Abercrombie & Fitch 2002 Annual Report Download - page 26

Abercrombie &Fitch
not that the full amount of the net deferred tax assets will be
realized in the future.
8. LONG-TERM DEBT The Company entered into a $250 mil-
lion syndicated unsecured credit agreement (the “New Credit
Agreement”) on November 14, 2002 to replace both a $150 mil-
lion syndicated unsecured credit agreement (the “Old Credit
Agreement”) and a separate $75 million facility for the issuance
of trade letters of credit. The primary purposes of the New
Credit Agreement are for trade and stand-by letters of credit and
working capital. The New Credit Agreement is due to expire on
November 14, 2005. The New Credit Agreement has several bor-
rowing options, including interest rates that are based on the agent
bank’s “Alternate Base Rate,” or a LIBO Rate. Facility fees
payable under the New Credit 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 EBITDAR for
the trailing four-fiscal-quarter period and currently accrues at
.225% of the committed amounts per annum. The New Credit
Agreement contains limitations on indebtedness, liens, sale-
leaseback transactions, significant corporate changes including
mergers and acquisitions with third parties, investments, restricted
payments (including dividends and stock repurchases), hedging
transactions and transactions with affiliates. The New Credit
Agreement also contains financial covenants requiring a mini-
mum ratio of EBITDAR for the trailing four-fiscal-quarter period
to the sum of interest expense and minimum rent for such period,
as well as a maximum leverage ratio. Letters of credit totaling
approximately $41.8 million were outstanding under the New
Credit Agreement at February 1, 2003. Letters of credit totaling
approximately $49.9 million were outstanding under the $75
million facility for the issuance of trade letters of credit at February
2, 2002. No borrowings were outstanding under the New Credit
Agreement at February 1, 2003 or under the Old Credit
Agreement at February 2, 2002.
9. RELATED PARTY TRANSACTIONS Shahid & Company, Inc.
has provided advertising and design services for the Company
since 1995. Sam N. Shahid Jr., who serves on A&F’s Board of
Directors, has been President and Creative Director of Shahid
& Company, Inc. since 1993. Fees paid to Shahid & Company,
Inc. for services provided during fiscal years 2002, 2001 and
2000 were approximately $1.9 million, $1.8 million and $1.7
million, respectively. These amounts do not include reimburse-
ments to Shahid & Company, Inc. for expense incurred while per-
forming these services.
On January 1, 2002, A&F loaned the amount of $4,953,833 to
its Chairman, a major shareholder of A&F, pursuant to the
terms of a replacement promissory note, which provided that
such amount was due and payable on December 31, 2002. The
outstanding principal under the note did not bear interest as the
net sales threshold, per the terms of the note, was met. This note
was paid in full by the Chairman on December 31, 2002.
This note constituted a replacement of, and substitute for, sev-
eral promissory notes dating from November 17, 1999 through
May 18, 2001.
10. STOCK OPTIONS AND RESTRICTED SHARES Under A&F’s
stock plans, associates and non-associate directors may be granted
up to a total of 21.4 million restricted shares and options to pur-
chase A&F’s common stock at the market price on the date of
grant. In 2002, associates of the Company were granted options
covering approximately 3.5 million shares, with vesting periods
from four to five years. Options covering a total of 44,000 shares
were granted to non-associate directors in 2002, all of which vest
over four years. All options have a maximum term of ten years.
Options Outstanding at February 1, 2003
Options Outstanding Options Exercisable
Weighted–
Average Weighted– Weighted–
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercisable
Prices Outstanding Life Price Exercisable Price
$8-$23 4,304,000 5.2 $12.98 2,575,000 $12.01
$23-$38 6,596,000 7.7 $26.40 1,713,000 $26.29
$38-$52 5,159,000 6.5 $43.54 268,000 $41.19
$8-$52 16,059,000 6.6 $28.31 4,556,000 $19.10
A summary of option activity for 2002, 2001 and 2000 follows:
Number of Weighted–Average
2002 Shares Option Price
Outstanding at beginning of year 12,961,000 $28.65
Granted 3,583,000 26.53
Exercised (93,000) 16.44
Canceled (392,000) 26.31
Outstanding at end of year 16,059,000 $28.31
Options exercisable at year-end 4,556,000 $19.10
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