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 November 1, 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, Ohio
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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):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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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).
o
Yes
þ
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 December 3, 2008
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$.01 Par Value
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87,052,739 Shares
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ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME
AND COMPREHENSIVE INCOME
(Thousands, except per share amounts)
(Unaudited)
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Thirteen Weeks Ended
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Thirty-Nine Weeks Ended
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November 1,
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November 3,
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November 1,
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November 3,
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2008
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2007
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2008
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2007
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NET SALES
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$
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896,344
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$
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973,930
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$
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2,542,321
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$
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2,520,878
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Cost of Goods Sold
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304,401
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328,887
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823,243
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835,128
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GROSS PROFIT
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591,943
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645,043
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1,719,078
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1,685,750
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Stores and Distribution Expense
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386,545
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355,770
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1,089,052
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998,425
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Marketing, General and Administrative Expense
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104,959
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103,996
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318,681
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292,611
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Other Operating Loss (Income), Net
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299
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(1,310
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)
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(3,396
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)
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(8,715
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)
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OPERATING INCOME
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100,140
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186,587
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314,741
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403,429
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Interest Income, Net
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(560
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)
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(4,618
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(9,963
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(12,472
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)
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INCOME BEFORE INCOME TAXES
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100,700
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191,205
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324,704
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415,901
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Provision for Income Taxes
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36,800
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73,620
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120,856
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156,960
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NET INCOME
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$
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63,900
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$
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117,585
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$
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203,848
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$
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258,941
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NET INCOME PER SHARE:
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BASIC
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$
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0.73
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$
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1.35
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$
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2.35
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$
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2.96
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DILUTED
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$
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0.72
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$
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1.29
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$
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2.27
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$
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2.82
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WEIGHTED-AVERAGE SHARES OUTSTANDING:
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BASIC
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87,034
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86,895
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86,737
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87,623
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DILUTED
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88,806
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91,133
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89,636
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91,937
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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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$
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0.525
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$
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0.525
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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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(9,499
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$
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4,731
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$
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(10,413
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)
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$
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9,148
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Unrealized Gain (Loss) on Available-For-Sale Securities, net of taxes of
$6,537 and ($3) for the thirteen week periods ended November 1, 2008
and November 3, 2007, respectively, and $6,656 and ($61) for the thirty-nine
week periods ended November 1, 2008 and November 3, 2007, respectively
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6,647
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(5
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(11,455
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(97
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Other Comprehensive (Loss) Income
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$
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(2,852
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)
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$
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4,726
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$
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(21,868
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)
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$
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9,051
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COMPREHENSIVE INCOME
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$
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61,048
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$
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122,311
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$
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181,980
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$
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267,992
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
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November 1, 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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298,043
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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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57,119
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53,801
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Inventories
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504,898
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333,153
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Deferred Income Taxes
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38,238
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36,128
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Other Current Assets
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97,836
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68,643
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TOTAL CURRENT ASSETS
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996,134
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1,140,255
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PROPERTY AND EQUIPMENT, NET
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1,443,010
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1,318,291
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MARKETABLE SECURITIES
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261,814
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OTHER ASSETS
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116,565
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109,052
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TOTAL ASSETS
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$
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2,817,523
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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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170,868
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$
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108,437
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Outstanding Checks
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39,729
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43,361
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Accrued Expenses
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211,819
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280,910
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Debt
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100,000
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Deferred Lease Credits
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42,584
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37,925
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Income Taxes Payable
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72,480
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TOTAL CURRENT LIABILITIES
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565,000
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543,113
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LONG TERM LIABILITIES:
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Deferred Income Taxes
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32,573
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22,491
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Deferred Lease Credits
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219,789
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213,739
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Other Liabilities
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199,516
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169,942
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TOTAL LONG TERM LIABILITIES
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451,878
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406,172
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SHAREHOLDERS EQUITY:
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Class A Common Stock $0.01 par value: 150,000 shares
authorized and 103,300 shares issued November 1, 2008
and February 2, 2008
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1,033
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1,033
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Paid-In Capital
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349,059
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319,451
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Retained Earnings
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2,207,887
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2,051,463
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Accumulated Other Comprehensive (Loss) Gain, net of tax
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(14,750
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)
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7,118
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Treasury Stock, at Average Cost - 16,252 and 17,141
shares at November 1, 2008 and February 2, 2008, respectively
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(742,584
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)
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(760,752
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)
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TOTAL SHAREHOLDERS EQUITY
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1,800,645
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1,618,313
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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2,817,523
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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 CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
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Thirty-Nine Weeks Ended
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|
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November 1, 2008
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November 3, 2007
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OPERATING ACTIVITIES:
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Net Income
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$
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203,848
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$
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258,941
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Impact of Other Operating Activities on Cash Flows:
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Depreciation and Amortization
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165,592
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|
|
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134,155
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Amortization of Deferred Lease Credits
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(32,284
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)
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(27,911
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)
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Share-Based Compensation
|
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|
32,606
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|
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22,068
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Tax Benefit from Share-Based Compensation
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|
16,946
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|
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17,605
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Excess Tax Benefit from Share-Based Compensation
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(5,970
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)
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(14,214
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)
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Deferred Taxes
|
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|
15,524
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|
|
|
(14,417
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)
|
Loss on Disposal of Assets and Non-Cash Charge for
Asset Impairment
|
|
|
3,495
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|
|
|
7,042
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Lessor Construction Allowances
|
|
|
43,831
|
|
|
|
29,763
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|
Foreign Currency Gain / (Loss)
|
|
|
1,548
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|
|
|
(965
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)
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Changes in Assets and Liabilities:
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Inventories
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(173,082
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)
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|
28,204
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|
Accounts Payable and Accrued Expenses
|
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|
(6,671
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)
|
|
|
35,057
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|
Income Taxes
|
|
|
(81,909
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)
|
|
|
(65,450
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)
|
Other Assets and Liabilities
|
|
|
(3,051
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)
|
|
|
5,012
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
180,423
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|
|
|
414,890
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|
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|
|
|
|
|
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|
INVESTING ACTIVITIES:
|
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|
|
|
|
|
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|
Capital Expenditures
|
|
|
(298,509
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)
|
|
|
(303,091
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)
|
Purchases of Marketable Securities
|
|
|
(49,411
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)
|
|
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(911,542
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)
|
Proceeds from Sales of Marketable Securities
|
|
|
297,673
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|
|
|
1,082,499
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
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|
NET CASH USED FOR INVESTING ACTIVITIES
|
|
|
(50,247
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)
|
|
|
(132,134
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)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from Share-Based Compensation
|
|
|
55,194
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|
|
|
35,874
|
|
Proceeds from borrowings under Credit Agreement
|
|
|
100,000
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|
|
|
|
|
Excess Tax Benefit from Share-Based Compensation
|
|
|
5,970
|
|
|
|
14,214
|
|
Purchase of Treasury Stock
|
|
|
(50,000
|
)
|
|
|
(287,915
|
)
|
Change in Outstanding Checks and Other
|
|
|
(10,648
|
)
|
|
|
(1,878
|
)
|
Dividends Paid
|
|
|
(45,535
|
)
|
|
|
(46,254
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
|
|
|
54,981
|
|
|
|
(285,959
|
)
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE ON CASH
|
|
|
(5,158
|
)
|
|
|
4,758
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND EQUIVALENTS:
|
|
|
179,999
|
|
|
|
1,555
|
|
Cash and Equivalents, Beginning of Year
|
|
|
118,044
|
|
|
|
81,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND EQUIVALENTS, END OF PERIOD
|
|
$
|
298,043
|
|
|
$
|
83,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Change in Accrual for Construction in Progress
|
|
$
|
(9,331
|
)
|
|
$
|
23,399
|
|
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
ABERCROMBIE & FITCH CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
|
|
BASIS OF PRESENTATION
|
|
|
|
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, boys and girls with an active, youthful
lifestyle.
|
|
|
|
The accompanying condensed consolidated financial statements include the historical financial
statements of, and transactions applicable to, the Company and reflect its assets,
liabilities, results of operations and cash flows.
|
|
|
|
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.
|
|
|
|
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 to evaluate performance
internally. 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 operating
segments because they have similar economic characteristics and 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 and thirty-nine weeks ended November 1, 2008 and
November 3, 2007 and long-lived assets relating to the Companys international operations as
of November 1, 2008 and February 2, 2008 were not material and were not reported separately
from domestic revenues and long-lived assets.
|
|
|
|
The condensed consolidated financial statements as of November 1, 2008 and for the thirteen
and thirty-nine week periods ended November 1, 2008 and November 3, 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.
|
|
|
|
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.
|
6
|
|
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 payable to other long-term liabilities.
|
|
|
|
The Condensed Consolidated Financial Statements as of November 1, 2008 and for the thirteen
and thirty-nine week periods ended November 1, 2008 and November 3, 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.
|
|
|
|
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.
|
|
2.
|
|
SHARE-BASED COMPENSATION
|
|
|
|
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.
|
|
|
|
Financial Statement Impact
|
|
|
|
The following table summarizes share-based compensation expense (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
November 1,
|
|
|
November 3,
|
|
|
November 1,
|
|
|
November 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Stores and distribution expense
|
|
$
|
1,132
|
|
|
$
|
530
|
|
|
$
|
2,674
|
|
|
$
|
1,056
|
|
Marketing, general and
administrative expense
|
|
|
9,579
|
|
|
|
8,178
|
|
|
|
29,932
|
|
|
|
21,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
$
|
10,711
|
|
|
$
|
8,708
|
|
|
$
|
32,606
|
|
|
$
|
22,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company also recognized $4.1 million and $12.3 million in tax benefits related to
share-based compensation for the thirteen and thirty-nine week periods ended November 1,
2008, respectively, and $3.5 million and $8.6 million in tax benefits related to share-based
compensation for the thirteen and thirty-nine week periods ended November 3, 2007,
respectively,
|
|
|
|
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 actual
forfeiture experience. The effect of adjustments for forfeitures during the thirteen and
thirty-nine week periods ended November 1, 2008 and November 3, 2007 was not material.
|
|
|
|
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 November 1, 2008, A&F had enough
treasury stock available to cover stock options and restricted stock units outstanding
without having to repurchase additional shares.
|
7
|
|
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 represent 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 value of stock options granted during the thirty-nine
weeks ended November 1, 2008 and November 3, 2007, as well as the assumptions used in
calculating such values on the date of grant, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
November 1, 2008
|
|
November 3, 2007
|
Exercise price
|
|
$
|
78.37
|
|
|
$
|
74.02
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
$
|
19.69
|
|
|
$
|
22.63
|
|
|
|
|
|
|
|
|
|
|
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 expected dividend payments during the vesting period.
|
|
|
|
Stock Option Activity
|
|
|
|
Below is the summary of stock option activity for the thirty-nine weeks ended November 1,
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
|
|
|
380,800
|
|
|
|
78.37
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,301,572
|
)
|
|
|
42.51
|
|
|
|
|
|
|
|
|
|
Forfeited or cancelled
|
|
|
(149,750
|
)
|
|
|
71.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at November 1, 2008
|
|
|
6,667,590
|
|
|
$
|
42.20
|
|
|
$
|
4,846,660
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest as of
November 1, 2008
|
|
|
601,385
|
|
|
$
|
71.70
|
|
|
$
|
0
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at November 1, 2008
|
|
|
5,972,852
|
|
|
$
|
38.73
|
|
|
$
|
4,846,660
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Aggregate Intrinsic Value is calculated using the closing share price on October 31, 2008.
|
8
|
|
The total intrinsic value of stock options exercised during the thirty-nine weeks ended
November 1, 2008 and November 3, 2007 was $40.3 million and $59.6 million, respectively.
|
|
|
|
The fair value of stock options vested during the thirty-nine weeks ended November 1, 2008
and November 3, 2007 was $4.8 million and $4.6 million, respectively.
|
|
|
|
As of November 1, 2008, there was $11.5 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 1.3 years.
|
|
|
|
Restricted Stock Unit and Restricted Share Activity
|
|
|
|
Below is the summary of restricted stock unit and restricted share activity for the
thirty-nine weeks ended November 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Grant
|
|
Restricted Stock Units
|
|
Number of Shares
|
|
|
Date Fair Value
|
|
Non-vested at February 2, 2008
|
|
|
2,354,871
|
|
|
$
|
48.02
|
|
Granted
|
|
|
672,409
|
|
|
$
|
74.78
|
|
Vested
|
|
|
(387,240
|
)
|
|
$
|
57.17
|
|
Forfeited
|
|
|
(164,304
|
)
|
|
$
|
70.12
|
|
|
|
|
|
|
|
|
Non-vested at November 1, 2008
|
|
|
2,475,736
|
|
|
$
|
52.39
|
|
|
|
|
|
|
|
|
|
|
The total fair value of restricted stock units granted during the thirty-nine weeks ended
November 1, 2008 and November 3, 2007 was $50.3 million and $50.7 million, respectively.
|
|
|
|
The total fair value of restricted stock units and restricted shares vested during the
thirty-nine weeks ended November 1, 2008 and November 3, 2007 was $22.1 million and $13.9
million, respectively.
|
|
|
|
As of November 1, 2008, there was $76.5 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 1.4 years.
|
|
3.
|
|
NET INCOME PER SHARE
|
|
|
|
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
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
November 1, 2008
|
|
|
November 3, 2007
|
|
|
November 1, 2008
|
|
|
November 3, 2007
|
|
Shares of Common Stock issued
|
|
|
103,300
|
|
|
|
103,300
|
|
|
|
103,300
|
|
|
|
103,300
|
|
Treasury shares
|
|
|
(16,266
|
)
|
|
|
(16,405
|
)
|
|
|
(16,563
|
)
|
|
|
(15,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares outstanding
|
|
|
87,034
|
|
|
|
86,895
|
|
|
|
86,737
|
|
|
|
87,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options
and restricted stock units
|
|
|
1,772
|
|
|
|
4,238
|
|
|
|
2,899
|
|
|
|
4,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares outstanding
|
|
|
88,806
|
|
|
|
91,133
|
|
|
|
89,636
|
|
|
|
91,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
Stock options to purchase approximately 5.3 million and 18,000 shares of Common Stock during
the thirteen week periods ended November 1, 2008 and November 3, 2007, respectively, and
approximately 1.5 million and 18,000 shares of Common Stock during the thirty-nine week
periods ended November 1, 2008 and November 3, 2007, respectively, 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.
|
|
4.
|
|
CASH AND EQUIVALENTS AND INVESTMENTS
|
|
|
|
Cash and equivalents and investments consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
February 2, 2008
|
|
Cash and equivalents:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
65,249
|
|
|
$
|
74,753
|
|
Money market funds
|
|
|
232,794
|
|
|
|
43,291
|
|
|
|
|
|
|
|
|
Total cash and equivalents
|
|
|
298,043
|
|
|
|
118,044
|
|
|
|
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
Auction rate securities student loan backed
|
|
|
214,600
|
|
|
|
258,355
|
|
Auction rate securities municipal authority bonds
|
|
|
47,214
|
|
|
|
272,131
|
|
|
|
|
|
|
|
|
Total marketable securities
|
|
|
261,814
|
|
|
|
530,486
|
|
|
|
|
|
|
|
|
|
|
Rabbi Trust assets:
(1)
|
|
|
|
|
|
|
|
|
Money market funds
|
|
|
2,203
|
|
|
|
1,350
|
|
Municipal notes and bonds
|
|
|
17,661
|
|
|
|
18,599
|
|
Trust-owned life insurance policies (at cash
surrender value)
|
|
|
27,428
|
|
|
|
31,306
|
|
|
|
|
|
|
|
|
Total Rabbi Trust assets
|
|
|
47,292
|
|
|
|
51,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and equivalents and investments
|
|
$
|
607,149
|
|
|
$
|
699,785
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Rabbi Trust assets are included in other assets on the
Condensed Consolidated Balance Sheets.
|
|
|
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 November 1, 2008 and
February 2, 2008, the Companys marketable securities consisted of investment grade auction
rate securities (ARS) invested in insured student loan backed securities and insured
municipal authority bonds, with maturities ranging from 11 to 34 years, all classified as
available-for-sale.
|
|
|
|
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. Based on the failure
rate of these auctions and the overall lack of liquidity in the ARS market, the Company
determined that the ARS should be classified as non-current assets on the Condensed
Consolidated Balance Sheet and that the estimated fair value of the ARS no longer
approximated par value. The Company used a discounted cash flow model to determine the
estimated fair value of these investments as of November 1, 2008. See Note 5,
Fair Value
for further discussion on the valuation of the ARS.
|
10
|
|
For the thirteen and thirty-nine week periods ended November 1, 2008, the Company
recorded an unrealized gain, net of tax of $5.1 million and an unrealized loss, net of
tax of $12.9 million, respectively, all related to ARS and included as a component of accumulated
other comprehensive loss on the Condensed Consolidated Balance Sheet. See Note 9,
Income Taxes
for discussion related to the cumulative adjustment made to
Comprehensive Income for the thirteen weeks ended November 1, 2008. There were no unrealized
gains or losses on ARS for the thirteen and thirty-nine week periods
ended November
3, 2007.
|
|
|
|
FASB Staff Positions FAS 115-1 and FAS 124-1,
The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments
, states that an investment is considered impaired
when the fair value is less than the cost. Significant judgment is required to determine if
impairment is other-than-temporary. The Company deemed the unrealized loss to be temporary
based primarily on the following: 1) As of the balance sheet date, the Company has the
ability and intent to hold the impaired securities to maturity, 2) the lack of deterioration
in the financial performance, credit rating or business prospects of the issuer, 3) lack of
evident factors that raise significant concerns about the issuers ability to continue as a
going concern, and 4) lack of significant changes in the regulatory, economic or
technological environment of the issuer. If it becomes probable that the Company will not
receive 100% of the principal and interest as to any of the ARS or if events occur to change
any of the factors described above, the Company will be required to recognize an
other-than-temporary impairment charge against net income. The securities continue to accrue
interest and be auctioned until one of the following: the auction succeeds; the issuer calls
the securities; or the securities mature.
|
|
|
|
As of November 1, 2008, approximately 63% of the Companys ARS were AAA rated and
approximately 35% of the Companys ARS were AA with the remaining ARS having an A-
rating, as rated by one or more of the major credit rating agencies.
|
|
|
|
The irrevocable rabbi trust (the Rabbi Trust) is a source of funds intended to be used to
match respective funding obligations to participants in the Abercrombie & Fitch Nonqualified
Savings and Supplemental Retirement Plan I and the Abercrombie & Fitch Nonqualified Savings
and Supplemental Retirement Plan (II) 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 gains
and losses related to the Rabbi Trust were not material for the thirteen and thirty-nine week
periods ended November 1, 2008 and November 3, 2007, respectively. Realized losses related
to the change in cash surrender value of the trust-owned life insurance held in the Rabbi
Trust were $3.0 million and $3.9 million for the thirteen and thirty-nine weeks ended
November 1, 2008, respectively. Realized gains related to the change in cash surrender value
of the trust-owned life insurance held in the Rabbi Trust were $0.8 million and $1.5 million
for the thirteen and thirty-nine weeks ended November 3, 2007, respectively.
|
|
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:
|
11
|
|
|
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 November 1, 2008
|
|
|
|
(in thousands)
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market funds
(1)
|
|
$
|
234,997
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
234,997
|
|
Auction rate securities
|
|
|
|
|
|
|
|
|
|
|
261,814
|
|
|
|
261,814
|
|
Municipal bonds held in the Rabbi Trust
|
|
|
17,661
|
|
|
|
|
|
|
|
|
|
|
|
17,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
252,658
|
|
|
$
|
|
|
|
$
|
261,814
|
|
|
$
|
514,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes $232.8 million in money market funds included in cash and equivalents and $2.2 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 insured student loan backed securities and insured
municipal authority bonds ARS and were transferred from Level 2 in the first quarter of
Fiscal 2008 as a result of a change in market conditions. As a result of the market failure
and lack of liquidity in the current ARS market, ARS were valued using a discounted cash flow
model to determine the estimated fair value of these securities as of November 1, 2008.
Certain significant inputs into the model are unobservable in the market including the
periodic coupon rate, 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 market required rate of return, the Company considered the 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 market required rate of return and the ARS is assumed to
be called; (2) the market has returned to normal and auctions have recommenced; or (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 November 1, 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.
|
|
|
|
|
|
|
|
|
|
|
|
Significant Other
|
|
|
Significant
|
|
Auction Rate Securities:
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
(in thousands)
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Fair value, February 2, 2008
|
|
$
|
530,486
|
|
|
$
|
|
|
Purchases
|
|
|
49,411
|
|
|
|
|
|
Redemptions
|
|
|
(242,955
|
)
|
|
|
(54,718
|
)
|
Tranfers (out)/in
|
|
|
(336,942
|
)
|
|
|
336,942
|
|
Unrealized losses
|
|
|
|
|
|
|
(20,410
|
)
|
|
|
|
|
|
|
|
Fair value, November 1, 2008
|
|
$
|
|
|
|
$
|
261,814
|
|
|
|
|
|
|
|
|
12
|
|
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 from the adoption of
SFAS No. 159.
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|
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 $504.9 million,
$333.2 million and $407.1 million at November 1, 2008, February 2, 2008 and November 3, 2007,
respectively.
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|
|
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 quarters to reserve for projected
inventory 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 valuation 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 $42.3 million, $5.4 million and $36.9 million at November
1, 2008, February 2, 2008 and November 3, 2007, respectively. The inventory valuation at
February 2, 2008 primarily reflects the estimated markdowns necessary to sell through fashion
carryover inventory on hand at the end of the Fall season.
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|
|
|
Further, as part of inventory valuation, inventory shrinkage estimates, based on historical
trends from actual physical inventories, are made to 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 $5.5 million, $11.5 million and $4.7
million at November 1, 2008, February 2, 2008 and November 3, 2007, respectively.
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|
7.
|
|
PROPERTY AND EQUIPMENT, NET
|
|
|
|
Property and equipment, net, consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
February 2, 2008
|
|
Property and equipment, at cost
|
|
$
|
2,303,303
|
|
|
$
|
2,054,275
|
|
Accumulated depreciation and
amortization
|
|
|
(860,293
|
)
|
|
|
(735,984
|
)
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
1,443,010
|
|
|
$
|
1,318,291
|
|
|
|
|
|
|
|
|
13
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):
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
February 2, 2008
|
|
Deferred lease credits
|
|
$
|
512,012
|
|
|
$
|
471,498
|
|
Amortized deferred lease credits
|
|
|
(249,639
|
)
|
|
|
(219,834
|
)
|
|
|
|
|
|
|
|
Total deferred lease credits, net
|
|
$
|
262,373
|
|
|
$
|
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 November 1,
2008. The effective tax rate for the thirteen weeks ended November 1, 2008 was 36.5% as
compared to 38.5% for the Fiscal 2007 comparable period. The effective tax rate for the
thirty-nine weeks ended November 1, 2008 was 37.2% as compared to 37.7% for the Fiscal 2007
comparable period.
|
|
|
|
Cash payments of income taxes made during the thirteen weeks ended November 1, 2008 and
November 3, 2007 were approximately $32.1 million and $57.9 million, respectively. Cash
payments of income taxes made during the thirty-nine weeks ended November 1, 2008 and
November 3, 2007 were approximately $170.8 million and $188.2 million, respectively.
|
|
|
|
The Company has recorded a valuation allowance against the deferred tax assets arising from
the net operating loss of a foreign subsidiary. As of November 1, 2008 and February 2, 2008, the
valuation allowance totaled $0.7 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. During the thirteen weeks ended November 1, 2008, the company recorded a cumulative
adjustment of $6.6 million to Comprehensive Income to correct the income tax valuation allowance
that had previously been recorded on the temporary impairment of the auction rate securities.
This adjustment was not material to the current or prior periods. As of the end of the quarter
ended November 1, 2008, there was no income tax valuation allowance
associated with the temporary loss on the auction rate securities.
|
|
10.
|
|
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 be available initially. 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 to fund 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
|
14
|
|
(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 aggregate 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 $66.1 million and $61.6
million were outstanding on November 1, 2008 and February 2, 2008, respectively. Standby
letters of credit totaling approximately $13.3 million and $14.5 million were outstanding on
November 1, 2008 and February 2, 2008, respectively. The standby letters of credit are set
to expire primarily during the fourth quarters of Fiscal 2008 and Fiscal 2009. To date, no
beneficiary has drawn upon the standby letters of credit.
|
|
|
|
As of November 1, 2008, the Company had $100.0 million outstanding under the New Credit
Agreement, classified as a current liability on the Companys Condensed Consolidated Balance
Sheet. The average interest rate for the third quarter of Fiscal 2008 was 3.4%. No
borrowings were outstanding as of February 2, 2008 under the Original Credit Agreement.
|
|
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, plaintiffs alleged, 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 answered the
complaint on August 21, 2006, denying liability. On December 10, 2007, the defendants
reached an agreement in principle with plaintiffs counsel. 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 23, 2008, the Superior Court approved that proposed partial
settlement. The partial settlement does not affect claims which are alleged to have arisen
in the period commencing on April 30, 2004. The parties are continuing to litigate these
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
|
15
|
|
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 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. The Companys motion has not been
fully briefed or submitted.
|
|
|
|
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.
|
16
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 Companys consolidated
results of operations and consolidated financial condition.
|
|
|
|
In October 2008, the FASB issued FASB FSP 157-3,
Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active,
(FSP 157-3) which clarifies the
application of SFAS No. 157 in a market that is not active and provides an example to
illustrate key considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. FSP 157-3 was effective for the Company on
October 10, 2008, the date of issuance.
|
|
|
|
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 on the disclosures in 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 the Pubic Company Accounting Oversight Board
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.
|
17
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 November 1, 2008, and the related condensed consolidated statements of
net income and comprehensive income for each of the thirteen and thirty-nine week periods ended
November 1, 2008 and November 3, 2007 and the condensed consolidated statement of cash flows for
the thirty-nine week periods ended November 1, 2008 and November 3, 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
December 5, 2008
18
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 represent 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, boys and girls 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 third quarter of Fiscal 2008, net sales decreased 8% to $896.3 million from $973.9
million in the third quarter of Fiscal 2007. Operating income decreased to $100.1 million in the
third quarter of Fiscal 2008 from $186.6 million in the third quarter of Fiscal 2007. Net income
decreased to $63.9 million in the third quarter of Fiscal 2008 compared to $117.6 million in the
third quarter of Fiscal 2007. Net income per diluted weighted-average share decreased 44% to $0.72
in the third quarter of Fiscal 2008 compared to $1.29 in the third 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.
19
The following data represents the amounts shown in the Companys condensed consolidated statements
of income for the thirteen and thirty-nine week periods ended November 1, 2008 and November 3,
2007, expressed as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
Thirty-Nine Weeks Ended
|
|
|
November 1,
|
|
November 3,
|
|
November 1,
|
|
November 3,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
NET SALES
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold
|
|
|
34.0
|
%
|
|
|
33.8
|
%
|
|
|
32.4
|
%
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
66.0
|
%
|
|
|
66.2
|
%
|
|
|
67.6
|
%
|
|
|
66.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores and Distribution Expense
|
|
|
43.1
|
%
|
|
|
36.5
|
%
|
|
|
42.8
|
%
|
|
|
39.6
|
%
|
Marketing, General and
Administrative Expense
|
|
|
11.7
|
%
|
|
|
10.7
|
%
|
|
|
12.5
|
%
|
|
|
11.6
|
%
|
Other Operating Loss (Income), Net
|
|
|
0.0
|
%
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
|
|
(0.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
11.2
|
%
|
|
|
19.2
|
%
|
|
|
12.4
|
%
|
|
|
16.0
|
%
|
Interest Income, Net
|
|
|
(0.1
|
)%
|
|
|
(0.5
|
)%
|
|
|
(0.4
|
)%
|
|
|
(0.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
11.2
|
%
|
|
|
19.6
|
%
|
|
|
12.8
|
%
|
|
|
16.5
|
%
|
Provision for Income Taxes
|
|
|
4.1
|
%
|
|
|
7.6
|
%
|
|
|
4.8
|
%
|
|
|
6.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
7.1
|
%
|
|
|
12.1
|
%
|
|
|
8.0
|
%
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
Financial Summary
The following summarized financial and statistical data compares the thirteen and thirty-nine week
periods ended November 1, 2008 to the thirteen and thirty-nine week periods ended November 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
|
|
Thirty-Nine Weeks Ended
|
|
|
|
|
November 1,
|
|
November 3,
|
|
|
|
|
|
November 1,
|
|
November 3,
|
|
|
|
|
2008
|
|
2007
|
|
% Change
|
|
2008
|
|
2007
|
|
% Change
|
Net sales by brand (in thousands)
|
|
$
|
896,344
|
|
|
$
|
973,930
|
|
|
|
(8
|
)%
|
|
$
|
2,542,321
|
|
|
$
|
2,520,878
|
|
|
|
1
|
%
|
Abercrombie & Fitch
|
|
$
|
385,787
|
|
|
$
|
419,267
|
|
|
|
(8
|
)%
|
|
$
|
1,127,098
|
|
|
$
|
1,116,495
|
|
|
|
1
|
%
|
abercrombie
|
|
$
|
109,511
|
|
|
$
|
127,571
|
|
|
|
(14
|
)%
|
|
$
|
300,443
|
|
|
$
|
311,198
|
|
|
|
(3
|
)%
|
Hollister
|
|
$
|
383,631
|
|
|
$
|
414,488
|
|
|
|
(7
|
)%
|
|
$
|
1,064,571
|
|
|
$
|
1,058,586
|
|
|
|
1
|
%
|
RUEHL
|
|
$
|
13,533
|
|
|
$
|
12,604
|
|
|
|
7
|
%
|
|
$
|
39,073
|
|
|
$
|
34,599
|
|
|
|
13
|
%
|
Gilly Hicks**
|
|
$
|
3,882
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
$
|
11,136
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in comparable store sales*
|
|
|
(14
|
)%
|
|
|
1
|
%
|
|
|
|
|
|
|
(8
|
)%
|
|
|
(1
|
)%
|
|
|
|
|
Abercrombie & Fitch
|
|
|
(8
|
)%
|
|
|
3
|
%
|
|
|
|
|
|
|
(1
|
)%
|
|
|
(1
|
)%
|
|
|
|
|
abercrombie
|
|
|
(20
|
)%
|
|
|
3
|
%
|
|
|
|
|
|
|
(14
|
)%
|
|
|
1
|
%
|
|
|
|
|
Hollister
|
|
|
(18
|
)%
|
|
|
(1
|
)%
|
|
|
|
|
|
|
(12
|
)%
|
|
|
(3
|
)%
|
|
|
|
|
RUEHL
|
|
|
(25
|
)%
|
|
|
(7
|
)%
|
|
|
|
|
|
|
(22
|
)%
|
|
|
(3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail sales increase attributable to new
and remodeled stores and websites
|
|
|
6
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
9
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net retail sales per average store (in thousands)
|
|
$
|
766
|
|
|
$
|
905
|
|
|
|
(15
|
)%
|
|
$
|
2,210
|
|
|
$
|
2,416
|
|
|
|
(9
|
)%
|
Abercrombie & Fitch
|
|
$
|
999
|
|
|
$
|
1,057
|
|
|
|
(5
|
)%
|
|
$
|
2,888
|
|
|
$
|
2,827
|
|
|
|
2
|
%
|
abercrombie
|
|
$
|
475
|
|
|
$
|
599
|
|
|
|
(21
|
)%
|
|
$
|
1,326
|
|
|
$
|
1,538
|
|
|
|
(14
|
)%
|
Hollister
|
|
$
|
742
|
|
|
$
|
925
|
|
|
|
(20
|
)%
|
|
$
|
2,130
|
|
|
$
|
2,466
|
|
|
|
(14
|
)%
|
RUEHL
|
|
$
|
488
|
|
|
$
|
689
|
|
|
|
(29
|
)%
|
|
$
|
1,490
|
|
|
$
|
2,058
|
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net retail sales per average gross square foot
|
|
$
|
108
|
|
|
$
|
128
|
|
|
|
(16
|
)%
|
|
$
|
311
|
|
|
$
|
340
|
|
|
|
(9
|
)%
|
Abercrombie & Fitch
|
|
$
|
113
|
|
|
$
|
120
|
|
|
|
(6
|
)%
|
|
$
|
326
|
|
|
$
|
320
|
|
|
|
2
|
%
|
abercrombie
|
|
$
|
104
|
|
|
$
|
132
|
|
|
|
(21
|
)%
|
|
$
|
289
|
|
|
$
|
342
|
|
|
|
(15
|
)%
|
Hollister
|
|
$
|
111
|
|
|
$
|
138
|
|
|
|
(20
|
)%
|
|
$
|
318
|
|
|
$
|
370
|
|
|
|
(14
|
)%
|
RUEHL
|
|
$
|
51
|
|
|
$
|
74
|
|
|
|
(31
|
)%
|
|
$
|
158
|
|
|
$
|
220
|
|
|
|
(28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transactions per average retail store
|
|
|
10,327
|
|
|
|
12,968
|
|
|
|
(20
|
)%
|
|
|
32,930
|
|
|
|
37,510
|
|
|
|
(12
|
)%
|
Abercrombie & Fitch
|
|
|
10,470
|
|
|
|
12,188
|
|
|
|
(14
|
)%
|
|
|
33,075
|
|
|
|
35,368
|
|
|
|
(6
|
)%
|
abercrombie
|
|
|
6,389
|
|
|
|
8,362
|
|
|
|
(24
|
)%
|
|
|
19,586
|
|
|
|
23,426
|
|
|
|
(16
|
)%
|
Hollister
|
|
|
12,246
|
|
|
|
15,933
|
|
|
|
(23
|
)%
|
|
|
39,541
|
|
|
|
46,225
|
|
|
|
(14
|
)%
|
RUEHL
|
|
|
5,353
|
|
|
|
8,174
|
|
|
|
(35
|
)%
|
|
|
17,399
|
|
|
|
26,033
|
|
|
|
(33
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average retail transaction value
|
|
$
|
74.14
|
|
|
$
|
69.81
|
|
|
|
6
|
%
|
|
$
|
67.12
|
|
|
$
|
64.42
|
|
|
|
4
|
%
|
Abercrombie & Fitch
|
|
$
|
95.40
|
|
|
$
|
86.71
|
|
|
|
10
|
%
|
|
$
|
87.30
|
|
|
$
|
79.92
|
|
|
|
9
|
%
|
abercrombie
|
|
$
|
74.42
|
|
|
$
|
71.65
|
|
|
|
4
|
%
|
|
$
|
67.68
|
|
|
$
|
65.65
|
|
|
|
3
|
%
|
Hollister
|
|
$
|
60.57
|
|
|
$
|
58.05
|
|
|
|
4
|
%
|
|
$
|
53.86
|
|
|
$
|
53.35
|
|
|
|
1
|
%
|
RUEHL
|
|
$
|
91.12
|
|
|
$
|
84.32
|
|
|
|
8
|
%
|
|
$
|
85.62
|
|
|
$
|
79.06
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average units per retail transaction
|
|
|
2.44
|
|
|
|
2.48
|
|
|
|
(2
|
)%
|
|
|
2.44
|
|
|
|
2.45
|
|
|
|
(0
|
)%
|
Abercrombie & Fitch
|
|
|
2.37
|
|
|
|
2.39
|
|
|
|
(1
|
)%
|
|
|
2.41
|
|
|
|
2.39
|
|
|
|
1
|
%
|
abercrombie
|
|
|
2.85
|
|
|
|
2.94
|
|
|
|
(3
|
)%
|
|
|
2.83
|
|
|
|
2.90
|
|
|
|
(2
|
)%
|
Hollister
|
|
|
2.40
|
|
|
|
2.43
|
|
|
|
(1
|
)%
|
|
|
2.38
|
|
|
|
2.39
|
|
|
|
(0
|
)%
|
RUEHL
|
|
|
2.29
|
|
|
|
2.44
|
|
|
|
(6
|
)%
|
|
|
2.35
|
|
|
|
2.54
|
|
|
|
(7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average unit retail sold
|
|
$
|
30.39
|
|
|
$
|
28.15
|
|
|
|
8
|
%
|
|
$
|
27.51
|
|
|
$
|
26.29
|
|
|
|
5
|
%
|
Abercrombie & Fitch
|
|
$
|
40.25
|
|
|
$
|
36.28
|
|
|
|
11
|
%
|
|
$
|
36.22
|
|
|
$
|
33.44
|
|
|
|
8
|
%
|
abercrombie
|
|
$
|
26.11
|
|
|
$
|
24.37
|
|
|
|
7
|
%
|
|
$
|
23.92
|
|
|
$
|
22.64
|
|
|
|
6
|
%
|
Hollister
|
|
$
|
25.24
|
|
|
$
|
23.89
|
|
|
|
6
|
%
|
|
$
|
22.63
|
|
|
$
|
22.32
|
|
|
|
1
|
%
|
RUEHL
|
|
$
|
39.79
|
|
|
$
|
34.56
|
|
|
|
15
|
%
|
|
$
|
36.43
|
|
|
$
|
31.13
|
|
|
|
17
|
%
|
|
|
|
*
|
|
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 and thirty-nine week periods ended
November 1, 2008 reflect the activity of 13 stores. There were no Gilly Hicks
stores open as of November 3, 2007. Operational data was deemed immaterial for
inclusion in the table above.
|
21
CURRENT TRENDS AND OUTLOOK
The third quarter selling environment proved to be more challenging than anticipated. The
financial crisis in late September led to a steep reduction in consumer spending that negatively
affected virtually every retailer. As a result, the Company managed its business in the third
quarter with a long-term and disciplined approach. The Company moderated expense, but did so
without compromising the aspirational shopping experience. It maintained its full price strategy
that is based on product quality, not promotion, only using markdowns to clear through seasonal
merchandise in a brand positive way. The Company views promotions as short-term relief that is
more than offset by the damage inflicted on the brand for the long-term.
The Companys near-term outlook reflects the view that the difficult selling environment will
persist throughout the fourth quarter and well into Fiscal 2009. Based on the declining comparable
store sales trend and the Companys limited ability to further reduce Holiday deliveries, the
Company expects the fourth quarter of Fiscal 2008 to end with inventory up by a mid-single digit
compared to a 29% decrease in the fourth quarter of Fiscal 2007. In order to achieve this
inventory position, the Company expects a higher markdown rate in order to clear through seasonal
merchandise. The increase in inventory level is primarily in basic categories, such as polos and
denim, while seasonal fashion categories are expected to be down.
In addition to a higher markdown rate, the Company will react to the difficult selling environment
by seeking expense savings in the fourth quarter of Fiscal 2008. Expense savings are expected to
come in the form of operational efficiencies in both the stores and the home office and a reduction
in store staffing levels in response to lower sales trend. The Company began the fourth quarter
with net sales of $267.3 million for the four-week period ended November 29, 2008, a 24% decrease
from net sales of $352.3 million for the four-week period ended December 1, 2007. November
comparable store sales decreased 28%.
The Companys international expansion opportunities remain promising. The Fifth Avenue and London
flagships continue to be highly productive. In addition, the early results of the opening of the
Companys first Hollister UK mall-based store in late October at Brent Cross Shopping Center, is
providing evidence that the international mall-based Hollister concept has growth potential. In addition, the Company recently received
final approval to open an Abercrombie & Fitch flagship in Paris on the Champs Elysees in 2011. The
Company continues to be in lease negotiations on a number of additional flagship sites in both
Europe and Asia and it is in the process of identifying additional Hollister mall-based sites in
Europe.
In this volatile environment, the Company will continue to use a disciplined and seasoned approach
in managing all aspects of the business, including capital expenditures and inventory. The
Companys priorities will be to protect and enhance the brand to ensure its long-term success.
Although the Company remains fully committed to its growth and investment strategy, it intends, as
it always has done, to balance its long-term objectives and the existing economic realities.
22
THIRD QUARTER RESULTS
Net Sales
Net sales for the third quarter of Fiscal 2008 were $896.3 million, a decrease of 8% from net sales
of $973.9 million during the third quarter of Fiscal 2007. The net sales decrease was attributable
to a combination of the 14% decrease in comparable store sales and a 6% decrease in the
direct-to-consumer business, partially offset by the net addition of 92 stores.
Abercrombie & Fitch comparable store sales decreased 8%, with womens comparable store sales
decreasing by a mid teen and mens comparable store sales increasing by a high single digit.
abercrombie comparable store sales decreased 20%, with girls posting a mid twenty decrease and boys
posting a low double-digit decrease. Hollister comparable store sales decreased 18%, with bettys
decreasing by a mid twenty and dudes posting a mid single-digit decrease. RUEHL comparable store
sales decreased 25%, with womens comparable store sales decreasing by high thirties and mens
comparable store sales decreasing by a high single-digit.
Comparable store sales were strongest in Abercrombie & Fitch flagship and U.S.-based tourist
stores. Regionally, excluding flagship and tourist stores, comparable store sales were down in all
U.S. regions and Canada.
From a merchandise classification standpoint, across all brands, stronger performing masculine
categories included knit tops, denim and fragrance, while fleece and graphic tees were weakest. In
the feminine businesses, across all brands, tops were the primary driver of the comparable store
sales decrease, which included knit tops, fleece and graphic tees.
Direct-to-consumer net merchandise sales, which are sold through the Companys websites, for the
third quarter of Fiscal 2008 were $57.5 million, a decrease of 6% from Fiscal 2007 third quarter
net merchandise sales of $61.3 million. Shipping and handling revenue for the corresponding
periods was $9.3 million in Fiscal 2008 and $9.2 million in Fiscal 2007. The direct-to-consumer
business, including shipping and handling revenue, accounted for 7.5% of total net sales in the
third quarter of Fiscal 2008 compared to 7.2% in the third quarter of Fiscal 2007.
Gross Profit
Gross profit for the third quarter of Fiscal 2008 was $591.9 million compared to $645.0 million for
the comparable period in Fiscal 2007. The gross profit rate (gross profit divided by net sales)
for the third quarter of Fiscal 2008 was 66.0%, down 20 basis points from the third quarter of
Fiscal 2007 rate of 66.2%. The decrease in the gross profit rate reflects an increase in the
markdown rate versus last year, partially offset by an increase in the initial mark up rate. The
increase in markdown rate was the result of lower than expected sales during the third quarter of
Fiscal 2008.
Stores and Distribution Expense
Stores and distribution expense for the third quarter of Fiscal 2008 was $386.5 million compared to
$355.8 million for the comparable period in Fiscal 2007. The stores and distribution expense rate
(stores and distribution expense divided by net sales) for the third quarter of Fiscal 2008 was
43.1% compared to 36.5% in the third quarter of Fiscal 2007. The increase in the stores and
distribution expense rate resulted primarily from the Companys limited ability to leverage fixed
expenses due to the comparable store sales decline and additional direct expenses related to
flagship pre-opening rent expenses, as well as minimum wage and manager salary increases.
23
Distribution center productivity, as measured in units processed per labor hour (UPH), decreased
7% during the third quarter of Fiscal 2008 as compared to the third quarter of Fiscal 2007.
Marketing, General and Administrative Expense
Marketing, general and administrative expense during the third quarter of Fiscal 2008 was $105.0
million compared to $104.0 million during the same period in Fiscal 2007. For the third quarter of
Fiscal 2008, the marketing, general and administrative expense rate (marketing, general and
administrative expense divided by net sales) was 11.7% compared to 10.7% for the third quarter of
Fiscal 2007. The increase in marketing, general and administrative expense reflects continued
investment in home office resources and IT infrastructure necessary for international expansion,
partially offset by a reduction in incentive compensation and other home office expenses.
Other Operating Loss/Income, Net
Third quarter other operating loss for Fiscal 2008 was $0.3 million compared to other operating
income of $1.3 million for the third quarter of Fiscal 2007. The third quarter of Fiscal 2008
included losses related to foreign currency transactions compared to gains related to foreign
currency transactions in the comparable period in Fiscal 2007.
Operating Income
Operating income for the third quarter of Fiscal 2008 decreased to $100.1 million from $186.6
million in the comparable period of Fiscal 2007. The operating income rate (operating income
divided by net sales) was 11.2% for the third quarter of Fiscal 2008 compared to 19.2% for the
third quarter of Fiscal 2007.
Interest Income, Net and Income Tax Expense
Fiscal 2008 third quarter interest income was $1.8 million, offset by interest expense of $1.2
million compared to interest income of $4.9 million, offset by interest expense of $0.3 million in
the third quarter of Fiscal 2007. The decrease in interest income was due to a lower average rate
of return on investments, primarily due to a reallocation of the investment portfolio. The
increase in interest expense was due to borrowings made under the New Credit Agreement in Fiscal
2008.
The effective tax rate for the thirteen weeks ended November 1, 2008 was 36.5% as compared to 38.5%
for the Fiscal 2007 comparable period. The effective tax rate for the third quarter of Fiscal 2007
reflects the favorable impact of the settlement of tax audits.
Net Income and Net Income per Share
Net income for the third quarter of Fiscal 2008 was $63.9 million versus $117.6 million in the
comparable period of Fiscal 2007. Net income per diluted weighted-average share outstanding for
the third quarter of Fiscal 2008 was $0.72 versus $1.29 for the same period of Fiscal 2007, a
decrease of 44%.
24
YEAR-TO-DATE RESULTS
Net Sales
Year-to-date net sales in Fiscal 2008 were $2.542 billion, an increase of 1% over net sales of
$2.521 billion for the comparable period of Fiscal 2007. The net sales increase was attributed to
the combination of the net addition of 92 stores and a 17% increase in the direct-to-consumer
business, partially offset by an 8% decrease in comparable store sales.
Year-to-date comparable store sales by brand were as follows: Abercrombie & Fitch decreased 1%,
abercrombie decreased 14%, Hollister decreased 12% and RUEHL decreased 22%. Additionally, the
womens, girls and bettys businesses remained more significant than the mens, boys and dudes.
Year-to-date, the female business represented over 60% of total Company net sales.
Direct-to-consumer net merchandise sales, which are sold through the Companys websites, for the
year-to-date period of Fiscal 2008 were $175.9 million, an increase of 17% over the Fiscal 2007
comparable period net merchandise sales of $150.3 million. Shipping and handling revenue for the
corresponding periods was $29.7 million in Fiscal 2008 and $23.5 million in Fiscal 2007. The
direct-to-consumer business, including shipping and handling revenue, accounted for 8.1% of net
sales for the Fiscal 2008 year-to-date period compared to 6.9% in the Fiscal 2007 year-to-date
period. This increase was driven by store expansion, global brand recognition and continued
improvement in targeted e-mail marketing and website functionality.
Gross Profit
Year-to-date gross profit in Fiscal 2008 was $1.719 billion compared to $1.686 billion for the
comparable period in Fiscal 2007. The gross profit rate for the year-to-date period of Fiscal 2008
was 67.6% versus 66.9% for the year-to-date period of Fiscal 2007, up 70 basis points. The
increase in the gross profit rate reflects an improved initial markup rate primarily driven by
price increases in select departments, partially offset by increases in markdown rates in the third
quarter of Fiscal 2008.
Stores and Distribution Expense
Stores and distribution expense for the Fiscal 2008 year-to-date period was $1.089 billion compared
to $998.4 million for the comparable period in Fiscal 2007. The stores and distribution expense
rate was 42.8% compared to 39.6% in the corresponding period of Fiscal 2007. The increase in the
stores and distribution expense rate resulted primarily from the Companys limited ability to
leverage fixed expenses due to the negative 8% comparable store sales and additional direct
expenses related to flagship pre-opening rent expenses, as well as minimum wage and manager salary
increases.
Distribution center productivity, as measured in UPH, increased by 4% during the year-to-date
period of Fiscal 2008 as compared to the corresponding period of Fiscal 2007.
Marketing, General and Administrative Expense
Marketing, general and administrative expense for the Fiscal 2008 year-to-date period was $318.7
million compared to $292.6 million during the same period in Fiscal 2007. The marketing, general
and administrative expense rate was 12.5% compared to 11.6% for the year-to-date period of Fiscal
2007. The increase in marketing, general and administrative expense reflects the continued
investment in home office resources and IT infrastructure necessary for international expansion,
partially offset by a reduction in incentive compensation and other home office expenses in the
third quarter of Fiscal 2008.
25
Other Operating Income, Net
Year-to-date other operating income for Fiscal 2008 was $3.4 million compared to $8.7 million for
the comparable period of Fiscal 2007. The decrease was primarily related to lower income related
to gift cards for which the Company has determined the likelihood of redemption to be remote and
losses related to foreign currency transactions in Fiscal 2008 compared to gains related to foreign
currency transactions in Fiscal 2007.
Operating Income
For the Fiscal 2008 year-to-date period, operating income was $314.7 million compared to $403.4
million for the Fiscal 2007 comparable period. The operating income rate for the Fiscal 2008
year-to-date period was 12.4% compared to 16.0% for the Fiscal 2007 comparable period.
Interest Income, Net and Income Tax Expense
Year-to-date interest income for Fiscal 2008 was $12.3 million, offset by interest expense of $2.3
million compared to interest income of $13.2 million, offset by interest expense of $0.7 million
for the Fiscal 2007 comparable period. The increase in interest expense in Fiscal 2008 was due to
borrowings made under the New Credit Agreement in Fiscal 2008.
The effective tax rate for the thirty-nine weeks ended November 1, 2008 was 37.2% as compared to
37.7% for the Fiscal 2007 comparable period. The effective tax rate for the year-to-date period of
Fiscal 2008 includes the impact of higher tax-exempt interest and the favorable resolution of
certain tax matters. The effective tax rate for the year-to-date period of Fiscal 2007 includes
the favorable impact from the settlement of tax audits.
Net Income and Net Income per Share
For the Fiscal 2008 year-to-date period, net income was $203.8 million compared to $258.9 million
for the comparable period in Fiscal 2007. Fiscal 2008 year-to-date net income per diluted
weighted-average share outstanding was $2.27 versus $2.82 for the comparable period of Fiscal 2007,
a decrease of 20%.
26
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. The Company has
$350 million available (less outstanding letters of credit) under its New Credit Agreement, as
described in Note 9,
Debt
of the Condensed Consolidated Financial Statements. 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):
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
February 2, 2008
|
|
Working capital
|
|
$
|
431,134
|
|
|
$
|
597,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization:
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
$
|
1,793,093
|
|
|
$
|
1,618,313
|
|
|
|
|
|
|
|
|
As of November 1, 2008, the decrease in working capital was driven primarily by the
reclassification of $261.8 million of investments in 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 11 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 resets 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. Based on the failure rate
of these auctions, the frequency of the failures and the overall lack of liquidity in the ARS
market, the Company determined that the ARS should be classified as non-current assets on the
Condensed Consolidated Balance Sheet as of November 1, 2008 and that the estimated fair value of
the ARS no longer approximated par value. On November 13, 2008, the Company entered into an
agreement with UBS AG (UBS), a Swiss Corporation, relating to $76.5 million of ARS (the UBS
ARS) which the Company purchased from UBS prior to February 13, 2008. Among other things, the
agreement gives UBS a call on the UBS ARS commencing on November 13, 2008, and gives the Company a
put at par, commencing June 30, 2010.
The Company does not believe that failures in the ARS market will have a material impact on the
Companys overall 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 November 1, 2008, the Company has $350 million available,
less outstanding letters of credit, under its unsecured New Credit Agreement to support operations.
27
Operating Activities
Net cash provided by operating activities, the Companys primary source of liquidity, totaled
$180.4 million for the thirty-nine weeks ended November 1, 2008 versus $414.9 million for the
comparable period in Fiscal 2007. 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. Cash was used primarily to pay
income taxes and purchase inventory. The increase in cash used to purchase inventory in Fiscal
2008 was driven by early delivery of inventory for the holiday season as well as higher levels of
basics inventory, such as denim and polos. The net cash benefit provided in Fiscal 2007 related to
changes in other assets and liabilities resulting from the implementation of FIN 48.
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 related primarily to new store construction and other construction in progress (see
the discussion in Capital Expenditures and Lessor Construction Allowances). As of November 1,
2008, the Company held $261.8 million of marketable securities classified as non-current.
Financing Activities
Financing activities for the thirty-nine week period ended November 1, 2008 consisted primarily of
$100.0 million related to the borrowing under the New Credit Agreement, $50.0 million for the
repurchase of treasury stock, $45.5 million for the payment of three $0.175 per share quarterly
dividends paid on March 18, 2008, June 17, 2008 and September 16, 2008 and $55.2 million received
in connection with stock option exercises.
During the first quarter of Fiscal 2008, A&F repurchased approximately 0.7 million shares of A&Fs
Common Stock. As of November 1, 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.
As of November 1, 2008, the Company has $350 million available (less outstanding letters of credit)
under its unsecured New Credit Agreement. Trade letters of credit totaling approximately $66.1
million and $61.6 million were outstanding on November 1, 2008 and February 2, 2008, respectively.
Standby letters of credit totaling approximately $13.3 million and $14.5 million were outstanding
on November 1, 2008 and February 2, 2008, respectively. The standby letters of credit are set to
expire primarily during the fourth quarters of Fiscal 2008 and Fiscal 2009. To date, no
beneficiary has drawn upon the standby letters of credit.
The Company has $100.0 million outstanding under the New Credit Agreement on November 1, 2008 and
no borrowings outstanding under the Original Credit Agreement on February 2, 2008. The average
interest rate for the third quarter of Fiscal 2008 was 3.4%.
Off-Balance Sheet Arrangements
As of November 1, 2008, the Company did not have any off-balance sheet arrangements.
28
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 November 1, 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) and the $100.0
million the Company borrowed under its New Credit Agreement in the second quarter of Fiscal 2008.
29
Third quarter Store Count and Gross Square Feet
Store count and gross square footage by brand for the thirteen weeks ended November 1, 2008 and
November 3, 2007, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity
|
|
Abercrombie & Fitch
|
|
abercrombie
|
|
Hollister
|
|
RUEHL
|
|
Gilly Hicks
|
|
Total
|
August 2, 2008
|
|
|
357
|
|
|
|
209
|
|
|
|
482
|
|
|
|
25
|
|
|
|
8
|
|
|
|
1,081
|
|
New
|
|
|
1
|
|
|
|
2
|
|
|
|
18
|
|
|
|
2
|
|
|
|
5
|
|
|
|
28
|
|
Remodels/Conversions
(net activity)
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
Closed
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
357
|
|
|
|
210
|
|
|
|
499
|
|
|
|
27
|
|
|
|
13
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2, 2008
|
|
|
3,167
|
|
|
|
958
|
|
|
|
3,223
|
|
|
|
238
|
|
|
|
88
|
|
|
|
7,674
|
|
New
|
|
|
8
|
|
|
|
11
|
|
|
|
118
|
|
|
|
16
|
|
|
|
50
|
|
|
|
203
|
|
Remodels/Conversions
(net activity)
|
|
|
(4
|
)
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(12
|
)
|
Closed
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
3,164
|
|
|
|
964
|
|
|
|
3,338
|
|
|
|
254
|
|
|
|
138
|
|
|
|
7,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,863
|
|
|
|
4,590
|
|
|
|
6,689
|
|
|
|
9,407
|
|
|
|
10,615
|
|
|
|
7,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity
|
|
Abercrombie & Fitch
|
|
abercrombie
|
|
Hollister
|
|
RUEHL
|
|
Gilly Hicks
|
|
Total
|
August 4, 2007
|
|
|
362
|
|
|
|
186
|
|
|
|
419
|
|
|
|
17
|
|
|
|
|
|
|
|
984
|
|
New
|
|
|
|
|
|
|
12
|
|
|
|
15
|
|
|
|
3
|
|
|
|
|
|
|
|
30
|
|
Remodels/Conversions
(net activity)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Closed
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
362
|
|
|
|
198
|
|
|
|
434
|
|
|
|
20
|
|
|
|
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 4, 2007
|
|
|
3,197
|
|
|
|
839
|
|
|
|
2,799
|
|
|
|
159
|
|
|
|
|
|
|
|
6,994
|
|
New
|
|
|
|
|
|
|
61
|
|
|
|
107
|
|
|
|
26
|
|
|
|
|
|
|
|
194
|
|
Remodels/Conversions
(net activity)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Closed
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
3,197
|
|
|
|
900
|
|
|
|
2,906
|
|
|
|
185
|
|
|
|
|
|
|
|
7,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,831
|
|
|
|
4,545
|
|
|
|
6,696
|
|
|
|
9,250
|
|
|
|
|
|
|
|
7,089
|
|
30
Year-To-Date Store Count and Gross Square Feet
Store count and gross square footage by brand for the thirty-nine weeks ended November 1, 2008 and
November 3, 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
|
|
|
2
|
|
|
|
10
|
|
|
|
51
|
|
|
|
5
|
|
|
|
10
|
|
|
|
78
|
|
Remodels/Conversions
(net activity)
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Closed
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
357
|
|
|
|
210
|
|
|
|
499
|
|
|
|
27
|
|
|
|
13
|
|
|
|
1,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
3,167
|
|
|
|
917
|
|
|
|
3,015
|
|
|
|
204
|
|
|
|
34
|
|
|
|
7,337
|
|
New
|
|
|
26
|
|
|
|
49
|
|
|
|
332
|
|
|
|
50
|
|
|
|
104
|
|
|
|
561
|
|
Remodels/Conversions
(net activity)
|
|
|
19
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Closed
|
|
|
(48
|
)
|
|
|
(2
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
(56
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 1, 2008
|
|
|
3,164
|
|
|
|
964
|
|
|
|
3,338
|
|
|
|
254
|
|
|
|
138
|
|
|
|
7,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,863
|
|
|
|
4,590
|
|
|
|
6,689
|
|
|
|
9,407
|
|
|
|
10,615
|
|
|
|
7,105
|
|
|
|
|
(1)
|
|
Includes one RUEHL store reopened after being closed temporarily due to fire.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity
|
|
Abercrombie & Fitch
|
|
abercrombie
|
|
Hollister
|
|
RUEHL
|
|
Gilly Hicks
|
|
Total
|
February 3, 2007
|
|
|
360
|
|
|
|
177
|
|
|
|
393
|
|
|
|
14
|
|
|
|
|
|
|
|
944
|
|
New
|
|
|
4
|
|
|
|
21
|
|
|
|
41
|
|
|
|
5
|
|
|
|
|
|
|
|
71
|
|
Remodels/Conversions
(net activity)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
(1)
|
|
|
|
|
|
|
2
|
|
Closed
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
362
|
|
|
|
198
|
|
|
|
434
|
|
|
|
20
|
|
|
|
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007
|
|
|
3,171
|
|
|
|
788
|
|
|
|
2,604
|
|
|
|
130
|
|
|
|
|
|
|
|
6,693
|
|
New
|
|
|
47
|
|
|
|
105
|
|
|
|
302
|
|
|
|
46
|
|
|
|
|
|
|
|
500
|
|
Remodels/Conversions
(net activity)
|
|
|
6
|
|
|
|
7
|
|
|
|
|
|
|
|
9
|
(1)
|
|
|
|
|
|
|
22
|
|
Closed
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007
|
|
|
3,197
|
|
|
|
900
|
|
|
|
2,906
|
|
|
|
185
|
|
|
|
|
|
|
|
7,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size
|
|
|
8,831
|
|
|
|
4,545
|
|
|
|
6,696
|
|
|
|
9,250
|
|
|
|
|
|
|
|
7,089
|
|
|
|
|
(1)
|
|
Includes one RUEHL store reopened after being closed temporarily due to fire.
|
31
Capital Expenditures and Lessor Construction Allowances
Capital expenditures totaled $298.5 million and $303.1 million for the thirty-nine week periods
ended November 1, 2008 and November 3, 2007, respectively. Additionally, the non-cash accrual for
construction in progress decreased $9.3 million for the thirty-nine week period ended November 1,
2008 compared to an increase of $23.4 million for the thirty-nine week period ended November 3,
2007. Capital expenditures related primarily to new store construction, store remodels and
refreshes, and other store related projects. The balance of capital expenditures 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
thirty-nine week periods ended November 1, 2008 and November 3, 2007, the Company received $43.8
million and $29.8 million in construction allowances, respectively.
During Fiscal 2008, the Company anticipates capital expenditures between $390 million and $395
million. Approximately $260 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 9% over Fiscal
2007. In North America, the Company anticipates the addition of approximately two new Abercrombie
& Fitch stores, 12 new abercrombie stores, 63 new Hollister stores, six new RUEHL stores and 10 new
Gilly Hicks stores. The Company also plans to open three new Hollister non-flagship 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, $175, $144, $260 and $375 per
store for Abercrombie & Fitch, abercrombie, Hollister, RUEHL and Gilly Hicks, respectively. The
Company expects initial inventory purchases for the stores to average approximately $0.2 million,
$0.2 million, $0.2 million, $0.2 million and $0.4 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. Additionally, the Company has $350 million
available (less outstanding letters of credit) under its New Credit Agreement to support
operations.
32
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 $7.9 million,
$10.7 million and $9.0 million at November 1, 2008, February 2, 2008 and November 3, 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
November 1, 2008 and February 2, 2008, the gift card liability on the Companys Condensed
Consolidated Balance Sheets was $44.8 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. Certain significant inputs into the model are unobservable in the market including the
periodic coupon rate, 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
market required rate of return, the Company considers the 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 market 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.
The use of the discounted cash flow model resulted in a temporary impairment recorded as an
unrealized loss of $12.9 million, net of tax, taken as a component of accumulated other
comprehensive loss. FASB Staff Positions FAS 115-1 and FAS 124-1,
The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
, states that an
investment is considered impaired when the fair value is less than cost. Significant judgment is
required to determine if impairment is other-than-temporary. The Company deemed the unrealized
loss to be temporary based primarily on the following: 1) the Company has the ability and intent
to hold the impaired securities to maturity, 2) the lack of deterioration in the financial
performance, credit rating or
33
business prospects of the issuer, 3) lack of evident factors that
raise significant concerns about the issuers ability to continue as a going concern, and 4) lack
of significant changes in the regulatory, economic or technological environment of the issuer. If
it becomes probable that the Company will not receive 100% of the principal and interest as to any
of the ARS or if events occur to change any of the factors described above, the Company will be
required to recognize an other-than-temporary impairment charge against net income.
Assuming all other assumptions disclosed in Note 5,
Fair Value
of the Notes to Condensed
Consolidated Financial Statements, being equal, a 50 basis point increase in the risk free interest
rate will yield a 2% decrease in fair value and a 50 basis point decrease in the risk free interest
rate will yield a 2% 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 $42.3 million, $5.4
million and $36.9 million at November 1, 2008, February 2, 2008 and November 3, 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 $5.5
million, $11.5 million and $4.7 million at November 1, 2008, February 2, 2008 and November 3, 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 is 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 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
34
operating results and projected
cash flows.
Income Taxes Income taxes are calculated in accordance with Statement of Financial Accounting
Standard (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. As
of November 1, 2008 and February 2, 2008, the valuation allowance totaled $0.7 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 APB Opinion No. 28,
Interim
Financial Reporting
and Financial Accounting Standards Board issued Interpretation (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.
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
35
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 Companys consolidated results of operations and
consolidated financial condition.
In October 2008, the FASB issued FASB FSP 157-3,
Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active,
(FSP 157-3) which clarifies the application of
SFAS No. 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for that
financial asset is not active. FSP 157-3 was effective for the Company on October 10, 2008, the
date of issuance.
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.
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 Public Company Accounting Oversight Board 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.
36
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:
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loss of services of skilled senior executive officers;
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-
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ability to hire, train and retain qualified associates;
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-
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changes in consumer spending patterns and consumer preferences;
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-
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ability to develop innovative, high-quality new merchandise
in response to changing fashion trends;
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effects of the current financial crisis and general economic conditions;
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effects on consumer purchases due to a general economic downturn;
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impact of competition and pricing pressures;
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availability and market prices of key raw materials;
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ability of manufacturers to comply with applicable laws,
regulations and ethical business practices;
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availability of suitable store locations on appropriate
terms;
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currency and exchange risks and changes in existing or
potential duties, tariffs or quotas;
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-
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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;
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unseasonable weather conditions affecting consumer preferences;
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disruptive weather conditions affecting consumers ability to shop; and
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-
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effects of capital market conditions.
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37
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.
38
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 November 1,
2008, that have maturities ranging from 11 to 34 years. As of November 1, 2008, the Company held
approximately $261.8 million in ARS classified as non-current marketable securities. Approximately
$47.2 million of these securities were invested in insured municipal authority bonds and
approximately $214.6 million were invested in 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. Based on the failure rate
of these auctions, the frequency of the failures and the overall lack of liquidity in the ARS
market, the Company determined that the ARS should be classified as non-current assets on the
Condensed Consolidated Balance Sheet and that the estimated fair value of the ARS no longer
approximated par value. The Company used a discounted cash flow model to determine the estimated
fair value of these investments as of November 1, 2008. On November 13, 2008, the Company entered
into an agreement with UBS AG (UBS), a Swiss Corporation, relating to $76.5 million of ARS (the
UBS ARS) which the Company purchased from UBS prior to February 13, 2008. Among other things,
the agreement gives UBS a call on the UBS ARS commencing on November 13, 2008, and gives the
Company a put at par, commencing June 30, 2010.
As of November 1, 2008, the net unrealized loss related to ARS was $12.9 million, net of tax,
included as a component of accumulated other comprehensive loss on the Condensed Consolidated
Balance Sheet. FASB Staff Positions FAS 115-1 and FAS 124-1,
The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,
states that an investment is considered
impaired when the fair value is less than the cost. Significant judgment is required to determine
if impairment is other-than-temporary. The Company deemed the unrealized loss to be temporary
based primarily on the following: 1) the Company has the ability and intent to hold the impaired
securities to maturity, 2) the lack of deterioration in the financial performance, credit rating or
business prospects of the issuer, 3) lack of evident factors that raise significant concerns about
the issuers ability to continue as a going concern, and 4) lack of significant changes in the
regulatory, economic or technological environment of the issuer. If it becomes probable that the
Company will not receive 100% of the principal and interest as to any of the ARS or if events occur
to change any of the factors described above, the Company will be required to recognize an
other-than-temporary impairment charge against net income.
Assuming all other assumptions disclosed in Note 5,
Fair Value
of the Notes to Condensed
Consolidated Financial Statements, being equal, a 50 basis point increase in the risk free interest
rate will yield a 2% decrease in fair value and a 50 basis point decrease in the risk free interest
rate will yield a 2% increase in fair value.
As of November 1, 2008, approximately 63% of the Companys ARS were AAA rated and approximately
35% of the Companys ARS were AA with the remaining ARS having an A- rating, as rated by one or
more of the major credit rating agencies. The ratings take into account insurance policies
guaranteeing both the principal and accrued interest. Each investment in student loans is fully
insured by 1) the U.S. government under the Federal Family Education Loan Program, 2) a private
insurer, or 3) a combination of both. The credit ratings may change over time and would be an
indicator of the default risk associated with the ARS.
39
The Company does not believe that the failures in the auction market will have a material impact on
the Companys overall liquidity. Additionally, as of November 1, 2008, the Company had $350
million available, less outstanding letters of credit, under its unsecured New Credit Agreement to
support operations.
The irrevocable rabbi trust (the Rabbi Trust), is intended to be used as a source of funds to
match respective funding obligations to participants in the Abercrombie & Fitch Nonqualified
Savings and Supplemental Retirement Plan I and the Abercrombie & Fitch Nonqualified Savings and
Supplemental Retirement Plan (II) and the Chief Executive Officer Supplemental Executive Retirement
Plan. As of November 1, 2008, total assets held in the Rabbi Trust were $47.3 million, which
included $17.7 million of available-for-sale municipal notes and bonds with maturities that ranged
from three to four years, trust-owned life insurance policies with a cash surrender value of $27.4
million and $2.2 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, with the exception of the trust-owned life insurance which is recorded at cash surrender
value, in other assets on the Condensed Consolidated Balance Sheet and are restricted as to their
use as noted above. Net unrealized gains and losses related to the Rabbi Trust were not material
for the thirteen and thirty-nine week periods ended November 1, 2008 and November 3, 2007,
respectively. Realized losses related to the change in cash surrender value of the trust-owned
life insurance held in the Rabbi Trust were $3.0 million and $3.9 million for the thirteen and
thirty-nine weeks ended November 1, 2008, respectively. Realized gains related to the change in
cash surrender value of the trust-owned life insurance held in the Rabbi Trust were $0.8 million
and $1.5 million for the thirteen and thirty-nine weeks ended November 3, 2007, respectively.
The Company does not enter into financial instruments for trading purposes.
As of November 1, 2008, the Company had $100.0 million in short-term debt outstanding. This
borrowing and any future borrowings will bear interest at negotiated rates and would be subject to
interest rate risk. The average interest rate for the third quarter of Fiscal 2008 was 3.4%. As
of November 1, 2008, the Company had no long-term debt outstanding.
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, Hong Kong
Dollars 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. The notional value of foreign currency contracts was $21.1 million at
November 1, 2008.
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.
40
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 (the
principal executive officer) and the Vice President, Finance and Controller of A&F (the principal
financial officer), 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 (the principal
executive officer) and the Vice President, Finance and Controller of A&F (the principal financial
officer), evaluated the effectiveness of A&Fs design and operation of its disclosure controls and
procedures as of the end of the fiscal quarter ended November 1, 2008. Based upon that evaluation,
the Chairman and Chief Executive Officer of A&F (the principal executive officer) and the Vice
President, Finance and Controller of A&F (the principal financial officer) concluded that A&Fs
disclosure controls and procedures were effective at a reasonable level of assurance as of November
1, 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
November 1, 2008 that materially affected, or are reasonably likely to materially affect, A&Fs
internal control over financial reporting.
41
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, plaintiffs alleged, 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 answered the complaint on August 21, 2006, denying liability. On
December 10, 2007, the defendants reached an agreement in principle with plaintiffs counsel. 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 23, 2008, the Superior Court approved that proposed
partial settlement. The partial settlement does not affect claims which are alleged to have arisen
in the period commencing on April 30, 2004. The parties are continuing to litigate these 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 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
42
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. The Companys motion has not been
fully briefed or submitted.
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.
43
ITEM 1A. RISK FACTORS
The Companys risk factors as of November 1, 2008 include the following, in addition to those
disclosed in A&Fs Annual Report on Form 10-K for Fiscal 2007 filed on March 28, 2008.
The Effect of the Current Financial Crisis and General Economic Conditions
.
Consumer purchases of discretionary items, including our merchandise, generally decline during
recessionary periods and other periods where disposable income is adversely affected. The
Companys performance is subject to factors that affect worldwide economic conditions including
employment, consumer debt, reductions in net worth based on recent severe market declines,
residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates,
consumer confidence, value of the U.S. dollar versus foreign currencies and other macroeconomic
factors. Recently, these factors have caused consumer spending to deteriorate significantly and
may cause levels of spending to remain depressed for the foreseeable future. The economic downturn
may continue to affect consumer purchases of our merchandise and adversely impact our results of
operations.
44
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 November 1, 2008:
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Total Number of
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Total
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Average
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Shares Purchased
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Maximum Number of
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Number of
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Price Paid
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as Part of Publicly
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Shares that May Yet be
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Shares
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per Share
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Announced Plans
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Purchased under the
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Period (Fiscal Month)
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Purchased
(1)
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(2)
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or Programs
(3)
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Plans or Programs
(4)
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August 3, 2008 through
August 30, 2008
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22,414
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$
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51.23
|
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|
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|
|
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11,346,900
|
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August 31, 2008
through October 4,
2008
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334
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$
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53.10
|
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11,346,900
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October 5, 2008
through November 1,
2008
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153
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$
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28.61
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11,346,900
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|
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Total
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22,901
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$
|
51.11
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|
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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 November 1, 2008 were an aggregate of 22,901 shares which were withheld for
tax payments due upon the vesting of employee restricted stock units and restricted stock awards.
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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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There were no shares purchased pursuant to A&Fs publicly announced stock repurchase authorizations
during the quarterly period (thirteen-week period) ended November 1, 2008. 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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45
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, dated as of April 21, 1999, to the 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 2 to A&Fs Amendment No. 1 to Form 8-A dated April 23, 1999 and filed
April 26, 1999 (File No. 001-12107).
|
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).
|
4.4
|
|
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 November 3,
2001 (File No. 001-12107).
|
4.5
|
|
Amendment No. 2, dated as of June 11, 2008, to the Rights Agreement, dated as of July 16,
1998, between A&F and National City Bank (as successor to First Chicago Trust Company of New
York), as Rights Agent, incorporated herein by reference to Exhibit 4.1 to A&Fs Current
Report on Form 8-K dated and filed June 12, 2008 (File No. 001-12107).
|
4.6
|
|
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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46
4.7
|
|
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).
|
|
4.8
|
|
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, incorporated herein by
reference to Exhibit 4.11 to A&Fs Quarterly Report on Form 10-Q for the quarterly period
ended May 3, 2008 (File No. 001-12107).
|
|
4.9
|
|
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, incorporated
herein by reference to Exhibit 4.12 to A&Fs Quarterly Report on Form 10-Q for the quarterly
period ended May 3, 2008 (File No. 001-12107).
|
|
4.10
|
|
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, incorporated
herein by reference to Exhibit 4.13 to A&Fs Quarterly Report on Form 10-Q for the quarterly
period ended May 3, 2008 (File No. 001-12107).
|
10.1
|
|
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).
|
10.2
|
|
Form of Stock Option Agreement (Nonstatutory Stock Option) for Associates under the
Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan used and to be used to evidence grants
of nonstatutory stock options to associates (employees) of A&F and its subsidiaries 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).
|
10.3
|
|
Form of Restricted Stock Unit Award Agreement for Associates under the Abercrombie & Fitch
Co. 2005 Long-Term Incentive Plan used and to be used to evidence grants of restricted stock
units to associates (employees) of A&F and its subsidiaries 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).
|
10.4
|
|
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 Co. 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).
|
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).
|
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).
|
47
10.7
|
|
Form of Stock Option Agreement used and to be used to evidence the grant of nonstatutory
stock options to associates (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).
|
|
10.8
|
|
Form of Restricted Stock Unit Award Agreement used and to be used to evidence the grant of
restricted stock units to associates (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).
|
|
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).
|
|
10.10
|
|
Agreement between Abercrombie & Fitch Management Co. and Michael W. Kramer, executed by each
on July 22, 2008, incorporated herein by reference to Exhibit 10.1 to A&Fs Current Report on
Form 8-K dated and filed July 24, 2008 (File No. 001-12107).
|
|
10.11
|
|
Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan (January 1, 2001
Restatement) as authorized by the Compensation Committee of the A&F Board of Directors on
August 14, 2008, to become one of two sub-plans following the division of said Abercrombie &
Fitch Nonqualified Savings and Supplemental Retirement Plan (January 1, 2001 Restatement) into
two sub-plans effective immediately before January 1, 2009 and to be named the Abercrombie &
Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I [terms to govern amounts
deferred (within the meaning of Section 409A of the Internal Revenue Code of 1986, as
amended) before January 1, 2005, and any earnings thereon], incorporated herein by reference
to Exhibit 10.9 to A&Fs Annual Report on Form 10-K for the fiscal year ended February 1, 2003
(File No. 001-12107).
|
|
10.12
|
|
First Amendment to the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental
Retirement Plan I (Plan I) (January 1, 2001 Restatement), as authorized by the Compensation
Committee of the A&F Board of Directors on August 14, 2008 and executed on behalf of A&F on
September 3, 2008, incorporated herein by reference to Exhibit 10.12 to A&Fs Quarterly Report
on Form 10-Q for the quarterly period ended August 2, 2008 (File No. 001-12107).
|
|
10.13
|
|
Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan (II) as
authorized by the Compensation Committee of the A&F Board of Directors on August 14, 2008, to
become one of two sub-plans following the division of the Abercrombie & Fitch Nonqualified
Savings and Supplemental Retirement Plan (January 1, 2001 Restatement) into two sub-plans
effective immediately before January 1, 2009 and to be named the Abercrombie & Fitch Co.
Nonqualified Savings and Supplemental Retirement Plan II [terms to govern amounts deferred
(within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended) in
taxable years beginning on or after January 1, 2005, and any earnings thereon], incorporated
herein by reference to Exhibit 10.13 to A&Fs Quarterly Report on Form 10-Q for the quarterly
period ended August 2, 2008 (File No. 001-12107).
|
|
10.14
|
|
Summary of Terms of the Annual Restricted Stock Unit Grants to Non-associate Directors of
Abercrombie & Fitch Co., to summarize the terms of the grants to the Board of Directors of A&F
under the 2005 Long-Term Incentive Plan, incorporated herein by reference to Exhibit 10.14 to
A&Fs Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2008 (File No.
001-12107).
|
|
15
|
|
Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re:
Inclusion of Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers
LLP.*
|
48
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 amended, 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 amended, 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.*
|
49
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.
|
|
|
|
|
|
|
ABERCROMBIE & FITCH CO.
|
|
Date: December 5, 2008
|
By
|
/s/ BRIAN LOGAN
|
|
|
|
Brian Logan
|
|
|
|
Vice President, Finance and Controller
(Principal Financial Officer and Authorized Officer)
|
|
50
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Document
|
|
|
|
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 amended, 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 amended, 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.
|
51
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