Abercrombie & Fitch 2004 Annual Report Download - page 20

Abercrombie &Fitch
corporate governance practices and procedures, (ii) at least a major-
ity of the members of the Compensation Committee shall be direc-
tors who were not members of the Compensation Committee at the
time of the events giving rise to the Litigation and who have no sub-
stantial business or professional relationship with A&F other than
their status as directors, (iii) the Compensation Committee shall
retain independent counsel and an independent compensation
expert, (iv) A&F shall adopt FAS 123 providing for the expensing of
stock option compensation, (v) for a period of five years A&F shall
not nominate for election to the Board any director who does not
meet the New York Stock Exchange standards for director inde-
pendence (provided, however, this provision shall not apply to any
current member of the Board or to up to three members of A&F’s
senior management), (vi) one member of the Board who does not
meet such standards shall not be nominated for re-election in con-
nection with the 2005 annual meeting, and (vii) the Company shall
review the disclosures to appear in A&F’s proxy statement for its
2005 Annual Meeting relating to executive compensation and will
provide plaintiffs’ counsel with an opportunity to comment on the
disclosures. The stipulation of settlement provides for a release of
all claims that A&F has or may have against any of the defendants
relating to the matters and claims that were or could have been
raised in the Litigation. The plaintiffs will apply to the Court for an
award of attorneys’ fees.
15. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized
quarterly financial results for 2004 and 2003 follow (thousands
except per share amounts):
2004 Quarter First Second Third Fourth
Net sales $411,930 $401,346 $520,724 $687,254
Gross income 164,991 181,643 226,537 336,624
Operating income 46,722 68,762 61,978 170,175
Net income 29,317 42,888 39,911 104,261
Net income per basic share $0.31 $0.45 $0.43 $1.19
Net income per diluted share $0.30 $0.44 $0.42 $1.15
2003 Quarter First Second Third Fourth
Net sales $346,722 $355,719 $444,979 $560,389
Gross income 128,578 143,850 182,993 261,523
Operating income 40,680 55,134 80,578 154,788
Net income 25,785 34,528 49,934 94,583
Net income per basic share $0.26 $0.36 $0.52 $0.98
Net income per diluted share $0.26 $0.34 $0.50 $0.97
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Abercrombie &Fitch
Stock issued after July 28, 1998 and prior to the Distribution Date
described below will be issued with a Right attached. Under certain
conditions, each whole Right may be exercised to purchase one one-
thousandth of a share of Series A Participating Cumulative Preferred
Stock at an initial exercise price of $250. The Rights initially will be
attached to the shares of Common Stock. The Rights will separate
from the Common Stock and a Distribution Date will occur upon
the earlier of 10 business days after a public announcement that a
person or group has acquired beneficial ownership of 20% or more
of A&F’s outstanding shares of Common Stock and become an
“Acquiring Person” (Share Acquisition Date) or 10 business days (or
such later date as the Board shall determine before any person has
become an Acquiring Person) after the date of the commencement
of a tender or exchange offer which, if consummated, would result
in a person or group beneficially owning 20% or more of A&F’s out-
standing Common Stock. The Rights are not exercisable until the
Distribution Date.
In the event that any person becomes an Acquiring Person, each
holder of a Right (other than the Acquiring Person and certain
affiliated persons) will be entitled to purchase, upon exercise of the
Right, shares of Common Stock having a market value two times the
exercise price of the Right. At any time after any person becomes an
Acquiring Person (but before any person becomes the beneficial
owner of 50% or more of the outstanding shares), A&F’s Board of
Directors may exchange all or part of the Rights (other than Rights
beneficially owned by an Acquiring Person and certain affiliated per-
sons) for shares of Common Stock at an exchange ratio of one share
of Common Stock per Right. In the event that, at any time following
the Share Acquisition Date, A&F is involved in a merger or other
business combination transaction in which A&F is not the surviving
corporation, the Common Stock is exchanged for other securities or
assets or 50% or more of the assets or earning power of A&F and its
subsidiaries, taken as a whole, is sold or transferred, the holder of a
Right will be entitled to buy, for the exercise price of the Rights, the
number of shares of common stock of the other party to the business
combination or sale which at the time of such transaction will have
a market value of two times the exercise price of the Right.
The Rights, which do not have any voting rights, expire on July
16, 2008, and may be redeemed by A&F at a price of $.01 per whole
Right at any time before a person becomes an Acquiring Person.
Rights holders have no rights as a shareholder of A&F, including
the right to vote and to receive dividends.
14. SUBSEQUENT EVENTS In February 2005, two substantially
similar actions were filed in the Court of Chancery of the State of
Delaware by A&F stockholders challenging the compensation
received by A&F’s Chief Executive Officer, Michael S. Jeffries.
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The complaints allege, among other things, that the Board of
Directors of A&F and the members of the Compensation
Committee of the Board breached their fiduciary duties in granti-
ng stock options and an increase in cash compensation to Mr.
Jeffries in February 2002 and in approving Mr. Jeffries’s current
employment agreement in January 2003 (the “Amended and
Restated Employment Agreement”). The complaints further assert
that A&F’s disclosures with respect to Mr. Jeffries’ compensation
were deficient. The complaints seek, among other things, to rescind
the purportedly wrongful compensation and to set aside the cur-
rent employment agreement. The actions have been consolidated
under the caption, In re Abercrombie & Fitch Co. Shareholder
Derivative Litigation., C.A. No. 1077 (the “Litigation”). A&F has
formed a special committee of independent directors (the “Special
Committee”) to determine what action to take with respect to the
Litigation. A&F and the defendant members of the Board of
Directors have denied, and continue to deny, any liability or
wrongdoing with respect to all claims alleged in the Litigation.
Nevertheless, the Special Committee, A&F and the other defen-
dants have determined that it is desirable to settle the Litigation and
thereby eliminate the substantial burden, expense, inconvenience
and distraction that the Litigation would entail and to dispel any
uncertainty that may exist as a result of the Litigation.
Pursuant to a stipulation of settlement dated April 8, 2005, and
subject to the approval of the Court, the parties have agreed to set-
tle the Litigation on the following terms: (i) Mr. Jeffries’s Amended
and Restated Employment Agreement will be amended to reduce
his “stay bonus” from twelve million dollars to six million dollars
and to condition receipt of the stay bonus on A&F’s achieving
defined performance criteria (except in certain circumstances), (ii)
Mr. Jeffries will not receive any award of stock options during cal-
endar years 2005 and 2006 and in subsequent years will receive
stock options only in the discretion of the Compensation
Committee, (iii) Mr. Jeffries will hold the Career Shares awarded
under Section 4(b) of his Amended and Restated Employment
Agreement for a period of one year after he ceases to be an execu-
tive officer of A&F (the “Holding Period”), and (iv) Mr. Jeffries will
hold one half of the A&F shares received from the first one million
stock options exercised following this settlement, net of shares equal
to the amount of withholding taxes and exercise price, until the
expiration of the Holding Period. Also as part of the settlement, the
Special Committee has agreed to recommend to the full Board that
the Board cause A&F to take, subject to the directors' fiduciary
duties, and A&F has agreed to use its best efforts to take, each of the
following actions, with the actions described in clauses (i) through
(iv) to be achieved not later than the one year anniversary of the set-
tlement becoming final: (i) A&F shall conduct a full review of its
MARKET PRICE AND DIVIDEND INFORMATION A&F’s Class
A Common Stock (the “Common Stock”) is traded on the New
York Stock Exchange under the symbol “ANF.” The table below sets
forth the high and low sales prices of A&F’s Common Stock on the
New York Stock Exchange for the 2004 and 2003 fiscal years:
Sales Price
High Low
2004 Fiscal Year
4th Quarter $52.13 $39.09
3rd Quarter $39.18 $28.00
2nd Quarter $39.12 $31.07
1st Quarter $36.10 $25.54
2003 Fiscal Year
4th Quarter $29.82 $23.49
3rd Quarter $31.47 $26.77
2nd Quarter $32.80 $26.14
1st Quarter $33.11 $26.98
In February 2004, the Board of Directors voted to initiate a cash
dividend, at an annual rate of $0.50 per share. A quarterly dividend,
of $0.125 per share, was paid in March, June, September and
December of 2004. The Company currently expects to continue to
pay an annual dividend of $0.50 per share, subject to Board of
Directors review and approval of the appropriateness of future div-
idend amounts.
As of April 1, 2005, there were approximately 5,300 shareholders
of record. However, when including active associates who partici-
pate in A&F’s stock purchase plan, associates who own shares
through A&F-sponsored retirement plans and others holding shares
in broker accounts under street name, A&F estimates that there are
approximately 53,000 shareholders.