Abercrombie & Fitch 2007 Annual Report Download - page 11

do not include common area maintenance (“CAM”), insurance, mar-
keting or tax payments for which the Company is also obligated.
Total expense related to CAM, insurance, marketing and taxes was
$129.6 million in Fiscal 2007. The obligations in the table above do
not include unrecognized tax benefits at February 2, 2008 of $38.9
million. Additionally, the obligations in the table above do not
include retirement benefits for the Company’s Chief Executive Officer
at February 2, 2008 of $14.0 million due under the Chief Executive
Officer Supplemental Executive Retirement Plan (the “SERP”). See Note
12, “Retirement Benefits”, of the Notes to Consolidated Financial
Statements, and the description of the SERP in the text under the cap-
tion “EXECUTIVE OFFICER COMPENSATION” in A&F’s
definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on June 11, 2008. The purchase obligations category represents
purchase orders for merchandise to be delivered during Spring 2008
and commitments for fabric to be used during upcoming seasons.
Other obligations primarily represent letters of credit outstanding as of
February 2, 2008, lease deposits and preventive maintenance and
information technology contracts for Fiscal 2008. See Note 11, “Long-
Term Debt”, of the Notes to Consolidated Financial Statements. The
Company expects to fund all of these obligations with cash provided
from operations.
STORES AND GROSS SQUARE FEET Store count and gross
square footage by brand were as follows for the thirteen weeks ended February
2, 2008 and the fourteen weeks ended February 3, 2007 respectively:
Abercrombie
Store Activity & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
November 3, 2007 362 198 434 20 – 1,014
New 2 4 17 2 3 28
Remodels/Conversions
(net activity) (3) (1) – – – (4)
Closed (2) – (1) – – (3)
February 2, 2008 359 201 450 22 3 1,035
Gross Square Feet Abercrombie
(thousands) & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
November 3, 2007 3,197 900 2,906 185 – 7,188
New 17 21 116 19 34 207
Remodels/Conversions
(net activity) (29) (4) – – – (33)
Closed (18) – (7) – – (25)
February 2, 2008 3,167 917 3,015 204 34 7,337
Average Store Size 8,822 4,562 6,700 9,273 11,333 7,089
Abercrombie
Store Activity & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
October 28, 2006 358 171 372 11 – 912
New 3 8 21 4 – 36
Remodels/Conversions
(net activity) 1 – – (1)(1) – –
Closed (2) (2) – – – (4)
February 3, 2007 360 177 393 14 – 944
Gross Square Feet Abercrombie
(thousands) & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
October 28, 2006 3,138 753 2,450 100 – 6,441
New 29 41 152 39 – 261
Remodels/Conversions
(net activity) 19 – 2 (9)(1) – 12
Closed (15) (6) – – – (21)
February 3, 2007 3,171 788 2,604 130 – 6,693
Average Store Size 8,808 4,452 6,626 9,286 – 7,090
(1) Includes one RUEHL store temporarily closed due to fire damage.
Store count and gross square footage by brand were as follows for the
fifty-two weeks ended February 2, 2008 and the fifty-three weeks ended
February 3, 2007, respectively:
Abercrombie
Store Activity & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
February 3, 2007 360 177 393 14 – 944
New 6 25 58 7 3 99
Remodels/Conversions
(net activity) (2) (1) – 1(2) – (2)
Closed (5) – (1) – – (6)
February 2, 2008 359 201 450 22 3 1,035
Gross Square Feet Abercrombie
(thousands) & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
February 3, 2007 3,171 788 2,604 130 – 6,693
New 64 126 418 65 34 707
Remodels/Conversions
(net activity) (23) 3 – 9 – (11)
Closed (45) – (7) – – (52)
February 2, 2008 3,167 917 3,015 204 34 7,337
Average Store Size 8,822 4,562 6,700 9,273 11,333 7,089
Abercrombie
Store Activity & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
January 29, 2006 361 164 318 8 – 851
New 8 19 70 7 – 104
Remodels/Conversions
(net activity) (2)(1) – 5(1) (1)(2) – 2
Closed (7) (6) – – – (13)
February 3, 2007 360 177 393 14 – 944
Gross Square Feet Abercrombie
(thousands) & Fitch abercrombie Hollister RUEHL Gilly Hicks Total
January 29, 2006 3,157 716 2,083 69 – 6,025
New 66 94 482 70 – 712
Remodels/Conversions
(net activity) 3
(1) – 39(1) (9)(2) – 33
Closed (55) (22) – – – (77)
February 3, 2007 3,171 788 2,604 130 – 6,693
Average Store Size 8,808 4,452 6,626 9,286 – 7,090
(1) Includes one Abercrombie & Fitch store and one Hollister store reopened after repair from hurricane damage.
(2) Includes one RUEHL store temporarily closed due to fire damage.
CAPITAL EXPENDITURES AND LESSOR CONSTRUCTION
ALLOWANCES Capital expenditures totaled $403.3 million,
$403.5 million and $256.4 million for Fiscal 2007, Fiscal 2006 and
Fiscal 2005, respectively.
In Fiscal 2007, total capital expenditures were $403.3 million, of
which $252.8 million was used for store related projects related to new
construction and remodels, conversions and refreshes of existing
Abercrombie & Fitch, abercrombie and Hollister stores. The remaining
$150.5 million was used for projects at the home office and the distribution
centers, including home office expansion, information technology
investments, the purchase of an airplane and other projects.
In Fiscal 2006, total capital expenditures were $403.5 million, of
which $253.7 million was used for store related projects related to new
store construction and remodels, conversions, and refreshes of existing
Abercrombie & Fitch, abercrombie and Hollister stores. The remaining
$149.8 million was used for projects at the home office, including the
completion of the second DC, home office expansion, information
technology investments and other projects.
In Fiscal 2005, total capital expenditures were $256.4 million, of
which $204.7 million was used for store related projects, including
new store construction and remodels, conversions and other projects.
and amortization of deferred lease credits, collection of lessor construction
allowances and decreases in inventory. Uses of cash in Fiscal 2007 consisted
primarily of a decrease in income taxes payable.
Cash in Fiscal 2006 was provided primarily by current year net income,
adjusted for non-cash items including, depreciation and amortization and
share-based compensation charges, and lessor construction allowances
collected. Uses of cash in Fiscal 2006 consisted primarily of increases in
inventory and a decrease in income taxes payable.
Net cash provided by operating activities increased to $582.2 million
for Fiscal 2006 from $453.6 million in Fiscal 2005. Cash in Fiscal 2005
was provided primarily by net income adjusted for non-cash items
including depreciation and amortization and share-based compensation
charges, collection of lessor construction allowances and an increase in
income taxes payable. Uses of cash in Fiscal 2005 consisted primarily
of increases in inventory.
The Company’s operations are seasonal 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 inventory in anticipation
of these selling periods.
INVESTING ACTIVITIES Cash outflows for Fiscal 2007 were
primarily for purchases of marketable securities and trust-owned life
insurance policies and capital expenditures related primarily to new store
construction, store remodels and refreshes, the purchase of an airplane
and other various store, home office and DC projects, partially offset
by proceeds from the sale of marketable securities.
Cash outflows for Fiscal 2006 were primarily for purchases of marketable
securities, the purchase of trust-owned life insurance policies and capi-
tal expenditures.
Cash outflows for Fiscal 2005 were primarily for purchases of market-
able securities and capital expenditures.
FINANCING ACTIVITIES Cash outflows related to financing
activities consisted primarily of the repurchase of the Company’s
Common Stock and the payment of dividends in Fiscal 2007 and Fiscal
2005. In Fiscal 2006, cash outflows for financing activities related
primarily to the payment of dividends and a change in outstanding checks.
Cash inflows in Fiscal 2007, Fiscal 2006 and Fiscal 2005 consisted primarily
of stock option exercises and excess tax benefits related to stock option
exercises and restricted stock issuances.
A&F repurchased approximately 3.6 million and 1.8 million shares of
A&F’s Common Stock during Fiscal 2007 and Fiscal 2005, respectively.
A&F did not repurchase any shares of A&F’s Common Stock during
Fiscal 2006. Both the Fiscal 2007 and the Fiscal 2005 repurchases
were pursuant to A&F Board of Directors’ authorizations. In August
2005, the A&F Board of Directors authorized A&F to repurchase 6.0
million shares of A&F’s Common Stock. In November 2007, the A&F
Board of Directors authorized the repurchase of 10.0 million shares of
A&F’s Common Stock, in addition to the approximately 2.0 million
shares of A&F’s Common Stock which then remained available under
the August 2005 repurchase authorization.
As of February 2, 2008, A&F had approximately 12.0 million shares
remaining available to repurchase under the 6.0 million share authorization
by the A&F Board of Directors in August 2005 and the 10.0 million share
authorization by the Board of Directors in November 2007.
Subsequent to February 2, 2008, A&F repurchased approximately 0.7
million shares of A&F’s Common Stock with a value of approximately
$50.0 million from the approximately 12.0 million shares of Common
Stock remaining authorized for repurchase at February 2, 2008.
On December 15, 2004, the Company entered into an amended
and restated $250 million syndicated unsecured credit agreement
(the “Amended Credit Agreement”) with Abercrombie & Fitch
Management Co., as borrower, and with A&F and its other domestic
subsidiaries, as guarantors. The primary purposes of the Amended
Credit Agreement are for financial support of trade and stand-by
letters of credit and 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 London Interbank Offered Rate. The facility fees
payable under the Amended Credit Agreement are based on the
ratio of the Company’s leveraged total debt plus 600% of forward
minimum rent commitments to consolidated earnings before inter-
est, taxes, depreciation, amortization and rent for the trailing four
fiscal quarter periods. The facility fees are projected to accrue at
either 0.15% or 0.175% on the committed amounts per annum. The
Amended 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)
and transactions with affiliates. The Amended Credit Agreement
will mature on December 15, 2009. Trade letters of credit totaling
approximately $61.6 million and $48.8 million were outstanding
under the Amended Credit Agreement on February 2, 2008 and
February 3, 2007, respectively. No borrowings were outstanding
under the Amended Credit Agreement on February 2, 2008 or on
February 3, 2007.
Standby letters of credit totaling approximately $14.5 million and
$4.9 million were outstanding on February 2, 2008 and February 3, 2007,
respectively. The standby letters of credit are set to expire during the
fourth quarter of Fiscal 2008. 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.
OFF-BALANCE SHEET ARRANGEMENTS The Company
does not have any off-balance sheet arrangements or debt obligations.
CONTRACTUAL OBLIGATIONS As of February 2, 2008, the
Company’s contractual obligations were as follows:
PAYMENTS DUE BY PERIOD (THOUSANDS)
Contractual Less than More than
Obligations Total 1 year 1-3 years 3-5 years 5 years
Operating
Lease $2,173,795 $254,456 $515,928 $449,994 $953,417
Obligations
Purchase
Obligations $ 245,599 $245,599 – – –
Other
Obligations $ 115,044 $ 90,943 $ 24,075 $ 26 –
Totals $2,534,438 $590,998 $540,003 $450,020 $953,417
Operating lease obligations consist primarily of future minimum
lease commitments related to store operating leases. See Note 7,
“Leased Facilities and Commitments”, of the Notes to Consolidated
Financial Statements, for further discussion. Operating lease obligations
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