Abercrombie & Fitch 1998 Annual Report Download - page 10

the addition of approximately 36 new Abercrombie & Fitch
stores, 15-20 “abercrombie” kids’ stores and the remodeling
and/or expansion of ten stores.
The Company estimates that the average cost for leasehold
improvements and furniture and fixtures for Abercrombie &
Fitch stores opened in 1999 will approximate $710,000 per
store, after giving effect to landlord allowances. In addition,
inventory purchases are expected to average approximately
$300,000 per store.
The planned size of the “abercrombie” kids’ stores is approx-
imately 4,000 gross square feet and the average cost for
leasehold improvements and furniture and fixtures will be
approximately $450,000.
The Company expects that substantially all future capital
expenditures will be funded with cash from operations. In addi-
tion, the Company has available a $150 million credit agreement
to support operations.
INFORMATION SYSTEMS AND “YEAR 2000” COMPLIANCE :
YEAR 2000 READINESS DISCLOSURES Potential Year 2000
issues will arise primarily from computer programs which
only have a two-digit date field, rather than four, to define the
applicable year of business transactions. Because such com-
puter programs will be unable to properly interpret dates beyond
the year 1999, a systems failure or other computer errors may
ensue. The Company relies on computer-based technology and
utilizes a variety of proprietary and third party hardware and
software. The Company’s critical information technology (IT)
functions include point-of-sale equipment, merchandise and
non-merchandise procurement and business and accounting
management.
In order to address the Year 2000 issue the Company has
developed a Year 2000 plan that focuses on three areas: IT sys-
tems, facilities and distribution equipment and vendor relations.
The plan includes five stages, including (i) awareness, (ii)
assessment, (iii) renovation, (iv) validation and (v) implemen-
tation. In addition to renovation of legacy systems, new financial
software packages are being implemented. The Company is
using both internal and external resources to complete its Year
2000 initiatives.
Year 2000 remediation of existing systems and implementation
of new systems, including validation and implementation, is
16
Net cash provided by operating activities totaled $173.1 million,
$100.2 million and $46.8 million for 1998, 1997 and 1996.
In 1998, the improvement in net cash provided by operating
activities was largely due to increased net income. Cash require-
ments for inventory increased $11.1 million during 1998,
supporting both the 56% sales growth and inventory levels that are
10% higher per gross square foot than last year. Correspondingly,
accounts payable and accrued expenses increased, supporting
the growth in inventories and sales.
The Company’s operations are seasonal in nature and typically
peak during the back-to-school and Christmas holiday selling
seasons. 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 repay-
ment 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 con-
currently with the Exchange offer as described in Note 1 to the
Consolidated Financial Statements.
On July 16, 1998, the Board of Directors authorized the repur-
chase of up to 1.0 million shares of the Company’s common
stock for general corporate purposes. During 1998, the Company
repurchased 245 thousand shares of common stock.
CAPITAL EXPENDITURES Capital expenditures, primarily for
new and remodeled stores, amounted to $41.9 million, $29.5
million and $24.3 million for 1998, 1997 and 1996.
During the year, the Company opened 28 Abercrombie &
Fitch stores and 13 “abercrombie” kids’ stores.
The Company anticipates spending $85 to $95 million in
1999 for capital expenditures, of which $45 to $50 million will
be for new stores, remodeling and/or expansion of existing
stores and related improvements. The balance of capital expen-
ditures will chiefly be related to the construction of a new office
and distribution center which is expected to be completed by
mid-2001. The Company intends to add approximately 400,000
gross square feet in 1999, which will represent a 22% increase
over year-end 1998. It is anticipated the increase will result from
Abercrombie &Fitch Co.