Abercrombie & Fitch 2008 Annual Report Download - page 39

Table of Contents
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had $522.1 million in cash and equivalents available as of January 31, 2009, as well as
an additional $350 million available (less outstanding letters of credit) under its unsecured credit
agreement, as described in Note 13, “Debt” of the Notes to Consolidated Financial Statements in
“ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this Annual Report on
Form 10-K. In addition, on March 6, 2009, the Company entered into a secured, uncommitted, demand
line of credit offered under the settlement agreement entered into by the Company and UBS AG (“UBS”),
a Swiss corporation, relating to Auction Rate Securities (“ARS”) with a par value of approximately
$76.5 million as of January 31, 2009. As of March 6, 2009, the Company could borrow $44.3 million
under this agreement. The amount available to the Company fluctuates with the fair value of the related
ARS.
A summary of the Company’s working capital (current assets less current liabilities) and
capitalization at the end of each of the last three fiscal years follows (thousands):
2008 2007 2006*
Working capital $ 635,028 $ 597,142 $ 581,451
Capitalization:
Shareholders’ equity $ 1,845,578 $ 1,618,313 $ 1,405,297
* Fiscal 2006 was a fifty-three week year.
The increase in working capital for Fiscal 2008 as compared to Fiscal 2007 was the result of cash
generated from operations and the $100.0 million borrowed under the Company’s unsecured credit
agreement, partially offset by the reclassification of ARS from current assets to non-current assets and
cash used to fund capital expenditures and dividends. The increase in working capital in Fiscal 2007 as
compared to Fiscal 2006 was the result of higher cash and ARS, resulting primarily from cash generated
from operations, partially offset by capital expenditures for expansion, share repurchases and dividends
paid.
The ARS have maturities ranging from 10 to 34 years. Despite the underlying long-term maturity of
the ARS, such securities have been historically priced and subsequently traded as short-term investments
because of an interest-rate reset feature, which reset through a Dutch auction process at predetermined
periods ranging from seven to 35 days. Due to the frequent nature of the reset feature, ARS were
classified as current assets and reported at par, which approximated fair value. As of February 2, 2008,
$530.5 million of ARS were classified as current assets on the Consolidated Balance Sheet.
On February 13, 2008, the Company began to experience failed auctions. Based on the failure rate of
these auctions, the frequency of the failures and the overall lack of liquidity in the ARS market, the
Company determined that the ARS should be classified as non-current assets on the Consolidated Balance
Sheets for periods ending subsequent to February 13, 2008 and that the fair value of the ARS no longer
approximated par value. As of January 31, 2009, $229.1 million of ARS were classified as non-current
assets on the Consolidated Balance Sheet.
On November 13, 2008, the Company entered into an agreement with UBS, relating to ARS with a
par value of approximately $76.5 million (“UBS ARS”) as of January 31, 2009. By entering into the
agreement, UBS received the right to purchase these UBS ARS at par, commencing on November 13,
2008. The
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠