Abercrombie & Fitch 1998 Annual Report Download - page 19

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Abercrombie &Fitch Co.
A reconciliation between the statutory Federal income tax rate
and the effective income tax rate follows:
1998 1997 1996
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal
income tax effect 4.7% 4.7% 4.7%
Other items, net 0.3% 0.3% 0.2%
Total 40.0% 40.0% 39.9%
Income taxes payable included net current deferred tax assets
of $9.0 million and $4.1 million at January 30, 1999 and
January 31, 1998.
Subsequent to the Exchange Offer, the Company began filing
its tax returns on a separate basis. Prior to the Exchange Offer,
income tax obligations were treated as having been settled
through the intercompany accounts as if the Company was
filing its income tax returns on a separate company basis.
Amounts paid to The Limited totaled $27.4 million, $27.6
million and $10.6 million in 1998, 1997 and 1996. Subsequent to
the Exchange Offer, the Company made tax payments directly to
taxing authorities. Such amounts totaled $31.7 million in 1998.
The effect of temporary differences which gives rise to
net deferred income tax assets was as follows (thousands):
1998 1997
Deferred Compensation $8,711 $1,198
Property and Equipment 1,446 1,496
Rent 2,341 1,507
Accrued expenses 4,008 2,667
Inventory 2,093 972
Other, net 1,168 54
Total deferred income taxes $19,767 $7,894
No valuation allowance has been provided for deferred tax
assets because management believes that it is more likely than
not that the full amount of the net deferred tax assets will be
realized in the future.
7. LONG-TERM DEBT The Company entered into a $150 mil-
lion 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 January 30, 1999.
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 with $24,125,000 in
cash and by issuing 600,000 shares of Class A common stock at a
price of $43.125 per share.
8. RELATED PARTY TRANSACTIONS Prior to the Exchange
Offer, transactions between the Company and The Limited and
its subsidiaries and affiliates principally consisted of the following:
Merchandise purchases
Real estate management and leasing
Capital expenditures
Inbound and outbound transportation
Corporate services
Information with regard to these transactions through the
completion of the Exchange Offer is as follows: Significant
purchases were made from Mast, a wholly-owned subsidiary
of The Limited. Purchases were also made from Gryphon, an