Abercrombie & Fitch 2010 Annual Report Download - page 46

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Table of Contents
of (i) Consolidated EBITDAR for the trailing four-consecutive-fiscal-quarter period to (ii) the sum of, without duplication, (x) net
interest expense for such period, (y) scheduled payments of long-term debt due within twelve months of the date of determination and
(z) the sum of minimum rent and contingent store rent, not be less than 1.75 to 1.00 at January 29, 2011. The minimum Coverage
Ratio varies over time based on the terms set forth in the Amended Credit Agreement. The Amended Credit Agreement provides an
add back to Consolidated EBITDAR for the following items, among others, (a) recognized losses arising from investments in certain
auction rate securities to the extent such losses do not exceed a defined level of impairments for those investments, (b) non-cash
charges in an amount not to exceed $50 million related to the closure of RUEHL branded stores and related direct-to-consumer
operations, (c) non-recurring cash charges in an aggregate amount not to exceed $61 million related to the closure of RUEHL branded
stores and related direct-to-consumer operations, (d) additional non-recurring non-cash charges in an amount not to exceed
$20 million in the aggregate over the trailing four-consecutive-fiscal-quarter period and (e) other non-recurring cash charges in an
amount not to exceed $10 million in the aggregate over the trailing four-consecutive-fiscal-quarter periods. The Company's Coverage
Ratio was 2.51 as of January 29, 2011. The Amended Credit Agreement also limited the Company's consolidated capital expenditures
to $325 million in Fiscal 2010 plus $99.5 million representing the unused portion of the allowable capital expenditures from Fiscal
2009. There is no limit for capital expenditures in Fiscal 2011. The Company was in compliance with the applicable ratio
requirements and other covenants at January 29, 2011.
The unsecured Amended Credit Agreement is described in Note 14, "Long-Term Debt" of the Notes to Consolidated Financial
Statements included in "ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" of this Annual Report on
Form 10-K.
As a result of adjustments to vendor payment terms, there were no trade letters of credit outstanding at January 29, 2011. Trade
letters of credit totaling approximately $35.9 million were outstanding on January 30, 2010. Stand-by letters of credit totaling
approximately $3.0 million and $14.1 million were outstanding on January 29, 2011 and January 30, 2010, respectively. The stand-by
letters of credit are set to expire primarily during the third quarter of Fiscal 2011. To date, no beneficiary has drawn upon the stand-by
letters of credit.
If circumstances occur that would lead to the Company failing to meet the covenants under the Amended Credit Agreement and
the Company is unable to obtain a waiver or amendment, an event of default would result and the lenders could declare outstanding
borrowings immediately due and payable. The Company believes it is likely that it would either obtain a waiver or amendment in
advance of a default, or would have sufficient cash available to repay borrowings in the event a waiver was not obtained.
Operating Activities
Net cash provided by operating activities, the Company's primary source of liquidity, was $391.8 million for Fiscal 2010
compared to $395.5 million for Fiscal 2009. In Fiscal 2010, an increase in net income was off-set by an increase in inventory to
support increased sales in Fiscal 2010 as compared to a reduction in inventory in Fiscal 2009 in response to declining sales. The
timing of income tax payments and Ruehl exit payments in 2010 also contributed to the decrease in cash provided by operating
activities.
Net cash provided by operating activities was $395.5 million for Fiscal 2009 compared to $491.0 million for Fiscal 2008. The
decrease in cash provided by operating activities was primarily driven by a reduction in net income for Fiscal 2009 compared to Fiscal
2008, adjusted for non-cash impairment charges. Operating cash flows for Fiscal 2009 included payments of approximately
$22.6 million related primarily to lease termination agreements associated with the closure of RUEHL branded stores and related
direct-to-consumer
43