Abercrombie & Fitch 2005 Annual Report Download - page 22

Abercrombie &Fitch
The Company considers the following to be measures of its liquidity and
capital resources for the last three fiscal years:
2005 2004 2003
Current ratio
(current assets divided by current liabilities) 1.93 1.56 2.63
Net cash provided by
operating activities (in thousands) $453,590 $423,784 $340,814
OPERATING ACTIVITIES Net cash provided by operating activ-
ities, the Company’s primary source of liquidity, increased to $453.6
million for Fiscal 2005 from $423.8 million in Fiscal 2004 primarily due
to increases in net income, income taxes payable and tax benefit of
stock option exercises, partially offset by an increase in inventory and a
decrease in accounts payable and accrued expenses. The increase in
net income and income taxes payable was a result of the net sales
growth during Fiscal 2005. The increase in tax benefit of stock option
exercises was the result of approximately 3.3 million stock options
exercised during Fiscal 2005. The Company ended Fiscal 2005 with
higher inventory levels in key product categories to ensure size, color
and style integrity. The decrease in accounts payable and accrued
expenses was due to payment of a legal settlement in Fiscal 2005 that
was settled and accrued for in Fiscal 2004.
The increase in cash provided by operating activities in Fiscal
2004 compared to Fiscal 2003 was primarily driven by an increase in
accounts payable and accrued expenses. The increase in accrued
expenses was primarily due to the accrual for the settlement of three
related class action employment discrimination lawsuits and the
increase in accounts payable was due to the purchase of inventory.
Inventories increased from the net addition of 103 stores representing
an increase of 658,000 gross square feet in Fiscal 2003. Inventories at
fiscal year-end were 3% higher on a per gross square foot basis than at
the end of the 2002 fiscal year.
The Company’s operations are seasonal in nature and typically
peak during the Back-to-School and Holiday selling periods.
Accordingly, cash requirements for inventory expenditures are highest
in the second and third fiscal quarters as the Company builds inven-
tory in anticipation of these selling periods.
INVESTING ACTIVITIES Cash outflows for Fiscal 2005 and
Fiscal 2003 were primarily for purchases of marketable securities and
capital expenditures. Cash inflows for Fiscal 2004 were primarily the
result of proceeds from sales of marketable securities, offset by capital
expenditures. See “Capital Expenditures and Lessor Construction
Allowances” for additional information. As of January 28, 2006, the
Company held $411.2 million of marketable securities with original
maturities of greater than 90 days; as of January 29, 2005, all invest-
ments had original maturities of less than 90 days and accordingly
were classified as cash equivalents. As of January 31, 2004, the
Company held $464.7 million of marketable securities with original
maturities of greater than 90 days.
FINANCING ACTIVITIES Cash outflows related to financing
activities consisted primarily of the repurchase of the Company’s Class
A Common Stock in Fiscal 2005, Fiscal 2004 and Fiscal 2003 and the
payment of dividends in Fiscal 2005 and Fiscal 2004. Cash inflows
consisted of stock option exercises, restricted stock issuances and the
change in overdrafts. The overdrafts are outstanding checks reclassi-
fied from cash to accounts payable.
The Company repurchased 1,765,000 shares, 11,150,500 shares
and 4,401,000 shares of its Class A Common Stock pursuant to previ-
ously authorized stock repurchase programs in Fiscal 2005, Fiscal 2004
and Fiscal 2003, respectively. As of January 28, 2006, the Company had
5,683,500 shares remaining available to repurchase under the 6,000,000
shares authorized by the Board of Directors in August 2005.
Effective December 15, 2004, the Company entered into an
amended and restated $250 million syndicated unsecured credit agree-
ment (the “Amended Credit Agreement”). The Amended Credit
Agreement will expire on December 15, 2009. The primary purpose of
the Amended Credit Agreement is to support letters of credit (trade and
standby) and finance working capital. The Amended Credit
Agreement has several borrowing options, including an option where
interest rates are based on the agent bank’s “Alternate Base Rate,” and
another using the LIBO rate. The facility fees payable under the
Amended Credit Agreement are based on the Company’s leverage ratio
of the sum of total debt plus 600% of forward minimum rent commit-
ments to consolidated EBITDAR for the trailing four-fiscal-quarter
period. The facility fees are projected to accrue between 0.15% and
0.175% on the committed amounts per annum.
Letters of credit totaling approximately $45.1 million and $49.6
million were outstanding under the Amended Credit Agreement at
January 28, 2006 and January 29, 2005, respectively. No borrowings
were outstanding under the Amended Credit Agreement at January 28,
2006 or January 29, 2005.
The Company has standby letters of credit in the amount of $4.5
million that are set to expire during the fourth quarter of Fiscal 2006.
The beneficiary, a merchandise supplier, has the right to draw upon the
standby letters of credit if the Company authorizes or files a voluntary
petition in bankruptcy. To date, the beneficiary has not drawn upon
the standby letters of credit.
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