UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended May 3, 2008
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _________ to _________
Commission File Number:
1-12107
ABERCROMBIE & FITCH CO.
(Exact name of Registrant as specified in its charter)
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Delaware
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31-1469076
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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6301 Fitch Path, New Albany, OH
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43054
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code
(614) 283-6500
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
þ
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
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Yes
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No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class A Common Stock
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Outstanding at June 6, 2008
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$.01 Par Value
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86,912,557 Shares
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ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
AND COMPREHENSIVE INCOME
(Thousands, except per share amounts)
(Unaudited)
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Thirteen Weeks Ended
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May 3, 2008
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May 5, 2007
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NET SALES
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$
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800,178
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$
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742,410
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Cost of Goods Sold
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266,012
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255,141
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GROSS PROFIT
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534,166
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487,269
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Stores and Distribution Expense
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341,788
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308,238
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Marketing, General and Administrative Expense
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104,698
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90,175
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Other Operating Income, Net
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(2,941
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)
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(3,854
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OPERATING INCOME
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90,621
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92,710
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Interest Income, Net
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(7,646
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(3,711
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INCOME BEFORE INCOME TAXES
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98,267
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96,421
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Provision for Income Taxes
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36,151
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36,340
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NET INCOME
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$
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62,116
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$
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60,081
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NET INCOME PER SHARE:
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BASIC
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$
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0.72
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$
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0.68
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DILUTED
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$
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0.69
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$
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0.65
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WEIGHTED-AVERAGE SHARES OUTSTANDING:
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BASIC
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86,335
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87,746
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DILUTED
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90,138
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92,292
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DIVIDENDS DECLARED PER SHARE
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$
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0.175
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$
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0.175
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OTHER COMPREHENSIVE (LOSS)/INCOME
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Cumulative Foreign Currency Translation Adjustments
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$
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(144
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$
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1,687
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Unrealized Loss on Available-For-Sale Securities, net of taxes of
$139 and ($12) for the thirteen-week periods ended May 3, 2008 and May 5, 2007, respectively
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(19,023
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(18
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Other Comprehensive (Loss)/Income
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$
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(19,167
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$
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1,669
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COMPREHENSIVE INCOME
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$
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42,949
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$
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61,750
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
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May 3, 2008
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February 2, 2008
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ASSETS
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CURRENT ASSETS:
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Cash and Equivalents
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$
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187,217
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$
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118,044
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Marketable Securities
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530,486
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Receivables
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68,643
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53,801
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Inventories
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347,628
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333,153
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Deferred Income Taxes
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38,160
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36,128
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Other Current Assets
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72,346
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68,643
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TOTAL CURRENT ASSETS
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713,994
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1,140,255
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PROPERTY AND EQUIPMENT, NET
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1,341,259
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1,318,291
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MARKETABLE SECURITIES
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318,136
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OTHER ASSETS
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112,454
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109,052
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TOTAL ASSETS
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$
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2,485,843
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$
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2,567,598
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LIABILITIES AND SHAREHOLDERS EQUITY
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CURRENT LIABILITIES:
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Accounts Payable
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$
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128,080
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$
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108,437
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Outstanding Checks
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33,043
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43,361
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Accrued Expenses
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208,777
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280,910
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Deferred Lease Credits
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42,018
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37,925
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Income Taxes Payable
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6,459
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72,480
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TOTAL CURRENT LIABILITIES
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418,377
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543,113
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LONG TERM LIABILITIES:
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Deferred Income Taxes
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23,179
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22,491
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Deferred Lease Credits
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218,902
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213,739
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Other Liabilities
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181,068
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169,942
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TOTAL LONG TERM LIABILITIES
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423,149
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406,172
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SHAREHOLDERS EQUITY:
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Class A Common Stock $0.01 par value: 150,000 shares
authorized and 103,300 shares issued at each of May 3, 2008
and February 2, 2008
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1,033
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1,033
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Paid-In Capital
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328,249
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319,451
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Retained Earnings
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2,096,844
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2,051,463
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Accumulated Other Comprehensive (Loss)/Gain, net of tax
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(12,049
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7,118
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Treasury Stock, at Average Cost - 16,854 and 17,141
shares at May 3, 2008 and February 2, 2008, respectively
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(769,760
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(760,752
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TOTAL SHAREHOLDERS EQUITY
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1,644,317
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1,618,313
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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2,485,843
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$
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2,567,598
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
ABERCROMBIE & FITCH
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
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Thirteen Weeks Ended
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May 3, 2008
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May 5, 2007
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OPERATING ACTIVITIES:
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Net Income
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$
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62,116
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$
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60,081
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Impact of Other Operating Activities on Cash Flows:
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Depreciation and Amortization
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52,749
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42,410
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Amortization of Deferred Lease Credits
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(10,137
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(9,045
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Share-Based Compensation
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10,683
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5,222
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Tax Benefit from Share-Based Compensation
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12,082
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7,517
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Excess Tax Benefit from Share-Based Compensation
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(5,741
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(6,018
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Deferred Taxes
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(1,344
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(10,388
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Loss on Disposal of Assets and Charges for Impairment
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176
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243
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Lessor Construction Allowances
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11,454
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9,636
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Foreign Currency Gains
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525
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Changes in Assets and Liabilities:
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Inventories
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(14,536
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26,019
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Accounts Payable and Accrued Expenses
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(63,420
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(65,858
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Income Taxes
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(65,990
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(85,960
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Other Assets and Liabilities
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(5,792
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28,346
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NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES
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(17,175
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2,205
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INVESTING ACTIVITIES:
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Capital Expenditures
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(91,176
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(113,624
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Purchases of Marketable Securities
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(49,411
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(236,228
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Proceeds from Sales of Marketable Securities
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242,955
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416,149
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NET CASH PROVIDED BY INVESTING ACTIVITIES
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102,368
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66,297
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FINANCING ACTIVITIES:
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Proceeds from Share-Based Compensation
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32,706
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13,348
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Excess Tax Benefit from Share-Based Compensation
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5,741
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6,018
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Purchase of Treasury Stock
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(50,000
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(79,040
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Change in Outstanding Checks and Other
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9,375
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(1,503
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Dividends Paid
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(14,847
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(15,365
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)
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NET CASH USED FOR FINANCING ACTIVITIES
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(17,025
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(76,542
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)
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EFFECT OF EXCHANGE RATE ON CASH
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1,005
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS:
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69,173
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(8,040
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Cash and Equivalents, Beginning of Year
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118,044
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81,959
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CASH AND EQUIVALENTS, END OF PERIOD
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$
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187,217
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$
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73,919
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SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
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Change in Accrual for Construction in Progress
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$
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(17,124
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)
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$
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7,427
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
ABERCROMBIE & FITCH
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
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BASIS OF PRESENTATION
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Abercrombie & Fitch Co. (A&F), through its wholly-owned subsidiaries (collectively, A&F
and its wholly-owned subsidiaries are referred to as the Company), is a specialty retailer
of high-quality, casual apparel for men, women and kids with an active, youthful lifestyle.
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The accompanying condensed consolidated financial statements include the historical
financial statements of, and transactions applicable to, the Company and reflect the assets,
liabilities, results of operations and cash flows.
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The Companys fiscal year ends on the Saturday closest to January 31. Fiscal years are
designated in the condensed consolidated financial statements and notes by the calendar year
in which the fiscal year commences. All references herein to Fiscal 2008 represent the
52-week fiscal year that will end on January 31, 2009, and to Fiscal 2007 represent the
52-week fiscal year that ended February 2, 2008.
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In accordance with Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures about Segments of an Enterprise and Related Information,
(SFAS No. 131), the
Company determines its operating segments on the same basis that it uses internally to
evaluate performance. The operating segments identified by the Company include Abercrombie
& Fitch, abercrombie, Hollister, RUEHL and Gilly Hicks. The operating segments have been
aggregated and are reported as one reportable financial segment. RUEHL and Gilly Hicks were
determined to be immaterial for segment reporting purposes, and are therefore included in
the one reportable segment as they have similar economic characteristics and meet the
majority of the aggregation criteria in paragraph 17 of SFAS No. 131. The Company
aggregates its other operating segments because they meet the aggregation criteria set forth
in paragraph 17 of SFAS No. 131. The Company believes its operating segments may be
aggregated for financial reporting purposes because they are similar in each of the
following areas: class of consumer, economic characteristics, nature of products, nature of
production processes and distribution methods. Revenues relating to the Companys
international operations for the thirteen weeks ended May 3, 2008 and May 5, 2007 and
long-lived assets relating to the Companys international operations as of May 3, 2008 and
February 2, 2008 were not material and were not reported separately from domestic revenues
and long-lived assets.
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The condensed consolidated financial statements as of May 3, 2008 and for the thirteen-week
periods ended May 3, 2008 and May 5, 2007 are unaudited and are presented pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, these
condensed consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in A&Fs Annual Report on Form
10-K for Fiscal 2007 filed on March 28, 2008. The year-end condensed consolidated balance
sheet data were derived from audited consolidated financial statements, but do not include
all disclosures required by accounting principles generally accepted in the United States of
America.
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6
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In the opinion of management, the accompanying condensed consolidated financial statements
reflect all adjustments (which are of a 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 to be
anticipated for Fiscal 2008.
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In connection with the Companys adoption of Financial Accounting Standards Board (FASB)
Interpretation No. 48,
Accounting for Uncertainty in Income Taxes An Interpretation of
FASB Statement No. 109
(FIN 48) on February 4, 2007, a $2.8 million cumulative effect
adjustment was recorded as a reduction to beginning of the year retained earnings. The
Companys unrecognized tax benefits as of February 4, 2007 were reclassified from current
taxes payables to other long-term liabilities.
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The condensed consolidated financial statements as of May 3, 2008 and for the thirteen- week
periods ended May 3, 2008 and May 5, 2007 included herein have been reviewed by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report
of such firm follows the notes to the condensed consolidated financial statements.
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PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the
Securities Act of 1933 (the Act) for their report on the condensed consolidated financial
statements because their report is not a report or a part of a registration statement
prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11
of the Act.
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2.
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SHARE-BASED COMPENSATION
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The Company accounts for share-based compensation under the provisions of SFAS No. 123
(revised 2004),
Share-Based Payment
(SFAS No. 123(R)), which requires share-based
compensation related to stock options to be measured based on estimated fair values at the
date of grant using an option-pricing model.
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Financial Statement Impact
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The following table summarizes share-based compensation expense (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
Thirteen
|
|
|
Thirteen
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
May 3, 2008
|
|
|
May 5, 2007
|
|
|
|
|
|
|
|
|
|
|
Stores and distribution expense
|
|
$
|
768
|
|
|
$
|
73
|
|
Marketing, general and administrative expense
|
|
|
9,915
|
|
|
|
5,149
|
|
|
|
|
|
|
|
|
Total expense
|
|
$
|
10,683
|
|
|
$
|
5,222
|
|
|
|
|
|
|
|
|
|
|
The Company also recognized $3.9 million and $2.0 million in tax benefits related to
share-based compensation for the thirteen-week periods ended May 3, 2008 and May 5, 2007,
respectively.
|
7
|
|
The Company adjusts share-based compensation expense on a quarterly basis for actual
forfeitures and for changes to the estimate of expected award forfeitures based on
historical forfeiture experience. The effect of adjustments for forfeitures during the
thirteen-week periods ended May 3, 2008 and May 5, 2007 was immaterial.
|
|
|
|
A&F issues shares of Class A Common Stock (Common Stock) for stock option exercises and
restricted stock unit vestings from treasury stock. As of May 3, 2008, A&F had enough
treasury stock available to cover stock options and restricted stock units outstanding
without having to repurchase additional shares of Common Stock.
|
|
|
|
Fair Value Estimates
|
|
|
|
The Company estimates the fair value of stock options granted using the Black-Scholes
option-pricing model, which requires the Company to estimate the expected term of the stock
option grants and expected future stock price volatility over the expected term. Estimates
of the expected term, which represents the expected period of time the Company believes the
stock options will be outstanding, are based on historical experience. Estimates of
expected future stock price volatility are based on the volatility of A&Fs Common Stock
price for the most recent historical period equal to the expected term of the stock option.
The Company calculates the volatility as the annualized standard deviation of the
differences in the natural logarithms of the weekly stock closing price, adjusted for stock
splits and dividends.
|
|
|
|
The weighted-average estimated fair values of stock options granted during the thirteen
weeks ended May 3, 2008 and May 5, 2007, as well as the assumptions used in calculating such
values, on the date of grant, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirteen Weeks Ended
|
|
|
May 3, 2008
|
|
May 5, 2007
|
Exercise price
|
|
$
|
78.58
|
|
|
$
|
73.42
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
19.73
|
|
|
$
|
22.62
|
|
|
|
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price volatility
|
|
|
30
|
%
|
|
|
34
|
%
|
Expected term (Years)
|
|
|
4
|
|
|
|
4
|
|
Risk-free interest rate
|
|
|
2.5
|
%
|
|
|
4.5
|
%
|
Dividend yield
|
|
|
0.9
|
%
|
|
|
1.0
|
%
|
|
|
In the case of restricted stock units, the Company calculates the fair value of the
restricted stock units granted as the market price of the underlying Common Stock on the
date of grant adjusted for anticipated dividend payments during the vesting period.
|
8
|
|
Stock Option Activity
|
|
|
|
Below is the summary of stock option activity for the thirteen weeks ended May 3, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
Number of
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
Remaining
|
|
Stock Options
|
|
Shares
|
|
|
Exercise Price
|
|
|
Intrinsic Value
|
|
|
Contractual Life
|
|
Outstanding at February 2, 2008
|
|
|
7,738,112
|
|
|
$
|
41.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
369,200
|
|
|
|
78.58
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(886,737
|
)
|
|
|
41.99
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(4,750
|
)
|
|
|
53.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at May 3, 2008
|
|
|
7,215,825
|
|
|
$
|
42.83
|
|
|
$
|
237,299,837
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest at May
3, 2008
|
|
|
723,297
|
|
|
$
|
71.37
|
|
|
$
|
3,143,470
|
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at May 3, 2008
|
|
|
6,337,762
|
|
|
$
|
38.81
|
|
|
$
|
233,901,635
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised during the thirteen weeks ended May 3,
2008 and May 5, 2007 was $29.9 million and $22.0 million, respectively.
|
|
|
|
The fair value of stock options vested during the thirteen weeks ended May 3, 2008 and May
5, 2007 was $3.5 million and $3.0 million, respectively.
|
|
|
|
As of May 3, 2008, there was $17.7 million of total unrecognized compensation cost, net of
estimated forfeitures, related to stock options. The unrecognized cost is expected to be
recognized over a weighted-average period of 1.5 years.
|
|
|
|
Restricted Stock Unit and Restricted Share Activity
|
|
|
|
Below is the summary of restricted stock unit and restricted share activity for the thirteen
weeks ended May 3, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
Grant Date
|
|
Restricted Stock Units / Restricted Shares
|
|
Number of Shares
|
|
|
Fair Value
|
|
Non-vested at February 2, 2008
|
|
|
2,354,871
|
|
|
$
|
48.02
|
|
Granted
|
|
|
593,250
|
|
|
$
|
76.63
|
|
Vested
|
|
|
(284,224
|
)
|
|
$
|
52.24
|
|
Forfeited
|
|
|
(22,200
|
)
|
|
$
|
67.27
|
|
|
|
|
|
|
|
|
Non-vested at May 3, 2008
|
|
|
2,641,697
|
|
|
$
|
53.83
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock units granted during the thirteen weeks ended May
3, 2008 and May 5, 2007 was $45.5 million and $33.7 million, respectively.
|
|
|
|
The total fair value of restricted stock units and restricted shares vested during the
thirteen weeks ended May 3, 2008 and May 5, 2007 was $14.8 million and $10.5 million,
respectively.
|
|
|
|
As of May 3, 2008, there was $100.1 million of total unrecognized compensation cost, net of
estimated forfeitures, related to non-vested restricted stock units and restricted shares.
The unrecognized cost is expected to be recognized over a weighted-average period of 1.6
years.
|
9
3.
|
|
NET INCOME PER SHARE AND SHAREHOLDERS EQUITY
|
|
|
|
Net income per share is computed in accordance with SFAS No. 128,
Earnings Per Share.
Net
income per basic share is computed based on the weighted-average number of outstanding
shares of Common Stock. Net income per diluted share includes the weighted-average effect
of dilutive stock options and restricted stock units.
|
|
|
|
Weighted-Average Shares Outstanding (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
May 3, 2008
|
|
May 5, 2007
|
Shares of Common Stock issued
|
|
|
103,300
|
|
|
|
103,300
|
|
Treasury shares
|
|
|
(16,965
|
)
|
|
|
(15,554
|
)
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
86,335
|
|
|
|
87,746
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
and restricted stock units
|
|
|
3,803
|
|
|
|
4,546
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
90,138
|
|
|
|
92,292
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options to purchase approximately 0.8 million shares of Common Stock during the
thirteen-week period ended May 3, 2008 were outstanding, but were not included in the
computation of net income per diluted share because the impact of such stock options would
be anti-dilutive. Anti-dilutive shares were immaterial during the thirteen-week period
ended May 5, 2007.
|
|
|
|
A&F repurchased approximately 0.7 million and 1.0 million shares of A&Fs Common Stock
during the thirteen-week periods ended May 3, 2008 and May 5, 2007, respectively. As of May
3, 2008, an aggregate of approximately 11.3 million shares of A&Fs Common Stock were
available for repurchase as part of the August 15, 2005 and November 20, 2007 A&F Board of
Directors authorizations to repurchase 6.0 million and 10.0 million shares of A&Fs Common
Stock, respectively.
|
|
4.
|
|
CASH AND EQUIVALENTS AND INVESTMENTS
|
|
|
|
Cash and equivalents and investments consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
February 2, 2008
|
|
Cash and equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
65,217
|
|
|
$
|
74,753
|
|
Money market funds
|
|
|
122,000
|
|
|
|
43,291
|
|
|
|
|
|
|
|
|
Total cash and equivalents
|
|
|
187,217
|
|
|
|
118,044
|
|
|
|
|
|
|
|
|
|
|
Marketable Securities:
|
|
|
|
|
|
|
|
|
Auction rate securities student loan backed
|
|
|
240,442
|
|
|
|
258,355
|
|
Auction rate securities municipal authority bonds
|
|
|
77,694
|
|
|
|
272,131
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
318,136
|
|
|
|
530,486
|
|
|
|
|
|
|
|
|
|
|
Rabbi trust assets:
(1)
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
1,767
|
|
|
|
1,350
|
|
Municipal notes and bonds
|
|
|
18,144
|
|
|
|
18,599
|
|
Trust-owned life insurance policies (at Cash
Surrender Value)
|
|
|
32,195
|
|
|
|
31,306
|
|
|
|
|
|
|
|
|
Total rabbi trust assets
|
|
|
52,106
|
|
|
|
51,255
|
|
|
|
|
|
|
|
|
Total cash and equivalents and investments
|
|
$
|
557,459
|
|
|
$
|
699,785
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Rabbi trust assets are included in other assets on the
Condensed Consolidated Balance Sheets.
|
10
|
|
Investments with original maturities greater than 90 days are accounted for in accordance
with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
and
are classified accordingly by the Company at the time of purchase. At May 3, 2008 and
February 2, 2008, the Companys marketable securities consisted of investment grade auction
rate securities (ARS) invested in federally insured student loan backed securities and
insured municipal authority bonds, with maturities ranging from eight to 34 years, all
classified as available-for-sale. As of May 3, 2008, approximately 85% of the Companys ARS
were AAA rated by one or more of the major credit rating agencies, with the remaining ARS
having ratings ranging from A3 to BBB+.
|
|
|
|
Despite the underlying long-term maturity of ARS, such securities had historically been
priced and subsequently traded as short-term investments because of an interest-rate reset
feature, which reset through a Dutch auction process at predetermined periods ranging from
seven to 35 days. Due to the frequent nature of the reset feature, ARS were classified as
current assets and reported at par, which approximated fair value, as of February 2, 2008.
|
|
|
|
On February 13, 2008, the Company began to experience failed auctions. A failed
auction does not result in default of the debt instrument. The securities will continue to
accrue interest and be auctioned until one of the following: the auction succeeds; the
issuer calls the securities; or the securities mature. Due to the lack of liquidity in the
current market, as of May 3, 2008, all ARS were classified as non-current assets and the
Company determined that the par value of the ARS no longer approximates fair value.
|
|
|
|
The Company used a discounted cash flow model to determine the estimated fair value of these
investments as of May 3, 2008. See Note 5,
Fair Value
for further discussion on the
valuation of the ARS.
|
|
|
|
During the thirteen-week period ended May 3, 2008, the Company recorded an unrealized loss
of $18.8 million, related to ARS, included as a component of accumulated other comprehensive
loss on the Condensed Consolidated Balance Sheet. The Company deemed the loss to be
temporary because the Company does not plan to sell any of the ARS prior to maturity at an
amount below the original purchase value and, at this time, does not deem it probable that
it will receive less than 100% of the principal and accrued interest from the issuer.
|
|
|
|
The Company has established an irrevocable rabbi trust (the Rabbi Trust), the purpose of
which is to be a source of funds to match respective funding obligations to participants in
the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan and the Chief
Executive Officer Supplemental Executive Retirement Plan. The Rabbi Trust assets are
consolidated in accordance with Emerging Issues Task Force Issue No. 97-14,
Accounting for
Deferred Compensation Agreements Where Amounts Earned Are Held in a Rabbi Trust and
Invested
(EITF 97-14) and recorded at fair value, with the exception of the trust-owned
life insurance which is recorded at cash surrender value, in other assets on the Condensed
Consolidated Balance Sheets. Net unrealized losses related to the
Rabbi Trust were immaterial for the thirteen-week periods ended May
3, 2008 and May 5, 2007.
|
11
5.
|
|
FAIR VALUE
|
|
|
|
Effective February 3, 2008, the Company adopted SFAS No. 157,
Fair Value Measurements
(SFAS No. 157), for financial assets and liabilities and any other assets or liabilities
measured at fair value on a recurring basis. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about instruments measured at
fair value. SFAS No. 157 defines fair value as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. SFAS No. 157 also establishes a three-level hierarchy for fair
value measurements, which prioritizes valuation inputs as follows:
|
|
|
|
Level 1 inputs are unadjusted quoted prices for identical assets or
liabilities that are available in active markets.
|
|
|
|
|
Level 2 inputs are other than quoted market prices included within Level 1
that are observable for assets or liabilities, directly or indirectly.
|
|
|
|
|
Level 3 inputs to the valuation methodology are unobservable.
|
|
|
The lowest level of significant input determines the placement of the entire fair value
measurement in the hierarchy. The three levels of the hierarchy and the distribution of the
Companys financial assets within it are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of May 3, 2008
|
|
|
|
(in thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds
(1)
|
|
$
|
123,767
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
123,767
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
318,136
|
|
|
|
318,136
|
|
Municipal bonds held in the Rabbi Trust
|
|
|
18,144
|
|
|
|
|
|
|
|
|
|
|
|
18,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
141,911
|
|
|
$
|
|
|
|
$
|
318,136
|
|
|
$
|
460,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $122.0 million in money market funds included in cash and equivalents and $1.8 million of money market
funds held in the Rabbi Trust, which are included in other assets on the Condensed Consolidated Balance Sheet.
|
|
|
The level 3 assets are investments in federally insured student loan backed securities and
insured municipal authority bonds ARS and were transferred from Level 2 as a result of
current market conditions. Due to the fact that there is a limited active market available, the
Company used a discounted cash flow model to determine the estimated fair value of these
investments as of May 3, 2008. Some of the inputs into the model are unobservable in the
market and are significant. The assumptions used in preparing the model include, but are
not limited to, periodic coupon rates, market required rate of return and expected term.
The coupon rate is estimated using the results of a regression analysis factoring in
historical data on the par swap rate and the maximum coupon rate paid in the event of
failure. In making the assumption of the required rate of return, the Company considers
risk-free interest rate and credit spread. The expected term is identified as the time the
principal becomes available to the investor. The principal can become available under three
different scenarios: (1) the assumed coupon rate is above the required rate of return and
the ARS is assumed to be called, (2) the market has returned to normal and auctions have
|
12
|
|
recommenced; and (3) the principal has reached maturity.
The Company also includes a
marketability discount which takes into account the lack of liquidity in the current ARS
market.
|
|
|
|
The table below includes a roll forward of the Companys
investments in ARS from February 2,
2008 to May 3, 2008, and the reclassification of these investments from Level 2 to Level 3
in the hierarchy. When a determination is made to classify a financial instrument within
Level 3, the determination is based upon the lack of significance of the observable
parameters to the overall fair value measurement. However, the fair value determination for
Level 3 financial instruments may include observable components.
|
|
|
|
Auction Rate Securities:
|
|
|
|
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Fair value, February 2, 2008
|
|
$
|
530,486
|
|
|
$
|
|
|
Purchases
|
|
|
49,411
|
|
|
|
|
|
Redemptions
|
|
|
(242,955
|
)
|
|
|
|
|
Tranfers (out)/in
|
|
|
(336,942
|
)
|
|
|
336,942
|
|
Unrealized (losses)
|
|
|
|
|
|
|
(18,806
|
)
|
|
|
|
|
|
|
|
Fair value, May 3, 2008
|
|
$
|
|
|
|
$
|
318,136
|
|
|
|
|
|
|
|
|
|
|
Also effective February 3, 2008, the Company adopted SFAS No. 159,
The Fair Value Option
for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No.
115
(SFAS No. 159). SFAS No. 159 permits companies to measure many financial instruments
and certain other assets and liabilities at fair value on an instrument by instrument basis.
The Company has elected not to apply the fair value option to its existing financial assets
and liabilities, and accordingly, there was no financial statement impact of the adoption of
SFAS No. 159.
|
|
6.
|
|
INVENTORIES
|
|
|
|
Inventories are principally valued at the lower of average cost or market utilizing the
retail method. The Company determines market value as the anticipated future selling price
of the merchandise less a normal margin. Therefore, an initial markup is applied to
inventory at cost in order to establish a cost-to-retail ratio. Permanent markdowns, when
taken, reduce both the retail and cost components of inventory on-hand so as to maintain the
already established cost-to-retail relationship. The inventory balance was $347.6 million,
$333.2 million and $401.8 million at May 3, 2008, February 2, 2008 and May 5, 2007,
respectively.
|
|
|
|
The fiscal year is comprised of two principal selling seasons: Spring (the first and second
fiscal quarters) and Fall (the third and fourth fiscal quarters). The Company classifies
its inventory into three categories: spring fashion, fall fashion and basic. The Company
reduces inventory valuation at the end of the first and third fiscal quarters to reserve for
projected markdowns required to sell through the current season inventory prior to the
beginning of the following season. Additionally, the Company reduces inventory at season
end by recording a markdown reserve that represents the estimated future selling price
decreases necessary to sell through the remaining carryover fashion inventory for the season
just passed. The valuation reserve was $36.3 million, $5.4 million and $30.2 million at May
3, 2008, February 2, 2008 and May 5, 2007, respectively. The valuation
reserve at February 2, 2008 reflects the estimated markdowns, at cost, necessary to sell
through fashion carryover inventory on-hand at the end of the Fall season.
|
13
|
|
Further, as part of inventory valuation, inventory shrinkage estimates, based on historical
trends from actual physical inventories, are made that reduce the inventory value for lost
or stolen items. The Company performs physical inventories throughout the year and adjusts
the shrink reserve accordingly. The shrink reserve was $15.0 million, $11.5 million and
$12.4 million at May 3, 2008, February 2, 2008 and May 5, 2007, respectively.
|
|
7.
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
|
Property and equipment, net, consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
February 2, 2008
|
|
Property and equipment, at cost
|
|
$
|
2,123,812
|
|
|
$
|
2,054,275
|
|
Accumulated depreciation and amortization
|
|
|
(782,553
|
)
|
|
|
(735,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,341,259
|
|
|
$
|
1,318,291
|
|
|
|
|
|
|
|
|
8.
|
|
DEFERRED LEASE CREDITS
|
|
|
|
Deferred lease credits are derived from payments received from landlords to partially offset
store construction costs and are classified between current and long-term liabilities. The
amounts, which are amortized over the life of the related leases, consisted of the following
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
February 2, 2008
|
|
Deferred lease credits
|
|
$
|
490,289
|
|
|
$
|
471,498
|
|
Amortized deferred lease credits
|
|
|
(229,369
|
)
|
|
|
(219,834
|
)
|
|
|
|
|
|
|
|
Total deferred lease credits, net
|
|
$
|
260,920
|
|
|
$
|
251,664
|
|
|
|
|
|
|
|
|
9.
|
|
INCOME TAXES
|
|
|
|
The provision for income taxes is based on the current estimate of the annual effective tax
rate adjusted to reflect the impact of items discrete to the thirteen weeks ended May 3,
2008. Cash payments of income taxes made during both the thirteen weeks ended May 3, 2008
and May 5, 2007 were approximately $89.6 million.
|
|
|
|
The effective tax rate for the thirteen weeks ended May 3, 2008 was 36.8% as compared to
37.7% for the Fiscal 2007 comparable period. The effective tax rate in the first quarter of
Fiscal 2008 reflected the favorable impact of higher tax exempt interest income.
|
|
|
|
The Company has recorded a valuation allowance against the deferred tax assets arising from
the net operating loss of a foreign subsidiary and on the temporary impairment of ARS
included in other comprehensive loss. As of May 3, 2008 and February 2, 2008, the valuation
allowance totaled $7.9 million and $0.9 million, respectively. No other valuation
allowances have 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.
|
14
10.
|
|
LONG-TERM DEBT
|
|
|
|
On April 15, 2008, the Company entered into a syndicated unsecured credit agreement (the
New Credit Agreement) under which up to $450 million will initially be available. The New
Credit Agreement replaces the Credit Agreement, dated as of November 14, 2002, as amended
and restated as of December 15, 2004 (the Original Credit Agreement), which had been due
to expire on December 15, 2009. The primary purposes of the New Credit Agreement are for
trade and stand-by letters of credit in the ordinary course of business as well as working
capital, capital expenditures, acquisitions and investments, and other general corporate
purposes. During the life of the New Credit Agreement, the Company is permitted to make
multiple requests for additional credit commitments in an aggregate amount not to exceed
$150 million.
|
|
|
|
The New Credit Agreement has several borrowing options, including interest rates that are
based on (i) a Base Rate, payable quarterly, or (ii) an Adjusted Eurodollar Rate (as defined
in the New Credit Agreement) plus a margin based on a Leverage Ratio, payable at the end of
the applicable interest period for the borrowing. The Base Rate represents a rate per annum
equal to the higher of (a) National City Banks then publicly announced prime rate or (b)
the Federal Funds Effective Rate (as defined in the New Credit Agreement) as then in effect
plus
1
/
2
of 1%. The facility fees payable under the New Credit Agreement are based on the
Companys Leverage Ratio (i.e., the ratio on a consolidated basis, of (a) the sum of total
debt (excluding trade letters of credit) plus 600% of forward minimum rent commitments to
(b) consolidated earnings before interest, taxes, depreciation, amortization and rent for
the trailing four-consecutive-fiscal-quarter periods. The facility fees are projected to
accrue at a rate of 0.125% per annum. In addition, a utilization fee is payable under the
New Credit Agreement when the aggregate credit facility exposure, excluding trade letters of
credit, exceeds 50% of the total lender commitments then in effect, at a rate per annum
equal to 0.100% of the credit facility exposure for each day it is at such a level.
|
|
|
|
The New Credit Agreement contains limitations, subject to negotiated carve-outs, on
indebtedness, liens, significant corporate changes including mergers and acquisition
transactions with third parties, investments, loans, advances and guarantees in or for the
benefit of third parties, hedge agreements, restricted payments (including dividends and
stock repurchases) and transactions with affiliates. The New Credit Agreement will mature
on April 12, 2013. Trade letters of credit totaling approximately $75.4 million and $61.6
million were outstanding on May 3, 2008 and February 2, 2008, respectively. Standby letters
of credit totaling approximately $14.9 million and $14.5 million were outstanding on May 3,
2008 and February 2, 2008. The standby letters of credit are set to
expire primarily during the fourth quarter of Fiscal 2008 and 2010. To date, no beneficiary
has drawn upon the standby letters of credit.
|
|
|
|
No borrowings were outstanding under the New Credit Agreement on May 3, 2008 or under the
Original Credit Agreement on February 2, 2008, respectively.
|
15
11.
|
|
CONTINGENCIES
|
|
|
|
A&F is a defendant in lawsuits arising in the ordinary course of business.
|
|
|
|
On June 23, 2006, Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch
Stores, Inc., was filed in the Superior Court of the State of California for the County of
Los Angeles. In that action, three plaintiffs allege, on behalf of a putative class of
California store managers employed in Hollister and abercrombie stores, that they were
entitled to receive overtime pay as non-exempt employees under California wage and hour
laws. The complaint seeks injunctive relief, equitable relief, unpaid overtime
compensation, unpaid benefits, penalties, interest and attorneys fees and costs. The
defendants filed an answer to the complaint on August 21, 2006. The parties are engaging in
discovery. On December 10, 2007, the defendants reached an agreement in principle with
plaintiffs counsel to settle certain claims in the action. The agreement resulted in a
written Stipulation and Settlement Agreement, effective as of February 7, 2008, settling all
claims of Hollister and abercrombie store managers who served in stores from June 23, 2002
until April 30, 2004. Neither the agreement in principle nor the Stipulation affects claims
which are alleged to have arisen in the period commencing on April 30, 2004. On February
27, 2008, the Court entered an order noting its preliminary approval of the Stipulation and
Settlement Agreement and setting a noticed hearing for June 9, 2008, to determine whether
the proposed settlement should be finally approved. The cost of the settlement, if
approved, is not expected to be material.
|
|
|
|
On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch
Company, et al., was filed against A&F and certain of its officers in the United States
District Court for the Southern District of Ohio on behalf of a purported class of all
persons who purchased or acquired shares of A&Fs Common Stock between June 2, 2005 and
August 16, 2005. In September and October of 2005, five other purported class actions were
subsequently filed against A&F and other defendants in the same Court. All six securities
cases allege claims under the federal securities laws, and seek unspecified monetary
damages, as a result of a decline in the price of A&Fs Common Stock during the summer of
2005. On November 1, 2005, a motion to consolidate all of these purported class actions
into the first-filed case was filed by some of the plaintiffs. A&F joined in that motion.
On March 22, 2006, the motions to consolidate were granted, and these actions (together with
the federal court derivative cases described in the following paragraph) were consolidated
for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended
securities class action complaint (the Complaint) was filed on August 14, 2006. On
October 13, 2006, all defendants moved
to dismiss that Complaint. On August 9, 2007, the Court denied the motions to dismiss. On
September 14, 2007, defendants filed answers denying the material allegations of the
Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to
certify their purported class. The motion has not been fully briefed or submitted.
|
|
|
|
On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S.
Jeffries, et al., was filed in the United States District Court for the Southern District of
Ohio, naming A&F as a nominal defendant and seeking to assert claims for unspecified damages
against nine of A&Fs present and former directors, alleging various breaches of the
directors fiduciary duty and seeking equitable and monetary relief. In the following three
months (October, November and December of 2005), four similar derivative actions were filed
(three in the United States District Court for the Southern District of Ohio and one in the
Court of Common Pleas for Franklin County,
|
16
|
|
Ohio) against present and former directors of A&F
alleging various breaches of the directors fiduciary duty and seeking equitable and
monetary relief. A&F is also a nominal defendant in each of the four later derivative
actions. On November 4, 2005, a motion to consolidate all of the federal court derivative
actions with the purported securities law class actions described in the preceding paragraph
was filed. On March 22, 2006, the motion to consolidate was granted, and the federal court
derivative actions have been consolidated with the aforesaid purported securities law class
actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated
amended derivative complaint was filed in the federal proceeding on July 10, 2006. A&F
filed a motion to stay the consolidated federal derivative case and that motion was granted.
The state court action was also stayed. On February 16, 2007, A&F announced its Board of
Directors received a report of the Special Litigation Committee established by the Board to
investigate and act with respect to claims asserted in certain previously disclosed
derivative lawsuits brought against current and former directors and management, including
Chairman and Chief Executive Officer Michael S. Jeffries. The Special Litigation Committee
has concluded that there is no evidence to support the asserted claims and directed the
Company to seek dismissal of the derivative actions. On September 10, 2007, the Company
moved to dismiss the federal derivative cases on the authority of the Special Litigation
Committee report and on October 18, 2007, the state court stayed further proceedings until
resolution of the consolidated federal derivative cases.
|
|
|
|
Management intends to defend the aforesaid matters vigorously, as appropriate. Management
is unable to quantify the potential exposure of the aforesaid matters. However,
managements assessment of the Companys current exposure could change in the event of the
discovery of additional facts with respect to legal matters pending against the Company or
determinations by judges, juries or other finders of fact that are not in accordance with
managements evaluation of the claims.
|
|
|
|
In December 2005, the Company received a formal order of investigation from the SEC
concerning trading in shares of A&Fs Common Stock. The SEC thereafter requested
information from A&F and certain of its current and former officers and directors. The
Company and its personnel cooperated fully with the SEC. On May 5, 2008, the Company was
informed by the SEC that the SECs investigation had been closed.
|
|
12.
|
|
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
|
|
|
|
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2 (FSP 157-2) that
partially defers the effective date of SFAS No. 157 for one year for non-financial assets
and liabilities that are recognized or disclosed at fair value in the financial statements
on a non-recurring basis. Consequently, SFAS No. 157 will be effective for the Company on
February 1, 2009 for non-financial assets and liabilities that are recognized or disclosed
at fair value on a non-recurring basis. The Company is currently evaluating the potential
impact of adopting FSP 157-2 on the consolidated results of operations and consolidated
financial condition.
|
17
|
|
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activitiesan amendment of FASB Statement No. 133
(SFAS No. 161) which changes
the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161
requires enhanced disclosures about (a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are accounted for under SFAS No.
133,
Accounting for Derivative Instruments and Hedging Activities
and its related
interpretations, and (c) how derivative instruments and related hedged items affect an
entitys financial position, financial performance, and cash flows. SFAS No. 161 will be
effective for the Company on February 1, 2009. The Company is currently evaluating the
potential impact of adopting SFAS No. 161 in the disclosures to the Companys consolidated
financial statements.
|
|
|
|
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
(SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of financial
statements of nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America. SFAS No. 162 is effective
sixty days following the SECs approval of PCAOB amendments to AU Section 411,
The Meaning
of Present fairly in conformity with generally accepted accounting principles
. The
Company is currently evaluating the potential impact, if any, of the adoption of SFAS No.
162 on its consolidated financial statements.
|
|
13.
|
|
SUBSEQUENT EVENT
|
|
|
|
Subsequent to May 3, 2008, the Company borrowed $100.0 million under its New Credit
Agreement in order to increase its cash position and enhance financial flexibility. See
Note 10,
Long-Term Debt
for further discussion on the New Credit Agreement.
|
18
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:
We have reviewed the accompanying condensed consolidated balance sheet of Abercrombie & Fitch Co.
and its subsidiaries as of May 3, 2008, and the related condensed consolidated statements of net
income and comprehensive income for each of the thirteen week periods ended May 3, 2008 and May 5,
2007 and the condensed consolidated statement of cash flows for the thirteen week periods ended May
3, 2008 and May 5, 2007. These interim financial statements are the responsibility of the
Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which
is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying condensed consolidated interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet as of February 2, 2008, and the related
consolidated statements of net income and comprehensive income, of shareholders equity, and of
cash flows for the year then ended (not presented herein), and in our report dated March 28, 2008,
we expressed an unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance sheet as of February
2, 2008, is fairly stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
June 10, 2008
19
|
|
|
ITEM 2.
|
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
OVERVIEW
The Companys fiscal year ends on the Saturday closest to January 31. Fiscal years are designated
in the condensed consolidated financial statements and notes by the calendar year in which the
fiscal year commences. All references herein to Fiscal 2008 represent the 52-week fiscal year
that will end on January 31, 2009, and to Fiscal 2007 represents the 52-week fiscal year that
ended February 2, 2008.
The Company is a specialty retailer that operates stores and websites selling casual sportswear
apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts,
sweaters, outerwear, personal care products and accessories for men, women and kids under the
Abercrombie & Fitch, abercrombie, Hollister and RUEHL brands. In addition, the Company operates
stores under the Gilly Hicks brand offering bras, underwear, personal care products, sleepwear and
at-home products for women.
Abercrombie & Fitch is rooted in the essence of privilege and casual luxury. Abercrombie and Fitch
is a combination of classic and sexy creating an atmosphere that is confident and just a bit
provocative. abercrombie directly follows in the footsteps of its older sibling, Abercrombie &
Fitch. abercrombie has an energetic attitude and is popular, wholesome and athletic the
signature of All-American cool. Hollister is young, spirited, with a sense of humor and brings
Southern California to the world. RUEHL personifies the post-grad that has arrived in Greenwich
Village, New York City to live the dream. RUEHL embraces its culture and artistic nature and
defines the aspirational New York City lifestyle. Gilly Hicks is the cheeky cousin of Abercrombie
& Fitch, inspired by the free spirit of Sydney, Australia. Gilly Hicks is classic and vibrant,
always confident and is the All-American brand with a Sydney sensibility.
RESULTS OF OPERATIONS
During the first quarter of Fiscal 2008, net sales increased 8% to $800.2 million from $742.4
million in the first quarter of Fiscal 2007. Operating income decreased to $90.6 million in the
first quarter of Fiscal 2008 from $92.7 million in the first quarter of Fiscal 2007. Net income
increased to $62.1 million in the first quarter of Fiscal 2008 compared to $60.1 million in the
first quarter of Fiscal 2007. Net income per diluted weighted-average share was $0.69 in the first
quarter of Fiscal 2008 compared to $0.65 in the first quarter of Fiscal 2007.
Due to seasonal variations in the retail industry, the results of operations for any current period
are not necessarily indicative of the results expected for the full fiscal year or of future
financial results. The seasonality of the Companys operations may also lead to significant
fluctuations in certain asset and liability accounts.
20
The following data represent the amounts shown in the Companys condensed consolidated statements
of income for the thirteen-week periods ended May 3, 2008 and May 5, 2007, expressed as a
percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
May 3, 2008
|
|
May 5, 2007
|
NET SALES
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
33.2
|
%
|
|
|
34.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
66.8
|
%
|
|
|
65.6
|
%
|
Stores and Distribution Expense
|
|
|
42.7
|
%
|
|
|
41.5
|
%
|
Marketing, General and Administrative Expense
|
|
|
13.1
|
%
|
|
|
12.1
|
%
|
Other Operating Income, Net
|
|
|
(0.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
11.3
|
%
|
|
|
12.5
|
%
|
Interest Income, Net
|
|
|
(1.0
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
12.3
|
%
|
|
|
13.0
|
%
|
Provision for Income Taxes
|
|
|
4.5
|
%
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
7.8
|
%
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
21
Financial Summary
The following summarized financial and statistical data compares the thirteen-week period ended May
3, 2008 to the thirteen-week period ended May 5, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
May 3, 2008
|
|
May 5, 2007
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by brand (in thousands)
|
|
$
|
800,178
|
|
|
$
|
742,410
|
|
|
|
8
|
%
|
Abercrombie & Fitch
|
|
$
|
357,724
|
|
|
$
|
333,343
|
|
|
|
7
|
%
|
abercrombie
|
|
$
|
96,179
|
|
|
$
|
89,149
|
|
|
|
8
|
%
|
Hollister
|
|
$
|
330,167
|
|
|
$
|
309,668
|
|
|
|
7
|
%
|
RUEHL
|
|
$
|
13,039
|
|
|
$
|
10,250
|
|
|
|
27
|
%
|
Gilly Hicks **
|
|
$
|
3,069
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in comparable store sales*
|
|
|
(3
|
)%
|
|
|
(4
|
)%
|
|
|
|
|
Abercrombie & Fitch
|
|
|
3
|
%
|
|
|
(4
|
)%
|
|
|
|
|
abercrombie
|
|
|
(7
|
)%
|
|
|
(2
|
)%
|
|
|
|
|
Hollister
|
|
|
(8
|
)%
|
|
|
(5
|
)%
|
|
|
|
|
RUEHL
|
|
|
(17
|
)%
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales increase attributable to new
and remodeled stores and websites
|
|
|
11
|
%
|
|
|
17
|
%
|
|
|
|
|
Net retail sales per average store (in thousands)
|
|
$
|
699
|
|
|
$
|
729
|
|
|
|
(4
|
)%
|
Abercrombie & Fitch
|
|
$
|
894
|
|
|
$
|
845
|
|
|
|
6
|
%
|
abercrombie
|
|
$
|
427
|
|
|
$
|
458
|
|
|
|
(7
|
)%
|
Hollister
|
|
$
|
676
|
|
|
$
|
749
|
|
|
|
(10
|
)%
|
RUEHL
|
|
$
|
494
|
|
|
$
|
674
|
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net retail sales per average gross square foot
|
|
$
|
98
|
|
|
$
|
103
|
|
|
|
(5
|
)%
|
Abercrombie & Fitch
|
|
$
|
101
|
|
|
$
|
96
|
|
|
|
5
|
%
|
abercrombie
|
|
$
|
94
|
|
|
$
|
103
|
|
|
|
(9
|
)%
|
Hollister
|
|
$
|
101
|
|
|
$
|
113
|
|
|
|
(11
|
)%
|
RUEHL
|
|
$
|
53
|
|
|
$
|
72
|
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions per average retail store
|
|
|
11,063
|
|
|
|
11,518
|
|
|
|
(4
|
)%
|
Abercrombie & Fitch
|
|
|
10,751
|
|
|
|
10,759
|
|
|
|
(0
|
)%
|
abercrombie
|
|
|
6,616
|
|
|
|
7,198
|
|
|
|
(8
|
)%
|
Hollister
|
|
|
13,501
|
|
|
|
14,278
|
|
|
|
(5
|
)%
|
RUEHL
|
|
|
6,115
|
|
|
|
8,392
|
|
|
|
(27
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail transaction value
|
|
$
|
63.18
|
|
|
$
|
63.31
|
|
|
|
(0
|
)%
|
Abercrombie & Fitch
|
|
$
|
83.15
|
|
|
$
|
78.50
|
|
|
|
6
|
%
|
abercrombie
|
|
$
|
64.58
|
|
|
$
|
63.58
|
|
|
|
2
|
%
|
Hollister
|
|
$
|
50.05
|
|
|
$
|
52.43
|
|
|
|
(5
|
)%
|
RUEHL
|
|
$
|
80.78
|
|
|
$
|
80.28
|
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average units per retail transaction
|
|
|
2.44
|
|
|
|
2.39
|
|
|
|
2
|
%
|
Abercrombie & Fitch
|
|
|
2.43
|
|
|
|
2.36
|
|
|
|
3
|
%
|
abercrombie
|
|
|
2.80
|
|
|
|
2.80
|
|
|
|
0
|
%
|
Hollister
|
|
|
2.36
|
|
|
|
2.32
|
|
|
|
2
|
%
|
RUEHL
|
|
|
2.43
|
|
|
|
2.60
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average unit retail sold
|
|
$
|
25.89
|
|
|
$
|
26.49
|
|
|
|
(2
|
)%
|
Abercrombie & Fitch
|
|
$
|
34.22
|
|
|
$
|
33.26
|
|
|
|
3
|
%
|
abercrombie
|
|
$
|
23.06
|
|
|
$
|
22.71
|
|
|
|
2
|
%
|
Hollister
|
|
$
|
21.21
|
|
|
$
|
22.60
|
|
|
|
(6
|
)%
|
RUEHL
|
|
$
|
33.24
|
|
|
$
|
30.88
|
|
|
|
8
|
%
|
|
|
|
*
|
|
A store is included in comparable store sales when it has been open as the same brand 12 months or more and its square footage has not been expanded
or reduced by more than 20% within the past year.
|
|
**
|
|
Net sales for Gilly Hicks for the thirteen-week periods ended May 3, 2008 and May 5, 2007 reflect the
activity of 5 and 0 stores, respectively. Operational data was deemed immaterial for inclusion in the table
above.
|
22
CURRENT TRENDS AND OUTLOOK
Despite a challenging selling environment, led by tough macroeconomic conditions and softness in
the female fashion business, the Company produced record first quarter sales and earnings, marking
sixty-five consecutive quarters of year-over-year sales and earnings improvement. The Companys
long-standing performance record demonstrates its continued ability to effectively position its
brands, which have attained global recognition.
During the first quarter, the Company benefited from an increase in global brand awareness,
particularly for the Abercrombie & Fitch brand. While international stores in London and Canada
were highly productive, U.S. international tourist stores produced significant year- over-year
sales growth. These stores were led by the Fifth Avenue flagship in New York and included stores
in such tourist destinations as Miami, Orlando, Las Vegas and San Francisco. Complementing this
growth, the international direct-to-consumer business increased 78% over last year. These results
not only demonstrate the importance of owning a global brand during a domestic economic downturn
but also bolsters the Companys confidence in its international expansion plans.
Importantly, these results were achieved without compromising long-term brand positioning or
jeopardizing growth initiatives. The Company continued to invest in stores, merchandise
development and home office infrastructure, which it believes will enhance quality, improve
productivity and support future growth. Moreover, the Company avoided using promotions to drive
top-line growth, a disciplined approach which is critical to sustaining its aspirational brand
positioning.
Growth initiatives remain on target, with the first Hollister flagship in New York still scheduled
for an early 2009 opening. In addition, the Company plans to open its first abercrombie flagship
on Fifth Avenue in New York in 2010. The Company believes that both flagships will further fortify
the iconic image and global recognition of these brands. Internationally, the Company will open
four Hollister mall-based stores in the United Kingdom later this year. The Abercrombie & Fitch
Tokyo flagship is scheduled for a late 2009 opening and a second European Abercrombie & Fitch
flagship in Copenhagen, Denmark is planned to open in late 2009.
Domestically, the Company believes it has significant long-term growth potential. Hollister has
opportunities in many high quality U.S. malls as indicated by new store contribution rates, which
are on par with those of existing chain stores. Opportunities also exist through the introduction
of new categories in both established and newly introduced brands, such as Gilly Hicks.
The Company will continue to focus on long-term positioning of its brands by maintaining the
highest quality product, a disciplined pricing approach and an exceptional in-store environment.
Furthermore, the Company will seek to strategically control expense and improve operating
efficiencies, but will not sacrifice its long-term goals for short-term performance.
23
FIRST QUARTER RESULTS
Net Sales
Net sales for the first quarter of Fiscal 2008 were $800.2 million, an increase of 8% over net
sales of $742.4 million during the first quarter of Fiscal 2007. The net sales increase was
attributed to the net addition of 93 stores, and a 44% increase in the direct-to-consumer business,
partially offset by a 3% decrease in comparable store sales.
Abercrombie & Fitch comparable store sales increased 3% with womens comparable store sales
decreasing by a low single-digit and mens comparable store sales increasing by a low double-digit.
At abercrombie, comparable store sales decreased 7% with girls posting a low double-digit decrease
and boys posting a low single-digit increase. At Hollister, comparable store sales decreased 8%
with bettys declining by a low double-digit and dudes posting a low single-digit increase. RUEHL
comparable store sales decreased 17% with womens comparable store sales decreasing by high
twenties and mens comparable store sales decreasing by a low single-digit.
Regionally, comparable store sales were strongest in the international and tourist stores and
weakest in the South and Midwest.
From a merchandise classification standpoint across all brands, stronger performing masculine
categories included tops, fragrance and fleece, while shorts and active wear posted negative
comparable sales. In the feminine businesses, across all brands, stronger performing categories
included jeans, fleece and shorts, while knit tops, skirts and pants posted negative comparable
sales.
Direct-to-consumer net merchandise sales, which are sold through the Companys websites for the
first quarter of Fiscal 2008 were $62.5 million, an increase of 44% over Fiscal 2007 first quarter
net merchandise sales of $43.5 million. Shipping and handling revenue for the corresponding
periods was $10.5 million in Fiscal 2008 and $6.6 million in Fiscal 2007. The direct-to-consumer
business, including shipping and handling revenue, accounted for 9.1% of total net sales in the
first quarter of Fiscal 2008 compared to 6.7% in the first quarter of Fiscal 2007. The increase
was driven by store expansion, global brand recognition and continued improvement in targeted
e-mail marketing and website functionality.
Gross Profit
Gross profit for the first quarter of Fiscal 2008 was $534.2 million compared to $487.3 million for
the comparable period in Fiscal 2007. The gross profit rate (gross profit divided by net sales)
for the first quarter of Fiscal 2008 was 66.8%, up 120 basis points from the first quarter of
Fiscal 2007 rate of 65.6%. The increase in the gross profit rate reflects an improved initial
markup rate, driven by London premium pricing, sourcing and logistics benefits and select pricing
increases, and a lower shrink rate, partially offset by a slightly higher markdown rate.
24
Stores and Distribution Expense
Stores and distribution expense for the first quarter of Fiscal 2008 was $341.8 million compared to
$308.2 million for the comparable period in Fiscal 2007. The stores and distribution expense rate
(stores and distribution expense divided by net sales) for the first quarter of Fiscal 2008 was
42.7%, up 120 basis points from 41.5% in the first quarter of Fiscal 2007. The increase in the
rate resulted primarily from the Companys negative 3% comparable store sales and the impact of
higher minimum wage rates and higher direct expense rates, including pre-opening expenses
associated with the Abercrombie & Fitch Tokyo flagship lease. Partially offsetting the increases
was a reduction in variable expenses, particularly payroll hours, which were reduced on a per store
basis in response to the sales trends during the quarter.
Distribution center productivity, as measured in units processed per labor hour (UPH), increased
12.1% during the first quarter of Fiscal 2008 as compared to the first quarter of Fiscal 2007.
Marketing, General and Administrative Expense
Marketing, general and administrative expense during the first quarter of Fiscal 2008 was $104.7
million compared to $90.2 million during the same period in Fiscal 2007. For the first quarter of
Fiscal 2008, the marketing, general and administrative expense rate (marketing, general and
administrative expense divided by net sales) was 13.1% compared to 12.1% for the first quarter of
Fiscal 2007. The increase in rate was driven by increases in home office payroll and outside
service expense rates as the Company continues to invest in home office infrastructure to support
its growth initiatives, partially offset by decreases in the travel expense rate.
Other Operating Income, Net
First quarter other operating income for Fiscal 2008 was $2.9 million compared to $3.9 million for
the first quarter of Fiscal 2007. The decrease was driven primarily by losses on foreign currency
transactions in the first quarter of Fiscal 2008, compared to gains on foreign currency
transactions in the first quarter of Fiscal 2007.
Operating Income
Operating income for the first quarter of Fiscal 2008 decreased to $90.6 million from $92.7 million
in the comparable period of Fiscal 2007. The operating income rate (operating income divided by
net sales) was 11.3% for the first quarter of Fiscal 2008 compared to 12.5% for the first quarter
of Fiscal 2007.
Interest Income, Net and Income Tax Expense
First quarter net interest income was $7.6 million in Fiscal 2008 compared to $3.7 million in the
first quarter of Fiscal 2007. The increase in net interest income was due to higher investment
balances and higher average interest rates during the first quarter of Fiscal 2008 when compared to
the first quarter of Fiscal 2007.
The effective tax rate for the thirteen weeks ended May 3, 2008 was 36.8%, compared to 37.7%
for the Fiscal 2007 comparable period. The effective tax rate in the first quarter of Fiscal 2008
reflected the favorable impact of higher tax-exempt interest income.
25
Net Income and Net Income per Share
Net income for the first quarter of Fiscal 2008 was $62.1 million versus $60.1 million for the
first quarter of Fiscal 2007. Net income per diluted weighted-average share outstanding for the
first quarter of Fiscal 2008 was $0.69 versus $0.65 for the same period of Fiscal 2007, an increase
of 6.2%.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company expects that substantially all future operations, including projected growth, seasonal
requirements and capital expenditures will be funded with cash from operations. In addition, as of
May 3, 2008, the Company had $450 million available, less outstanding letters of credit, under its
unsecured credit agreement to support operations. Furthermore, the Company expects that cash from
operating activities will fund dividends currently being paid at a rate of $0.175 per share per
quarter. The Board of Directors will review the Companys cash position and results of operations
and address the appropriateness of future dividend amounts.
A summary of the Companys working capital position and capitalization follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
Working capital
|
|
$
|
295,617
|
|
|
$
|
597,142
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
$
|
1,644,317
|
|
|
$
|
1,618,313
|
|
|
|
|
|
|
|
|
As of May 3, 2008, the decrease in working capital was primarily driven by the reclassification of
$318.1 million in investments in federally insured student loan backed securities and insured
municipal authority bonds auction rate securities (ARS) from current assets to non-current
assets.
The ARS have maturities ranging from eight to 34 years. Despite the underlying long-term maturity
of ARS, such securities have been historically priced and subsequently traded as short-term
investments because of an interest-rate reset feature, which reset through a Dutch auction process
at predetermined periods ranging from seven to 35 days. Due to the frequent nature of the reset
feature, ARS were classified as current assets and reported at par, which approximated fair value,
as of February 2, 2008.
On February 13, 2008, the Company began to experience failed auctions. Due to the lack of
liquidity in the current market, as of May 3, 2008, all ARS were classified as non-current assets
and the Company determined that par value of the ARS no longer approximates fair value.
The Company does not believe that failures in the ARS market will have a material impact on
the Companys liquidity. The Company expects that substantially all future operations, including
projected growth, seasonal requirements and capital expenditures will be funded with cash from
operations. Additionally, as of May 3, 2008, the Company had $450 million available, less
outstanding letters of credit, under its unsecured credit agreement to support operations.
Subsequent to May 3, 2008, the Company borrowed $100.0 million under its unsecured credit agreement
in order to increase its cash position and enhance financial flexibility.
26
Operating Activities
Net cash used by operating activities, the Companys primary source of liquidity, totaled $17.2
million for the thirteen weeks ended May 3, 2008 versus net cash provided by operating activities
of $2.2 million for the comparable period in Fiscal 2007. Cash was used primarily to fund accounts
payable, accrued expenses, and income taxes payable and an increase in inventory. Cash was
provided by net income adjusted for non-cash items including depreciation and amortization,
amortization of deferred lease credits and share-based compensation and collection of lessor
construction allowances.
Investing Activities
Cash inflows from investing activities were generated by sales of marketable securities. Cash
outflows for investing activities were for purchases of marketable securities and for capital
expenditures primarily related to new store construction and other construction in progress (see
the discussion in Capital Expenditures and Lessor Construction Allowances). As of May 3, 2008,
the Company held $318.1 million of marketable securities classified as long-term.
Financing Activities
Financing activities for the thirteen-week period ended May 3, 2008 consisted primarily of $50.0
million for the repurchase of treasury stock, $14.8 million for the payment of the $0.175 per share
quarterly dividend on March 18, 2008 and $32.7 million received in connection with stock option
exercises.
A&F repurchased approximately 0.7 million shares of A&Fs Common Stock for the thirteen weeks ended
May 3, 2008. As of May 3, 2008, approximately 11.3 million shares were available for repurchase as
part of the August 15, 2005 and November 20, 2007 A&F Board of Directors authorizations to
repurchase 6.0 million shares and 10.0 million shares, respectively, of A&Fs Common Stock.
The Company has $450 million available (less outstanding letters of credit and borrowings) under
its Credit Agreement, as described in Note 10,
Long-Term Debt
of the Condensed Consolidated
Financial Statements. Trade letters of credit totaling approximately $75.4 million and $61.6
million were outstanding on May 3, 2008 and February 2, 2008, respectively. Standby letters of
credit totaling approximately $14.9 million and $14.5 million were outstanding on May 3, 2008 and
February 2, 2008. The standby letters of credit are set to expire primarily during the fourth
quarter of Fiscal 2008 and 2010. To date, no beneficiary has drawn upon the standby letters of
credit.
No borrowings were outstanding under the New Credit Agreement on May 3, 2008 or under the Original
Credit Agreement on February 2, 2008, respectively.
Off-Balance Sheet Arrangements
As of May 3, 2008, the Company did not have any off-balance sheet arrangements.
27
Contractual Obligations
The Companys contractual obligations consist primarily of letters of credit outstanding, operating
leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement
obligations, lease deposits and other agreements to purchase goods and services that are legally
binding and that require minimum quantities to be purchased. These contractual obligations impact
the Companys short- and long-term liquidity and capital resource needs. As of May 3, 2008, there
had been no material changes in the Companys contractual obligations from those as of February 2,
2008, other than those which occur in the normal course of business (primarily changes in the
Companys merchandise inventory-related purchases and lease obligations, which fluctuate throughout
the year as a result of the seasonal nature of the Companys operations). Subsequent to May 3,
2008, the Company borrowed $100.0 million under its New Credit Agreement in order to increase its
cash position and enhance financial flexibility.
28
Store Count and Gross Square Feet
Store count and gross square footage by brand for the thirteen weeks ended May 3, 2008 and May 5,
2007, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity
|
|
Abercrombie & Fitch
|
|
abercrombie
|
|
Hollister
|
|
RUEHL
|
|
Gilly Hicks
|
|
Total
|
February 2, 2008
|
|
|
359
|
|
|
|
201
|
|
|
|
450
|
|
|
|
22
|
|
|
|
3
|
|
|
|
1,035
|
|
New
|
|
|
1
|
|
|
|
2
|
|
|
|
10
|
|
|
|
1
|
|
|
|
2
|
|
|
|
16
|
|
Remodels/Conversions
(net activity)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
357
|
|
|
|
202
|
|
|
|
460
|
|
|
|
23
|
|
|
|
5
|
|
|
|
1,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
3,167
|
|
|
|
917
|
|
|
|
3,015
|
|
|
|
204
|
|
|
|
34
|
|
|
|
7,337
|
|
New
|
|
|
18
|
|
|
|
8
|
|
|
|
62
|
|
|
|
14
|
|
|
|
23
|
|
|
|
125
|
|
Remodels/Conversions
(net activity)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed
|
|
|
(23
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 3, 2008
|
|
|
3,162
|
|
|
|
923
|
|
|
|
3,077
|
|
|
|
218
|
|
|
|
57
|
|
|
|
7,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,857
|
|
|
|
4,569
|
|
|
|
6,689
|
|
|
|
9,478
|
|
|
|
11,400
|
|
|
|
7,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity
|
|
Abercrombie & Fitch
|
|
abercrombie
|
|
Hollister
|
|
RUEHL
|
|
Gilly Hicks
|
|
Total
|
February 3, 2007
|
|
|
360
|
|
|
|
177
|
|
|
|
393
|
|
|
|
14
|
|
|
|
|
|
|
|
944
|
|
New
|
|
|
1
|
|
|
|
4
|
|
|
|
6
|
|
|
|
1
|
|
|
|
|
|
|
|
12
|
|
Remodels/Conversions
(net activity)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
1
|
(1)
|
|
|
|
|
|
|
(1
|
)
|
Closed
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2007
|
|
|
359
|
|
|
|
180
|
|
|
|
399
|
|
|
|
16
|
|
|
|
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007
|
|
|
3,171
|
|
|
|
788
|
|
|
|
2,604
|
|
|
|
130
|
|
|
|
|
|
|
|
6,693
|
|
New
|
|
|
25
|
|
|
|
17
|
|
|
|
47
|
|
|
|
10
|
|
|
|
|
|
|
|
99
|
|
Remodels/Conversions
(net activity)
|
|
|
(16
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
9
|
(1)
|
|
|
|
|
|
|
(11
|
)
|
Closed
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2007
|
|
|
3,173
|
|
|
|
801
|
|
|
|
2,651
|
|
|
|
149
|
|
|
|
|
|
|
|
6,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,838
|
|
|
|
4,450
|
|
|
|
6,644
|
|
|
|
9,313
|
|
|
|
|
|
|
|
7,101
|
|
|
|
|
(1)
|
|
Includes one RUEHL store reopened after being temporarily closed due to fire.
|
29
Capital Expenditures and Lessor Construction Allowances
Capital expenditures totaled $91.2 million and $113.6 million for the thirteen-week periods ended
May 3, 2008 and May 5, 2007, respectively. Additionally, the non-cash accrual for construction in
progress decreased $17.1 million for the thirteen-week period ended May 3, 2008 compared to an
increase of $7.4 million for the thirteen-week period ended May 5, 2007. Capital expenditures
related primarily to new store construction, store remodels and refreshes, and other store related
projects. The balance of capital expenditures are related to various home office and distribution
center projects, and in Fiscal 2007, the purchase of an airplane.
Lessor construction allowances are an integral part of the decision-making process for assessing
the viability of new store leases. In making the decision whether to invest in a store location,
the Company calculates the estimated future return on its investment based on the cost of
construction, less any construction allowances to be received from the landlord. For the thirteen-
week periods ended May 3, 2008 and May 5, 2007, the Company received $11.5 million and $9.6 million
in construction allowances, respectively.
During Fiscal 2008, the Company anticipates capital expenditures between $410 million and $415
million. Approximately $290 million of this amount is allocated to new store construction and full
store remodels. Approximately $50 million is expected to be allocated to refresh existing stores.
The store refresh will include new floors, sound systems and fixture replacements at Abercrombie &
Fitch and abercrombie stores. In addition, the store refresh will include the addition of video
walls and the refitting of lighting and shelving to accommodate the rollout of the personal care
product line to Hollister stores. The balance in capital expenditures is allocated for home office
infrastructure, information technology and distribution center investments.
By the end of Fiscal 2008, the Company plans to increase gross square footage by approximately
10% over Fiscal 2007. Domestically, the Company anticipates the addition of approximately two new
Abercrombie & Fitch stores, 10 new abercrombie stores, 64 new Hollister stores, six new RUEHL stores,
14 new Gilly Hicks stores and two new outlet stores. The Company also plans to open one new
Abercrombie & Fitch store, two new abercrombie stores and three new Hollister stores in Canada.
Additionally, the Company plans to open four new Hollister stores in the United Kingdom.
During Fiscal 2008, the Company expects the average construction cost per square foot, net of
construction allowances, for new stores to be approximately $203, $170, $141, $260 and $386 per
store for Abercrombie & Fitch, abercrombie, Hollister, RUEHL and Gilly Hicks, respectively. The
Company expects initial inventory purchases for the stores to average approximately $0.4 million,
$0.2 million, $0.4 million, $0.5 million, $0.6 million per store for Abercrombie & Fitch,
abercrombie, Hollister, RUEHL and Gilly Hicks, respectively.
The Company expects that substantially all future capital expenditures will be funded with cash
from operations and landlord construction allowances. In addition, the Company has $450 million
available (less outstanding letters of credit) under its New Credit Agreement to support
operations. Subsequent to May 3, 2008, the Company borrowed $100.0 million under its New Credit
Agreement in order to increase its cash position and enhance financial flexibility. Therefore, it
has $350 million available, less outstanding letters of credit.
30
Critical Accounting Policies and Estimates
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States of America. The
preparation of these condensed consolidated financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. Since actual results may differ from those estimates, the Company revises its estimates
and assumptions as new information becomes available.
The Companys significant accounting policies can be found in Note 2 of the Notes to Consolidated
Financial Statements contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of A&Fs
Annual Report on Form 10-K for Fiscal 2007 filed on March 28, 2008. The Company believes the
following policies are the most critical to the portrayal of the Companys financial condition and
results of operations.
Revenue Recognition The Company recognizes retail sales at the time the customer takes
possession of the merchandise. Direct-to-consumer sales are recorded upon customer receipt of
merchandise. Amounts relating to shipping and handling billed to customers in a sale transaction
are classified as revenue and the related direct shipping and handling costs are classified as
stores and distribution expense. Associate discounts are classified as a reduction of revenue.
The Company reserves for sales returns through estimates based on historical experience and various
other assumptions that management believes to be reasonable. The sales return reserve was $8.5
million, $10.7 million and $8.2 million at May 3, 2008, February 2, 2008 and May 5, 2007,
respectively.
The Companys gift cards do not expire or lose value over periods of inactivity. The Company
accounts for gift cards by recognizing a liability at the time a gift card is sold. The liability
remains on the Companys books until the earlier of redemption (recognized as revenue) or when the
Company determines the likelihood of redemption is remote (recognized as other operating income).
The Company determines the probability of the gift card being redeemed to be remote based on
historical redemption patterns and recognizes the remaining balance as other operating income. At
May 3, 2008 and February 2, 2008, the gift card liability on the Companys Condensed Consolidated
Balance Sheets was $52.9 million and $68.8 million, respectively. The Company is not required by
law to escheat the value of unredeemed gift cards to the states in which it operates.
Auction Rate Securities As a result of the market failure and lack of liquidity in the current
ARS market, ARS are valued using a discounted cash flow model to determine the estimated fair
value. Some of the inputs into the model are unobservable in the market and are significant. The
assumptions used in preparing the model include, but are not limited to, periodic coupon rates,
market required rate of return and term. The coupon rate is estimated using the results of a
regression analysis factoring in historical data on the par swap rate and the maximum coupon rate
paid in the event of failure. In making the assumption of the required rate of return, the Company
considers the risk-free interest rate and credit spread. The term is identified as the time the
principal becomes available to the investor. The principal can become available under three
different scenarios: (1) the assumed coupon rate is above the required rate of return and the ARS
is assumed to be called, (2) the market has returned to normal and auctions have recommenced; and
(3) the principal has reached maturity. The Company also includes a marketability discount which
takes into account the lack of liquidity in the current ARS market.
31
The use of the discounted cash flow model resulted in a temporary impairment recorded as an
unrealized loss of $18.8 million taken as a component of accumulated other comprehensive loss.
Assuming all other assumptions disclosed in Note 5,
Fair Value
of the Notes to Condensed
Consolidated Financial Statements, being equal, a 50 bp increase in the interest rate will yield a
3% decrease in fair value and a 50 bp decrease in the interest rate will yield a 1% increase in
fair value.
The Company does not plan to sell any of the ARS, prior to maturity, at an amount below the
original purchase value and at this time does not deem it probable that it will receive less than
100% of the principal at maturity and interest from the issuer. Therefore, no other-than-temporary
impairment charge was taken against net income.
Inventory Valuation Inventories are principally valued at the lower of average cost or market
utilizing the retail method. The Company determines market value as the anticipated future selling
price of the merchandise less a normal margin. An initial markup is applied to inventory at cost
in order to establish a cost-to-retail ratio. Permanent markdowns, when taken, reduce both the
retail and cost components of inventory on hand so as to maintain the already established
cost-to-retail relationship. At first and third fiscal quarter end, the Company reduces inventory
value by recording a markdown reserve that represents the estimated future anticipated selling
price decreases necessary to sell-through the current season inventory. At second and fourth
fiscal quarter end, the Company reduces inventory value by recording a valuation reserve that
represents the estimated future selling price decreases necessary to sell-through any remaining
carryover inventory from the season just passed. The valuation reserve was $36.3 million, $5.4
million and $30.2 million at May 3, 2008, February 2, 2008 and May 5, 2007, respectively. The
valuation reserve at February 2, 2008 reflects the estimated markdowns, at cost, necessary to sell
through fashion carryover inventory on-hand at the end of the Fall season.
Additionally, as part of inventory valuation, an inventory shrink estimate is made each period that
reduces the value of inventory for lost or stolen items. The Company performs physical inventories
throughout the year and adjusts the shrink reserve accordingly. The shrink reserve was $15.0
million, $11.5 million and $12.4 million at May 3, 2008, February 2, 2008 and May 5, 2007,
respectively.
Inherent in the retail method calculation are certain significant judgments and estimates
including, among others, markdowns and shrinkage, which could significantly impact the ending
inventory valuation at cost as well as the resulting gross margins. An increase or decrease in the
inventory shrink estimate of 10% would not have a material impact on the Companys results of
operations. Management believes this inventory valuation method is appropriate since it preserves
the cost-to-retail relationship in ending inventory.
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
30 years for buildings; the lesser of the useful life of the asset, which ranges from three to 15
years, or the term of the lease for leasehold improvements; the lesser of the useful life of the
asset, which ranges from three to seven years, or the term of the lease when applicable for
information technology; and three to 20 years for other property and equipment. 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 remodels and improvements that extend service lives of the
assets are capitalized. Long-lived assets are reviewed at the store level periodically for
impairment or whenever events or changes
32
in
circumstances indicate that full recoverability of net assets through future cash flows is in question. Factors used in the evaluation include, but are
not limited to, managements plans for future operations, recent operating results and projected
cash flows.
Income Taxes Income taxes are calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109,
Accounting for Income Taxes
, which requires the use of the
asset and 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 current enacted
tax rates in effect for the years in which those temporary differences are expected to reverse.
Inherent in the measurement of deferred balances are certain judgments and interpretations of
enacted tax law and published guidance with respect to applicability to the Companys operations.
A valuation allowance is established against deferred tax assets when it is more likely than not
that some portion or all of the deferred tax asset will not be realized. The Company has recorded
a valuation allowance against the deferred tax assets arising from the net operating loss of a
foreign subsidiary and on the temporary impairment of ARS included in other comprehensive loss. As
of May 3, 2008 and February 2, 2008, the valuation allowance totaled $7.9 million and $0.9 million,
respectively. No other valuation allowances have 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 effective tax rate utilized by the Company reflects
managements judgment of the expected tax liabilities within the various taxing jurisdictions.
The provision for income taxes is based on the current estimate of the annual effective tax rate
adjusted to reflect the tax impact of items discrete to the quarter. The Company records tax
expense or benefit that does not relate to ordinary income in the current fiscal year discretely in
the period in which it occurs pursuant to the requirements of Accounting Principals Board (APB)
Opinion No. 28,
Interim Financial Reporting
and FIN 18,
Accounting for Income Taxes in Interim
Periods an Interpretation of APB Opinion No. 28.
Examples of such types of discrete items
include, but are not limited to, changes in estimates of the outcome of tax matters related to
prior years, provision-to-return adjustments, tax-exempt income and the settlement of tax audits.
Foreign Currency Translation Some of the Companys international operations use local currencies
as the functional currency. In accordance with SFAS No. 52,
Foreign Currency Translation,
assets
and liabilities denominated in foreign currencies were translated into U.S. dollars (the reporting
currency) at the exchange rate prevailing at the balance sheet date. Equity accounts denominated
in foreign currencies were translated into U.S. dollars at historical exchange rates. Revenues and
expenses denominated in foreign currencies were translated into U.S. dollars at the monthly average
exchange rate for the period. Gains and losses resulting from foreign currency transactions are
included in the results of operations, whereas related translation adjustments and inter-company
loans of a long-term investment nature are reported as an element of other comprehensive income in
accordance with SFAS No. 130,
Reporting Comprehensive Income.
Contingencies In the normal course of business, the Company must make continuing estimates of
potential future legal obligations and liabilities, which requires the use of managements judgment
on the outcome of various issues. Management may also use outside legal advice to assist in the
estimating process. However, the ultimate outcome of various legal issues could be different than
management estimates, and adjustments may be required.
33
Equity Compensation Expense The Companys equity compensation expense related to stock options
is estimated using the Black-Scholes option-pricing model to determine the fair value of the stock
option grants, which requires the Company to estimate the expected term of the stock option grants
and expected future stock price volatility over the expected term. Estimates of the expected term,
which represents the expected period of time the Company believes the stock options will be
outstanding, are based on historical information. Estimates of the expected future stock price
volatility are based on the volatility of A&Fs Common Stock for the most recent historical period
equal to the expected term of the stock option. The Company calculates the historic volatility as
the annualized standard deviation of the differences in the natural logarithms of the weekly stock
closing price, adjusted for stock splits.
The fair value calculation under the Black-Scholes valuation model is particularly sensitive to
changes in the expected term and volatility assumptions. Increases in the expected term or
volatility will result in a higher fair valuation of stock option grants. Assuming all other
assumptions disclosed in Note 2,
Share-Based Compensation
of the Notes to Condensed Consolidated
Financial Statements, being equal, a 10% increase in term will yield a 5% increase in the
Black-Scholes valuation, while a 10% increase in volatility will yield an 8% increase in the
Black-Scholes valuation. The Company believes that changes in the expected term and volatility
would not have a material effect on the Companys results since the number of stock options granted
during the periods presented was not material.
Recently Issued Accounting Pronouncements
In February 2008, the FASB issued FASB Staff Position (FSP) 157-2 (FSP 157-2) that partially
defers the effective date of SFAS No. 157,
Fair Value Measurements
(SFAS No. 157) for one year
for non-financial assets and liabilities that are recognized or disclosed at fair value in the
financial statements on a non-recurring basis. Consequently, SFAS No. 157 will be effective for
the Company on February 1, 2009 for non-financial assets and liabilities that are recognized or
disclosed at fair value on a non-recurring basis. The Company is currently evaluating the
potential impact of adopting FSP 157-2 on the consolidated results of operations and consolidated
financial condition.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activitiesan amendment of FASB Statement No. 133
(SFAS No. 161) which changes the disclosure
requirements for derivative instruments and hedging activities. SFAS No. 161 requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133,
Accounting for
Derivative Instruments and Hedging Activities
and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance, and cash flows. SFAS No. 161 will be effective for the Company on February 1, 2009.
The Company is currently evaluating the potential impact, if any, of adopting SFAS No. 161 on
disclosures in the Companys consolidated financial statements.
34
In May 2008, the FASB issued SFAS No. 162,
The Hierarchy of Generally Accepted Accounting
Principles
(SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted accounting
principles in the United States of America. SFAS No. 162 is effective sixty days following the
SECs approval of PCAOB amendments to AU Section 411,
The Meaning of Present fairly in conformity
with generally accepted accounting principles
. The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS No. 162 on its consolidated financial statements.
35
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 Quarterly Report on Form 10-Q or made
by the Company, its management or spokespeople involve risks and uncertainties and are subject to
change based on various important factors, many of which may be beyond the Companys control.
Words such as estimate, project, plan, believe, expect, anticipate, intend, and
similar expressions may identify forward-looking statements.
The following factors, in addition to those included in the disclosure under the heading
FORWARD-LOOKING STATEMENTS AND RISK FACTORS in ITEM 1A. RISK FACTORS of A&Fs Annual Report on
Form 10-K for Fiscal 2007 filed on March 28, 2008, in some cases have affected and in the future
could affect the Companys financial performance and could cause actual results for Fiscal 2008 and
beyond to differ materially from those expressed or implied in any of the forward-looking
statements included in this Quarterly Report on Form 10-Q or otherwise made by management:
|
|
|
loss of services of skilled senior executive officers;
|
|
|
|
|
ability to hire, train and retain qualified associates;
|
|
|
|
|
changes in consumer spending patterns and consumer preferences;
|
|
|
|
|
ability to develop innovative, high-quality new
merchandise in response to changing fashion trends;
|
|
|
|
|
effects on consumer purchases due to a general economic downturn;
|
|
|
|
|
the impact of competition and pricing pressures;
|
|
|
|
|
availability and market prices of key raw materials;
|
|
|
|
|
ability of manufacturers to comply with applicable laws,
regulations and ethical business practices;
|
|
|
|
|
availability of suitable store locations on appropriate
terms;
|
|
|
|
|
currency and exchange risks and changes in existing or
potential duties, tariffs or quotas;
|
|
|
|
|
effects of political and economic events and conditions
domestically and in foreign jurisdictions in which the Company operates,
including, but not limited to, acts of terrorism or war;
|
|
|
|
|
unseasonable weather conditions affecting consumer
preferences;
|
|
|
|
|
disruptive weather conditions affecting consumers
ability to shop; and
|
|
|
|
|
effects of capital market conditions.
|
36
Future economic and industry trends that could potentially impact revenue and profitability are
difficult to predict. Therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the
significant uncertainties in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company, or any other person, that
the objectives of the Company will be achieved. The forward-looking statements herein are based on
information presently available to the management of the Company. Except as may be required by
applicable law, the Company assumes no obligation to publicly update or revise its forward-looking
statements even if experience or future changes make it clear that any projected results expressed
or implied therein will not be realized.
37
|
|
|
ITEM 3.
|
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
The Company maintains its cash equivalents in financial instruments, primarily money market funds,
with original maturities of 90 days or less. The Company also holds investments in investment grade
auction rate securities (ARS), all classified as available-for-sale securities as of May 3, 2008,
that have maturities ranging from eight to 34 years. As of May 3, 2008, the Company held
approximately $318.1 million in ARS classified as non-current marketable securities. Approximately
$77.7 million of these securities were invested in insured municipal authority bonds and
approximately $240.4 million were invested in federally insured student loan backed securities.
At February 2, 2008, despite the underlying long-term maturity of ARS, such securities were priced
and subsequently traded as short-term investments because of the interest rate reset feature.
Interest rates reset through a Dutch auction process at predetermined periods ranging from seven to
35 days. If there are insufficient buyers, the auction is said to fail and the holders are
unable to liquidate the investments through auction. A failed auction does not result in a default
of the debt instrument. The securities continue to accrue interest and be auctioned until the
auction succeeds, the issuer calls the securities, or the securities mature.
On February 13, 2008, the Company began to experience failed auctions on some of its ARS. Based on
the overall failure rate of these auctions, the frequency of the failures, and the underlying
maturities of the securities, which range from eight to 34 years, the ARS have been classified as
non-current assets on the Condensed Consolidated Balance Sheet as of May 3, 2008.
Due to the lack of liquidity in the current market for the ARS, the Company determined that the
estimated fair value of the ARS no longer approximates par value. As of May 3, 2008, the Company
used a discounted cash flow model to determine the estimated fair value of these investments and an
unrealized loss of $18.8 million was recorded, related to the ARS and is included as a component of
accumulated other comprehensive loss on the Condensed Consolidated Balance Sheet. Assuming all
other assumptions disclosed in Note 5,
Fair Value
of the Notes to Condensed Consolidated
Financial Statements, being equal, a 50 bp increase in the interest rate will yield a 3% decrease
in fair value and a 50 bp decrease in the interest rate will yield a 1% increase in fair value. If
it becomes probable that the Company will not receive 100% of the principal and interest as to any
of the ARS, the Company will be required to recognize an other-than-temporary impairment charge
against net income.
As of May 3, 2008, approximately 85% of the Companys ARS were AAA rated by one or more of the
major credit rating agencies, with the remaining ARS having ratings ranging from A3 to BBB+.
The ratings take into account insurance policies guaranteeing both the principal and accrued
interest. Each investment in student loans is substantially guaranteed by the U.S. government
under the Federal Family Education Loan Program. The credit ratings may change over time and would
subject the ARS to default risk.
The Company does not believe that failures in the auction market will have a material impact on the
Companys liquidity. Additionally, as of May 3, 2008, the Company has $450 million available, less
outstanding letters of credit, under its unsecured credit agreement to support operations.
Subsequent to May 3, 2008, the Company borrowed $100 million under its unsecured credit agreement;
therefore, as of the date of this Quarterly Report on Form 10-Q, it has $350 million available,
less outstanding letters of credit.
38
The
Company has established an irrevocable rabbi trust (the Rabbi Trust), the purpose of which is to be a source of funds to match respective funding obligations to participants in the Abercrombie
& Fitch Nonqualified Savings and Supplemental Retirement Plan and the Chief Executive Officer
Supplemental Executive Retirement Plan. As of May 3, 2008, total assets held in the Rabbi Trust
were $52.1 million, which included $18.1 million of available-for-sale municipal notes and bonds
with maturities that ranged from four to six years, trust-owned life insurance policies with a cash
surrender value of $32.2 million and $1.8 million held in money market funds. The Rabbi Trust
assets are consolidated in accordance with Emerging Issues Task Force Issue No. 97-14,
Accounting
for Deferred Compensation Arrangements Where Amounts Earned are Held in a Rabbi Trust and
Invested
, and recorded at fair value in other assets on the Condensed Consolidated Balance Sheet
and are restricted as to their use as noted above.
Net unrealized losses were approximately $19.0 million as of May 3, 2008 and net unrealized gains
were approximately $0.01 million as of May 5, 2007, all related to available-for-sale securities.
The Company does not enter into financial instruments for trading purposes.
As of May 3, 2008, the Company had no long-term debt outstanding. Subsequent to May 3, 2008, the
Company borrowed $100.0 million under its unsecured credit agreement in order to increase its cash
position and enhance financial flexibility. This borrowing and any future borrowings will bear
interest at negotiated rates and would be subject to interest rate risk.
The Company has exposure to changes in currency exchange rates associated with foreign currency
transactions, including inter-company transactions. Such foreign currency transactions are
denominated in Euros, Canadian Dollars, Japanese Yen, Danish Krones, Swiss Francs and British
Pounds. The Company has established a program that primarily utilizes foreign currency forward
contracts to partially offset the risks associated with the effects of certain foreign currency
exposures. Under this program, increases or decreases in foreign currency exposures are partially
offset by gains or losses on forward contracts, to mitigate the impact of foreign currency
transaction gains or losses. The Company does not use forward contracts to engage in currency
speculation.
All outstanding foreign currency forward contracts are marked to market at the end of each fiscal
period. The Companys ultimate realized gain or loss with respect to foreign currency fluctuations
will depend on the foreign currency exchange rate changes and other factors in effect as the
contracts mature.
39
|
|
|
ITEM 4.
|
|
CONTROLS AND PROCEDURES
|
Disclosure Controls and Procedures
A&F maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to provide
reasonable assurance that information required to be disclosed in the reports that A&F files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to A&Fs management, including the Chairman and Chief Executive Officer of A&F and the
Executive Vice President and Chief Financial Officer of A&F, as appropriate to allow timely
decisions regarding required disclosures. Because of inherent limitations, disclosure controls and
procedures, no matter how well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of disclosure controls and procedures are met.
A&Fs management, including the Chairman and Chief Executive Officer of A&F and the Executive Vice
President and Chief Financial Officer of A&F, evaluated the effectiveness of A&Fs design and
operation of its disclosure controls and procedures as of the end of the fiscal quarter ended May
3, 2008. Based upon that evaluation, the Chairman and Chief Executive Officer of A&F and the
Executive Vice President and Chief Financial Officer of A&F concluded that A&Fs disclosure
controls and procedures were effective at a reasonable level of assurance as of May 3, 2008, the
end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in A&Fs internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during A&Fs fiscal quarter ended May
3, 2008 that materially affected, or are reasonably likely to materially affect, A&Fs internal
control over financial reporting.
40
|
|
|
PART II.
|
|
OTHER INFORMATION
|
|
|
|
ITEM 1.
|
|
LEGAL PROCEEDINGS
|
A&F is a defendant in lawsuits arising in the ordinary course of business.
On June 23, 2006, Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch Stores,
Inc., was filed in the Superior Court of the State of California for the County of Los Angeles. In
that action, three plaintiffs allege, on behalf of a putative class of California store managers
employed in Hollister and abercrombie stores, that they were entitled to receive overtime pay as
non-exempt employees under California wage and hour laws. The complaint seeks injunctive relief,
equitable relief, unpaid overtime compensation, unpaid benefits, penalties, interest and attorneys
fees and costs. The defendants filed an answer to the complaint on August 21, 2006.
On December 10, 2007, the defendants reached an agreement in principle
with plaintiffs counsel to settle certain claims in the action. The agreement resulted in a
written Stipulation and Settlement Agreement, effective as of February 7, 2008, settling all claims
of Hollister and abercrombie store managers who served in stores from June 23, 2002 until April 30,
2004. On June 9, 2008, the Court approved that settlement. The
settlement does not affect claims which are alleged to have arisen in
the period commencing on April 30, 2004, and the parties are
continuing to litigate those claims.
On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company,
et al., was filed against A&F and certain of its officers in the United States District Court for
the Southern District of Ohio on behalf of a purported class of all persons who purchased or
acquired shares of A&Fs Common Stock between June 2, 2005 and August 16, 2005. In September and
October of 2005, five other purported class actions were subsequently filed against A&F and other
defendants in the same Court. All six securities cases allege claims under the federal securities
laws, and seek unspecified monetary damages, as a result of a decline in the price of A&Fs Common
Stock during the summer of 2005. On November 1, 2005, a motion to consolidate all of these
purported class actions into the first-filed case was filed by some of the plaintiffs. A&F joined
in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions
(together with the federal court derivative cases described in the following paragraph) were
consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated
amended securities class action complaint (the Complaint) was filed on August 14, 2006. On
October 13, 2006, all defendants moved to dismiss that Complaint. On August 9, 2007, the Court
denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the
material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007,
plaintiffs moved to certify their purported class. The motion has not been fully briefed or
submitted.
On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries,
et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F
as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&Fs
present and former directors, alleging various breaches of the directors fiduciary duty and
seeking equitable and monetary relief. In the following three months (October, November and
December of 2005), four similar derivative actions were filed (three in the United States District
Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio)
against present and former
41
directors
of A&F alleging various breaches of the directors fiduciary duty and seeking equitable and monetary relief. A&F
is also a nominal defendant in each of the four later derivative actions. On November 4, 2005, a
motion to consolidate all of the federal court derivative actions with the purported securities law
class actions described in the preceding paragraph was filed. On March 22, 2006, the motion to
consolidate was granted, and the federal court derivative actions have been consolidated with the
aforesaid purported securities law class actions for purposes of motion practice, discovery and
pretrial proceedings. A consolidated amended derivative complaint was filed in the federal
proceeding on July 10, 2006. A&F filed a motion to stay the consolidated federal derivative case
and that motion was granted. The state court action was also stayed. On February 16, 2007, A&F
announced its Board of Directors received a report of the Special Litigation Committee established
by the Board to investigate and act with respect to claims asserted in certain previously disclosed
derivative lawsuits brought against current and former directors and management, including Chairman
and Chief Executive Officer Michael S. Jeffries. The Special Litigation Committee has concluded
that there is no evidence to support the asserted claims and directed the Company to seek dismissal
of the derivative actions. On September 10, 2007, the Company moved to dismiss the federal
derivative cases on the authority of the Special Litigation Committee report and on October 18,
2007, the state court stayed further proceedings until resolution of the consolidated federal
derivative cases.
Management intends to defend the aforesaid matters vigorously, as appropriate. Management is
unable to quantify the potential exposure of the aforesaid matters. However, managements
assessment of the Companys current exposure could change in the event of the discovery of
additional facts with respect to legal matters pending against the Company or determinations by
judges, juries or other finders of fact that are not in accord with managements evaluation of the
claims.
In December 2005, the Company received a formal order of investigation from the SEC concerning
trading in shares of A&Fs Common Stock. The SEC thereafter requested information from A&F and
certain of its current and former officers and directors. The Company and its personnel cooperated
fully with the SEC. On May 5, 2008, the Company was informed by the SEC that the investigation had
been closed.
42
The Companys risk factors as of May 3, 2008 have not changed materially from those disclosed in
A&Fs Annual Report on Form 10-K for Fiscal 2007 filed on March 28, 2008.
43
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table provides information regarding A&Fs purchases of its Common Stock during the
thirteen-week period ended May 3, 2008:
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|
|
Total Number of
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|
|
|
|
|
|
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|
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Shares Purchased
|
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Maximum Number of
|
|
|
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Total Number
|
|
|
Average
|
|
|
as Part of Publicly
|
|
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Shares that May Yet be
|
|
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|
of Shares
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Price Paid
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Announced Plans
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|
Purchased under the
|
|
Period (Fiscal Month)
|
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Purchased
(1)
|
|
|
per Share
(2)
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|
|
or Programs
(3)
|
|
|
Plans or Programs
(4)
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|
February 3, 2008 through March 1,
2008
|
|
|
7,530
|
|
|
$
|
75.43
|
|
|
|
|
|
|
|
12,029,200
|
|
March 2, 2008 through April 5, 2008
|
|
|
776,885
|
|
|
$
|
73.48
|
|
|
|
682,300
|
|
|
|
11,346,900
|
|
April 6, 2008 through May 3, 2008
|
|
|
573
|
|
|
$
|
77.26
|
|
|
|
|
|
|
|
11,346,900
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total
|
|
|
784,988
|
|
|
$
|
73.50
|
|
|
|
682,300
|
|
|
|
11,346,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1)
|
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Included in the total number of shares of A&Fs Common Stock purchased during the quarterly period
(thirteen-week period) ended May 3, 2008 are an aggregate of 102,688 shares which were withheld for
tax payments due upon the vesting of employee restricted stock units and restricted stock awards. All
other shares of A&F Common Stock purchased during the quarterly period were purchased pursuant to
A&Fs publicly announced stock repurchase authorizations described in footnote 3 below.
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(2)
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The average price paid per share includes broker commissions, as applicable.
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(3)
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The reported shares were purchased pursuant to A&Fs publicly announced stock repurchase authorizations.
On August 16, 2005, A&F announced the August 15, 2005 authorization by A&Fs Board of Directors to
repurchase 6.0 million shares of A&Fs Common Stock. On November 21, 2007, A&F announced the
November 20, 2007 authorization by A&Fs Board of Directors to repurchase 10.0 million shares of A&Fs
Common Stock, in addition to the approximately 2.0 million shares of A&Fs Common Stock which
remained available under the August 2005 authorization as of November 20, 2007.
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(4)
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The number shown represents, as of the end of each period, the maximum number of shares of Common
Stock that may yet be purchased under A&Fs publicly announced stock repurchase authorizations
described in footnote 3 above. The shares may be purchased, from time to time, depending on market
conditions.
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44
ITEM 6. EXHIBITS
(a)
Exhibits
3.1
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Amended and Restated Certificate of Incorporation of A&F as filed with the Delaware Secretary
of State on August 27, 1996, incorporated herein by reference to Exhibit 3.1 to A&Fs
Quarterly Report on Form 10-Q for the quarterly period ended November 2, 1996 (File No.
001-12107).
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3.2
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|
Certificate of Designation of Series A Participating Cumulative Preferred Stock of A&F as
filed with the Delaware Secretary of State on July 21, 1998, incorporated herein by reference
to Exhibit 3.2 to A&Fs Annual Report on Form 10-K for the fiscal year ended January 30, 1999
(File No. 001-12107).
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3.3
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Certificate of Decrease of Shares Designated as Class B Common Stock as filed with the
Delaware Secretary of State on July 30, 1999, incorporated herein by reference to Exhibit 3.3
to A&Fs Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1999 (File No.
001-12107).
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3.4
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Amended and Restated Bylaws of A&F (reflecting amendments through May 20, 2004), incorporated
herein by reference to Exhibit 3.7 to A&Fs Quarterly Report on Form 10-Q for the quarterly
period ended May 1, 2004 (File No. 001-12107).
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4.1
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|
Rights Agreement, dated as of July 16, 1998, between A&F and First Chicago Trust Company of
New York, incorporated herein by reference to Exhibit 1 to A&Fs Registration Statement on
Form 8-A dated and filed July 21, 1998 (File No. 001-12107).
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|
4.2
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|
Amendment No. 1 to Rights Agreement, dated as of April 21, 1999, between A&F and First
Chicago Trust Company of New York, incorporated herein by reference to Exhibit 2 to A&Fs
Amendment No. 1 to Form 8-A dated April 23, 1999 and filed April 26, 1999 (File No.
001-12107).
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|
4.3
|
|
Certificate of adjustment of number of Rights associated with each share of Class A Common
Stock, dated May 27, 1999, incorporated herein by reference to Exhibit 4.6 to A&Fs Quarterly
Report on Form 10-Q for the quarterly period ended July 31, 1999 (File No. 001-12107).
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4.4
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|
Appointment and Acceptance of Successor Rights Agent, effective as of the opening of business
on October 8, 2001, between A&F and National City Bank, incorporated herein by reference to
Exhibit 4.6 to A&Fs Quarterly Report on Form 10-Q for the quarterly period ended August 4,
2001 (File No. 001-12107).
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4.5
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|
Credit Agreement, dated as of November 14, 2002, as amended and restated as of December 15,
2004, among Abercrombie & Fitch Management Co., as Borrower, A&F, as Guarantor, the Lenders
party thereto, National City Bank, as Administrative Agent, JPMorgan Chase Bank, N.A., as
Syndication Agent, and National City Bank and J.P. Morgan Securities Inc., as Co-Lead
Arrangers and Joint Bookrunners, incorporated herein by reference to Exhibit 4.1 to A&Fs
Current Report on Form 8-K dated and filed December 21, 2004 (File No. 001-12107). [Terminated
April 15, 2008]
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45
4.6
|
|
Guarantee Agreement, dated as of November 14, 2002, as amended and restated as of December
15, 2004, among A&F, each direct and indirect domestic subsidiary of A&F other than
Abercrombie & Fitch Management Co., and National City Bank, as Administrative Agent,
incorporated herein by reference to Exhibit 4.2 to A&Fs Current Report on Form 8-K dated and
filed December 21, 2004 (File No. 001-12107). [Terminated April 15, 2008]
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4.7
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|
First Amendment dated as of June 22, 2005, to the Credit Agreement, dated as of November 14,
2002, as amended and restated as of December 15, 2004, among Abercrombie & Fitch Management
Co., as Borrower, A&F, as Guarantor, the Lenders party thereto, and National City Bank, as
Administrative Agent, incorporated herein by reference to Exhibit 4.1 to A&Fs Current Report
on Form 8-K dated and filed June 22, 2005 (File No. 001-12107). [Terminated April 15, 2008]
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4.8
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|
Notice of Termination, dated April 15, 2008, from Abercrombie & Fitch Management Co. to
National City Bank, as Administrative Agent, in respect of Amended and Restated Credit
Agreement, dated as of December 15, 2004, among Abercrombie & Fitch Management Co., the
various financial institutions party thereto and National City Bank, as Administrative Agent,
incorporated herein by reference to Exhibit 4.3 to A&Fs Current Report on Form 8-K dated and
filed April 18, 2008 (File No. 001-12107).
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4.9
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|
Credit Agreement, dated as of April 15, 2008, among Abercrombie & Fitch Management Co.; the
Foreign Subsidiary Borrowers (as defined in the Credit Agreement) from time to time party to
the Credit Agreement; A&F; the Lenders (as defined in the Credit Agreement) from time to time
party to the Credit Agreement; National City Bank, as a co-lead arranger, a co-bookrunner and
Global Administrative Agent, as the Swing Line Lender and an LC Issuer; J.P. Morgan
Securities, Inc., as a co-leader arranger, a co-bookrunner and as syndication agent; and each
of Fifth Third Bank and Huntington National Bank, as a documentation agent, incorporated
herein by reference to Exhibit 4.1 to A&Fs Current Report on Form 8-K dated and filed April
18, 2008 (File No. 001-12107).
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4.10
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|
Guaranty of Payment (Domestic Credit Parties), dated as of April 15, 2008, among A&F; each
direct and indirect Domestic Subsidiary (as defined in the Guaranty of Payment) of A&F other
than Abercrombie & Fitch Management Co.; and National City Bank, as Global Administrative
Agent, incorporated herein by reference to Exhibit 4.2 to A&Fs Current Report on Form 8-K
dated and filed April 18, 2008 (File No. 001-12107).
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4.11
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|
Joinder Agreement, dated as of May 14, 2008, between AFH Canada Stores Co., as an Additional
Borrower, and National City Bank, as Global Administrative Agent. *
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4.12
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|
Joinder Agreement, dated as of May 14, 2008, between Abercrombie & Fitch (UK) Limited, as an
Additional Borrower, and National City Bank, as Global Administrative Agent. *
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4.13
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Joinder Agreement, dated as of May 14, 2008, between Abercrombie & Fitch Europe S.A., as an
Additional Borrower, and National City Bank, as Global Administrative Agent. *
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46
10.1
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Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan, incorporated herein by reference to
Exhibit 10.1 to A&Fs Current Report on Form 8-K dated and filed June 17, 2005 (File No.
001-12107).
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10.2
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|
Form of Stock Option Agreement (Nonstatutory Stock Option) for Associates under the
Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan on or after March 6, 2006, incorporated
herein by reference to Exhibit 10.33 to A&Fs Annual Report on Form 10-K for the fiscal year
ended January 28, 2006 (File 001-12107).
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10.3
|
|
Form of Restricted Stock Unit Award Agreement for Associates under the Abercrombie & Fitch
Co. 2005 Long-Term Incentive Plan on or after March 6, 2006, incorporated herein by reference
to Exhibit 10.34 to A&Fs Annual Report on Form 10-K for the fiscal year ended January 28,
2006 (File No. 001-12107).
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10.4
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|
Form of Restricted Stock Unit Award Agreement used and to be used to evidence the grant of
restricted stock units to Executive Vice Presidents of A&F and its subsidiaries under the
Abercrombie & Fitch 2005 Long-Term Incentive Plan on and after March 4, 2008, incorporated
herein by reference to Exhibit 10.1 to A&Fs Current Report on Form 8-K dated and filed March
6, 2008 (File No. 001-12107).
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|
10.5
|
|
Trust Agreement, dated as of October 16, 2006, between A&F and Wilmington Trust Company,
incorporated herein by reference to Exhibit 10.1 to A&Fs Current Report on Form 8-K dated and
filed October 17, 2006 (File No. 001-12107).
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|
10.6
|
|
Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan, incorporated herein by reference to
Exhibit 10.2 to A&Fs Current Report on Form 8-K dated and filed June 18, 2007 (File No.
001-12107).
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|
10.7
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|
Form of Stock Option Agreement used and to be used to evidence the grant of nonstatutory
stock options to employees of A&F and its subsidiaries under the Abercrombie & Fitch Co. 2007
Long-Term Incentive Plan after August 21, 2007, incorporated herein by reference to Exhibit
10.1 to A&Fs Current Report on Form 8-K dated and filed August 27, 2007 (File No. 001-12107).
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|
10.8
|
|
Form of Restricted Stock Unit Award Agreement used and to be used to evidence the grant of
restricted stock units to employees of A&F and its subsidiaries under the Abercrombie & Fitch
Co. 2007 Long-Term Incentive Plan after August 21, 2007, incorporated herein by reference to
Exhibit 10.2 to A&Fs Current Report on Form 8-K dated and filed August 27, 2007 (File No.
001-12107).
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|
10.9
|
|
Abercrombie & Fitch Co. Incentive Compensation Performance Plan, incorporated herein by
reference to Exhibit 10.1 to A&Fs Current Report on Form 8-K dated and filed June 18, 2007
(File No. 001-12107).
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|
15
|
|
Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re:
Inclusion of Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers
LLP.*
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|
31.1
|
|
Certification by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
47
31.2
|
|
Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.*
|
|
32
|
|
Certification by Principal Executive Officer and Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
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|
|
|
|
|
ABERCROMBIE & FITCH CO.
|
|
Date: June 10, 2008
|
By
|
/s/ MICHAEL W. KRAMER
|
|
|
|
Michael W. Kramer
|
|
|
|
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Authorized Officer)
|
|
49
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Document
|
|
|
|
4.11
|
|
Joinder Agreement, dated as of May 14, 2008, between AFH Canada Stores Co., as an
Additional Borrower, and National City Bank, as Global Administrative Agent.
|
|
|
|
4.12
|
|
Joinder Agreement, dated as of May 14, 2008, between Abercrombie & Fitch (UK)
Limited, as an Additional Borrower, and National City Bank, as Global Administrative Agent.
|
|
|
|
4.13
|
|
Joinder Agreement, dated as of May 14, 2008, between Abercrombie & Fitch Europe
S.A., as an Additional Borrower, and National City Bank, as Global Administrative Agent.
|
|
|
|
15
|
|
Letter re: Unaudited Interim Financial Information to Securities and Exchange
Commission re: Inclusion of Report of Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP.
|
|
|
|
31.1
|
|
Certification by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a)
under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
32
|
|
Certification by Principal Executive Officer and Principal Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
50
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