Abercrombie & Fitch 2007 Annual Report Download - page 20

“Common Stock”), par value $.01 per share, of A&F. The dividend
was paid on July 28, 1998 to shareholders of record on that date.
Shares of Common Stock issued afteer July 28, 1998 and prior to
May 25, 1999 were issued with one Right attached. A&F’s Board
of Directors declared a two-for-one stock split (the “Stock Split”)
on the Common Stock, payable on June 15, 1999 to the holders of
record at the close of business on May 25, 1999. In connection with
the Stock Split, the number of Rights associated with each share
of Common Stock outstanding as of the close of business on May
25, 1999, or issued or delivered after May 25, 1999 and prior to the
“Distribution Date” (as defined below), was proportionately adjust-
ed from one Right to 0.50 Right. Each share of Common Stock
issued after May 25, 1999 and prior to the Distribution Date has
been and will be issued with 0.50 Right attached so that all shares of
Common Stock outstanding prior to the Distribution Date will have
0.50 Right attached.
The Rights initially will be attached to the shares of Common
Stock. The Rights will separate from the Common Stock after a
Distribution Date occurs. The “Distribution Date” generally means
the earlier of (i) the close of business on the 10th day after the date
(the “Share Acquisition Date”) of the first public announcement
that a person or group (other than A&F or any of A&F’s subsidiaries
or any employee benefit plan of A&F or of any of A&F’s subsidiar-
ies) has acquired beneficial ownership of 20% or more of A&F’s
outstanding shares of Common Stock (an “Acquiring Person”) or
(ii) the close of business on the 10th business day (or such later date
as A&F’s Board of Directors may designate before any person has
become an Acquiring Person) after the date of the commencement
of a tender or exchange offer by any person which would, if consum-
mated, result in such person becoming an Acquiring Person. The
Rights are not exercisable until the Distribution Date. After the
Distribution Date, each whole Right may be exercised to purchase,
at an initial exercise price of $250, one one-thousandth of a share of
Series A Participating Cumulative Preferred Stock.
At any time after any person becomes an Acquiring Person, but
before the occurrence of any of the events described in the imme-
diately following paragraph, 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 hav-
ing a market value of twice 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 outstand-
ing shares of Common Stock or the occurrence of any of the events
described in the immediately following paragraph, A&F’s Board of
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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 0.50 Right.
If, after any person has become an Acquiring Person, (i) A&F is
involved in a merger or other business combination transaction in which
A&F is not the surviving corporation or A&F’s Common Stock is
exchanged for other securities or assets or (ii) A&F and/or one or more of
A&F’s subsidiaries sell or otherwise transfer 50% or more of the assets or
earning power of A&F and its subsidiaries, taken as a whole, each holder
of a Right, other than the Acquiring Person and certain affiliated persons,
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, or in certain circumstances, an affiliate, which at the time of such
transaction will have a market value of twice the exercise price of the Right.
The Rights will expire on July 16, 2008, unless earlier exchanged or
redeemed. A&F may redeem all of the Rights at a price of $.01 per whole
Right at any time before any 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.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial results for Fiscal 2007 and
Fiscal 2006 follows (thousands, except per share amounts):
Fiscal 2007 Quarter First Second Third Fourth
Net sales $742,410 $804,538 $973,930 $1,228,969
Gross profit $487,269 $553,438 $645,043 $ 825,617
Operating income $ 92,710 $124,132 $186,587 $ 337,068
Net income $ 60,081 $ 81,275 $117,585 $ 216,756
Net income per basic share $ 0.68 $ 0.92 $ 1.35 $ 2.52
Net income per diluted share $ 0.65 $ 0.88 $ 1.29 $ 2.40
Fiscal 2006 Quarter First Second Third Fourth*
Net sales $657,271 $658,696 $863,448 $1,138,743
Gross profit $429,915 $455,258 $568,198 $ 755,635
Operating income $ 83,985 $102,429 $162,841 $ 308,834
Net income $ 56,240 $ 65,722 $102,031 $ 198,192
Net income per basic share $ 0.64 $ 0.75 $ 1.16 $ 2.25
Net income per diluted share $ 0.62 $ 0.72 $ 1.11 $ 2.14
*Fourth Quarter Fiscal 2006 was a fourteen week quarter.
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former directors of A&F alleging various breaches of the directors’
fiduciary duty and seeking equitable and monetary relief. A&F
is also a nominal defendant in each of the four later derivative
actions. On November 4, 2005, a motion to consolidate all of the
federal court derivative actions with the purported securities law
class actions described in the preceding paragraph was filed. On
March 22, 2006, the motion to consolidate was granted, and the
federal court derivative actions have been consolidated with the
aforesaid purported securities law class actions for purposes of
motion practice, discovery and pretrial proceedings. A consolidated
amended derivative complaint was filed in the federal proceeding
on July 10, 2006. A&F filed a motion to stay the consolidated fed-
eral derivative case and that motion was granted. The state court
action was also stayed. On February 16, 2007, A&F announced
its Board of Directors received a report of the Special Litigation
Committee established by the Board to investigate and act with
respect to claims asserted in certain previously disclosed derivative
lawsuits brought against current and former directors and manage-
ment, including Chairman and Chief Executive Officer Michael
S. Jeffries. The Special Litigation Committee has concluded that
there is no evidence to support the asserted claims and directed the
Company to seek dismissal of the derivative actions. On September
10, 2007, the Company moved to dismiss the federal derivative
cases on the authority of the Special Litigation Committee report
and on October 18, 2007, the state court stayed further proceedings
until resolution of the consolidated federal derivative cases.
In December 2005, the Company received a formal order of investi-
gation from the SEC concerning trading in shares of A&F’s Common
Stock. The SEC has requested information from A&F and certain of
its current and former officers and directors. The Company and its
personnel have cooperated fully with the SEC.
Management intends to defend the aforesaid matters vigorously,
as appropriate. Management is unable to quantify the potential
exposure of the aforesaid matters. However, management’s assess-
ment of the Company’s current exposure could change in the event
of the discovery of additional facts with respect to legal matters
pending against the Company or determinations by judges, juries or
other finders of fact that are not in accord with management’s evalu-
ation of the claims.
14. PREFERRED STOCK PURCHASE RIGHTS On July 16,
1998, A&F’s Board of Directors declared a dividend of one Series
A Participating Cumulative Preferred Stock Purchase Right (the
“Rights”) for each outstanding share of Class A Common Stock (the
Hollister and abercrombie store managers who served in stores
from June 23, 2002 until April 30, 2004. Neither the agreement
in principle nor the Stipulation affects claims which are alleged
to have arisen in the period commencing on April 30, 2004. On
February 27, 2008, the Court entered an order noting its preliminary
approval of the Stipulation and Settlement Agreement and setting a
noticed hearing for June 9, 2008, to determine whether the proposed
settlement should be finally approved. The cost of the settlement, if
approved, is not expected to be material.
On September 2, 2005, a purported class action, styled Robert
Ross v. Abercrombie & Fitch Company, et al., was filed against A&F
and certain of its officers in the United States District Court for the
Southern District of Ohio on behalf of a purported class of all persons
who purchased or acquired shares of A&F’s Common Stock between
June 2, 2005 and August 16, 2005. In September and October of 2005,
five other purported class actions were subsequently filed against
A&F and other defendants in the same Court. All six securities cases
allege claims under the federal securities laws, and seek unspeci-
fied monetary damages, as a result of a decline in the price of A&F’s
Common Stock during the summer of 2005. On November 1, 2005,
a motion to consolidate all of these purported class actions into the
first-filed case was filed by some of the plaintiffs. A&F joined in that
motion. On March 22, 2006, the motions to consolidate were granted,
and these actions (together with the federal court derivative cases
described in the following paragraph) were consolidated for purposes
of motion practice, discovery and pretrial proceedings. A consolidated
amended securities class action complaint (the “Complaint”) was filed
on August 14, 2006. On October 13, 2006, all defendants moved to
dismiss that Complaint. On August 9, 2007, the Court denied the
motions to dismiss. On September 14, 2007, defendants filed answers
denying the material allegations of the Complaint and asserting affir-
mative defenses. On October 26, 2007, plaintiffs moved to certify their
purported class. The motion has not been fully briefed or submitted.
On September 16, 2005, a derivative action, styled The Booth
Family Trust v. Michael S. Jeffries, et al., was filed in the United
States District Court for the Southern District of Ohio, nam-
ing A&F as a nominal defendant and seeking to assert claims for
unspecified damages against nine of A&F’s present and former
directors, alleging various breaches of the directors’ fiduciary duty
and seeking equitable and monetary relief. In the following three
months (October, November and December of 2005), four similar
derivative actions were filed (three in the United States District
Court for the Southern District of Ohio and one in the Court of
Common Pleas for Franklin County, Ohio) against present and