Abercrombie & Fitch 1999 Annual Report Download - page 15

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Abercrombie &Fitch Co.
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EARNINGS PER SHARE Net income per share is computed in
accordance with SFAS No. 128, “Earnings Per Share.” Net income
per basic share is computed based on the weighted average num-
ber of outstanding shares of common stock. Net income per diluted
share includes the weighted average effect of dilutive stock options
and restricted shares. The common stock issued to The Limited (43
million Class B shares) in connection with the incorporation of the
Company is assumed to have been outstanding for 1997.
Weighted Average Shares Outstanding (thousands):
1999 1998 1997
Shares of common stock issued 103,300 103,300 102,100
Treasury shares (429) (216) (78)
Basic shares 102,871 103,084 102,022
Dilutive effect of options and
restricted shares 4,770 3,118 934
Diluted shares 107,641 106,202 102,956
Options to purchase 5,690,000 and 456,000 shares of Class A Common Stock were out-
standing at year-end 1999 and 1997 but were not included in the computation of net
income per diluted share because the options’ exercise prices were greater than the aver-
age market price of the underlying shares.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS The preparation of financial statements in con-
formity with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Since actual results may
differ from those estimates, the Company revises its estimates and
assumptions as new information becomes available.
RECLASSIFICATIONS Certain amounts have been reclassified
to conform with current year presentation.
3. PROPERTY AND EQUIPMENT Property and equipment, at
cost, consisted of (thousands):
1999 1998
Land $114,007 –
Furniture, fixtures and equipment 158,753 $126,091
Beneficial leaseholds 7,349 7,349
Leasehold improvements 19,572 16,450
Construction in progress 26,100 2,728
Total $225,781 $152,618
Less: accumulated depreciation and amortization 79,378 63,060
Property and equipment, net $146,403 $089,558
4. LEASED FACILITIES AND COMMITMENTS Annual store
rent is comprised of a fixed minimum amount, plus contingent rent
based on a percentage of sales exceeding a stipulated amount. Store
lease terms generally require additional payments covering taxes,
common area costs and certain other expenses. Rent expense for
1998 and 1997 included charges from The Limited and its sub-
sidiaries for space under formal agreements that approximate
market rates. A summary of rent expense follows (thousands):
1999 1998 1997
Store rent:
Fixed minimum $51,086 $42,774 $34,402
Contingent 8,246 6,382 2,138
Total store rent $59,332 $49,156 $36,540
Buildings, equipment and other 2,574 1,814 1,400
Total rent expense $61,906 $50,970 $37,940
At January 29, 2000, the Company was committed to non-
cancelable leases with remaining terms of one to fifteen years.
These commitments include store leases with initial terms
ranging primarily from ten to fifteen years and offices and a
distribution center leased from an affiliate of The Limited with
a term of three years from the date of the Exchange Offer. A
summary of minimum rent commitments under noncance-
lable leases follows (thousands):
2000 $62,765 2003 $ 62,377
2001 $63,991 2004 $61,706
2002 $63,646 Thereafter 205,857
Abercrombie &Fitch Co.
5. ACCRUED EXPENSES Accrued expenses consisted of the
following (thousands):
1999 1998
Rent and landlord charges $15,282 $13,368
Estimated cost to complete store construction 14,840 4,393
Compensation and benefits 11,588 9,800
Deferred revenue 8,482 –
Catalogue and advertising costs 7,005 8,701
Taxes, other than income 4,507 3,634
Other 23,669 23,986
Total $85,373 $63,882
6. INCOME TAXES The provision for income taxes consisted of
(thousands):
1999 1998 1997
Currently payable:
Federal $ 84,335 $65,778 $29,040
State 20,251 14,809 6,450
$104,586 $80,587 $35,490
Deferred:
Federal (3,885) (10,038) (2,620)
State (971) (2,509) (650)
$ (4,856) $(12,547) $ (3,270)
Total provision $ 99,730 $68,040 $32,220
A reconciliation between the statutory Federal income tax rate
and the effective income tax rate follows:
1999 1998 1997
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal
income tax effect 4.6% 4.7% 4.7%
Other items, net 0.4% 0.3% 0.3%
Total 40.0% 40.0% 40.0%
Income taxes payable included net current deferred tax assets
of $14.2 million and $9.5 million at January 29, 2000 and
January 30, 1999.
Subsequent to the Exchange Offer, the Company began fil-
ing its tax returns on a separate basis and made tax payments
directly to taxing authorities. Prior to the Exchange Offer, the
Company was included in the consolidated federal and certain
state income tax groups of The Limited for income tax purpos-
es. Under this arrangement, the Company was responsible for
and paid The Limited its proportionate share of income taxes,
calculated upon its separate taxable income at the estimated
annual effective tax rate. Amounts paid to The Limited totaled
$9.1 million, $27.4 million and $27.6 million in 1999, 1998 and
1997. Amounts paid directly to taxing authorities were $81.1
million and $31.7 million in 1999 and 1998.
The effect of temporary differences which gives rise to net
deferred income tax assets was as follows (thousands):
1999 1998
Deferred compensation $ 9,333 $ 9,228
Property and equipment 1,478 1,849
Rent 2,565 2,341
Accrued expenses 10,230 4,008
Inventory 1,650 2,093
Other, net – 882
Total deferred income taxes $25,256 $20,401
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 sub-
mitted 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 com-
mitments 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