and year-to-date 1998 net interest income was $570 thousand and $739 thousand as compared with net interest expense of $1.2 million and $2.2 million for the comparable periods last year. Net interest income in 1998 was primarily from short-term investments. Interest expense in 1997 consisted of $975 thousand per quarter on the $50 million long-term debt that was repaid during the first quarter of 1998 in addition to interest on short-term borrowings. FINANCIAL CONDITION Liquidity and Capital Resources Cash provided from operating activities and the Company's $150 million credit agreement provide the resources to support operations, including projected growth, seasonal requirements and capital expenditures. A summary of the Company's working capital position and long-term ongoing capitalization follows (thousands):
August 1, January 31, 1998 1998 -------- -------- Working capital $ 37,628 $ 42,000 ======== ======== Capitalization: Long-term debt - $ 50,000 Shareholders' equity $102,058 58,775 -------- -------- Total capitalization $102,058 $108,775 ======== ========
Net cash provided by operating activities totaled $18.4 million for the twenty-six weeks ended August 1, 1998 versus $14.4 million net cash used for operating activities in the comparable period in 1997. The improvement in cash provided by operating activities was largely due to increases in net income and accounts payable and accrued expenses. Cash requirements for inventory increased over the period, supporting the sales growth and addition of stores. Correspondingly, accounts payable and accrued expenses also increased supporting the growth in inventories and sales. Additionally, cash used for income taxes increased due to tax payments made on higher earnings. 13 14 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. Investing activities were all for capital expenditures, which are primarily for new stores. In 1998, financing activities consisted primarily of the repayment of $50 million long-term debt to The Limited. This occurred through the issuance of 600,000 shares of Class A common stock to The Limited with the remaining balance paid with cash from operations. Additionally, settlement of the intercompany balance between the Company and The Limited occurred as of the split-off date. Capital Expenditures Capital expenditures, primarily for new and remodeled stores, totaled $15.4 million for the twenty-six weeks ended August 1, 1998 compared to $12.8 million for the comparable period of 1997. During the second quarter, the Company opened five Abercrombie & Fitch stores and nine "abercrombie" kids stores. The Company anticipates spending $38-$43 million in 1998 for capital expenditures, of which $31-$36 million will be for new stores, remodeling and/or expansion of existing stores and related improvements. The Company intends to add approximately 210,000 net selling square feet in 1998, which will represent a 17% increase over year-end 1997. It is anticipated that the increase will result from the addition of 30 new Abercrombie & Fitch stores and the remodeling and/or expansion of four stores. The Company estimates that the average cost for leasehold improvements and furniture and fixtures for Abercrombie & Fitch stores opened in 1998 will approximate $725,000 per store, after giving effect to landlord allowances. In addition, inventory purchases are expected to average approximately $275,000 per store. Additionally, the Company plans to open 13 to 15 "abercrombie" stores in 1998. The planned store size is approximately 3,200 selling square feet and the average cost for leasehold improvements and furniture and fixtures will be approximately $520,000. The Company expects capital expenditures will be funded principally by net cash provided by operating activities. Information Systems and "Year 2000" Compliance The Company has completed a comprehensive review of its information systems and is involved in a program to update computer systems and applications in preparation for the year 2000. Total expenditures related to remediation, testing, conversion, replacement and upgrading system applications are expected to range from $3.0 million to $4.0 million from 1997 through 2000. As of August 1, 1998, the Company has incurred approximately $2.8 million of expenses consisting of internal staff costs as well as outside consulting and other expenditures related to the initiative. The Company expects to be fully 14 15 compliant with Year 2000 by the end of the current fiscal year. Total incremental expenses, including depreciation and amortization of new package systems, remediation to bring current systems into compliance and writing off legacy systems are not expected to have a material impact on the Company's financial condition in any year during the conversion process through 2000. The Company is attempting to contact vendors and others on whom it relies to assure that their systems will be timely converted. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Company's systems. Furthermore, no assurance can be given that any or all of the Company's systems are or will be Year 2000 compliant, or that the ultimate costs required to address the Year 2000 issue or the impact of any failure to achieve substantial Year 2000 compliance will not have a material adverse effect on the Company's financial condition. Relationship with The Limited Subsequent to the split-off, the Company and The Limited entered into service agreements which include among other things, tax, information technology and store design and construction. These agreements are generally for a term of one year. Service agreements were also entered into for the continued use by the Company of its distribution and home office space and transportation and logistic services. These agreements are generally for a term of three years. Costs for these services will generally be the costs and expenses incurred by The Limited plus 5% of such amounts. Upon expiration of these agreements with The Limited, the Company may bring certain services in-house, contract with other outside parties or take other actions the Company deems appropriate at that time. The Company does not anticipate that costs associated with these service agreements or costs to be incurred upon their expiration will have a material adverse impact on its financial condition. Adoption of Accounting Standards In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". The SOP requires that certain external costs, internal payroll and payroll related costs be capitalized during the application development stage of a software development project and amortized over the software's useful life. The Company will adopt the SOP in the first quarter of 1999. The Company does not anticipate the adoption of this SOP will have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. 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. 15 16 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 U.S. Customs Service. On November 26, 1997, ATMI served a motion to alter or amend judgment and a motion to disqualify the presiding judge and to vacate the order of dismissal. The motion to disqualify was denied on December 22, 1997, but as a matter of his personal discretion, the presiding judge elected to recuse himself from further proceedings and this matter was transferred to another judge of the United States District Court for the Southern District of Ohio, Western Division. On May 21, 1998, this judge reaffirmed the earlier dismissal and denied all pending motions seeking to alter, amend or vacate the judgment that had been entered in favor of the Company. On June 5, 1998, ATMI filed a notice of appeal to the United States Court of Appeals for the Sixth Circuit. On June 2, 1998, Abercrombie & Fitch filed suit against American Eagle Outfitters alleging an intentional and systematic copying of the Abercrombie & Fitch Brand, its images and business practices, including the design and look of the Company's merchandise, marketing and catalogue/magazine. The lawsuit was filed in Federal District Court in Columbus, Ohio and seeks to enjoin American Eagle's practices, recover lost profits and obtain punitive damages. Although it is not possible to predict with certainty the eventual outcome of any litigation, in the opinion of management, the foregoing proceedings are not expected to have a material adverse effect on the Company's financial position or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On July 16, 1998, the Company held its annual meeting of stockholders at its corporate headquarters, Four Limited Parkway East, Reynoldsburg, Ohio. At such meeting, (i) Messrs. John A. Golden and Seth R. Johnson were elected to the Company's Board of Directors to serve for a three year term expiring in 2001, (ii) the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan was approved and (iii) the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors was approved. The votes on the foregoing matters are as follows: (i) Elections of Messrs. Golden and Johnson
For Withheld --- -------- John A. Golden 37,487,296 2,036,477 Seth R. Johnson 39,356,356 167,417
16 17 (ii) Approval of the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan
For Against Abstain --- ------- ------- 22,380,564 6,090,802 11,052,407
(iii) Approval of the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors
For Against Abstain --- ------- ------- 27,643,919 909,060 10,970,794
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. 4. Instruments Defining the Rights of Security Holders 4.1 Specimen Certificate of Class A Common Stock of the Company incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1 (File No. 333-8231) (the "Form S-1"). 4.2 Credit Agreement dated as of April 30, 1998 among Abercrombie & Fitch Stores, Inc., as Borrower, the Company, as Guarantor, the Lenders party thereto, The Chase Manhattan Bank, as Administrative Agent, and Chase Securities, Inc., as Arranger, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated April 30, 1998. 4.3 Rights Agreement dated as of July 16, 1998 between Abercrombie & Fitch Co. and First Chicago Trust Company of New York, incorporated by reference to Exhibit 1 to the Company's Current Report on Form 8-A dated July 21, 1998. 10. Material Contracts 10.1 Abercrombie & Fitch Co. Incentive Compensation Performance Plan incorporated by reference to Exhibit A to the Company's Proxy Statement dated April 14, 1997. 10.2 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan, as amended. 17 18 10.3 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors incorporated by reference to Exhibit B to the Company's Proxy Statement dated May 29, 1998. 10.4 Employment Agreement by and between the Company and Michael S. Jeffries dated as of May 13, 1997 with exhibits and amendment incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 1, 1997. 10.5 Employment Agreement by and between the Company and Michele Donnan-Martin dated December 5, 1997 incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-4 (File No. 333-46423) (the "Form S-4"). 10.6 Employment Agreement by and between the Company and Seth R. Johnson dated December 5, 1997 incorporated by reference to Exhibit 10.10 to the Form S-4. 10.7 Tax Disaffiliation Agreement dated as of May 19, 1998 between The Limited, Inc. and the Company incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 2, 1998. 10.8 Amended and Restated Services Agreement dated as of May 19, 1998 between The Limited, Inc. and the Company incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 2, 1998. 10.9 Shared Facilities Agreement dated September 27, 1996 by and between the Company and The Limited, Inc. incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended November 2, 1996. 10.10 Sublease Agreement by and between Victoria's Secret Stores, Inc. and the Company dated June 1, 1995 (the "Sublease Agreement") incorporated by reference to Exhibit 10.3 to the Form S-1. 10.11 Amendment No. 1 to the Sublease Agreement dated as of May 19, 1998 incorporated by reference to Exhibit 10.11 to the Company's Quarterly Report on Form 10-Q for the quarter ended May 2, 1998. 15. Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Independent Accountants' Report 27. Financial Data Schedule (b) Reports on Form 8-K A report on Form 8-K was filed on July 21, 1998. Such report related to the announcement of the Company's adoption of a Stockholder Rights Plan and a Share Buyback Plan. 18 19 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: September 10, 1998 - - ------------------------ * Mr. Johnson is the principal financial officer and has been duly authorized to sign on behalf of the Registrant. 19 20 EXHIBIT INDEX Exhibit No. Document ----------- -------- 10.2 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan, as amended. 15 Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Incorporation of Independent Accountants' Report. 27 Financial Data Schedule. EX-10.2 2 EXHIBIT 10.2 1 EXHIBIT A EXHIBIT 10.2 ABERCROMBIE & FITCH CO. 1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN (1998 RESTATEMENT) ARTICLE 1 ESTABLISHMENT AND PURPOSE 1.1 Establishment and Effective Date. Abercrombie & Fitch Co., a Delaware corporation (the "Company"), hereby establishes a stock incentive plan to be known as the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan (1998 Restatement) (the "Plan"). The Plan shall become effective on July 16, 1998, subject to the approval of the Company's stockholders at the 1998 Annual Meeting. Upon approval of the Plan by the Board of Directors of the Company (the "Board"), awards may be made as provided herein, subject to stockholder approval. 1.2 Purpose. The Company desires to attract and retain the best available executive and key management associates for itself and its subsidiaries and to encourage the highest level of performance by such associates in order to serve the best interests of the Company and its stockholders. The Plan is expected to contribute to the attainment of these objectives by offering eligible associates the opportunity to acquire stock ownership interests in the Company, and other rights with respect to stock of the Company, and to thereby provide them with incentives to put forth maximum efforts for the success of the Company and its subsidiaries. ARTICLE 2 AWARDS 2.1 Form of Awards. Awards under the Plan may be granted in any one or all of the following forms: (i) incentive stock options ("Incentive Stock Options") meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); (ii) nonstatutory stock options ("Nonstatutory Stock Options") (unless otherwise indicated, references in the Plan to "Options" shall include both Incentive Stock Options and Nonstatutory Stock Options); (iii) stock appreciation rights ("Stock Appreciation Rights"), as described in Article 7, which may be 2 awarded either in tandem with Options ("Tandem Stock Appreciation Rights") or on a stand-alone basis ("Nontandem Stock Appreciation Rights"); (iv) shares of Common Stock (as defined below) which are restricted as provided in Article 11 ("Restricted Shares"); (v) units representing shares of Common Stock, as described in Article 12 ("Performance Shares"); (vi) units which do not represent shares of Common Stock but which may be paid in the form of Common Stock, as described in Article 13 ("Performance Units"); (vii) shares of unrestricted Common Stock ("Unrestricted Shares") and (viii) tax offset payments ("Tax Offset Payments"), as described in Article 15. 2.2 Maximum Shares Available. The maximum aggregate number of shares of the Company's Class A Common Stock, par value $.01 per share (the "Common Stock") available for award under the Plan, including shares of Common Stock awarded as Tax Offset Payments, is 2,852,324 subject to adjustment pursuant to Article 16. Shares of Common Stock issued pursuant to the Plan may be either authorized but unissued shares or issued shares reacquired by the Company. In the event that prior to the end of the period during which Options may be granted under the Plan, any Option or any Nontandem Stock Appreciation Right under the Plan expires unexercised or is terminated, surrendered or canceled (other than in connection with the exercise of a Stock Appreciation Right) without being exercised in whole or in part for any reason, or any Restricted Shares, Performance Shares or Performance Units are forfeited, or if such awards are settled in cash in lieu of shares of Common Stock, then such shares or units may, at the discretion of the Committee to the extent permissible under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Act"), be made available for subsequent awards under the Plan, upon such terms as the Committee may determine. 2.3 Return of Prior Awards. As a condition to any subsequent award, the Committee shall have the right, at its discretion, to require associates to return to the Company awards previously granted under this Plan. Subject to the provisions of this Plan, such new award shall be upon such terms and conditions as are specified by the Committee at the time the new award is granted to the extent permitted by Rule 16b-3 under the Act. ARTICLE 3 ADMINISTRATION 3 3.1 Committee. The Plan shall be administered by a Committee (the "Committee") appointed by the Board and consisting of not less than two (2) members of the Board. Each member of the Committee shall be an "outside director" (within the meaning of Section 162(m) of the Code) and a "non-employee director" (within the meaning of Rule 16b-3(b)(3)(i) under the Act). 3.2 Powers of Committee. Subject to the express provisions of the Plan, the Committee shall have the power and authority (i) to grant Options and to determine the purchase price of the Common Stock covered by each Option, the term of each Option, the number of shares of Common Stock to be covered by each Option and any performance objectives or vesting standards applicable to each Option, (ii) to designate Options as Incentive Stock Options or Nonstatutory Stock Options and to determine which Options, if any, shall be accompanied by Tandem Stock Appreciation Rights; (iii) to grant Tandem Stock Appreciation Rights and Nontandem Stock Appreciation Rights and to determine the terms and conditions of such rights; (iv) to grant Restricted Shares and to determine the term of the restricted period and other conditions and restrictions applicable to such shares; (v) to grant Performance Shares and Performance Units and to determine the performance objectives, performance periods and other conditions applicable to such shares or units; (vi) to grant Unrestricted Shares; (vii) to determine the amount of, and to make, Tax Offset Payments; and (viii) to determine the associates to whom, and the time or times at which, Options, Stock Appreciation Rights, Restricted Shares, Performance Shares, Performance Units and Unrestricted Shares shall be granted. 3.3 Delegation. The Committee may delegate to one or more of its members or to any other person or persons such ministerial duties as it may deem advisable; provided, however, that the Committee may not delegate any of its responsibilities hereunder if such delegation will cause (i) transactions under the Plan to fail to comply with Section 16 of the Act or (ii) the Committee to fail to qualify as "outside directors" under Section 162(m) of the Code. The Committee may also employ attorneys, consultants, accountants or other professional advisors and shall be entitled to rely upon the advice, opinions or valuations of any such advisors. 3.4 Interpretations. The Committee shall have sole discretionary authority to interpret the terms of the Plan, to adopt and revise rules, regulations and policies to administer the Plan and to make any other factual determinations which it believes to be necessary or advisable for the administration of the Plan. All actions taken and interpretations and determinations made by the Committee in good faith shall be final and binding upon the 4 Company, all associates who have received awards under the Plan and all other interested persons. 3.5 Liability; Indemnification. No member of the Committee, nor any associate to whom ministerial duties have been delegated, shall be personally liable for any action, interpretation or determination made with respect to the Plan or awards made thereunder, and each member of the Committee shall be fully indemnified and protected by the Company with respect to any liability he or she may incur with respect to any such action, interpretation or determination, to the extent permitted by applicable law and to the extent provided in the Company's Certificate of Incorporation and Bylaws, as amended from time to time. ARTICLE 4 ELIGIBILITY Awards shall be limited to executive and key management associates who are regular, full-time associates of the Company, its present and future subsidiaries. In determining the associates to whom awards shall be granted and the number of shares to be covered by each award, the Committee shall take into account the nature of the services rendered by such associates, their present and potential contributions to the success of the Company and its subsidiaries and such other factors as the Committee in its sole discretion shall deem relevant. As used in this Plan, the term "subsidiary" shall mean any corporation which at the time qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" set forth in Section 424(f) of the Code, or any successor provision hereafter enacted. No associate may be granted in any calendar year awards covering more than 1,500,000 shares of Common Stock. ARTICLE 5 STOCK OPTIONS 5.1 Grant of Options. Options may be granted under this Plan for the purchase of shares of Common Stock. Options shall be granted in such form and upon such terms and conditions, including the satisfaction of corporate or individual performance objectives and other vesting standards, as the Committee shall from time to time determine. 5.2 Option Price. The option price of each Option to purchase Common Stock shall be determined by the Committee at the time of grant, but shall not be less than 100 percent of the fair market value of the Common Stock subject to such Option on the 5 date of grant. The option price so determined shall also be applicable in connection with the exercise of any Tandem Stock Appreciation Right granted with respect to such Option. 5.3 Term of Options. The term of each Option granted under the Plan shall not exceed ten (10) years from the date of grant, subject to earlier termination as provided in Articles 9 and 10, except as otherwise provided in Section 6.1 with respect to ten (10) percent stockholders of the Company. 5.4 Exercise of Options. An Option may be exercised, in whole or in part, at such time or times as the Committee shall determine. The Committee may, in its discretion, accelerate the exercisability of any Option at any time. Options may be exercised by an associate by giving written notice to the Committee stating the number of shares of Common Stock with respect to which the Option is being exercised and tendering payment therefor. Payment for the Common Stock issuable upon exercise of the Option shall be made in full in cash, or by certified check or, if the Committee, in its sole discretion, permits, in shares of Common Stock (valued at fair market value on the date of exercise). As soon as reasonably practicable following such exercise, a certificate representing the shares of Common Stock purchased, registered in the name of the associate, shall be delivered to the associate. 5.5 Cancellation of Stock Appreciation Rights. Upon exercise of all or a portion of an Option, the related Tandem Stock Appreciation Rights shall be canceled with respect to an equal number of shares of Common Stock. ARTICLE 6 SPECIAL RULES APPLICABLE TO INCENTIVE STOCK OPTIONS 6.1 Ten Percent Stockholder. Notwithstanding any other provision of this Plan to the contrary, no associate may receive an Incentive Stock Option under the Plan if such associate, at the time the award is granted, owns (after application of the rules contained in Section 424(d) of the Code) stock possessing more than ten (10) percent of the total combined voting power of all classes of stock of the Company or its subsidiaries, unless (i) the option price for such Incentive Stock Option is at least 110 percent of the fair market value of the Common Stock subject to such Incentive Stock Option on the date of grant and (ii) such Option is not exercisable after the date five (5) years from the date such Incentive Stock Option is granted. 6.2 Limitation on Grants. The aggregate fair market value (determined with respect to each Incentive Stock Option at the time such Incentive Stock Option is granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an associate during any 6 calendar year (under this Plan or any other plan of the Company or a subsidiary) shall not exceed $100,000. 6.3 Limitations on Time of Grants. No grant of an Incentive Stock Option shall be made under this Plan after the termination date set forth in Section 19.10 hereof. ARTICLE 7 STOCK APPRECIATION RIGHTS 7.1 Grants of Stock Appreciation Rights. Tandem Stock Appreciation Rights may be awarded by the Committee in connection with any Option granted under the Plan, either at the time the Option is granted or thereafter at any time prior to the exercise, termination or expiration of the Option. Nontandem Stock Appreciation Rights may also be granted by the Committee at any time. At the time of grant of a Nontandem Stock Appreciation Right, the Committee shall specify the number of shares of Common Stock covered by such right and the base price of shares of Common Stock to be used in connection with the calculation described in Section 7.4 below. The base price of a Nontandem Stock Appreciation Right shall be not less than 100 percent of the fair market value of a share of Common Stock on the date of grant. Stock Appreciation Rights shall be subject to such terms and conditions not inconsistent with the other provisions of this Plan as the Committee shall determine. 7.2 Limitations on Exercise. A Tandem Stock Appreciation Right shall be exercisable only to the extent that the related Option is exercisable and shall be exercisable only for such period as the Committee may determine (which period may expire prior to the expiration date of the related Option). Upon the exercise of all or a portion of Tandem Stock Appreciation Rights, the related Option shall be canceled with respect to an equal number of shares of Common Stock. Shares of Common Stock subject to Options or portions thereof, surrendered upon exercise of a Tandem Stock Appreciation Right, shall not be available for subsequent awards under the Plan. A Nontandem Stock Appreciation Right shall be exercisable during such period as the Committee shall determine. 7.3 Surrender or Exchange of Tandem Stock Appreciation Rights. A Tandem Stock Appreciation Right shall entitle the associate to surrender to the Company unexercised the related Option, or any portion thereof, and to receive from the Company in exchange therefor that number of shares of Common Stock having an aggregate fair market value equal to (A) the excess of (i) the fair market value of one (1) share of Common Stock as of the date the Tandem Stock Appreciation Right is exercised over (ii) the option price per share specified in such Option, multiplied by 7 (B) the number of shares of Common Stock subject to the Option, or portion thereof, which is surrendered. Cash shall be delivered in lieu of any fractional shares. 7.4 Exercise of Nontandem Stock Appreciation Rights. The exercise of a Nontandem Stock Appreciation Right shall entitle the associate to receive from the Company that number of shares of Common Stock having an aggregate fair market value equal to (A) the excess of (i) the fair market value of one (1) share of Common Stock as of the date on which the Nontandem Stock Appreciation Right is exercised over (ii) the base price of the shares covered by the Nontandem Stock Appreciation Right, multiplied by (B) the number of shares of Common Stock covered by the Nontandem Stock Appreciation Right, or the portion thereof being exercised. Cash shall be delivered in lieu of any fractional shares. 7.5 Settlement of Stock Appreciation Rights. As soon as is reasonably practicable after the exercise of a Stock Appreciation Right, the Company shall (i) issue, in the name of the associate, stock certificates representing the total number of full shares of Common Stock to which the associate is entitled pursuant to Section 7.3 or 7.4 hereof and cash in an amount equal to the fair market value, as of the date of exercise, of any resulting fractional shares, and (ii) if the Committee causes the Company to elect to settle all or part of its obligations arising out of the exercise of the Stock Appreciation Right in cash pursuant to Section 7.6, deliver to the associate an amount in cash equal to the fair market value, as of the date of exercise, of the shares of Common Stock it would otherwise be obligated to deliver. 7.6 Cash Settlement. The Committee, in its discretion, may cause the Company to settle all or any part of its obligation arising out of the exercise of a Stock Appreciation Right by the payment of cash in lieu of all or part of the shares of Common Stock it would otherwise be obligated to deliver in an amount equal to the fair market value of such shares on the date of exercise. ARTICLE 8 NONTRANSFERABILITY OF OPTIONS AND STOCK APPRECIATION RIGHTS No Option or Stock Appreciation Right may be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except as provided by will or the applicable laws of descent and distribution, and no Option or Stock Appreciation Right shall be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option or a Stock Appreciation Right not 8 specifically permitted herein shall be null and void and without effect. An Option or Stock Appreciation Right may be exercised by an associate only during his or her lifetime, or following his or her death pursuant to Article 10. ARTICLE 9 TERMINATION OF EMPLOYMENT 9.1 Exercise after Termination of Employment. Except as the Committee may at any time provide, in the event that the employment of an associate to whom an Option or Stock Appreciation Right has been granted under the Plan shall be terminated (for reasons other than death or total disability), such Option or Stock Appreciation Right may be exercised (to the extent that the associate was entitled to do so on the date of the termination of his employment) at any time within three (3) months after such termination of employment. 9.2 Total Disability. In the event that an associate to whom an Option or Stock Appreciation Right has been granted under the Plan shall become totally disabled, except as the Committee may at any time provide, such Option or Stock Appreciation Right may be exercised at any time during the first nine (9) months that the associate receives benefits under the VABCO Long-Term Disability Plan (the "Disability Plan") to the extent otherwise exercisable during such nine-month period. For purposes hereof, "total disability" shall have the definition set forth in the Disability Plan, which definition is hereby incorporated by reference. ARTICLE 10 DEATH OF ASSOCIATE If an associate to whom an Option or Stock Appreciation Right has been granted under the Plan shall die while employed by the Company or one of its subsidiaries or within three (3) months after the termination of such employment, except as the Committee may at any time provide, such Option or Stock Appreciation Right may be exercised to the extent that the associate was entitled to do so at the time of his or her death, by the associate's estate or by the person who acquires the right to exercise such Option or Stock Appreciation Right upon his or her death by bequest or inheritance. Such exercise may occur at any time within one (1) year after the date of the associate's death or such other period as the Committee may at any time provide, but in no case 9 later than the date on which the Option or Stock Appreciation Right would otherwise terminate. ARTICLE 11 RESTRICTED SHARES 11.1 Grant of Restricted Shares. The Committee may from time to time cause the Company to grant Restricted Shares under the Plan to associates, subject to such restrictions, conditions and other terms as the Committee may determine. 11.2 Restrictions. At the time a grant of Restricted Shares is made, the Committee shall establish a period of time (the "Restricted Period") applicable to such Restricted Shares. Each grant of Restricted Shares may be subject to a different Restricted Period. The Committee may, in its sole discretion, at the time a grant is made, prescribe restrictions in addition to or other than the expiration of the Restricted Period, including the satisfaction of corporate or individual performance objectives which may be applicable to all or any portion of the Restricted Shares. Except with respect to grants of Restricted Shares intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code, the Committee may also, in its sole discretion, shorten or terminate the Restricted Period or waive any other restrictions applicable to all or a portion of such Restricted Shares. None of the Restricted Shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other restrictions prescribed by the Committee with respect to such Restricted Shares. 11.3 Restricted Stock Certificates. If the Committee deems it necessary or appropriate, the Company may issue, in the name of each associate to whom Restricted Shares have been granted, stock certificates representing the total number of Restricted Shares granted to the associate, provided that such certificates bear an appropriate legend or other restriction on transfer. The Secretary of the Company shall hold such certificates, properly endorsed for transfer, for the associate's benefit until such time as the Restricted Shares are forfeited to the Company, or the restrictions lapse. 11.4 Rights of Holders of Restricted Shares. Except as determined by the Committee either at the time Restricted Shares are awarded or at any time thereafter prior to the lapse of the restrictions, holders of Restricted Shares shall not have the 10 right to vote such shares or the right to receive any dividends with respect to such shares. All distributions, if any, received by an associate with respect to Restricted Shares as a result of any stock split-up, stock distribution, a combination of shares, or other similar transaction shall be subject to the restrictions of this Article 11. 11.5 Forfeiture. Except as the Committee may at any time provide, any Restricted Shares granted to an associate pursuant to the Plan shall be forfeited if the associate terminates employment with the Company or its subsidiaries prior to the expiration or termination of the Restricted Period and the satisfaction of any other conditions applicable to such Restricted Shares. Upon such forfeiture, the Secretary of the Company shall either cancel or retain in its treasury the Restricted Shares that are forfeited to the Company. 11.6 Delivery of Restricted Shares. Upon the expiration or termination of the Restricted Period and the satisfaction of any other conditions prescribed by the Committee, the restrictions applicable to the Restricted Shares shall lapse and a stock certificate for the number of Restricted Shares with respect to which the restrictions have lapsed shall be delivered, free of all such restrictions, to the associate or the associate's beneficiary or estate, as the case may be. 11.7 Performance-Based Objectives. At the time of the grant of Restricted Shares to an associate, and prior to the beginning of the performance period to which performance objectives relate, the Committee may establish performance objectives based on any one or more of the following: price of Company Common Stock or the stock of any affiliate, shareholder return, return on equity, return on investment, return on capital, sales productivity, comparable store sales growth, economic profit, economic value added, net income, operating income, gross margin, sales, free cash flow, earnings per share, operating company contribution or market share. These factors shall have a minimum performance standard below which, and a maximum performance standard above which, no payments will be made. These performance goals may be based on an analysis of historical performance and growth expectations for the business, financial results of other comparable businesses, and progress towards achieving the long-range strategic plan for the business. These performance goals and determination of results shall be based entirely on financial measures. The Committee may not use any discretion to modify award results except as permitted under Section 162(m) of the Code. ARTICLE 12 11 PERFORMANCE SHARES 12.1 Award of Performance Shares. For each Performance Period (as defined in Section 12.2), Performance Shares may be granted under the Plan to such associates of the Company and its subsidiaries as the Committee shall determine. Each Performance Share shall be deemed to be equivalent to one (1) share of Common Stock. Performance Shares granted to an associate shall be credited to an account (a "Performance Share Account") established and maintained for such associate. 12.2 Performance Period. "Performance Period" shall mean such period of time as shall be determined by the Committee in its sole discretion. Different Performance Periods may be established for different associates receiving Performance Shares. Performance Periods may run consecutively or concurrently. 12.3 Right to Payment of Performance Shares. With respect to each award of Performance Shares under this Plan, the Committee shall specify performance objectives (the "Performance Objectives") which must be satisfied in order for the associate to vest in the Performance Shares which have been awarded to him or her for the Performance Period. If the Performance Objectives established for an associate for the Performance Period are partially but not fully met, the Committee may, nonetheless, in its sole discretion, determine that all or a portion of the Performance Shares have vested. If the Performance Objectives for a Performance Period are exceeded, the Committee may, in its sole discretion, grant additional, fully vested Performance Shares to the associate. The Committee may also determine, in its sole discretion, that Performance Shares awarded to an associate shall become partially or fully vested upon the associate's death, total disability (as defined in Article 9) or retirement, or upon the termination of the associate's employment prior to the end of the Performance Period. 12.4 Payment for Performance Shares. As soon as practicable following the end of a Performance Period, the Committee shall determine whether the Performance Objectives for the Performance Period have been achieved (or partially achieved to the extent necessary to permit partial vesting at the discretion of the Committee pursuant to Section 12.3). If the Performance Objectives for the Performance Period have been exceeded, the Committee shall determine whether additional Performance Shares shall be granted to the associate pursuant to Section 12.3. As soon as reasonably practicable after such determinations, or at such later date as the Committee shall determine at the time of grant, the Company shall pay to the associate an amount with respect to 12 each vested Performance Share equal to the fair market value of a share of Common Stock on such payment date or, if the Committee shall so specify at the time of grant, an amount equal to (i) the fair market value of a share of Common Stock on the payment date less (ii) the fair market value of a share of Common Stock on the date of grant of the Performance Share. Payment shall be made entirely in cash, entirely in Common Stock (including Restricted Shares) or in such combination of cash and Common Stock as the Committee shall determine. 12.5 Voting and Dividend Rights. No associate shall be entitled to any voting rights, to receive any dividends, or to have his or her Performance Share Account credited or increased as a result of any dividends or other distribution with respect to Common Stock. Notwithstanding the foregoing, within sixty (60) days from the date of payment of a dividend by the Company on its shares of Common Stock, the Committee, in its discretion, may credit an associate's Performance Share Account with additional Performance Shares having an aggregate fair market value equal to the dividend per share paid on the Common Stock multiplied by the number of Performance Shares credited to his or her account at the time the dividend was declared. ARTICLE 13 PERFORMANCE UNITS 13.1 Award of Performance Units. For each Performance Period (as defined in Section 12.2), Performance Units may be granted under the Plan to such associates of the Company and its subsidiaries as the Committee shall determine. The award agreement covering such Performance Units shall specify a value for each Performance Unit or shall set forth a formula for determining the value of each Performance Unit at the time of payment (the "Ending Value"). If necessary to make the calculation of the amount to be paid to the associate pursuant to Section 13.3, the Committee shall also state in the award agreement the initial value of each Performance Unit (the "Initial Value"). Performance Units granted to an associate shall be credited to an account (a "Performance Unit Account") established and maintained for such associate. 13.2 Right to Payment of Performance Units. With respect to each award of Performance Units under this Plan, the Committee shall specify Performance Objectives which must be satisfied in order for the associate to vest in the Performance Units which have been awarded to him or her for the Performance Period. If the Performance Objectives established for an associate for the Performance Period are partially but not fully met, the 13 Committee may, nonetheless, in its sole discretion, determine that all or a portion of the Performance Units have vested. If the Performance Objectives for a Performance Period are exceeded, the Committee may, in its sole discretion, grant additional, fully vested Performance Units to the associate. The Committee may also determine, in its sole discretion, that Performance Units awarded to an associate shall become partially or fully vested upon the associate's death, total disability (as defined in Article 9) or retirement, or upon the termination of employment of the associate by the Company. 13.3 Payment for Performance Units. As soon as practicable following the end of a Performance Period, the Committee shall determine whether the Performance Objectives for the Performance Period have been achieved (or partially achieved to the extent necessary to permit partial vesting at the discretion of the Committee pursuant to Section 13.2). If the Performance Objectives for the Performance Period have been exceeded, the Committee shall determine whether additional Performance Units shall be granted to the associate pursuant to Section 13.2. As soon as reasonably practicable after such determinations, or at such later date as the Committee shall determine, the Company shall pay to the associate an amount with respect to each vested Performance Unit equal to the Ending Value of the Performance Unit or, if the Committee shall so specify at the time of grant, an amount equal to (i) the Ending Value of the Performance Unit less (ii) the Initial Value of the Performance Unit. Payment shall be made entirely in cash, entirely in Common Stock (including Restricted Shares) or in such combination of cash and Common Stock as the Committee shall determine. ARTICLE 14 UNRESTRICTED SHARES 14.1 Award of Unrestricted Shares. The Committee may cause the Company to grant Unrestricted Shares to associates at such time or times, in such amounts and for such reasons as the Committee, in its sole discretion, shall determine. Except as required by applicable law, no payment shall be required for Unrestricted Shares. 14.2 Delivery of Unrestricted Shares. The Company shall issue, in the name of each associate to whom Unrestricted Shares have been granted, stock certificates representing the total number of Unrestricted Shares granted to the associate, and shall deliver such certificates to the associate as soon as reasonably practicable after the date of grant or on such later date as the Committee 14 shall determine at the time of grant. ARTICLE 15 TAX OFFSET PAYMENTS The Committee shall have the authority at the time of any award under this Plan or anytime thereafter to make Tax Offset Payments to assist associates in paying income taxes incurred as a result of their participation in this Plan. The Tax Offset Payments, which, if awarded, may be in cash or shares of Common Stock, shall be determined by multiplying a percentage established by the Committee by all or a portion (as the Committee shall determine) of the taxable income recognized by an associate upon (i) the exercise of a Nonstatutory Stock Option or a Stock Appreciation Right, (ii) the disposition of shares received upon exercise of an Incentive Stock Option, (iii) the lapse of restrictions on Restricted Shares, (iv) the award of Unrestricted Shares or (v) payments for Performance Shares or Performance Units. The percentage shall be established, from time to time, by the Committee at that rate which the Committee, in its sole discretion, determines to be appropriate and in the best interests of the Company to assist associates in paying income taxes incurred as a result of the events described in the preceding sentence. Tax Offset Payments shall be subject to the restrictions on transferability applicable to Options and Stock Appreciation Rights under Article 8. ARTICLE 16 ADJUSTMENT UPON CHANGES IN CAPITALIZATION Notwithstanding any other provision of the Plan, the Committee may at any time make or provide for such adjustments to the Plan, to the number and class of shares available thereunder or to any outstanding Options, Stock Appreciation Rights, Restricted Shares or Performance Shares as it shall deem appropriate to prevent dilution or enlargement of rights, including adjustments in the event of changes in the number of shares of outstanding Common Stock by reason of stock dividends, extraordinary cash dividends, split-ups, recapitalizations, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations and the like. ARTICLE 17 AMENDMENT AND TERMINATION 15 The Board may suspend, terminate, modify or amend the Plan, provided that any amendment that would materially increase the aggregate number of shares which may be issued under the Plan shall be subject to the approval of the Company's stockholders, except that any such increase or modification that may result from adjustments authorized by Article 16 does not require such approval. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. No suspension, termination, modification or amendment of the Plan may, without the consent of the associate to whom an award shall theretofore have been granted, adversely affect the rights of such associate under such award. ARTICLE 18 WRITTEN AGREEMENT Each award of Options, Stock Appreciation Rights, Restricted Shares, Performance Shares, Performance Units, Unrestricted Shares and Tax Offset Payments shall be evidenced by a written agreement, executed by the associate and the Company, and containing such restrictions, terms and conditions, if any, as the Committee may require. In the event of any conflict between a written agreement and the Plan, the terms of the Plan shall govern. ARTICLE 19 MISCELLANEOUS PROVISIONS 19.1 Fair Market Value. "Fair market value" for purposes of this Plan, shall be the closing price of the Common Stock as reported on the principal exchange on which the shares are listed for the date on which the grant, exercise or other transaction occurs, or if there were no sales on such date, the most recent prior date on which there were sales. 19.2 Tax Withholding. The Company shall have the right to require associates or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy federal, state and local withholding tax requirements, or to deduct from all payments under this Plan, including Tax Offset Payments, amounts sufficient to satisfy all withholding tax requirements. Whenever payments under the Plan are to be made to an associate in cash, such payments shall be net of any amounts sufficient to satisfy all federal, state and local withholding tax requirements. The Committee may, in its discretion, permit an associate to satisfy his or her tax withholding obligation either by (i) surrendering shares owned by the associate or (ii) having the Company withhold from shares 16 otherwise deliverable to the associate. Shares surrendered or withheld shall be valued at their fair market value as of the date on which income is required to be recognized for income tax purposes. In the case of an award of Incentive Stock Options, the foregoing right shall be deemed to be provided to the associate at the time of such award. 19.3 Compliance With Section 16(b) and Section 162(m). In the case of associates who are or may be subject to Section 16 of the Act, it is the intent of the Company that any award granted hereunder satisfy and be interpreted in a manner that satisfies the applicable requirements of Rule 16b-3, so that such persons will be entitled to the benefits of Rule 16b-3 or other exemptive rules under Section 16 of the Act and will not be subjected to liability thereunder. If any provision of the Plan or any award would otherwise conflict with the intent expressed herein, that provision, to the extent possible, shall be interpreted and deemed amended so as to avoid such conflict. To the extent of any remaining irreconcilable conflict with such intent, such provision shall be deemed void as applicable to associates who are or may be subject to Section 16 of the Act. If any award hereunder is intended to qualify as performance-based for purposes of Section 162(m) of the Code, the Committee shall not exercise any discretion to increase the payment under such award except to the extent permitted by Section 162(m) and the regulations thereunder. 19.4 Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and businesses of the Company. In the event of any of the foregoing, the Committee may, at its discretion prior to the consummation of the transaction, cancel, offer to purchase, exchange, adjust or modify any outstanding awards, at such time and in such manner as the Committee deems appropriate and in accordance with applicable law. 19.5 General Creditor Status. Associates shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any associate or beneficiary or legal representative of such associate. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. 17 All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. 19.6 No Right to Employment. Nothing in the Plan or in any written agreement entered into pursuant to Article 18, nor the grant of any award, shall confer upon any associate any right to continue in the employ of the Company or a subsidiary or to be entitled to any remuneration or benefits not set forth in the Plan or such written agreement or interfere with or limit the right of the Company or a subsidiary to modify the terms of or terminate such associate's employment at any time. 19.7 Notices. Notices required or permitted to be made under the Plan shall be sufficiently made if sent by registered or certified mail addressed (a) to the associate at the associate's address as set forth in the books and records of the Company or its subsidiaries, or (b) to the Company or the Committee at the principal office of the Company. 19.8 Severability. In the event that any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 19.9 Governing Law. To the extent not preempted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. 19.10 Term of Plan. Unless earlier terminated pursuant to Article 17 hereof, the Plan shall terminate on the earlier of the tenth (10th) anniversary of the date of adoption of the Plan by the Board or July 15, 2008. 18 BOARD RESOLUTIONS Abercrombie & Fitch Co. RESOLVED, that the amendments presented to this meeting with respect to the 1998 Restatement of the Abercrombie and Fitch Co. 1996 Stock Option and Performance Incentive Plan (the "Plan") be, and hereby are, adopted effective as set forth therein in substantially the form attached as Exhibit A hereto with such changes thereto as the proper officers of the Company deem necessary or desirable; RESOLVED that the proper officers of the Company be, and each of them hereby is, authorized to make such changes in the Plan as the officer executing the same may deem necessary or desirable in order to meet any technical or legal requirements, approval of any such changes to be conclusively evidenced by his signature thereto. 19 Amendment No. 1 to the 1998 RESTATEMENT OF THE ABERCROMBIE & FITCH CO. 1996 STOCK OPTION AND PERFORMANCE INCENTIVE PLAN Effective July 17, 1998, the 1998 Restatement of the Abercrombie and Fitch Co. 1996 Stock Option and Performance Plan (the "PLAN") is amended as set forth below: 1. Section 5.2 of the Plan is hereby amended to read as follows: "5.2 Option Price. The option price of each Option to purchase Common Stock shall be determined by the Committee at the time of grant, but shall not be less than 100 percent of the fair market value of the Common Stock subject to such Option on the date of grant. The option price so determined shall also be applicable in connection with the exercise of any Tandem Stock Appreciation Right granted with respect to such Option. The exercise price of an Option previously granted under the Plan shall not thereafter be reduced other than pursuant to the provisions of Article 16 or Article 17." 2. Section 11.2 of the Plan is hereby amended to read as follows: "11.2 Restrictions. (a) At the time a grant of Restricted Shares is made, the Committee shall establish a period of time (the "RESTRICTED PERIOD") applicable to such Restricted Shares. Each grant of Restricted Shares may be subject to a different Restricted Period but except as set forth in subsection (b) hereof in no event shall Restricted Period be less than the minimum Restricted Period hereinafter set forth. The Committee may, in its sole discretion, at the time a grant is made, prescribe restrictions in addition to or other than the expiration of the Restricted Period, including the satisfaction of corporate or individual performance objectives which may be applicable to all or any portion of the Restricted Shares. Except as set forth in subsection (b) hereof, the minimum Restricted Period shall be three (3) years except in respect of Restricted Shares that are also subject to restrictions relating to the satisfaction of corporate or individual performance objectives, as to which the minimum Restricted Period shall be one (1) year. 20 (b) With respect to grants of Restricted Shares intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code, the Committee shall have no discretion, shorten or terminate the Restricted Period or waive any other restrictions applicable to all or a portion of such Restricted Shares. With respect to grants of Restricted Shares not intended to so qualify as performance-based compensation, upon the death, disability or retirement of the holder of Restricted Shares or as permitted under Section 16 hereof, the Committee may, in its sole discretion, shorten or terminate the Restricted Period or waive any other restrictions applicable to all or a portion of such Restricted Shares. None of the Restricted Shares may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the Restricted Period or prior to the satisfaction of any other restrictions prescribed by the Committee with respect to such Restricted Shares." 3. Article 17 of the Plan is hereby amended to read as follows: "ARTICLE 17 AMENDMENT AND TERMINATION The Board may suspend, terminate, modify or amend the Plan, provided that any amendment that would (i) materially increase the aggregate number of shares which may be issued under the Plan, (ii) materially modify the requirements as to eligibility for participation in the Plan or (iii) reduce the exercise price of options previously granted under the Plan shall be subject to the approval of the Company's stockholders, except that any such increase, modification or reduction that may result from adjustments authorized by Article 16 does not require such approval. If the Plan is terminated, the terms of the Plan shall, notwithstanding such termination, continue to apply to awards granted prior to such termination. No suspension, termination, modification or amendment of the Plan may, without the consent of the associate to whom an award shall theretofore have been granted, adversely affect the rights of such associate under such award." Approved by: /s/ Seth R. Johnson Name: Seth R. Johnson -------------------- Title: Vice President & CFO ------------------- Date: July 16, 1998 -------------------- EX-15 3 EXHIBIT 15 1 Exhibit 15 [PRICEWATERHOUSECOOPERS LOGO] Securities and Exchange Commission 450 5th Street, N.W. Judiciary Plaza Washington, D.C. 20549 We are aware that our report dated August 11, 1998, on our review of the interim consolidated financial information of Abercrombie & Fitch Co. and Subsidiaries for the thirteen-week and twenty-six-week periods ended August 1, 1998 and included in this Form 10-Q is incorporated by reference in the Company's registration statements on Form S-8, Registration Nos. 333-15941, 333-15943, 333-15945, 333-60189 and 333-60203. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Columbus, Ohio September 11, 1998 EX-27 4 EXHIBIT 27
5 This schedule contains summary financial information extracted from the Consolidated Financial Statements (unaudited) of Abercrombie & Fitch Co. and Subsidiaries for the quarter ended August 1, 1998 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JAN-30-1999 FEB-01-1998 AUG-01-1998 45,855 0 3,681 0 75,889 132,291 126,203 (52,216) 211,223 94,663 0 0 0 517 101,541 211,223 147,127 147,127 91,933 91,933 38,096 0 (570) 17,668 7,070 10,598 0 0 0 10,598 .21 .20
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