==============================================================================
As filed with the Securities and Exchange Commission on July 17, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Abercrombie & Fitch Co.
(Exact name of Registrant as specified in its charter)
Delaware 5651 31-1469076
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) No.)
Four Limited Parkway
Reynoldsburg, Ohio 43068
(614) 577-6500
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
Samuel P. Fried
Three Limited Parkway
Columbus, Ohio 43230
(614) 479-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Jeffrey Small Jean E. Hanson
Davis Polk & Wardwell Fried, Frank, Harris, Shriver & Jacobson
450 Lexington Avenue One New York Plaza
New York, New York 10017 New York, New York 10004
(212) 450-4000 (212) 859-8000
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and the list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------
Class A Common Stock, par value
$0.01 per share $125,000,000 (2) $43,104
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) The amount of Class A Common Stock registered also includes any shares
of Class A Common Stock initially offered or sold outside the United
States and Canada that are thereafter sold or resold in the United
States. Offers and sales of Class A Common Stock outside the United
States and Canada are not covered by this Registration Statement.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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SUBJECT TO COMPLETION, DATED JULY 17, 1996
Shares
Abercrombie & Fitch
Class A Common Stock
(par value $0.01 per share)
Of the shares of Class A Common Stock offered by
Abercrombie & Fitch Co., shares are being offered hereby in the
United States by the U.S. Underwriters and shares are being offered
in a concurrent international offering outside the United States by the
International Underwriters. The initial public offering price and the
aggregate underwriting discount per share will be identical for both
Offerings. See "Underwriting".
The Company is currently wholly owned by The Limited, Inc. and,
upon completion of the Offerings, The Limited, Inc. will beneficially own 100%
of the Company's outstanding Class B Common Stock, which will represent
approximately % of the economic interest (or rights of holders of common
equity to participate in distributions in respect of the common equity) in the
Company ( % if the Underwriters' over-allotment options are exercised in
full). See "Risk Factors -- Control by The Limited".
Holders of Class A Common Stock generally have identical rights
to holders of Class B Common Stock, except that holders of Class A Common
Stock are entitled to one vote per share while holders of Class B Common Stock
are entitled to three votes per share on all matters submitted to a vote of
shareholders. Holders of Class A Common Stock are generally entitled to vote
with the holders of Class B Common Stock as one class on all matters as to
which the Class B Common Stock is entitled to vote. Following the Offerings,
the shares of Class B Common Stock held by The Limited, Inc. will represent
approximately % of the combined voting power of all classes of voting stock
( % if the Underwriters' over-allotment options are exercised in full) and
will be able, among other things, to elect all of the Company's directors, to
approve or disapprove amendments to the Company's Certificate of Incorporation
and Bylaws, acquisitions and dispositions of assets, mergers and other control
decisions and to control the Company's dividend policy and access to capital.
Each share of Class B Common Stock is convertible into one share of Class A
Common Stock at the option of The Limited, Inc. See "Relationship with The
Limited" and "Description of Capital Stock".
Prior to the Offerings, there has been no public market for the
Class A Common Stock. It is currently estimated that the initial public
offering price per share will be between $ and $ . For
factors to be considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" ON PAGE 10 OF THIS PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE CLASS A COMMON STOCK,
INCLUDING CERTAIN DEEMED CONSENTS OF INVESTORS TO PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION (A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO
THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART) THAT MAY LIMIT
THE FIDUCIARY DUTIES AND, AS A RESULT, THE LIABILITY OF DIRECTORS AND OFFICERS
OF THE COMPANY TO SHAREHOLDERS. AMONG OTHER THINGS, AN INVESTOR IN CLASS A
COMMON STOCK IS DEEMED TO HAVE CONSENTED TO PROVISIONS OF THE COMPANY'S
CERTIFICATE OF INCORPORATION WHICH PERMIT THE OFFICERS AND DIRECTORS OF THE
COMPANY, THE LIMITED, INC. AND CERTAIN SUBSIDIARIES OF THE LIMITED, INC. TO
ALLOCATE CORPORATE OPPORTUNITIES TO THE COMPANY, THE LIMITED, INC. OR SUCH
SUBSIDIARIES AS SUCH OFFICERS OR DIRECTORS DEEM APPROPRIATE.
Application will be made for approval of the listing of the
Class A Common Stock on the New York Stock Exchange.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Initial Public Underwriting Proceeds to
Offering Price Discount(1) Company(2)
-------------- ------------ -----------
Per Share........... $ $ $
Total(3)............ $ $ $
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $ payable by the
Company.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares of Class A Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. If such options are exercised in
full, the total initial public offering price, underwriting discount
and proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting".
The shares offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about , 1996, against payment therefor in
immediately available funds.
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
Montgomery Securities
J.P. Morgan & Co.
---------------
The date of this Prospectus is , 1996.
[PICTURES]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE
OF THE CLASS A COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
The following is a summary of certain information contained
elsewhere in this Prospectus. Reference is made to, and this summary is
qualified in its entirety by, the more detailed information contained in this
Prospectus. As used herein, unless the context otherwise requires, the
"Company" or "Abercrombie & Fitch" means Abercrombie & Fitch Co. and its
subsidiaries (which, prior to the formation of the Company on June 26, 1996,
are referred to herein as the "Abercrombie & Fitch Business"), and "The
Limited" means The Limited, Inc. and its subsidiaries (other than the
Company). Unless indicated otherwise, the information contained in this
Prospectus assumes that the Underwriters do not exercise their over-allotment
options. Except as otherwise specified, references herein to years are to the
Company's fiscal year, which ends on the Saturday closest to January 31 in the
following calendar year. For example, "1995" refers to the fiscal year ended
February 3, 1996. All fiscal years for which financial information is included
in this Prospectus had 52 weeks, except 1995 which had 53 weeks. All
references to "dollars" or "$" are to U.S. dollars. Unless otherwise defined
herein, capitalized terms used in this summary have the meanings ascribed to
them elsewhere in this Prospectus. Prospective investors should carefully
consider the information set forth under the heading "Risk Factors".
The Company
Abercrombie & Fitch is a rapidly growing specialty retailer of
high-quality, casual apparel for men and women approximately 15 to 50 years
of age. The Company's net sales have increased from $85.3 million in 1992 to
$235.7 million in 1995, representing a compound annual growth rate of 40.3%.
During this time, operating income has improved from an operating loss of
$10.2 million in 1992 to operating income of $23.8 million in 1995, while the
number of Abercrombie & Fitch stores in operation more than doubled,
increasing from 40 at the end of 1992 to 100 at the end of 1995. The Company
plans to continue this new store expansion program by opening 30 new stores in
1996 and by increasing the number of stores in operation by approximately 20%
annually for the next several years thereafter.
The Abercrombie & Fitch brand was established in 1892 and
became well known as a supplier of rugged, high-quality outdoor gear. Famous
for outfitting the safaris of Teddy Roosevelt and Ernest Hemingway and the
expeditions of Admiral Byrd to the North and South Poles, Abercrombie & Fitch
goods were renowned for their durability and dependability--and Abercrombie &
Fitch placed a premium on complete customer satisfaction with each item sold.
In 1992, a new management team began repositioning Abercrombie & Fitch as a
more fashion-oriented casual apparel business directed at men and women with a
youthful lifestyle. In reestablishing the Abercrombie & Fitch brand, the
Company combined its historical image for quality with a new emphasis on
casual American style and youthfulness. The Company believes that this
strategic decision has contributed to the strong growth and improved
profitability it has experienced since 1992.
Business Strengths
The Company believes that certain business strengths have
contributed to its success in the past and will enable it to continue growing
profitably.
Established and Differentiated Lifestyle Brand. Abercrombie & Fitch has
created a focused and differentiated brand image based on quality,
youthfulness and classic American style. This image is consistently
communicated through all aspects of the Company's business, including
merchandise assortments, in-store marketing and print advertising. The
Company believes that the strength of the Abercrombie & Fitch brand
provides opportunities for increased penetration of current merchandise
categories and entry into new product categories.
Broad and Growing Appeal. The Company's merchandise assortment appeals
to a broad range of customers with varying ages and income levels. The
Company believes that both men and women interested in casual, classic
American fashion are attracted to the Abercrombie & Fitch lifestyle image.
The Company also believes that the brand's broad appeal has been augmented
by, and should continue to benefit from, the current trend in fashion
toward casual apparel.
Proven Management Team. Since the current management team assumed
responsibility in 1992, the Company has increased the level of brand
awareness and consistently reported improved financial results. In
addition, the Company's senior management has significant experience, with
an aggregate of over one hundred years in the retail business. The Company
believes that management's substantial experience and demonstrated track
record of highly profitable growth strongly positions the Company for the
future.
Consistent Store Level Execution. Abercrombie & Fitch believes that a
major element of its success is the consistent store level execution of its
brand strategy. Store presentation is tightly controlled by the Company and
is based on a detailed and comprehensive store plan regarding visual
merchandising, marketing and fixtures to ensure that all stores provide a
consistent portrayal of the brand. Store associates are trained as "brand
representatives" who convey and reinforce the brand image through their
attitude and enthusiasm.
Quality. Since its founding over 100 years ago, Abercrombie & Fitch has
maintained a strong reputation for quality. This reputation has been
enhanced in recent years as management has made quality a defining element
of the brand. The Company sources high quality natural fabrics from around
the world and uses distinctive trim details and specialized washes to
achieve a unique style and comfort in its products. As part of this focus
on quality, the Company establishes on-going relationships with key
factories to ensure reliability and consistency in production.
Internal Design and Merchandising Capabilities. The cornerstone of the
Company's business is its ability to design products which embody the
Abercrombie & Fitch image. Abercrombie & Fitch develops substantially all
of its merchandise line through its own design group, which allows it to
develop exclusive merchandise and offer a consistent assortment within a
season and from year to year. In addition, because the Company's
merchandise is sold exclusively in its own stores, Abercrombie & Fitch is
able to control the presentation and pricing of its merchandise, provide a
higher level of customer service and closely monitor retail sell-through,
which provides competitive advantages over other brand manufacturers that
market their goods through department stores.
Relationship with The Limited. Unlike most high growth, specialty
apparel retailers, Abercrombie & Fitch directly benefits from the resources
and expertise of a major retailer such as The Limited. Abercrombie & Fitch
has been able to concentrate the efforts of its management team and
associates on strengthening its brand image by taking advantage of The
Limited's capabilities in the areas of real estate negotiation and
acquisition, central distribution, sourcing, store design and construction
and general corporate services. The Company will continue to receive such
services after the Offerings pursuant to agreements to be entered into with
The Limited. See "Relationship with The Limited".
Growth Strategy
The Company has implemented a growth strategy designed to
permit Abercrombie & Fitch to capitalize on its business strengths. The
Company plans to continue its store expansion program by opening 30 new stores
in 1996 and increasing the number of stores in operation by approximately 20%
annually for the next several years thereafter. While substantially all
stores to be opened in 1996 will be in regional shopping malls, the Company
believes that selected street locations in university and high-traffic urban
settings also provide attractive expansion opportunities. In addition,
Abercrombie & Fitch believes that there are opportunities to expand its
customer base and enhance the productivity of its stores through further
penetration of existing merchandise categories and the introduction of new
classifications and categories. Products which are being introduced or
expanded in 1996 include men's and women's underwear and outerwear,
fragrances, sunglasses and decorative home accessories. The Company believes
that its internal design capability will enable it to continue to develop new
merchandise which reflects the Abercrombie & Fitch lifestyle. See
"Business--Growth Strategy".
The Company currently is wholly owned by The Limited. The
Company was incorporated in Delaware on June 26, 1996 as a holding company for
the Abercrombie & Fitch Business. The Company's principal offices are located
at Four Limited Parkway, Reynoldsburg, Ohio 43068. The Company's telephone
number is (614) 577-6500.
The Offerings(1)
Class A Common Stock Offered by the Company(2):
United States Offering........................... shares
International Offering........................... ------------- shares
Total.......................................... shares
Common Stock Outstanding After the Offerings(3):
Class A Common Stock............................. shares
Class B Common Stock............................. ------------- shares
Total.......................................... shares
Proposed New York Stock Exchange Symbol for Class
A Common Stock...................................
Use of Proceeds................................... All of the net proceeds
will be used to repay
borrowings of certain
of the Company's
subsidiaries under a
credit agreement
entered into with
certain lenders and
Chase Manhattan Bank,
as agent (the "Credit
Agreement"), which
borrowings were used to
fund a dividend to The
Limited and repay
certain obligations
owed to The Limited.
Voting Rights; Conversion......................... The holders of Class A
Common Stock, par value
$.01 per share (the
"Class A Common
Stock"), generally have
rights, including as to
dividends, identical to
those of holders of
Class B Common Stock,
par value $.01 per
share (the "Class B
Common Stock"), except
that holders of Class A
Common Stock are
entitled to one vote
per share and holders
of Class B Common Stock
are entitled to three
votes per share.
Holders of the Class A
Common Stock and Class
B Common Stock
generally vote together
as a single class,
except as otherwise
required by Delaware
law. See "Description
of Capital Stock --
Common Stock -- Voting
Rights". Under certain
circumstances, Class B
Common Stock converts
to Class A Common
Stock. See
"Relationship with The
Limited".
- -------------
(1) Does not include up to shares of Class A Common Stock that are
subject to the over-allotment options granted to the Underwriters by the
Company. See "Underwriting".
(2) Includes up to shares of Class A Common Stock reserved for purchase by
associates and directors of Abercrombie & Fitch and certain other
businesses operated by The Limited at the initial public offering price
set forth on the cover page of this Prospectus. The offerings of Class
A Common Stock by the U.S. Underwriters and the International
Underwriters are referred to herein as the "Offerings".
(3) Does not include an aggregate of shares of Class A Common Stock
reserved for issuance in respect of associate and director stock
options granted effective upon consummation of the Offerings with an
exercise price equal to the initial public offering price set forth on
the cover page of this Prospectus. See "Executive Compensation".
Dividends
The Board of Directors of the Company currently intends to
retain future earnings for the development of its business and does not
anticipate paying regular quarterly dividends on the Class A Common Stock
or the Class B Common Stock (collectively, the "Common Stock") for the
foreseeable future. Under Delaware law, the declaration of dividends is
within the discretion of the Company's Board of Directors and future
dividends, if any, will depend upon various factors, including the
Company's net income, current and anticipated cash needs and any other
factors deemed relevant by the Board of Directors. By virtue of its Common
Stock ownership, The Limited will have the ability to change the size and
composition of the Company's Board of Directors and thereby control the
payment of dividends by the Company. Pursuant to restrictions contained in
the Credit Agreement, so long as the Credit Agreement is outstanding, the
Company is prohibited from paying any dividends on its capital stock,
including the Class A Common Stock. See "Description of Certain
Indebtedness -- Credit Agreement".
Relationship with The Limited
On June 26, 1996, The Limited announced that its board of
directors had authorized the filing of a registration statement relating to an
initial public offering of common stock of a subsidiary comprised of its
Abercrombie & Fitch business. The Offerings are part of a reconfiguration
plan initiated by The Limited in 1995 in order to permit the public offering
of shares of common stock in Intimate Brands, Inc., a company consisting of
its Victoria's Secret Stores, Victoria's Secret Catalogue, Bath & Body Works,
Cacique, Penhaligon's and Gryphon businesses ("Intimate Brands"), and other
possible sales of interests in its businesses. The Limited authorized such
transactions so as to effect changes that are intended to encourage
entrepreneurial spirit, yield better performance, develop new growth
opportunities for all the businesses operated by The Limited and, at the same
time, indirectly to create new career opportunities for all of The Limited's
associates. The reconfiguration was also intended to enable certain of The
Limited's businesses to operate more independently while allowing The Limited
to focus on inventing new retail brand concepts.
The Company is currently wholly owned by The Limited. Upon
consummation of the Offerings, The Limited will own 100% of the Class B Common
Stock, which will represent approximately % of the combined voting power
of all classes of voting stock ( % if the Underwriters' over-allotment
options are exercised in full) and thus will continue to have the ability to
direct the election of all of the directors of the Company and otherwise
exercise a controlling influence over the business and affairs of the Company.
The Limited is principally engaged in the purchase, distribution and sale of
women's apparel and had 1995 net sales (including Intimate Brands and the
Abercrombie & Fitch Business) of approximately $7.9 billion. The Limited
operates, among other things, Intimate Brands, and the Express, The Limited
Stores, Lerner New York, Lane Bryant and Henri Bendel women's apparel
businesses and the Structure, The Limited Too and Galyan's retail stores.
The Limited has advised the Company that its current intent is
to continue to hold all of the Class B Common Stock beneficially owned by The
Limited. However, The Limited has no agreement with the Company not to sell
or distribute such shares and, other than pursuant to the Underwriting
Agreement described below, there can be no assurance concerning the period of
time during which The Limited will maintain its beneficial ownership of Common
Stock. The Company has agreed to use its best efforts to effect the
registration under the applicable federal and state securities laws of any of
the Class B Common Stock held by The Limited. Beneficial ownership of at
least 80% of the total voting power and value of the outstanding Common Stock
is required in order for The Limited to continue to include the Company in its
consolidated group for federal income tax purposes and ownership of at least
80% of the total voting power and 80% of each class of nonvoting capital stock
is required in order for The Limited to be able to effect a Tax-Free Spin-Off
(as hereinafter defined) of the Company. In the event The Limited decreases
its ownership below 80%, all borrowings under the Credit Agreement must be
repaid. See "Description of Certain Indebtedness -- Credit Agreement". Also,
the Company and The Limited will agree with the Underwriters not to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock (or
any security convertible into or exchangeable or exercisable for Common Stock)
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Representatives of the Underwriters, subject to certain
exceptions. See "Underwriting". The Company does not intend to issue
additional shares of Class B Common Stock except in a manner which would
permit The Limited to maintain its proportional beneficial interest in the
value and voting power of the Company upon the issuance of additional shares
of Class A Common Stock. See "Relationship with The Limited -- Corporate
Agreement". The Limited has no current plans with respect to a Tax-Free
Spin-Off of Abercrombie & Fitch.
Each share of Class B Common Stock is convertible while held by
The Limited or any of its subsidiaries at such holder's option into one share
of Class A Common Stock. Any shares of Class B Common Stock transferred to a
person other than The Limited or any of its subsidiaries shall automatically
convert to shares of Class A Common Stock upon such disposition, except for a
disposition effected in connection with a transfer of Class B Common Stock to
shareholders of The Limited as a dividend intended to be on a tax-free basis
(a "Tax-Free Spin-Off") under the Internal Revenue Code of 1986, as amended
(the "Code").
In the event of a Tax-Free Spin-Off, shares of Class B Common
Stock shall automatically convert into shares of Class A Common Stock on the
fifth anniversary of the Tax-Free Spin-Off, unless prior to such Tax-Free
Spin-Off The Limited delivers to the Company an opinion of counsel (which
counsel shall be reasonably satisfactory to the Company) to the effect that
such conversion would preclude The Limited from obtaining a favorable ruling
from the Internal Revenue Service that the distribution would be a Tax-Free
Spin-Off under the Code. If such an opinion is received, approval of such
conversion shall be submitted to a vote of the holders of Abercrombie &
Fitch's Common Stock as soon as practicable after the fifth anniversary of the
Tax-Free Spin-Off, unless The Limited delivers to the Company an opinion of
The Limited's counsel (which counsel shall be reasonably satisfactory to the
Company) prior to such anniversary that such vote would adversely affect the
status of the Tax-Free Spin-Off. Approval of such conversion will require the
affirmative vote of the holders of a majority of the shares of both the
Abercrombie & Fitch's Class A Common Stock and Class B Common Stock present and
voting, voting together as a single class, with each share entitled to one
vote for such purpose. No assurance can be given that such conversion would
be consummated. The Limited will convert its Class B Common Stock to Class A
Common Stock immediately prior to a Tax-Free Spin-Off if, after such
conversion, it would have beneficial ownership of at least 80% of the voting
power of the outstanding Common Stock. All shares of Class B Common Stock
shall automatically convert into Class A Common Stock if a Tax-Free Spin-Off
has not occurred and the number of outstanding shares of Class B Common Stock
falls below 60% of the aggregate number of outstanding shares of Common Stock.
This will prevent The Limited from decreasing its economic interest in the
Company to less than 60% while still retaining control of approximately %
of Abercrombie & Fitch's voting power. All conversions will be effected on a
share-for-share basis. For a description of other provisions governing the
conversion of Class B Common Stock, see "Description of Capital Stock --
Common Stock -- Conversion".
The requirement that The Limited retain beneficial ownership of
at least 80% of the voting power of the outstanding Common Stock after any
conversion prior to a Tax-Free Spin-Off is intended to ensure that the tax
treatment of the Tax-Free Spin-Off is preserved. Similarly, the requirement to
submit such conversion to a vote of the holders of Common Stock is intended to
preserve such tax treatment should the Internal Revenue Service challenge such
automatic conversion as violating the 80% vote requirement. Automatic
conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free
Spin-Off has not occurred and The Limited decreases its economic interest in
the Company to less than 60% is intended to ensure that The Limited retains
voting control by virtue of its ownership of Class B Common Stock only if it
has a sizable economic interest in the Company. For so long as The Limited
maintains beneficial ownership of a majority of the number of outstanding
shares of Common Stock, the Company may not act in a way which may reasonably
be anticipated to result in a contravention by The Limited of (i) The
Limited's certificate of incorporation or bylaws; (ii) any credit agreement
binding upon The Limited; or (iii) any judgment, order or decree of any
governmental body having jurisdiction over The Limited.
Under agreements to be entered into between the Company and The
Limited upon consummation of the Offerings, The Limited will continue to
provide certain services to the Company and The Limited will make available
certain associate benefit plans to the Company's associates. In addition, the
Company and an affiliate of The Limited have entered into a sublease agreement
and, upon consummation of the Offerings, the Company and The Limited intend to
enter into a number of other intercompany agreements, including corporate and
tax-sharing agreements. With respect to matters covered by the services
agreement, the relationship between The Limited and Abercrombie & Fitch is
intended to continue in a manner generally consistent with past practices.
See "Relationship with The Limited". Although the Company will own all the
trademarks and service marks used in its business, for so long as the Company
remains a subsidiary of The Limited, The Limited will be entitled to use the
Company's trademarks and service marks at no cost to The Limited in The
Limited's annual report to shareholders and publicity material and for other
similar purposes.
Abercrombie & Fitch and certain of its subsidiaries are
currently subject to intercompany obligations to The Limited in an aggregate
principal amount of $53.1 million. Such indebtedness will remain outstanding
after consummation of the Offerings, of which $50 million is evidenced by a
note (the "Mirror Note") that represents Abercrombie & Fitch's share of
certain long-term debt of The Limited and $3.1 million is evidenced by a
note (the "Working Capital Note") payable to The Limited on January 31,
1997. The long-term Mirror Note bears interest at the rate of 7.80% per
annum and matures on May 15, 2002, paralleling the terms of the
corresponding debt of The Limited. The Working Capital Note bears interest
at a rate of 6.75% per annum. See "Capitalization" and "Description of
Certain Indebtedness -- Intercompany Debt".
SUMMARY FINANCIAL AND OPERATING DATA
Set forth below is summary historical financial and operating
data for the periods indicated for the Abercrombie & Fitch Business. This
information should be read in conjunction with the Abercrombie & Fitch
Business' historical and pro forma consolidated financial statements and notes
thereto included elsewhere in this Prospectus, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the other
financial information set forth herein. The information for fiscal years 1991
and 1992 is derived from the Abercrombie & Fitch Business' unaudited
consolidated financial statements. The selected financial data as of and for
the quarters ended April 29, 1995 and May 4, 1996 are derived from the
unaudited consolidated financial statements also appearing herein, which, in
the opinion of management, reflect all adjustments (which are of a recurring
nature) necessary to present fairly the financial position and results of
operations and cash flows for the interim periods. Results for the period
ended May 4, 1996 are not necessarily indicative of the results of operations
to be expected for the full fiscal year.
Fiscal Year Ended Quarter Ended
------------------------------------------------------------------ ----------------------
February 1, January 30, January 29, January 28, February 3, April 29, May 4,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(in thousands, except per share, per square foot and number of stores data)
Statement of Operations Data:
Net sales........................ $ 62,583 $ 85,301 $110,952 $165,463 $235,659 $ 33,377 $ 51,020
Gross income(2).................. 9,665 13,413 30,562 56,820 79,794 8,428 14,894
General, administrative and
store operating expenses(3)..... 21,268 23,603 30,240 43,069 55,996 10,297 15,293
Operating income (loss)(4)....... (11,603) (10,190) (4,064) 13,751 23,798 (1,869) (399)
Net income (loss)................ (7,003) (6,090) (2,464) 8,251 14,298 (1,169) (199)
Pro forma net income (loss)(5)... 9,909 (3,333) (2,463)
Pro forma weighted average
number of shares(6)............
Pro forma net income (loss)
per share(5)(6).................
Balance Sheet Data:
Inventories...................... $ 11,932 $ 15,075 $ 10,052 $ 16,551 $ 30,388 $ 20,923 $ 33,042
Total assets..................... 47,967 61,626 48,882 58,018 87,693 63,663 89,717
Pro forma long-term debt (7)..... 50,000
Pro forma shareholders'
equity (deficit)(8)............. (16,820)
Other Data:
Total net sales growth........... -- 36.3% 30.1% 49.1% 42.4% 42.6% 52.9%
Gross income percentage(9)....... 15.4% 15.7% 27.5% 34.3% 33.9% 25.3% 29.2%
Operating income (loss)
percentage(9)................... (18.5%) (11.9%) (3.7%) 8.3% 10.1% (5.6%) (0.8%)
Number of stores at period end... 36 40 49 67 100 72 102
Total selling square feet........ 287 332 405 541 792 580 804
Sales per selling square foot(10) $ 261 $ 276 $ 301 $ 350 $ 354 $ 60 $ 64
- ------------
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less cost of goods sold, occupancy and
buying costs.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to the Abercrombie & Fitch Business.
(4) Reflects a $4.4 million nonrecurring charge in 1993. See Note 3 to the
Consolidated Financial Statements.
(5) Gives pro forma effect to the interest expense, net of tax benefit, on the
$3.1 million Working Capital Note and the long-term Mirror Note in the
amount of $50 million. Also includes the pro forma effect of interest
expense and certain fees, net of tax benefit on borrowings under the
Credit Agreement for the quarters ended April 29, 1995 and May 4, 1996
and the year ended February 3, 1996. See "Pro Forma Consolidated
Financial Statements".
(6) Pro forma net income (loss) per share is based on pro forma net income
(loss) and the weighted average number of shares of Class A and Class B
Common Stock expected to be outstanding after the Offerings. Pro forma
net income (loss) per share is not necessarily indicative of what
actual net income (loss) per share would have been if the Offerings
occurred on the basis assumed.
(7) Represents the long-term Mirror Note.
(8) Gives pro forma effect to approximately $82 million in obligations owed to
The Limited, a $27 million dividend to The Limited and the issuance and
sale of Class A Common Stock in the Offerings and the application of
the net proceeds therefrom to repay approximately $115 million of
borrowings under the Credit Agreement. See "Pro Forma Consolidated
Financial Statements".
(9) Calculated as a percentage of net sales.
(10) Sales per selling square foot is the result of dividing net sales for the
period by average selling square feet, which represents the average of
selling square feet at the beginning and end of each fiscal period.
These amounts are not adjusted to reflect the seasonal nature of the
Company's sales or the impact of opening stores in different periods
during the year. Sales per selling square foot for interim periods
are not representative of results to be expected for a full fiscal
year.
A listing of key business statistics follows:
Fiscal Year Ended Quarter Ended
------------------------------------------------------------------ ----------------------
February 1, January 30, January 29, January 28, February 3, April 29, May 4,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- --------- ---------
(in thousands, except per share, per square foot and number of stores data)
Number of stores opened during
the period........................ 10 4 9 20 33 5 2
Number of stores closed during
the period........................ 1 -- -- 2 -- -- --
Number of stores at period end..... 36 40 49 67 100 72 102
Total selling square feet (000's).. 287 332 405 541 792 580 804
Sales per selling square foot(1)... $261 $276 $301 $350 $354 $60 $64
Comparable store sales
growth(2)......................... 10% 8% 6% 15% 5% 7% 17%
- ----------------
(1) See footnote 10 above.
(2) Abercrombie & Fitch includes a store in its comparable store sales
calculation at the beginning of the 53rd week of the store's operation.
Stores that are expanded or downsized more than 20% in square feet are
treated as new stores for purposes of this calculation only.
RISK FACTORS
Prior to making an investment decision, prospective investors
should carefully consider the following specific investment considerations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" for a description of other factors affecting the
business of the Company.
Consent to Limitations of Liability
The Company's Certificate of Incorporation includes provisions
relating to potential conflicts of interest that may arise between the Company
and The Limited and its subsidiaries. See "Description of Capital Stock".
The following provisions were adopted in light of the fact that
the Company and The Limited and its subsidiaries are engaged in retail
businesses and intend to enter into contracts and other arrangements after the
Offerings. To date, the Company and The Limited have not adopted any formal
procedures designed to resolve potential conflicts of interest between the two
companies. The Company intends to develop procedures to address such
conflicts. The precise nature of any conflict resolution procedures will be
determined in light of, among other things, the nature of the conflict being
addressed. Any person purchasing or acquiring an interest in shares of
capital stock of the Company, including the Underwriters, will be deemed to
have consented to such provisions relating to conflicts of interest and
corporate opportunities, and such consent may restrict such person's ability
to challenge transactions carried out in compliance with such provisions. In
addition, the Company intends to disclose the existence of such provisions in
its Annual Reports on Form 10-K as well as in certain other filings with the
Securities and Exchange Commission (the "Commission"). The certificate of
incorporation of The Limited does not include comparable provisions relating
to conflicts of interest or corporate opportunities.
The enforceability of the provisions discussed below under
Delaware corporate law has not been established and, due to the absence of
relevant judicial authority, counsel to the Company is not able to deliver an
opinion as to the enforceability of such provisions. Whether or not such
provisions are held to be enforceable, the Company believes its directors will
be able to fulfill their fiduciary duties to its shareholders. In addition, it
is the opinion of the Commission that any indemnification of directors,
officers or controlling persons of the Company for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act") is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Transactions with Interested Parties
The Company's Certificate of Incorporation provides that no
contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) between the Company and The Limited or
any subsidiary of The Limited (other than the Company) or between the Company
and any entity in which a director of the Company has a financial interest (a
"Related Entity") or between the Company and any director or officer of the
Company, The Limited, any subsidiary of The Limited or any Related Entity
shall be void or voidable solely for the reason that The Limited or such
subsidiary, a Related Entity or any one or more of the officers or directors
of the Company, The Limited or such subsidiary or any Related Entity are
parties thereto, or solely because any such directors or officers are present
at, participate in or vote (which vote shall be counted) with respect to the
authorization of the contract, agreement, arrangement or transaction (or any
amendment, modification or termination thereof). Further, the Company's
Certificate of Incorporation provides that The Limited, its subsidiaries and
any Related Entity shall not be liable to the Company or its shareholders for
breach of any fiduciary duty or duty of loyalty or failure to act in (or not
opposed to) the best interests of the Company or the derivation of any
improper personal benefit by reason of the fact that The Limited, such
subsidiary or such Related Entity in good faith takes any action or exercises
any rights or gives or withholds any consent in connection with any agreement
or contract between The Limited, such subsidiary or such Related Entity and the
Company. No vote cast or other action taken by any person who is an officer,
director or other representative of The Limited, such subsidiary or such
Related Entity, which vote is cast or action is taken by such person in his
capacity as a director of the Company, shall constitute an action of or the
exercise of a right by or a consent of The Limited, such subsidiary or such
Related Entity for the purpose of any such agreement or contract.
Allocations of Corporate Opportunities
The Company's Certificate of Incorporation provides that in the
event a director, officer or associate of the Company who is also a director,
officer or associate of The Limited or its subsidiaries acquires knowledge of a
transaction or other matter that may constitute a corporate opportunity of
either or both the Company and The Limited or its subsidiaries, such corporate
opportunity may be allocated either to the Company or The Limited or its
subsidiaries as such director, officer or associate deems appropriate under
the circumstances.
Actions under Intercompany Agreements
The Company's Certificate of Incorporation limits the liability
of officers and directors of The Limited and its subsidiaries for breaches of
fiduciary duty for actions taken or omitted under certain intercompany
agreements.
Limitations on Fiduciary Duties
The Company's Certificate of Incorporation generally eliminates
the liability of directors and officers of the Company with respect to certain
matters involving The Limited and its subsidiaries, including matters that may
constitute corporate opportunities of The Limited, its subsidiaries or the
Company. These provisions of the Company's Certificate of Incorporation
eliminate certain rights that might have been available to shareholders under
Delaware law had such provisions not been included in the Certificate of
Incorporation, although the enforceability of such provisions has not been
established.
Limitation on Personal Monetary Liability, Including Gross
Negligence
Under the Company's Certificate of Incorporation, the
directors' personal monetary liability for breach of their fiduciary duty of
care, including actions involving gross negligence, will also be eliminated to
the fullest extent permitted under Delaware law.
Control by The Limited
The Limited is currently the only shareholder of the Company.
Upon completion of the Offerings, The Limited will own 100% of the
outstanding Class B Common Stock of the Company (which Class B Common Stock is
entitled to three votes per share on any matter submitted to a vote of the
Company's shareholders). The Class B Common Stock will represent approximately
% of the combined voting power of all classes of voting stock ( % if
the Underwriters' over-allotment options are exercised in full) and thus will
be able to direct the election of all of the members of the Company's Board of
Directors and exercise a controlling influence over the business and affairs
of the Company, including any determinations with respect to mergers or other
business combinations involving the Company, the acquisition or disposition of
assets by the Company, the incurrence of indebtedness by the Company, the
issuance of any additional Common Stock or other equity securities and the
payment of dividends with respect to the Common Stock. Similarly, The Limited
will have the power to determine matters submitted to a vote of the Company's
shareholders without the consent of the Company's other shareholders, will
have the power to prevent a change of control of the Company and could take
other actions that might be favorable to The Limited. The grant pursuant to
associate benefit plans of Common Stock to, or the acquisition of Common Stock
upon the exercise of stock options held by, associates of the Company would
reduce the percentage ownership and voting interest in the Company of the
public shareholders of the Company.
The Limited has advised the Company that its current intent is
to continue to hold all of the Class B Common Stock beneficially owned by it.
However, The Limited has no agreement with the Company not to sell or
distribute such shares, and, except for restrictions in the Underwriting
Agreement set forth below, there can be no assurance concerning the period of
time during which The Limited will maintain its beneficial ownership of Common
Stock. Pursuant to the Underwriting Agreement, The Limited will agree,
subject to certain exceptions, not to sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any security convertible into or
exchangeable or exercisable for Common Stock) owned by it for a period of 180
days after the date of this Prospectus without the prior written consent of
the Representatives of the Underwriters. The Company has agreed, at the
request of The Limited, to use its best efforts to effect the registration
under applicable federal and state securities laws of any of the Class B
Common Stock held by The Limited. Beneficial ownership of at least 80% of the
total voting power and value of the outstanding Common Stock is required in
order for The Limited to continue to include the Company in its consolidated
group for federal income tax purposes, and ownership of at least 80% of the
total voting power and 80% of each class of nonvoting capital stock is
required in order for The Limited to be able to effect a Tax-Free Spin-Off of
the Company. In the event The Limited decreases its ownership below 80%, all
borrowings under the Credit Agreement must be repaid. See "Description of
Certain Indebtedness -- Credit Agreement". Because The Limited may seek to
maintain its beneficial ownership percentage of the Company for tax planning
purposes or otherwise and may not desire to acquire additional shares of
Common Stock in connection with a future issuance of shares by the Company,
the Company may be constrained in its ability to raise equity capital in the
future or to issue Common Stock in connection with acquisitions.
For so long as The Limited maintains beneficial ownership of a
majority of the number of outstanding shares of Common Stock, the Company may
not act in a way which may reasonably be anticipated to result in a
contravention by The Limited of: (i) The Limited's certificate of
incorporation or bylaws; (ii) any credit agreement binding upon The Limited;
or (iii) any judgment, order or decree of any governmental body having
jurisdiction over The Limited.
Each member of a consolidated group for federal income tax
purposes is jointly and severally liable for the federal income tax liability
of each other member of the consolidated group. For benefit plan purposes, the
Company will be part of The Limited's controlled group, which includes The
Limited and its other subsidiaries. Under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and federal income tax law, each
member of the controlled group is jointly and severally liable for funding and
termination liabilities of tax qualified defined benefit retirement plans as
well as certain plan taxes. Accordingly, during the period in which the
Company is included in The Limited's consolidated or controlled group, the
Company could be liable under such provisions in the event any such liability
or tax is incurred, and not discharged, by any other member of The Limited's
consolidated or controlled group.
The Company's Board of Directors currently consists of three
members, two of whom serve concurrently as members of the Board of Directors
of The Limited and Intimate Brands. Mr. Leslie H. Wexner, Chairman, President
and Chief Executive Officer of The Limited, will also serve as Chairman of the
Board of the Company, and Kenneth B. Gilman, Vice Chairman of The Limited,
will also serve as Vice Chairman of the Board of the Company. In light of its
ownership of the Company's Class B Common Stock, The Limited will have the
ability to change the size and composition of the Company's Board of Directors
and committees of the Board of Directors. See "Relationship with The Limited
- -- Corporate Agreement".
Potential Conflicts of Interest
Various conflicts of interest between the Company and The
Limited could arise following completion of the Offerings.
Control of Certain Real Estate Matters
Pursuant to the terms of the services agreement to be entered
into between the Company and The Limited and consistent with past practices,
The Limited will be granted the exclusive right to negotiate all store leases
on behalf of Abercrombie & Fitch. While Abercrombie & Fitch will use The
Limited's real estate division to select store sites and negotiate leases,
Abercrombie & Fitch has the final authority to choose to accept or not to
accept a store site or lease negotiated by The Limited. Similarly, The
Limited will be entitled to allocate store space among Abercrombie & Fitch and
other retail businesses operated by The Limited. Although Abercrombie &
Fitch's management believes that this arrangement provides it with significant
advantages, it may result in conflicts of interest between the Company and The
Limited. See "Relationship with The Limited -- Services Agreement" and
"Business -- Central Real Estate Management".
Cross-Directorships and Stock Ownership
Leslie H. Wexner, Chairman of the Board, and Kenneth B. Gilman,
Vice Chairman of the Board, as well as Michael S. Jeffries, President and
Chief Executive Officer of Abercrombie & Fitch, hold shares of common stock
and options to acquire common stock of The Limited. Such shares and options
are material to the net worth of Mr. Wexner, Mr. Gilman and Mr. Jeffries. See
"Executive Compensation". Cross-directorships and ownership interests of
directors or officers of the Company in common stock of The Limited could
create or appear to create potential conflicts of interest when directors and
officers are faced with decisions that could have different implications for
the Company and The Limited. Nevertheless, the Company believes that such
directors would be able to fulfill their fiduciary duties to its shareholders.
See "Description of Capital Stock -- Certain Certificate of Incorporation and
Bylaw Provisions". The certificate of incorporation of The Limited does not
include provisions addressing these potential conflicts.
Control of Certain Personnel Matters
In an effort to promote the career development of senior
associates of The Limited's various businesses and to address its own
personnel requirements, The Limited may reassign associates from positions at
one of its businesses to positions in another business operated by The
Limited. Such assignments and reassignments are within the discretion of The
Limited and are made with a view towards optimizing the allocation of
personnel among the different businesses of The Limited. Although this
arrangement may create occasional difficulties for Abercrombie & Fitch,
Abercrombie & Fitch's management believes that providing senior managers with
opportunities for advancement at other businesses of The Limited is an
important advantage in recruiting associates. In addition, Abercrombie &
Fitch believes it has benefitted from this arrangement, as experienced
managers from other businesses operated by The Limited have been assigned to
Abercrombie & Fitch. Although The Limited has no present intention to
relocate any senior Abercrombie & Fitch merchandising personnel or other
senior executive officers from Abercrombie & Fitch to other businesses
controlled by The Limited, there can be no assurance as to future assignments
of senior associates of The Limited's other businesses to Abercrombie & Fitch
or from Abercrombie & Fitch to other businesses controlled by The Limited.
Control of Tax Matters
By virtue of its controlling beneficial ownership and the terms
of the tax-sharing agreement to be entered into between the Company and The
Limited, The Limited will effectively control all of the Company's tax
decisions. Under the tax-sharing agreement, The Limited will have sole
authority to respond to and conduct all tax proceedings (including tax audits)
relating to Abercrombie & Fitch, to file all returns on behalf of the Company
and to determine the amount of Abercrombie & Fitch's liability to (or
entitlement to payment from) The Limited under the tax-sharing agreement. See
"Relationship with The Limited--Tax-Sharing Agreement". This arrangement may
result in conflicts of interest between the Company and The Limited. For
example, under the tax-sharing agreement, The Limited may choose to contest,
compromise or settle any adjustment or deficiency proposed by the relevant
taxing authority in a manner that may be beneficial to The Limited and
detrimental to the Company. In connection therewith, however, The Limited is
obligated under the tax-sharing agreement to act in good faith with regard to
all members included in the applicable returns.
Competition with The Limited
The Limited is one of the largest specialty retailers in the
United States. The Limited is not restricted in any manner from competing with
Abercrombie & Fitch and currently markets merchandise similar to that sold by
the Company through certain of its other subsidiaries. There can be no
assurance that The Limited will not expand, through development of new lines
of products or businesses, acquisition or otherwise, its operations that
compete with Abercrombie & Fitch.
Intercompany Agreements Not Subject to Arm's-Length Negotiation
The Limited (or one or more of its subsidiaries) and the
Company have entered and intend to enter into certain intercompany agreements,
including agreements pursuant to which The Limited (or one or more of its
subsidiaries) will provide various services to Abercrombie & Fitch, and a
tax-sharing agreement, that are material to the conduct of the Company's
business. With respect to matters covered by the services agreement, the
relationship between The Limited and Abercrombie & Fitch is intended to
continue in a manner generally consistent with past practices. See
"Relationship with The Limited" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition --
Liquidity and Capital Resources". Because Abercrombie & Fitch is a
wholly-owned subsidiary of The Limited, none of these agreements will result
from arm's-length negotiations and, therefore, the prices charged to the
Company for services provided thereunder may be higher or lower than prices
that may be charged by third parties.
Immediate and Substantial Dilution and Negative Pro Forma Net Tangible Book
Value
Purchasers of Class A Common Stock in the Offerings will
experience an immediate dilution of $ per share in the net tangible book
value of their Class A Common Stock from the estimated initial public offering
price of $ per share. Prior to completion of the Offerings, the
Company's pro forma net tangible book value per share of Common Stock will be
$ , whereas upon completion of the Offerings, it will be $ . This
will result in an increase in net tangible book value of $ per share of
Class B Common Stock that will be received by The Limited attributable to the
Offerings. Due to the negative pro forma net tangible book value of the
Company prior to the completion of the Offerings, purchasers of Class A Common
Stock in the Offerings will have paid 100% of the Company's total capital
after the Offerings while receiving only % of the economic interests
therein.
Seasonality
The Company experiences seasonal fluctuations in its net sales
and net income, with a disproportional amount of the Company's net sales and a
majority of its net income typically realized during the fourth quarter. Net
sales and net income are generally weakest during the first quarter. The
Company's quarterly results of operations may also fluctuate significantly as
a result of a variety of other factors, including the timing of new store
openings and the net sales contributed by new stores, merchandise mix and the
timing and level of markdowns. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Seasonality and Quarterly
Fluctuations".
Future Growth
Abercrombie & Fitch has grown rapidly over the past several
years. The Company's future growth prospects are dependent upon a number of
factors, including, among other things, the availability of suitable store
locations, the ability to develop new merchandise and the ability to hire and
train qualified associates. There is no assurance that the Company will be
able to continue to grow profitably. In 1995, the Company spent $22.3 million
for new stores and remodeling and expanding existing stores and anticipates
spending between $19 and $23 million in 1996 and 1997 for such capital
expenditures. The Company expects that substantially all future capital
expenditures will be funded by net cash provided by operating activities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business".
Dependence on Key Personnel
The Company believes that it has benefitted substantially from
the leadership of Leslie H. Wexner, Chairman, President and Chief Executive
Officer of The Limited and Chairman of the Board of the Company and Michael S.
Jeffries, President and Chief Executive Officer of Abercrombie & Fitch. The
loss of any of the services of these individuals could have a material adverse
effect on the Company's business and prospects. In addition, Mr. Wexner's
service as Chairman, President and Chief Executive Officer of The Limited and
Chairman of the Board of the Company may create or appear to create potential
conflicts of interest. See "-- Potential Conflicts of Interest".
Factors Affecting Abercrombie & Fitch's Business; Foreign Sourcing
Abercrombie & Fitch's business is sensitive to changes in
consumer spending patterns, consumer preferences and overall economic
conditions. In addition, Abercrombie & Fitch competes with a broad range of
other retailers, some of whom have greater financial resources than the
Company. In 1995, approximately 56% of the Company's merchandise was sourced
from independent foreign factories located primarily in the Far East. The
Company has no long-term merchandise supply contracts and many of its imports
are subject to existing or potential duties, tariffs or quotas that may limit
the quantity of certain types of goods which may be imported into the United
States from countries in that region. The Company competes with other
companies for production facilities and import quota capacity. The Company's
business is also subject to a variety of other risks generally associated with
doing business abroad, such as political instability (including issues
concerning the future of Hong Kong following the transfer of Hong Kong to The
People's Republic of China on July 1, 1997), currency and exchange risks and
local political issues. The Company's future performance will be subject to
such factors, which are beyond its control, and there can be no assurance that
such factors would not have a material adverse effect on the Company's results
of operations. See "Business -- Sourcing" and "-- Competition".
No Prior Market; Possible Volatility of Stock Price
Prior to the Offerings, there has been no public market for the
Class A Common Stock of the Company. There can be no assurance that the
initial public offering price will correspond to the price at which the Class
A Common Stock will trade in the public market subsequent to the Offerings or
that an active public market for the Class A Common Stock will develop and
continue after the Offerings. For a discussion of the factors to be
considered in determining the initial public offering price, see
"Underwriting".
Possible Future Sales of Common Stock by The Limited
Subject to applicable federal securities laws and the
restrictions set forth below in the Underwriting Agreement, The Limited may
sell any and all of the shares of Common Stock beneficially owned by it or
distribute any or all of the shares of Common Stock to its shareholders. The
Company has agreed to use its best efforts to effect the registration under
applicable federal and state securities laws of any of the Class B Common
Stock held by The Limited. See "Relationship with the Limited--Corporate
Agreement". Pursuant to the Underwriting Agreement, The Limited will agree,
subject to certain exceptions, not to sell or otherwise dispose of, directly
or indirectly, any shares of Common Stock (or any security convertible into or
exchangeable or exercisable for Common Stock) for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters. Sales or distributions by The Limited of
substantial amounts of Common Stock in the public market or to its
shareholders could adversely affect prevailing market prices for the Class A
Common Stock. See "Relationship with The Limited" and "Shares Eligible for
Future Sale".
Anti-Takeover Provisions
The Company's Certificate of Incorporation and Bylaws contain a
number of provisions that could impede a merger, consolidation, takeover or
other business combination involving the Company or discourage a potential
acquiror from making a tender offer or otherwise attempting to obtain control
of the Company. Those provisions include (i) a requirement that a vote of the
holders of at least 75% of the outstanding Common Stock is required to effect
a merger or consolidation with any person or entity owning 5% or more of the
Common Stock of the Company (an "Interested Person"), a sale of all or
substantially all of the assets of the Company to an Interested Person and
certain other control transactions; (ii) a classified board; and (iii) a
requirement that certain provisions of the Company's Certificate of
Incorporation and Bylaws may be amended, and directors may be removed, only
with the approval of the holders of at least 75% of the outstanding Common
Stock. The Limited, as owner of approximately % of the combined voting
power of all classes of voting stock, could sell or otherwise dispose of a
substantial portion of its holdings and still be able to block any merger,
consolidation, takeover or other business combination with any Interested
Person and certain other material transactions and matters. In addition, the
Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law. See "Description of Capital Stock -- Certain Certificate of
Incorporation and Bylaw Provisions" and "-- The Delaware General Corporation
Law".
USE OF PROCEEDS
The estimated proceeds to the Company from the Offerings, after
the deduction of the underwriting expenses, will be $ million ($
million if the Underwriters' over-allotment options are exercised in full),
which proceeds are expected to be used to repay borrowings by subsidiaries of
the Company under the Credit Agreement previously entered into with certain
lenders and Chase Manhattan Bank, as agent. The current weighted average
effective interest rate applicable to borrowings under the Credit Agreement is
approximately 5.98% per annum. Pursuant to the Credit Agreement, which has a
scheduled final maturity of June 30, 2001, borrowings thereunder must be
repaid in an amount equal to the Excess Cash Flow (as defined therein) of the
Company, which amount will include the net proceeds of the Offerings.
Borrowings under the Credit Agreement were used to fund a dividend to The
Limited and repay certain obligations owed to The Limited.
DIVIDENDS
The Board of Directors of the Company currently intends to
retain future earnings for the development of its business and does not
anticipate paying regular quarterly dividends on the Common Stock for the
foreseeable future. Under Delaware law, the declaration of dividends is within
the discretion of the Company's Board of Directors and future dividends, if
any, will depend upon various factors, including the Company's net income,
current and anticipated cash needs and any other factors deemed relevant by
the Board of Directors. By virtue of its stock ownership, The Limited will
have the ability to change the size and composition of the Company's Board of
Directors and thereby control the payment of dividends by the Company.
Pursuant to restrictions contained in the Credit Agreement, so long as the
Credit Agreement is outstanding, the Company is prohibited from paying any
dividends on its capital stock, including the Class A Common Stock. See
"Description of Certain Indebtedness -- Credit Agreement".
DILUTION
The negative pro forma net tangible book value of the Common
Stock at , 1996 would have been $ or $ per share, based
upon shares of Class B Common Stock outstanding. Assuming the
Offerings were consummated on , 1996, after giving effect to the
issuance of shares of Class A Common Stock in the Offerings (at an
assumed initial public offering price of $ per share and after deducting
anticipated offering expenses and the underwriting discount and commissions),
the pro forma net tangible book value at , 1996 would have been $
, or $ per share. This represents an immediate increase in net
tangible book value of $ per share of Class B Common Stock to The Limited
and an immediate dilution of net tangible book value of $ per share of
Common Stock to new investors purchasing Class A Common Stock in the
Offerings. Pro forma net tangible book value per share is determined by
subtracting total liabilities from tangible assets and dividing the remainder
by the number of shares of Common Stock outstanding. The following table
illustrates this per share dilution:
Assumed initial public offering price per share.............. $
Pro forma net tangible book value per share of Common Stock
before the Offerings........................................$
Increase per share attributable to new investors(1).......... ________
Pro forma net tangible book value per share of Common
Stock after the Offerings................................... ________
Dilution per share to Class A Common Stock investors(2)...... $
- -------------------
(1) After deducting the underwriting discount and commissions and estimated
expenses of the Offerings.
(2) Dilution is determined by subtracting net tangible book value per share
after giving effect to the Offerings from the initial public offering price
paid by a new investor for a share of Class A Common Stock.
The following table summarizes, on a pro forma basis at
, 1996, the differences between the number of shares held by, the voting
rights of, the total investment in the Company of and the average cost per
share paid by The Limited and the investors purchasing shares of Class A
Common Stock in the Offerings:
Shares Held Total Investment
------------------------ -----------------------------
Percentage of Percentage of Percentage of Average Cost
Number the Company Voting Rights Amount Investment Per Share
------- -------------- ------------- ------ ------------- ------------
(dollars in millions except per share amounts)
The Limited $
New Investors
------- -------------- ------------- ------ ------------- ------------
Total 100% 100%
======= ============== ============= ====== ============= ============
The foregoing tables assume no exercise of the Underwriters'
over-allotment options or any outstanding stock options. See "Executive
Compensation" for information regarding stock options.
CAPITALIZATION
The following table sets forth the historical and pro forma
(before the Offerings) capitalization of the Company as of May 4, 1996 based
on the estimated effects of the following transactions and events: (i)
transfer of certain preexisting obligations of Abercrombie & Fitch's operating
subsidiary to Abercrombie & Fitch's trademark subsidiary in the amount of $32
million (the "Trademark Obligations") by such trademark subsidiary to The
Limited and a resulting dividend to The Limited in a corresponding amount;
(ii) distribution of the long-term Mirror Note in the amount of $50 million by
Abercrombie & Fitch's operating subsidiary to The Limited and a resulting
dividend to the Limited in a corresponding amount; (iii) borrowing by two of
Abercrombie & Fitch's subsidiaries of $150 million under the Credit Agreement
and the application of such funds to repay $91 million of long-term debt owed
to The Limited, to pay a $27 million dividend to The Limited and to repay in
full the Trademark Obligations; and (iv) conversion of the remaining $3.1
million of long-term intercompany debt into the Working Capital Note. The
following table further sets forth the pro forma (after the Offerings)
capitalization of the Company as of May 4, 1996 based on (a) the
reclassification of 1,000 shares of Common Stock, par value $.10 per share,
of the Company held by The Limited into shares of Class B Common Stock;
and (b) the issuance and sale of shares of Class A Common Stock in the
Offerings and the application of the net proceeds therefrom to repay
approximately $115 million of borrowings under the Credit Agreement. The
data should be read in conjunction with the historical Consolidated
Financial Statements and notes thereto and the Pro Forma Consolidated
Financial Statements and notes thereto included elsewhere in this
Prospectus.
May 4, 1996
-----------------------------------------------------
Pro forma Pro forma
before after
Historical(1) Offerings Offerings
--------------- ----------------- -----------------
(dollars in thousands)
Short-term borrowings:
Credit Agreement(2)...................................... - $150,000 $ 35,000
- 3,074(4) 3,074(4)
--------------- ----------------- -----------------
Working Capital Note.....................................
Total short-term borrowings............................. - 153,074 38,074
Long-term Mirror Note..................................... - 50,000(5) 50,000(5)
$ 94,074 - -
--------------- ----------------- -----------------
Long-term intercompany debt(3)............................
94,074 203,074 88,074
--------------- ----------------- -----------------
Total debt..............................................
Shareholders' equity (deficit)(6):
Preferred stock, shares authorized, no shares
issued and outstanding..................................
Common stock, par value $.10 per share, 1,000 shares
authorized, 1,000 shares issued and outstanding..........
Class A Common Stock, par value $.01 per share,
shares authorized, shares issued and outstanding...
Class B Common Stock, par value $.01 per share,
shares authorized, shares issued and outstanding..
Paid-in capital........................................... 1
(22,821) (131,821) (16,820)
--------------- ----------------- -----------------
Retained earnings (deficit)...............................
Total shareholders' equity (deficit).................... (22,821) (131,820) (16,820)
--------------- ----------------- -----------------
Total capitalization.................................... $71,253 $71,254 $71,254
=============== ================= =================
- --------------
(1) Represents amounts derived from the historical Consolidated Financial
Statements of the Abercrombie & Fitch Business included elsewhere in this
Prospectus.
(2) On July 2, 1996, two of Abercrombie & Fitch's subsidiaries entered into
the Credit Agreement and then on July 15, 1996 the stock of such entities
was contributed to Abercrombie & Fitch Co. See "Description of Certain
Indebtedness -- Credit Agreement".
(3) Represents long-term intercompany debt owed to The Limited.
(4) Represents the Working Capital Note, which bears interest at 6.75% per
annum and matures on January 31, 1997.
(5) Represents the long-term Mirror Note, which is Abercrombie & Fitch's share
of certain long-term debt of The Limited. See "Description of Certain
Indebtedness -- Intercompany Debt".
(6) Does not include an aggregate of shares of Class A Common Stock
reserved for issuance in respect of associate and director stock options
granted effective upon consummation of the Offerings with an exercise price
equal to the initial public offering price set forth on the cover page of
this Prospectus.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial
Statements of Abercrombie & Fitch include the historical Consolidated
Financial Statements of the Abercrombie & Fitch Business (as defined in
Note 1 of the Notes to the Consolidated Financial Statements of the
Abercrombie & Fitch Business included elsewhere in this Prospectus) and
give effect to the transactions and events described in the Notes to Pro
Forma Consolidated Financial Statements as if the transactions and events
referred to therein were initiated at the beginning of the relevant fiscal
year in the case of the unaudited Pro Forma Consolidated Statements of
Operations for fiscal year 1995 and the first quarters of 1995 and 1996 and
as of May 4, 1996 in the case of the unaudited Pro Forma Consolidated
Balance Sheet.
The unaudited Pro Forma Consolidated Financial Statements give
effect to the following transactions and events: (i) transfer of the
preexisting Trademark Obligations in the amount of $32 million by Abercrombie
& Fitch's trademark subsidiary to The Limited and a resulting dividend to The
Limited in a corresponding amount; (ii) distribution of the long-term Mirror
Note in the amount of $50 million by Abercrombie & Fitch's operating
subsidiary to The Limited and a resulting dividend to The Limited in a
corresponding amount; (iii) $150 million of borrowings under the Credit
Agreement which were used to repay $91 million of long-term debt owed to The
Limited, to pay a $27 million dividend to The Limited and repay in full the
Trademark Obligations; (iv) conversion of the remaining $3.1 million of
long-term intercompany debt into the Working Capital Note; and (v) the sale and
issuance of million shares of Class A Common Stock in the Offerings
and the application of the $115 million net proceeds therefrom to repay
borrowings under the Credit Agreement.
Management believes the assumptions used provide a reasonable
basis on which to present the unaudited Pro Forma Consolidated Financial
Statements. The unaudited Pro Forma Consolidated Financial Statements should
be read in conjunction with the historical Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS ARE PROVIDED FOR INFORMATIONAL
PURPOSES ONLY AND SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE COMPANY'S
RESULTS OF OPERATIONS OR THE COMPANY'S FINANCIAL POSITION HAD THE TRANSACTIONS
AND EVENTS DESCRIBED ABOVE BEEN CONSUMMATED ON THE DATES ASSUMED AND DO NOT
PROJECT THE COMPANY'S RESULTS OF OPERATIONS OR THE COMPANY'S FINANCIAL POSITION
FOR ANY FUTURE DATE OR PERIOD.
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
At May 4, 1996
-----------------------------------------------------------------------------------------------
Abercrombie Pro forma Pro forma
& Fitch Abercrombie & before Adjustments after
Business(1) Fitch Co. Adjustments Offerings (8) Offerings
------------- --------------- ----------- ----------- ------------ ----------
(in thousands)
ASSETS
Current assets:
Cash.......................... $823 $1 (2) $150,000 (3) $824 $115,000 $824
(150,000) (6) (115,000)
Accounts receivable........... 3,231 3,231 3,231
Inventories................... 33,042 33,042 33,042
Store supplies................ 3,753 3,753 3,753
Deferred income taxes......... 1,208 1,208 1,208
Other......................... 261 261 261
----------- --------------- ----------- ----------
Total current assets.......... 42,318 1 42,319 42,319
Property and equipment, net.... 45,765 45,765 45,765
Deferred income taxes.......... 1,624 1,624 1,624
10 10 10
----------- --------------- ----------- ----------
Other assets...................
$89,717 $1 $89,718 $89,718
=========== =============== =========== ==========
Total assets...................
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current liabilities
Accounts payable.............. $4,044 $4,044 $4,044
Accrued expenses.............. 13,593 13,593 13,593
Credit agreement.............. 150,000 (3) 150,000 (115,000) 35,000
Trademark obligations......... 32,000 (4) -- --
(32,000) (6)
Working capital note.......... 3,074 (7) 3,074 3,074
Income taxes payable.......... 200 200 200
----------- --------------- ----------- ----------
Total current liabilities... 17,837 170,911 55,911
Long-term intercompany debt.... 94,074 (91,000) (6) -- --
(3,074) (7)
Long-term mirror note.......... 50,000 (5) 50,000 50,000
Other long-term liabilities.... 627 627 627
Shareholders' equity (deficit). (22,821) $1 (27,000) (6) (131,820) 115,000 (16,820)
(82,000) (4)(5)
----------- --------------- ----------- ----------
Total liabilities and
shareholders' equity
(deficit)...................... $89,717 $1 $89,718 $89,718
=========== =============== =========== ==========
The accompanying notes are an integral part of the unaudited Pro
Forma Consolidated Financial Statements.
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Year Ended February 3, 1996
------------------------------------------------------------
Historical Adjustments Pro forma
---------------- ------------- -----------
(in thousands, except per share amount)
Net sales................................................ $235,659 $235,659
Cost of goods sold, occupancy and buying costs........... 155,865 155,865
---------------- ------------- -----------
Gross income............................................. 79,794 79,794
General, administrative and store operating expenses..... 55,996 55,996
---------------- ------------- -----------
Operating income......................................... 23,798 23,798
Interest expense......................................... -- $7,389 (1) 7,389
---------------- ------------- -----------
Income before income taxes............................... 23,798 (7,389) 16,409
Provision for income taxes............................... 9,500 (3,000) (2) 6,500
---------------- ------------- -----------
Net income............................................... $14,298 $(4,389) $9,909
================ ============= ===========
Pro forma net income per share........................... $===========
The accompanying notes are an integral part of the unaudited Pro
Forma Consolidated Financial Statements.
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Quarter Ended May 4, 1996
-------------------------------------------------------------
Historical Adjustments Pro forma
-------------- ------------- ------------
(in thousands, except per share amount)
Net sales................................................ $51,020 $51,020
36,126 36,126
-------------- ------------
Cost of goods sold, occupancy and buying costs...........
Gross income............................................. 14,894 14,894
General, administrative and store operating expenses..... 15,293 15,293
-------------- ------------
Operating loss........................................... (399) (399)
Interest expense......................................... -- $3,664(1) 3,664
-------------- ------------- ------------
Loss before income taxes................................. (399) (3,664) (4,063)
Benefit from income taxes................................ (200) (1,400)(2) (1,600)
-------------- ------------- ------------
$(199) $(2,264) $(2,463)
Net loss................................................. ============== ============= ============
Pro forma net loss per share............................. $
============
The accompanying notes are an integral part of the unaudited Pro Forma
Consolidated Financial Statements.
ABERCROMBIE & FITCH
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For the Quarter Ended April 29, 1995
--------------------------------------------------------------
Historical Adjustments Pro forma
--------------- --------------- -------------
(in thousands, except per share amount)
Net sales................................................ $33,377 $33,377
Cost of goods sold, occupancy and buying costs........... 24,949 24,949
--------------- -------------
Gross income............................................. 8,428 8,428
General, administrative and store operating expenses..... 10,297 10,297
--------------- -------------
Operating loss........................................... (1,869) (1,869)
Interest expense......................................... -- $3,664(1) 3,664
--------------- --------------- -------------
Loss before income taxes................................. (1,869) (3,664) (5,533)
Benefit from income taxes................................ (700) (1,500)(2) (2,200)
--------------- --------------- -------------
Net loss................................................. $(1,169) $(2,164) $(3,333)
=============== =============== =============
Pro forma net loss per share............................. $
=============
Notes to Pro Forma Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The following pro forma adjustments are based on available
information and certain estimates and assumptions. Therefore, it is likely
that the actual adjustments will differ from the pro forma adjustments. The
Company believes that such assumptions provide a reasonable basis for
presenting all of the significant effects of the following transactions and
events and that the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited pro forma consolidated
financial statements.
2. Adjustments to Pro Forma Consolidated Balance Sheet
(1) Represents amounts derived from the historical Consolidated
Financial Statements of the Abercrombie & Fitch Business included elsewhere in
this Prospectus.
(2) Represents the initial capitalization of Abercrombie &
Fitch Co.
(3) Proceeds from borrowing under the Credit Agreement.
(4) Transfer of the Trademark Obligations to The Limited in the
amount of $32 million.
(5) Distribution to The Limited of the $50 million long-term
Mirror Note.
(6) To reflect the payment of the $32 million Trademark
Obligations, payment of $91 million of long-term intercompany debt owed to The
Limited and a $27 million dividend to The Limited.
(7) The conversion of $3.1 million of long-term intercompany
debt into the Working Capital Note.
(8) The issuance and sale of shares of Class A Common
Stock in the Offerings and the application of the $115 million net proceeds
therefrom to repay borrowings under the Credit Agreement.
3. Adjustments to Pro Forma Consolidated Statements of Operations
Year Ended Quarter Ended
------------------------------------------ ---------------
February 3, 1996 April 29, 1995 May 4, 1996
---------------- -------------- ---------------
(1) Reflects interest expense as follows:
$150 million Credit Agreement
due June 30, 2001 (a)....................... $3,068 $2,337 $2,337
$3.1 million Working Capital Note
due January 31, 1997 (b).................... 121 52 52
$50 million Mirror Note
due May 15, 2002 (c)........................ 3,900 975 975
300 300 300
---------------- -------------- ---------------
Financing fees...............................
$7,389 $3,664 $3,664
================ ============== ===============
(footnotes on following page)
- -------------------
(a) Represents interest calculated at an effective rate of 6.25% on
$150 million principal outstanding for thirteen weeks for the
period indicated, provided, that the period ended February 3, 1996
includes additional interest at an effective rate of 6.25% on $35
million for a period of four months.
(b) Interest is calculated at an effective interest rate of 6.75% for
a period of seven months in the fiscal year ended February 3, 1996
and three months in the quarters ended April 29, 1995 and May 4,
1996.
(c) Interest is calculated based upon 7.80% for the period indicated.
(2) Estimated income tax effects of the pro forma adjustments at the effective
annual rate.
No adjustment has been made for additional costs of Abercrombie
& Fitch operating as a public company as management believes that the
incremental costs will not be significant. In addition, no adjustments have
been made for changes in costs from the service and lease agreements described
herein between Abercrombie & Fitch and The Limited since management believes
the aggregate net changes in costs will not be material.
SELECTED FINANCIAL DATA
Set forth below is the selected historical financial and
operating data for the periods indicated. This information should be read in
conjunction with the Abercrombie & Fitch Business' historical and pro forma
consolidated financial statements and notes thereto included elsewhere in this
Prospectus, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information set forth herein.
The information for fiscal years 1991 and 1992 is derived from the Abercrombie
& Fitch Business' unaudited consolidated financial statements. The selected
financial data as of and for the quarters ended April 29, 1995 and May 4, 1996
are derived from the unaudited consolidated financial statements also
appearing herein, which, in the opinion of management, reflect all adjustments
(which are of a recurring nature) necessary to present fairly the financial
position and results of operations and cash flows for the interim periods.
Results for the period ended May 4, 1996 are not necessarily indicative of the
results of operations to be expected for the full fiscal year.
Fiscal Year Ended Quarter Ended
--------------------------------------------------------------------- --------------------
February 1, January 30, January 29, January 28, February 3, April 29, May 4,
1992 1993 1994 1995 1996(1) 1995 1996
------------ ----------- ------------ ----------- ----------- --------- ---------
(in thousands, except per share, per square foot and number of stores data)
Statement of Operations Data:
Net sales...................... $62,583 $85,301 $110,952 $165,463 $235,659 $33,377 $51,020
Gross income(2)................ 9,665 13,413 30,562 56,820 79,794 8,428 14,894
General, administrative and
store operating expenses(3)... 21,268 23,603 30,240 43,069 55,996 10,297 15,293
Operating income (loss)(4)..... (11,603) (10,190) (4,064) 13,751 23,798 (1,869) (399)
Net income (loss).............. (7,003) (6,090) (2,464) 8,251 14,298 (1,169) (199)
Pro forma net income (loss)(5). 9,909 (3,333 (2,463)
Pro forma weighted average
number of shares(6)...........
Pro forma net income (loss) per
share(5)(6)...................
Balance Sheet Data:
Inventories.................... $11,932 $15,075 $10,052 $16,551 $30,388 $20,923 $33,042
Total assets................... 47,967 61,626 48,882 58,018 87,693 63,663 89,717
Pro forma long-term debt(7).... 50,000
Pro forma shareholders' equity
(deficit)(8).................. (16,820)
Other Data:
Total net sales growth......... -- 36.3% 30.1% 49.1% 42.4% 42.6% 52.9%
Gross income percentage(9)..... 15.4% 15.7% 27.5% 34.3% 33.9% 25.3% 29.2%
Operating income (loss)
percentage(9)................. (18.5%) (11.9%) (3.7%) 8.3% 10.1% (5.6%) (0.8%)
Number of stores at period end. 36 40 49 67 100 72 102
Total selling square feet...... 287 332 405 541 792 580 804
Sales per selling square foot(10) $261 $276 $301 $350 $354 $60 $64
Comparable store sales growth(11) 10% 8% 6% 15% 5% 7% 17%
- --------------
(1) Represents the 53-week fiscal year ended February 3, 1996.
(2) Gross income equals net sales less cost of goods sold, occupancy and
buying costs.
(3) General, administrative and store operating expenses include charges and
allocations made by The Limited to the Abercrombie & Fitch Business.
(4) Reflects a $4.4 million nonrecurring charge in 1993. See Note 3 to the
Consolidated Financial Statements.
(5) Gives pro forma effect to the interest expense, net of tax benefit, on the
$3.1 million Working Capital Note and the long-term Mirror Note in the
amount of $50 million. Also includes the pro forma effect of interest
expense and certain fees, net of tax benefit on borrowings under the Credit
Agreement for the quarters ended April 29, 1995 and May 4, 1996 and the
year ended February 3, 1996. See "Pro Forma Consolidated Financial
Statements".
(6) Pro forma net income (loss) per share is based on pro forma net income
(loss) and the weighted average number of shares of Class A and Class B
Common Stock expected to be outstanding after the Offerings. Pro forma net
income (loss) per share is not necessarily indicative of what actual net
income (loss) per share would have been if the Offerings occurred on the
basis assumed.
(7) Represents the long-term Mirror Note.
(8) Gives pro forma effect to approximately $82 million in obligations owed to
The Limited, a $27 million dividend to The Limited and the issuance and
sale of Class A Common Stock in the Offerings and the application of the
net proceeds therefrom to repay approximately $115 million of borrowings
under the Credit Agreement. See "Pro Forma Consolidated Financial
Statements".
(9) Calculated as a percentage of net sales.
(10) Sales per selling square foot is the result of dividing net sales for
the period by average selling square feet, which represents the average of
selling square feet at the beginning and end of each fiscal period. These
amounts are not adjusted to reflect the seasonal nature of the Company's
sales or the impact of opening stores in different periods during the year.
Sales per selling square foot for interim periods are not representative
of results to be expected for a full fiscal year.
(11) Abercrombie & Fitch includes a store in its comparable store sales
calculation at the beginning of the 53rd week of the store's operation.
Stores that are expanded more than 20% in square feet are treated as new
stores for purposes of this calculation only.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of Abercrombie & Fitch's
financial condition and results of operations should be read in conjunction
with the Consolidated Financial Statements and the Pro Forma Consolidated
Financial Statements included elsewhere in this Prospectus. For the purposes
of the Management's Discussion and Analysis, unless the context otherwise
requires, the "Company" or "Abercrombie & Fitch" refers to the Abercrombie &
Fitch Business as defined in Note 1 of the Notes to the Consolidated Financial
Statements.
General
Since the current management team assumed responsibility for
Abercrombie & Fitch in 1992, the Company has consistently improved its
financial performance. In the period from 1993 to 1995, the Company increased
net sales from $111.0 million to $235.7 million and grew operating income from
$(4.1) million to $23.8 million. The strong growth during this period
resulted from expansion of the number of stores in operation and increased
comparable store sales as the Company improved its merchandise assortment and
strengthened its brand awareness. From 1993 to 1995, the Company improved
sales per selling square foot from $301 to $354. The Company has also
improved operating income as as a percent of sales from (3.7%) in 1993 to
10.1% in 1995 by increasing sales volume and gross income at a faster rate
than general, administrative and store operating expenses. The momentum
evidenced by the Company's financial performance from 1993 to 1995 continued
into 1996 as net sales, driven by 17% comparable store sales growth, increased
to $51.0 million in the first quarter of 1996 from $33.4 million in the first
quarter of 1995.
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items in the Company's
consolidated statements of operations for the fiscal periods shown below:
Fiscal Year Ended Quarter Ended
------------------------------------------------- -------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------ ------------
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, occupancy and buying 72.5 65.7 66.1 74.7 70.8
------------- ------------- ------------- ------------ ------------
costs.....................................
Gross income.............................. 27.5 34.3 33.9 25.3 29.2
General, administrative and store
operating expenses....................... 27.3 26.0 23.8 30.9 30.0
4.0 -- -- -- --
------------- ------------- ------------- ------------ ------------
Special and nonrecurring items............
Operating income (loss)................... (3.7) 8.3 10.1 (5.6) (0.8)
Provision for (benefit from) income taxes. (1.4) 3.3 4.0 (2.1) (0.4)
------------- ------------- ------------- ------------ ------------
Net income (loss)......................... (2.2)% 5.0% 6.1% (3.5)% (0.4)%
============= ============= ============= ============ ============
Financial Summary
The following table sets forth certain summarized financial
data for the fiscal periods shown:
Fiscal Year Ended % Change Quarter Ended
---------------------------------------- -------------- ------------------
January 29, January 28, February 3, 1993- 1994- April 29, May 4,
1994 1995 1996 1994 1995 1995 1996 % Change
----------- ------------ ----------- ------- ------ ---------- ------- --------
Net sales ($ in millions)...... $111.0 $165.5 $235.7 49% 42% $33.4 $51.0 53%
Increase in comparable store
sales......................... 6% 15% 5% 7% 17%
Sales increase attributable to
new and remodeled stores...... 24% 34% 37% 36% 36%
Sales per selling square foot.. $301 $350 $354 16% 1% $60 $64 7%
Sales per average store
(thousands)................... $2,493 $2,853 $2,823 14% (1%) $480 $505 5%
Average store size at period
end (selling square feet)..... 8,265 8,075 7,920 (2%) (2%) 8,056 7,882 (2%)
Selling square feet at period
end (thousands)............... 405 541 792 34% 46% 580 804 39%
Number of stores:
beginning of period..... 40 49 67 67 100
opened.................. 9 20 33 5 2
closed.................. -- (2) -- -- --
----------- ------------ ----------- ---------- -------
end of period........... 49 67 100 72 102
=========== ============ =========== ========== =======
Net Sales
For the first quarter of 1996, net sales increased to $51.0
million from $33.4 million, an increase of $17.6 million, or 53%. The
increase was due to a comparable store sales increase of 17%, combined with the
addition of 30 new stores as compared to the year-earlier period. Total
selling square footage increased by 224,000 square feet, or 39%. Comparable
store sales increases were strong in both the men's and women's businesses,
with women's knits and men's pants and outerwear among the best performing
categories. Net sales per selling square foot for the total Company increased
7%.
For the 53-week fiscal year 1995, net sales were $235.7
million, an increase of 42% from $165.5 million in 1994. Sales growth came
primarily from the addition of 33 new stores, with comparable store sales
increasing 5%. Management believes that comparable store sales were
negatively affected by overall softness in the retail industry. The
fifty-third week accounted for 1.7% of the total sales increase. During 1995,
the Company allocated more selling square footage per store to women's
apparel, resulting in a significant increase in total sales of the women's
business. Significant growth was achieved in women's shirts, knits and shorts.
The total volume of the men's business increased, but to a lesser extent than
the women's business due to this reallocation. A very strong increase in
men's outerwear was partially offset by a continuing deemphasis of dress
shirts and ties as the Company previously decided such merchandise was not
consistent with the Company's focus on casual apparel. Net sales per selling
square foot for the total Company increased 1%.
In 1994, net sales increased to $165.5 million from $111.0
million, an increase of $54.5 million, or 49%. Comparable store sales
increased 15%, and there was a net increase in number of stores of 18. Square
footage increased by 136,000 selling square feet, or 34%. Sales in the
women's business more than doubled from the prior year due to a broader
merchandise assortment, particularly in women's sweaters, shorts and shirts.
The men's business achieved sales increases as a result of strong growth in
men's outerwear, knits, shorts and accessories. The increases were partially
offset by the Company's decision to deemphasize dress shirts and ties. Net
sales per selling square foot for the total Company increased 16%.
In 1993, net sales increased to $111.0 million from $85.3
million in 1992, an increase of $25.7 million, or 30%. Comparable store sales
increased 6%. Nine new stores were opened during the year, increasing the
number of stores to 49. The men's business increased primarily due to strong
increases in sport shirts, knits and outerwear. The women's business achieved
a very strong performance in women's knits, jeans and shirts, which was
somewhat offset by decreases in skirts, jackets and shorts. Net sales per
selling square foot for the total Company increased 9%.
Gross Income
In the first quarter of 1996, gross income, expressed as a
percentage of net sales, was 29.2%, which represented a 3.9% increase from the
25.3% level in the same period in 1995. The increase was attributable to
improved merchandise margins (representing gross income before the deduction
of buying and occupancy costs) and decreased buying and occupancy costs as a
percentage of net sales. Merchandise margins improved 2.4% through increased
sell-through of full-priced merchandise. Buying and occupancy costs declined
as a percentage of net sales due to favorable expense leveraging associated
with increased comparable store sales.
In 1995, gross income, expressed as a percentage of net sales,
was 33.9%, which represented a 0.4% decrease from the 34.3% level in 1994.
The decrease was primarily attributable to an increase in buying and occupancy
cost of 1.3% which represented asset writeoffs associated with the renovation
and relocation of two stores. Merchandise margins were up slightly for the
period.
In 1994, gross income, expressed as a percentage of net sales,
was 34.3%, which represented a 6.8% increase from the 27.5% level in 1993.
Merchandise margins improved 4.2% from the previous year due to higher initial
markups (IMU) and fewer markdowns. Buying and occupancy costs as a percentage
of net sales declined 2.3% as a result of strong comparable store net sales
growth and a 16% increase in net sales per selling square foot.
In 1993, gross income, expressed as a percentage of net sales,
was 27.5%, which represented an 11.8% increase from the level in 1992.
Merchandise margins improved 10.4% as the Company incurred fewer markdowns and
significantly increased IMU.
General, Administrative and Store Operating Expenses
General, administrative and store operating expenses, expressed
as a percentage of net sales, were 30.0% in the first quarter of 1996 and
30.9% in the comparable period in 1995. The decline is attributable to the
strong comparable store sales growth, together with improved management of
store payrolls.
General, administrative and store operating expenses, expressed
as a percentage of net sales, were 23.8%, 26.0% and 27.3% for 1995, 1994 and
1993, respectively. The improvement during the three-year period resulted
from management's continued emphasis on expense control and the favorable
leveraging of store and home office expenses over higher sales volume.
Additionally, improvements have been made to increase the distribution center
productivity and as a result, the cost of operating the distribution center
has declined, as a percentage of net sales, each year.
Special and Nonrecurring Items
As described in Note 3 to the Consolidated Financial Statements
appearing elsewhere herein, in 1993 the Company participated in The
Limited's plan which provided for the closure, downsizing and remodeling of
under-performing stores of the Company. In developing the plan, specific
stores were identified based upon a number of criteria, including the
quality and location of the real estate, historical financial results,
other business factors and management's assessment of future potential. A
total of seven under-performing stores were identified for this plan. The
Company continuously evaluates its stores against these criteria, and
charges for stores that meet the criteria for downsizing or closing are
taken in the appropriate period. There are no stores currently operated by
the Company that have been identified for downsizing or closure based upon
the program's criteria. The provision for store closure, downsizing and
remodeling aggregated approximately $4.4 million and includes the net book
value of abandoned fixed assets and lease termination payments. There was
no material cash outflow as a result of the charge. The Company completed
the program on October 28, 1995.
Operating Income
The improvement in operating income, as a percentage of net
sales, for the quarter ended May 4, 1996 to (0.8%) compared to (5.6%) in the
same period last year is a result of both higher gross income and reduced
general, administrative and store operating expenses as a percentage of net
sales.
Operating income, as a percentage of net sales, was 10.1%, 8.3%
and (3.7%) for 1995, 1994 and 1993, respectively. Operating income improved
from a loss in 1993 as higher merchandise margins were coupled with lower
general, administrative and store operating expenses as a percentage of net
sales. Sales volume and gross income have increased at a faster rate than
general, administrative and store operating expenses as the Company continues
to emphasize cost controls.
Foreign Sourcing and International Expansion
The Company sources a substantial amount of its merchandise from
independent foreign factories located primarily in the Far East. The
Company's business is subject to a variety of risks generally associated
with doing business abroad, such as political instability, currency and
exchange risks and local political issues. The Company has no long-term
merchandise supply contracts and many of its imports are subject to
existing or potential duties, tariffs or quotas that may limit the quantity
of certain types of goods which may be imported into the United States from
countries in that region. The Company's future performance will be subject
to such factors, which are beyond its control, and there can be no
assurance that such factors would not have a material adverse effect on the
Company's results of operations.
Seasonality and Quarterly Fluctuations
As illustrated in the table below, the Company's business is
highly seasonal, with significantly higher sales, gross income and net income
realized during the fourth quarter, which includes the Christmas selling
season. See "Risk Factors--Seasonality".
(dollars in thousands)
1994 Quarter First Second Third Fourth
- -------------------- ------------ ----------- ------------ ------------
Net sales........... $ 23,399 $ 29,045 $ 38,584 $ 74,435
% of full year..... 14.1% 17.6% 23.3% 45.0%
Gross income........ $ 5,643 $ 8,285 $ 11,815 $ 31,077
% of full year..... 9.9% 14.6% 20.8% 54.7%
Net income (loss)... $ (1,225) $ (530) $ 466 $ 9,540
% of full year..... (14.8%) (6.4%) 5.6% 115.6%
(dollars in thousands)
1995 Quarter First Second Third Fourth
- -------------------- ------------ ----------- ------------ ------------
Net sales........... $ 33,377 $ 38,668 $ 57,222 $ 106,392
% of full year..... 14.2% 16.4% 24.3% 45.1%
Gross income........ $ 8,428 $ 12,023 $ 19,503 $ 39,840
% of full year..... 10.6% 15.1% 24.4% 49.9%
Net income (loss)... $ (1,169) $ 250 $ 2,583 $ 12,634
% of full year..... (8.2%) 1.7% 18.1% 88.4%
Financial Condition
The Company's consolidated balance sheet at May 4, 1996
provides continuing evidence of financial strength and flexibility. A more
detailed discussion of liquidity, capital resources and capital requirements
follows:
Liquidity and Capital Resources
Net cash used for operating activities totaled $(6.8) million
in the first quarter of 1996 and $(9.3) million in the comparable period in
1995. This is the result of a reduction in the first quarter's net loss and
the fact that net cash used for inventories declined $1.7 million due to the
timing of Spring merchandise deliveries in 1996 versus 1995.
Net cash provided by operating activities totaled $12.7
million, $20.2 million and $20.6 million for 1995, 1994 and 1993,
respectively.
Net income increased consistently over the period while
inventory levels also increased. Inventories increased 84% to $30.4 million
in 1995 and 65% to $16.6 million in 1994, supporting the sales growth in those
periods. Due to the Company's timing of payments, accounts payables increased
only slightly over each of the three fiscal years, despite the increase in
inventory. In addition, as more fully described in Note 3 to the Consolidated
Financial Statements appearing elsewhere herein, the Company recorded a $4.4
million charge in 1993 related to special and nonrecurring items.
Investing activities include capital expenditures, primarily
for new, relocated and expanded stores.
Financing activities were primarily due to intercompany
transactions as discussed in Note 8 to the Consolidated Financial Statements
appearing elsewhere herein.
Abercrombie & Fitch's operations are seasonal in nature and are
comprised of two principal selling seasons: Spring (the first and second
quarters) and Fall (the third and fourth quarters), with the fourth quarter,
including the holiday season, accounting for approximately 45% of net sales in
each of the last two years. Accordingly, cash requirements are highest in the
third quarter as the Company's inventory builds in anticipation of the holiday
selling season.
Historically, the Company has participated in The Limited's
centralized cash management system whereby cash received from operations is
transferred to The Limited's centralized cash accounts and cash disbursements
are funded from the centralized cash accounts on a daily basis. See
"Relationship with The Limited". The receipt and disbursement of cash is
tracked in an intercompany cash management account. Accordingly, cash
requirements for operating purposes during the year and for capital
expenditures were met from this source. The Company will continue to utilize
the centralized cash management system after the consummation of the
Offerings. At July 11, 1996, after the initial capitalization of Abercrombie
& Fitch, the intercompany cash management account became an interest earning
asset or interest bearing liability of the Company, depending on the level of
cash receipts and disbursements. Interest on this intercompany cash
management account is calculated based on the Federal Reserve AA composite
30-day rate. After the consummation of the Offerings and use of the net
proceeds therefrom as described elsewhere herein, the Company's capitalization
on a pro forma basis will include the long-term Mirror Note in the amount of
$50 million, the $3.1 million Working Capital Note and $(16.8) million of
shareholders' equity (deficit). Management believes cash flow from operations
will be sufficient to service debt, finance capital expenditures and meet
working capital needs. Management believes that initially, due to seasonal
working capital needs, the Company will be in a liability and interest paying
status with respect to the intercompany cash management account, but that by
the end of 1996 it will be in an asset and interest earning position.
Management believes the availability of funds from The Limited and credit risk
of The Limited do not pose significant risks to the Company.
Capital Expenditures
Capital expenditures, primarily for new and remodeled stores,
amounted to $1.3 million in the first quarter of 1996 and $2.8 million in the
comparable period in 1995. Capital expenditures amounted to $24.5 million,
$12.6 million and $4.7 million for 1995, 1994 and 1993, respectively, of which
$22.3 million, $11.6 million and $4.5 million, respectively, was for new
stores and remodeling and expanding existing stores.
The Company has announced its intention to open approximately
30 new stores and to remodel one store in 1996, which would add approximately
250,000 square feet of selling space and represent a 32% increase over
year-end 1995. The Company anticipates spending $21 to $25 million for
capital expenditures in 1996, of which $19 to $23 million will be for new
stores, the relocation and expansion of existing stores and related
improvements. The Company anticipates spending $20 to $24 million in 1997 for
capital expenditures, of which $19 to $23 million will be for new stores, the
relocation and expansion of existing stores and related improvements. The
Company expects that substantially all future capital expenditures will be
funded by net cash provided by operating activities.
Impact of Inflation
The Company's results of operations and financial condition are
presented based upon historical cost. While it is difficult to accurately
measure the impact of inflation due to the imprecise nature of the estimates
required, the Company believes that the effects of inflation, if any, on its
results of operations and financial condition have been minor.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
The Company cautions that any forward-looking statements (as
such term is defined in the Private Securities Litigation Reform Act of 1995)
contained in this Prospectus or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important
factors. The following factors, among others, in some cases have affected and
in the future could affect the Company's financial performance and actual
results and could cause actual results for 1996 and beyond to differ
materially from those expressed or implied in any such forward-looking
statements: changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, political stability, currency and exchange risks and changes
in existing or potential duties, tariffs or quotas, availability of suitable
store locations at appropriate terms, ability to develop new merchandise and
ability to hire and train associates.
BUSINESS
Abercrombie & Fitch is a rapidly growing specialty retailer of
high-quality, casual apparel for men and women approximately 15 to 50 years
of age. The Company's net sales have increased from $85.3 million in 1992 to
$235.7 million in 1995, representing a compound annual growth rate of 40.3%.
During this time, operating income has improved from an operating loss of
$10.2 million in 1992 to operating income of $23.8 million in 1995, while the
number of Abercrombie & Fitch stores in operation more than doubled,
increasing from 40 at the end of 1992 to 100 at the end of 1995. The Company
plans to continue this new store expansion program by opening 30 new stores in
1996 and by increasing the number of stores in operation by approximately 20%
annually for the next several years thereafter.
The Abercrombie & Fitch brand was established in 1892 and
became well known as a supplier of rugged, high-quality outdoor gear. Famous
for outfitting the safaris of Teddy Roosevelt and Ernest Hemingway and the
expeditions of Admiral Byrd to the North and South Poles, Abercrombie & Fitch
goods were renowned for their durability and dependability--and Abercrombie &
Fitch placed a premium on complete customer satisfaction with each item sold.
In 1992, a new management team began repositioning Abercrombie & Fitch as a
more fashion-oriented casual apparel business directed at men and women with a
youthful lifestyle. In reestablishing the Abercrombie & Fitch brand, the
Company combined its historical image for quality with a new emphasis on casual
American style and youthfulness. The Company believes that this strategic
decision has contributed to the strong growth and improved profitability it
has experienced since 1992.
Industry sources estimate that the men's and women's apparel
market generated approximately $127 billion in retail purchases in 1995.
These sources estimate that men's and women's apparel total sales volume grew
at a compound annual rate of approximately 3.9% between 1992 and 1995.
Abercrombie & Fitch's compound annual growth of 40.3% during this period has
outpaced that of the industry. The Company believes that the size of
Abercrombie & Fitch's market, coupled with its business strengths and growth
strategies, should provide significant opportunities for growth and increased
market share in the future.
Business Strengths
The Company believes that certain business strengths have
contributed to its success in the past and will enable it to continue growing
profitably.
Established and Differentiated Lifestyle Brand. Abercrombie & Fitch has
created a focused and differentiated brand image based on quality,
youthfulness and classic American style. This image is consistently
communicated through all aspects of the Company's business, including
merchandise assortments, in-store marketing and print advertising. The
Company believes that the strength of the Abercrombie & Fitch brand
provides opportunities for increased penetration of current merchandise
categories and entry into new product categories.
Broad and Growing Appeal. The Company's merchandise assortment appeals
to a broad range of customers with varying ages and income levels. The
Company believes that both men and women interested in casual, classic
American fashion are attracted to the Abercrombie & Fitch lifestyle image.
The Company also believes that the brand's broad appeal has been augmented
by, and should continue to benefit from, the current trend in fashion
toward casual apparel.
Proven Management Team. Since the current management team assumed
responsibility in 1992, the Company has increased the level of brand
awareness and consistently reported improved financial results. In
addition, the Company's senior management has significant experience, with
an aggregate of over one hundred years in the retail business. The Company
believes that management's substantial experience and demonstrated track
record of highly profitable growth strongly positions the Company for the
future.
Consistent Store Level Execution. Abercrombie & Fitch believes that a
major element of its success is the consistent store level execution of its
brand strategy. Store presentation is tightly controlled by the Company and
is based on a detailed and comprehensive store plan regarding visual
merchandising, marketing and fixtures to assure that all stores provide a
consistent portrayal of the brand. Store associates are trained as "brand
representatives" who convey and reinforce the brand image through their
attitude and enthusiasm.
Quality. Since its founding over 100 years ago, Abercrombie & Fitch has
maintained a strong reputation for quality. This reputation has been
enhanced in recent years as management has made quality a defining element
of the brand. The Company sources high quality natural fabrics from around
the world and uses distinctive trim details and specialized washes to
achieve a unique style and comfort in its products. As part of this focus
on quality, the Company establishes on-going relationships with key
factories to ensure reliability and consistency of production.
Internal Design and Merchandising Capabilities. The cornerstone of the
Company's business is its ability to design products which embody the
Abercrombie & Fitch image. Abercrombie & Fitch develops substantially all
of its merchandise line through its own design group, which allows it to
develop exclusive merchandise and offer a consistent assortment within a
season and from year to year. In addition, because the Company's
merchandise is sold exclusively in its own stores, Abercrombie & Fitch is
able to control the presentation and pricing of its merchandise, provide a
higher level of customer service and closely monitor retail sell-through,
which provides competitive advantages over other brand manufacturers that
market their goods through department stores.
Relationship with The Limited. Unlike most high growth, specialty
apparel retailers, Abercrombie & Fitch directly benefits from the resources
and expertise of a major retailer such as The Limited. Abercrombie & Fitch
has been able to concentrate the efforts of its management team and
associates on strengthening its brand image by taking advantage of The
Limited's capabilities in the areas of real estate negotiation and
acquisition, central distribution, sourcing, store design and construction
and general corporate services. The Company will continue to receive such
services after the Offerings pursuant to agreements to be entered into with
The Limited. See "Relationship with The Limited".
Growth Strategy
The Company has implemented a growth strategy designed to
permit Abercrombie & Fitch to capitalize on its business strengths. The
principal elements of the Company's growth strategy are summarized below:
New Store Growth. Beginning in 1993, the Company began its store
expansion program, opening 9, 20 and 33 stores in 1993, 1994 and 1995,
respectively. The Company plans to continue this store expansion program
by opening 30 new stores in 1996 and increasing the number of stores in
operation by approximately 20% annually for the next several years
thereafter. While substantially all stores to be opened in 1996 will be
in regional shopping malls, the Company believes that selected street
locations in university and high-traffic urban settings also provide
attractive expansion opportunities. Given the strength of the Abercrombie
& Fitch brand and its customer demographics, management believes that, in
the current format, there will be approximately 250 to 350 additional mall
and street location sites available for new stores.
Further Penetration of Existing Merchandise Categories. Management
believes that Abercrombie & Fitch's ability to design and market new
merchandise quickly and effectively has been a key element of its
success. In recent years the Company has significantly broadened its
assortment in existing categories in order to increase volume and
productivity. Since 1993 the number of items offered in the Company's
assortment has increased approximately 75% In 1996, the Company is
continuing to expand key categories. For example, the number of items
in the Fall 1996 men's outerwear line is approximately double the prior
year's highly successful offering, and the women's outerwear assortment
has also been expanded significantly. In addition, the Company recently
introduced a new line of men's underwear and loungewear, with a women's
underwear/ sleepwear line planned for the 1996 holiday season. As a
result of the Company broadening its product mix, it has been able to
flow fresh merchandise to the stores on a more frequent basis. The
Company has also begun to offer a targeted assortment in its stores in
the sunbelt in order to better respond to differences in climate.
Introduction of New Merchandise Categories. The Company believes it can
successfully extend the Abercrombie & Fitch brand into new merchandise
categories and further increase sales productivity and growth. For the
holiday season in 1996, Abercrombie & Fitch will introduce a new line of
personal care products, including fragrances and soaps, as well as a
limited number of decorative home accessories. In addition, the Company
will offer its own uniquely designed line of sunglasses. The Company
believes that its internal design capability will continue to develop new
merchandise categories to capitalize on the Abercrombie & Fitch brand.
Abercrombie & Fitch Stores
Store Environment
Abercrombie & Fitch stores and point-of-sale marketing are
designed to convey the principal elements and personality of the
brand--quality, casual American fashion, and a youthful lifestyle. The store
design, furniture, fixtures and music are all carefully planned and
coordinated to create a shopping experience that is consistent with the
Abercrombie & Fitch lifestyle. The Company's in-store photographs are also
principal components in creating and enhancing the casual, energized
environment of the stores. These photographs, which are enlarged and
displayed prominently throughout the stores, contain distinctive black and
white images of men and women engaged in activities identified with an active,
fun lifestyle. The Company believes that its customers experience the
Abercrombie & Fitch stores as entertaining destinations, in which they feel
welcomed and comfortable.
The Company's sales associates, or brand representatives, are a
central element in creating the entertaining, yet comfortable, atmosphere of
the stores. In addition to providing a high level of customer service, the
brand representatives reflect the casual, energetic attitude of the
Abercrombie & Fitch brand and culture. In conjunction with other components
of the store environment, the Company believes its brand representatives
significantly contribute to a store atmosphere that is consistent with a
gathering among friends.
Abercrombie & Fitch maintains a uniform appearance throughout
its store base, in terms of merchandise display and location on the selling
floor. Store managers receive detailed store plans that dictate fixture and
merchandise placement to ensure uniform execution of the merchandising
strategy at the store level. Standardization of store design and merchandise
presentation also creates cost savings in store furnishings, maximizes usage
and productivity of selling space and allows Abercrombie & Fitch to
efficiently open new stores. The Company has developed a new, more
sophisticated store prototype that seeks to further stress the casual,
youthful nature of the Abercrombie & Fitch brand. This is accomplished in
part through the use of lighter colors throughout the store and wood floors.
The Company plans to introduce this prototype in new stores and remodel
selected existing stores beginning in Fall 1996.
Store Expansion Program
Abercrombie & Fitch stores are located principally in regional
shopping malls. At July 6, 1996, Abercrombie & Fitch operated 105 stores
nationwide, averaging 7,840 selling square feet. See "-- Properties" for a
listing of store locations by state. The table below highlights the store
expansion strategy pursued by Abercrombie & Fitch:
Average Store
Selling Space
Stores Open Stores Stores Stores Open Total Selling at end of
Fiscal at beginning of Opened during Closed during at end of Space Fiscal Year
Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year (000's sq. ft.) (sq. ft.)
------ --------------- ------------- ------------- ---------- --------------- -------------
1991 27 10 1 36 287 7,972
1992 36 4 - 40 332 8,300
1993 40 9 - 49 405 8,265
1994 49 20 2 67 541 8,075
1995 67 33 - 100 792 7,920
Abercrombie & Fitch plans to open 30 stores in 1996 (of which
five have been opened to date) and increase the number of stores in operation
by approximately 20% annually for the next several years thereafter. The
Company has identified the stores remaining to be opened in 1996, and expects
them all to be in operation before the holiday season. While substantially
all stores to be opened in 1996 will be in regional shopping malls, the
Company believes that selected street locations in university and high-traffic
urban settings also provide attractive expansion opportunities. In
evaluating real estate locations the Company considers a variety of criteria.
Regional malls are measured based on strength of anchor stores, the fashion
and quality mix of other specialty tenants and population and income
characteristics of the surrounding area. Non-mall locations are assessed in
terms of strength of other nearby specialty stores, and whether the shopping
area attracts a customer mix consistent with the lifestyle characteristics
targeted by the brand.
A key element of Abercrombie & Fitch's new store strategy is to
open new stores with trained managers in place. The Company targets that all
managers of new stores have prior experience in other Abercrombie & Fitch
stores in either the manager or assistant manager position.
New Store Economics
The Company's stores that were open during all of 1995 averaged
$2.9 million in net sales and produced net sales per selling square foot of
approximately $365. The average cost for leasehold improvements, furniture and
fixtures for these stores was approximately $858,000 per store, after giving
effect to landlord allowances. Inventory purchases for such stores averaged
$302,000 per store. These stores generated an average after-tax return on
investment (after-tax four wall contribution divided by capital investment and
average inventory) of approximately 39% in 1995, or 65% on a pre-tax basis.
The Company estimates that the average cost for leasehold
improvements, furniture and fixtures for stores to be opened in 1996 will be
approximately $660,000 per store, after giving effect to landlord allowances.
Average pre-opening costs per store, which will be expensed as incurred, are
expected to be less than $25,000. In addition, inventory purchases are
expected to average approximately $300,000 per store.
Abercrombie & Fitch's stores have typically exceeded
management's store operating profitability and return on asset targets during
the first year of operation.
Merchandising
Product Mix
The Company designs and sells all of its merchandise under its
proprietary Abercrombie & Fitch brand. The merchandise assortment covers a
broad range of classifications in men's and women's casual apparel. In
addition, the Company offers a broad range of accessories that includes belts,
socks, caps, boxers, underwear and personal care products. Although the
Company currently markets dress shirts and ties, it has deemphasized these
categories as the Company decided such merchandise was not consistent with the
Company's focus on casual apparel.
The following table sets forth the Company's merchandise mix by
major category as a percentage of net sales for the years 1993-1995.
1993 1994 1995
---- ---- ----
Men's............... 76.0% 67.6% 60.2%
Women's............. 24.0 32.4 39.8
Total Company........ 100.0% 100.0% 100.0%
Over the past several years, the Company has increased the
square footage and the size of the merchandise offering devoted to women's
sportswear, which has resulted in an increase in the women's business as a
percentage of total net sales.
Abercrombie & Fitch believes that there are major
opportunities to increase volume through both increased penetration of the
existing classifications and adding new merchandise classifications.
Management believes that Abercrombie & Fitch's ability to design and market
new merchandise quickly and effectively has been a key element of its
success. In recent years the Company has significantly broadened its
assortment in existing categories in order to increase volume and
productivity. Since 1993 the number of items offered in the Company's
assortment has increased approximately 75%. In 1996, the Company is
continuing to expand key categories. For example, the number of items in
the Fall 1996 men's outerwear line is approximately double the prior year's
highly successful offering, and the women's outerwear assortment has also
been expanded significantly. In addition, the Company recently introduced
a new line of men's underwear and loungewear, with a women's underwear/
sleepwear line planned for the 1996 holiday season. As a result of the
Company broadening its product mix, it has been able to flow fresh
merchandise to the stores on a more frequent basis. The Company has also
begun to offer a targeted assortment in its stores in the sunbelt in order
to better respond to differences in climate.
The Company believes it can extend the Abercrombie & Fitch
brand into new merchandise categories and further increase sales
productivity and growth. For the holiday season in 1996, Abercrombie &
Fitch will introduce a new line of personal care products, including
fragrances and soaps, as well as a limited number of decorative home
accessories. In addition, the Company will offer its own uniquely designed
line of sunglasses. The Company believes that its internal design
capability will continue to develop new merchandise categories to reflect
the Abercrombie & Fitch image.
The Company's point-of-sale information system allows
management to track the performance of merchandise items on a stock-keeping
unit, or SKU, basis. Reorder "triggers" are used to replenish inventory of
strong selling items. In addition, performance by store at a SKU level is
tracked to allow inventory to be replenished based on differences in selling
trends by store.
Product Design
The cornerstone of the Company's business is its ability to
design products which embody the Abercrombie & Fitch image of a casual,
youthful lifestyle. Since the new management team joined the Company in 1992,
a major strategy has been to build an internal design group. From the end of
1992, the design group has grown from a staff of three to more than 30. The
men's and women's businesses each maintain separate design and merchant
groups. The product development process begins with senior management in the
merchandising and design areas, who develop seasonal merchandise themes and
concepts. These concepts are used to create line lists of items that are then
developed by the designers. Designs cover not only fabric content,
specifications and colors, but also labels, hangtags, and other descriptive
marketing. In developing concepts and designs, the Company's executives
identify trends through domestic and foreign travel, retail shopping, and
awareness of activities favored by the young, active segment of the
population.
Product Quality
Throughout its over 100 year history, quality has been a major
element of the Abercrombie & Fitch brand. The Company strives to offer
distinct, high quality merchandise in order to enhance customer satisfaction
and increase brand loyalty. The Company emphasizes natural fibers and uses a
number of different washes to achieve the desired comfort and hand-feel in its
products. The Company's designers also place significant importance on
developing distinctive trim details. Many of the products have unique
buttons, pocket detailing, labels, graphic designs and hangtags. As part of
this focus on quality, the Company establishes on-going relationships with key
factories to ensure reliability and consistency of production. All factories
used for the Company's production are approved for quality and dependability
by senior management before orders are placed.
Marketing and Promotion
The Company's marketing and promotional strategies are
consistent with its established and differentiated lifestyle brand. The
significant brand equity in the Abercrombie & Fitch name enables the Company
to maintain a non-promotional price strategy in most of its merchandise
classifications throughout the year. The Company conducts two major
season-end promotional events each year. These events are intended to clear
seasonal goods in advance of introducing new full-priced assortments and
returning the stores to their generally non-promotional status. The Company's
pricing strategy is designed to deliver the quality consistent with designer
brands at price points below those typically associated with such designers.
The Company focuses its advertising efforts on in-store
displays and print media. In-store advertising includes a series of
distinctive black and white photographs that are enlarged and prominently
displayed throughout the stores. These photographs portray men and women
engaged in activities identified with an active and spirited lifestyle and
connote the timeless quality associated with the Abercrombie & Fitch brand.
Print media advertising is focused on selected national publications and, as
with the in-store photographs, communicates and reinforces the Abercrombie &
Fitch brand image.
The Company has a proprietary credit card available to its
customers, representing in 1995 approximately 6% of net sales.
Associates
Customer service is a defining feature of the Abercrombie &
Fitch corporate culture. The Company believes that knowledgeable and
enthusiastic sales associates have a direct impact on a customer's perception
of the brand. Accordingly, Abercrombie & Fitch focuses significant resources
on the selection and training of sales associates. Abercrombie & Fitch
stresses the role of these sales associates as "brand representatives" and
they are expected to reflect the lifestyle image of the brand. Brand
representatives are required to be familiar with the full range of Abercrombie
& Fitch merchandise and to have the ability to assist customers with
merchandise selection. The Company minimizes brand representatives' time
spent on administrative functions by centrally determining merchandise display
and replenishment, markdowns and labor scheduling. By emphasizing
friendliness, product knowledge and personal attention, management believes
that Abercrombie & Fitch has established a reputation for excellent customer
service.
The typical management of an Abercrombie & Fitch store consists
of one store manager and three to five assistant managers. The Company
compensates its district and store managers with a base salary plus a
performance bonus based primarily on store sales. The Company's store,
district and regional managers spend a majority of their work week on
Abercrombie & Fitch selling floors, providing leadership through coaching the
staff and assisting customers.
At July 6, 1996, the Company had approximately 3,800
associates, of whom approximately 300 were full-time salaried associates and
approximately 400 were full-time hourly associates. A significant number of
associates are hired on a seasonal basis to meet demand during holiday
gift-buying seasons. The balance were part-time hourly associates. None of
the Company's associates is represented by a labor union. The Company
believes that its relationship with its associates is good.
Sourcing
Abercrombie & Fitch utilizes a variety of sourcing
arrangements. Mast Industries, Inc. ("Mast"), a wholly owned subsidiary
of The Limited, supplied approximately 28% of the apparel purchased by the
Company in 1995. The Company believes all transactions entered into with
Mast are on an arm's-length basis, and Abercrombie & Fitch is not obligated
to source product through Mast.
In 1995, approximately 56% of the Company's merchandise was
sourced from independent foreign factories located primarily in the Far East.
The Company has no long-term merchandise supply contracts and many of its
imports are subject to existing or potential duties, tariffs or quotas that
may limit the quantity of certain types of goods which may be imported into
the United States from countries in those regions. The Company competes with
other companies for production facilities and import quota capacity. In
addition, although the General Agreement on Tariffs and Trade ("GATT") adopted
on December 8, 1994 requires the elimination of duties, tariffs and quotas on
apparel and textile products by January 1, 2005, the GATT treaty is not
expected to have any meaningful effect on the import of merchandise used in
Abercrombie & Fitch's business for several years. Abercrombie & Fitch
attempts to monitor manufacturing to ensure that no one company or country is
responsible for a disproportionate amount of the Company's merchandise. The
Company typically transacts business on an order-by-order basis and does not
maintain any long-term or exclusive commitments or arrangements to purchase
from any vendor. The Company believes that it has good relationships with its
vendors and that, as the number of its stores increases, there will be
adequate sources to produce a sufficient supply of quality goods in a timely
manner and on satisfactory economic terms. See "Risk Factors -- Factors
Affecting Abercrombie & Fitch's Business; Foreign Sourcing".
Central Store Planning
The Company's store design and construction operations
are handled centrally by the store planning division of The Limited ("Limited
Store Planning"). Limited Store Planning is organized into teams comprised of
designers, construction managers, architects, purchasing agents and financial
personnel who are responsible for all phases of store design and construction.
Teams are assigned to work with the senior management of a specific retail
business (including Abercrombie & Fitch) to develop and implement store
designs that are consistent with and promote the image of a given retail
business. Abercrombie & Fitch and The Limited intend to enter into an
agreement pursuant to which The Limited would continue to provide such
services to Abercrombie & Fitch on a basis consistent with past practices.
The Limited will charge Abercrombie & Fitch for such services on a basis
consistent with amounts charged by The Limited from time to time to its other
businesses for comparable services. See "Relationship with The Limited --
Services Agreement".
Central Real Estate Management
The Company's real estate operations, including all aspects
of lease negotiations, are handled centrally by the real estate division of
The Limited. Abercrombie & Fitch and The Limited intend to enter into an
agreement pursuant to which The Limited would continue to provide such
services to Abercrombie & Fitch on a basis consistent with past practices.
The Limited will charge Abercrombie & Fitch for such services on a basis
consistent with amounts charged by The Limited from time to time to its
other businesses for comparable services. See "Relationship With The
Limited -- Services Agreement".
Potential new stores, locations, expansions and relocations are
identified by Abercrombie & Fitch and by The Limited's real estate division.
In choosing new sites for retail stores, The Limited's real estate division
provides financial details regarding the proposed lease arrangement to
Abercrombie & Fitch, which then evaluates the net required investment and
potential rates of return relative to the Company's established hurdle rates
before the store is approved for construction. The actual construction of the
store is managed by Limited Store Planning. Although the real estate division
retains control over the allocation of space within a given mall among the
various retail businesses of The Limited, including Abercrombie & Fitch, each
individual business is entitled to reject any transaction negotiated by the
real estate division of The Limited. See "Risk Factors -- Potential Conflicts
of Interest". Real estate decisions are based on a number of factors,
including consistency with a given business image, sales and profit potential,
the overall economic condition and demographic characteristics of the market,
the identity of the other tenants in close proximity and the availability of
acceptable lease terms.
Although Abercrombie & Fitch's arrangement with The Limited may
raise the potential for conflicts of interest, Abercrombie & Fitch's
management believes the arrangement provides it with a significant competitive
strength. Given The Limited's substantial size, Abercrombie & Fitch's
management believes that The Limited is able to obtain lease terms and store
sites on Abercrombie & Fitch's behalf that are more favorable than those that
Abercrombie & Fitch could obtain on its own. Substantially all leases entered
into by Abercrombie & Fitch are guaranteed by The Limited. Abercrombie &
Fitch's management believes that its size and financial strength should allow
it to enter into leases on attractive terms without guarantees from The
Limited, and it is the intent of both The Limited and Abercrombie & Fitch that
future Abercrombie & Fitch leases will not be guaranteed by The Limited.
Merchandise Distribution
The Company's distribution operations are managed in a
distribution center owned by The Limited and subleased to Abercrombie & Fitch.
See "Relationship with The Limited -- Sublease Agreement". The distribution
center is located in Reynoldsburg, Ohio. Once received at the distribution
center, merchandise is inspected, packed for delivery to the stores and
forwarded to a central shipping facility operated by Limited Distribution
Services ("LDS"), a subsidiary of The Limited, which also provides certain
engineering services to the distribution center.
LDS also maintains a worldwide logistics network of agents and
space availability arrangements to support the in-bound movement of
merchandise into the distribution center. The out-bound shipping system
consists of common carrier line haul routes connecting the distribution
complex to a network of delivery agents. This system allows each store
operated by the Company to receive several deliveries each week and daily
during the peak holiday shopping season, which the Company believes is more
frequent than the Company's smaller competitors. LDS does not own or operate
trucks or trucking facilities. Abercrombie & Fitch and The Limited intend to
enter into an agreement pursuant to which LDS would continue to provide such
services to Abercrombie & Fitch on a basis consistent with past practices.
The Limited will charge Abercrombie & Fitch for such services on a basis
consistent with amounts charged by The Limited from time to time to its other
businesses for comparable services. See "Relationship with The Limited --
Services Agreement".
Management Information Systems
The Company's management information systems and
electronic data processing systems consist of a full range of retail,
financial, and merchandising systems, including credit, inventory distribution
and control, sales reporting, accounts payable, merchandise reporting and
distribution. Abercrombie & Fitch has an information system that is uniquely
structured to the needs of its particular business. Certain of the equipment
used in the management information systems is owned by The Limited.
Abercrombie & Fitch and The Limited intend to enter into an agreement pursuant
to which Abercrombie & Fitch would continue to use such equipment on a basis
consistent with past practices. The Limited will charge Abercrombie & Fitch
for such use on a basis consistent with amounts charged by The Limited from
time to time to its other businesses for comparable services. See
"Relationship with The Limited -- Services Agreement".
Sales are updated daily in the merchandise reporting systems
by polling sales information from each store's point-of-sale ("POS")
terminals. The Company's POS system consists of registers providing price
look-up, scanning of bar-coded tickets and credit authorization. Through
automated nightly two-way electronic communication with each store, sales
information, payroll hours and store initiated transfers are uploaded to
the host system, and price changes are downloaded through the POS devices.
The nightly communication with the stores also enables the Company to
receive store transfer and physical inventory details and send electronic
mail. The Company evaluates information obtained through daily reporting
to implement merchandising decisions regarding markdowns and allocation of
merchandise.
Trademarks and Servicemarks
A subsidiary of the Company is the owner in the United
States of the trademark Abercrombie & Fitch (the "Name Mark"). The Name
Mark of the Company is registered in the United States Patent and Trademark
Office. The term of this registration is ten years, and it is renewable
for additional ten-year periods indefinitely, so long as the mark is still
in use at the time of renewal. The Company's rights in its Name Mark are a
significant part of the Company's business. The Company, therefore,
intends to maintain its Name Mark and its registration. The Company is not
aware of any claims of infringement or other challenges to the Company's
right to register or use its Name Mark in the United States.
Another subsidiary is also the owner in the United States of
trademarks and service marks used to identify its merchandise and services,
other than its Name Mark (the "Merchandise Marks"). Many of the Merchandise
Marks of the Company are registered in the United States Patent and Trademark
Office. The Merchandise Marks are important to the Company, and, therefore,
the Company intends to, directly or indirectly, maintain these marks and their
registrations. However, the Company may choose not to renew a registration of
one or more of its Merchandise Marks if it determines that the mark is no
longer important to its business. The Company does not believe any material
claims of infringement or other challenges to the Company's right to register
or use its Merchandise Marks in the United States in a manner consistent with
its current practices are pending.
The Company also conducts business in foreign countries
principally as a result of the fact that a substantial portion of its
merchandise is manufactured outside the United States. The Company believes
its subsidiaries own registrations of its Name Mark and Merchandise Marks in
numerous foreign countries to the degree necessary to protect such marks,
although there may be restrictions on the use of certain of Abercrombie &
Fitch's marks in a limited number of foreign jurisdictions.
The Company has not licensed any of its trademarks or service
marks to any other entity, although, for so long as the Company remains a
subsidiary of The Limited, The Limited will be entitled to use the Company's
trademarks and service marks at no cost to The Limited in The Limited's annual
report to shareholders and publicity materials and for other similar purposes.
Competition
All aspects of the Company's businesses are highly
competitive. The Company competes primarily with department stores, mass
merchandisers and other specialty retailers, including The Limited. See
"Risk Factors--Potential Conflicts of Interest--Competition with The
Limited". The Company believes that the principal bases upon which it
competes are quality, fashion, service, selection and price.
The Company believes that it has significant competitive
advantages because of high consumer recognition and acceptance of its brand
name and its strong presence in the major shopping malls in the United States,
its relationship with The Limited and the experience of its management team.
Certain of the Company's competitors in selected product lines are larger and
have greater financial, marketing and other resources than the Company,
however, and there can be no assurance that the Company will be able to
compete successfully with them in the future.
Properties
The main offices of Abercrombie & Fitch are located in
Reynoldsburg, Ohio. These headquarters are owned by The Limited and subleased
to Abercrombie & Fitch. Abercrombie & Fitch also has a distribution center
located in Reynoldsburg, Ohio which is owned by The Limited and subleased to
Abercrombie & Fitch. Abercrombie & Fitch believes that its facilities are
well maintained, in good operating condition and adequate for its current
needs. See "Relationship with The Limited -- Sublease Agreement".
As of July 6, 1996, Abercrombie & Fitch operated 105 stores,
which are located primarily in shopping malls throughout the United States.
Of these stores, 102 were leased directly from third parties (principally
shopping mall developers) and three were leased from retail stores operated by
other businesses of The Limited. See "Relationship with The Limited -- Shared
Facilities Agreement". The Company believes that, as approximately 95% of its
stores are located in shopping malls, there are growth opportunities for
expansion to free-standing locations.
Leases with third parties are typically between 10 and 15 years
in duration. In most cases, the business unit pays an annual base rent plus a
contingent rent based on the store's annual sales in excess of a specified
threshold. Leases with other businesses of The Limited are on terms that
represent the proportionate share of the base rent payable in accordance with
the underlying lease plus the portion of any contingent rent payable in
accordance with the underlying lease attributable to the performance of
Abercrombie & Fitch. Many of the leases entered into by Abercrombie & Fitch
are guaranteed by The Limited. Abercrombie & Fitch management believes that
its size and financial strength should allow it to enter into leases on
attractive terms without guarantees from The Limited, and it is the intent of
both The Limited and Abercrombie & Fitch that future Abercrombie & Fitch
leases will not be guaranteed by The Limited.
The map and store list below set forth the number of stores by
state operated by Abercrombie & Fitch in the United States and the cities in
which Abercrombie & Fitch stores are located as of July 6, 1996:
[Image material is contained here consisting of a map
of the continental United States. States in which stores are
located are shaded and cities in which stores are
located are indicated by a dot.]
Arizona - 1 Georgia - 5 Massachusetts - 5 Nebraska - 1 Oklahoma - 2
Scottsdale Atlanta (4) Boston (4) Omaha Oklahoma City
Savannah Holyoke Tulsa
California - 7 New Hampshire - 1
Los Angeles (2) Illinois - 6 Maryland - 3 Salem Oregon - 1
Sacramento Chicago (6) Baltimore(2) Portland
San Diego Towson New Jersey - 4
San Francisco (2) Indiana - 3 Cherry Hill Pennsylvania - 5
San Mateo Evansville Michigan - 4 Edison Langhorne
Indianapolis (2) Ann Arbor Freehold Philadelphia (2)
Colorado - 4 Detroit (2) Short Hills Pittsburgh (2)
Boulder Kansas - 2 Grand Rapids
Denver (3) Kansas City (2) Nevada - 1 Tennessee - 2
Minnesota - 2 Las Vegas Knoxville
Connecticut - 3 Kentucky - 2 Minneapolis-St. Paul (2) Nashville
Hartford Lexington New York - 10
Milford Louisville Missouri - 3 Albany (2) Texas - 10
Stamford Kansas City Buffalo Austin (2)
Louisiana - 1 St. Louis (2) Manhasset Dallas (3)
District of Columbia - 1 New Orleans New York City (2) Fort Worth
North Carolina - 3 Rochester (2) Houston (3)
Florida - 3 Greensboro Staten Island San Antonio
Orlando Raleigh White Plains
Tampa Winston-Salem Virginia - 4
W. Palm Beach Ohio - 4 Arlington
Cincinnati Fairfax
Cleveland Tysons Corner
Columbus Virginia Beach
Dayton
Washington - 2
Seattle (2)
Litigation
The Company is a defendant in lawsuits arising in the ordinary
course of business. Although the amount of any liability that could arise
with respect to any such lawsuit cannot be accurately predicted, in the
opinion of management, the resolution of these matters is not expected to have
a material adverse effect on the financial position or results of operations
of the Company.
RELATIONSHIP WITH THE LIMITED
Upon completion of the Offerings, The Limited will own 100% of
the outstanding Class B Common Stock of Abercrombie & Fitch which will
represent approximately % of the combined voting power of all of the
outstanding Common Stock (or approximately % if the Underwriters'
over-allotment options are exercised in full). For so long as The Limited
continues to own shares of Common Stock representing more than 50% of the
combined voting power of the Common Stock of Abercrombie & Fitch, The Limited
will be able, among other things, to determine any corporate action requiring
approval of holders of Common Stock representing a majority of the combined
voting power of the Common Stock, including the election of the entire Board
of Directors of Abercrombie & Fitch, without the consent of the other
shareholders of Abercrombie & Fitch. Similarly, for so long as The Limited
continues to own shares of Common Stock representing more than 75% of the
combined voting power of the Common Stock of Abercrombie & Fitch, The Limited
will be able, among other things, to determine any corporate action requiring
approval of holders of Common Stock representing 75% of the combined voting
power of the Common Stock, including certain amendments to Abercrombie &
Fitch's Certificate of Incorporation and Bylaws and approval of certain
mergers and other control transactions, without the consent of the other
shareholders of Abercrombie & Fitch. Furthermore, for so long as The Limited
holds 25% of the combined voting power of the Common Stock of Abercrombie &
Fitch it will be able to block any corporate action requiring the approval of
holders of Common Stock representing more than 75% of the combined voting
power of the Common Stock. See "Description of Capital Stock". In addition,
through its control of the Board of Directors and beneficial ownership of
Common Stock, The Limited will be able to control certain decisions, including
decisions with respect to Abercrombie & Fitch's dividend policy, Abercrombie &
Fitch's access to capital (including borrowing from third-party lenders and
the issuance of additional equity securities), mergers or other business
combinations involving Abercrombie & Fitch, the acquisition or disposition of
assets by Abercrombie & Fitch and any change in control of Abercrombie &
Fitch. The Limited has advised Abercrombie & Fitch that its current intent is
to continue to hold all of the Class B Common Stock beneficially owned by it.
However, The Limited has no agreement with Abercrombie & Fitch not to sell or
distribute such shares, and, other than pursuant to the Underwriting Agreement,
in which The Limited will agree not to sell or otherwise dispose of any shares
of Common Stock (or any security convertible into or exchangeable or
exercisable for Common Stock) owned by it for a period of 180 days following
the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters, subject to certain exceptions, there can
be no assurance concerning the period of time during which The Limited will
maintain its beneficial ownership of Common Stock. Beneficial ownership of at
least 80% of the total voting power and value of the outstanding Common Stock
is required in order for The Limited to continue to include Abercrombie &
Fitch in its consolidated group for federal income tax purposes and ownership
of at least 80% of the total voting power and 80% of each class of nonvoting
capital stock is required in order for The Limited to be able to effect a
Tax-Free Spin-Off of Abercrombie & Fitch. In the event The Limited's
ownership decreases below 80%, all borrowings under the Credit Agreement must
be repaid. See "Description of Certain Indebtedness--Credit Agreement".
Abercrombie & Fitch's relationship with The Limited will also
be governed by agreements to be entered into in connection with the Offerings,
including a services agreement, a corporate agreement, a shared facilities
agreement and a tax-sharing agreement, the material terms of which are
described below. It is anticipated that such agreements will be entered into
concurrently with the consummation of the Offerings. With respect to matters
covered by the services agreement, the relationship between The Limited and
Abercrombie & Fitch is intended to continue in a manner generally consistent
with past practices. Because Abercrombie & Fitch is a wholly owned subsidiary
of The Limited, none of these arrangements will result from arm's-length
negotiations and, therefore, the prices charged to the Company for services
provided thereunder may be higher or lower than prices that may be charged by
third parties.
The descriptions set forth below are intended to be summaries
and, while material terms of the agreements are set forth herein, the
descriptions are qualified in their entirety by reference to the forms of the
relevant agreement filed with the Registration Statement of which this
Prospectus forms a part. Abercrombie & Fitch's Certificate of Incorporation
also contains provisions relating to the allocation of business opportunities
that may be suitable for either of The Limited or Abercrombie & Fitch and to
the approval of transactions between Abercrombie & Fitch and The Limited.
For additional information concerning the above-mentioned
provisions of Abercrombie & Fitch's Certificate of Incorporation and
circumstances under which the Class A Common Stock and Class B Common Stock
may be converted, see "Description of Capital Stock". For a description of
certain intercompany debt, see "Description of Certain
Indebtedness--Intercompany Debt".
Services Agreement
The Company and The Limited intend to enter into an
intercompany services and operating agreement (the "Services Agreement") with
respect to services to be provided by The Limited (or subsidiaries of The
Limited) to the Company. The Services Agreement will provide that such
services will be provided in exchange for fees which (based on current costs
for such services) management believes would not exceed fees that would be
paid if such services were provided by an independent third party and which
are consistent in all material respects with the allocation of the costs of
such services set forth in the historical financial statements of Abercrombie
& Fitch. See the Consolidated Financial Statements included elsewhere herein.
Management's estimate of the net charge for services that would have been
payable by the Company in 1995 if the Services Agreement had been in effect
during that period is approximately $4.0 million, which is approximately the
amount included in the 1995 Consolidated Financial Statements. Such fees will
be paid monthly in arrears. The Company may request an expansion or
termination of services, in which case the parties will discuss, without
obligation, the provision or termination of such services and an appropriate
change or reduction in charges for such services, provided, however, that
Abercrombie & Fitch may not terminate a service if the termination of such
service would adversely affect the cost to The Limited of providing such
service to other businesses operated by The Limited. Services will be
provided to Abercrombie & Fitch based on several billing methodologies.
Pursuant to one of such billing methodologies, specified services will be
provided to Abercrombie & Fitch at costs comparable to those charged to other
businesses operated by The Limited from time to time, and Abercrombie & Fitch
is obligated to purchase those services at the specified costs. In the event
The Limited proposes changes in billing methodology which would result in a
significant increase (being the greater of a 10% increase in costs or $1
million) in costs for the affected services, the Company may terminate such
services.
The purpose of the Services Agreement is to ensure that The
Limited continues to provide to Abercrombie & Fitch the range of services that
The Limited provided to the Company prior to the Offerings. With respect to
matters covered by the Services Agreement, the relationship between The
Limited and Abercrombie & Fitch is intended to continue in a manner generally
consistent with current practices. The services initially to be provided by
The Limited to the Company include, among other things, certain accounting,
aircraft, associate benefit plan administration, audit, cash management,
corporate development, corporate secretary, governmental affairs, human
resources and compensation, investor and public relations, legal, risk
management, tax and treasury services. Pursuant to the Services Agreement,
The Limited will also continue to perform the store design/planning, real
estate and import and shipping services provided to Abercrombie & Fitch prior
to the Offerings. See "Business--Central Store Planning", "--Central Real
Estate Management" and "--Merchandise Distribution".
In addition to the identified services, The Limited intends to
agree to continue coverage of the Company under The Limited's umbrella
liability, property, casualty and fiduciary insurance policies. The Company
intends to agree to reimburse The Limited for the portion of The Limited's
premium cost with respect to such insurance that is attributable to coverage
of the Company. Either The Limited or the Company may terminate such coverage
under The Limited's policies at any time upon prior written notice during the
90 days prior to the anniversary date of the policy; provided that termination
of coverage by Abercrombie & Fitch may only be for nonpayment and only if a
replacement policy, acceptable to The Limited, is entered into by Abercrombie
& Fitch.
Also, in addition to the identified services, The Limited
intends to agree to allow eligible associates of the Company to participate in
The Limited's associate benefit plans. In addition to a monthly services fee,
under the Services Agreement, the Company intends to agree to reimburse The
Limited for The Limited's costs (including any contributions and premium costs
and including certain third-party expenses and allocations of certain personnel
expenses of The Limited), generally in accordance with past practice, relating
to participation by the Company's associates in any of The Limited's benefit
plans.
The Services Agreement will have an initial term of five years
and will be renewed automatically thereafter for successive one-year terms
unless either Abercrombie & Fitch or The Limited elects not to renew the
Services Agreement. After the initial five-year term, the Services Agreement
may be terminated at any time by either party upon six months' written notice.
The Services Agreement will also provide that the Agreement will be subject to
early termination by either Abercrombie & Fitch or The Limited upon six
months' written notice if The Limited ceases to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock of
Abercrombie & Fitch, whether as a result of a Tax-Free Spin-Off or otherwise.
Pursuant to the Services Agreement, each party will agree to
indemnify the other, except in certain limited circumstances, against
liabilities that the other may incur that are caused by or arise in connection
with such party's failure to fulfill its material obligations under the
Services Agreement.
Sublease Agreement
Abercrombie & Fitch has entered into a sublease agreement
with an affiliate of The Limited (the "Sublease Agreement") pursuant to which
such affiliate subleases to Abercrombie & Fitch the distribution center and
headquarters office space currently used by Abercrombie & Fitch. The Sublease
Agreement provides that the lessee will lease space at an average annual
rental rate equal to $11.00 per square foot in the case of office space and
$2.85 per square foot in the case of the distribution center, subject to
adjustment based on the Consumer Price Index every third year. Abercrombie &
Fitch's management believes that these rental rates are commensurate with
market rates, although the Company did not seek bids from third parties. The
net charge paid by the Company in 1995 under the Sublease Agreement was
approximately $1.8 million, which is the amount included in the 1995
Consolidated Financial Statements.
The Sublease Agreement will have an initial term of fifteen
years and will be renewed automatically thereafter for eight successive
five-year terms unless either the lessor or the lessee (or sublessor or
sublessee) elects not to renew the Sublease Agreement upon at least one year's
notice.
Shared Facilities Agreement
At July 6, 1996, three of the Company's stores were
located in space leased by other businesses controlled by The Limited. The
Company and the relevant businesses operated by The Limited intend to enter
into shared facilities agreements (collectively, the "Shared Facilities
Agreement") pursuant to which the Company will sublease such facilities from
the relevant subsidiary of The Limited. Under the Shared Facilities
Agreement, the Company will be responsible for its pro rata share (based on
square feet occupied) of all costs and expenses (principally fixed rent) under
the relevant lease plus the portion of any performance based rent attributable
to the Company. This method of allocating such costs and expenses is
consistent in all material respects with the allocation of such costs and
expenses set forth in the historical financial statements of Abercrombie &
Fitch. See the Consolidated Financial Statements included elsewhere herein.
Management's estimate of the store lease and other occupancy costs charge that
would have been payable by the Company in 1995 if the Shared Facilities
Agreement had been in effect during that period is approximately $1.4 million.
Tax-Sharing Agreement
Abercrombie & Fitch is, and after the Offerings will
continue to be, included in The Limited's federal consolidated income tax
group and Abercrombie & Fitch's tax liability will be included in the
consolidated federal income tax liability of The Limited and its subsidiaries.
In certain circumstances, certain Abercrombie & Fitch subsidiaries may be
included with certain subsidiaries of The Limited in combined, consolidated or
unitary income tax groups for state and local tax purposes. Abercrombie &
Fitch and The Limited intend to enter into a tax-sharing agreement (the
"Tax-Sharing Agreement"). Pursuant to the Tax-Sharing Agreement, Abercrombie
& Fitch and The Limited will make payments between them such that, with
respect to any period, the amount of taxes to be paid by Abercrombie & Fitch,
subject to certain adjustments, will be determined as though Abercrombie &
Fitch were to file separate federal, state and local income tax returns
(including, except as provided below, any amounts determined to be due as a
result of a redetermination of the tax liability of The Limited arising from
an audit or otherwise) as the common parent of an affiliated group of
corporations filing combined, consolidated or unitary (as applicable) federal,
state and local returns rather than a consolidated subsidiary of The Limited
with respect to federal, state and local income taxes. Abercrombie & Fitch
will be reimbursed, however, for tax attributes that it generates, such as net
operating losses, if and when they are used on a consolidated basis.
In determining the amount of tax-sharing payments under the
Tax-Sharing Agreement, The Limited will prepare for Abercrombie & Fitch pro
forma returns with respect to federal and applicable state and local income
taxes that reflect the same positions and elections used by The Limited in
preparing the returns for The Limited's consolidated group and other
applicable groups. The Limited will continue to have all the rights of a
parent of a consolidated group (and similar rights provided for by applicable
state and local law with respect to a parent of a combined, consolidated or
unitary group), will be the sole and exclusive agent for Abercrombie & Fitch
in any and all matters relating to the income, franchise and similar tax
liabilities of Abercrombie & Fitch, will have sole and exclusive
responsibility for the preparation and filing of consolidated federal and
consolidated or combined state income tax returns (or amended returns), and
will have the power, in its sole discretion, to contest or compromise any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim for refund on behalf of Abercrombie & Fitch. In addition, The Limited
has agreed to undertake to provide the aforementioned services with respect to
Abercrombie & Fitch's separate state and local returns and Abercrombie &
Fitch's foreign returns. Under the Tax-Sharing Agreement, Abercrombie & Fitch
will pay The Limited a fee intended to reimburse The Limited for all direct
and indirect costs and expenses incurred with respect to Abercrombie & Fitch's
share of the overall costs and expenses incurred by The Limited with respect
to tax related services.
In general, the Company will be included in The Limited's
consolidated group for federal income tax purposes for so long as The Limited
beneficially owns at least 80% of the total voting power and value of the
outstanding Common Stock. Each member of a consolidated group is jointly and
severally liable for the federal income tax liability of each other member of
the consolidated group. Accordingly, although the Tax-Sharing Agreement
allocates tax liabilities between Abercrombie & Fitch and The Limited, during
the period in which the Company is included in The Limited's consolidated
group, the Company could be liable in the event that any federal tax liability
is incurred, but not discharged, by any other member of The Limited's
consolidated group. See "Risk Factors -- Control by The Limited".
Corporate Agreement
The Company and The Limited intend to enter into a
corporate agreement (the "Corporate Agreement") under which the Company will
grant to The Limited a continuing option, transferable to any of its
subsidiaries, to purchase, under certain circumstances, additional shares of
Class B Common Stock or shares of nonvoting capital stock of the Company (the
"Stock Option"). The Stock Option may be exercised by The Limited
simultaneously with the issuance of any equity security of the Company (other
than in the Offerings or upon the exercise of the Underwriters' over-allotment
options), with respect to Class B Common Stock, only to the extent necessary
to maintain its then-existing percentage of the total voting power and value
of the Company and, with respect to shares of nonvoting capital stock, to the
extent necessary to own 80% of each outstanding class of such stock. The
purchase price of the shares of Class B Common Stock purchased upon any
exercise of the Stock Option, subject to certain exceptions, will be based on
the market price at which such stock may be purchased by third parties. The
Stock Option expires in the event that The Limited reduces its beneficial
ownership of Common Stock in the Company to Common Stock representing less
than 60% of the number of outstanding shares of Common Stock. The Company
does not intend to issue additional shares of Class B Common Stock except
pursuant to the exercise of the Stock Option.
The Corporate Agreement will further provide that, upon the
request of The Limited, the Company will use its best efforts to effect the
registration under the applicable federal and state securities laws of any of
the shares of Class B Common Stock and nonvoting capital stock (and any other
securities issued in respect of or in exchange for either) held by The Limited
for sale in accordance with The Limited's intended method of disposition
thereof, and will take such other actions necessary to permit the sale thereof
in other jurisdictions, subject to certain limitations specified in the
Corporate Agreement. The Limited will also have the right, which it may
exercise at any time and from time to time, to include the shares of Class B
Common Stock and nonvoting capital stock (and any other securities issued in
respect of or in exchange for either) held by it in certain other
registrations of common equity securities of the Company initiated by the
Company on its own behalf or on behalf of its other shareholders. The Company
will agree to pay all out-of-pocket costs and expenses in connection with each
such registration that The Limited requests or in which The Limited
participates. Subject to certain limitations specified in the Corporate
Agreement, such registration rights will be assignable by The Limited and its
assigns. The Corporate Agreement will contain indemnification and
contribution provisions: (i) by The Limited and its permitted assigns for the
benefit of the Company and related persons; and (ii) by the Company for the
benefit of The Limited and the other persons entitled to effect registrations
of Common Stock (and other securities) pursuant to its terms and related
persons.
For so long as The Limited maintains beneficial ownership of a
majority of the number of outstanding shares of Common Stock, the Company may
not take any action or enter into any commitment or agreement which may
reasonably be anticipated to result, with or without notice and with or
without lapse of time, or otherwise, in a contravention (or an event of
default) by The Limited of: (i) any provision of applicable law or regulation,
including but not limited to provisions pertaining to the Code or ERISA; (ii)
any provision of The Limited's certificate of incorporation or bylaws; (iii)
any credit agreement or other material instrument binding upon The Limited; or
(iv) any judgment, order or decree of any governmental body, agency or court
having jurisdiction over The Limited or any of its respective assets. Except
for those provisions relating to corporate opportunities and limitations on
liabilities, the requirements for approval of certain business combinations
and other control transactions, as well as the capital structure of the two
companies, the Certificates of Incorporation and Bylaws of The Limited and
Abercrombie & Fitch are substantially similar. See "Description of Capital
Stock -- Certain Certificate of Incorporation and Bylaw Provisions". The
Limited's certificate of incorporation and bylaws are filed as exhibits to the
Registration Statement of which this Prospectus forms a part.
MANAGEMENT
The following table sets forth certain information concerning
the executive officers of the Company, each of whom assumed their position
with the Company on July 15, 1996:
Name Age Position
---- --- ----------
Leslie H. Wexner...................... 58 Chairman of the Board
Kenneth B. Gilman..................... 50 Vice Chairman of the Board
Michael S. Jeffries................... 51 President and Chief Executive Officer
Michele S. Donnan-Martin.............. 32 Vice President - General Merchandising Manager -Women's
Seth R. Johnson....................... 42 Vice President - Chief Financial Officer
Mr. Wexner has been President and Chief Executive Officer of The Limited
since he founded The Limited in 1963 and Chairman of the Board for more than
five years. Mr. Wexner has also been the Chairman of the Board and Chief
Executive Officer of Intimate Brands since 1995. Mr. Wexner is also a
director of Hollinger International, Inc. and Hollinger International
Publishing, Inc.
Mr. Gilman has been Vice Chairman and Chief Financial Officer of The
Limited since June 1993. For more than five years prior thereto, Mr. Gilman
was executive Vice President and Chief Financial Officer of The Limited. Mr.
Gilman has also been the Vice Chairman of the Board of Intimate Brands since
1995.
Mr. Jeffries has been President and Chief Executive Officer of Abercrombie
& Fitch since February 1992. For one and one-half years prior thereto, Mr.
Jeffries held the position of Executive Vice President - Merchandising for
Paul Harris Stores, Inc. For five years prior thereto, Mr. Jeffries held the
position of President and Chief Executive Officer of Alcott & Andrews.
Ms. Donnan-Martin has been Vice President - General Merchandising Manager -
Women's at Abercrombie & Fitch since February 1996. For three and one-half
years prior thereto, Ms. Donnan-Martin held the position of Vice President
Women's Merchandising at Abercrombie & Fitch. Prior to joining Abercrombie &
Fitch in June 1992, she held the position of Divisional Merchandise Manager
for J. Crew Group, Inc. for two years.
Mr. Johnson has been Vice President - Chief Financial Officer of
Abercrombie & Fitch since June 1992. Prior to 1992, Mr. Johnson held the
position of Director, Financial Analysis from 1989 to 1992 for The Limited.
The Board of Directors of Abercrombie & Fitch currently
consists of Messrs. Wexner, Gilman and Jeffries. In addition, The Limited
intends to cause the appointment as directors of Abercrombie & Fitch of four
additional directors (the "Independent Directors") not associated with the
Company, one of whom will not be associated with The Limited or any of its
affiliates.
In light of its voting power in the Company, The Limited has
the ability to change the size and composition of the Board of Directors.
Members of the Board of Directors are divided into three
classes and serve staggered three-year terms. Of the current members of the
Board of Directors, the term of Mr. Jeffries expires at the next annual
meeting of shareholders (expected to occur in the second quarter of 1997), the
term of Mr. Gilman expires at the annual meeting of shareholders to be held in
1998 and the term of Mr. Wexner expires at the annual meeting of shareholders
to be held in 1999.
The Board of Directors will have an audit committee, consisting
entirely of Indpendent Directors, which will review the results and scope of
the audit and other services provided by Abercrombie & Fitch's independent
auditors.
Compensation of Directors
Directors who are not associates of the Company receive an
annual retainer of $10,000 (increased by $1,500 for each committee chair held)
plus a fee of $800 for each Board of Directors' meeting attended ($400 for a
telephonic meeting) and, as committee members, receive $600 per committee
meeting attended ($200 for each telephonic meeting). Each action in writing
taken by the Board of Directors or any committee entitles each outside member
to be paid $200. In addition, pursuant to the Abercrombie & Fitch 1996 Stock
Plan for Non-Associate Directors (the "1996 Non-Associate Director Stock
Plan") described below, each non-associate director will receive annual grants
of options to acquire 2,000 shares of Class A Common Stock at an exercise
price equal to the fair market value of the underlying shares on the date of
grant. The annual retainer will be paid 50% in cash and 50% in Class A Common
Stock pursuant to the 1996 Non-Associate Director Stock Plan described below.
Associates and officers of the Company who are directors receive no additional
compensation for services rendered as directors.
EXECUTIVE COMPENSATION
Summary
The information set forth below describes the components of
the total compensation paid by The Limited during its last completed fiscal
year (the last three completed fiscal years in the cases of Messrs. Wexner
and Gilman) to Mr. Wexner, who is the Chairman of the Board of Abercrombie
& Fitch, and Messrs. Gilman, Jeffries and Johnson and Ms. Donnan-Martin
(the "named executive officers"). Prior to the named individuals becoming
executive officers of Abercrombie & Fitch on July 15, 1996, such executive
officers were associates of The Limited. Messrs. Wexner and Gilman will
continue their employment with The Limited following the Offerings. It is
expected that Messrs. Wexner and Gilman will receive no cash compensation
from Abercrombie & Fitch, although they will be eligible for participation
in the Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan
(the "Stock Plan") discussed below. The annual base salary and annual
bonus opportunity for Messrs. Wexner and Gilman in respect of their
service with The Limited and its affiliates will continue to be determined
by The Limited's compensation committee and will be paid by The Limited.
The compensation set forth below was paid by The Limited to such
individuals in respect of their employment with The Limited.
The principal components of each such named executive officer's
cash compensation from The Limited have been the annual base salary and bonus
as set forth in the Summary Compensation Table. The bonus amounts represent
amounts that the compensation committee of the Board of Directors of The
Limited approved for each named individual based on the performance of The
Limited and Abercrombie & Fitch during 1995. The long-term compensation shown
in the Summary Compensation Table was provided under The Limited's 1993 Stock
Option and Performance Incentive Plan, which provides for various types of
awards such as options to acquire common stock of The Limited and restricted
common stock of The Limited. Messrs. Jeffries and Johnson and Ms.
Donnan-Martin will continue to be eligible to participate in such plan
following the Offerings. It is intended that substantially all the
compensation to be paid to Messrs. Jeffries and Johnson and Ms. Donnan-Martin
after the Offerings will be paid by the Company, not The Limited.
Immediately following the Offerings, the annual base salaries
and annual bonus opportunities of Messrs. Jeffries and Johnson and Ms.
Donnan-Martin will be at the levels as was determined by the compensation
committee of The Limited. Subsequently, the annual base salary and the annual
bonus opportunity of Messrs. Jeffries and Johnson and Ms. Donnan-Martin will
be determined by the compensation committee of the Company (the "Compensation
Committee"). It is anticipated that the base salary paid by the Company to
Messrs. Jeffries and Johnson and Ms. Donnan-Martin, and to all other executive
officers compensated by the Company rather than The Limited, will initially be
generally comparable to present levels of base salary received from The
Limited, subject to such adjustments as may be determined in the normal course
of business. In addition, in connection with the Offerings it is anticipated
that the Company will adopt three compensation plans. Pursuant to the 1996
Non-Associate Director Stock Plan, described more fully below, the Company
will grant on the effective date of the Offerings and on the first business
day of each fiscal year of the Company options to purchase 2,000 shares of
Class A Common Stock to each non-associate director of the Company. Pursuant
to the Abercrombie & Fitch Incentive Compensation Plan (the "Incentive Plan"),
described more fully below, eligible associates of the Company will be
eligible to receive cash bonuses based on attainment by the Company of certain
performance goals.
All of the named executive officers will be eligible to
participate in the Stock Plan and the Incentive Plan, pursuant to which it is
anticipated that incentive compensation awards will be granted after the
Offerings. Effective upon the consummation of the Offerings, it is expected
that the Compensation Committee will grant certain executive officers options
to purchase an aggregate of shares of the Company's Class A Common
Stock under the Stock Plan. The exercise price of these options will be equal
to the initial public offering price set forth on the cover page of this
Prospectus. These options are composed of three approximately equal tranches.
Each tranche will vest generally in four equal annual installments commencing
on the first, second and third anniversaries of the grant date, respectively,
subject to continued employment with the Company. In addition, it is
anticipated that the Compensation Committee will grant, and in consideration
for the cancellation of certain previously granted options to purchase shares
of The Limited's common stock will offer to grant, to certain executive
officers and to non-executive officer associates options to purchase an
aggregate of up to shares of the Company's Class A Common Stock
under the Stock Plan with an exercise price equal to the initial public
offering price set forth on the cover page of this Prospectus. These options
would vest in annual increments of 25% commencing on various dates beginning
January 1, 1997, subject to continued employment with the Company. See "--
Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan".
In addition, subject to the cancellation of the grants of
restricted shares of The Limited's common stock made on
to certain executive officers and associates, it is expected that such
executive officers and associates will be granted, effective upon the
consummation of the Offerings, an aggregate of
restricted shares of the Company's Class A Common Stock under the Stock
Plan, which shares will vest on , subject to
continued employment with the Company. See Note 3 to the Summary Compensation
Table below and "-- Abercrombie & Fitch 1996 Stock Option and Performance
Incentive Plan".
The following table presents certain specific information
regarding the compensation paid by The Limited for the periods indicated to
Mr. Wexner, the Chairman of the Board of Abercrombie & Fitch, and to Messrs.
Gilman, Jeffries and Johnson and Ms. Donnan-Martin who have become executive
officers of Abercrombie & Fitch.
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------------- ------------------------------
Securities All Other
Name & Restricted Stock Underlying Compensation($)
Principal Position Year(1) Salary($) Bonus($)(2) Award(s)($)(3) Options(#) (4)
------------------ ---- ------ ----- ---------------- ---------- -------------
Leslie H. Wexner(5).......... 1995 $1,150,000 $768,315 -- 100,000 $148,436
Chairman of the Board 1994 1,150,000 832,370 556,562 50,000 149,066
1993 1,150,000 660,100 2,150,000 0 147,636
Kenneth B. Gilman(5)......... 1995 941,935 449,620 -- 25,000 190,772
Vice Chairman of the 1994 896,144 473,760 278,281 25,000 185,736
Board
1993 796,154 390,320 1,075,000 -- 157,926
Michael S. Jeffries.......... 1995 491,700 426,300 159,393 12,000 51,695
President and Chief
Executive Officer
Michele S. Donnan-Martin..... 1995 217,510 107,184 26,566 5,000 17,850
Vice President- General
Merchandising Manager-Women's
Seth R. Johnson.............. 1995 198,340 97,440 26,566 5,000 22,013
Vice President - Chief
Financial Officer
- ----------------
(1) Under rules promulgated by the Commission, since the Company was not a
reporting company during the three immediately preceding fiscal years, only
the information with respect to the most recent completed fiscal year is
noted in the Summary Compensation Table except for such information that
was previously required to be filed with the Commission.
(2) Represents, for each fiscal year, the aggregate of the performance-based
cash incentive compensation paid for the Spring and Fall selling seasons
occurring in that fiscal year.
(3) On February 1, 1996, 9,516, 1,586, 1,586, restricted common stock
performance awards of The Limited were made to executive officers Jeffries,
Donnan-Martin and Johnson, respectively. The per share value of the common
stock of The Limited on such date was $16.75. These awards vest 10% on
February 1, 1996, an additional 20% on February 1, 1997, an additional 30%
on February 1, 1998, and the remaining 40% on February 1, 1999, in each
case subject to the holder's continued employment with The Limited.
As of February 2, 1996, the aggregate restricted stock holdings in The
Limited stock and the market value of such holdings for each of the named
executive officers were: Mr. Wexner, 132,500 shares, $2,219,375; Mr. Gilman
66,250 shares; $1,109,688; Mr. Jeffries, 61,516 shares, $1,030,393; Ms.
Donnan-Martin, 3,586 shares, $60,066; Mr. Johnson, 3,586 shares, $60,066
(based on the $16.75 fair market value of The Limited's common stock on
such date).
(4) Represents, for each named executive officer, the amount of employer
matching and supplemental contributions allocated to his/her account under
certain qualified and non-qualified defined contribution plans maintained by
The Limited during the calendar year in which the 1995 fiscal year
commenced. It is anticipated that after the Offerings the named executive
officers will continue to participate in such plans.
(5) Messrs. Wexner and Gilman are also employed by The Limited and received no
direct cash compensation from the Company. The annual base salary and
annual bonus opportunity for Messrs. Wexner and Gilman in respect of their
service with The Limited and its affiliates was determined by The Limited's
Compensation Committee and was paid by The Limited.
The following table sets forth certain information regarding
options to acquire common stock of The Limited granted to the named executive
officers during the 1995 fiscal year of The Limited.
Option Grants in Fiscal Year 1995
Individual Grants
Potential Realizable Value at Assumed
Securities % of Annual Rates of Stock Price
Underlying Total Options Appreciation
Options Granted to Exercise for Option Term(3)
Granted Employees In Price Expiration ---------------------------------------
Name (#)(1) Fiscal Year(2) ($/sh) Date 5.0%($) 10.0%($)
---- ---------- -------------- -------- ---------- ------- --------
Leslie H. Wexner.... 100,000 4.69% $17.50 3/1/05 $1,100,565 $2,789,049
Kenneth B. Gilman... 5,714 0.27% 17.50 2/22/05 62,886 159,366
19,286 0.90% 17.50 3/1/05 212,255 537,896
Michael S. Jeffries. 5,800 0.27% 17.50 2/27/05 63,945 161,385
6,200 0.29% 17.50 3/1/05 68,355 172,515
Michele S. Donnan-
Martin.............. 4,282 0.20% 17.50 2/27/05 47,209 119,147
718 0.03% 17.50 3/1/05 7,916 19,978
Seth R. Johnson..... 4,742 0.22% 17.50 2/27/05 52,281 131,946
258 0.01% 17.50 3/1/05 2,844 7,179
- --------------------
(1) All options granted relate to shares of common stock of The Limited.
(2) All options listed were granted to the named executive officers pursuant
to The Limited's 1993 Stock Option and Performance Incentive Plan. All
such options become exercisable in four equal annual portions commencing on
the first anniversary of the grant date. The table above indicates that
each named executive officer, other than Mr. Wexner, received two such
stock option grants during 1995. One grant represents options intended to
qualify as "incentive stock options" within the meaning of Section 422 of
the Code and the other represents non-qualifying stock options. All such
stock option grants were made on the same day, February 28, 1995.
(3) The assumed rates of growth are prescribed by the Commission for
illustrative purposes only and are not intended to predict or forecast
future stock prices.The following table provides information relating to
the number and value of shares of common stock of The Limited subject to
options held by the named executive officers as of February 2, 1996.
Aggregated Option Exercises in 1995 Fiscal Year
and Fiscal Year-end Option Values
Value of Unexercised,
Number of Securities Underlying In-the-Money
Unexercised Options at FY-End (#) Options Held at FY-End ($)(1)
Shares --------------------------------- -----------------------------
Acquired On Value
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
----- ----------- ----------- ----------- ------------- ----------- -------------
Leslie H. Wexner.... -- -- 12,500 137,500 -- --
Kenneth B. Gilman... -- -- 200,000 68,750 $376,562 --
Michael S. Jeffries. -- -- 27,750 33,250 -- --
Michele S. Donnan-
Martin.............. -- -- 10,500 12,500 -- --
Seth R. Johnson..... -- -- 20,750 14,250 29,250 --
- ---------------
(1) Calculated on the basis of the number of shares of common stock of The
Limited subject to each such option multiplied by the excess of the $16.75
fair market value of a share of The Limited's common stock at fiscal
year-end over the per share exercise price of such option.
Long-Term Incentive Plans -- Awards in Fiscal Year 1995
No awards were granted in respect of the 1995 fiscal year to
the named executive officers other than the restricted stock performance
awards granted in The Limited, Inc. stock on February 1, 1996 to corporate
officers Jeffries, Donnan-Martin and Johnson, as disclosed in the Summary
Compensation Table.
Abercrombie & Fitch Incentive Compensation Plan
It is anticipated that, prior to the consummation of the
Offerings, the Company's Board of Directors will adopt, and The Limited, as
the Company's sole shareholder, will approve, effective on the consummation
of the Offerings, the Incentive Plan. The Incentive Plan is intended to
satisfy the applicable provisions of Section 162(m) of the Code. Under the
Incentive Plan, approximately 30 key executives of the Company, other than
Messrs. Wexner and Gilman, with significant operating and financial
responsibility are eligible to earn seasonal cash incentive compensation
payments that are paid twice each year.
Prior to the beginning of each spring and fall selling season,
operating income and/or gross margin and/or sales objectives may be
established by the Compensation Committee of the Company. Any objectives set
would expect a stretch performance level, and be based on an analysis of
historical performance and growth expectations for the business, financial
results of other comparable businesses, and progress towards achieving the
long-range strategic plan for the business. These objectives and
determination of results are based entirely on financial measures, and
discretion may not be used to modify award results.
Annual incentive compensation targets established for eligible
executives will range from 10% to 110% of base salary. Targeted incentive
compensation would equal a percentage of an eligible executive's total
compensation as established by the pay guidelines. Executives earn their
target incentive compensation if the business achieves the established
operating income and/or gross margin and/or sales objectives. The target
incentive compensation percentage for each executive is based on the level and
functional responsibility of his or her position and competitive practices, in
that order of priority. For the named executive officers, annual incentive
compensation targets can range from 40% to 110% of base salary. The amount of
incentive compensation paid to executives can range from zero to double their
targets, based upon the extent to which operating income and/or gross margin
and/or sales objectives are achieved. The minimum level at which an executive
would earn any incentive payment, and the level at which an executive would
earn the maximum incentive payment of double the target, are established by
the Compensation Committee of the Company prior to the commencement of each
bonus period, and actual payouts are based on a straight-line interpolation
based on these minimum and maximum levels and the target operating income
objectives.
The maximum dollar amount to be paid for any year under the
Incentive Plan to each participant may not exceed $2 million.
Abercrombie & Fitch 1996 Stock Option and Performance Incentive Plan
It is anticipated that, prior to the consummation of the
Offerings, the Company's Board of Directors will adopt, and The Limited, as
the Company's sole shareholder, will approve, effective on the consummation
of the Offerings, the Stock Plan.
Purpose of Plan
The purpose of the Stock Plan is to attract and retain the best
available executive and key management associates for the Company and its
subsidiaries and to encourage the highest level of performance by such
associates, thereby enhancing the value of the Company for the benefit of its
shareholders. The Stock Plan is also intended to motivate executive and key
management associates to contribute to the Company's future growth and
profitability and to reward their performance in a manner that provides them
with a means to increase their holdings of the Class A Common Stock of the
Company and aligns their interests with the interests of the shareholders of
the Company.
Administration of the Stock Plan
The Stock Plan will be administered by a committee of two or
more members of the Company's Board of Directors (the "Plan Committee"). The
Plan Committee will be composed of directors who qualify as "non-employee
directors" within the meaning of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and as "outside directors" within the
meaning of Section 162(m) of the Code. The Plan Committee has the power in
its discretion to grant awards under the Stock Plan, to determine the terms
thereof, to interpret the provisions of the Stock Plan and to take such action
as it deems necessary or advisable for the administration of the Stock Plan.
Number of Authorized Shares
The Stock Plan provides for awards with respect to a maximum of
1,500,000 shares of Class A Common Stock to associates of the Company and its
subsidiaries and to associates of The Limited and its subsidiaries during the
term of the Stock Plan. Corresponding tax offset payments also may be awarded
at the discretion of the Plan Committee. The number and class of shares
available under the Stock Plan and/or subject to outstanding awards may be
adjusted by the Plan Committee to prevent dilution or enlargement of rights in
the event of various changes in the capitalization of the Company.
Eligibility and Participation
Eligibility to participate in the Stock Plan is limited to the
named executive officers and full-time executive and key management
associates of the Company and its subsidiaries and to associates of The
Limited and its subsidiaries who are selected by the Plan Committee.
Currently, approximately 500 associates of the Company and its subsidiaries
are within the classes eligible to participate in the Stock Plan. The Company
anticipates that approximately 10% of those eligible associates will
participate in the Stock Plan. Participation in the Stock Plan is at the
discretion of the Plan Committee and shall be based upon the associate's
present and potential contributions to the success of the Company and its
subsidiaries and such other factors as the Plan Committee deems relevant. No
associate may be granted in any calendar year awards covering more than
400,000 shares of Class A Common Stock.
Type of Awards Under the Stock Plan
The Stock Plan provides that the Plan Committee may grant
awards to eligible associates in any of the following forms, subject to such
terms, conditions and provisions as the Plan Committee may determine to be
necessary or desirable: (i) incentive stock options; (ii) nonstatutory stock
options; (iii) stock appreciation rights; (iv) restricted shares; (v)
performance shares; (vi) performance units; (vii) shares of unrestricted Class
A Common Stock; and (viii) tax offset payments.
Term of Stock Plan
Unless earlier terminated by the Company's Board of Directors,
the Stock Plan will terminate on the tenth anniversary of the earlier of the
adoption of the Stock Plan by the Company's Board of Directors or the date of
the consummation of the Offerings.
Amendment and Termination
The Company's Board of Directors may suspend, amend, modify or
terminate the Stock Plan.
Abercrombie & Fitch 1996 Stock Plan for Non-Associate Directors
It is anticipated that, prior to the consummation of the
Offerings, the Company's Board of Directors will adopt and The Limited, as
the Company's sole shareholder will approve, effective on the consummation
of the Offerings, the 1996 Non-Associate Director Stock Plan. The
following is a summary of the material terms of the 1996 Non-Associate
Director Stock Plan, a copy of which is filed as an exhibit to the
registration statement of which this Prospectus is a part. The following
summary does not purport to be complete and is qualified in its entirety by
the terms of the 1996 Non-Associate Director Stock Plan.
Purpose of Plan
The purpose of the 1996 Non-Associate Director Stock Plan is to
promote the interests of the Company and its shareholders by increasing the
proprietary interest of non-associate directors in the growth and performance
of the Company.
Eligibility
The 1996 Non-Associate Director Stock Plan provides for awards
of nonqualified options to directors of the Company who are not associates of
the Company or its affiliates ("Eligible Directors").
Types of Awards
Pursuant to the 1996 Non-Associate Director Stock Plan, on the
effective date of the Offerings each Eligible Director will be granted an
option to purchase 2,000 shares of Class A Common Stock at the price at which
such shares are offered to the public. Subsequently, on the first business
day of each fiscal year of the Company, commencing following the Offerings,
each Eligible Director will be granted an option to purchase 2,000 shares of
Class A Common Stock as of the first business day of such fiscal year at a per
share exercise price equal to the fair market value of a share of Class A
Common Stock on such date. Each option will: (i) vest in annual 25%
increments commencing on the first anniversary of the grant date; and (ii)
expire on the earlier of the tenth anniversary of the date of grant and one
year from the date on which an optionee ceases to be an Eligible Director.
The exercise price per share of Class A Common Stock shall be 100% of the fair
market value per share on the date the option is granted. The exercise price
of options must be satisfied in cash.
In addition, the 1996 Non-Associate Director Stock Plan
provides that each Eligible Director will receive 50% of such Eligible
Director's annual retainer in unrestricted shares of Class A Common Stock,
valued as of the last business day of each fiscal quarter commencing
hereafter.
Number of Authorized Shares
The maximum number of shares of Class A Common Stock in respect
of which options may be granted and shares awarded in lieu of 50% of the
annual retainer under the 1996 Non-Associate Director Stock Plan is 100,000.
Shares of Class A Common Stock subject to options that are forfeited,
terminated or canceled will again be available for awards. The shares of
Class A Common Stock to be delivered under the 1996 Non-Associate Director
Stock Plan will be made available from the authorized but unissued shares of
Class A Common Stock or from treasury shares. The number and class of shares
available under the 1996 Non-Associate Director Stock Plan and/or subject to
outstanding options may be adjusted by the Board of Directors to prevent
dilution or enlargement of rights in the event of various changes in the
capitalization of the Company.
Administration
The 1996 Non-Associate Director Stock Plan will be administered
by the Board of Directors. Subject to the provisions of the 1996
Non-Associate Director Stock Plan, the Board shall be authorized to interpret
the 1996 Non-Associate Director Stock Plan, to establish, amend, and rescind
any rules and regulations relating to it and to make all other determinations
necessary or advisable for its administration; provided, however, that the
Board shall have no discretion with respect to the selection of directors to
receive options, the number of shares of Class A Common Stock subject to any
such options, the purchase price thereunder or the timing or term of grants of
options. The determinations of the Board in the administration of the 1996
Non-Associate Director Stock Plan, as described herein, shall be final and
conclusive. The Secretary of the Company shall be authorized to implement the
1996 Non-Associate Director Stock Plan in accordance with its terms and to
take such actions of a ministerial nature as shall be necessary to effectuate
the intent and purposes thereof. The validity, construction and effect of the
1996 Non-Associate Director Stock Plan and any rules and regulations relating
to it shall be determined in accordance with the laws of the State of Delaware.
Transferability
The options granted under the 1996 Non-Associate Director Stock
Plan may not be assigned or transferred, except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order.
Shares issued under the 1996 Non-Associate Director Stock Plan
in respect of 50% of the annual retainer may be assigned or transferred.
Term of Plan
No option may be granted under the 1996 Non-Associate Director
Stock Plan after the tenth annual meeting of the Company's shareholders
following the consummation of the Offerings.
Amendments
The 1996 Non-Associate Director Stock Plan may be amended by
the Company's Board of Directors, as it shall deem advisable or to conform to
any change in any law or regulation applicable thereto; provided, that the
Company's Board of Directors may not, except in the limited circumstances
described above, without the authorization and approval of shareholders: (i)
increase the number of shares of Class A Common Stock which may be purchased
pursuant to options, either individually or in the aggregate; (ii) change the
requirement that option grants be priced at fair market value; (iii) modify in
any respect the class of individuals who constitute Eligible Directors; or
(iv) materially increase benefits thereunder. The provisions governing
eligibility, the grant, terms and conditions of the options and the award of
shares of Class A Common Stock in respect of the annual retainer and, for
purposes of the 1996 Non-Associate Director Stock Plan, the amount of the
annual retainer, may not be amended more often than once every six months,
other than to comport with changes in the Code, ERISA or the rules under
either such statute.
Awards under the Plan
The following table sets forth amounts to be paid to the
Non-Associate Director group in 1996 under the 1996 Non-Associate Director
Stock Plan.
1996 Non-Associate Director Stock Plan Benefits Table
Name and Position Dollar Value($) Number of Units
----------------- --------------- ---------------
Non-Associate Director Group (assuming four non-associate directors) $20,000(1) 8,000(2)
- --------------------
(1) Consists of restricted shares of the Company's Class A Common Stock to be
issued in respect of 50% of each such director's annual retainer, valued as
of the date such retainer is paid.
(2) Consists of options to purchase shares of the Company's Class A Common
Stock at an exercise price equal to the fair market value on the date of
grant. Each such option will vest in 25% increments commencing on the
first anniversary of the date of grant.
PRINCIPAL SHAREHOLDER
All of the shares of Class B Common Stock outstanding prior
to the completion of the Offerings are beneficially owned by The Limited.
Upon consummation of the Offerings, The Limited will beneficially own 100%
of the Class B Common Stock and, accordingly, will own Common Stock
representing approximately % of the economic interest in the Company ( % if
the Underwriters' over-allotment options are exercised in full) and
representing approximately % of the combined voting power of the Company's
outstanding Common Stock (or % if the Underwriters' over-allotment options
are exercised in full). As of March 18, 1996 Leslie H. Wexner, Chairman
of the Company and Chairman of the Board, Chief Executive Officer and
President of The Limited, beneficially owned approximately 25.2 % of the
outstanding common stock of The Limited. The address of The Limited is
Three Limited Parkway, Columbus, Ohio 43230.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have
shares of Class A Common Stock issued and outstanding ( if the
Underwriters' over-allotment options are exercised in full) and shares of
Class B Common Stock issued and outstanding. All of the shares of Class A
Common Stock to be sold in the Offerings will be freely transferable and
tradeable without restrictions under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as that term is defined
in Rule 144 adopted under the Securities Act ("Rule 144")), which will be
subject to the resale limitations of Rule 144. All of the outstanding
shares of Class B Common Stock are owned by The Limited and have not been
registered under the Securities Act and may not be sold in the absence of
an effective registration statement under the Securities Act other than in
accordance with Rule 144 or another exemption from registration. The
Limited has certain rights to require the Company to effect registration of
shares of Class B Common Stock owned by The Limited, which rights may be
assigned. See "Relationship with The Limited -- Corporate Agreement".
In general, under Rule 144 as currently in effect, a person
(including an affiliate) who beneficially owns shares that are "restricted
securities" as to which at least two years have elapsed since the later of the
date of acquisition of such securities from the issuer or from an affiliate of
the issuer, and any affiliate who owns shares that are not "restricted
securities", is entitled to sell within any three-month period, a number of
shares that does not exceed (together with the sales by other persons required
to be aggregated) the greater of one percent of the total number of
outstanding shares of the class of stock being sold or the average weekly
reported trading volume of the class of stock being sold during the four
calendar weeks preceding the filing of the required notice of such sale. A
person (or persons whose shares are aggregated) who is not deemed an
"affiliate" of the Company and who has beneficially owned restricted
securities as to which at least three years have elapsed since the later of
the date of the acquisition of such securities from the issuer or from an
affiliate of the issuer is entitled to sell such shares without regard to the
volume limitations described above. As defined in Rule 144, an "affiliate" of
an issuer is a person that directly or indirectly through the use of one or
more intermediaries controls, is controlled by, or is under common control
with, such issuer. The Commission has proposed reducing the periods of
beneficial ownership of "restricted securities" required by Rule 144. Under
the proposal, persons who have beneficially owned restricted securities for at
least one year, instead of two years as currently required, would be able to
resell such securities by complying with the volume limitations described
above. In the case of a person who is not deemed to be an affiliate of the
Company during the preceding three months, the proposal would permit sales
without regard to the limitations described above as long as at least two
years have elapsed since the later of the date of the acquisition of such
securities from the issuer or from an affiliate of the issuer, instead of
three years as currently required. There can be no assurance that the
proposed revisions to Rule 144 will be adopted by the Commission.
Rule 144A under the Securities Act ("Rule 144A") provides a
non-exclusive safe harbor exemption from the registration requirements of the
Securities Act for specified resales of restricted securities to certain
institutional investors. In general, Rule 144A allows unregistered resales of
restricted securities to a "qualified institutional buyer", which generally
includes an entity, acting for its own account or for the account of other
qualified institutional buyers, that in the aggregate owns or invests at least
$100 million in securities of unaffiliated issuers. Rule 144A does not extend
an exemption to the offer or sale of securities that, when issued, were of the
same class as securities listed on a national securities exchange or quoted on
an automated quotation system.
Prior to the Offerings, there has been no market for the Class
A Common Stock. No predictions can be made of the effect, if any, that market
sales of currently outstanding shares of Class B Common Stock or the
availability of such shares for sale will have on the market price of Class A
Common Stock prevailing from time to time. Nevertheless, sales of substantial
amounts of Class B Common Stock in the public market, or the perception that
such sales could occur, could adversely affect prevailing market prices for
Class A Common Stock. Although The Limited in the future may effect or direct
sales or other dispositions of Common Stock that would reduce its beneficial
ownership interest in the Company, The Limited has advised the Company that
its current intention is to continue to hold all of the Class B Common Stock
beneficially owned by it immediately after the completion of the Offerings.
However, The Limited has no agreement with the Company not to sell or
distribute such shares and, other than pursuant to the Underwriting Agreement
described below, there can be no assurance concerning the period of time
during which The Limited will maintain its beneficial ownership of Common
Stock. Beneficial ownership of at least 80% of the total voting power and
value of the outstanding Common Stock is required in order for The Limited to
continue to include the Company in its consolidated group for federal tax
purposes and ownership of at least 80% of the total voting power and 80% of
each class of nonvoting capital stock is required in order for The Limited to
be able to effect a Tax-Free Spin-Off of the Company. The Limited has
indicated to the Company that any decision by The Limited to reduce such
beneficial ownership interest would be made in the future on the basis of all
of the circumstances existing at such time, including the effect of any such
reduction on The Limited (including any benefit to The Limited from the
removal from The Limited's consolidated balance sheet of the Company's
indebtedness (and assets) in the event The Limited's interest in the Common
Stock is reduced below 50%), the needs of The Limited, the performance of The
Limited, stock market conditions and other factors. In connection with the
Offerings, subject to certain exceptions, the Company and The Limited will
agree with the Underwriters not to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock (or any security convertible into or
exchangeable or exercisable for Common Stock) for a period of 180 days after
the date of this Prospectus without the prior written consent of the
Representatives of the Underwriters.
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company will consist of
(a) shares of Common Stock, par value $0.01 per share, of which: (i)
shares will be designated as Class A Common Stock; and (ii) shares will be
designated as Class B Common Stock; and (b) shares of Preferred Stock, of
which no shares are outstanding as of the date hereof. Of the shares of
Common Stock designated as Class A Common Stock, shares are being offered
hereby and shares are reserved for issuance upon conversion of Class B
Common Stock into Class A Common Stock. Of the shares of Common Stock
designated as Class B Common Stock, shares will be outstanding and held by
The Limited upon consummation of the Offerings. Each of the Class A Common
Stock and Class B Common Stock constitutes a series of Common Stock under
the General Corporation Law of the State of Delaware (the "DGCL"). A
description of the material terms and provisions of the Company's
Certificate of Incorporation affecting the relative rights of the Class A
Common Stock, the Class B Common Stock and the Preferred Stock is set forth
below. The description is intended as a summary and is qualified in its
entirety by reference to the form of the Company's Certificate of
Incorporation filed with the Registration Statement of which this
Prospectus forms a part. Common Stock Voting RightsThe holders of Class A
Common Stock and Class B Common Stock generally have identical rights
except that holders of Class A Common Stock are entitled to one vote per
share while holders of Class B Common Stock are entitled to three votes per
share on all matters to be voted on by shareholders. Holders of shares of
Class A Common Stock and Class B Common Stock are not entitled to cumulate
their votes in the election of directors. Generally all matters to be
voted on by shareholders must be approved by a majority of the votes
entitled to be cast by all shares of Class A Common Stock and Class B
Common Stock present in person or represented by proxy, voting together as
a single class, subject to any voting rights granted to holders of any
Preferred Stock. However, the Company's Certificate of Incorporation
includes, among other things: (i) a requirement that a vote of at least
75% of the outstanding Common Stock is required to effect a merger or
consolidation with an Interested Person (as defined therein), a sale of all
or substantially all of the assets of the Company to an Interested Person
and certain other control transactions; and (ii) a provision specifying
that certain provisions of the Company's Certificate of Incorporation and
Bylaws may be amended, and directors may be removed, only with the approval
of 75% of the outstanding Common Stock.
Dividends
The Board of Directors of the Company currently intends to
retain future earnings for the development of its business and does not
anticipate paying regular quarterly dividends on the Class A Common Stock or
Class B Common Stock for the foreseeable future. Under Delaware law, the
declaration of dividends is within the discretion of the Board of Directors
and future dividends, if any, will depend upon various factors, including the
Company's net income, current and anticipated cash needs and any other factors
deemed relevant by the Board of Directors. By virtue of its stock ownership,
The Limited will have the ability to change the size and composition of the
Company's Board of Directors and thereby control the payments of dividends by
the Company. Pursuant to restrictions contained in the Credit Agreement, so
long as the Credit Agreement is outstanding, the Company is prohibited from
paying any dividends on its capital stock, including the Class A Common Stock.
See "Description of Certain Indebtedness--Credit Agreement".
Conversion
Prior to the earliest to occur of the date on which shares of
Class B Common Stock are issued to shareholders of The Limited or its
successor in a Tax-Free Spin-Off and the date on which the number of shares of
Class B Common Stock outstanding is less than a majority of the aggregate
number of shares of Common Stock outstanding and a Tax-Free Spin-Off has not
occurred, each share of Class B Common Stock is convertible while held by The
Limited or any of its subsidiaries at such holder's option into one share of
Class A Common Stock. Any shares of Class B Common Stock transferred to a
person other than The Limited or any of its subsidiaries shall automatically
convert to shares of Class A Common Stock upon such disposition, except for a
disposition effected in connection with a transfer of Class B Common Stock to
shareholders of The Limited as a dividend intended to be a Tax-Free Spin-Off.
In the event of a Tax-Free Spin-Off, shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock on the fifth
anniversary of the Tax-Free Spin-Off unless prior to such Tax-Free Spin-Off,
The Limited delivers to the Company an opinion of counsel (which counsel shall
be reasonably satisfactory to the Company) to the effect that such conversion
would preclude The Limited from obtaining a favorable ruling from the Internal
Revenue Service that the distribution would be a Tax-Free Spin-Off under the
Code. If such an opinion is received, approval of such conversion shall be
submitted to a vote of the holders of the Abercrombie & Fitch Common Stock as
soon as practicable after the fifth anniversary of the Tax-Free Spin-Off
unless The Limited delivers to the Company an opinion of The Limited's counsel
(which counsel shall be reasonably satisfactory to the Company) prior to such
anniversary that such vote would adversely affect the status of the Tax-Free
Spin-Off. Approval of such conversion will require the affirmative vote of
the holders of a majority of the shares of both Abercrombie & Fitch's Class A
Common Stock and Class B Common Stock present and voting, voting together as a
single class, with each share entitled to one vote for such purpose. No
assurance can be given that such conversion would be consummated. The Limited
has no current plans with respect to a Tax-Free Spin-Off of Abercrombie &
Fitch.
The Limited will convert its Class B Common Stock to Class A
Common Stock immediately prior to a Tax-Free Spin-Off if, after such
conversion, it would have beneficial ownership of at least 80% of the value as
well as the voting power of the outstanding Common Stock. All shares of Class
B Common Stock shall automatically convert into Class A Common Stock if a
Tax-Free Spin-Off has not occurred and the number of outstanding shares of
Class B Common Stock falls below 60% of the aggregate number of outstanding
shares of Common Stock. This will prevent The Limited from decreasing its
economic interest in the Company to less than 60% while still retaining
control of approximately % of Abercrombie & Fitch's voting power. All
conversions will be effected on a share-for-share basis.
The requirement that The Limited retain beneficial ownership of
at least 80% of the voting power of the outstanding Common Stock after any
conversion prior to a Tax-Free Spin-Off is intended to ensure that the tax
treatment of the Tax-Free Spin-Off is preserved. Similarly, the requirement
to submit such conversion to a vote of the holders of Common Stock is intended
to preserve such tax treatment should the Internal Revenue Service challenge
such automatic conversion as violating the 80% vote requirement. Automatic
conversion of the Class B Common Stock into Class A Common Stock if a Tax-Free
Spin-Off has not occurred and The Limited decreases its economic interest in
the Company to less than 60% is intended to ensure that The Limited retains
voting control by virtue of its ownership of Class B Common Stock only if it
has a sizable economic interest in the Company.
In addition, in order to give any holder of the Class A Common
Stock or Class B Common Stock the right to participate in any offer for a
significant amount of the shares of the other class that is not similarly
offered for the shares of such holder's class, following a Tax-Free Spin-Off
shares of Common Stock of each class will be convertible, at the option of the
registered holder thereof, on a share-for-share basis, into shares of the
other class if any person (other than The Limited or any of its consolidated
subsidiaries), or any group of persons (other than The Limited or any one or
more of its subsidiaries), agreeing to act together for the purpose of
acquiring, holding, voting or disposing of shares of Common Stock, makes an
offer which the Company's Board of Directors deems to be a bona fide offer, to
purchase 5% or more of the other class of Common Stock for cash and/or other
securities or property without making a similar offer for the shares of such
class. The shares of Common Stock of a class may only be so converted during
the period in which such bona fide offer is in effect. Any share of Common
Stock so converted and not acquired by the offeror prior to the termination,
recission or completion of the offer will automatically reconvert to a share
of the class from which it was converted upon such termination, rescission or
completion.
Other Rights
On liquidation, dissolution or winding up of the Company after
payment in full of the amounts required to be paid to holders of Preferred
Stock, all holders of Common Stock, regardless of class, are entitled to share
ratably in any assets available for distribution to holders of shares of
Common Stock.
No shares of either class of Common Stock are subject to
redemption or have preemptive rights to purchase additional shares of Common
Stock. However, see "Relationship with The Limited -- Corporate Agreement".
Upon consummation of the Offerings, all the outstanding shares
of Class A Common Stock and Class B Common Stock will be legally issued, fully
paid and nonassessable.
Preferred Stock
The Preferred Stock is issuable from time to time in one or
more series and with such designations and preferences for each series as
shall be stated in the resolutions providing for the designation and issue of
each such series adopted by the Board of Directors of Abercrombie & Fitch.
The Board of Directors is authorized by Abercrombie & Fitch's Certificate of
Incorporation to determine the voting, dividend, redemption and liquidation
preferences and limitations pertaining to such series. The Board of
Directors, without shareholder approval, may issue Preferred Stock with voting
and other rights that could adversely affect the voting power of the holders
of the Common Stock and could have certain antitakeover effects. Abercrombie
& Fitch has no present plans to issue any shares of Preferred Stock. The
ability of the Board of Directors to issue Preferred Stock without shareholder
approval could have the effect of delaying, deferring or preventing a change
in control of Abercrombie & Fitch or the removal of existing management.
Certain Certificate of Incorporation and Bylaw Provisions
Transactions with Interested Parties
The Company's Certificate of Incorporation includes certain
provisions addressing potential conflicts of interest between the Company and
The Limited and its subsidiaries and regulating and defining the conduct of
certain affairs of the Company as they may involve the Company, The Limited
and their subsidiaries, directors and officers. The Company's Certificate of
Incorporation provides that no contract, agreement, arrangement or transaction
(or any amendment, modification or termination thereof) between the Company
and The Limited or any subsidiary of The Limited (other than the Company) or
between the Company and any entity in which a director of the Company has a
financial interest (a "Related Entity") or between the Company and any
director or officer of the Company, The Limited, any subsidiary of The Limited
or any Related Entity shall be void or voidable solely for the reason that The
Limited or such subsidiary, a Related Entity or any one or more of the
officers or directors of the Company, The Limited or such subsidiary or any
Related Entity are parties thereto, or solely because any such directors or
officers are present at, participate in or vote (which vote shall be counted)
with respect to the authorization of the contract, agreement, arrangement or
transaction (or any amendment, modification or termination thereof). Further,
the Company's Certificate of Incorporation provides that The Limited, its
subsidiaries and any Related Entity shall not be liable to the Company or its
shareholders for breach of any fiduciary duty or duty of loyalty or failure to
act in (or not opposed to) the best interests of the Company or the derivation
of any improper personal benefit by reason of the fact that The Limited, such
subsidiary or such Related Entity in good faith takes any action or exercises
any rights or gives or withholds any consent in connection with any agreement
or contract between The Limited, such subsidiary or such Related Entity and
the Company. No vote cast or other action taken by any person who is an
officer, director or other representative of The Limited, such subsidiary or
such Related Entity, which vote is cast or action is taken by such person in
his capacity as a director of the Company, shall constitute an action of or
the exercise of a right by or a consent of The Limited, such subsidiary or
such Related Entity for the purpose of any such agreement or contract. See
"Risk Factors".
Corporate Opportunities
The Company's Certificate of Incorporation provides that except
as The Limited may otherwise agree in writing:
(i) neither The Limited nor any subsidiary of The Limited (other than
the Company) shall have a duty to refrain from engaging directly or
indirectly in the same or similar business activities or lines of business
as the Company; and
(ii) neither The Limited nor any subsidiary (other than the Company),
officer or director of The Limited (except as provided below) will be
liable to the Company or to its shareholders for breach of any fiduciary
duty by reason of any such activities or of such person's participation
therein.
The Company's Certificate of Incorporation also provides that
if The Limited or any subsidiary of The Limited (other than the Company)
acquires knowledge of a potential transaction or matter which may be a
corporate opportunity both for The Limited or such subsidiary and for the
Company, neither The Limited nor such subsidiary shall have a duty to
communicate or offer such corporate opportunity to the Company and shall
not be liable to the Company or its shareholders for breach of fiduciary
duty as a shareholder of the Company or controlling person of a shareholder
by reason of the fact that The Limited or such subsidiary pursues or
acquires such opportunity for itself, directs such corporate opportunity to
another person, or does not communicate information regarding such
corporate opportunity to the Company.
Further, the Company's Certificate of Incorporation provides
that in the event that a director, officer or associate of the Company who is
also a director, officer or associate of The Limited or its subsidiaries
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for the Company, The Limited or its subsidiaries
(whether such potential transaction or matter is proposed by a third party or
is conceived of by such director, officer or associate of the Company), such
director, officer or associate shall be entitled to offer such corporate
opportunity to the Company, The Limited or such subsidiary as such director,
officer or associate deems appropriate under the circumstances in his or her
sole discretion, and no such director, officer or associate shall be liable to
the Company or its shareholders for breach of any fiduciary duty or duty of
loyalty or failure to act in (or not opposed to) the best interests of the
Company or the derivation of any improper personal benefit by reason of the
fact that (i) such director, officer or associate offered such corporate
opportunity to The Limited or such subsidiary (rather than the Company) or did
not communicate information regarding such corporate opportunity to the
Company or (ii) The Limited or such subsidiary pursues or acquires such
corporate opportunity for itself or directs such corporate opportunity to
another person or does not communicate information regarding such corporate
opportunity to the Company. The enforceability of the provisions discussed
above under Delaware corporate law has not been established and, due to the
absence of relevant judicial authority, counsel to the Company is not able to
deliver an opinion as to the enforceability of such provisions. These
provisions of the Company's Certificate of Incorporation eliminate certain
rights that might have been available to shareholders under Delaware law had
such provisions not been included in the Certificate of Incorporation,
although the enforceability of such provisions has not been established.
The Company's Board of Directors currently consists of three
members, two of whom serve concurrently as members of the Board of Directors
of The Limited and Intimate Brands. In addition, a significant number of
associates and officers of the Company will also be associates or officers of
The Limited or its subsidiaries.
The foregoing provisions of the Company's Certificate of
Incorporation shall expire on the date that The Limited ceases to own
beneficially Common Stock representing at least 20% of the number of
outstanding shares of Common Stock and no person who is a director or officer
of the Company is also a director or officer of The Limited or its
subsidiaries.
The affirmative vote of the holders of more than 75% of the
aggregate voting power of the Common Stock is required to alter, amend or
repeal in a manner adverse to the interests of The Limited, or adopt any
provision adverse to the interests of The Limited including provisions with
respect to the interested party and corporate opportunity provisions described
above. Accordingly, so long as The Limited beneficially owns Common Stock
representing at least 25% of the number of outstanding shares of Common Stock,
it can prevent any such alteration, amendment, repeal or adoption. See "Risk
Factors--Control by The Limited".
Actions Under Intercompany Agreements
The Company's Certificate of Incorporation also limits the
liability of The Limited and its subsidiaries for certain breaches of their
fiduciary duties in connection with action that may be taken or not taken in
good faith under the intercompany agreements. See "Relationship with The
Limited".
Any person purchasing or acquiring an interest in shares of
capital stock of the Company is deemed to have consented to the foregoing
provisions relating to intercompany agreements and the provisions set forth
above relating to transactions with interested parties and corporate
opportunities. The Certificate of Incorporation of The Limited does not
include comparable provisions relating to intercompany agreements,
transactions with interested parties or corporate opportunities.
Advance Notice Provision
Abercrombie & Fitch's Bylaws provide for an advance notice
procedure for the nomination, other than by or at the direction of the Board
of Directors, of candidates for election as directors as well as for other
shareholder proposals to be considered at annual meetings of shareholders. In
general, notice of intent to nominate a director or raise matters at such
meetings will have to be received by Abercrombie & Fitch not less than 120 or
more than 150 days prior to the first anniversary of Abercrombie & Fitch's
proxy statement in connection with the previous year's annual meeting, and
must contain certain information concerning the person to be nominated or the
matters to be brought before the meeting and concerning the shareholder
submitting the proposal.
The Delaware General Corporation Law
The Company is a Delaware corporation subject to Section 203
of the DGCL. Section 203 provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business
combination with any "interested shareholder" for a three-year period
following the date that such shareholder becomes an interested shareholder
unless: (i) prior to such date, the Board of Directors of the corporation
approved either the business combination or the transaction which resulted
in the shareholder becoming an interested shareholder; (ii) upon
consummation of the transaction which resulted in the shareholder becoming
an interested shareholder, the interested shareholder owned at least 85% of
the voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares); or (iii) on or subsequent to such
date, the business combination is approved by the Board of Directors of the
corporation and by the affirmative vote of at least 66% of the outstanding
voting stock which is not owned by the interested shareholder. Except as
specified in Section 203 of the DGCL, an interested shareholder is defined
to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the
outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and
associates of any such person. Under certain circumstances, Section 203 of
the DGCL makes it more difficult for an "interested shareholder" to effect
various business combinations with the Company for a three-year period,
although the shareholders of the Company may elect to exclude the Company
from the restrictions imposed thereunder. By virtue of its beneficial
ownership of Class B Common Stock, The Limited is in a position to elect to
exclude the Company from the restrictions under Section 203 and currently
has no intention to do so.
Transfer Agent
The Company's transfer agent and registrar for its Common
Stock is .
DESCRIPTION OF CERTAIN INDEBTEDNESS
Following is a discussion of the material terms of certain
indebtedness of the Company.
Intercompany Debt
Abercrombie & Fitch's subsidiaries have intercompany
obligations to The Limited in an aggregate amount of approximately $53.1
million. The long-term Mirror Note in the amount of $50 million bears
interest at the rate of 7.80% per annum and matures on May 15, 2002. The
interest rate and maturity of the long-term Mirror Note parallel those of
the corresponding debt of The Limited. The Working Capital Note,
representing indebtedness of $3.1 million, matures on January 31, 1997 and
bears interest at a rate of 6.75% per annum.
Credit Agreement
Two subsidiaries of the Company, Abercrombie & Fitch Stores,
Inc. and A & F Trademark, Inc. (each a "Borrower" and together, the
"Borrowers"), are parties to the Credit Agreement with the banks listed
therein and Chase Manhattan Bank, as agent, pursuant to which such
subsidiaries entered into a five-year term loan facility. Under the Credit
Agreement, such subsidiaries borrowed an aggregate amount of $150 million. The
amounts borrowed are repayable in nine consecutive semi-annual installments,
commencing on June 30, 1997 and ending on June 30, 2001, provided, that
borrowings must be repaid in an amount equal to the Excess Cash Flow (as
defined therein) of the Company, which amount will include the net proceeds of
the Offerings. The aggregate amount payable on each June 30 and December 31
is $10 million and $25 million, respectively. Interest on borrowings under
the Credit Agreement accrues, at each of the Borrowers' option, at either a
base rate or a rate based on the London Interbank Offered Rate ("LIBOR").
Base rate borrowings accrue interest at the higher of the prime rate
(announced by Chase Manhattan Bank in New York), or the Federal Funds Rate
plus .5%. LIBOR borrowings accrue interest at the rate of interest published
by the Telerate Service (or if such rate is not available, then the rate of
interest at which dollar deposits of $5 million are available to the Agent in
the London interbank market) plus a certain margin. Optional prepayments of
the borrowings shall be applied to the repayment installments pro rata and may
not be reborrowed.
Borrowings under the Credit Agreement are guaranteed by the
Company and by Abercrombie & Fitch Holding Corporation ("Holdings"), a
wholly-owned subsidiary of the Company and the holding company parent of
Abercrombie & Fitch Stores, Inc. In addition, each of the Borrowers have
guaranteed all obligations of the other Borrower. In the event that (a) A & F
Trademark, Inc. or Holdings is neither a direct, wholly-owned subsidiary of
the Company, (b) Abercrombie & Fitch Stores, Inc. ceases to be a direct,
wholly-owned subsidiary of Holdings nor a direct wholly-owned subsidiary of
the Company or (c) The Limited ceases to own directly at least 80% of the
outstanding capital stock of the Company or the Company and its consolidated
subsidiaries cease to be consolidated subsidiaries of The Limited, all
borrowings will be subject to mandatory prepayment.
The Credit Agreement contains financial covenants including an
interest and rental expense coverage ratio and a maximum ratio of debt to
EBITDA (as defined therein). The Credit Agreement also provides for
limitations on mergers, consolidations, acquisitions, sale of assets,
transactions with affiliates, sale and lease-back transactions, liens, capital
expenditures, debt and investments. The Credit Agreement also prohibits the
payment by the Company of dividends on its capital stock, including the Class
A Common Stock.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States
federal income and estate tax consequences of the ownership and disposition of
the Common Stock applicable to Non-United States Holders of such Common Stock.
For the purpose of this discussion, a "Non-United States Holder" is any holder
that is, as to the United States, a foreign corporation, a non-resident alien
individual, a foreign partnership or a non-resident fiduciary of a foreign
estate or trust as such terms are defined in the Code. This discussion does
not deal with all aspects of United States federal income and estate taxation
and does not deal with foreign, state and local tax consequences that may be
relevant to Non-United States Holders in light of their personal
circumstances. Furthermore, the following discussion is based on current
provisions of the Code and administrative and judicial interpretations as of
the date hereof, all of which are subject to change. Prospective foreign
investors are urged to consult their tax advisors regarding the United States
federal, state, local and non-United States income and other tax consequences
of owning and disposing of Common Stock.
Proposed United States Treasury Regulations were issued on
April 15, 1996 (the "Proposed Regulations") which, if adopted, would affect
the United States taxation of dividends paid to a Non-United States Holder on
Common Stock. The Proposed Regulations are generally proposed to be effective
with respect to dividends paid after December 31, 1997, subject to certain
transition rules. The discussion below is not intended to be a complete
discussion of the provisions of the Proposed Regulations, and prospective
investors are urged to consult their tax advisors with respect to the effect
the Proposed Regulations would have if adopted.
Dividends
Generally, any dividend paid to a Non-United States Holder of
Common Stock will be subject to United States withholding tax either at a rate
of 30% of the gross amount of the dividend or such lower rate as may be
specified by an applicable tax treaty. Under current United States Treasury
regulations, dividends paid to an address outside the United States are
presumed to be paid to a resident of such country (absent knowledge that such
presumption is not warranted) for purposes of the withholding discussed above
and, under the current interpretation of United States Treasury regulations,
for purposes of determining applicability of a tax treaty rate.
Under the Proposed Regulations, to obtain a reduced rate of
withholding under a treaty, a Non-United States Holder would generally be
required to provide an Internal Revenue Service Form W-8 certifying such
Non-United States Holder's entitlement to benefits under a treaty. The
Proposed Regulations would also provide special rules to determine whether,
for purposes of determining the applicability of a tax treaty, dividends paid
to a Non-United States Holder that is an entity should be treated as paid to
the entity or those holding an interest in that entity.
Dividends received by a Non-United States Holder that are
effectively connected with a United States trade or business conducted by such
Non-United States Holder are exempt from such withholding tax. However, such
effectively connected dividends, net of certain deductions and credits, are
taxed at the same graduated rates applicable to United States persons. A
Non-United States Holder may claim exemption from withholding under the
effectively connected income exception by filing Form 4224 (Statement Claiming
Exemption from Withholding of Tax on Income Effectively Connected With the
Conduct of Business in the United States) each year with the Company or its
paying agent prior to the payment of the dividends for such year. In addition
to the graduated tax described above, dividends received by a corporate
Non-United States Holder that are effectively connected with a United States
trade or business of the corporate Non-United States Holder may also be
subject to a branch profits tax at a rate of 30% or such lower rate as may be
specified by an applicable tax treaty.
A Non-United States Holder of Common Stock eligible for a
reduced rate of United States withholding tax pursuant to a tax treaty may
obtain a refund of any excess amounts currently withheld by filing an
appropriate claim for refund with the U.S. Internal Revenue Service.
Gain on Disposition of Common Stock
A Non-United States Holder generally will not be subject to
United States federal income tax on any gain realized upon the sale or
other disposition of his Common Stock unless: (i) such gain is effectively
connected with a United States trade or business of the Non-United States
Holder; (ii) the Non-United States Holder is an individual who holds such
Common Stock as a capital asset and who is present in the United States for
a period or periods aggregating 183 days or more during the calendar year
in which such sale or disposition occurs and certain other conditions are
met; or (iii) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes at any time within the
shorter of the five-year period preceding such disposition or such holder's
holding period. The Company has determined that it is not and does not
believe that it will become a "United States real property holding
corporation" for federal income tax purposes.
Backup Withholding and Information Reporting
Generally, the Company must report to the U.S. Internal
Revenue Service the amount of dividends paid, the name and address of the
recipient, and the amount, if any, of tax withheld. A similar report is
sent to the holder. Pursuant to tax treaties or other agreements, the U.S.
Internal Revenue Service may make its reports available to tax authorities
in the recipient's country of residence.
Dividends paid to a Non-United States Holder at an address
within the United States may be subject to backup withholding at a rate of 31%
if the Non-United States Holder fails to establish that it is entitled to an
exemption or to provide a correct taxpayer identification number and other
information to the payor. Backup withholding will generally not apply to
dividends paid to Non-United States Holders at an address outside the United
States (unless the payor has knowledge that the payee is a U.S. person).
The payment of the proceeds of the disposition of Common Stock
to or through the United States office of a broker is subject to information
reporting and backup withholding at a rate of 31% unless the holder certifies
its non-United States status under penalties of perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a Non-United States Holder of Common Stock outside the United
States to or through a foreign office of a broker will not be subject to
backup withholding. However, information reporting requirements (but not
backup withholding) will apply to a payment of disposition proceeds outside
the United States through an office outside the United States of a broker that
is (a) a United States person, (b) a United States "controlled foreign
corporation" for U.S. tax purposes or (c) a foreign person 50% or more of
whose gross income for certain periods is from the conduct of a United States
trade or business unless such broker has documentary evidence in its files of
the owner's foreign status and has no actual knowledge to the contrary or the
holder otherwise establishes an exemption.
The Proposed Regulations would, if adopted, alter the foregoing
rules in certain respects. Among other things, the Proposed Regulations would
provide certain presumptions under which a Non-United States Holder would be
subject to backup withholding and information reporting unless the Company
receives certification from the holder of non-U.S. status.
Backup withholding is not an additional tax. Rather, the tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained, provided that the required information is furnished to
the U.S. Internal Revenue Service.
Estate Tax
An individual Non-United States Holder who owns Common Stock at
the time of his death or has made certain lifetime transfers of an interest in
Common Stock will be required to include the value of such stock in his gross
estate for United States federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
LEGAL MATTERS
The validity of the Class A Common Stock offered hereby will
be passed upon by Davis Polk & Wardwell, New York, New York. Certain
legal matters in connection with the Class A Common Stock offered hereby
will be passed upon for the Underwriters by Fried, Frank, Harris, Shriver
& Jacobson (a partnership including professional corporations), New York,
New York.
EXPERTS
The balance sheet of Abercrombie & Fitch Co. as of July 11,
1996 and the consolidated balance sheet of the Abercrombie & Fitch Business as
of January 28, 1995 and February 3, 1996, and the related consolidated
statements of operations and cash flows for each of the three fiscal years in
the period ended February 3, 1996 included in this Prospectus have been
audited by Coopers & Lybrand L.L.P., independent auditors, as stated in their
reports appearing herein, and have been included in reliance upon such reports
given upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Abercrombie & Fitch has filed with the Commission a
registration statement on Form S-1 (the "Registration Statement") under
the Securities Act with respect to the Class A Common Stock offered
hereby. For the purposes hereof, the term "Registration Statement" means
the original Registration Statement and any and all amendments thereto.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information
with respect to the Company and such Class A Common Stock, reference is
hereby made to such Registration Statement, including the exhibits and
schedules thereto, which can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at Seven World Trade Center, New York, New York
10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates.
Such material may also be accessed electronically by means of the
Commission's home page on the Internet at http://www.sec.gov.
Upon completion of the Offerings, the Company will be subject
to the informational requirements of the Exchange Act, and, in accordance
therewith, will file reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information can be inspected and copied at the addresses,
and may be accessed electronically at the URL, set forth above.
The Company intends to furnish to its shareholders annual
reports containing audited consolidated financial statements and an opinion
thereon expressed by the Company's independent auditors as well as quarterly
reports for the first three fiscal quarters of each fiscal year containing
unaudited consolidated condensed financial statements.
Statements contained in this Prospectus as to the contents of
any agreement, contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such agreement, contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock in any jurisdiction
in which such offer or solicitation is unlawful. See "Underwriting".
In this Prospectus, references to "Dollars" and to "$" are to
United States dollars.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Abercrombie & Fitch Co. Financial Statements:
Report of Independent Accountants...................................... F-2
Balance Sheet.......................................................... F-3
Notes to Balance Sheet................................................. F-4
Abercrombie & Fitch Business Financial Statements:
Report of Independent Accountants...................................... F-5
Consolidated Statements of Operations.................................. F-6
Consolidated Balance Sheets............................................ F-7
Consolidated Statements of Cash Flows.................................. F-8
Notes to Consolidated Financial Statements............................. F-9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of Abercrombie & Fitch Co.
We have audited the accompanying balance sheet of Abercrombie & Fitch Co.
as of July 11, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Abercrombie & Fitch Co. as of
July 11, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
July 11, 1996
ABERCROMBIE & FITCH CO.
BALANCE SHEET
July 11, 1996
ASSETS
Current assets:
Cash......................................................... $1,000
======
SHAREHOLDER'S EQUITY
Common Stock, $.10 par value; 1,000 shares
authorized; 1,000 shares issued and outstanding............... $100
Paid in capital............................................... 900
Retained earnings............................................. -
------
Total shareholder's equity................................... $1,000
======
The accompanying notes are an integral part of the balance sheet.
ABERCROMBIE & FITCH CO.
NOTES TO BALANCE SHEET
1. Organization
Abercrombie & Fitch Co. was incorporated on June 26, 1996, and, except for
organizational matters and activities undertaken in connection with the
proposed initial public offering of its common shares, has been inactive since
that date. As a result, the Company has not had any income or expenses. On
July 11, 1996 the Company issued 1,000 common shares to its sole shareholder,
The Limited, Inc. ("The Limited") for cash.
2. Planned Transactions
As a result of a Board Resolution by the directors of The Limited, Inc.,
The Limited will contribute the stock of Abercrombie & Fitch Holdings, the
parent company of the Abercrombie & Fitch Business, and A&F Trademark, Inc. to
Abercrombie & Fitch Co. Prior to the public offering of its shares, the
Company's certificate of incorporation will be amended to authorize
shares of preferred stock and shares of Class A common stock and
shares of Class B common stock, each with a par value of $.01 per
share. Holders of Class A common stock generally will have identical rights
to holders of Class B common stock except that holders of Class A common stock
will be entitled to one vote per share while holders of Class B common stock
will be entitled to three votes per share on all matters submitted to a vote
of shareholders. Each share of Class B common stock will be convertible while
held by The Limited or any of its subsidiaries into one share of Class A common
stock.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder of The Abercrombie & Fitch Business
We have audited the accompanying consolidated balance sheet of the
Abercrombie & Fitch Business as of January 28, 1995 and February 3, 1996, and
the related consolidated statements of operations and cash flows for each of
the three fiscal years in the period ended February 3, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The
Abercrombie & Fitch Business of January 28, 1995 and February 3, 1996 and the
consolidated results of its operations and its cash flows for each of the
three fiscal years in the period ended February 3, 1996 in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Columbus, Ohio
July 11, 1996
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED STATEMENTS OF OPERATIONS
(thousands)
Fiscal Year Ended Quarter Ended
(Unaudited)
---------------------------------------------- ------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- -------
Net sales............................. $110,952 $165,463 $235,659 $33,377 $51,020
Cost of goods sold, occupancy and
buying costs................... 80,390 108,643 155,865 24,949 36,126
-------- -------- -------- ------- -------
Gross income.......................... 30,562 56,820 79,794 8,428 14,894
General, administrative and store
operating expenses............. 30,240 43,069 55,996 10,297 15,293
Special and nonrecurring items........ 4,386 -- -- -- --
-------- -------- -------- ------- -------
OOperating income (loss) before
income taxes.................... (4,064) 13,751 23,798 (1,869) (399)
Provision for (benefit from) income
taxes................................. (1,600) 5,500 9,500 (700) (200)
-------- -------- -------- ------- -------
Net income (loss)..................... $(2,464) $8,251 $14,298 $(1,169) $(199)
======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED BALANCE SHEETS
(thousands)
January 28, February 3, May 4,
1995 1996 1996 Pro Forma May 4, 1996
(Unaudited)
(Unaudited) (Note 14)
----------- ----------- ----------- ---------------------
ASSETS
Current assets
Cash.................................................. $592 $874 $823 $824
Accounts receivable................................... 3,632 3,617 3,231 3,231
Inventories........................................... 16,551 30,388 33,042 33,042
Store supplies........................................ 1,974 3,529 3,753 3,753
Deferred income taxes................................. -- -- 1,208 1,208
Other................................................. 357 448 261 261
------- ------- ------- -------
Total current assets................................ 23,106 38,856 42,318 42,319
Property and equipment, net............................ 34,904 47,203 45,765 45,765
Deferred income taxes.................................. -- 1,624 1,624 1,624
Other assets........................................... 8 10 10 10
------- ------- ------- -------
Total assets........................................ $58,018 $87,693 $89,717 $89,718
======= ======= ======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities
Accounts payable...................................... $4,379 $4,359 $4,044 $4,044
Accrued expenses...................................... 10,411 14,500 13,593 13,593
Credit agreement...................................... -- -- -- 150,000
Working capital note.................................. -- -- -- 3,074
Income taxes payable.................................. 3,434 4,892 200 200
------- ------- ------- -------
Total current liabilities........................... 18,224 23,751 17,837 170,911
------- ------- ------- -------
Long-term intercompany debt............................ 74,101 86,045 94,074 --
Long-term mirror note.................................. -- -- -- 50,000
Deferred income taxes.................................. 2,359 -- -- --
Other long-term liabilities............................ 404 519 627 627
Shareholder's equity (deficit)......................... (37,070) (22,622) (22,821) (131,820)
------- ------- ------- -------
Total liabilities and shareholder's equity (deficit) $58,018 $87,693 $89,717 $89,718
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
THE ABERCROMBIE & FITCH BUSINESS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands)
Fiscal Year Ended Quarter Ended
--------------------------------------------- -----------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
----------- ----------- ----------- ---------- ---------
(Unaudited)
Cash flows from operating activities
Net income (loss)....................... $(2,464) $8,251 $14,298 $(1,169) $(199)
Impact of other operating activities on cash
flows
Depreciation and amortization........... 7,054 7,799 9,104 2,132 2,483
Special and nonrecurring items.......... 4,386 -- -- -- --
Change in assets and liabilities
Accounts receivable..................... (171) (2,058) 15 1,356 386
Inventories............................. 5,023 (6,499) (13,837) (4,372) (2,654)
Accounts payable and accrued expenses... 4,809 4,117 4,069 (1,865) (1,222)
Income taxes............................ 2,770 5,914 1,458 (5,300) (5,900)
Other assets and liabilities............ (768) 2,631 (2,393) (55) 313
------- ------ ------- ------- -------
Net cash provided by (used for)
operating activities....................... 20,639 20,155 12,714 (9,273) (6,793)
------- ------ ------- ------- -------
Investing activities
Capital expenditures.................... (4,694) (12,603) (24,526) (2,826) (1,287)
------- ------ ------- ------- -------
Cash used for investing activities......... (4,694) (12,603) (24,526) (2,826) (1,287)
------- ------ ------- ------- -------
Financing activities
Change in long-term intercompany debt... (15,796) (7,387) 11,944 12,022 8,029
Other changes in shareholder's equity
(deficit)............................... -- 20 150 -- --
------- ------ ------- ------- -------
Net cash provided by (used for)
financing activities.......................... (15,796) (7,367) 12,094 12,022 8,029
------- ------ ------- ------- -------
Net increase (decrease ) in cash.............. 149 185 282 (77) (51)
Cash, beginning of period..................... 258 407 592 592 874
------- ------ ------- ------- -------
Cash, end of period........................... $407 $592 $874 $515 $823
======= ====== ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
THE ABERCROMBIE & FITCH BUSINESS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Presentation
The accompanying financial statements include the accounts of
the Abercrombie & Fitch Business and its subsidiaries. The Abercrombie &
Fitch Business is a direct subsidiary of The Limited, Inc. ("The Limited").
The Abercrombie & Fitch Business is a specialty retailer of
high-quality, casual American apparel for men and women with an active,
youthful lifestyle. The business was established in 1892 and was subsequently
acquired by The Limited in 1988.
The accompanying consolidated financial statements include the
historical financial statements of and transactions applicable to the
Abercrombie & Fitch Business and reflect the assets, liabilities, results of
operations and cash flows on a historical cost basis. Certain investment
assets unrelated to the Company have been excluded from the historical
financial statements and will not be retained by the Abercrombie & Fitch
Business.
The consolidated financial statements are prepared for
inclusion in a registration statement relating to the public offering of Class
A common shares of Abercrombie & Fitch Co., a wholly-owned subsidiary of The
Limited. Prior to the aforementioned public offering, The Limited will
contribute the stock of Abercrombie & Fitch Holdings, the parent company of
the Abercrombie & Fitch Business, and A&F Trademark, Inc. to Abercrombie &
Fitch.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
the Abercrombie and Fitch Business and all significant subsidiaries which are
more than 50% owned and controlled. All significant intercompany balances and
transactions have been eliminated in consolidation.
Fiscal year
The Company's fiscal year ends on the Saturday closest to
January 31. Fiscal years are designated in the financial statements and notes
by the calendar year in which the fiscal year commences. The results for
fiscal year 1995 represent the 53-week period ended February 3, 1996 and the
results for fiscal years 1993 and 1994 represents the 52-week periods ended
January 29, 1994 and January 28, 1995.
Interim financial statements
The consolidated financial statements as of and for the periods
ended April 29, 1995 and May 4, 1996 are unaudited and are presented pursuant
to the rules and regulations of the Securities and Exchange Commission. In
the opinion of management, the accompanying consolidated financial statements
reflect all adjustments (which are of normal recurring nature) necessary to
present fairly the financial position and results of operations and cash flows
for the interim periods, but are not necessarily indicative of the results of
operations for a full fiscal year.
Store Supplies
The initial inventory of supplies for new stores including,
but not limited to, hangers, signage, sensormatic tags and point-of-sale
supplies are capitalized at the store opening date. Subsequent shipments are
expensed except for new merchandise presentation programs which are
capitalized.
Inventory
Inventories are principally valued at the lower of average cost
or market, on a first-in first-out basis, utilizing the retail method.
Property and equipment
Depreciation and amortization of property and equipment are
computed for financial reporting purposes on a straight-line basis, using
service lives ranging principally from 10-15 years for building improvements
and 3-10 years for other property and equipment. Beneficial leaseholds
represent the present value of the excess of fair market rent over contractual
rent of existing stores at the 1988 purchase of the Company by The Limited and
are being amortized over the lives of the related leases. The cost of assets
sold or retired and the related accumulated depreciation or amortization are
removed from the accounts with any resulting gain or loss included in net
income. Maintenance and repairs are charged to expense as incurred. Major
renewals and betterments that extend service lives are capitalized.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that full recoverability is questionable. Factors used
in the valuation include, but are not limited to, management's plans for
future operations, recent operating results and projected cash flows.
Revenue recognition
Sales are recorded upon purchase by customers.
Provision for income taxes
Income taxes are calculated using the liability method.
Deferred tax assets and liabilities are recognized based on the difference
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect in the years in
which those temporary differences are expected to reverse.
The Company is included in The Limited's consolidated federal
and certain state income tax groups for income tax reporting purposes and is
responsible for its proportionate share of income taxes calculated upon its
federal taxable income at a current estimate of the annual effective tax rate.
Advertising
Advertising costs consist of in-store photographs and
advertising in selected national publications and are expensed when the
photographs or publications first appear. Advertising costs amounted to $519
thousand in 1993, $1.215 million in 1994, $3.121 million in 1995 and $575
thousand and $447 thousand for the quarters ended April 29, 1995 and May 4,
1996.
Store pre-opening expenses
Pre-opening expenses related to new store openings are charged
to operations as incurred.
Store closing costs
When a store is relocated or closed, estimated unrecoverable
costs are charged to operations.
Fair value of financial instruments
The recorded values of financial instruments, including cash,
accounts receivable and accounts payable, approximate fair value due to the
short maturity and because the average interest rate approximates current
market origination rates.
Earnings per share
Historical earnings per share data is omitted from the
consolidated statements of operations as it is not meaningful.
Adoption of New Accounting Standards
The Company will make the new disclosures for SFAS No. 123,
"Accounting for Stock-Based Compensation" beginning with fiscal year-end 1996.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Since actual results may differ from
those estimates, the Company revises its estimates and assumptions as new
information becomes available.
3. Special and nonrecurring items
During 1993, the Abercrombie & Fitch Business participated in a
plan of The Limited which provided for the closure, downsizing and remodeling
of seven under-performing stores of the Abercrombie & Fitch Business. In
developing this program, specific stores were identified based upon historical
operating results of such stores and assessment of the quality of real estate.
The provision for store closure, downsizing and remodeling aggregated
approximately $4.4 million and included the net book value of abandoned fixed
assets and lease termination payments. As of October 28, 1995, the
Abercrombie & Fitch Business had completed the program.
4. Property and equipment
Property and equipment, at cost, consisted of (thousands):
January 28, February 3, May 4,
1995 1996 1996
---------- ----------- -------
(Unaudited)
Furniture, fixtures and equipment.... $50,871 $71,590 $72,803
Beneficial leaseholds................ 9,387 7,925 7,925
Building improvements and leaseholds. 2,565 1,267 1,213
Construction in progress............. 212 85 213
------- ------- -------
63,035 80,867 82,154
Less - accumulated depreciation and
amortization......................... 28,131 33,664 36,389
------- ------- -------
Property and equipment, net.......... $34,904 $47,203 $45,765
======= ======= =======
5. Leased facilities and commitments
Annual store rent is comprised of a fixed minimum amount, plus
contingent rent based upon percentage of sales exceeding a stipulated amount.
Store lease terms generally require additional payments covering taxes, common
area costs and certain other expenses.
A summary of rent expense for fiscal year 1993, 1994 and 1995
and the quarters ended April 29, 1995 and May 4, 1996 follows (thousands):
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
---------- ----------- ----------- --------- -------
(Unaudited)
Store rent
Fixed minimum..................... $8,112 $11,308 $17,465 $3,667 $5,430
Contingent........................ 1,010 1,475 1,322 199 388
------ ------- ------- ------ ------
Total store rent........................ 9,122 12,783 18,787 3,866 5,818
Buildings, equipment and other.......... 643 613 1,058 197 304
------ ------- ------- ------ ------
Total rent expense................ $9,765 $13,396 $19,845 $4,063 $6,122
====== ======= ======= ====== ======
Rent expense includes charges from The Limited and other
divisions of The Limited for space used. The Abercrombie & Fitch Business
intends to execute formal agreements for use of such space (see Note 8). The
Abercrombie & Fitch Business was committed to noncancelable leases with
remaining terms of one to twenty years. These commitments include store
leases with initial terms ranging from ten to fifteen years and offices and a
distribution center leased from an affiliate of The Limited with an initial
term of 15 years. Substantially all of the Abercrombie & Fitch Business store
leases are guaranteed by The Limited. A summary of minimum rent commitments
under noncancelable leases follows (thousands):
1996................................... $ 22,064
1997................................... 21,982
1998................................... 22,010
1999................................... 22,323
2000................................... 22,354
Thereafter............................. 133,335
6. Accrued expenses
Accrued expenses consisted of the following (thousands):
January 28, February 3, May 4,
1995 1996 1996
---------- ----------- ---------
(Unaudited)
Accrued taxes, other than income. $1,252 $1,882 $1,787
Accrued compensation............. 2,185 3,025 2,378
Accrued rent..................... 2,071 2,872 2,991
Other............................ 4,903 6,721 6,437
------- ------- -------
Total............................ $10,411 $14,500 $13,593
======= ======= =======
7. Income Taxes
The Abercrombie & Fitch Business consolidated financial
statements reflect a charge for federal and state income taxes as if the
Abercrombie & Fitch Business had been subject to tax on a separate company
basis during the periods presented. The charge is based on the then current
tax rates.
This provision for (benefit from) income taxes consisted of
(thousands):
Fiscal Year Ended Quarter Ended
---------------------------------------------- ------------------------
January 29, January 28, February 3, April 29, May 4,
1994 1995 1996 1995 1996
----------- ----------- ----------- --------- _________
(Unaudited)
Current:
Federal.................... $(1,400) $4,300 $6,900 $(700) $(200)
State...................... (400) 1,100 1,700 (100) --
------- ------ ------ ------ -------
(1,800) 5,400 8,600 (800) (200)
------- ------ ------ ------ -------
Deferred:
Federal.................... 200 100 700 100 --
State...................... -- -- 200 -- --
------- ------ ------ ------ -------
200 100 900 100 --
------- ------ ------ ------ -------
Total provision (benefit) $(1,600) $5,500 $9,500 $(700) $(200)
======= ====== ====== ====== =======
For the quarters ended April 29, 1995 and May 4, 1996, the
statements of operations reflect a provision for federal and state income
taxes based on the Company's expected annual tax rates.
A reconciliation between the statutory federal income tax rate
and the effective income tax rate follows:
Quarter Ended
-----------------------------------
1993 1994 1995 April 29, 1995 May 4, 1996
----- ----- ----- -------------- -----------
(Unaudited)
Federal income tax rate........ 35.0% 35.0% 35.0% 35.0% 35.0%
State income tax, net of
federal income tax effect 5.2% 5.2% 5.2% 5.2% 5.2%
Other items, net............... (1.1%) (0.2%) (0.3%) (2.7%) (1.6%)
----- ----- ----- ----- -----
39.1% 40.0% 39.9% 37.5% 38.6%
===== ===== ===== ===== =====
Income taxes payable included current deferred tax assets of
$1.566 million and $1.208 million, at January 28, 1995 and February 3, 1996.
Current income tax obligations are treated as having been
settled through the intercompany accounts as if the Company were filing its
income tax returns on a separate company basis. Such amounts were $.8 million
and $7.5 million in fiscal years 1994 and 1995 and were $4.6 million and $5.7
million for the quarters ended April 29, 1995 and May 4, 1996.
The effect of temporary differences which give rise to deferred
income tax balances was as follows (thousands):
1994 1995
---------------------------------------------- --------------------------------------
Assets Liabilities Total Assets Liabilities Total
------------- ----------- --------- -------- ------------- -------
Fixed assets.................. $ - $(2,765) $(2,765) $1,159 $ - $1,159
Accrued expenses.............. 1,469 - 1,469 1,504 - 1,504
Other, net.................... 503 - 503 169 - 169
------------- ---------- ------- ------ ------------- ------
Total deferred income taxes... $1,972 $ (2,765) $(793) $2,832 $ - $2,832
============= ========== ======= ====== ============= ======
No valuation allowance has been provided for deferred tax
assets because management believes that it is more likely than not that the
full amount of the net deferred tax assets will be realized in the future.
The Internal Revenue Service has assessed The Limited for
additional taxes and interest for the years 1989-1992. The portion of the
assessment relating to the Company was based on treatment of construction
allowances. Although The Limited made a deposit to mitigate further interest
being assessed, the Company strongly disagrees with the assessment and is
vigorously contesting the matter. Management believes resolution of this
matter will not have a material adverse effect on the Company's results of
operations or financial condition. The Limited has allocated a portion of the
deposit to the Company which is included in deferred tax assets.
8. Related party transactions
Transactions between the Abercrombie & Fitch Business, The
Limited, and its subsidiaries and affiliates, commonly occur in the normal
course of business and principally consist of the following:
Merchandise purchases
Real estate management and leasing
Capital expenditures
Inbound and outbound shipping
Corporate services
Information with regard to these transactions is as follows:
Significant purchases are made from Mast, a wholly owned
subsidiary of The Limited. Purchases are also made from Gryphon, an indirect
subsidiary of The Limited. Mast is a contract manufacturer and apparel
importer while Gryphon is a developer of fragrance and personal care products
and also a contract manufacturer. Prices are negotiated on a competitive
basis by merchants of the Abercrombie & Fitch Business with Mast, Gryphon and
the manufacturers.
The Abercrombie & Fitch Business' real estate operations,
including all aspects of lease negotiations and ongoing dealings with
landlords and developers, are handled centrally by the real estate division of
The Limited ("Real Estate Division"). Real Estate Division expenses are
allocated to the Abercrombie & Fitch Business based on a combination of new
and remodeled store construction projects and open selling square feet.
The Abercrombie & Fitch Business' store design and construction
operations are coordinated centrally by the store planning division of The
Limited ("Store Planning Division"). The Store Planning Division facilitates
the design and construction of the stores and upon completion transfers the
stores to the Abercrombie & Fitch Business at actual cost. Store Planning
Division expenses are charged to the Abercrombie & Fitch Business based on a
combination of new and remodeled store construction projects and open selling
square feet.
The Abercrombie & Fitch Business' inbound and outbound freight
is managed centrally by Limited Distribution Services ("LDS"), a wholly owned
subsidiary of The Limited. Inbound freight is charged to the Abercrombie &
Fitch Business based on actual receipts, which is in turn charged back to
Abercrombie & Fitch's FOB Columbus suppliers. Outbound freight is charged on
percentage of cartons shipped.
The Limited provides certain services to the Abercrombie &
Fitch Business including, among other things, certain tax, treasury, legal,
corporate secretary, accounting, auditing, corporate development, risk
management, associate benefit plan administration, human resource and
compensation, government affairs and public relation services. Identifiable
costs are charged directly to the Abercrombie & Fitch Business. Aircraft
costs are charged based on usage and, effective January 29, 1995, include
minimum usage charges. All other services-related costs not specifically
attributable to an operating business have been allocated to the Abercrombie &
Fitch Business based upon a percentage of sales.
The Abercrombie & Fitch Business participates in The Limited's
centralized cash management system. Under this system, cash received from
The Abercrombie & Fitch Business' operations is transferred to The Limited's
centralized cash accounts and cash disbursements are funded from the
centralized cash accounts on a daily basis. For all periods presented
intercompany transactions have been reported as financing activities in the
accompanying consolidated statements of cash flows. Effective July 11, 1996,
the intercompany accounts became an interest earning current asset (interest
bearing current liability).
The Abercrombie & Fitch Business is charged rent expense,
common area maintenance charges and utilities for stores shared with other
consolidated subsidiaries of The Limited. The charges are based on square
footage and represent the proportionate share of the underlying leases with
third parties.
The Abercrombie & Fitch Business is also charged rent expense
and utilities for the distribution and home office space occupied (which
approximates fair market value).
The Abercrombie & Fitch Business and The Limited plan to enter
into intercompany agreements in connection with the Offerings pursuant to
which The Limited will continue to provide the services on similar terms as
those described above. Management believes the charges and allocations
described above are fair and reasonable.
The following table summarizes the related party transactions
between the Abercrombie & Fitch Business and The Limited and its other wholly
owned subsidiaries, for the periods indicated (thousands):
Fiscal Year Ended Quarter Ended
---------------------------------------------- -------------
January 29, January 28, February 3, May 4,
1994 1995 1996 1996
---------- ---------- ----------- -----------
(Unaudited)
Mast and Gryphon purchases.................. $11,019 $25,325 $35,167 $7,746
Capital expenditures........................ 4,910 12,819 22,274 939
Inbound and outbound freight................ 632 2,153 2,869 657
Corporate charges........................... 2,086 2,865 4,019 1,010
Store leases and other occupancy............ 289 380 1,397 373
Distribution center, MIS and home office
expense..................................... 1,566 1,676 2,564 679
Centrally managed benefits.................. 1,239 1,289 2,417 1,067
------- ------- ------- -------
$21,741 $46,507 $70,707 $12,471
======= ======= ======= =======
The following is a summary of the activity in the long-term
intercompany debt account (thousands):
Fiscal Year Ended Quarter Ended
--------------------------------------------------------- -------------
January 29, May 4,
1994 January 28, 1995 February 3, 1996 1996
----------- ---------------- ---------------- -------------
(Unaudited)
Beginning balance........................... $97,284 $80,084 $73,211 $86,045
Transactions with related parties........... 21,741 46,507 70,707 12,471
Centralized cash management................. (37,541) (54,180) (65,373) (10,142)
Settlement of current period income taxes... (1,400) 800 7,500 5,700
------- ------- ------- -------
Ending balance.............................. $80,084 $73,211 $86,045 $94,074
======= ======= ======= =======
9. Shareholder's equity (deficit)
A reconciliation of shareholder's equity (deficit) follows
(thousands):
Fiscal Year Ended Quarter Ended
--------------------------------------------------------- -------------
January 29, May 4,
1994 January 28, 1995 February 3, 1996 1996
------------ ---------------- ---------------- -----------
(Unaudited)
Beginning balance........................ $(42,877) $(45,341) $(37,070) $(22,622)
Net income (loss)........................ (2,464) 8,251 14,298 (199)
Other changes in shareholder's equity.... -- 20 150 --
--------- -------- -------- --------
Ending balance........................... $(45,341) $(37,070) $(22,622) $(22,821)
========= ======== ======== ========
10. Retirement benefits (thousands)
The Abercrombie & Fitch Business participated in a defined
contribution retirement plan sponsored by The Limited. Participation in this
plan is available to all associates who have completed 1,000 or more hours of
service with the Abercrombie & Fitch Business during certain 12 month periods
and attained the age of 21. The Abercrombie & Fitch Business' contributions to
this plan are based on a percentage of the associates' annual compensation.
The cost of this plan was $257 in 1993, $343 in 1994 and $549 in 1995.
11. Employee benefits (thousands)
Officers and key employees were granted options to participate
in The Limited's stock option and restricted stock plans. Compensation
expense related to these awards has been reflected in the financial statements
and amounted to $26 in 1993, $224 in 1994 and $437 in 1995.
12. Legal matters
There are various claims, lawsuits and pending actions against
the Abercrombie & Fitch Business incident to the operations of its business.
It is the opinion of management that the ultimate resolution of these matters
will not have a material effect on the Abercrombie & Fitch Business' results
of operations or financial position.
13. Quarterly financial data (unaudited) (thousands)
First Second Third Fourth
------ ------ -------- -------
1994 Quarter
Net sales........... $23,399 $29,045 $38,584 $74,435
Gross income........ 5,643 8,285 11,815 31,077
Net income (loss)... (1,225) (530) 466 9,540
First Second Third Fourth
------ ------ -------- -------
1995 Quarter
Net sales........... $33,377 $38,668 $57,222 $106,392
Gross income........ 8,428 12,023 19,503 39,840
Net income (loss)... (1,169) 250 2,583 12,634
14. Subsequent events and pro forma financial data (unaudited)
Subsequent to the date of the financial statements, Abercrombie
& Fitch Co. was incorporated and The Limited will contribute the stock of
Abercrombie & Fitch Holdings, the parent company of the Abercrombie & Fitch
Business, and A&F Trademark, Inc. to Abercrombie & Fitch Co. effective July
15, 1996.
The Abercrombie & Fitch Business is party to a bank credit
agreement pursuant to which it borrowed $150 million on July 2, 1996. The
agreement has interest rates which are based on either the lender's "Base
Rate," as defined, or a LIBOR-related rate. The agreement places restrictions
on mergers, consolidations, acquisitions, sales of assets, transactions with
affiliates, sale and leaseback transactions, liens, restricted payments, debt
and investments. It also contains an interest and rental expense coverage
ratio and a maximum ratio of debt to EBITDA. The scheduled final maturity of
the borrowings under the credit agreement is June 30, 2001 although such
amounts must be repaid by the excess cash flow of the Abercrombie & Fitch
Business, which includes the net proceeds of any public offering. It is
anticipated that a substantial portion of the borrowings under the credit
agreement will be repaid in connection with the proposed public offering and,
if needed, by cash flow from operations generated in the fourth quarter of the
1996 fiscal year. Therefore all such amounts are considered as short-term
borrowings.
Long-term intercompany debt consists of an unsecured note in
the amount of $50 million that matures May 15, 2002, and bears interest at
7.80% per annum. The note represents the Abercrombie & Fitch Business' share
of certain long-term debt of The Limited, of which interest rate and maturity
of the note parallels that of corresponding debt of The Limited. The note is
to be automatically prepaid concurrently with any prepayment of the
corresponding debt of The Limited. The note is not subject to early
redemption by The Limited.
The pro forma balance sheet as of May 4, 1996 reflects the
following transactions:
(1) Represents amounts derived from the historical consolidated
financial statements of the Abercrombie & Fitch Business.
(2) The initial capitalization of Abercrombie & Fitch Co.
($.10 par value, 1,000 shares authorized, 1,000 shares issued and
outstanding).
(3) Borrowings by the Abercrombie & Fitch Business of $150
million under the credit agreement on July 2, 1996;
(4) Transfer of the Trademark Obligations to The Limited in the
amount of $32 million.
(5) Distribution to The Limited of the $50 million long-term
Mirror Note.
(6) Payment of the $32 million Trademark Obligations, payment
of $91 million of long-term intercompany debt owed to The Limited and a
$27 million dividend to The Limited.
(7) Conversion of $3.1 million of long-term intercompany debt
into the Working Capital Note.
The following transactions are not reflected in the pro forma
balance sheet:
(1) The issuance and sale of shares in the
anticipated public offerings and the application of the $115 million net
proceeds therefrom to repay borrowings under the bank credit agreement.
UNDERWRITING
Subject to the terms and conditions of the Underwriting
Agreement, the Company has agreed to sell to each of the U.S. Underwriters
named below, and each of such U.S. Underwriters, for whom Goldman, Sachs &
Co., Lazard Freres & Co. LLC, Montgomery Securities and J.P. Morgan
Securities Inc. are acting as representatives (the "Representatives of the
Underwriters"), has severally agreed to purchase from the Company, the
respective number of shares of Class A Common Stock set forth opposite its
name below:
Number of Shares of
U.S. Underwriter Class A Common Stock
---------------- --------------------
Goldman, Sachs & Co.......................
Lazard Freres & Co. LLC...................
Montgomery Securities.....................
J.P. Morgan Securities Inc................
---------------------
Total.....................................
=====================
Under the terms and conditions of the Underwriting Agreement,
the U.S. Underwriters are committed to take and pay for all of the shares
offered hereby, if any are taken.
The Underwriters propose to offer the shares of Class A Common
Stock in part directly to the public at the initial public offering price set
forth on the cover page of this Prospectus and in part to certain securities
dealers at such price less a concession of $ per share. The U.S.
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares
of Class A Common Stock are released for sale to the public, the offering
price and the other selling terms may from time to time be varied by the
Representatives of the Underwriters.
The Company has entered into an underwriting agreement (the
"International Underwriting Agreement") with the underwriters of the
International Offering (the "International Underwriters") providing for the
concurrent offer and sale of shares of Class A Common Stock in an
International Offering outside the United States. The initial public offering
price and aggregate underwriting discounts and commissions per share for the
Offerings are identical. The closing of the offering made hereby is a
condition to the closing of the International Offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, Lazard Capital Markets, Montgomery Securities and J.P. Morgan
Securities Limited.
Pursuant to the agreement between the U.S. and International
Underwriting Syndicates (the "Agreement Between") relating to the Offerings,
each of the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered as a part of the U.S. Offering and subject
to certain exceptions, it will offer, sell or deliver the shares of Class A
Common Stock, directly or indirectly, only in the United States (including the
States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction (the "United States") and to U.S.
persons, which term shall mean, for purposes of this paragraph: (i) any
individual who is a resident of the United States or (ii) any corporation,
partnership or other entity organized in or under the laws of the United
States or any political subdivision thereof and whose office most directly
involved with the purchase is located in the United States. Each of the
International Underwriters has agreed or will agree pursuant to the Agreement
Between that, as a part of the distribution of the shares offered as a part of
the International Offering, and subject to certain exceptions, it will (i)
not, directly or indirectly, offer, sell or deliver shares of Class A Common
Stock (a) in the United States or to any U.S. persons or (b) to any person who
it believes intends to reoffer, resell or deliver the shares in the United
States or to any U.S. persons, and (ii) cause any dealer to whom it may sell
such shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between
the U.S. Underwriters and the International Underwriters of such number of
shares of Class A Common Stock as may be mutually agreed. The price of any
shares so sold shall be the initial public offering price, less an amount not
greater than the selling concession.
The Company has granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the shares of Class A Common Stock offered
hereby. The Company has granted the International Underwriters a similar
option exercisable for up to an aggregate of additional
shares of Class A Common Stock.
The Company and The Limited have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of, except as provided in the U.S.
Underwriting Agreement and the International Underwriting Agreement, any
securities of the Company that are substantially similar to the shares of
Class A Common Stock, or which are convertible into or exchangeable for, or
that represent the right to receive, shares of Class A Common Stock or any
such substantially similar securities (other than any issuances or sales of
any of the foregoing securities (i) in connection with the acquisition of or
merger with any other corporation or other entity or the acquisition of any
assets or properties thereof provided that, prior to the issuance of such
securities, the Company shall obtain and deliver to the Underwriters executed
copies of an agreement from any such corporation or entity substantially to
the effect set forth in the Underwriting Agreement in form satisfactory to the
Representatives, (ii) pursuant to employee stock option, or other employee
benefit plans existing on the date of the Underwriting Agreement or (iii) to
The Limited or its subsidiaries in accordance with the terms of the Corporate
Agreement between the Company and The Limited or its subsidiaries) without the
prior written consent of the Representatives.
The Representatives of the Underwriters have informed the
Company that they do not expect sales to accounts over which they exercise
discretionary authority to exceed five percent of the total number of shares
of Class A Common Stock offered by them.
The Underwriters have reserved for sale, at the initial public
offering price, shares of Class A Common Stock for associates and
directors of the Company and certain other businesses operated by The Limited
who have expressed an interest in purchasing such shares of Class A Common
Stock in the Offerings. It is expected that such associates will purchase, in
the aggregate, less than 5% of the Class A Common Stock offered in the
Offerings. The number of shares available for sale to the general public in
the Offerings will be reduced to the extent such persons purchase such
reserved shares. Any reserved shares not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares
offered hereby.
Prior to the Offerings, there has been no public market for the
shares of Class A Common Stock. The initial public offering price will be
negotiated between the Company and the representatives of the U.S.
Underwriters and the International Underwriters. Among the factors to be
considered in determining the initial public offering price of the Class A
Common Stock in addition to prevailing market conditions, are the Company's
historical performance, estimates of the business potential and earnings
prospects of the Company, an assessment of the Company's management and the
consideration of the above factors in relation to market valuation of
companies in related businesses.
This Prospectus may be used by underwriters and dealers in
connection with offers and sales of Class A Common Stock, including shares
initially sold in the International Offering, to persons located in the United
States.
Application will be made to list the Class A Common Stock on
the New York Stock Exchange.
The Company has agreed to indemnify the several U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Certain of the Underwriters have provided from time to time,
and expect to provide in the future, investment banking services to The
Limited, the Company and their subsidiaries, for which such Underwriters have
received and will receive customary fees and commissions. In addition, from
time to time, in the ordinary course of their respective businesses, J.P.
Morgan Securities Inc. and certain of its affiliates engage and may in the
future engage in investment banking and commercial banking transactions with
The Limited and certain of its affiliates. Morgan Guaranty Trust Company of
New York ("MGT"), an affiliate of J.P. Morgan Securities Inc., is the agent
bank on The Limited's $1 billion Revolving Credit Facility maturing December
14, 2000. MGT is also a lender under the Credit Agreement and, as lender,
will receive in excess of 10% of the net proceeds of the Offerings.
Accordingly, this offering will be conducted in accordance with Rule
2710(c)(8) of the National Association of Securities Dealers, Inc. ("NASD")
which requires that the public offering price of an equity security be no
higher than the price recommended by a "qualified independent underwriter"
meeting the requirements of NASD Rule 2720(b)(15) which has participated in
the preparation of the registration statement and performed its usual standard
of due diligence with respect thereto. Goldman, Sachs & Co. has agreed to act
as "qualified independent underwriter" for the Offerings, and the public
offering price of the Class A Common Stock will be no higher than the price
recommended by Goldman, Sachs & Co.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or sale is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no change
in the affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
----
Prospectus Summary......... 3
Risk Factors............... 10
Use of Proceeds............ 16
Dividends.................. 16
Dilution................... 17
Capitalization............. 18
Pro Forma Consolidated
Financial Statements..... 20
Selected Financial Data.... 27
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations............... 29
Business................... 35
Relationship with
The Limited.............. 47
Management................. 52
Executive Compensation..... 53
Principal Shareholder...... 61
Shares Eligible for Future
Sale..................... 61
Description of Capital Stock 63
Description of Certain
Indebtedness .............. 68
Certain United States Tax
Consequences to Non-United
States Holders........... 69
Legal Matters.............. 71
Experts.................... 71
Additional Information..... 71
Index to Consolidated
Financial Statements..... F-1
Underwriting............... U-1
Through and including , 1996 (the 25th day after the date of this
Prospectus), all dealers effecting transactions in the Class A Common Stock,
whether or not participating in this distribution, may be required to deliver
a Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
Shares
Abercrombie & Fitch
Class A Common Stock
(par value $.01 per share)
PROSPECTUS
Goldman, Sachs & Co.
Lazard Freres & Co. LLC
Montgomery Securities
J.P. Morgan & Co.
Representatives of the Underwriters
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.The following table sets
forth the expenses in connection with the issuance and distribution of the
Class A Common Stock being registered, other than the underwriting discount.
All of the amounts shown are estimates, except the SEC and NASD registration
fees.
SEC Registration Fee.......................................... $ 43,104
National Association of Securities Dealers, Inc.
Registration Fee............................................ 13,000
New York Stock Exchange Listing Fee...........................
Blue Sky fees and expenses....................................
Printing and engraving expenses...............................
Legal fees and expenses.......................................
Accounting fees and expenses..................................
Transfer Agent and Registrar expenses.........................
Miscellaneous.................................................
----------
Total.................................................. $
==========
Item 14. Indemnification of Directors and Officers.Section 145 of the General
Corporation Law of the State of Delaware (the "Delaware Law") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact
that such person was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided that such officer or director acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests, and, for criminal proceedings, had no
reasonable cause to believe his conduct was illegal. A Delaware corporation
may indemnify officers and directors against expenses (including attorneys'
fees) in connection with the defense or settlement of an action by or in the
right of the corporation under the same conditions, except that no
indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director actually and reasonably incurred.
In accordance with the Delaware Law, the Certificate of
Incorporation of the Company contains a provision to limit the personal
liability of the directors of the Company for violations of their fiduciary
duty. This provision eliminates each director's liability to the Company or
its shareholders for monetary damages except (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware Law
providing for liability of directors for unlawful payment of dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from which
a director derived an improper personal benefit. The effect of this provision
is to eliminate the personal liability of directors for monetary damages for
actions involving a breach of their fiduciary duty of care, including any such
actions involving gross negligence.
Article V of the Bylaws of the Company provides for
indemnification of the officers and directors of the Company to the full
extent permitted by applicable law.
Item 15. Recent Sales of Unregistered SecuritiesExcept for the issuance of
common stock to The Limited, the Company has not issued any securities in
unregistered transactions. The issuance of such securities is exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
Item 16. Exhibits and Financial Statement Schedules.
Exhibit No.
1.1 Form of Underwriting Agreement (U.S. Version).*
3.1 Form of Amended and Restated Certificate of Incorporation of
Abercrombie & Fitch Co.
3.2 Form of Bylaws of Abercrombie & Fitch Co.
4.1 Specimen Certificate of Class A Common Stock of Abercrombie & Fitch Co.*
4.2 Certificate of Incorporation of The Limited, Inc.
4.3 Bylaws of The Limited, Inc.
5.1 Opinion of Davis Polk & Wardwell regarding the legality of the securities being
registered.*
10.1 Credit Agreement, dated as of June 28, 1996, among Abercrombie & Fitch Stores, Inc.,
Abercrombie & Fitch Trademark, Inc., the banks listed therein and Chase Manhattan
Bank, N.A., as Agent.
10.2 Form of Services Agreement between Abercrombie & Fitch Co. and The Limited, Inc.
10.3 Sublease Agreement, dated June 1, 1995, between Abercrombie & Fitch Stores, Inc. and
Victoria's Secret Stores, Inc.
10.4 Form of Shared Facilities Agreement between Abercrombie & Fitch Co. and The
Limited, Inc.
10.5 Form of Tax-Sharing Agreement between Abercrombie & Fitch Co. and The Limited,
Inc.
10.6 Form of Corporate Agreement between Abercrombie & Fitch Co. and The Limited, Inc.
10.7 Form of Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan.*
10.8 Form of Abercrombie & Fitch Co. Incentive Compensation Plan.*
10.9 Form of Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors.*
21.1 Subsidiaries of Abercrombie & Fitch Co.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature pages of this Registration Statement)
27.1 Financial Data Schedule
*To be filed by amendment
Item 17. Undertakings. The undersigned Registrant hereby undertakes:
(a) To provide to the underwriters at the closing specified in
the underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery to
each purchaser.
(b) (1) That, for purposes of determining any liability under
the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in reliance upon Rule
430A and contained in a form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or(4) under the Securities Act of 1933 shall be deemed to be
part of this Registration Statement as of the time it was declared effective.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions referred to
in Item 15 of this Registration Statement, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Reynoldsburg, State of Ohio, on July 16, 1996.
ABERCROMBIE & FITCH CO.
/s/ Seth R. Johnson
By:____________________________
Name: Seth R. Johnson
Title: Vice President - Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Samuel Fried and William K. Gerber his or
her true and lawful attorneys-in-fact and agents, each acting alone, with
full powers of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and
all amendments to this Registration Statement, including post-effective
amendments, as well as any related registration statement (or amendment
thereto) filed pursuant to Rule 462 promulgated under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he or she might or could do in
person, and hereby ratifies and confirms all his or her said attorneys-in-
fact and agents or any of them or his or her substitute or substitutes,
may lawfully do or cause to be done by virtue thereof.
This Power of Attorney may be executed in multiple
counterparts, each of which shall be deemed an original, but which taken
together shall constitute one instrument.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Leslie H. Wexner
_________________________ Chairman of the Board of Directors July 16, 1996
Leslie H. Wexner
/s/ Kenneth B. Gilman
_________________________ Vice Chairman of the Board of Directors July 16, 1996
Kenneth B. Gilman
/s/ Michael S. Jeffries
_________________________ Chief Executive Officer, President and Director July 16, 1996
Michael S. Jeffries (principal executive officer)
/s/ Seth R. Johnson
_________________________ Vice President and Chief Financial Officer
Seth R. Johnson (principal financial and accounting officer) July 16, 1996
EXHIBIT INDEX
Exhibit No. Page No.
1.1 Form of Underwriting Agreement (U.S. Version).*
3.1 Form of Amended and Restated Certificate of Incorporation of
Abercrombie & Fitch Co.
3.2 Form of Bylaws of Abercrombie & Fitch Co.
4.1 Specimen Certificate of Class A Common Stock of Abercrombie & Fitch Co.*
4.2 Certificate of Incorporation of The Limited, Inc.
4.3 Bylaws of The Limited, Inc.
5.1 Opinion of Davis Polk & Wardwell regarding the legality of the securities being
registered.*
10.1 Credit Agreement, dated as of June 28, 1996, among Abercrombie & Fitch Stores,
Inc., Abercrombie & Fitch Trademark, Inc., the banks listed therein and Chase
Manhattan Bank, N.A., as Agent.
10.2 Form of Services Agreement between Abercrombie & Fitch Co. and The Limited,
Inc.
10.3 Sublease Agreement, dated June 1, 1995, between Abercrombie & Fitch Stores,
Inc. and Victoria's Secret Stores, Inc.
10.4 Form of Shared Facilities Agreement between Abercrombie & Fitch Co. and The
Limited, Inc.
10.5 Form of Tax-Sharing Agreement between Abercrombie & Fitch Co. and The
Limited, Inc.
10.6 Form of Corporate Agreement between Abercrombie & Fitch Co. and The
Limited, Inc.
10.7 Form of Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive
Plan.*
10.8 Form of Abercrombie & Fitch Co. Incentive Compensation Plan.*
10.9 Form of Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors.*
21.1 Subsidiaries of Abercrombie & Fitch Co.
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)
24.1 Power of Attorney (included on the signature pages of this Registration Statement)
27.1 Financial Data Schedule
*To be filed by amendment.