ABERCROMBIE & FITCH CO /DE/
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D. C. 20549
Washington, D. C. 20549
Form 10-K
| (Mark One) | ||
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended January 30, 2010 | ||
|
OR
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from to | ||
Commission file number
1-12107
ABERCROMBIE & FITCH
CO.
(Exact name of registrant as
specified in its charter)
| Delaware | 31-1469076 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
6301 Fitch Path, New Albany, Ohio
(Address of principal executive offices) |
43054
(Zip Code) |
Registrant’s
telephone number, including area code
(614) 283-6500
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
|
| Class A Common Stock, $.01 Par Value | New York Stock Exchange | |
|
Series A Participating Cumulative Preferred
Stock Purchase Rights |
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act: None
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
o
No
þ
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. Yes
þ
No
o
Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the Registrant was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes
o
No
þ
Aggregate market value of the Registrant’s Class A
Common Stock (the only outstanding common equity of the
Registrant) held by non-affiliates of the Registrant (for this
purpose, executive officers and directors of the Registrant are
considered affiliates) as of July 31, 2009: $2,513,290,835.
Number of shares outstanding of the Registrant’s common
stock as of March 19, 2010: 88,171,337 shares of
Class A Common Stock.
DOCUMENT
INCORPORATED BY REFERENCE:
Portions of the Registrant’s definitive proxy statement for
the Annual Meeting of Stockholders, to be held on June 9,
2010, are incorporated by reference into Part III of this
Annual Report on
Form 10-K.
TABLE OF CONTENTS
Table of Contents
PART I
| ITEM 1. | BUSINESS. |
General.
Abercrombie & Fitch Co. (“A&F”), a
company incorporated in Delaware in 1996, through its
subsidiaries (collectively, A&F and its subsidiaries are
referred to as “Abercrombie & Fitch” or the
“Company”), is a specialty retailer that operates
stores and
direct-to-consumer
operations selling casual sportswear apparel, including knit and
woven shirts, graphic t-shirts, fleece, jeans and woven pants,
shorts, sweaters, outerwear, personal care products and
accessories for men, women and kids under the
Abercrombie & Fitch, abercrombie kids, and Hollister
brands. In addition, the Company operates stores and
direct-to-consumer
operations offering bras, underwear, personal care products,
sleepwear and at-home products for women under the Gilly Hicks
brand. As of January 30, 2010, the Company operated 1,096
stores in North America, Europe and Asia.
On June 16, 2009, A&F’s Board of Directors
approved the closure of the Company’s 29 RUEHL branded
stores and related
direct-to-consumer
operations. The determination to take this action was based on a
comprehensive review and evaluation of the performance of the
RUEHL branded stores and related
direct-to-consumer
operations, as well as the related real estate portfolio. The
Company completed the closure of the RUEHL branded stores and
related
direct-to-consumer
operations during the fourth quarter of Fiscal 2009.
Accordingly, the results of operations of RUEHL are reflected in
Net Loss from Discontinued Operations on the Consolidated
Statements of Operations and Comprehensive Income for all
periods presented.
The Company’s fiscal year ends on the Saturday closest to
January 31, typically resulting in a fifty-two week year,
but occasionally giving rise to an additional week, resulting in
a fifty-three week year. Fiscal years are designated in the
consolidated financial statements and notes by the calendar year
in which the fiscal year commences. All references herein to
“Fiscal 2009” represent the results of the 52-week
fiscal year ended January 30, 2010; to “Fiscal
2008” represent the results of the 52-week fiscal year
ended January 31, 2009; and to “Fiscal 2007”
represent the results of the 52-week fiscal year ended
February 2, 2008. In addition, all references herein to
“Fiscal 2010” represent the 52-week fiscal year that
will end on January 29, 2011.
A&F makes available free of charge on its website,
www.abercrombie.com, under “Investors, SEC Filings”,
its annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”), as well as
A&F’s definitive annual meeting proxy materials filed
pursuant to Section 14 of the Exchange Act, as soon as
reasonably practicable after A&F electronically files such
material with, or furnishes it to, the Securities and Exchange
Commission (“SEC”). The SEC maintains a website that
contains electronic filings at www.sec.gov. In addition, the
public may read and copy any materials A&F files with the
SEC at the SEC’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information on the operation of the Public
Reference Room by calling the SEC at
1-800-SEC-0330.
The Company has included its website addresses throughout this
filing as textual references only. The information contained
within these websites is not incorporated into this Annual
Report on
Form 10-K.
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Table of Contents
Description
of Operations.
Brands.
Abercrombie & Fitch.
Rooted in East
Coast traditions and Ivy League heritage,
Abercrombie & Fitch is the essence of privilege and
casual luxury. The Adirondacks supply a clean and rugged
inspiration to this youthful
All-American
lifestyle. A combination of classic and sexy creates a charged
atmosphere that is confident and just a bit provocative.
Idolized and respected, Abercrombie & Fitch is
timeless and always cool.
abercrombie kids.
The essence of privilege and
prestigious East Coast prep schools, abercrombie kids directly
follows in the footsteps of Abercrombie & Fitch. With
a flirtatious and energetic attitude, abercrombie kids is
popular, wholesome and athletic. Rugged and casual with a
vintage-inspired style, abercrombie kids aspires to be like its
older sibling, Abercrombie & Fitch. The perfect
combination of maturity and mischief, abercrombie kids is the
signature of
All-American
cool.
Hollister.
Hollister is the fantasy of
Southern California. It is the feeling of chilling on the beach
with your friends. Young, spirited, and with a sense of humor,
Hollister never takes itself too seriously. The laidback
lifestyle and wholesome image combine to give Hollister an
energy that’s effortlessly cool. Hollister brings Southern
California to the world.
Gilly Hicks.
Gilly Hicks is the cheeky cousin
of Abercrombie & Fitch, inspired by the free spirit of
Sydney, Australia. Gilly makes cute bras and underwear for the
young, naturally beautiful and always confident girl. Classic
and vibrant with a little tomboy sexiness, Gilly never takes
herself too seriously. It’s the wholesome,
All-American
brand with a Sydney sensibility.
Though each of the Company’s brands embodies its own
heritage and handwriting, they share common elements and
characteristics. The brands are classic, casual, confident,
intelligent, privileged and possess a sense of humor.
Refer to the “Financial Summary” in “ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS” of this Annual Report on
Form 10-K
for information regarding net sales and other financial and
operational data by brand.
In-Store
Experience and Store Operations.
The Company views the customer’s in-store experience as the
primary vehicle for communicating the spirit of each brand. The
Company emphasizes the senses of sight, sound, smell, touch and
energy by utilizing visual presentation of merchandise, in-store
marketing, music, fragrances, rich fabrics and its sales
associates to reinforce the aspirational lifestyles represented
by the brands.
The Company’s in-store marketing is designed to convey the
principal elements and personality of each brand. The store
design, furniture, fixtures and music are all carefully planned
and coordinated to create a shopping experience that reflects
the Abercrombie & Fitch, abercrombie kids, Hollister
or Gilly Hicks lifestyle.
The Company’s sales associates and managers are a central
element in creating the atmosphere of the stores. In addition to
providing a high level of customer service, sales associates and
managers reflect the casual, energetic and aspirational attitude
of the brands.
Every brand displays merchandise uniformly to ensure a
consistent store experience, regardless of location. Store
managers receive detailed plans designating fixture and
merchandise placement to ensure
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coordinated execution of the Company-wide merchandising
strategy. In addition, standardization of each brand’s
store design and merchandise presentation enables the Company to
open new stores efficiently.
At the end of Fiscal 2009, the Company operated 1,096 stores.
The following table details the number of retail stores operated
by the Company for the past two fiscal years:
|
Abercrombie &
|
abercrombie
|
|||||||||||||||||||
| Fitch | kids | Hollister | Gilly Hicks | Total | ||||||||||||||||
|
Fiscal 2008
|
||||||||||||||||||||
|
Beginning of Year
|
359 | 201 | 450 | 3 | 1,013 | |||||||||||||||
|
New
|
2 | 12 | 66 | 11 | 91 | |||||||||||||||
|
Remodels/Conversions (net
activity as of year-end) |
2 | 1 | — | — | 3 | |||||||||||||||
|
Closed
|
(7 | ) | (2 | ) | (1 | ) | — | (10 | ) | |||||||||||
|
End of Year
|
356 | 212 | 515 | 14 | 1,097 | |||||||||||||||
|
Fiscal 2009
|
||||||||||||||||||||
|
Beginning of Year
|
356 | 212 | 515 | 14 | 1,097 | |||||||||||||||
|
New
|
2 | 5 | 14 | 2 | 23 | |||||||||||||||
|
Remodels/Conversions (net
activity as of year-end) |
— | — | — | — | — | |||||||||||||||
|
Closed
|
(12 | ) | (8 | ) | (4 | ) | — | (24 | ) | |||||||||||
|
End of Year
|
346 | 209 | 525 | 16 | 1,096 | |||||||||||||||
At the end of Fiscal 2009, the Company operated 340
Abercrombie & Fitch stores, 205 abercrombie kids
stores, 507 Hollister stores and 16 Gilly Hicks stores
domestically. The Company also operated six
Abercrombie & Fitch stores, four abercrombie kids
stores and 18 Hollister stores internationally. At the end of
Fiscal 2008, the Company operated 352 Abercrombie &
Fitch stores, 210 abercrombie kids stores, 507 Hollister stores
and 14 Gilly Hicks stores domestically. The Company also
operated four Abercrombie & Fitch stores, two
abercrombie kids stores and eight Hollister stores
internationally.
Direct-to-Consumer
Business.
During Fiscal 2009, the Company operated, and continues to
operate a number of websites, including: www.abercrombie.com;
www.abercrombiekids.com; www.hollisterco.com; and
www.gillyhicks.com. Products offered at individual stores can be
purchased through the respective websites. Each of the four
websites reinforces the particular brand’s lifestyle and is
designed to complement the in-store experience. Aggregate total
net sales through
direct-to-consumer
operations, including shipping and handling revenue, was
$290.1 million for Fiscal 2009, representing 9.9% of total
net sales. The Company believes its
direct-to-consumer
operations have broadened its market and brand recognition
worldwide.
Marketing
and Advertising.
The Company considers the in-store experience to be its main
form of marketing. The Company emphasizes the senses to
reinforce the aspirational lifestyles represented by the brands.
The Company’s flagship stores represent the pinnacle of the
Company’s in-store branding efforts. The Company also
engages its customers through social media and mobile commerce
in ways that reinforce the aspirational lifestyle of the brands.
Flagship stores and social media both attract a substantial
number of international consumers, and have significantly
contributed to the Company’s worldwide status as an iconic
brand.
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Merchandise
Suppliers.
During Fiscal 2009, the Company purchased merchandise from
approximately 209 vendors located throughout the world;
primarily in Asia and Central and South America. In Fiscal 2009,
the Company did not source more than 5% of its merchandise from
any single factory or supplier. The Company pursues a global
sourcing strategy that includes relationships with vendors in 37
countries and the United States (the “U.S.”). The
Company’s foreign purchases of merchandise are negotiated
and settled in U.S. dollars.
All product sources, including independent manufacturers and
suppliers, must achieve and maintain the Company’s high
quality standards, which are an integral part of the
Company’s identity. The Company has established supplier
product quality standards to ensure the high quality of fabrics
and other materials used in the Company’s products. The
Company utilizes both home office and field employees to help
monitor compliance with the Company’s product quality
standards.
Distribution
and Merchandise Inventory.
A majority of the Company’s merchandise and related
materials is shipped to the Company’s two distribution
centers (“DCs”) in New Albany, Ohio where they are
received and inspected. The Company also uses a third-party DC
in the Netherlands for the distribution of merchandise to stores
located in Europe and Asia. The Company uses primarily one
contract carrier to ship merchandise and related materials to
its North American stores and all
direct-to-consumer
customers, and a separate contract carrier for its European and
Asian stores.
The Company maintains sufficient quantities of inventory on hand
in its retail stores and DCs to offer customers a full selection
of current merchandise. The Company attempts to balance in-stock
levels and inventory turnover, and to take markdowns when
required to keep merchandise fresh and current with fashion
trends.
Information
Systems.
The Company’s management information systems consist of a
full range of retail, financial and merchandising systems. The
systems include applications related to
point-of-sale,
inventory management, supply chain, planning, sourcing,
merchandising and financial reporting. The Company continues to
invest in technology to upgrade core systems to make the Company
scalable, efficient and more accurate in the production and
delivery of merchandise to stores, including to support its
international roll-out.
Seasonal
Business.
The retail apparel market has two principal selling seasons, the
Spring season which includes the first and second fiscal
quarters (“Spring”) and the Fall season which includes
the third and fourth fiscal quarters (“Fall”). As is
typical in the apparel industry, the Company experiences its
greatest sales activity during the Fall season due to the
Back-to-School
(August) and Holiday (November and December) selling periods.
Trademarks.
The Abercrombie &
Fitch
®
,
abercrombie
®
,
Hollister
Co.
®
,
Gilly
Hicks
®
and Gilly Hicks
Sydney
®
trademarks have been registered with the U.S. Patent and
Trademark Office and the registries of countries where stores
are located or likely to be located in the future. These
trademarks are either registered, or have applications for
registration pending with the registries of many of the foreign
countries in which the
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manufacturers of the Company’s products are located. The
Company has also registered, or has applied to register, certain
other trademarks in the U.S. and around the world. The
Company believes that its products are identified by its
trademarks and, therefore, its trademarks are of significant
value. Each registered trademark has a duration of ten to
20 years, depending on the date it was registered and the
country in which it is registered, and is subject to an infinite
number of renewals for a like period upon continued use and
appropriate application. The Company intends to continue using
its core trademarks and to renew each of its registered
trademarks that remain in use.
Financial
Information about Segments.
The Company determines its operating segments on the same basis
that it uses to evaluate performance internally. The operating
segments identified by the Company are Abercrombie &
Fitch, abercrombie kids, Hollister and Gilly Hicks. The
operating segments have been aggregated and are reported as one
reportable segment because they have similar economic
characteristics and meet the required aggregation criteria. 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. Refer to Note 1,
“
Basis of Presentation
” of Notes to
Consolidated Financial Statements for further discussion,
including the break-out of geographic information for net sales
and long-lived assets.
Other
Information.
Additional information about the Company’s business,
including its revenues and profits for the last three fiscal
years and gross square footage of stores, is set forth under
“ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS” of this
Annual Report on
Form 10-K.
Competition.
The sale of apparel and personal care products through
brick-and-mortar
stores and
direct-to-consumer
channels is a highly competitive business with numerous
participants, including individual and chain fashion specialty
stores, as well as regional and national department stores. As
the Company continues expanding internationally, it also faces
competition in European, Asian and other international markets
from established regional and national chains, as well as
specialty stores. Brand recognition, fashion, price, service,
store location, selection and quality are the principal
competitive factors in retail store and
direct-to-consumer
sales.
The competitive challenges facing the Company include
anticipating and quickly responding to changing fashion trends;
and maintaining the aspirational positioning of its brands so it
can sustain its premium pricing position. Furthermore, the
Company faces additional competitive challenges as many
retailers continue promotional activities as a result of
economic conditions. In response to these conditions, the
Company has increased its promotional activity while continuing
to focus on preserving the value of its brands.
5
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Associate
Relations.
As of March 19, 2010, the Company employed approximately
80,000 associates, only 855 of whom were party to a collective
bargaining agreement in Italy. Approximately 71,000 of these
associates were part-time employees.
On average, including employees from RUEHL operations, the
Company employed approximately 19,000 full-time equivalents
during Fiscal 2009 which included approximately
10,000 full-time equivalents comprised of part-time
employees, including temporary associates hired during peak
periods, such as the
Back-to-School
and Holiday seasons.
The Company believes it maintains a good relationship with its
associates. However, in the normal course of business, the
Company is party to lawsuits involving former and current
associates. Refer to “ITEM 3. LEGAL PROCEEDINGS”
in this Annual Report on
Form 10-K.
Environmental
Matters
.
Compliance with federal, state and local regulations related to
environmental matters has not had, nor is it expected to have,
any material effect on capital expenditures, earnings or
competitive position based on information and circumstances
known to us at this time.
| ITEM 1A. | RISK FACTORS. |
Forward-Looking
Statements And Risk Factors.
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 Annual Report on
Form 10-K
or made by the Company, its management or spokespeople involve
risks and uncertainties and are subject to change based on
various factors, many of which may be beyond the Company’s
control. Words such as “estimate,”
“project,” “plan,” “believe,”
“expect,” “anticipate,” “intend”
and similar expressions may identify forward-looking statements.
Except as may be required by applicable law, the Company assumes
no obligation to publicly update or revise its forward-looking
statements.
The following factors could affect the Company’s financial
performance and could cause actual results to differ materially
from those expressed or implied in any of the forward-looking
statements:
| • | effects of general economic and financial conditions which impact consumer behavior and spending and may exacerbate some of the risks noted below including consumer demand, strain on available resources, international growth strategy, store growth, interruption of the flow of merchandise from key vendors and manufacturers and foreign currency exchange rate fluctuations; | |
| • | changes in consumer spending patterns and consumer preferences, including changes as a result of instability in economic conditions, which could affect the reputation and appeal of the Company’s brands; | |
| • | the impact of competition and pricing pressures; | |
| • | inability to achieve acceptable operating profits from the execution of the Company’s international expansion as a result of many factors, including the inability to successfully penetrate new markets and the potential strain on resources caused by the expansion; | |
| • | effects of changes in credit and lending market conditions; | |
| • | loss of services of skilled senior executive officers and/or inadequate succession planning for key positions; |
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| • | ability to hire, train and retain qualified associates; | |
| • | ability to develop innovative, high-quality new merchandise in response to changing fashion trends; | |
| • | availability and market prices of key raw materials; | |
| • | interruption of the flow of merchandise from key vendors and manufacturers and the flow of merchandise to and from distributors; | |
| • | ability of manufacturers to comply with applicable laws and regulations and ethical business practices; | |
| • | availability of suitable store locations under appropriate terms; | |
| • | currency and exchange risks and changes in existing or potential duties, tariffs or quotas; | |
| • | effects of political and economic events and conditions domestically, and in foreign jurisdictions in which the Company operates, including, but not limited to, acts of terrorism or war; | |
| • | unseasonable weather conditions affecting consumer preferences; | |
| • | disruptive weather conditions affecting consumers’ ability to shop; | |
| • | effect of litigation or adversary proceeding exposure potentially exceeding expectations; and | |
| • | potential disruption of the Company’s business due to the occurrence of, or fear of, a health pandemic. |
The following sets forth a description of certain risk factors
that the Company believes may be relevant to an understanding of
the Company and its business. These risk factors, in addition to
the factors set forth above, could cause actual results to
differ materially from those expressed or implied in any of the
Company’s forward-looking statements.
General
Economic and Financial Conditions Could Have a Material Adverse
Effect on the Company’s Business, Results of Operations and
Liquidity
.
Consumer purchases of discretionary items, including the
Company’s merchandise, generally decline during
recessionary periods and other periods where disposable income
is adversely affected. The Company’s performance is subject
to factors that affect worldwide economic conditions including
employment, consumer debt, reductions in net worth based on
declines in the financial, 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. Over the
past several years, the combination of these factors has caused
consumer spending to deteriorate significantly and may cause
levels of spending to remain depressed for the foreseeable
future. These factors may cause consumers to purchase products
from lower priced competitors or to defer purchases of apparel
and personal care products altogether.
The economic uncertainty could have a material effect on the
Company’s results of operations and its liquidity and
capital resources. It could also impact the Company’s
ability to fund its growth
and/or
result in the Company becoming reliant on external financing,
the availability of which may be uncertain.
In addition, the economic environment may exacerbate some of the
risks noted below, including consumer demand, strain on
available resources, international growth strategy, store
growth, interruption of the flow of merchandise from key vendors
and manufacturers, and foreign exchange rate fluctuations. The
risks could be exacerbated individually or collectively.
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The
Loss of the Services of Skilled Senior Executive Officers Could
Have a Material Adverse Effect on the Company’s
Business.
The Company’s senior executive officers closely supervise
all aspects of its business — in particular, the
design of its merchandise and the operation of its stores. The
Company’s senior executive officers have substantial
experience and expertise in the retail business and have made
significant contributions to the growth and success of the
Company’s brands. If the Company were to lose the benefit
of their involvement, in particular the services of any one or
more of Michael S. Jeffries, Chairman and Chief Executive
Officer, Diane Chang, Executive Vice President —
Sourcing, Leslee K. Herro, Executive Vice President —
Planning and Allocation, Jonathan E. Ramsden, Executive Vice
President and Chief Financial Officer and David S. Cupps, Senior
Vice President, General Counsel and Secretary, its business
could be adversely affected. Competition for such senior
executive officers is intense, and the Company cannot be sure it
will be able to attract, retain and develop a sufficient number
of qualified senior executive officers in future periods.
Equity-Based
Compensation Awarded Under the Employment Agreement with the
Company’s Chief Executive Officer Could Adversely Impact
the Company’s Cash Flows, Financial Position or Results of
Operations and Could Have a Dilutive Effect on the
Company’s Outstanding Common Stock.
Under the Employment Agreement, entered into as of
December 19, 2008, between the Company and Michael S.
Jeffries, the Company’s Chairman and Chief Executive
Officer (the “Jeffries Employment Agreement”),
Mr. Jeffries received grants (the “Retention
Grants”) of stock appreciation rights. In addition to the
Retention Grants, Mr. Jeffries is also eligible to receive
two equity-based grants during each fiscal year of the term of
the Jeffries Employment Agreement starting with Fiscal 2009 (the
“Semi-Annual Grant”). If a Semi-Annual Grant is
earned, it will be awarded within 75 days following the end
of the Company’s second quarter or fiscal year, as
applicable, subject to Mr. Jeffries’ continuous
employment with the Company (and, with respect to the final
Semi-Annual Grant, continued service on the Company’s Board
of Directors) through the applicable grant date. The value of
the Semi-Annual Grants are uncertain and dependent on future
market price of the Company’s Common Stock and the
financial performance of the Company.
In connection with the Semi-Annual Grants contemplated by the
Jeffries Employment Agreement, the related compensation expense
could significantly impact the Company’s results of
operations. Further, the significant number of shares of Common
Stock which could be issued upon exercise
and/or
vesting of the Retention Grant and the Semi-Annual Grants is
uncertain and dependent on the future market price of the
Company’s Common Stock and the financial performance of the
Company, and would, if issued, have a dilutive effect with
respect to the Company’s outstanding shares of Common
Stock, which may adversely affect the market price of the
Company’s Common Stock. Depending on the number of shares
of Common Stock which could be issued under the Retention Grant
and Semi-Annual Grants, the Company may deem it necessary or
appropriate to seek shareholder approval of additional long-term
incentive compensation plans in order to be able to settle the
awards in Common Stock.
In the event that there are not sufficient shares of Common
Stock available to be issued under the Company’s 2007
Long-Term Incentive Plan (the “2007 LTIP”), or under a
successor or replacement plan at the time these equity-based
awards are ultimately settled, the Company will be required to
settle some portion of the awards in cash, which could have an
adverse impact on the Company’s cash flow from operations,
financial position, results of operations. Furthermore, the
awards may not be deductible pursuant to Internal Revenue Code
Section 162(m). In addition, under applicable accounting
rules, if the Company’s stock price increases to a point
where, as of any measurement date, the Company would be unable
to settle outstanding equity-based awards in shares of Common
Stock from its existing plans, the Company will be required to
8
Table of Contents
classify and account for all or a portion of the equity-based
awards as liabilities. This could further adversely impact the
Company’s results of operations.
The
Failure to Anticipate, Identify and Respond to Changing Consumer
Preferences and Fashion Trends in a Timely Manner Could Cause
the Company’s Profitability to Decline.
The Company’s success largely depends on its ability to
anticipate and gauge the fashion preferences of its customers
and provide merchandise that satisfies constantly shifting
demands in a timely manner. The merchandise must appeal to each
brand’s corresponding target market of consumers whose
preferences cannot be predicted with certainty and are subject
to rapid change. Because the Company enters into agreements for
the manufacture and purchase of merchandise well in advance of
the applicable selling season, it is vulnerable to changes in
consumer preference and demand, pricing shifts, and the
sub-optimal
selection and timing of merchandise purchases. There can be no
assurance that the Company will continue to anticipate consumer
demands successfully in the future. To the extent that the
Company fails to anticipate, identify and respond effectively to
changing consumer preferences and fashion trends, its sales will
be adversely affected. Inventory levels for certain merchandise
styles no longer considered to be “on trend” may
increase, leading to higher markdowns to reduce excess inventory
or increases in inventory valuation reserves. A distressed
economic and retail environment, in which many of the
Company’s competitors are engaging in aggressive
promotional activities, increases the importance of reacting
appropriately to changing consumer preferences and fashion
trends. Each of these could have a material adverse effect on
the Company’s financial condition or results of operations.
The
Company’s Market Share may be Adversely Impacted at any
Time by a Significant Number of Competitors.
The sale of apparel and personal care products through
brick-and-mortar
stores and
direct-to-consumer
channels is a highly competitive business with numerous
participants, including individual and chain fashion specialty
stores, as well as regional and national department stores. The
Company faces a variety of competitive challenges, including:
| • | maintaining favorable brand recognition and effectively marketing its products to consumers in several diverse demographic markets; | |
| • | sourcing merchandise efficiently; and | |
| • | countering the aggressive promotional activities of many of the Company’s competitors without diminishing the aspirational nature of the Company’s brands and brand equity. |
There can be no assurance that the Company will be able to
compete successfully in the future.
The
Company’s International Expansion Plan is Dependent on a
Number of Factors, any of Which Could Delay or Prevent
Successful Penetration into New Markets and Strain its
Resources.
As the Company expands internationally, it may incur significant
costs related to starting up and maintaining foreign operations.
Costs may include, but are not limited to, obtaining prime
locations for stores, setting up foreign offices and DCs, as
well as hiring experienced management. The Company may be unable
to open and operate new stores successfully, and its growth will
be limited, unless it can:
| • | identify suitable markets and sites for store locations; | |
| • | negotiate acceptable lease terms; |
9
Table of Contents
| • | hire, train and retain competent store personnel; | |
| • | gain acceptance from foreign customers; | |
| • | foster current relationships and develop new relationships with vendors that are capable of supplying a greater volume of merchandise; | |
| • | manage inventory effectively to meet the needs of new and existing stores on a timely basis; | |
| • | expand infrastructure to accommodate growth; | |
| • | generate sufficient operating cash flows or secure adequate capital on commercially reasonable terms to fund its expansion plan; | |
| • | manage foreign currency exchange risks effectively; and | |
| • | achieve acceptable operating margins from new stores. |
In addition, the Company’s international expansion plan
will place increased demands on its operational, managerial and
administrative resources. These increased demands may cause the
Company to operate its business less efficiently, which in turn
could cause deterioration in the performance of its existing
stores. Furthermore, the Company’s ability to conduct
business in international markets may be affected by legal,
regulatory, political and economic risks. The Company’s
international expansion strategy and success could also be
adversely impacted by the global economy.
The
Company’s Growth Strategy Relies on the Addition of New
Stores, Which May Strain the Company’s Resources and
Adversely Impact Current Store Performance.
The Company’s growth strategy largely depends on the
opening of new stores, particularly internationally; and
remodeling existing stores in a timely manner and operating them
profitably. Additional factors required for successful
implementation of the Company’s growth strategy include,
but are not limited to: obtaining desirable prime store
locations; negotiating acceptable leases; completing projects on
budget; supplying proper levels of merchandise; and successfully
hiring and training store managers and sales associates.
Additionally, the Company’s growth strategy may place
increased demands on the Company’s operational, managerial
and administrative resources, which could cause the Company to
operate less efficiently. Furthermore, there is a possibility
new stores opening in existing markets may have an adverse
effect on previously existing stores in such markets. Failure to
properly implement the Company’s growth strategy could have
a material adverse effect on the Company’s financial
condition or results of operations.
The
Company May Incur Costs Related to Store
Closures.
The Company may incur costs associated with store closures
resulting from, among other things, lease termination agreements
associated with closing stores prior to the store’s lease
expiration date. These costs could be significant and could have
a material adverse effect on the Company’s financial
condition or results of operations.
The
Interruption of the Flow of Merchandise from Key Vendors and
International Manufacturers Could Disrupt the Company’s
Supply Chain.
The Company purchases the majority of its merchandise outside of
the U.S. through arrangements with approximately 209
vendors which include 305 foreign manufacturers located
throughout the world, primarily
10
Table of Contents
in Asia and Central and South America. In addition, many of the
Company’s domestic manufacturers maintain production
facilities overseas. Political, social or economic instability
in Asia, Central or South America, or in other regions in which
the Company’s manufacturers are located, could cause
disruptions in trade, including exports to the U.S. Other
events that could also cause disruptions to exports to the
U.S. include:
| • | the imposition of additional trade law provisions or regulations; | |
| • | the imposition of additional duties, tariffs and other charges on imports and exports; | |
| • | quotas imposed by bilateral textile agreements; | |
| • | foreign currency fluctuations; | |
| • | restrictions on the transfer of funds; | |
| • | the potential of manufacturer financial instability, inability to access needed liquidity or bankruptcy; and | |
| • | significant labor disputes, such as dock strikes. |
In addition, the Company cannot predict whether the countries in
which its merchandise is manufactured, or may be manufactured in
the future, will be subject to new or additional trade
restrictions imposed by the U.S. or other foreign
governments, including the likelihood, type or effect of any
such restrictions. Trade restrictions, including new or
increased tariffs or quotas, embargoes, safeguards and customs
restrictions against apparel items, as well as U.S. or
foreign labor strikes and work stoppages or boycotts, could
increase the cost or reduce the supply of apparel available to
the Company and adversely affect its business, financial
condition or results of operations.
The
Company Does not Own or Operate any Manufacturing Facilities and
Therefore Depends Upon Independent Third Parties for the
Manufacture of all its Merchandise.
The Company does not own or operate any manufacturing
facilities. As a result, the continued success of the
Company’s operations is tied to its timely receipt of
quality merchandise from third-party manufacturers. A
manufacturer’s inability to ship orders in a timely manner
or meet the Company’s quality standards could cause delays
in responding to consumer demands and negatively affect consumer
confidence in the quality and value of the Company’s brands
or negatively impact the Company’s competitive position,
all of which could have a material adverse effect on the
Company’s financial condition or results of operations.
Furthermore, the Company is susceptible to increases in sourcing
costs from manufacturers which the Company may not be able to
pass on to the customer and could adversely affect the
Company’s financial condition or results of operations.
Additionally, while the Company utilizes third-party compliance
auditors to visit and monitor the operations of the
Company’s manufacturers, the Company does not have control
of the independent manufacturers or their labor practices. A
violation of labor laws or other laws, including consumer and
product safety laws, by the Company or its manufacturers, could
adversely affect the Company’s reputation and sales.
11
Table of Contents
The
Company’s Reliance on Two Distribution Centers Domestically
Located in the Same Vicinity, and One Distribution Center
Internationally, Makes it Susceptible to Disruptions or Adverse
Conditions Affecting its Distribution Centers.
The Company’s two domestic DCs, located in New Albany,
Ohio, manage the receipt, storage, sorting, packing and
distribution of merchandise to its stores and
direct-to-consumer
customers, both regionally and internationally. The Company also
uses a third-party DC in the Netherlands for the distribution of
merchandise delivered to its stores located outside of North
America. As a result, the Company’s operations are
susceptible to local and regional factors, such as system
failures, accidents, economic and weather conditions, natural
disasters, and demographic and population changes, as well as
other unforeseen events and circumstances. If the Company’s
distribution operations were disrupted, its ability to replace
inventory in its stores and process
direct-to-consumer
orders could be interrupted and sales could be negatively
impacted.
The
Company’s Reliance on Third Parties to Deliver Merchandise
from its Distribution Centers to its Stores and
Direct-to-Consumer
Customers Could Result in Disruptions to its Business.
The efficient operations of the Company’s stores and
direct-to-consumer
operations depend on the timely receipt of merchandise from the
Company’s DCs. The Company delivers its merchandise to its
stores and
direct-to-consumer
customers using independent third parties. The Company uses
primarily one contract carrier for domestic store deliveries and
all
direct-to-consumer
deliveries and a separate contract carrier for international
store deliveries. The independent third parties employ personnel
that may be represented by labor unions. Disruptions in the
delivery of merchandise or work stoppages by employees or
contractors of any of these third parties could delay the timely
receipt of merchandise. There can be no assurance that such
stoppages or disruptions will not occur in the future. Any
failure by a third party to respond adequately to the
Company’s distribution needs would disrupt the
Company’s operations and could have a material adverse
effect on its financial condition or results of operations.
Furthermore, the Company is susceptible to increases in fuel
costs which may increase the cost of distribution which the
Company may not be able to pass onto the customer and could
adversely affect the Company’s financial condition or
results of operations.
The
Company’s Development of New Brand Concepts Could Have a
Material Adverse Effect on the Company’s Financial
Condition or Results of Operations.
Historically, the Company has internally developed and launched
new brands that have contributed to sales growth. The
Company’s most recent brand is Gilly Hicks which offers
bras, underwear, personal care products, sleepwear and at-home
products for women. Brand concepts such as Gilly Hicks require
management’s focus and attention, as well as significant
capital investments. Furthermore, a new brand concept is
susceptible to risks that include lack of customer acceptance,
competition from existing or new retailers, product
differentiation, production and distribution inefficiencies and
unanticipated operating issues. There is no assurance that a new
brand concept, including Gilly Hicks, will achieve successful
results. The failure of Gilly Hicks or another new brand concept
to be successfully launched could have a material adverse effect
on the Company’s financial condition or results of
operations. In addition, the ongoing development of new concepts
may place a strain on available resources.
Fluctuations
in Foreign Currency Exchange Rates Could Adversely Impact
Financial Results.
The Company’s international subsidiaries generally use
local currencies as the functional currency, which includes
Euros, Canadian Dollars, Japanese Yen, Hong Kong Dollars and
British Pounds. The Company’s Consolidated Financial
Statements are presented in U.S. dollars (“USD”).
Therefore, the
12
Table of Contents
Company must translate revenues, expenses, assets and
liabilities from functional currencies into U.S. dollars at
exchange rates in effect during, or at the end of, the reporting
period. The fluctuation in the value of the U.S. dollar
against other currencies could impact the Company’s
financial results.
Furthermore, the Company purchases substantially all of its
inventory in USD. Therefore, the Company’s gross margin
rate from international operations is subject to volatility from
movements in exchange rates over time, which could have an
adverse effect on the Company’s financial condition or
results of operations.
The
Company’s Net Sales and Inventory Levels Fluctuate on
a Seasonal Basis, Causing its Results of Operations to be
Particularly Susceptible to Changes in
Back-to-School
and Holiday Shopping Patterns.
Historically, the Company’s operations have been seasonal,
with a significant amount of net sales and net income occurring
in the fourth fiscal quarter, due to the increased sales during
the Holiday selling season and, to a lesser extent, the third
fiscal quarter, reflecting increased sales during the
Back-to-School
selling season. The Company’s net sales and net income
during the first and second fiscal quarters are typically lower,
due, in part, to the traditional slowdown in retail sales
immediately following the Holiday season. As a result of this
seasonality, net sales and net income during any fiscal quarter
cannot be used as an accurate indicator of the Company’s
annual results. Any factors negatively affecting the Company
during the third and fourth fiscal quarters of any year,
including adverse weather or unfavorable economic conditions,
could have a material adverse effect on its financial condition
or results of operations for the entire year.
Furthermore, in order to prepare for the
Back-to-School
and Holiday selling seasons, the Company must order and keep
significantly more merchandise in stock than it would carry
during other parts of the year. Therefore, the inability to
accurately plan for product demand and allocate merchandise
effectively could have a material adverse effect on the
Company’s financial condition or results of operations.
High inventory levels due to unanticipated decreases in demand
for the Company’s products during peak selling seasons,
misidentification of fashion trends, or excess inventory
purchases could require the Company to sell merchandise at a
substantial markdown, which could reduce its net sales and gross
margins and negatively impact its profitability. Low levels of
inventory due to conservative planning could also affect product
offering in the stores and affect net sales and negatively
impact profitability.
The
Company’s Ability to Attract Customers to its Stores
Depends Heavily on the Success of the Shopping Centers in Which
They are Located.
In order to generate customer traffic, the Company locates many
of its stores in prominent locations within successful shopping
centers. The Company cannot control the development of new
shopping centers; the availability or cost of appropriate
locations within existing or new shopping centers; competition
with other retailers for prominent locations; or the success of
individual shopping centers. All of these factors may impact the
Company’s ability to meet its growth targets and could have
a material adverse effect on its financial condition or results
of operations.
Comparable
Store Sales will Continue to Fluctuate on a Regular
Basis.
The Company’s comparable store sales, defined as
year-over-year
sales for a store that has been open as the same brand at least
one year and the square footage of which has not been expanded
or reduced by more than 20%, have fluctuated significantly in
the past on an annual, quarterly and monthly basis and are
expected
13
Table of Contents
to continue to fluctuate in the future. During the past three
fiscal years, comparable sales results have fluctuated as
follows: (a) from (23)% to (1)% for annual results;
(b) from (30)% to 1% for quarterly results; and
(c) from (34%) to 8% for monthly results. The
Company’s comparable store sales were adversely affected
by, among other factors, the economy and competitors’
promotional activities throughout Fiscal 2008 and Fiscal 2009.
The Company believes that a variety of factors affect comparable
store sales results including, but not limited to, fashion
trends, actions by competitors, economic conditions, weather
conditions, opening
and/or
closing of Company stores near each other, and the calendar
shifts of tax free and holiday periods.
Comparable store sales fluctuations may impact the
Company’s ability to leverage fixed direct expenses,
including store rent and store asset depreciation, which may
adversely affect the Company’s financial condition or
results of operations.
In addition, comparable store sales fluctuations may have been
an important factor in the volatility of the price of the
Company’s Class A Common Stock in the past, and it is
likely that future comparable store sales fluctuations will
contribute to stock price volatility in the future.
The
Company’s Net Sales are Affected by
Direct-to-Consumer
Sales.
The Company sells merchandise over the Internet through its
websites: www.abercrombie.com; www.abercrombiekids.com;
www.hollisterco.com; and www.gillyhicks.com. The Company’s
Internet operations may be affected by reliance on third-party
hardware and software providers, technology changes, risks
related to the failure of computer systems that operate the
Internet business, telecommunications failures, electronic
break-ins, security breaches and similar disruptions.
Furthermore, the Company’s ability to conduct business on
the Internet may be affected by liability for on-line content
and state, federal and international privacy laws. The
Company’s failure to successfully respond to these risks
might adversely affect sales in the Company’s Internet
business, as well as damage the Company’s reputation and
brands.
The
Company May be Exposed to Risks and Costs Associated with Credit
Card Fraud and Identity Theft.
The Company collects certain customer data during the course of
business, such as credit card information. The Company and other
parties involved in processing customer transactions must be
able to transmit confidential information, including credit card
information, securely over public networks. Although the Company
has security measures related to its systems and the privacy of
its customers, the Company cannot guarantee these measures will
effectively prevent a security breach of customer transaction
data. A security breach could cause customers to lose confidence
in the security of the Company’s systems and could expose
the Company to risks of data loss, litigation and liability and
could seriously disrupt operations and harm the Company’s
reputation, any of which could adversely affect the
Company’s financial condition or results of operations.
In addition, states and federal government are enacting laws and
regulations to protect consumers against identity theft. These
laws will likely increase the costs of doing business and if the
Company fails to implement appropriate security measures, the
Company could be subject to potential claims for damages and
other remedies, which could adversely affect the Company’s
business or results from operations.
14
Table of Contents
The
Company’s Litigation Exposure Could Exceed Expectations,
Having a Material Adverse Effect on the Company’s Financial
Condition or Results of Operations.
The Company is involved, from
time-to-time,
in litigation incidental to its business, such as litigation
regarding overtime compensation and other employment related
matters. Additionally, the Company is involved in several
purported class action lawsuits and several shareholder
derivative actions alleged to have arisen out of trading in the
Company’s Class A Common Stock in the summer of Fiscal
2005 (collectively, the “Securities Matters,” see
“ITEM 3. LEGAL PROCEEDINGS” of this Annual Report
on
Form 10-K).
Management is unable to assess the potential exposure of the
aforesaid matters. The Company’s current exposure could
change in the event of the discovery of damaging 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 management’s evaluation of the
claims. Should management’s evaluation prove incorrect, the
Company’s exposure could greatly exceed expectations and
have a material adverse effect on the financial condition,
results of operations, or cash flows of the Company.
The
Company’s Failure to Adequately Protect Its Trademarks
Could Have a Negative Impact on Its Brand Image and Limit Its
Ability to Penetrate New Markets.
The Company believes its trademarks, Abercrombie &
Fitch
®
,
abercrombie
®
,
Hollister
Co.
®
,
Gilly
Hicks
®
,
Gilly Hicks
Sydney
®
and the “Moose,” “Seagull” and
“Koala” logos, are an essential element of the
Company’s strategy. The Company has obtained or applied for
federal registration of these trademarks with the
U.S. Patent and Trademark Office and the registries of
countries where stores are located or likely to be located in
the future. In addition, the Company owns registrations and
pending applications for other trademarks in the U.S. and
has applied for or obtained registrations from the registries in
many foreign countries in which its manufacturers are located.
There can be no assurance that the Company will obtain
registrations that have been applied for or that the
registrations the Company obtains will prevent the imitation of
its products or infringement of its intellectual property rights
by others. If any third party copies the Company’s products
in a manner that projects lesser quality or carries a negative
connotation, the Company’s brand image could be materially
adversely affected.
Because the Company has not yet registered all of its trademarks
in all categories, or in all foreign countries in which it
sources or offers its merchandise now, or may in the future, its
international expansion and its merchandising of products using
these marks could be limited. For example, the Company cannot
ensure that others will not try to block the manufacture, export
or sale of its products as a violation of their trademarks or
other proprietary rights. The pending applications for
international registration of various trademarks could be
challenged or rejected in those countries because third parties
of whom the Company is not currently aware have already
registered similar marks in those countries. Accordingly, it may
be possible, in those foreign countries where the status of
various applications is pending or unclear, for a third-party
owner of the national trademark registration for a similar mark
to prohibit the manufacture, sale or exportation of branded
goods in or from that country. If the Company is unable to reach
an arrangement with any such party, the Company’s
manufacturers may be unable to manufacture its products, and the
Company may be unable to sell in those countries. The
Company’s inability to register its trademarks or purchase
or license the right to use its trademarks or logos in these
jurisdictions could limit its ability to obtain supplies from,
or manufacture in, less costly markets or penetrate new markets
should the Company’s business plan include selling its
merchandise in those
non-U.S. jurisdictions.
The Company has an anti-counterfeiting program, under the
auspices of the Abercrombie & Fitch Brand Protection
Team, whose goal is to eliminate the supply of illegal pieces of
the Company’s products. The Brand
15
Table of Contents
Protection Team interacts with investigators, customs officials
and law enforcement entities throughout the world to combat the
illegal use of the Company’s trademarks. Although brand
security initiatives are being taken, the Company cannot
guarantee that its efforts against the counterfeiting of its
brands will be successful.
The
Company’s Unsecured Credit Agreement Includes Financial and
Other Covenants that Impose Restrictions on its Financial and
Business Operations.
The Company’s unsecured credit agreement expires on
April 12, 2013 and market conditions could potentially
impact the size and terms of a replacement facility.
In addition, the unsecured credit agreement contains financial
covenants that require the Company to maintain a minimum
coverage ratio and a maximum leverage ratio. If the Company
fails to comply with the covenants and is unable to obtain a
waiver or amendment, an event of default would result, and the
lenders could declare outstanding borrowings immediately due and
payable. If that should occur, the Company cannot guarantee that
it would have sufficient liquidity at that time to repay or
refinance borrowings under the unsecured credit agreement.
The inability to obtain credit on commercially reasonable terms,
or a default under the current unsecured credit agreement, could
adversely impact liquidity and results of operations.
Changes
in Taxation Requirements Could Adversely Impact Financial
Results.
The Company is subject to income tax in numerous jurisdictions,
including international and domestic locations. In addition, the
Company’s products are subject to import and excise duties,
and/or
sales, consumption, or value-added taxes in many jurisdictions.
Fluctuations in tax rates and duties could have a material
adverse effect on the financial condition, results of
operations, or cash flows of the Company.
The
Company’s Inability to Obtain Commercial Insurance at
Acceptable Prices or Failure to Adequately Reserve for
Self-Insured Exposures Might Increase Expenses and Adversely
Impact Financial Results.
The Company believes that commercial insurance coverage is
prudent for risk management in certain areas of the business.
Insurance costs may increase substantially in the future and may
be affected by natural catastrophes, fear of terrorism,
financial irregularities and other fraud at publicly-held
companies, intervention by the government and a decrease in the
number of insurance carriers. In addition, for certain types or
levels of risk, such as risks associated with earthquakes,
hurricanes or terrorist attacks, the Company may determine that
we cannot obtain commercial insurance at acceptable prices, if
at all. Therefore, the Company may choose to forego or limit the
purchase of relevant commercial insurance, choosing instead to
self-insure one or more types of risk. The Company is primarily
self-insured for workers’ compensation and employee health
benefits. If the Company suffers a substantial loss that is not
covered by commercial insurance or self-insurance reserves, the
loss and attendant expenses could harm its business and
operating results. In addition, exposures exist for which no
insurance may be available and for which the Company has not
reserved.
Modifications
and/or Upgrades to Information Technology Systems may Disrupt
Operations.
The Company regularly evaluates its information technology
systems and requirements and is currently implementing
modifications
and/or
upgrades to the information technology systems that support the
business. Modifications include replacing legacy systems with
successor systems, making changes to legacy systems, or
acquiring new systems with new functionality. The Company is
aware of inherent risks associated with
16
Table of Contents
replacing and modifying these systems, including inaccurate
system information and system disruptions. The Company believes
it is taking appropriate action to mitigate the risks through
testing, training, and staging implementation, as well as
securing appropriate commercial contracts with third-party
vendors supplying such replacement technologies. Information
technology system disruptions and inaccurate system information,
if not anticipated and appropriately mitigated, could have a
material adverse effect on the Company’s financial
condition or results of operations. Additionally, there is no
assurance that a successfully implemented system will deliver
value to the Company.
The
Company Could Suffer if the Company’s Computer Systems are
Disrupted or Cease to Operate Effectively.
The Company relies heavily on its computer systems to record and
process transactions and manage and operate the Company’s
operations. Given the significant number of transactions that
are completed annually, it is vital to maintain constant
operation of the computer hardware and software systems. Despite
efforts to prevent such an occurrence, the Company’s
systems are vulnerable from
time-to-time
to damage or interruption from computer viruses, power outages,
third party intrusions and other technical malfunctions. If the
Company’s systems are damaged or fail to function properly,
the Company may have to make monetary investments to repair or
replace the systems and the Company could endure delays in its
operations. Any material interruption could have a material
adverse effect on the Company’s business or results of
operations.
Changes
in the Regulatory or Compliance Landscape Could Adversely Affect
the Company’s Business or Results of
Operations.
Laws and regulations at the state, federal and international
levels frequently change and the ultimate cost of compliance
cannot be precisely estimated. Changes in regulations, the
imposition of additional regulations, or the enactment of any
new legislation including those related to health care, taxes,
environmental issues, trade, product safety and employment
labor, could adversely affect the Company’s business or
results of operations.
The
Company’s Operations may be Effected by Greenhouse
Emissions and Climate Change.
The Company’s operations may be effected by regulatory
changes related to climate change and greenhouse gas emissions.
The Company is uncertain how the United States and international
economies will be affected by potential legislation and public
reactions. As a result, the affect this could have on the
Company’s operations is currently unknown.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2. | PROPERTIES. |
The Company’s headquarters and support functions occupy
474 acres, consisting of the home office, distribution and
shipping facilities centralized on a campus-like setting in New
Albany, Ohio and an additional small distribution and shipping
facility located in the Columbus, Ohio area, all of which are
owned by the Company. Additionally, the Company leases small
facilities to house its design and sourcing support centers in
Hong Kong, New York City and Los Angeles, California, as well as
offices in the United Kingdom and Switzerland for its
European operations.
17
Table of Contents
All of the retail stores operated by the Company, as of
March 19, 2010, are located in leased facilities, primarily
in shopping centers in North America, Europe and Asia. The
leases expire at various dates, between 2010 and 2028.
The Company’s home office, distribution and shipping
facilities, design support centers and stores are generally
suitable and adequate.
As of March 19, 2010, the Company’s 1,098 stores were
located in North America, Europe and Asia as follows:
|
Alabama
|
13 | Kentucky | 14 | North Dakota | 2 | |||||||||||
|
Alaska
|
1 | Louisiana | 15 | Ohio | 40 | |||||||||||
|
Arizona
|
17 | Maine | 4 | Oklahoma | 10 | |||||||||||
|
Arkansas
|
7 | Maryland | 19 | Oregon | 14 | |||||||||||
|
California
|
133 | Massachusetts | 33 | Pennsylvania | 48 | |||||||||||
|
Colorado
|
12 | Michigan | 33 | Rhode Island | 4 | |||||||||||
|
Connecticut
|
22 | Minnesota | 22 | South Carolina | 15 | |||||||||||
|
Delaware
|
4 | Mississippi | 5 | South Dakota | 2 | |||||||||||
|
District of Columbia
|
1 | Missouri | 18 | Tennessee | 24 | |||||||||||
|
Florida
|
73 | Montana | 3 | Texas | 98 | |||||||||||
|
Georgia
|
25 | Nebraska | 5 | Utah | 7 | |||||||||||
|
Hawaii
|
4 | Nevada | 14 | Vermont | 2 | |||||||||||
|
Idaho
|
4 | New Hampshire | 11 | Virginia | 28 | |||||||||||
|
Illinois
|
48 | New Jersey | 41 | Washington | 24 | |||||||||||
|
Indiana
|
26 | New Mexico | 4 | West Virginia | 5 | |||||||||||
|
Iowa
|
8 | New York | 56 | Wisconsin | 16 | |||||||||||
|
Kansas
|
6 | North Carolina | 30 | |||||||||||||
|
Canada
|
12 | |||||||||||||||
|
United Kingdom
|
11 | |||||||||||||||
|
Germany
|
1 | |||||||||||||||
|
Italy
|
3 | |||||||||||||||
|
Japan
|
1 |
| ITEM 3. | LEGAL PROCEEDINGS. |
A&F is a defendant in lawsuits and other adversary
proceedings 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 kids
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 June 23, 2008, the defendants settled all
claims of Hollister and abercrombie kids store managers who
served in stores from June 23, 2002 through April 30,
2004, but continued to oppose the plaintiffs’
18
Table of Contents
remaining claims. On January 29, 2009, the Court certified
a class consisting of all store managers who served at Hollister
and abercrombie kids stores in California from May 1, 2004
through the future date upon which the action concludes. The
parties are continuing to litigate the claims of that putative
class.
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&F’s 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 related to sales of Common Stock by
certain defendants and to a decline in the price of
A&F’s Common Stock during the summer of 2005,
allegedly as a result of misstatements attributable to A&F.
Plaintiffs seek unspecified monetary damages. 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. After briefing and argument, the motion was
submitted on March 24, 2009, and granted on May 21,
2009. On June 5, 2009, defendants petitioned the Sixth
Circuit for permission to appeal the class certification order
and on August 24, 2009, the Sixth Circuit granted leave to
appeal.
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&F’s present and former directors, alleging various
breaches of the directors’ fiduciary duty and seeking
equitable and monetary relief. In the following three months,
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 allegedly arising
out of the same matters alleged in the Ross case and seeking
equitable and monetary relief on behalf of A&F. In March of
2006, the federal court derivative actions were consolidated
with the Ross 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. On February 16, 2007, A&F announced that its
Board of Directors had received a report of the Special
Litigation Committee established by the Board to investigate and
act with respect to claims asserted in the derivative lawsuit,
which concluded that there was no evidence to support the
asserted claims and directed the Company to seek dismissal of
the derivative cases. On September 10, 2007, the Company
moved to dismiss the federal derivative cases on the authority
of the Special Litigation Committee report. On March 12,
2009, the Company’s motion was granted and, on
April 10, 2009, plaintiffs filed an appeal from the order
of dismissal. The state court has stayed further proceedings in
the state-court derivative action until resolution of the
consolidated federal derivative cases.
Management intends to defend the aforesaid matters vigorously,
as appropriate. Management is unable to quantify the potential
exposure of the aforesaid matters. However, management’s
assessment of the Company’s 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, administrative agencies or other finders of
fact that are not in accordance with management’s
evaluation of the claims.
19
Table of Contents
| ITEM 4. | [Reserved] |
SUPPLEMENTAL
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information regarding the executive
officers of A&F as of March 19, 2010:
Michael S. Jeffries, 65,
has been Chairman of A&F
since May 1998. Mr. Jeffries has been Chief Executive
Officer of A&F since February 1992. From February 1992 to
May 1998, Mr. Jeffries held the position of President of
A&F. Under the terms of the Employment Agreement, entered
into as of December 19, 2008, between A&F and
Mr. Jeffries, A&F is obligated to cause
Mr. Jeffries to be nominated as a director of A&F
during his employment term.
Diane Chang, 54,
has been Executive Vice
President — Sourcing of A&F since May 2004. Prior
thereto, Ms. Chang held the position of Senior Vice
President — Sourcing of A&F from February 2000 to
May 2004 and the position of Vice President — Sourcing
of A&F from May 1998 to February 2000.
Leslee K. Herro, 49,
has been Executive Vice
President — Planning and Allocation of A&F since
May 2004. Prior thereto, Ms. Herro held the position of
Senior Vice President — Planning and Allocation of
A&F from February 2000 to May 2004 and the position of Vice
President — Planning & Allocation of
A&F from February 1994 to February 2000.
Jonathan E. Ramsden, 45,
joined A&F in December 2008
as Executive Vice President and Chief Financial Officer. From
December 1998 to December 2008, Mr. Ramsden served as Chief
Financial Officer and a member of the Executive Committee of
TBWA Worldwide, a large advertising agency network and a
division of Omnicom Group Inc. Prior to becoming Chief Financial
Officer of TWBA Worldwide, he served as Controller and Principal
Accounting Officer of Omnicom Group Inc. from June 1996 to
December 1998.
David S. Cupps, 73,
has been Senior Vice President,
General Counsel and Secretary of A&F since April 2007.
Prior thereto, he was a partner in the law firm of Vorys, Sater,
Seymour and Pease LLP from January 1974 through December 2006
and Of Counsel to that law firm from January 2007 through March
2007.
The executive officers serve at the pleasure of the Board of
Directors of A&F and, in the case of Mr. Jeffries,
pursuant to an employment agreement.
20
Table of Contents
PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
A&F’s Class A Common Stock (the “Common
Stock”) is traded on the New York Stock Exchange under the
symbol “ANF.” The table below sets forth the high and
low sales prices of A&F’s Common Stock on the New York
Stock Exchange for Fiscal 2009 and Fiscal 2008:
| Sales Price | ||||||||
| High | Low | |||||||
|
Fiscal 2009
|
||||||||
|
4th Quarter
|
$ | 42.31 | $ | 29.88 | ||||
|
3rd Quarter
|
$ | 37.80 | $ | 28.76 | ||||
|
2nd Quarter
|
$ | 32.83 | $ | 22.70 | ||||
|
1st Quarter
|
$ | 28.06 | $ | 16.95 | ||||
|
Fiscal 2008
|
||||||||
|
4th Quarter
|
$ | 29.97 | $ | 13.66 | ||||
|
3rd Quarter
|
$ | 56.74 | $ | 23.75 | ||||
|
2nd Quarter
|
$ | 77.25 | $ | 51.45 | ||||
|
1st Quarter
|
$ | 82.06 | $ | 69.55 | ||||
A quarterly dividend, of $0.175 per share, was paid in March,
June, September and December of Fiscal 2007, Fiscal 2008 and
Fiscal 2009. A&F expects to continue to pay a dividend,
subject to the Board of Directors’ review of the
Company’s cash position and results of operations.
As of March 19, 2010, there were approximately 4,413
stockholders of record. However, when including investors
holding shares in broker accounts under street name, active
associates of the Company who participate in A&F’s
stock purchase plan, and associates of the Company who own
shares through A&F-sponsored retirement plans, A&F
estimates that there are approximately 53,100 stockholders.
The following table provides information regarding the purchase
of shares of the Common Stock of A&F made by or on behalf
of A&F or any “affiliated purchaser” as defined
in
Rule 10b-18(a)(3)
under the Securities Exchange Act of 1934, as amended, during
each fiscal month of the quarterly period ended January 30,
2010:
|
Total Number of
|
||||||||||||||||
|
Shares Purchased as
|
Maximum Number of
|
|||||||||||||||
|
Total Number
|
Average
|
Part of Publicly
|
Shares that May Yet Be
|
|||||||||||||
|
of Shares
|
Price Paid
|
Announced Plans or
|
Purchased under the
|
|||||||||||||
|
Fiscal Month
|
Purchased(1) | per Share(2) | Programs(3) | Plans or Programs(4) | ||||||||||||
|
November 1, 2009 — November 28, 2009
|
1,838 | $ | 40.36 | — | 11,346,900 | |||||||||||
|
November 29, 2009 — January 2, 2010
|
2,375 | $ | 39.85 | — | 11,346,900 | |||||||||||
|
January 3, 2010 — January 30, 2010
|
1,322 | $ | 34.71 | — | 11,346,900 | |||||||||||
|
Total
|
5,535 | $ | 38.79 | — | 11,346,900 | |||||||||||
21
Table of Contents
| (1) | Included in the total number of shares of A&F’s Common Stock purchased during the quarterly period (thirteen-week period) ended January 30, 2010 were an aggregate of 5,535 shares which were withheld for tax payments due upon the vesting of employee restricted stock units and restricted stock awards. | |
| (2) | The average price paid per share includes broker commissions, as applicable. | |
| (3) | There were no shares purchased pursuant to A&F’s publicly announced stock repurchase authorizations during the quarterly period (thirteen-week period) ended January 30, 2010. On August 16, 2005, A&F announced the August 15, 2005 authorization by A&F’s Board of Directors to repurchase 6.0 million shares of A&F’s Common Stock. On November 21, 2007, A&F announced the November 20, 2007 authorization by A&F’s Board of Directors to repurchase 10.0 million shares of A&F’s Common Stock, in addition to the approximately 2.0 million shares of A&F’s Common Stock which remained available under the August 2005 authorization as of November 20, 2007. | |
| (4) | The figure shown represents, as of the end of each period, the maximum number of shares of Common Stock that may yet be purchased under A&F’s publicly announced stock repurchase authorizations described in footnote 3 above. The shares may be purchased, from time-to-time, depending on market conditions. |
A&F did not repurchase any shares of A&F’s Common
Stock in the open market during Fiscal 2009. During Fiscal 2008,
A&F repurchased approximately 0.7 million shares of
A&F’s Common Stock in the open market with a value of
approximately $50.0 million. During Fiscal 2007, A&F
repurchased approximately 3.6 million shares of
A&F’s Common Stock in the open market with a value of
approximately $287.9 million. Both the Fiscal 2008 and the
Fiscal 2007 repurchases were pursuant to A&F Board of
Directors’ authorizations.
22
Table of Contents
The following graph shows the changes, over the five-year period
ended January 30, 2010 (the last day of A&F’s
2009 fiscal year), in the value of $100 invested in
(i) shares of A&F’s Common Stock; (ii) the
Standard & Poor’s 500 Stock Index (the
“S&P 500 Index”) and (iii) the
Standard & Poor’s Apparel Retail Composite Index
(the “S&P Apparel Retail Index”), including
reinvestment of dividends. The plotted points represent the
closing price on the last day of the fiscal year indicated (and
if such day was not a trading day, the closing price on the last
day immediately preceding a trading day).
PERFORMANCE
GRAPH
1
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Abercrombie & Fitch Co., The S&P 500 Index
And The S&P Apparel Retail Index
Among Abercrombie & Fitch Co., The S&P 500 Index
And The S&P Apparel Retail Index
| * | $100 invested on 1/29/05 in stock or 1/31/05 in index, including reinvestment of dividends. | |
| Indexes calculated on month-end basis. | ||
| Copyright © 2010 S&P, a division of The McGraw-Hill Companies Inc. All rights reserved. |
1
This
graph shall not be deemed to be “soliciting material”
or to be “filed” with the SEC or subject to SEC
Regulation 14A or to the liabilities of Section 18 of
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), except to the extent that A&F
specifically requests that the graph be treated as soliciting
material or specifically incorporates it by reference into a
filing under the Securities Act of 1933, as amended, or the
Exchange Act.
23
Table of Contents
| ITEM 6. | SELECTED FINANCIAL DATA. |
ABERCROMBIE &
FITCH CO.
FINANCIAL SUMMARY
FINANCIAL SUMMARY
Summary
of Operations
(Information below excludes amounts related to discontinued
operations, except where otherwise noted)
| 2009 | 2008 | 2007 | 2006(1) | 2005 | ||||||||||||||||
| (Thousands, except per share and per square foot amounts, ratios and store and associate data) | ||||||||||||||||||||
|
Net Sales
|
$ | 2,928,626 | $ | 3,484,058 | $ | 3,699,656 | $ | 3,284,176 | $ | 2,768,164 | ||||||||||
|
Gross Profit
|
$ | 1,883,598 | $ | 2,331,095 | $ | 2,488,166 | $ | 2,200,668 | $ | 1,854,186 | ||||||||||
|
Operating Income
|
$ | 117,912 | $ | 498,262 | $ | 778,909 | $ | 697,990 | $ | 577,817 | ||||||||||
|
Net Income from Continuing Operations
|
$ | 78,953 | $ | 308,169 | $ | 499,127 | $ | 446,525 | $ | 355,382 | ||||||||||
|
Net Loss from Discontinued Operations (net of taxes)(2)
|
$ | (78,699 | ) | $ | (35,914 | ) | $ | (23,430 | ) | $ | (24,339 | ) | $ | (21,398 | ) | |||||
|
Net Income(2)
|
$ | 254 | $ | 272,255 | $ | 475,697 | $ | 422,186 | $ | 333,984 | ||||||||||
|
Dividends Declared Per Share
|
$ | 0.70 | $ | 0.70 | $ | 0.70 | $ | 0.70 | $ | 0.60 | ||||||||||
|
Net Income Per Share from Continuing Operations
|
||||||||||||||||||||
|
Basic
|
$ | 0.90 | $ | 3.55 | $ | 5.72 | $ | 5.07 | $ | 4.08 | ||||||||||
|
Diluted
|
$ | 0.89 | $ | 3.45 | $ | 5.45 | $ | 4.85 | $ | 3.90 | ||||||||||
|
Net Loss Per Share from Discontinued Operations (2)
|
||||||||||||||||||||
|
Basic
|
$ | (0.90 | ) | $ | (0.41 | ) | $ | (0.27 | ) | $ | (0.28 | ) | $ | (0.25 | ) | |||||
|
Diluted
|
$ | (0.89 | ) | $ | (0.40 | ) | $ | (0.26 | ) | $ | (0.26 | ) | $ | (0.23 | ) | |||||
|
Net Income Per Share (2)
|
||||||||||||||||||||
|
Basic
|
$ | 0.00 | $ | 3.14 | $ | 5.45 | $ | 4.79 | $ | 3.83 | ||||||||||
|
Diluted
|
$ | 0.00 | $ | 3.05 | $ | 5.20 | $ | 4.59 | $ | 3.66 | ||||||||||
|
Basic Weighted-Average Shares Outstanding
|
87,874 | 86,816 | 87,248 | 88,052 | 87,161 | |||||||||||||||
|
Diluted Weighted-Average Shares Outstanding
|
88,609 | 89,291 | 91,523 | 92,010 | 91,221 | |||||||||||||||
|
Other Financial Information
|
||||||||||||||||||||
|
Total Assets (including discontinued operations)
|
$ | 2,821,866 | $ | 2,848,181 | $ | 2,567,598 | $ | 2,248,067 | $ | 1,789,718 | ||||||||||
|
Return on Average Assets(3)
|
0 | % | 10 | % | 20 | % | 21 | % | 21 | % | ||||||||||
|
Working Capital(4)
|
$ | 786,474 | $ | 622,213 | $ | 585,575 | $ | 571,089 | $ | 447,102 | ||||||||||
|
Current Ratio(5)
|
2.75 | 2.38 | 2.08 | 2.12 | 1.91 | |||||||||||||||
|
Net Cash Provided by Operating Activities(2)
|
$ | 402,200 | $ | 490,836 | $ | 817,524 | $ | 582,171 | $ | 453,590 | ||||||||||
|
Capital Expenditures
|
$ | 175,472 | $ | 367,602 | $ | 403,345 | $ | 403,476 | $ | 256,422 | ||||||||||
|
Long-Term Debt
|
$ | 71,213 | $ | 100,000 | — | — | — | |||||||||||||
|
Shareholders’ Equity (including discontinued operations)
|
$ | 1,827,917 | $ | 1,845,578 | $ | 1,618,313 | $ | 1,405,297 | $ | 995,117 | ||||||||||
|
Return on Average Shareholders’ Equity(6)
|
0 | % | 16 | % | 31 | % | 35 | % | 40 | % | ||||||||||
|
Comparable Store Sales(7)
|
(23 | )% | (13 | )% | (1 | )% | 1 | % | 26 | % | ||||||||||
|
Net Retail Sales Per Average Gross Square Foot
|
$ | 339 | $ | 432 | $ | 503 | $ | 509 | $ | 474 | ||||||||||
|
Stores at End of Year and Average Associates
|
||||||||||||||||||||
|
Total Number of Stores Open
|
1,096 | 1,097 | 1,013 | 930 | 843 | |||||||||||||||
|
Gross Square Feet
|
7,848 | 7,760 | 7,133 | 6,563 | 5,956 | |||||||||||||||
|
Average Number of Associates(8)
|
83,000 | 96,200 | 94,600 | 80,100 | 69,100 | |||||||||||||||
| (1) | Fiscal 2006 was a fifty-three week year. | |
| (2) | Includes results of operations from RUEHL branded stores and related direct-to-consumer operations. |
24
Table of Contents
| (3) | Return on average assets is computed by dividing net income (including discontinued operations) by the average asset balance (including discontinued operations). | |
| (4) | Working capital is computed by subtracting current liabilities (including discontinued operations) from current assets (including discontinued operations). | |
| (5) | Current Ratio is computed by dividing current assets (including discontinued operations) by current liabilities (including discontinued operations). | |
| (6) | Return on Average Shareholders’ Equity is computed by dividing net income (including discontinued operations) by the average shareholders’ equity balance (including discontinued operations). | |
| (7) | A store is included in comparable store sales when it has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year. Note that Fiscal 2006 comparable store sales are compared to store sales for the comparable fifty-three weeks ended February 4, 2006. | |
| (8) | Includes employees from RUEHL operations. |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
OVERVIEW
The Company’s fiscal year ends on the Saturday closest to
January 31, typically resulting in a fifty-two week year,
but occasionally giving rise to an additional week, resulting in
a fifty-three week year. A store is included in comparable store
sales when it has been open as the same brand at least one year
and its square footage has not been expanded or reduced by more
than 20% within the past year.
For purposes of this “ITEM 7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS,” the fifty-two week period ended
January 30, 2010 is compared to the fifty-two week period
ended January 31, 2009. Fiscal 2009 comparable store sales
compare the fifty-two week period ended January 30, 2010 to
the fifty-two week period ended January 31, 2009. Fiscal
2008 comparable store sales compare the fifty-two week period
ended January 31, 2009 to the fifty-two week period ended
February 2, 2008. For Fiscal 2007, the fifty-two week
period ended February 2, 2008 is compared to the
fifty-three week period ended February 3, 2007.
On June 16, 2009, A&F’s Board of Directors
approved the closure of the Company’s 29 RUEHL branded
stores and related
direct-to-consumer
operations. The determination to take this action was based on a
comprehensive review and evaluation of the performance of the
RUEHL branded stores and related
direct-to-consumer
operations, as well as the related real estate portfolio. The
Company completed the closure of the RUEHL branded stores and
related
direct-to-consumer
operations during the fourth quarter of Fiscal 2009.
Accordingly, the results of operations of RUEHL are reflected in
Net Loss from Discontinued Operations on the Consolidated
Statements of Operations and Comprehensive Income for all
periods presented.
The Company had net sales of $2.929 billion for the
fifty-two weeks ended January 30, 2010, down 15.9% from
$3.484 billion for the fifty-two weeks ended
January 31, 2009. Operating income for Fiscal 2009 was
$117.9 million, which was down from $498.3 million in
Fiscal 2008. Net income from continuing operations was
$79.0 million and net income per diluted share from
continuing operations was $0.89 in Fiscal 2009, compared to net
income from continuing operations of $308.2 million and net
income per diluted share from continuing operations of $3.45 in
Fiscal 2008. Net income per diluted share from continuing
operations
25
Table of Contents
included non-cash, store-related asset impairment charges of
$0.23 and $0.06 for Fiscal 2009 and Fiscal 2008, respectively.
Net loss from discontinued operations was $78.7 million in
Fiscal 2009 and net loss per diluted share from discontinued
operations was $0.89 in Fiscal 2009, compared to net loss from
discontinued operations of $35.9 million and net loss per
diluted share from discontinued operations of $0.40 in Fiscal
2008. Net loss from discontinued operations included an
after-tax charge of $34.2 million, or $0.39 per diluted
share, associated with the closure of the RUEHL business in
Fiscal 2009, and after-tax charges of $31.4 million, or
$0.35 per diluted share, and $13.6 million, or $0.15 per
diluted share, associated with the impairment of Ruehl-related
store assets for Fiscal 2009 and Fiscal 2008, respectively.
Net income was $0.3 million and net income per diluted
share was $0.00 in Fiscal 2009, compared to net income of
$272.3 million and net income per diluted share of $3.05 in
Fiscal 2008.
Excluding net loss from discontinued operations and non-cash
impairment charges, the Company reported non-GAAP net income per
diluted share of $1.12 for Fiscal 2009 compared to non-GAAP net
income per diluted share of $3.51 for Fiscal 2008. The Company
believes that this non-GAAP financial measure is useful to
investors as it provides the ability to measure the
Company’s operating performance and compare it against that
of prior periods without reference to the Consolidated
Statements of Operations and Comprehensive Income, impact of Net
Loss from Discontinued Operations and non-cash, store related
asset impairment charges. This non-GAAP financial measure should
not be used as an alternative to net income per diluted share as
an indicator of the ongoing operating performance of the Company
and is also not intended to supersede or replace the
Company’s GAAP financial measures. The table below
reconciles the GAAP financial measures to the non-GAAP financial
measures discussed above.
| Fifty-Two Weeks Ended | ||||||||||||||||
| January 30, 2010 | January 31, 2009 | |||||||||||||||
|
Net income per diluted share on a GAAP basis
|
$ | 0.00 | $ | 3.05 | ||||||||||||
|
Plus: Net loss from discontinued operations(1)
|
$ | 0.89 | $ | 0.40 | ||||||||||||
|
Plus: Non-cash, store-related asset impairment charges(2)
|
$ | 0.23 | $ | 0.06 | ||||||||||||
|
Net income per diluted share on a non-GAAP basis
|
$ | 1.12 | $ | 3.51 | ||||||||||||
| (1) | Net loss from discontinued operations for the fiscal year includes the operating results, exit charges and non-cash impairment charges associated with RUEHL branded stores and related direct-to-consumer operations, as summarized in Note 14, “ Discontinued Operations ” of the Consolidated Financial Statements. | |
| (2) | The non-cash, store-related asset impairment charges relate to stores whose asset carrying value exceeded the fair value. For Fiscal 2009 the charge was associated with 34 Abercrombie & Fitch, 46 abercrombie kids and 19 Hollister stores. For Fiscal 2008 the charge was associated with 11 Abercrombie & Fitch, six abercrombie kids and three Hollister stores. |
Net cash provided by operating activities, the Company’s
primary source of liquidity, was $402.2 million for Fiscal
2009. This source of cash was primarily driven by results from
operations adjusted for non-cash items including depreciation
and amortization and impairment charges. The Company used
$175.5 million of cash for capital expenditures and had
proceeds from the sale of marketable securities of
$77.5 million during Fiscal 2009. During Fiscal 2009, the
Company repaid U.S. dollar denominated borrowings of
$100.0 million
26
Table of Contents
under the unsecured Amended Credit Agreement and separately drew
down approximately $48.0 million in borrowings denominated
in Japanese Yen, used to fund international lease and capital
expenditure commitments. The Company also paid dividends
totaling $61.5 million during Fiscal 2009. As of
January 30, 2010, the Company had $680.1 million in
cash and equivalents, and outstanding debt and letters of credit
of $100.9 million.
The following data represents the Company’s Consolidated
Statements of Operations for the last three fiscal years,
expressed as a percentage of net sales:
| 2009 | 2008 | 2007 | ||||||||||
|
NET SALES
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost of Goods Sold
|
35.7 | 33.1 | 32.7 | |||||||||
|
GROSS PROFIT
|
64.3 | 66.9 | 67.3 | |||||||||
|
Stores and Distribution Expense
|
48.7 | 41.2 | 36.3 | |||||||||
|
Marketing, General and Administrative Expense
|
12.1 | 11.6 | 10.2 | |||||||||
|
Other Operating Income, Net
|
(0.5 | ) | (0.3 | ) | (0.3 | ) | ||||||
|
OPERATING INCOME
|
4.0 | 14.3 | 21.1 | |||||||||
|
Interest Income, Net
|
(0.1 | ) | (0.3 | ) | (0.5 | ) | ||||||
|
Income from Continuing Operations before Income Taxes
|
4.1 | 14.6 | 21.6 | |||||||||
|
Income Tax Expense from Continuing Operations
|
1.4 | 5.8 | 8.1 | |||||||||
|
Net Income from Continuing Operations
|
2.7 | 8.8 | 13.5 | |||||||||
|
Net Loss from Discontinued Operations
|
(2.7 | ) | (1.0 | ) | (0.6 | ) | ||||||
|
NET INCOME
|
0.0 | % | 7.8 | % | 12.9 | % | ||||||
27
Table of Contents
FINANCIAL
SUMMARY
The following summarized financial and statistical data compares
Fiscal 2009 to Fiscal 2008 and Fiscal 2008 to Fiscal 2007:
| 2009 | 2008 | 2007 | ||||||||||||||||||
|
Net sales by brand (thousands)
|
$ | 2,928,626 | $ | 3,484,058 | $ | 3,699,656 | ||||||||||||||
|
Abercrombie & Fitch
|
$ | 1,272,287 | $ | 1,531,480 | $ | 1,638,929 | ||||||||||||||
|
abercrombie kids
|
$ | 343,164 | $ | 420,518 | $ | 471,045 | ||||||||||||||
|
Hollister
|
$ | 1,287,241 | $ | 1,514,204 | $ | 1,589,452 | ||||||||||||||
|
Gilly Hicks**
|
$ | 25,934 | $ | 17,856 | $ | 230 | ||||||||||||||
|
Increase (decrease) in net sales from prior year
|
(16 | )% | (6 | )% | 13 | % | ||||||||||||||
|
Abercrombie & Fitch
|
(17 | )% | (7 | )% | 8 | % | ||||||||||||||
|
abercrombie kids
|
(18 | )% | (11 | )% | 16 | % | ||||||||||||||
|
Hollister
|
(15 | )% | (5 | )% | 17 | % | ||||||||||||||
|
Gilly Hicks**
|
45 | % | NM | NM | ||||||||||||||||
|
Decrease in comparable store sales*
|
(23 | )% | (13 | )% | (1 | )% | ||||||||||||||
|
Abercrombie & Fitch
|
(19 | )% | (8 | )% | 0 | % | ||||||||||||||
|
abercrombie kids
|
(23 | )% | (19 | )% | 0 | % | ||||||||||||||
|
Hollister
|
(27 | )% | (17 | )% | (2 | )% | ||||||||||||||
|
Net retail sales increase attributable to new and remodeled
stores, and websites
|
7 | % | 7 | % | 14 | % | ||||||||||||||
|
Net retail sales per average store (thousands)
|
$ | 2,412 | $ | 3,041 | $ | 3,546 | ||||||||||||||
|
Abercrombie & Fitch
|
$ | 3,193 | $ | 3,878 | $ | 4,073 | ||||||||||||||
|
abercrombie kids
|
$ | 1,453 | $ | 1,823 | $ | 2,230 | ||||||||||||||
|
Hollister
|
$ | 2,299 | $ | 2,962 | $ | 3,550 | ||||||||||||||
|
Net retail sales per average gross square foot
|
$ | 339 | $ | 432 | $ | 503 | ||||||||||||||
|
Abercrombie & Fitch
|
$ | 359 | $ | 438 | $ | 463 | ||||||||||||||
|
abercrombie kids
|
$ | 313 | $ | 397 | $ | 493 | ||||||||||||||
|
Hollister
|
$ | 338 | $ | 442 | $ | 531 | ||||||||||||||
|
Change in transactions per average retail store
|
(14 | )% | (16 | )% | (2 | )% | ||||||||||||||
|
Abercrombie & Fitch
|
(14 | )% | (11 | )% | (2 | )% | ||||||||||||||
|
abercrombie
|
(14 | )% | (20 | )% | (2 | )% | ||||||||||||||
|
Hollister
|
(16 | )% | (18 | )% | (4 | )% | ||||||||||||||
|
Change in average retail transaction value
|
(7 | )% | 2 | % | 1 | % | ||||||||||||||
|
Abercrombie & Fitch
|
(4 | )% | 5 | % | 5 | % | ||||||||||||||
|
abercrombie
|
(7 | )% | 1 | % | 1 | % | ||||||||||||||
|
Hollister
|
(8 | )% | 1 | % | (1 | )% | ||||||||||||||
|
Change in average units per retail transaction
|
0 | % | 0 | % | 2 | % | ||||||||||||||
|
Abercrombie & Fitch
|
(2 | )% | 0 | % | 3 | % | ||||||||||||||
|
abercrombie
|
(1 | )% | (2 | )% | 2 | % | ||||||||||||||
|
Hollister
|
0 | % | (1 | )% | 2 | % | ||||||||||||||
|
Change in average unit retail sold
|
(7 | )% | 2 | % | (1 | )% | ||||||||||||||
|
Abercrombie & Fitch
|
(2 | )% | 5 | % | 2 | % | ||||||||||||||
|
abercrombie
|
(7 | )% | 3 | % | 0 | % | ||||||||||||||
|
Hollister
|
(8 | )% | 1 | % | (2 | )% | ||||||||||||||
| * | A store is included in comparable store sales when it has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year. | |
| ** | Net sales for the fifty-two week periods ended January 30, 2010, January 31, 2009 and February 2, 2008 reflect the activity of 16, 14 and three stores, respectively. In Fiscal 2007, all three stores opened in January 2008. Operational data was deemed immaterial for inclusion in the table above. |
28
Table of Contents
CURRENT
TRENDS AND OUTLOOK
While 2009 was a challenging year for the Company, it was one in
which the Company believes it made significant progress in
laying the foundations for future success. The Company continues
to work hard to improve the performance of its domestic business
while continuing to be pleased with the progress of its
international rollout strategy.
The Company’s objective in Fiscal 2010 and subsequent years
is to increase its operating margin back towards historical
levels, which the Company believes will require a combination of
the following factors.
First, returning gross margin to historic levels. The Company
believes the factors in achieving this will be optimizing its
average unit retails, achieving further reductions in average
unit cost, and benefiting from international operations with
higher gross margins. In the short-term there may be further
erosion of the gross profit rate, to the extent that the Company
believes that further reduction in average unit retail can
enable the Company to improve productivity levels.
Second, improvements in domestic productivity levels and the
closure of negative contribution stores. The Company is in the
process of reviewing negative contribution stores and, to the
extent it does not foresee a recovery for applicable stores,
plans to address these stores through a combination of natural
lease expirations, rent relief negotiations with landlords and,
potentially early closures of certain underperforming stores.
Third, the Company continues with its plan for accelerated
international openings in Fiscal 2010, and will potentially
accelerate further beyond that to achieve profitable
international growth. In Fiscal 2010, the Company remains on
track to open Abercrombie & Fitch flagship stores in
Fukuoka and Copenhagen. Going forward, the format of flagship
stores is likely to be a combination of the original flagship
model and a smaller store format similar to the template being
used in Copenhagen. The Company currently plans to open
approximately 30 international mall-based Hollister stores,
including in two or more new countries, in 2010. The Hollister
openings will predominantly be in the third, and particularly
the fourth quarters.
The Company is also focusing significant attention on improving
the productivity of its Gilly Hicks brand, which the Company
believes is a necessary precursor to expanding the store count
for the brand and having a path to profitability.
Finally, the Company will continue to maintain tight control
over expenses and to seek greater efficiencies in its operations.
In Fiscal 2010, the Company will continue to concentrate on
protecting the brands, while seeking to drive improvement in its
domestic business, and continue its international growth.
29
Table of Contents
The following measurements are among the key business indicators
reviewed by various members of management to gauge the
Company’s results:
| • | Comparable store sales by brand, by product, and by store, defined as year-over-year sales for a store that has been open as the same brand at least one year and its square footage has not been expanded or reduced by more than 20% within the past year; | |
| • | Direct-to-consumer sales growth; | |
| • | International and flagship store performance; | |
| • | Store productivity; | |
| • | Initial Mark Up (“IMU”); | |
| • | Markdown rate; | |
| • | Gross profit rate; | |
| • | Selling margin, defined as sales price less original cost, by brand and by product category; | |
| • | Stores and distribution expense as a percentage of net sales; | |
| • | Marketing, general and administrative expense as a percentage of net sales; | |
| • | Operating income and operating income as a percentage of net sales; | |
| • | Net income; | |
| • | Inventory per gross square foot; | |
| • | Cash flow and liquidity determined by the Company’s current ratio and cash provided by operations; and | |
| • | Store metrics such as sales per gross square foot, sales per selling square foot, average unit retail, average number of transactions per store, average transaction values, store contribution (defined as store sales less direct costs of running the store), and average units per transaction. |
While not all of these metrics are disclosed publicly by the
Company due to the proprietary nature of the information, the
Company publicly discloses and discusses many of these metrics
as part of its “Financial Summary” and in several
sections within this Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
FISCAL
2009 COMPARED TO FISCAL 2008
Net
Sales
Net sales for Fiscal 2009 were $2.929 billion, a decrease
of 15.9% from Fiscal 2008 net sales of $3.484 billion.
The net sales decrease was attributed primarily to a 23%
decrease in comparable store sales and a 5.6% decrease in net
direct-to-consumer
sales, including shipping and handling revenue.
Comparable store sales by brand for Fiscal 2009 were as follows:
Abercrombie & Fitch decreased 19% with men’s
decreasing by a low double-digit and women’s decreasing by
a mid twenty; abercrombie kids decreased 23% with boys’
decreasing by a mid teen and girls’ decreasing by a mid
twenty; and Hollister decreased 27% with dudes’ decreasing
by a high teen and bettys’ decreasing by a low thirty.
30
Table of Contents
On a regional basis for Fiscal 2009, comparable store sales were
down in all U.S. regions and Canada. Comparable store sales
were positive in the United Kingdom.
For Fiscal 2009, across all brands, the masculine categories
continued to out-pace the feminine categories. From a
merchandise classification standpoint, across all brands, for
the male business, fragrance and sweaters were stronger
performing categories, while knit tops and graphic tees were the
weaker performing categories. For the female business, woven
shirts and dresses were stronger performing categories, while
sweaters and knit tops were weaker categories.
Direct-to-consumer
net merchandise sales in Fiscal 2009 were $249.4 million, a
decrease of 5.6% from Fiscal 2008 net merchandise sales of
$264.3 million. Shipping and handling revenue was
$40.7 million in Fiscal 2009 and $42.9 million in
Fiscal 2008. The
direct-to-consumer
business, including shipping and handling revenue, accounted for
9.9% of total net sales in Fiscal 2009 compared to 8.8% of total
net sales in Fiscal 2008.
Gross
Profit
Gross profit during Fiscal 2009 decreased to $1.884 billion
from $2.331 billion in Fiscal 2008. The gross profit rate
(gross profit divided by net sales) for Fiscal 2009 was 64.3%
versus 66.9% the previous year, a decrease of 260 basis
points. The decrease in the gross profit rate was primarily
driven by a lower average unit retail, partially offset by a
reduction in average unit cost.
Stores
and Distribution Expense
Stores and distribution expense for Fiscal 2009 was
$1.426 billion compared to $1.436 billion in Fiscal
2008. For Fiscal 2009, the stores and distribution expense rate
(stores and distribution expense divided by net sales) was 48.7%
compared to 41.2% for Fiscal 2008. For the fifty-two weeks ended
January 30, 2010 and January 31, 2009, stores and
distribution expense included non-cash, pre-tax asset impairment
charges related to 99 stores of $33.2 million, or 1.1% of
net sales, and non-cash, pre-tax asset impairment charges
related to 20 stores of $8.3 million, or 0.2% of net sales,
respectively. Excluding the effect of impairment charges, the
increase in the stores and distribution expense rate was
primarily attributable to higher store occupancy costs,
including rent, depreciation and other occupancy costs.
Marketing,
General and Administrative Expense
Marketing, general and administrative expense for Fiscal 2009
decreased 12.8% to $353.3 million compared to
$405.2 million in Fiscal 2008. The decrease in expense was
related to reductions in employee compensation and benefits,
travel, and outside services. The marketing, general and
administrative expense rate (marketing, general and
administrative expense divided by net sales) was 12.1% for
Fiscal 2009, an increase of 50 basis points compared to
11.6% for Fiscal 2008.
Other
Operating Income, Net
Other operating income for Fiscal 2009 was $13.5 million
compared to $8.8 million for Fiscal 2008. The increase was
primarily driven by gains on foreign currency transactions for
Fiscal 2009 compared to losses on foreign currency transactions
for Fiscal 2008, as well as an increase in income related to
gift cards for which the Company has determined the likelihood
of redemption to be remote. In Fiscal 2009, other operating
income also included a $9.2 million reduction of
other-than-temporary
impairments related to the Company’s trading auction rate
securities, partially offset by a reduction of the related put
option of $7.7 million as
31
Table of Contents
compared to an
other-than-temporary
impairment of $14.0 million related to the Company’s
trading auction rate securities, offset by a gain on the related
put option of $12.3 million in Fiscal 2008.
Interest
Income, Net and Income Tax Expense
Fiscal 2009 interest income was $8.2 million, offset by
interest expense of $6.6 million compared to interest
income of $14.8 million, offset by interest expense of
$3.4 million for Fiscal 2008. The decrease in interest
income was due primarily to a lower average rate of return on
investments. The increase in interest expense was due primarily
to imputed interest expense related to certain store lease
transactions.
The income tax expense rate for continuing operations for Fiscal
2009 was 33.9% compared to 39.5% for Fiscal 2008. The Fiscal
2009 rate benefited from foreign operations. Additionally,
Fiscal 2008 included a $9.9 million charge related to the
execution of the Chairman and Chief Executive Officer’s new
employment agreement, which resulted in certain non-deductible
amounts pursuant to Section 162(m) of the Internal Revenue
Code.
Net
Loss from Discontinued Operations
The Company completed the closure of its RUEHL branded stores
and related
direct-to-consumer
operations in the fourth quarter of Fiscal 2009. Accordingly,
the after-tax operating results appear in Net Loss from
Discontinued Operations on the Consolidated Statements of
Operations and Comprehensive Income for all fiscal years
presented. Net loss from discontinued operations, net of tax,
was $78.7 million and $35.9 million for Fiscal 2009
and Fiscal 2008, respectively. Net loss from discontinued
operations includes after-tax charges of $34.2 million
associated with the closure of the RUEHL business for 2009, and
after-tax charges of $31.4 million and $13.6 million
associated with the impairment of RUEHL-related store assets for
Fiscal 2009 and Fiscal 2008, respectively.
Refer to Note 14, “
Discontinued
Operations
” of the Notes to Consolidated Financial
Statements for further discussion.
Net
Income and Net Income per Share
Net income for Fiscal 2009 was $0.3 million compared to
$272.3 million for Fiscal 2008. Net income per diluted
share was $0.00 in Fiscal 2009 versus $3.05 in Fiscal 2008. Net
income per diluted share included $0.89 of net loss per diluted
share from discontinued operations and an after-tax charge of
approximately $0.23 per diluted share associated with the
impairment of store-related assets for Fiscal 2009 and $0.40 of
net loss per diluted share from discontinued operations and an
after-tax charge of approximately $0.06 per diluted share
associated with the impairment of store-related assets for
Fiscal 2008.
FISCAL
2008 COMPARED TO FISCAL 2007
Net
Sales
Net sales for Fiscal 2008 were $3.484 billion, a decrease
of 5.8% from Fiscal 2007 net sales of $3.700 billion.
The net sales decrease was attributed primarily to the 13%
decrease in comparable store sales, partially offset by a net
addition of 84 stores and a 3.1% increase in
direct-to-consumer
business, including shipping and handling revenue.
For Fiscal 2008, comparable store sales by brand were as
follows: Abercrombie & Fitch decreased 8%; abercrombie
kids decreased 19%; and Hollister decreased 17%.
32
Table of Contents
On a regional basis for Fiscal 2008, comparable store sales were
down in all U.S. regions and Canada. Comparable store sales
were stronger in the flagship stores, particularly in the United
Kingdom.
Direct-to-consumer
net merchandise sales in Fiscal 2008 were $264.3 million,
an increase of 2.1% over Fiscal 2007 net merchandise sales
of $258.8 million. Shipping and handling revenue was
$42.9 million in Fiscal 2008 and $39.1 million in
Fiscal 2007. The
direct-to-consumer
business, including shipping and handling revenue, accounted for
8.8% of total net sales in Fiscal 2008 compared to 8.1% of total
net sales in Fiscal 2007.
Gross
Profit
Gross profit for Fiscal 2008 decreased to $2.331 billion
from $2.488 billion in Fiscal 2007. The gross profit rate
for Fiscal 2008 was 66.9% versus 67.2% the previous year, a
decrease of 30 basis points. The decrease in gross profit
rate was attributable to a higher IMU rate being more than
offset by an increase in markdown rate versus Fiscal 2007. The
higher markdown rate resulted from the need to clear through
seasonal merchandise as a result of declining sales and the
Company’s limited ability to reduce fourth quarter of
Fiscal 2008 deliveries.
Stores
and Distribution Expense
Stores and distribution expense for Fiscal 2008 was
$1.436 billion compared to $1.344 billion for Fiscal
2007. For Fiscal 2008, the stores and distribution expense rate
was 41.2% compared to 36.3% for Fiscal 2007. The increase in
rate resulted primarily from the Company’s limited ability
to leverage fixed expenses due to negative comparable store
sales. Additionally, stores and distribution expense in Fiscal
2008 also included additional direct expenses related to
flagship pre-opening rent expenses, as well as minimum wage and
manager salary increases and an $8.3 million non-cash
impairment charge associated with store-related assets.
Marketing,
General and Administrative Expense
Marketing, general and administrative expense for Fiscal 2008
increased 7.5% to $405.2 million compared to
$376.8 million in Fiscal 2007. The increase in expense
reflected investments in home office resources necessary for
flagship and international expansion, partially offset by
savings in incentive compensation and benefits and other home
office expenses in the second half of Fiscal 2008. The
marketing, general and administrative expense rate was 11.6% for
Fiscal 2008, an increase of 1.4 percentage points compared
to 10.2% for Fiscal 2007.
Other
Operating Income, Net
Other operating income for Fiscal 2008 was $8.8 million
compared to $11.7 million for Fiscal 2007. The decrease was
primarily driven by losses on foreign currency transactions for
Fiscal 2008 compared to gains on foreign currency transactions
for Fiscal 2007, as well as a decrease in income related to gift
cards for which the Company has determined the likelihood of
redemption to be remote.
Interest
Income, Net and Income Tax Expense
Fiscal 2008 interest income was $14.8 million, offset by
interest expense of $3.4 million compared to interest
income of $19.8 million, offset by interest expense of
$1.0 million for Fiscal 2007. The decrease in interest
income in Fiscal 2008 was primarily due to a lower average rate
of return on investments. The
33
Table of Contents
increase in interest expense in Fiscal 2008 was due to
borrowings made under the Company’s unsecured amended
credit agreement in Fiscal 2008.
The effective tax rate for Fiscal 2008 was 39.5% compared to
37.4% for Fiscal 2007. Fiscal 2008 included a $9.9 million
charge related to the execution of the Chairman and Chief
Executive Officer’s new employment agreement, which
resulted in certain non-deductible amounts pursuant to
Section 162(m) of the Internal Revenue Code.
Net
Loss from Discontinued Operations
Net loss from discontinued operations, net of tax, was
$35.9 million and $23.4 million for Fiscal 2008 and
Fiscal 2007, respectively. The results for Fiscal 2008 included
$13.6 million of after-tax non-cash asset impairment
charges related to RUEHL assets as a result of the determination
that the carrying value of the assets exceeded the fair value of
those assets.
Refer to Note 14, “
Discontinued
Operations
” of the Notes to Consolidated Financial
Statements for further discussion.
Net
Income and Net Income per Share
Net income for Fiscal 2008 was $272.3 million compared to
$475.7 million for Fiscal 2007. Net income per diluted
weighted-average share was $3.05 in Fiscal 2008 versus $5.20 in
Fiscal 2007. For Fiscal 2008, net income per diluted share
included $0.40 of net loss per diluted share from discontinued
operations and an after-tax charge of approximately $0.06 per
diluted share associated with the impairment of store-related
assets. Fiscal 2007 included $0.26 of net loss per diluted share
from discontinued operations.
FINANCIAL
CONDITION
Liquidity
and Capital Resources
The Company had $680.1 million in cash and equivalents
available as of January 30, 2010, as well as an additional
$299.1 million available (less outstanding letters of
credit of $50.0 million) under its unsecured Amended Credit
Agreement (as amended in June 2009) and $26.3 million
available under the UBS Credit Line, both described in
Note 12, “
Long-Term Debt
” of the Notes to
Consolidated Financial Statements. The unsecured Amended Credit
Agreement contains financial covenants that require the Company
to maintain a minimum coverage ratio and a maximum leverage
ratio and also limits the Company’s consolidated capital
expenditures to $325 million in Fiscal 2010 plus the unused
portion from Fiscal 2009 of $99.5 million, all defined in
the Amended Credit Agreement. If circumstances occur that would
lead to the Company failing to meet the covenants under the
Amended Credit Agreement and the Company is unable to obtain a
waiver or amendment, an event of default would result and the
lenders could declare outstanding borrowings immediately due and
payable. The Company believes it is likely that it would either
obtain a waiver or amendment in advance of a default, or would
have sufficient cash available to repay borrowings in the event
a waiver was not obtained.
34
Table of Contents
A summary of the Company’s working capital (current assets
less current liabilities) and capitalization at the end of each
of the last three fiscal years follows (thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Working capital
|
$ | 786,474 | $ | 622,213 | $ | 585,575 | ||||||
|
Capitalization:
|
||||||||||||
|
Shareholders’ equity
|
$ | 1,827,917 | $ | 1,845,578 | $ | 1,618,313 | ||||||
The Company considers the following to be measures of its
liquidity and capital resources for the last three fiscal years:
| 2009 | 2008 | 2007 | ||||||||||
|
Current ratio (current assets divided by current liabilities)
|
2.75 | 2.38 | 2.08 | |||||||||
|
Net cash provided by operating activities (thousands)
|
$ | 402,200 | $ | 490,836 | $ | 817,524 | ||||||
Operating
Activities
Net cash provided by operating activities, the Company’s
primary source of liquidity, was $402.2 million for Fiscal
2009 compared to $490.8 million for Fiscal 2008. In Fiscal
2009, the decrease in cash provided by operating activities was
primarily driven by a reduction in net income for Fiscal 2009
compared to Fiscal 2008, adjusted for non-cash impairment
charges. Operating cash flows for Fiscal 2009 included payments
of approximately $22.6 million related primarily to lease
termination agreements associated with the closure of RUEHL
branded stores and related
direct-to-consumer
operations. Additionally, Fiscal 2009 operating cash flows
benefited from a reduction in inventory in reaction to the
declining sales trend, partially offset by an increase in lease
related assets, including lease deposits and prepaid rent,
associated with new flagship stores. In Fiscal 2008, the
decrease in cash provided by operating activities compared to
Fiscal 2007 was driven by a decrease in net income and
incremental cash outflow associated with changes in assets and
liabilities.
Investing
Activities
Cash outflows from investing activities in Fiscal 2009 were used
primarily for capital expenditures related to new store
construction and information technology investments. The
decrease in capital expenditures compared to Fiscal 2008 related
primarily to a reduction in new domestic mall-based store
openings in Fiscal 2009. The Company also had cash inflows from
the sale of marketable securities.
Cash outflows from investing activities in Fiscal 2008 were used
for capital expenditures related primarily to new store
construction, store remodels and refreshes and information
technology. Cash flows from investing activities included sales
and purchases of marketable securities.
Cash outflows from investing activities in Fiscal 2007 were used
primarily for purchases of marketable securities and trust-owned
life insurance policies, and capital expenditures related
primarily to new store construction; store remodels and
refreshes; the purchase of an airplane; and other various store,
home office and DC projects, partially offset by cash inflows
related to proceeds from the sale of marketable securities.
35
Table of Contents
Financing
Activities
In Fiscal 2009, financing activities consisted of repayment of
$100.0 million borrowed under the Company’s unsecured
credit agreement, denominated in U.S. Dollars, and separate
borrowings of $48.0 million denominated in Japanese Yen
under the Company’s unsecured Amended Credit Agreement, and
payment of dividends. In Fiscal 2008, financing activities
consisted primarily of the repurchase of the Company’s
Common Stock, the payment of dividends, proceeds from
share-based compensation, and proceeds from borrowing under the
Company’s unsecured credit agreement. In Fiscal 2007,
financing activities consisted of the repurchase of the
Company’s Common Stock, and the payment of dividends as
well as proceeds from share-based compensation and the related
excess tax benefits. A&F’s Board of Directors will
review the Company’s cash position and results of
operations and address the appropriateness of future dividend
amounts.
A&F did not repurchase any shares of A&F’s Common
Stock in the open market during Fiscal 2009. During Fiscal 2008,
A&F repurchased approximately 0.7 million shares of
A&F’s Common Stock in the open market with a value of
approximately $50.0 million. During Fiscal 2007, A&F
repurchased approximately 3.6 million shares of
A&F’s Common Stock in the open market with a value of
approximately $287.9 million. Both the Fiscal 2008 and
Fiscal 2007 repurchases were pursuant to A&F Board of
Directors’ authorizations.
As of January 30, 2010, A&F had approximately
11.3 million shares 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&F’s Common Stock.
The Company had $50.9 million and $100.0 million
outstanding under its unsecured Amended Credit Agreement on
January 30, 2010 and January 31, 2009, respectively.
The $50.9 million outstanding as of January 30, 2010
was denominated in Japanese Yen. The average interest rate for
Fiscal 2009 was 2.0%. As of January 30, 2010, the Company
had an additional $299.1 million available (less
outstanding letters of credit) under its unsecured Amended
Credit Agreement.
The Amended Credit Agreement requires that the Leverage Ratio
not be greater than 3.75 to 1.00 at the end of each testing
period. The Company’s Leverage Ratio was 2.95 as of
January 30, 2010. The Amended Credit Agreement also
requires that the Coverage Ratio for A&F and its
subsidiaries on a consolidated basis of (i) Consolidated
EBITDAR for the trailing four-consecutive-fiscal-quarter period
to (ii) the sum of, without duplication, (x) net
interest expense for such period, (y) scheduled payments of
long-term debt due within twelve months of the date of
determination and (z) the sum of minimum rent and
contingent store rent, not be less than 1.65 to 1.00 at
January 30, 2010. The minimum Coverage Ratio varies over
time based on the terms set forth in the Amended Credit
Agreement. The Amended Credit Agreement amended the definition
of Consolidated EBITDAR to add back the following items, among
others, (a) recognized losses arising from investments in
certain auction rate securities to the extent such losses do not
exceed a defined level of impairments for those investments,
(b) non-cash charges in an amount not to exceed
$50 million related to the closure of RUEHL branded stores
and related
direct-to-consumer
operations, (c) non-recurring cash charges in an aggregate
amount not to exceed $61 million related to the closure of
RUEHL branded stores and related
direct-to-consumer
operations, (d) additional non-recurring non-cash charges
in an amount not to exceed $20 million in the aggregate
over the trailing four fiscal quarter period and (e) other
non-recurring cash charges in an amount not to exceed
$10 million in the aggregate over the trailing four fiscal
quarter period. The Company’s Coverage Ratio was 2.10 as of
January 30, 2010. The Amended Credit Agreement also limits
the Company’s consolidated capital expenditures to
$275 million in Fiscal 2009 and to $325 million in
Fiscal 2010 plus any unused portion from Fiscal 2009. The
Company was in compliance with the applicable ratio requirements
and other covenants at January 30, 2010.
36
Table of Contents
The unsecured Amended Credit Agreement is more fully described
in Note 12, “
Long-Term Debt
” of the Notes
to Consolidated Financial Statements.
Trade letters of credit totaling approximately
$35.9 million and $21.1 million were outstanding on
January 30, 2010 and January 31, 2009, respectively.
Stand-by letters of credit totaling approximately
$14.1 million and $16.9 million were outstanding on
January 30, 2010 and January 31, 2009, respectively.
The stand-by letters of credit are set to expire primarily
during the fourth quarter of Fiscal 2010. To date, no
beneficiary has drawn upon the stand-by letters of credit.
OFF-BALANCE
SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements or
debt obligations.
CONTRACTUAL
OBLIGATIONS
As of January 30, 2010, the Company’s contractual
obligations were as follows:
| Payments Due by Period (Thousands) | ||||||||||||||||||||
|
Contractual Obligations
|
Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
|
Operating Lease Obligations
|
$ | 2,598,875 | $ | 324,280 | $ | 606,269 | $ | 521,739 | $ | 1,146,587 | ||||||||||
|
Purchase Obligations
|
79,767 | 79,767 | — | — | — | |||||||||||||||
|
Other Obligations
|
119,540 | 85,292 | 15,257 | 3,748 | 15,243 | |||||||||||||||
|
Totals
|
$ | 2,798,182 | $ | 489,339 | $ | 621,526 | $ | 525,487 | $ | 1,161,830 | ||||||||||
Operating lease obligations consist primarily of future minimum
lease commitments related to store operating leases. See
Note 8, “
Leased Facilities and
Commitments
” of the Notes to Consolidated Financial
Statements, for further discussion. Operating lease obligations
do not include common area maintenance (“CAM”),
insurance, marketing or tax payments for which the Company is
also obligated. Total expense related to CAM, insurance,
marketing and taxes was $156.6 million in Fiscal 2009. The
purchase obligations category represents purchase orders for
merchandise to be delivered during Spring 2010 and commitments
for fabric expected to be used during upcoming seasons. Other
obligations are primarily letters of credit outstanding as of
January 30, 2010, lease termination costs related to the
closure of RUEHL branded stores, construction debt, capital
leases, asset retirement obligations, and information technology
contracts for Fiscal 2010. See Note 12, “
Long-Term
Debt
”, of the Notes to Consolidated Financial
Statements, for further discussion on the letters of credit.
The obligations in the table above do not include the payment of
principal with respect to the outstanding long-term debt of
$50.9 million under the Company’s unsecured Amended
Credit Agreement as the Company is unable to estimate the timing
of the payment. Also, the table does not include payments of
interest under the terms of the unsecured Amended Credit
Agreement as the Company is unable to determine the amount of
these payments due to the variable interest rate and timing of
the principal payment. The interest rate at January 30,
2010 was 2.6%. The payment of the $50.9 million in
principal outstanding and the related interest would not extend
beyond April 12, 2013, the expiration date of the unsecured
Amended Credit Agreement. Unrecognized tax benefits at
January 30, 2010 of $29.4 million are also excluded.
Additionally, the table above does not include estimated future
retirement payments under the Chief Executive Officer
Supplemental Executive Retirement Plan (the “SERP”)
for the Company’s Chief Executive Officer with a present
value of $10.5 million at January 30, 2010. See
Note 15, “
Retirement Benefits
”, of the
Notes to Consolidated Financial Statements and the description
of the SERP in the text under the caption “EXECUTIVE
OFFICER COMPENSATION” in A&F’s definitive Proxy
Statement for the Annual Meeting of Stockholders to be
37
Table of Contents
held on June 9, 2010, incorporated by reference in
“ITEM 11. EXECUTIVE COMPENSATION” of this Annual
Report on
Form 10-K.
Store count and gross square footage by brand were as follows
for the fifty-two weeks ended January 30, 2010 and
January 31, 2009, respectively:
|
Store Activity
|
Abercrombie & Fitch | abercrombie kids | Hollister | Gilly Hicks | Total | |||||||||||||||
|
January 31, 2009
|
356 | 212 | 515 | 14 | 1,097 | |||||||||||||||
|
New
|
2 | 5 | 14 | 2 | 23 | |||||||||||||||
|
Remodels/Conversions (net activity)
|
— | — | — | — | — | |||||||||||||||
|
Closed
|
(12 | ) | (8 | ) | (4 | ) | (24 | ) | ||||||||||||
|
January 30, 2010
|
346 | 209 | 525 | 16 | 1,096 | |||||||||||||||
|
Gross Square Feet (thousands)
|
||||||||||||||||||||
|
January 31, 2009
|
3,164 | 976 | 3,474 | 146 | 7,760 | |||||||||||||||
|
New
|
49 | 40 | 152 | 15 | 256 | |||||||||||||||
|
Remodels/Conversions (net activity)
|
— | — | (2 | ) | — | (2 | ) | |||||||||||||
|
Closed
|
(103 | ) | (37 | ) | (27 | ) | — | (167 | ) | |||||||||||
|
January 30, 2010
|
3,110 | 979 | 3,597 | 161 | 7,847 | |||||||||||||||
|
Average Store Size
|
8,988 | 4,684 | 6,851 | 10,063 | 7,160 | |||||||||||||||
|
Store Activity
|
Abercrombie & Fitch | abercrombie kids | Hollister | Gilly Hicks | Total | |||||||||||||||
|
February 2, 2008
|
359 | 201 | 450 | 3 | 1,013 | |||||||||||||||
|
New
|
2 | 12 | 66 | 11 | 91 | |||||||||||||||
|
Remodels/Conversions (net activity)
|
2 | 1 | — | — | 3 | |||||||||||||||
|
Closed
|
(7 | ) | (2 | ) | (1 | ) | — | (10 | ) | |||||||||||
|
January 31, 2009
|
356 | 212 | 515 | 14 | 1,097 | |||||||||||||||
|
Gross Square Feet (thousands)
|
||||||||||||||||||||
|
February 2, 2008
|
3,167 | 917 | 3,015 | 34 | 7,133 | |||||||||||||||
|
New
|
26 | 59 | 446 | 112 | 643 | |||||||||||||||
|
Remodels/Conversions (net activity)
|
28 | 7 | 19 | — | 54 | |||||||||||||||
|
Closed
|
(57 | ) | (7 | ) | (6 | ) | — | (70 | ) | |||||||||||
|
January 31, 2009
|
3,164 | 976 | 3,474 | 146 | 7,760 | |||||||||||||||
|
Average Store Size
|
8,888 | 4,604 | 6,746 | 10,429 | 7,074 | |||||||||||||||
38
Table of Contents
CAPITAL
EXPENDITURES
Capital expenditures totaled $175.5 million,
$367.6 million and $403.3 million for Fiscal 2009,
Fiscal 2008 and Fiscal 2007, respectively. A summary of capital
expenditures for the last three fiscal years is as follows:
|
Capital Expenditures
|
2009 | 2008 | 2007 | |||||||||
| (In millions) | ||||||||||||
|
New Store Construction, Store Refreshes and Remodels
|
$ | 137.0 | $ | 286.4 | $ | 252.8 | ||||||
|
Home Office, Distribution Centers and Information Technology
|
38.5 | 81.2 | 150.5 | |||||||||
|
Total Capital Expenditures
|
$ | 175.5 | $ | 367.6 | $ | 403.3 | ||||||
During Fiscal 2010, based on expected store openings, the
Company anticipates capital expenditures between approximately
$250 million and $260 million. Approximately $215 to
$225 million of this amount is allocated to new store
construction, full store remodels and store refreshes. The
Company is planning approximately $35 million in capital
expenditures at the home office related to information
technology, distribution center and other home office projects.
During Fiscal 2010, the Company plans to open
Abercrombie & Fitch flagship stores in Copenhagen,
Denmark and Fukuoka, Japan and a Hollister Epic store on Fifth
Avenue in New York. Additionally, the Company plans to open one
Abercrombie & Fitch mall-based store, three Hollister
stores, two Gilly Hicks stores, and a number of outlet stores in
the United States. The Company also plans to open approximately
30 international Hollister mall-based stores in Fiscal 2010,
including locations in two or more new countries.
CLOSURE
OF RUEHL BRANDED STORES AND RELATED
DIRECT-TO-CONSUMER
OPERATIONS
On June 16, 2009, A&F’s Board of Directors
approved the closure of the Company’s 29 RUEHL branded
stores and related
direct-to-consumer
operations. The determination to take this action was based on a
comprehensive review and evaluation of the performance of RUEHL
branded stores and related
direct-to-consumer
operations, as well as the related real estate portfolio. The
Company completed the closure of the RUEHL branded stores and
related
direct-to-consumer
operations during the fourth quarter of Fiscal 2009.
Accordingly, the results of operations of RUEHL are reflected in
Net Loss from Discontinued Operations for all periods presented
on the Consolidated Statements of Operations and Comprehensive
Income.
39
Table of Contents
Costs associated with exit or disposal activities are recorded
when the liability is incurred. The Company expects to make
gross cash payments of approximately $29.5 million in
Fiscal 2010 and an aggregate of $19.2 million in fiscal
years thereafter, related primarily to lease termination
agreements associated with the closure of RUEHL branded stores.
Below is a roll forward of the present value of liabilities
recognized on the Consolidated Balance Sheet as of
January 30, 2010 related to the closure of the RUEHL
branded stores and related
direct-to-consumer
operations (in thousands):
|
Fifty-Two
|
||||
|
Weeks Ended
|
||||
| January 30, 2010 | ||||
|
Beginning Balance
|
$ | — | ||
|
Cash Charges
|
68,363 | |||
|
Interest Accretion
|
358 | |||
|
Cash Payments
|
(22,635 | ) | ||
|
Ending Balance(1)
|
$ | 46,086 | ||
| (1) | Ending balance primarily reflects the net present value of obligations due under signed lease termination agreements and obligations due under a lease, for which no agreement exists, less estimated sublease income. As of January 30, 2010, there were $29.6 million of lease termination charges and $0.1 million of severance charges recorded as a current liability in Accrued Expenses and $16.4 million of lease termination charges recorded as a long-term liability in Other Liabilities on the Consolidated Balance Sheet. |
Below is a summary of charges related to the closure of the
RUEHL branded stores and related
direct-to-consumer
operations (in thousands):
|
Fifty-Two
|
||||
|
Weeks Ended
|
||||
| January 30, 2010 | ||||
|
Asset Impairments(1)
|
$ | 51,536 | ||
|
Lease Terminations, net(2)
|
53,916 | |||
|
Severance and Other(3)
|
2,189 | |||
|
Total Charges
|
$ | 107,641 | ||
| (1) | Asset impairment charges primarily related to store furniture, fixtures and leasehold improvements. | |
| (2) | Lease terminations reflect the net present value of obligations due under signed lease termination agreements and obligations due under a lease, for which no agreement exists, less estimated sublease income. The charges are presented net of the reversal of non-cash credits. | |
| (3) | Severance and other reflects charges primarily related to severance and merchandise and store supply inventory. |
40
Table of Contents
The table below presents the significant components of
RUEHL’s results included in Net Loss from Discontinued
Operations on the Consolidated Statements of Operations and
Comprehensive Income for fiscal years ended January 30,
2010, January 31, 2009 and February 2, 2008.
| 2009 | 2008 | 2007 | ||||||||||
|
NET SALES
|
$ | 48,393 | $ | 56,218 | $ | 50,192 | ||||||
|
Cost of Goods Sold
|
22,037 | 25,621 | 26,990 | |||||||||
|
GROSS PROFIT
|
26,356 | 30,597 | 23,202 | |||||||||
|
Stores and Distribution Expense
|
146,826 | 75,148 | 42,668 | |||||||||
|
Marketing, General and Administrative Expense
|
8,556 | 14,411 | 18,978 | |||||||||
|
Other Operating Income, Net
|
(11 | ) | (86 | ) | (28 | ) | ||||||
|
NET LOSS BEFORE INCOME TAXES(1)
|
$ | (129,016 | ) | $ | (58,876 | ) | $ | (38,416 | ) | |||
|
Income Tax Benefit
|
(50,316 | ) | (22,962 | ) | (14,982 | ) | ||||||
|
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
|
$ | (78,699 | ) | $ | (35,914 | ) | $ | (23,434 | ) | |||
|
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS:
|
||||||||||||
|
BASIC
|
$ | (0.90 | ) | $ | (0.41 | ) | $ | (0.27 | ) | |||
|
DILUTED
|
$ | (0.89 | ) | $ | (0.40 | ) | $ | (0.26 | ) | |||
| (1) | Includes non-cash pre-tax asset impairment charges of approximately $51.5 million and $22.3 million during the fifty-two weeks ended January 30, 2010 and January 31, 2009, respectively, and net costs associated with the closure of the RUEHL business, primarily net lease termination costs of approximately $53.9 million and severance and other charges of $2.2 million during the fifty-two weeks ended January 30, 2010. |
CRITICAL
ACCOUNTING ESTIMATES
The Company’s discussion and analysis of its financial
condition and results of operations are based upon the
Company’s consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of
these 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 Company’s significant accounting policies can be found
in Note 2, “
Summary of Significant Accounting
Policies
,” of the Notes to Consolidated Financial
Statements. The Company believes the
41
Table of Contents
following policies and estimates are most critical to the
portrayal of the Company’s financial condition and results
of operations.
|
Policy
|
Effect if Actual Results Differ from Assumptions | |
|
Revenue Recognition
|
||
|
The Company recognizes retail sales at the time the customer takes possession of the merchandise. The Company reserves for sales returns through estimates based on historical experience and various other assumptions that management believes to be reasonable.
The Company sells gift cards in its stores and through direct-to-consumer operations. The Company accounts for gift cards sold to customers by recognizing a liability at the time of sale. The liability remains on the Company’s books until the earlier of redemption (recognized as revenue) or when the Company determines the likelihood of redemption is remote, known as breakage (recognized as other operating income), based on historical redemption patterns. |
The Company has not made any material changes in the accounting methodology used to determine the sales return reserve and revenue recognition for gift cards over the past three fiscal years.
The Company does not expect material changes in the near term to the underlying assumptions used to measure the sales return reserve or to measure the timing and amount of future gift card redemptions as of January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, the Company may be exposed to gains or losses that could be material. A 10% change in the sales return rate as of January 30, 2010 would have affected pre-tax income by approximately $0.7 million in Fiscal 2009. A 10% change in the assumption of the redemption pattern for gift cards as of January 30, 2010 would have affected pre-tax income by approximately $0.9 million in Fiscal 2009. |
|
|
Auction Rate Securities (“ARS”)
|
||
| As a result of the market failure and lack of liquidity in the current ARS market, the Company measured the fair value of its ARS primarily using a discounted cash flow model. Certain significant inputs into the model are unobservable in the market including the periodic coupon rate adjusted for the marketability discount, market required rate of return and expected term. |
The Company has not made any material changes in the accounting methodology used to determine the fair value of the ARS.
The Company does not expect material changes in the near term to the underlying assumptions used to determine the unobservable inputs used to calculate the fair value of the ARS as of January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, the Company may be exposed to gains or losses that could be material. Assuming all other assumptions disclosed in Note 5, “ Fair Value ” of the Notes to Consolidated Financial Statements, being equal, a 50 basis point increase in the market required rate of return will yield an 18% decrease in impairment and a 50 basis point decrease in the market required rate of return will yield an 18% increase in impairment. |
42
Table of Contents
|
Policy
|
Effect if Actual Results Differ from Assumptions | |
|
Inventory Valuation
|
||
|
Inventories are principally valued at the lower of average cost or market utilizing the retail method.
The Company reduces inventory value by recording a valuation reserve that represents estimated future anticipated selling price decreases necessary to sell-through the inventory. 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 has not made any material changes in the accounting methodology used to determine the shrink reserve or valuation allowance over the past three fiscal years.
The Company does not expect material changes in the near term to the underlying assumptions used to determine the shrink reserve or valuation allowance as of January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, they could significantly impact the ending inventory valuation at cost, as well as the resulting gross margins. An increase or decrease in the inventory shrink accrual of 10% would have affected pre-tax income by approximately $0.8 million in Fiscal 2009. An increase or decrease in the valuation allowance of 10% would have affected pre-tax income by approximately $1.1 million in Fiscal 2009. |
|
|
Property and Equipment
|
||
|
Long-lived assets, primarily comprised of property and equipment, are reviewed periodically for impairment or whenever events or changes in circumstances indicate that full recoverability of net asset balances through future cash flows is in question.
The Company’s impairment calculation requires management to make assumptions and judgments related to factors used in the evaluation for impairment, including, but not limited to, management’s expectations for future operations and projected cash flows. |
The Company has not made any material changes in the accounting methodology used to determine impairment loss over the past three fiscal years.
The Company does not expect material changes in the near term to the assumptions underlying its impairment calculations as of January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, they could have a material impact on the Company’s determination of whether or not there has been an impairment. |
|
|
Income Taxes
|
||
|
Income taxes are calculated with the use of the asset and liability method. 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 Company’s operations. |
The Company’s effective tax rate is also affected by changes in law, the tax jurisdiction of new stores, the level of earnings and the results of tax audits.
The Company does not expect material changes in the judgements and interpretations used to calculate income taxes as of January 30, 2010. However, actual results could differ, and the Company may be exposed to gains or losses that could be material. |
43
Table of Contents
|
Policy
|
Effect if Actual Results Differ from Assumptions | |
|
Equity Compensation Expense
|
||
| The Company’s equity compensation expense related to stock options and stock appreciation rights is estimated using the Black-Scholes option-pricing model to determine the fair value of the stock option and stock appreciation right grants, which requires the Company to estimate the expected term of the stock option and stock appreciation right grants and expected future stock price volatility over the expected term. |
The Company does not expect material changes in the near term to the underlying assumptions used to calculate equity compensation expense for the fifty-two weeks ended January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, they could have a material impact on the Company’s equity compensation expense.
A 10% increase in term would yield a 4% increase in the Black-Scholes valuation for stock options and stock appreciation rights, while a 10% increase in volatility would yield a 9% increase in the Black-Scholes valuation for stock options and a 10% increase for stock appreciation rights. |
|
|
Supplemental Executive Retirement Plan
|
||
|
Effective February 2, 2003, the Company established a Chief Executive Officer Supplemental Executive Retirement Plan (the “SERP”) to provide additional retirement income to its Chairman and Chief Executive Officer (“CEO”). Subject to service requirements, the CEO will receive a monthly benefit equal to 50% of his final average compensation (as defined in the SERP) for life. The final average compensation used for the calculation is based on actual compensation, base salary and cash incentive compensation for the past three fiscal years.
The Company’s accrual for the SERP requires management to make assumptions and judgments related to the CEO’s final average compensation, life expectancy and discount rate. |
The Company does not expect material changes in the near term to the underlying assumptions used to determine the accrual for the SERP as of January 30, 2010. However, changes in these assumptions do occur, and, should those changes be significant, the Company may be exposed to gains or losses that could be material.
A 10% increase in final average compensation as of January 30, 2010 would increase the SERP accrual by approximately $1.0 million. A 50 basis point increase in the discount rate as of January 30, 2010 would decrease the SERP accrual by approximately $0.3 million. |
44
Table of Contents
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
Investment
Securities
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”) that have maturities ranging from 17 to
33 years. The par and fair values, and related cumulative
impairment charges for the Company’s marketable securities
as of January 30, 2010 were as follows:
|
Par
|
Temporary
|
Other-Than-Temporary-
|
Fair
|
|||||||||||||
| Value | Impairment | Impairment (“OTTI”) | Value | |||||||||||||
| (In thousands) | ||||||||||||||||
|
Trading securities:
|
||||||||||||||||
|
Auction rate securities — UBS — student loan
backed
|
$ | 22,100 | $ | — | $ | (2,051 | ) | $ | 20,049 | |||||||
|
Auction rate securities — UBS — municipal
authority bonds
|
15,000 | — | (2,693 | ) | 12,307 | |||||||||||
|
Total trading securities
|
37,100 | — | (4,744 | ) | 32,356 | |||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||
|
Auction rate securities — student loan backed
|
128,099 | (9,709 | ) | — | 118,390 | |||||||||||
|
Auction rate securities — municipal authority bonds
|
28,575 | (5,171 | ) | — | 23,404 | |||||||||||
|
Total
available-for-sale
securities
|
156,674 | (14,880 | ) | — | 141,794 | |||||||||||
|
Total
|
$ | 193,774 | $ | (14,880 | ) | $ | (4,744 | ) | $ | 174,150 | ||||||
As of January 30, 2010, approximately 70% of the
Company’s ARS were “AAA” rated and approximately
14% of the Company’s ARS were “AA” or
“A” rated, with the remaining ARS having an
“A−” or “BBB+” rating, in each case 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 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 percentage
coverage of the outstanding principal and interest of the ARS
varies by security. The credit ratings may change over time and
would be an indicator of the default risk associated with the
ARS and could have a material effect on the value of the ARS. If
the Company expects that it will not recover the entire cost
basis of the
available-for-sale
ARS, intends to sell the
available-for-sale
ARS or it becomes more than likely that the Company will be
required to sell the
available-for-sale
ARS before recovery of their cost basis, which may be at
maturity, the Company may be required to record an
other-than-temporary impairment or additional temporary
impairment to write down the assets’ fair value. As of
January 30, 2010, the Company did not incur any credit
losses on available-for-sale ARS. Furthermore, as of
January 30, 2010, the issuers continued to perform under
the obligations, including making scheduled interest payments,
and the Company expects that this will continue going forward.
45
Table of Contents
On November 13, 2008, the Company entered into an agreement
with UBS, relating to ARS with a par value of
$76.5 million, of which $37.1 million, at par value,
are still held as of January 30, 2010. By entering into the
agreement, UBS received the right to purchase the UBS ARS at
par, at any time, commencing on November 13, 2008 and the
Company received the right to sell (“Put Option”) the
UBS ARS back to UBS at par, commencing on June 30, 2010.
The UBS ARS were classified as trading securities as of
January 30, 2010 and any future gains and losses related to
changes in fair value will be recorded in the Consolidated
Statement of Operations and Comprehensive Income in the period
incurred. Furthermore, as the Company has the right to sell the
UBS ARS back to UBS on June 30, 2010, the Company
classified the UBS ARS as a current asset as of January 30,
2010. During the fifty-two weeks ended January 30, 2010,
due to redemptions and changes in estimates of fair value, the
Company recognized a net reduction of the
other-than-temporary
impairment of $9.2 million related to the UBS ARS which was
partially offset by a corresponding realized loss of
$7.7 million related to the Put Option. The fair value of
the Put Option as of January 30, 2010 was $4.6 million
and was recorded as an asset within Other Current Assets on the
Consolidated Balance Sheet. The Company is subject to
counter-party risk related to the agreement with UBS.
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 Co. Nonqualified Savings and
Supplemental Retirement Plan I, the Abercrombie &
Fitch Co. Nonqualified Savings and Supplemental Retirement
Plan II and the Chief Executive Officer Supplemental
Executive Retirement Plan. As of January 30, 2010, total
assets held in the Rabbi Trust were $71.2 million, which
included $18.5 million of
available-for-sale
municipal notes and bonds with maturities that ranged from two
to four years, trust-owned life insurance policies with a cash
surrender value of $51.4 million and $1.3 million held
in money market funds. The Rabbi Trust assets are consolidated
and recorded at fair value, with the exception of the
trust-owned life insurance policies which are recorded at cash
surrender value in Other Assets on the Consolidated Balance
Sheet, and are restricted as to their use as noted above. Net
unrealized gains or losses related to the
available-for-sale
securities held in the Rabbi Trust were not material for the
fifty-two week periods ended January 30, 2010 and
January 31, 2009, respectively. The change in cash
surrender value of the trust-owned life insurance policies held
in the Rabbi Trust resulted in a realized gain of
$5.3 million and a realized loss of $3.6 million for
the fifty-two weeks ended January 30, 2010 and
January 31, 2009, respectively.
Interest
Rate Risks
As of January 30, 2010, the Company had $50.9 million
in long-term debt outstanding under the unsecured Amended Credit
Agreement. This borrowing and any future borrowings will bear
interest at negotiated rates and would be subject to interest
rate risk. The unsecured Amended Credit Agreement has several
borrowing options, including interest rates that are based on
(i) a Base Rate, plus a margin based on a Leverage Ratio,
payable quarterly, (ii) an Adjusted Eurodollar Rate (as
defined in the unsecured Amended Credit Agreement) plus a margin
based on a Leverage Ratio, payable at the end of the applicable
interest period for the borrowing, or (iii) an Adjusted
Foreign Currency Rate (as defined in the Amended Credit
Agreement) plus a margin based on the Coverage Ratio, payable at
the end of the applicable interest period for the borrowing,
and, for interest periods in excess of three months, on the date
that is three months after the commencement of the interest
period. The Base Rate represents a rate per annum equal to the
higher of (a) PNC Bank’s then publicly announced prime
rate or (b) the Federal Funds Effective Rate (as defined in
the unsecured Amended Credit Agreement) as then in effect plus
1/2 of 1.0%. The average interest rate was 2.0% for the
fifty-two week period ended January 30, 2010. Additionally,
as of January 30, 2010, the Company had $299.1 million
available, less outstanding letters of credit, under its
unsecured Amended Credit Agreement.
46
Table of Contents
Assuming no changes in the Company’s financial structure as
it stood at January 30, 2010, if the average market
interest rates increased 100 basis points over the
fifty-two week period for Fiscal 2010 compared to the interest
rates incurred during the fifty-two week period ended
January 30, 2010, there would be an immaterial change in
interest expense. This amount was determined by calculating the
effect of the average hypothetical interest rate increase on the
Company’s variable rate unsecured Amended Credit Agreement.
This hypothetical increase in interest rate for the fifty-two
week period ended January 29, 2011 may be different
from the actual increase in interest expense due to varying
interest rate reset dates under the Company’s unsecured
Amended Credit Agreement.
Foreign
Exchange Rate Risk
The Company has exposure to changes in currency exchange rates
associated with foreign currency transactions, including
inter-company transactions and foreign denominated assets and
liabilities. 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 gains or losses. The
Company does not use forward contracts to engage in currency
speculation. All outstanding foreign currency forward contracts
are recorded at fair value at the end of each fiscal period.
47
Table of Contents
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
ABERCROMBIE &
FITCH CO.
| 2009 | 2008 | 2007 | ||||||||||
| (Thousands, except per share amounts) | ||||||||||||
|
NET SALES
|
$ | 2,928,626 | $ | 3,484,058 | $ | 3,699,656 | ||||||
|
Cost of Goods Sold
|
1,045,028 | 1,152,963 | 1,211,490 | |||||||||
|
GROSS PROFIT
|
1,883,598 | 2,331,095 | 2,488,166 | |||||||||
|
Stores and Distribution Expense
|
1,425,950 | 1,436,363 | 1,344,178 | |||||||||
|
Marketing, General & Administrative Expense
|
353,269 | 405,248 | 376,780 | |||||||||
|
Other Operating Income, Net
|
(13,533 | ) | (8,778 | ) | (11,702 | ) | ||||||
|
OPERATING INCOME
|
117,912 | 498,262 | 778,909 | |||||||||
|
Interest Income, Net
|
(1,598 | ) | (11,382 | ) | (18,827 | ) | ||||||
|
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
|
119,510 | 509,644 | 797,737 | |||||||||
|
Income Tax Expense from Continuing Operations
|
40,557 | 201,475 | 298,610 | |||||||||
|
NET INCOME FROM CONTINUING OPERATIONS
|
$ | 78,953 | $ | 308,169 | $ | 499,127 | ||||||
|
NET LOSS FROM DISCONTINUED OPERATIONS (net of taxes)
|
$ | (78,699 | ) | $ | (35,914 | ) | $ | (23,430 | ) | |||
|
NET INCOME
|
$ | 254 | $ | 272,255 | $ | 475,697 | ||||||
|
NET INCOME PER SHARE FROM CONTINUING OPERATIONS:
|
||||||||||||
|
BASIC
|
$ | 0.90 | $ | 3.55 | $ | 5.72 | ||||||
|
DILUTED
|
$ | 0.89 | $ | 3.45 | $ | 5.45 | ||||||
|
NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS:
|
||||||||||||
|
BASIC
|
$ | (0.90 | ) | $ | (0.41 | ) | $ | (0.27 | ) | |||
|
DILUTED
|
$ | (0.89 | ) | $ | (0.40 | ) | $ | (0.26 | ) | |||
|
NET INCOME PER SHARE:
|
||||||||||||
|
BASIC
|
$ | 0.00 | $ | 3.14 | $ | 5.45 | ||||||
|
DILUTED
|
$ | 0.00 | $ | 3.05 | $ | 5.20 | ||||||
|
WEIGHTED-AVERAGE SHARES OUTSTANDING:
|
||||||||||||
|
BASIC
|
87,874 | 86,816 | 87,248 | |||||||||
|
DILUTED
|
88,609 | 89,291 | 91,523 | |||||||||
|
DIVIDENDS DECLARED PER SHARE
|
$ | 0.70 | $ | 0.70 | $ | 0.70 | ||||||
|
OTHER COMPREHENSIVE INCOME
|
||||||||||||
|
Foreign Currency Translation Adjustments
|
$ | 5,942 | $ | (13,173 | ) | $ | 7,328 | |||||
|
Unrealized Gains (Losses) on Marketable Securities, net of taxes
of $(4,826), $10,312 and $(584) for Fiscal 2009, Fiscal 2008 and
Fiscal 2007, respectively
|
8,217 | (17,518 | ) | 912 | ||||||||
|
Unrealized (Loss) Gain on Derivative Financial Instruments, net
of taxes of $265, $(621) and $82 for Fiscal 2009, Fiscal 2008
and Fiscal 2007, respectively
|
(451 | ) | 892 | (128 | ) | |||||||
|
Other Comprehensive Income (Loss)
|
$ | 13,708 | $ | (29,799 | ) | $ | 8,112 | |||||
|
COMPREHENSIVE INCOME
|
$ | 13,962 | $ | 242,456 | $ | 483,809 | ||||||
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
48
Table of Contents
ABERCROMBIE &
FITCH CO.
|
January 30,
|
January 31,
|
|||||||||||
| 2010 | 2009 | |||||||||||
| (Thousands, except share amounts) | ||||||||||||
|
ASSETS
|
||||||||||||
|
CURRENT ASSETS:
|
||||||||||||
|
Cash and Equivalents
|
$ | 680,113 | $ | 522,122 | ||||||||
|
Marketable Securities
|
32,356 | — | ||||||||||
|
Receivables
|
90,865 | 53,110 | ||||||||||
|
Inventories
|
310,645 | 372,422 | ||||||||||
|
Deferred Income Taxes
|
44,570 | 43,408 | ||||||||||
|
Other Current Assets
|
77,297 | 80,948 | ||||||||||
|
TOTAL CURRENT ASSETS
|
1,235,846 | 1,072,010 | ||||||||||
|
PROPERTY AND EQUIPMENT, NET
|
1,244,019 | 1,398,655 | ||||||||||
|
NON-CURRENT MARKETABLE SECURITIES
|
141,794 | 229,081 | ||||||||||
|
OTHER ASSETS
|
200,207 | 148,435 | ||||||||||
|
TOTAL ASSETS
|
$ | 2,821,866 | $ | 2,848,181 | ||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
|
CURRENT LIABILITIES:
|
||||||||||||
|
Accounts Payable
|
$ | 110,212 | $ | 92,814 | ||||||||
|
Outstanding Checks
|
39,922 | 56,939 | ||||||||||
|
Accrued Expenses
|
246,289 | 241,231 | ||||||||||
|
Deferred Lease Credits
|
43,597 | 42,358 | ||||||||||
|
Income Taxes Payable
|
9,352 | 16,455 | ||||||||||
|
TOTAL CURRENT LIABILITIES
|
449,372 | 449,797 | ||||||||||
|
LONG-TERM LIABILITIES:
|
||||||||||||
|
Deferred Income Taxes
|
47,142 | 34,085 | ||||||||||
|
Deferred Lease Credits
|
212,052 | 211,978 | ||||||||||
|
Long-term Debt
|
71,213 | 100,000 | ||||||||||
|
Other Liabilities
|
214,170 | 206,743 | ||||||||||
|
TOTAL LONG-TERM LIABILITIES
|
544,577 | 552,806 | ||||||||||
|
SHAREHOLDERS’ EQUITY:
|
||||||||||||
|
Class A Common Stock — $.01 par value:
150,000,000 shares authorized and 103,300,000 shares
issued at January 30, 2010 and January 31, 2009,
respectively
|
1,033 | 1,033 | ||||||||||
|
Paid-In Capital
|
339,453 | 328,488 | ||||||||||
|
Retained Earnings
|
2,183,690 | 2,244,936 | ||||||||||
|
Accumulated Other Comprehensive Loss, net of tax
|
(8,973 | ) | (22,681 | ) | ||||||||
|
Treasury Stock, at Average Cost 15,314,481 and
15,664,385 shares at January 30, 2010 and
January 31, 2009, respectively
|
(687,286 | ) | (706,198 | ) | ||||||||
|
TOTAL SHAREHOLDERS’ EQUITY
|
1,827,917 | 1,845,578 | ||||||||||
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
$ | 2,821,866 | $ | 2,848,181 | ||||||||
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
49
Table of Contents
ABERCROMBIE &
FITCH CO.
| Common Stock |
Other
|
Treasury Stock |
Total
|
|||||||||||||||||||||||||||||
|
Shares
|
Paid-In
|
Retained
|
Comprehensive
|
At Average
|
Shareholders’
|
|||||||||||||||||||||||||||
| Outstanding | Par Value | Capital | Earnings | (Loss) Income | Shares | Cost | Equity | |||||||||||||||||||||||||
| (Thousands) | ||||||||||||||||||||||||||||||||
|
Balance, February 3, 2007
|
88,300 | $ | 1,033 | $ | 289,732 | $ | 1,646,290 | $ | (994 | ) | 15,000 | $ | (530,764 | ) | $ | 1,405,297 | ||||||||||||||||
|
FIN 48 Impact
|
— | — | — | (2,786 | ) | — | — | — | (2,786 | ) | ||||||||||||||||||||||
|
Net Income
|
— | — | — | 475,697 | — | — | — | 475,697 | ||||||||||||||||||||||||
|
Purchase of Treasury Stock
|
(3,654 | ) | — | — | — | — | 3,654 | (287,916 | ) | (287,916 | ) | |||||||||||||||||||||
|
Dividends ($0.70 per share)
|
— | — | — | (61,330 | ) | — | — | — | (61,330 | ) | ||||||||||||||||||||||
|
Share-based Compensation Issuances and Exercises
|
1,513 | — | (19,051 | ) | (6,408 | ) | — | (1,513 | ) | 57,928 | 32,469 | |||||||||||||||||||||
|
Tax Benefit from Share-based Compensation Issuances and Exercises
|
— | — | 17,600 | — | — | — | — | 17,600 | ||||||||||||||||||||||||
|
Share-based Compensation Expense
|
— | — | 31,170 | — | — | — | — | 31,170 | ||||||||||||||||||||||||
|
Unrealized Gains on Marketable Securities
|
— | — | — | — | 912 | — | — | 912 | ||||||||||||||||||||||||
|
Net Change in Unrealized Gains or Losses on Derivative Financial
Instruments
|
— | — | — | — | (128 | ) | — | — | (128 | ) | ||||||||||||||||||||||
|
Foreign Currency Translation Adjustments
|
— | — | — | — | 7,328 | — | — | 7,328 | ||||||||||||||||||||||||
|
Balance, February 2, 2008
|
86,159 | $ | 1,033 | $ | 319,451 | $ | 2,051,463 | $ | 7,118 | 17,141 | $ | (760,752 | ) | $ | 1,618,313 | |||||||||||||||||
|
Net Income
|
— | — | — | 272,255 | — | — | — | 272,255 | ||||||||||||||||||||||||
|
Purchase of Treasury Stock
|
(682 | ) | — | — | — | — | 682 | (50,000 | ) | (50,000 | ) | |||||||||||||||||||||
|
Dividends ($0.70 per share)
|
— | — | — | (60,769 | ) | — | — | — | (60,769 | ) | ||||||||||||||||||||||
|
Share-based Compensation Issuances and Exercises
|
2,159 | — | (49,844 | ) | (18,013 | ) | — | (2,159 | ) | 104,554 | 36,697 | |||||||||||||||||||||
|
Tax Benefit from Share-based Compensation Issuances and Exercises
|
— | — | 16,839 | — | — | — | — | 16,839 | ||||||||||||||||||||||||
|
Share-based Compensation Expense
|
— | — | 42,042 | — | — | — | — | 42,042 | ||||||||||||||||||||||||
|
Unrealized Losses on Marketable Securities
|
— | — | — | — | (17,518 | ) | — | — | (17,518 | ) | ||||||||||||||||||||||
|
Net Change in Unrealized Gains or Losses on Derivative Financial
Instruments
|
— | — | — | — | 892 | — | — | 892 | ||||||||||||||||||||||||
|
Foreign Currency Translation Adjustments
|
— | — | — | — | (13,173 | ) | — | — | (13,173 | ) | ||||||||||||||||||||||
|
Balance, January 31, 2009
|
87,636 | $ | 1,033 | $ | 328,488 | $ | 2,244,936 | $ | (22,681 | ) | 15,664 | $ | (706,198 | ) | $ | 1,845,578 | ||||||||||||||||
|
Net Income
|
— | — | — | 254 | — | — | — | 254 | ||||||||||||||||||||||||
|
Purchase of Treasury Stock
|
— | — | — | — | — | — | — | — | ||||||||||||||||||||||||
|
Dividends ($0.70 per share)
|
— | — | — | (61,500 | ) | — | — | — | (61,500 | ) | ||||||||||||||||||||||
|
Share-based Compensation Issuances and Exercises
|
350 | — | (19,690 | ) | — | — | (350 | ) | 18,912 | (778 | ) | |||||||||||||||||||||
|
Tax Deficiency from Share-based Compensation Issuances and
Exercises
|
— | — | (5,454 | ) | — | — | — | — | (5,454 | ) | ||||||||||||||||||||||
|
Share-based Compensation Expense
|
— | — | 36,109 | — | — | — | — | 36,109 | ||||||||||||||||||||||||
|
Unrealized Gains on Marketable Securities
|
— | — | — | — | 8,217 | — | — | 8,217 | ||||||||||||||||||||||||
|
Net Change in Unrealized Gains or Losses on Derivative Financial
Instruments
|
— | — | — | — | (451 | ) | — | — | (451 | ) | ||||||||||||||||||||||
|
Foreign Currency Translation Adjustments
|
— | — | — | — | 5,942 | — | — | 5,942 | ||||||||||||||||||||||||
|
Balance, January 30, 2010
|
87,986 | $ | 1,033 | $ | 339,453 | $ | 2,183,690 | $ | (8,973 | ) | 15,314 | $ | (687,286 | ) | $ | 1,827,917 | ||||||||||||||||
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
50
Table of Contents
ABERCROMBIE &
FITCH CO.
| 2009 | 2008 | 2007 | ||||||||||
| (Thousands) | ||||||||||||
|
OPERATING ACTIVITIES:
|
||||||||||||
|
Net Income
|
$ | 254 | $ | 272,255 | $ | 475,697 | ||||||
|
Impact of Other Operating Activities on Cash Flows:
|
||||||||||||
|
Depreciation and Amortization
|
238,752 | 225,334 | 183,716 | |||||||||
|
Non-Cash Charge for Asset Impairment
|
84,754 | 30,574 | 2,312 | |||||||||
|
Amortization of Deferred Lease Credits
|
(47,182 | ) | (43,194 | ) | (37,418 | ) | ||||||
|
Share-Based Compensation
|
36,109 | 42,042 | 31,170 | |||||||||
|
Tax (Deficiency) Benefit from Share-Based Compensation
|
(5,454 | ) | 16,839 | 17,600 | ||||||||
|
Excess Tax Benefit from Share-Based Compensation
|
— | (5,791 | ) | (14,205 | ) | |||||||
|
Deferred Taxes
|
7,605 | 14,005 | 1,342 | |||||||||
|
Loss on Disposal / Write-off of Assets
|
10,646 | 7,607 | 7,205 | |||||||||
|
Lessor Construction Allowances
|
47,329 | 55,415 | 43,391 | |||||||||
|
Changes in Assets and Liabilities:
|
||||||||||||
|
Inventories
|
62,720 | (40,521 | ) | 87,657 | ||||||||
|
Accounts Payable and Accrued Expenses
|
39,394 | (23,875 | ) | 22,375 | ||||||||
|
Income Taxes Payable
|
(7,386 | ) | (55,565 | ) | (13,922 | ) | ||||||
|
Other Assets and Liabilities
|
(65,341 | ) | (4,289 | ) | 10,604 | |||||||
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
402,200 | 490,836 | 817,524 | |||||||||
|
INVESTING ACTIVITIES:
|
||||||||||||
|
Capital Expenditures
|
(175,472 | ) | (367,602 | ) | (403,345 | ) | ||||||
|
Purchases of Marketable Securities
|
— | (49,411 | ) | (1,444,736 | ) | |||||||
|
Proceeds from Sales of Marketable Securities
|
77,450 | 308,673 | 1,362,911 | |||||||||
|
Purchases of Trust-Owned Life Insurance Policies
|
(13,539 | ) | (4,877 | ) | (15,000 | ) | ||||||
|
NET CASH USED FOR INVESTING ACTIVITIES
|
(111,561 | ) | (113,217 | ) | (500,170 | ) | ||||||
|
FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds from Borrowings under Credit Agreement
|
48,056 | 100,000 | — | |||||||||
|
Repayment of Borrowings under Credit Agreement
|
(100,000 | ) | — | — | ||||||||
|
Dividends Paid
|
(61,500 | ) | (60,769 | ) | (61,330 | ) | ||||||
|
Proceeds from Share-Based Compensation
|
2,048 | 55,194 | 38,750 | |||||||||
|
Excess Tax Benefit from Share-Based Compensation
|
— | 5,791 | 14,205 | |||||||||
|
Purchase of Treasury Stock
|
— | (50,000 | ) | (287,916 | ) | |||||||
|
Change in Outstanding Checks and Other
|
(24,654 | ) | (19,747 | ) | 13,536 | |||||||
|
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
|
(136,050 | ) | 30,469 | (282,755 | ) | |||||||
|
EFFECT OF EXCHANGE RATES ON CASH
|
3,402 | (4,010 | ) | 1,486 | ||||||||
|
NET INCREASE IN CASH AND EQUIVALENTS
|
157,991 | 404,078 | 36,085 | |||||||||
|
Cash and Equivalents, Beginning of Year
|
522,122 | 118,044 | 81,959 | |||||||||
|
CASH AND EQUIVALENTS, END OF YEAR
|
$ | 680,113 | $ | 522,122 | $ | 118,044 | ||||||
|
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
|
||||||||||||
|
Change in Accrual for Construction in Progress
|
$ | (21,882 | ) | $ | (27,913 | ) | $ | 8,791 | ||||
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
51
Table of Contents
ABERCROMBIE &
FITCH CO.
| 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
“Abercrombie & Fitch” or the
“Company”), is a specialty retailer of high-quality,
casual apparel for men, women and kids with an active, youthful
lifestyle.
The accompanying 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.
On June 16, 2009, A&F’s Board of Directors
approved the closure of the Company’s 29 RUEHL branded
stores and related
direct-to-consumer
operations. The determination to take this action was based on a
comprehensive review and evaluation of the performance of the
RUEHL branded stores and related
direct-to-consumer
operations, as well as the related real estate portfolio. The
Company completed the closure of the RUEHL branded stores and
related
direct-to-consumer
operations during the fourth quarter of Fiscal 2009.
Accordingly, the results of operations of RUEHL are reflected in
Net Loss from Discontinued Operations for all periods presented
on the Consolidated Statements of Operations and Comprehensive
Income.
FISCAL
YEAR
The Company’s fiscal year ends on the Saturday closest to
January 31, typically resulting in a fifty-two week year,
but occasionally giving rise to an additional week, resulting in
a fifty-three week year. Fiscal years are designated in the
consolidated financial statements and notes by the calendar year
in which the fiscal year commences. All references herein to
“Fiscal 2009” represent the results of the 52-week
fiscal year ended January 30, 2010; to “Fiscal
2008” represent the results of the 52-week fiscal year
ended January 31, 2009; and to “Fiscal 2007”
represent the results of the 52-week fiscal year ended
February 2, 2008. In addition, all references herein to
“Fiscal 2010” represent the 52-week fiscal year that
will end on January 29, 2011.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform
to the current year presentation.
SEGMENT
REPORTING
The Company determines its operating segments on the same basis
that it uses to evaluate performance internally. The operating
segments identified by the Company are Abercrombie &
Fitch, abercrombie kids, Hollister and Gilly Hicks. The
operating segments have been aggregated and are reported as one
reportable segment because they have similar economic
characteristics and meet the required aggregation criteria. 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.
52
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Geographic
Information
Financial information relating to the Company’s operations
by geographic area is as follows:
Net
Sales
:
Net sales includes net merchandise sales through stores and
direct-to-consumer
operations, including shipping and handling revenue. Net sales
are reported by geographic area based on the location of the
customer.
| Fifty-Two Weeks Ended | ||||||||
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands): | ||||||||
|
United States
|
$ | 2,566,118 | $ | 3,219,624 | ||||
|
International
|
362,508 | 264,434 | ||||||
|
Total
|
$ | 2,928,626 | $ | 3,484,058 | ||||
Long-Lived
Assets
:
|
January 30,
|
January 31,
|
|||||||
| 2010 | 2009 | |||||||
| (In thousands): | ||||||||
|
United States
|
$ | 1,137,844 | $ | 1,371,734 | ||||
|
International
|
194,461 | 80,341 | ||||||
|
Total
|
$ | 1,332,305 | $ | 1,452,075 | ||||
Long-lived assets included in the table above include primarily
property and equipment, net, store supplies, and lease deposits.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
PRINCIPLES
OF CONSOLIDATION
The consolidated financial statements include the accounts of
A&F and its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
CASH
AND EQUIVALENTS
Cash and equivalents include amounts on deposit with financial
institutions and investments, primarily held in money market
accounts, with original maturities of less than 90 days.
Outstanding checks are classified as current liabilities in the
Consolidated Balance Sheets and changes in outstanding checks
are reported in financing activities on the Consolidated
Statements of Cash Flows.
53
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
INVESTMENTS
See Note 4, “
Cash and Equivalents and
Investments
”.
RECEIVABLES
Receivables include credit card receivables, construction
allowances, value added tax (“VAT”) receivables and
other tax receivable balances.
As part of the normal course of business, the Company has
approximately three to four days of sales transactions
outstanding with its third-party credit card vendors at any
point. The Company classifies these outstanding balances as
credit card receivables. Construction allowances are recorded
for certain store lease agreements for improvements completed by
the Company. VAT receivables are payments the Company has made
on purchases of goods and services that will be recovered as
sales are made to customers.
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
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 valuation 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 then ending. The valuation reserve was
$11.4 million, $9.1 million and $5.4 million at
January 30, 2010, January 31, 2009 and
February 2, 2008, respectively.
Additionally, as part of inventory valuation, inventory
shrinkage estimates based on historical trends from actual
physical inventories are made each period that reduce the
inventory value for lost or stolen items. The Company performs
physical inventories on a periodic basis and adjusts the shrink
reserve accordingly. The shrink reserve was $8.1 million,
$10.8 million and $11.5 million at January 30,
2010, January 31, 2009 and February 2, 2008,
respectively.
STORE
SUPPLIES
Store supplies include in-store supplies and packaging, as well
as replenishment inventory held on the Company’s behalf by
a third party. The initial inventory of supplies for new stores
including, but not limited to, hangers, frames, security tags
and
point-of-sale
supplies are capitalized at the store opening date. In lieu of
amortizing the initial balances over their estimated useful
lives, the Company expenses all subsequent replacements and
adjusts the initial balance, as appropriate, for changes in
store quantities or replacement cost. The Company believes this
policy approximates the expense that would have been recognized
under accounting principles generally accepted in the United
States of America (“GAAP”). Packaging and consumable
store supplies are expensed as used. Current store supplies,
including packaging and consumable
54
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
store supplies held at a third party replenishment center, were
$11.1 million and $19.7 million at January 30,
2010 and January 31, 2009, respectively, and were
classified as Other Current Assets on the Consolidated Balance
Sheets. Non-current store supplies were $32.4 million and
$35.7 million at January 30, 2010 and January 31,
2009, respectively, and were classified as Other Assets on the
Consolidated Balance Sheets.
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 from three to 20 years for other property
and equipment. The cost of assets sold or retired and the
related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in
net income. Maintenance and repairs are charged to expense as
incurred. Major remodels and improvements that extend service
lives of the assets are capitalized.
Long-lived assets, primarily comprised of property and
equipment, are reviewed periodically for impairment or whenever
events or changes in circumstances indicate that full
recoverability of net asset balances through future cash flows
is in question. Factors used in the evaluation include, but are
not limited to, management’s plans for future operations,
recent operating results and projected cash flows. During Fiscal
2009, as a result of a strategic review of the RUEHL business,
the Company determined that a triggering event occurred. As a
result of that assessment, the Company incurred non-cash pre-tax
impairment charges of $51.5 million, reported in Net Loss
from Discontinued Operations on the Consolidated Statement of
Operations and Comprehensive Income for the fifty-two weeks
ended January 30, 2010. There was no remaining fair value
of RUEHL long-lived assets as of January 30, 2010.
In the fourth quarter of Fiscal 2009, as part of the
Company’s year-end review of assets, the Company incurred a
non-cash pre-tax impairment charge of $33.2 million,
reported in Stores and Distribution Expense on the Consolidated
Statement of Operations and Comprehensive Income for the
fifty-two weeks ended January 30, 2010. The charge was
associated with 34 Abercrombie & Fitch stores, 46
abercrombie kids stores and 19 Hollister stores. In Fiscal 2008,
the Company incurred a non-cash pre-tax impairment charge of
approximately $8.3 million related to long-lived assets.
The charge was associated with 11 Abercrombie & Fitch
stores, six abercrombie kids stores and three Hollister stores
and was reported in Stores and Distribution Expense on the
Consolidated Statement of Operations and Comprehensive Income
for the fifty-two weeks ended January 31, 2009.
The Company also incurred a non-cash pre-tax impairment charge
of approximately $22.3 million related to long-lived assets
associated with nine RUEHL stores which is reported in Net Loss
from Discontinued Operations on the Consolidated Statement of
Operations and Comprehensive Loss for the fifty-two weeks ended
January 31, 2009.
The Company expenses all internal-use software costs incurred in
the preliminary project stage and capitalizes certain direct
costs associated with the development and purchase of
internal-use software within property and equipment. Capitalized
costs are amortized on a straight-line basis over the estimated
useful lives of the software, generally not exceeding seven
years.
55
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
OTHER
ASSETS
Other assets include lease deposits, assets held in the rabbi
trust, long-term store supplies, pre-paid foreign income tax and
other miscellaneous non-current assets.
INCOME
TAXES
Income taxes are calculated using 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 Company’s 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 assets will not be realized. The Company has
recorded a valuation allowance against the deferred tax asset
arising from the net operating loss of certain foreign
subsidiaries, for capital loss carryovers related to sales of
securities and for unrealized losses on certain securities. No
other valuation allowances have been provided for deferred tax
assets. The effective tax rate utilized by the Company reflects
management’s judgment of expected tax liabilities within
the various tax jurisdictions.
See Note 11, “
Income Taxes
” for a
discussion regarding the Company’s policies for uncertain
tax positions.
FOREIGN
CURRENCY TRANSLATION
Some of the Company’s international operations use local
currencies as the functional currency. 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. Gains and losses resulting from foreign
currency transactions included in the results of operations were
immaterial for the fifty-two weeks ended January 30, 2010
and January 31, 2009.
DERIVATIVES
See Note 13, “
Derivatives
” for further
discussion.
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 management’s
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.
56
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SHAREHOLDERS’
EQUITY
At January 30, 2010 and January 31, 2009, there were
150 million shares of A&F’s $.01 par value
Class A Common Stock authorized, of which 88.0 million
and 87.6 million shares were outstanding at
January 30, 2010 and January 31, 2009, respectively,
and 106.4 million shares of $.01 par value
Class B Common Stock authorized, none of which were
outstanding at January 30, 2010 and January 31, 2009.
In addition, 15 million shares of A&F’s
$.01 par value Preferred Stock were authorized, none of
which have been issued. See Note 17, “
Preferred
Stock Purchase Rights
” for information about Preferred
Stock Purchase Rights.
Holders of Class A Common Stock generally have identical
rights to holders of Class B Common Stock, except holders
of Class A Common Stock are entitled to one vote per share
while holders of Class B Common Stock are entitled to three
votes per share on all matters submitted to a vote of
shareholders.
REVENUE
RECOGNITION
The Company recognizes retail sales at the time the customer
takes possession of the merchandise.
Direct-to-consumer
sales are recorded based on an estimated date for 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 $11.7 million, $9.1 million and
$10.7 million at January 30, 2010, January 31,
2009 and February 2, 2008, respectively.
The Company sells gift cards in its stores and through
direct-to-consumer
operations. The Company accounts for gift cards sold to
customers by recognizing a liability at the time of sale. Gift
cards sold to customers do not expire or lose value over periods
of inactivity. The liability remains on the Company’s 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. At January 30,
2010 and January 31, 2009, the gift card liabilities on the
Company’s Consolidated Balance Sheets were
$49.8 million and $57.5 million, respectively.
The Company is not required by law to escheat the value of
unredeemed gift cards to the states in which it operates. During
Fiscal 2009, Fiscal 2008 and Fiscal 2007, the Company recognized
other operating income for adjustments to the gift card
liability of $9.0 million, $8.2 million and
$10.8 million, respectively.
The Company does not include tax amounts collected as part of
the sales transaction in its net sales results.
57
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
COST
OF GOODS SOLD
Cost of goods sold is primarily comprised of the following: cost
of merchandise, markdowns, inventory shrink, valuation reserves
and freight expenses.
STORES
AND DISTRIBUTION EXPENSE
Stores and distribution expense includes store payroll, store
management, rent, utilities and other landlord expenses,
depreciation and amortization, repairs and maintenance and other
store support functions, as well as
Direct-to-Consumer
and Distribution Center (“DC”) expenses.
MARKETING,
GENERAL & ADMINISTRATIVE EXPENSE
Marketing, general and administrative expense includes
photography and media ads; store marketing; home office payroll,
except for those departments included in stores and distribution
expense; information technology; outside services such as legal
and consulting; relocation, as well as recruiting, samples and
travel expenses.
OTHER
OPERATING INCOME, NET
Other operating income consists primarily of: income related to
gift card balances whose likelihood of redemption has been
determined to be remote; gains and losses on foreign currency
transactions; and the net impact of the change in valuation on
other-than-temporary
gains and losses on auction rate securities; and changes in the
value of the UBS Put Option. See Note 4, “
Cash and
Equivalents and Investments
”.
WEBSITE
AND ADVERTISING COSTS
Website costs, including photography, mail list expense and
other production and miscellaneous expenses, are expensed as
incurred as a component of Stores and Distribution Expense on
the Consolidated Statements of Operations and Comprehensive
Income. Fiscal 2007 also included costs related to catalogue
production and mailing costs of catalogues. Advertising costs
consist of in-store photographs and advertising in selected
national publications and billboards, and are expensed as
incurred as a component of Marketing, General and Administrative
Expense on the Consolidated Statements of Operations and
Comprehensive Income.
Direct-to-consumer
and advertising costs, including photo shoot costs, amounted to
$17.7 million, $28.7 million and $31.3 million in
Fiscal 2009, Fiscal 2008 and Fiscal 2007, respectively.
LEASES
The Company leases property for its stores under operating
leases. Most lease agreements contain construction allowances,
rent escalation clauses
and/or
contingent rent provisions.
For construction allowances, the Company records a deferred
lease credit on the Consolidated Balance Sheets and amortizes
the deferred lease credit as a reduction of rent expense on the
Consolidated Statements of Operations and Comprehensive Income
over the terms of the leases. For scheduled rent escalation
clauses during the lease terms, the Company records minimum
rental expenses on a straight-line basis over the terms of the
leases on the Consolidated Statements of Operations and
Comprehensive Income. The term of the lease over which the
Company amortizes construction allowances and minimum rental
expenses on a straight-line
58
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
basis begins on the date of initial possession, which is
generally when the Company enters the space and begins to make
improvements in preparation for intended use.
Certain leases provide for contingent rents, which are
determined as a percentage of gross sales. The Company records a
contingent rent liability in accrued expenses on the
Consolidated Balance Sheets and the corresponding rent expense
on the Consolidated Statements of Operations and Comprehensive
Income when management determines that achieving the specified
levels during the fiscal year is probable.
Under U.S. generally accepted accounting principles, the
Company is considered to be the owner of certain store
locations, primarily related to flagships, in which the Company
is deemed to be involved in structural construction and has
substantially all of the risks of ownership during construction
of the leased property. Accordingly, the Company records a
construction-in-progress
asset which is included in Property and Equipment, Net and a
related lease financing obligation which is included in
Long-Term Debt on the Consolidated Balance Sheets. Once
construction is complete, the Company determines if the asset
qualifies for sale-leaseback accounting treatment. If the
arrangement does not qualify for sale lease-back treatment, the
Company continues to amortize the obligation over the lease term
and depreciates the asset over its useful life.
STORE
PRE-OPENING EXPENSES
Pre-opening expenses related to new store openings are charged
to operations as incurred.
DESIGN
AND DEVELOPMENT COSTS
Costs to design and develop the Company’s merchandise are
expensed as incurred and are reflected as a component of
“Marketing, General and Administrative Expense.”
NET
INCOME PER SHARE
Net income per basic share is computed based on the
weighted-average number of outstanding shares of Class A
Common Stock (“Common Stock”). Net income per diluted
share includes the weighted-average effect of dilutive stock
options, stock appreciation rights and restricted stock units.
Weighted-Average Shares Outstanding and Anti-dilutive
Shares (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Shares of Common Stock issued
|
103,300 | 103,300 | 103,300 | |||||||||
|
Treasury shares
|
(15,426 | ) | (16,484 | ) | (16,052 | ) | ||||||
|
Weighted-Average — basic shares
|
87,874 | 86,816 | 87,248 | |||||||||
|
Dilutive effect of stock options, stock appreciation rights and
restricted stock units
|
735 | 2,475 | 4,275 | |||||||||
|
Weighted-Average — diluted shares
|
88,609 | 89,291 | 91,523 | |||||||||
|
Anti-dilutive shares(1)
|
6,698 | 3,746 | 404 | |||||||||
| (1) | Reflects the number of stock options, stock appreciation rights, and restricted stock units oustanding, but is excluded from the computation of net income per diluted share because the impact would be anti-dilutive. |
59
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
SHARE-BASED
COMPENSATION
See Note 3, “
Share-Based Compensation
”.
USE OF
ESTIMATES IN THE PREPARATION OF FINANCIAL
STATEMENTS
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Since actual results may differ
from those estimates, the Company revises its estimates and
assumptions as new information becomes available.
| 3. | SHARE-BASED COMPENSATION |
Financial
Statement Impact
The Company recognized share-based compensation expense,
including expense for RUEHL associates, of $36.1 million,
$42.0 million and $31.2 million for the fifty-two week
periods ended January 30, 2010, January 31, 2009 and
February 2, 2008, respectively. The Company also recognized
$12.8 million, $15.4 million and $11.5 million in
tax benefits related to share-based compensation, including
benefit for RUEHL associates, for the fifty-two week periods
ended January 30, 2010, January 31, 2009 and
February 2, 2008, respectively.
A deferred tax asset is recorded on the compensation expense
required to be accrued under the accounting rules. A current
income tax deduction arises at the time the restricted stock
unit vests or stock option/stock appreciation right is
exercised. In the event the current income tax deduction is
greater or less than the associated deferred tax asset, the
difference is required under the accounting rules to be charged
first to the “windfall tax benefit” account. In the
event there is not a balance in the “windfall tax
benefit” account, the shortfall is charged to tax expense.
The amount of the Company’s “windfall tax
benefit” account, which is recorded as a component of
additional paid in capital, was approximately $86.0 million
as of January 30, 2010. Based upon outstanding awards, the
“windfall tax benefit” account is sufficient to fully
absorb any shortfall which may develop.
Additionally, during Fiscal 2008, the Company recognized
$9.9 million of non-deductible tax expense as a result of
the execution of the Chairman and Chief Executive Officer’s
new employment agreement on December 19, 2008, which
pursuant to Section 162(m) of the Internal Revenue Code
resulted in the exclusion of previously recognized tax benefits
on share-based compensation.
Share-based compensation expense is recognized, net of estimated
forfeitures, over the requisite service period on a
straight-line basis. 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 adjusting
the forfeiture rate is recognized in the period the forfeiture
estimate is changed. The effect of adjustments for forfeitures
during the fifty-two week period ended January 30, 2010 was
$6.7 million. The effect of adjustments for forfeitures
during the fifty-two week period ended January 31, 2009 was
immaterial.
60
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A&F issues shares of Common Stock for stock option and
stock appreciation right exercises and restricted stock unit
vestings from treasury stock. As of January 30, 2010,
A&F had sufficient treasury stock available to settle stock
options, stock appreciation rights and restricted stock units
outstanding without having to repurchase additional shares of
Common Stock. Settlement of stock awards in Common Stock also
requires that the Company has sufficient shares available in
shareholder-approved plans at the applicable time.
Plans
As of January 30, 2010, A&F had two primary
share-based compensation plans: the 2005 Long-Term Incentive
Plan (the “2005 LTIP”), under which A&F grants
stock options, stock appreciation rights and restricted stock
units to associates of the Company and non-associate members of
the A&F Board of Directors, and the 2007 Long-Term
Incentive Plan (the “2007 LTIP”), under which A&F
grants stock options, stock appreciation rights and restricted
stock units to associates of the Company. A&F also has four
other share-based compensation plans under which it granted
stock options and restricted stock units to associates of the
Company and non-associate members of the A&F Board of
Directors in prior years.
The 2007 LTIP, a shareholder-approved plan, permits A&F to
grant up to 2.0 million shares annually, plus any unused
eligibility from prior years, of A&F’s Common Stock to
any associate of the Company eligible to receive awards under
the 2007 LTIP. The 2005 LTIP, a shareholder-approved plan,
permits A&F to grant up to approximately
250,000 shares of A&F’s Common Stock to any
associate of the Company (other than Michael S. Jeffries) who is
subject to Section 16 of the Securities Exchange Act of
1934, as amended, at the time of the grant. In addition, any
non-associate director of A&F is eligible to receive awards
under the 2005 LTIP. Under both plans, stock options, stock
appreciation rights and restricted stock units vest primarily
over four years for associates. Under the 2005 LTIP, restricted
stock units typically vest over one year for non-associate
directors of A&F. Stock options have a ten-year term and
stock appreciation rights have up to a ten-year term, subject to
forfeiture under the terms of the plans. The plans provide for
accelerated vesting if there is a change of control as defined
in the plans.
Fair
Value Estimates
The Company estimates the fair value of stock options and stock
appreciation rights granted using the Black-Scholes
option-pricing model, which requires the Company to estimate the
expected term of the stock options and stock appreciation rights
and expected future stock price volatility over the expected
term. Estimates of expected terms, which represent the expected
periods of time the Company believes stock options and stock
appreciation rights will be outstanding, are based on historical
experience. Estimates of expected future stock price volatility
are based on the volatility of A&F’s Common Stock
price for the most recent historical period equal to the
expected term of the stock option or stock appreciation right,
as appropriate. 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.
In the case of restricted stock units, the Company calculates
the fair value of the restricted stock units granted as the
market price of the underlying Common Stock on the date of grant
adjusted for anticipated dividend payments during the vesting
period.
61
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock
Options
The weighted-average estimated fair values of stock options
granted during the fifty-two week periods ended January 30,
2010, January 31, 2009 and February 2, 2008, and the
weighted-average assumptions used in calculating such fair
values, on the date of grant, were as follows:
| Fifty-Two Weeks Ended | ||||||||||||
|
January 30,
|
January 31,
|
February 2,
|
||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Grant date market price
|
$ | 22.87 | $ | 67.63 | $ | 74.05 | ||||||
|
Exercise price
|
$ | 22.87 | $ | 67.63 | $ | 74.05 | ||||||
|
Fair value
|
$ | 8.26 | $ | 18.03 | $ | 22.56 | ||||||
|
Assumptions:
|
||||||||||||
|
Price volatility
|
50 | % | 33 | % | 34 | % | ||||||
|
Expected term (Years)
|
4.1 | 4.0 | 4.0 | |||||||||
|
Risk-free interest rate
|
1.6 | % | 2.3 | % | 4.5 | % | ||||||
|
Dividend yield
|
1.7 | % | 1.0 | % | 1.0 | % | ||||||
Below is a summary of stock option activity for the fifty-two
weeks ended January 30, 2010:
| Fifty-Two Weeks Ended January 30, 2010 | ||||||||||||||||
|
Aggregate
|
Weighted-Average
|
|||||||||||||||
|
Number of
|
Weighted-Average
|
Intrinsic
|
Remaining
|
|||||||||||||
|
Stock Options
|
Shares | Exercise Price | Value | Contractual Life | ||||||||||||
|
Outstanding at January 31, 2009
|
6,675,990 | $ | 41.70 | |||||||||||||
|
Granted
|
4,000 | 22.87 | ||||||||||||||
|
Exercised
|
(79,552 | ) | 24.51 | |||||||||||||
|
Forfeited or expired
|
(3,630,577 | ) | 44.73 | |||||||||||||
|
Outstanding at January 30, 2010
|
2,969,861 | $ | 38.36 | $ | 10,644,614 | 3.6 | ||||||||||
|
Stock options expected to become exercisable at January 30,
2010
|
411,921 | $ | 66.59 | $ | 685,266 | 7.7 | ||||||||||
|
Stock options exercisable at January 30, 2010
|
2,527,786 | $ | 33.47 | $ | 9,868,334 | 2.9 | ||||||||||
The total intrinsic value of stock options exercised during the
fifty-two week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008 was
$0.6 million, $40.3 million and $64.2 million,
respectively.
The grant date fair value of stock options vested during the
fifty-two week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008 was
$5.0 million, $5.1 million and $5.1 million,
respectively.
As of January 30, 2010, there was $5.0 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
1.0 years.
62
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock
Appreciation Rights
The weighted-average estimated fair value of stock appreciation
rights granted during the fifty-two week periods ended
January 30, 2010 and January 31, 2009, as well as the
weighted-average assumptions used in calculating such values, on
the date of grant, were as follows. There were no stock
appreciation rights granted in Fiscal 2007.
| Fifty-Two Weeks Ended | ||||||||||||||||
| January 30, 2010 | Fifty-Two Weeks Ended | |||||||||||||||
|
Executive Officers
|
January 31, 2009 | |||||||||||||||
|
Chairman and
|
(excluding Chairman
|
Chairman and
|
||||||||||||||
|
Chief Executive
|
and Chief Executive
|
All Other
|
Chief Executive
|
|||||||||||||
| Officer | Officer) | Associates | Officer | |||||||||||||
|
Grant date market price
|
$ | 28.42 | $ | 25.77 | $ | 26.43 | $ | 22.84 | ||||||||
|
Exercise price
|
$ | 32.99 | $ | 25.77 | $ | 26.43 | $ | 28.55 | ||||||||
|
Fair value
|
$ | 9.67 | $ | 10.06 | $ | 10.00 | $ | 8.06 | ||||||||
|
Assumptions:
|
||||||||||||||||
|
Price volatility
|
47 | % | 52 | % | 53 | % | 45 | % | ||||||||
|
Expected term (Years)
|
5.6 | 4.5 | 4.1 | 6.4 | ||||||||||||
|
Risk-free interest rate
|
2.5 | % | 1.6 | % | 1.6 | % | 1.6 | % | ||||||||
|
Dividend yield
|
2.4 | % | 1.7 | % | 1.7 | % | 1.3 | % | ||||||||
Below is a summary of stock appreciation rights activity for the
fifty-two weeks ended January 30, 2010:
| Fifty-Two Weeks Ended January 30, 2010 | ||||||||||||||||
|
Weighted-
|
Aggregate
|
Weighted-Average
|
||||||||||||||
|
Number of
|
Average
|
Intrinsic
|
Remaining
|
|||||||||||||
|
Stock Appreciation Rights
|
Shares | Exercise Price | Value | Contractual Life | ||||||||||||
|
Outstanding at January 31, 2009
|
1,600,000 | $ | 28.55 | |||||||||||||
|
Granted
|
4,236,367 | 31.70 | ||||||||||||||
|
Exercised
|
— | — | ||||||||||||||
|
Forfeited or expired
|
(47,500 | ) | 25.77 | |||||||||||||
|
Outstanding at January 30, 2010
|
5,788,867 | $ | 30.88 | $ | 19,853,605 | 6.4 | ||||||||||
|
Stock appreciation rights expected to become exercisable at
January 30, 2010
|
5,705,376 | $ | 31.00 | $ | 19,389,978 | 6.4 | ||||||||||
|
Stock appreciation rights exercisable at January 30, 2010
|
— | — | — | — | ||||||||||||
63
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of January 30, 2010, there was $45.5 million of
total unrecognized compensation cost, net of estimated
forfeitures, related to stock appreciation rights. The
unrecognized cost is expected to be recognized over a
weighted-average period of 1.9 years.
Restricted
Stock Activity
Below is a summary of restricted stock unit activity for the
fifty-two weeks ended January 30, 2010:
|
Weighted-Average
|
||||||||
|
Number of
|
Grant Date
|
|||||||
|
Restricted Stock Units
|
Shares | Fair Value | ||||||
|
Non-vested at January 31, 2009
|
1,498,355 | $ | 64.18 | |||||
|
Granted
|
473,197 | 24.29 | ||||||
|
Vested
|
(411,308 | ) | 64.26 | |||||
|
Forfeited
|
(229,196 | ) | 55.94 | |||||
|
Non-vested at January 30, 2010
|
1,331,048 | $ | 55.45 | |||||
The total fair value of restricted stock units granted during
the fifty-two week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008 was
$11.5 million, $51.3 million and $53.9 million,
respectively.
The total grant date fair value of restricted stock units vested
during the fifty-two week periods ended January 30, 2010,
January 31, 2009 and February 2, 2008 was
$26.4 million, $54.8 million and $14.2 million,
respectively.
As of January 30, 2010, there was $41.1 million of
total unrecognized compensation cost, net of estimated
forfeitures, related to non-vested restricted stock units. The
unrecognized cost is expected to be recognized over a
weighted-average period of 1.1 years.
64
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 4. | CASH AND EQUIVALENTS AND INVESTMENTS |
Cash and equivalents and investments consisted of (in thousands):
| January 30, 2010 | January 31, 2009 | |||||||
|
Cash and equivalents:
|
||||||||
|
Cash
|
$ | 196,496 | $ | 137,383 | ||||
|
Money market funds
|
483,617 | 384,739 | ||||||
|
Total cash and equivalents
|
680,113 | 522,122 | ||||||
|
Marketable securities — Current:
|
||||||||
|
Trading securities:
|
||||||||
|
Auction rate securities — UBS — student loan
backed
|
20,049 | — | ||||||
|
Auction rate securities — UBS — municipal
authority bonds
|
12,307 | — | ||||||
|
Total trading securities
|
32,356 | — | ||||||
|
Marketable securities — Non-Current:
|
||||||||
|
Trading securities:
|
||||||||
|
Auction rate securities — UBS — student loan
backed
|
— | 50,589 | ||||||
|
Auction rate securities — UBS — municipal
authority bonds
|
— | 11,959 | ||||||
|
Total trading securities
|
— | 62,548 | ||||||
|
Available-for-sale
securities:
|
||||||||
|
Auction rate securities — student loan backed
|
118,390 | 139,239 | ||||||
|
Auction rate securities — municipal authority bonds
|
23,404 | 27,294 | ||||||
|
Total
available-for-sale
securities
|
141,794 | 166,533 | ||||||
|
Total non-current marketable securities
|
141,794 | 229,081 | ||||||
|
Rabbi Trust assets:(1)
|
||||||||
|
Money market funds
|
1,316 | 473 | ||||||
|
Municipal notes and bonds
|
18,537 | 18,804 | ||||||
|
Trust-owned life insurance policies (at cash surrender value)
|
51,391 | 32,549 | ||||||
|
Total Rabbi Trust assets
|
71,244 | 51,826 | ||||||
|
Total cash and equivalents and investments
|
$ | 925,507 | $ | 803,029 | ||||
| (1) | Rabbi Trust assets are included in Other Assets on the Consolidated Balance Sheets and are restricted as to their use. |
At January 30, 2010 and January 31, 2009, the
Company’s 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 17 to
33 years. Each investment in student loans is insured by
65
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(1) the U.S. government under the Federal Family
Education Loan Program, (2) a private insurer, or
(3) a combination of both. The percentage coverage of the
outstanding principal and interest of the ARS varies by security.
The par and fair values, and related cumulative impairment
charges for the Company’s marketable securities as of
January 30, 2010 were as follows:
|
Temporary
|
Other-Than-Temporary
|
|||||||||||||||
|
(In thousands)
|
Par Value | Impairment | Impairment (“OTTI”) | Fair Value | ||||||||||||
|
Trading securities:
|
||||||||||||||||
|
Auction rate securities — UBS — student loan
backed
|
$ | 22,100 | $ | — | $ | (2,051 | ) | $ | 20,049 | |||||||
|
Auction rate securities — UBS — municipal
authority bonds
|
15,000 | — | (2,693 | ) | 12,307 | |||||||||||
|
Total trading securities
|
37,100 | — | (4,744 | ) | 32,356 | |||||||||||
|
Available-for-sale
securities:
|
||||||||||||||||
|
Auction rate securities — student loan backed
|
128,099 | (9,709 | ) | — | 118,390 | |||||||||||
|
Auction rate securities — municipal authority bonds
|
28,575 | (5,171 | ) | — | 23,404 | |||||||||||
|
Total
available-for-sale
securities
|
156,674 | (14,880 | ) | — | 141,794 | |||||||||||
|
Total
|
$ | 193,774 | $ | (14,880 | ) | $ | (4,744 | ) | $ | 174,150 | ||||||
See Note 5, “
Fair Value,
” for further
discussion on the valuation of the ARS.
The temporary impairment related to
available-for-sale
ARS was reduced by $13.3 million for the fifty-two weeks
ended January 30, 2010 due to redemptions and changes in
fair value. An impairment is considered to be
other-than-temporary
if an entity (i) intends to sell the security,
(ii) more likely than not will be required to sell the
security before recovering its amortized cost basis, or
(iii) does not expect to recover the security’s entire
amortized cost basis, even if there is no intent to sell the
security. As of January 30, 2010, the Company had not
incurred any credit-related losses on
available-for-sale
ARS. Furthermore, as of January 30, 2010, the issuers
continued to perform under the obligations, including making
scheduled interest payments, and the Company expects that this
will continue going forward.
On November 13, 2008, the Company entered into an agreement
(the “UBS Agreement”) with UBS AG (“UBS”), a
Swiss corporation, relating to ARS (“UBS ARS”) with a
par value of $76.5 million, of which $37.1 million, at
par value, are still held as of January 30, 2010. By
entering into the UBS Agreement, UBS received the right to
purchase these UBS ARS at par, at any time, commencing on
November 13, 2008 and the Company received the right to
sell (“Put Option”) the UBS ARS back to UBS at par,
commencing on June 30, 2010. Upon acceptance of the UBS
Agreement, the Company no longer had the intent to hold the UBS
ARS until maturity. Therefore, the impairment could no longer be
considered temporary. As a result, the Company transferred the
UBS ARS from
available-for-sale
securities to trading securities and recognized an
other-than-temporary
impairment of $14.0 million in Other Operating (Income)
Expense, Net in the
66
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Consolidated Statements of Operations and Comprehensive Income
in the fourth quarter of Fiscal 2008. In addition, and
simultaneously, the Company elected to apply fair value
accounting for the related Put Option and recognized an asset of
$12.3 million in Other Current Assets and a gain in Other
Operating (Income) Expense, Net in the Consolidated Statements
of Operations and Comprehensive Income in the fourth quarter of
Fiscal 2008. During the fifty-two weeks ended January 30,
2010, the Company recognized, as a result of redemptions and
changes in fair value of the UBS ARS, a reduction of the
other-than-temporary
impairment related to the UBS ARS of $9.2 million, and
recognized a corresponding loss of $7.7 million related to
the Put Option. As the Company has the right to sell the UBS ARS
back to UBS on June 30, 2010, the remaining UBS ARS are
classified as Current Assets on the Consolidated Balance Sheet
as of January 30, 2010.
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 Co. Nonqualified Savings and
Supplemental Retirement Plan I, the Abercrombie &
Fitch Co. Nonqualified Savings and Supplemental Retirement
Plan II and the Chief Executive Officer Supplemental
Executive Retirement Plan. The Rabbi Trust assets are
consolidated and recorded at fair value, with the exception of
the trust-owned life insurance policies which are recorded at
cash surrender value. The Rabbi Trust assets are included in
Other Assets on the Consolidated Balance Sheets and are
restricted to their use as noted above. Net unrealized gains and
losses related to the
available-for-sale
securities held in the Rabbi Trust were not material for
fifty-two week periods ended January 30, 2010 and
January 31, 2009. The change in cash surrender value of the
trust-owned life insurance policies held in the Rabbi Trust
resulted in a realized gain of $5.3 million and a realized
loss of $3.6 million for the fifty-two weeks ended
January 30, 2010 and January 31, 2009, respectively,
recorded in Interest Income, Net on the Consolidated Statements
of Operations and Comprehensive Income.
| 5. | FAIR VALUE |
Fair value is 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. The inputs
used to measure fair value are prioritized based on a
three-level hierarchy. The three levels of inputs to measure
fair value are as follows:
| • | Level 1 — inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets. | |
| • | Level 2 — inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly. | |
| • | Level 3 — inputs to the valuation methodology are unobservable. |
67
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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
Company’s assets, measured at fair value, within it were as
follows:
| Assets Fair Value as of January 30, 2010 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (In thousands) | ||||||||||||||||
|
ASSETS:
|
||||||||||||||||
|
Money market funds(1)
|
$ | 484,933 | $ | — | $ | — | $ | 484,933 | ||||||||
|
ARS — trading — student loan backed
|
— | — | 20,049 | 20,049 | ||||||||||||
|
ARS — trading — municipal authority bonds
|
— | — | 12,307 | 12,307 | ||||||||||||
|
ARS —
available-for-sale —
student loan backed
|
— | — | 118,390 | 118,390 | ||||||||||||
|
ARS —
available-for-sale —
municipal authority bonds
|
— | — | 23,404 | 23,404 | ||||||||||||
|
UBS put option
|
— | — | 4,640 | 4,640 | ||||||||||||
|
Municipal bonds held in the Rabbi Trust
|
18,537 | — | — | 18,537 | ||||||||||||
|
Derivative financial instruments
|
— | 1,348 | — | 1,348 | ||||||||||||
|
Total assets measured at fair value
|
$ | 503,470 | $ | 1,348 | $ | 178,790 | $ | 683,608 | ||||||||
| (1) | Includes $483.6 million in money market funds included in Cash and Equivalents and $1.3 million of money market funds held in the Rabbi Trust which are included in Other Assets on the Consolidated Balance Sheet. |
The level 2 assets consist of derivative financial
instruments, primarily forward foreign exchange contracts. The
fair value of forward foreign exchange contracts is determined
by using quoted market prices of the same or similar
instruments, adjusted for counterparty risk.
The level 3 assets primarily include investments in insured
student loan backed ARS and insured municipal authority bonds
ARS, which include both the
available-for-sale
and trading ARS. Additionally, level 3 assets include the
Put Option related to the UBS Agreement.
As a result of the market failure and lack of liquidity in the
current ARS market, the Company measured the fair value of its
ARS primarily using a discounted cash flow model as of
January 30, 2010. Certain significant inputs into the model
are unobservable in the market including the periodic coupon
rate adjusted for the marketability discount, 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 an auction failure. In making the
assumption of the market required rate of return, the Company
considered the risk-free interest rate and an appropriate credit
spread, depending on the type of security and the credit rating
of the issuer. The expected term is identified as the time the
Company believes the principal will become available to the
investor. The Company utilized a term of five years to value its
securities. The Company also included a marketability discount
which takes into account the lack of activity in the current ARS
market.
68
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of January 30, 2010, approximately 70% of the
Company’s ARS were “AAA” rated and approximately
14% of the Company’s ARS were “AA” or
“A” rated with the remaining ARS having an
“A−” or “BBB+” rating, in each case as
rated by one or more of the major credit rating agencies.
In Fiscal 2008, the Company elected to apply fair value
accounting for the Put Option related to the Company’s UBS
ARS. The fair value of the Put Option was determined by
calculating the present value of the difference between the par
value and the fair value of the UBS ARS as of January 30,
2010, adjusted for counterparty risk. The present value was
calculated using a discount rate that incorporates an investment
grade corporate bond index rate and the credit default swap rate
for UBS. The Put Option is recognized as an asset within Other
Current Assets on the accompanying Consolidated Balance Sheets
and the corresponding gains and losses within Other Operating
Income, Net on the accompanying Consolidated Statements of
Operations and Comprehensive Income.
The table below includes a roll forward of the Company’s
level 3 assets from January 31, 2009 to
January 30, 2010. When a determination is made to classify
an asset or liability 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 assets and liabilities
may include observable components.
|
Trading ARS -
|
Trading ARS -
|
Available-for-sale
|
Available-for-sale
|
Put
|
||||||||||||||||||||
| Student Loans | Muni Bonds | ARS - Student Loans | ARS - Muni Bonds | Option | Total | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Fair value, January 31, 2009
|
$ | 50,589 | $ | 11,959 | $ | 139,239 | $ | 27,294 | $ | 12,309 | $ | 241,390 | ||||||||||||
|
Redemptions
|
(39,400 | ) | — | (31,650 | ) | (6,400 | ) | — | (77,450 | ) | ||||||||||||||
|
Transfers (out)/in
|
— | — | — | — | — | — | ||||||||||||||||||
|
Gains and (losses), net:
|
||||||||||||||||||||||||
|
Reported in Net Income
|
8,860 | 348 | — | — | (7,669 | ) | 1,539 | |||||||||||||||||
|
Reported in Other Comprehensive Income (Loss)
|
— | — | 10,801 | 2,510 | — | 13,311 | ||||||||||||||||||
|
Fair value, January 30, 2010
|
$ | 20,049 | $ | 12,307 | $ | 118,390 | $ | 23,404 | $ | 4,640 | $ | 178,790 | ||||||||||||
69
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 6. | PROPERTY AND EQUIPMENT |
Property and equipment, at cost, consisted of (thousands):
| 2009 | 2008 | |||||||
|
Land
|
$ | 32,877 | $ | 32,302 | ||||
|
Building
|
223,532 | 235,738 | ||||||
|
Furniture, fixtures and equipment
|
593,984 | 628,195 | ||||||
|
Information technology
|
211,461 | 138,096 | ||||||
|
Leasehold improvements
|
1,205,276 | 1,143,656 | ||||||
|
Construction in progress
|
48,352 | 114,280 | ||||||
|
Other
|
47,010 | 47,017 | ||||||
|
Total
|
$ | 2,362,492 | $ | 2,339,284 | ||||
|
Less: Accumulated depreciation and amortization
|
1,118,473 | 940,629 | ||||||
|
Property and equipment, net
|
$ | 1,244,019 | $ | 1,398,655 | ||||
Long-lived assets, primarily comprised of property and
equipment, are reviewed periodically for impairment or whenever
events or changes in circumstances indicate that full
recoverability of net asset balances through future cash flows
is in question. Factors used in the evaluation include, but are
not limited to, management’s plans for future operations,
recent operating results and projected cash flows. During Fiscal
2009, as a result of a strategic review of the RUEHL business,
the Company determined that a triggering event occurred. As a
result of that assessment, the Company incurred non-cash pre-tax
impairment charges of $51.5 million, reported in Net Loss
from Discontinued Operations on the Consolidated Statement of
Operations and Comprehensive Income for the fifty-two weeks
ended January 30, 2010. There was no remaining fair value
of RUEHL long-lived assets as of January 30, 2010.
In the fourth quarter of Fiscal 2009, as a part of the
Company’s year-end review for impairment of store related
assets, the Company incurred a non-cash pre-tax impairment
charge of $33.2 million, reported in Stores and
Distribution Expense on the Consolidated Statements of
Operations and Comprehensive Income for the fifty-two weeks
ended January 30, 2010. The charge was associated with 34
Abercrombie & Fitch stores, 46 abercrombie kids stores
and 19 Hollister stores. In Fiscal 2008, the Company incurred a
non-cash pre-tax impairment charge of approximately
$8.3 million related to long-lived assets. The charge was
associated with 11 Abercrombie & Fitch stores, six
abercrombie kids stores and three Hollister stores and was
reported in Stores and Distribution Expense on the Consolidated
Statement of Operations and Comprehensive Income for the
fifty-two weeks ended January 31, 2009.
The Company also incurred a non-cash pre-tax impairment charge
of approximately $22.3 million related to long-lived assets
associated with nine RUEHL stores, which was reported in Net
Loss from Discontinued Operations on the Consolidated Statement
of Operations and Comprehensive Income for the fifty-two weeks
ended January 31, 2009.
Store related assets are considered Level 3 assets in the
fair value hierarchy and the fair values were determined at the
store level primarily using a discounted cash flow model. The
estimation of future cash
70
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
flows from operating activities requires significant estimates
of factors that include future sales, gross margin performance
and operating expenses. In instances where the discounted cash
flow analysis indicated a negative value at the store level, the
market exit price based on historical experience was used to
determine the fair value by asset type. The Company had store
related assets measured at fair value of $19.3 million on
the Consolidated Balance Sheet at January 30, 2010.
| 7. | DEFERRED LEASE CREDITS, NET |
Deferred lease credits are derived from payments received from
landlords to partially offset store construction costs and are
reclassified between current and long-term liabilities. The
amounts, which are amortized over the life of the related
leases, consisted of the following (thousands):
| 2009 | 2008 | |||||||
|
Deferred lease credits
|
$ | 546,191 | $ | 514,041 | ||||
|
Amortization of deferred lease credits
|
(290,542 | ) | (259,705 | ) | ||||
|
Total deferred lease credits, net
|
$ | 255,649 | $ | 254,336 | ||||
| 8. | LEASED FACILITIES AND COMMITMENTS |
Annual store rent is comprised of a fixed minimum amount, plus
contingent rent based on a percentage of sales. Store lease
terms generally require additional payments covering taxes,
common area costs and certain other expenses.
A summary of rent expense follows (thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Store rent:
|
||||||||||||
|
Fixed minimum
|
$ | 301,138 | $ | 267,108 | $ | 221,651 | ||||||
|
Contingent
|
6,136 | 14,289 | 21,453 | |||||||||
|
Total store rent
|
307,274 | 281,397 | 243,104 | |||||||||
|
Buildings, equipment and other
|
5,071 | 5,905 | 6,066 | |||||||||
|
Total rent expense
|
$ | 312,345 | $ | 287,302 | $ | 249,170 | ||||||
At January 30, 2010, the Company was committed to
non-cancelable leases with remaining terms of one to
19 years. A summary of operating lease commitments under
non-cancelable leases follows (thousands):
|
Fiscal 2010
|
$ | 324,280 | ||
|
Fiscal 2011
|
$ | 315,696 | ||
|
Fiscal 2012
|
$ | 290,573 | ||
|
Fiscal 2013
|
$ | 270,335 | ||
|
Fiscal 2014
|
$ | 251,404 | ||
|
Thereafter
|
$ | 1,146,587 |
71
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 9. | ACCRUED EXPENSES |
Accrued expenses consisted of (thousands):
| 2009 | 2008 | |||||||
|
Gift card liability
|
$ | 49,778 | $ | 57,459 | ||||
|
Construction in progress
|
5,838 | 27,329 | ||||||
|
Accrued payroll and related costs
|
45,476 | 46,248 | ||||||
|
Accrued taxes
|
32,784 | 20,328 | ||||||
|
RUEHL lease termination costs
|
29,595 | — | ||||||
|
Other
|
82,818 | 89,867 | ||||||
|
Accrued expenses
|
$ | 246,289 | $ | 241,231 | ||||
Accrued payroll and related costs include salaries, benefits,
withholdings and other payroll related costs.
| 10. | OTHER LIABILITIES |
Other liabilities consisted of (thousands):
| 2009 | 2008 | |||||||
|
Accrued straight-line rent
|
$ | 87,147 | $ | 77,312 | ||||
|
RUEHL lease termination costs
|
16,391 | — | ||||||
|
Unrecognized tax benefits, including interest and penalties
|
39,314 | 53,419 | ||||||
|
Deferred compensation
|
66,053 | 71,288 | ||||||
|
Other
|
5,265 | 4,724 | ||||||
|
Other liabilities
|
$ | 214,170 | $ | 206,743 | ||||
Deferred compensation includes the Chief Executive Officer
Supplemental Executive Retirement Plan (the “SERP”),
the Abercrombie & Fitch Co. Savings and Retirement
Plan and the Abercrombie & Fitch Nonqualified Savings
and Supplemental Retirement Plan, all further discussed in
Note 15, “
Retirement Benefits
”, as well as
deferred Board of Directors compensation and other accrued
retirement benefits.
| 11. | INCOME TAXES |
Earnings from continuing operations before taxes (in thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Domestic
|
$ | 119,358 | $ | 501,125 | $ | 802,494 | ||||||
|
Foreign
|
152 | 8,519 | (4,757 | ) | ||||||||
|
Total
|
$ | 119,510 | $ | 509,644 | $ | 797,737 | ||||||
72
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The provision for income taxes from continuing operations
consisted of (thousands):
| 2009 | 2008 | 2007 | ||||||||||
|
Currently Payable:
|
||||||||||||
|
Federal
|
$ | 33,212 | $ | 166,327 | $ | 254,089 | ||||||
|
State
|
4,003 | 17,467 | 38,649 | |||||||||
|
Foreign
|
5,086 | 8,112 | 2,805 | |||||||||
| $ | 42,301 | $ | 191,906 | $ | 295,543 | |||||||
|
Deferred:
|
||||||||||||
|
Federal
|
$ | 10,055 | $ | 14,028 | $ | 4,611 | ||||||
|
State
|
(147 | ) | 2,480 | 459 | ||||||||
|
Foreign
|
(11,652 | ) | (6,939 | ) | (2,003 | ) | ||||||
| $ | (1,744 | ) | $ | 9,569 | $ | 3,067 | ||||||
|
Total provision
|
$ | 40,557 | $ | 201,475 | $ | 298,610 | ||||||
Reconciliation between the statutory federal income tax rate and
the effective tax rate for continuing operations is as follows:
| 2009 | 2008 | 2007 | ||||||||||||||
|
Federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||||||
|
State income tax, net of federal income tax effect
|
2.1 | 2.5 | 3.2 | |||||||||||||
|
Tax effect of foreign earnings
|
(4.4 | ) | (0.1 | ) | 0.4 | |||||||||||
|
Internal Revenue Code (“IRC”) Section 162(m)
|
1.5 | 2.5 | 0.2 | |||||||||||||
|
Other items, net
|
(0.3 | ) | (0.4 | ) | (1.4 | ) | ||||||||||
|
Total
|
33.9 | % | 39.5 | % | 37.4 | % | ||||||||||
Amounts paid directly to taxing authorities were
$27.1 million, $198.2 million and $259.0 million
in Fiscal 2009, Fiscal 2008, and Fiscal 2007, respectively.
73
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The effect of temporary differences which give rise to deferred
income tax assets (liabilities) were as follows (thousands):
| 2009 | 2008 | |||||||
|
Deferred tax assets:
|
||||||||
|
Deferred compensation
|
$ | 48,476 | $ | 37,635 | ||||
|
Rent
|
40,585 | 59,809 | ||||||
|
Accrued expenses
|
15,464 | 17,023 | ||||||
|
Foreign net operating losses
|
11,329 | 1,692 | ||||||
|
Reserves
|
8,757 | 11,020 | ||||||
|
Inventory
|
7,829 | 10,347 | ||||||
|
Other
|
2,223 | — | ||||||
|
Realized and unrealized investment losses
|
1,152 | 560 | ||||||
|
Valuation allowance
|
(1,369 | ) | (1,275 | ) | ||||
|
Total deferred tax assets
|
$ | 134,446 | $ | 136,811 | ||||
|
Deferred tax liabilities:
|
||||||||
|
Store supplies
|
(12,128 | ) | (12,844 | ) | ||||
|
Property and equipment
|
(127,983 | ) | (123,813 | ) | ||||
|
Total deferred tax liabilities
|
$ | (140,111 | ) | $ | (136,657 | ) | ||
|
Net deferred income tax (liabilities) assets
|
$ | (5,665 | ) | $ | 154 | |||
Accumulated other comprehensive income is shown net of deferred
tax assets and deferred tax liabilities, resulting in a deferred
tax asset of $4.6 million and $9.2 million for Fiscal
2009 and Fiscal 2008, respectively. Accordingly, these deferred
taxes are not reflected in the table above.
The Company has recorded a valuation allowance against the
deferred tax assets arising from the net operating loss of
certain foreign subsidiaries and for realized and unrealized
domestic operations’ investment losses.
As of January 30, 2010 and January 31, 2009, the net
operating foreign subsidiaries’ valuation allowance totaled
$0.2 million and $1.3 million, respectively. A portion
of these net operating loss carryovers begin expiring in Fiscal
2013 and some have an indefinite carry-forward period.
As of January 30, 2010, the valuation allowance for
realized and unrealized investment losses totaled approximately
$1.1 million. Realized losses begin expiring in Fiscal
2011. There was no valuation allowance as of January 31,
2009.
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.
74
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A reconciliation of the beginning and ending amounts of
unrecognized tax benefits is as follows:
| 2009 | 2008 | |||||||
|
Unrecognized tax benefits, beginning of year
|
$ | 43,684 | $ | 38,894 | ||||
|
Gross addition for tax positions of the current year
|
222 | 5,539 | ||||||
|
Gross addition for tax positions of prior years
|
2,167 | 8,754 | ||||||
|
Reductions of tax positions of prior years for:
|
||||||||
|
Changes in judgment/excess reserve
|
(10,744 | ) | (4,206 | ) | ||||
|
Settlements during the period
|
(5,444 | ) | (1,608 | ) | ||||
|
Lapses of applicable statutes of limitations
|
(448 | ) | (3,689 | ) | ||||
|
Unrecognized tax benefits, end of year
|
$ | 29,437 | $ | 43,684 | ||||
The amount of the above unrecognized tax benefits at
January 30, 2010 and January 31, 2009 which would
impact the Company’s effective tax rate, if recognized is
$29.4 million and $33.3 million, respectively.
The Company recognizes accrued interest and penalties related to
unrecognized tax benefits as a component of income tax expense.
Tax expense for Fiscal 2009 includes $1.2 million of net
accrued interest, compared to $0.5 million of net accrued
interest for Fiscal 2008. Interest and penalties of
$9.9 million have been accrued as of the end of Fiscal
2009, compared to $9.7 million accrued as of the end of
Fiscal 2008.
The Internal Revenue Service (“IRS”) is currently
conducting an examination of the Company’s
U.S. federal income tax return for Fiscal 2009 as part of
the IRS’s Compliance Assurance Process program. IRS
examinations for Fiscal 2008 and prior years have been completed
and settled, except for a transfer pricing matter that is the
subject of an ongoing Advanced Pricing Agreement negotiation
that is before the U.S. Competent Authority. State and
foreign returns are generally subject to examination for a
period of
3-5 years
after the filing of the respective return. The Company has
various state income tax returns in the process of examination
or administrative appeals.
The Company does not expect material adjustments to the total
amount of unrecognized tax benefits within the next
12 months, but the outcome of tax matters is uncertain and
unforeseen results can occur.
As of January 30, 2010, the Company had undistributed
earnings of approximately $18.9 million from certain
non-U.S. subsidiaries
that are intended to be permanently reinvested in
non-U.S. operations.
Because these earnings are considered permanently reinvested, no
U.S. tax provision has been accrued related to the
repatriation of these earnings. It is not practicable to
estimate the amount of U.S. tax that might be payable on
the eventual remittance of such earnings.
| 12. | LONG-TERM DEBT |
On April 15, 2008, the Company entered into a syndicated
unsecured credit agreement (as previously amended by Amendment
No. 1 to Credit Agreement made as of December 29,
2008, the “Credit Agreement”) under which up to
$450 million was available. On June 16, 2009, the
Company amended the Credit Agreement and, as a result, revised
the ratio requirements, as further discussed below, and also
reduced the amount available from $450 million to
$350 million (as amended, the “Amended Credit
Agreement”). The
75
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
primary purposes of the Amended 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.
The Amended Credit Agreement has several borrowing options,
including interest rates that are based on: (i) a Base
Rate, plus a margin based on the Leverage Ratio, payable
quarterly; (ii) an Adjusted Eurodollar Rate (as defined in
the Amended Credit Agreement) plus a margin based on the
Leverage Ratio, payable at the end of the applicable interest
period for the borrowing; or (iii) an Adjusted Foreign
Currency Rate (as defined in the Amended Credit Agreement) plus
a margin based on the Coverage Ratio, payable at the end of the
applicable interest period for the borrowing and, for interest
periods in excess of three months, on the date that is three
months after the commencement of the interest period. The Base
Rate represents a rate per annum equal to the higher of
(a) PNC Bank’s then publicly announced prime rate or
(b) the Federal Funds Effective Rate (as defined in the
Amended Credit Agreement) as then in effect plus 1/2 of 1.0%.
The facility fees payable under the Amended Credit Agreement are
based on the Company’s Leverage Ratio (i.e., the ratio, on
a consolidated basis, of (a) the sum of total debt
(excluding trade letters of credit) plus 600% of forward minimum
rent commitments to (b) consolidated earnings before
interest, taxes, depreciation, amortization and rent with the
further adjustments to be discussed in the following paragraphs
(“Consolidated EBITDAR”) for the trailing
four-consecutive-fiscal-quarter periods. The facility fees
accrue at a rate of 0.25% to 0.625% per annum based on the
Leverage Ratio for the most recent determination date. The
Amended Credit Agreement did not have a utilization fee as of
January 30, 2010. The Amended Credit Agreement requires
that the Leverage Ratio not be greater than 3.75 to 1.00 at the
end of each testing period. The Company’s Leverage Ratio
was 2.95 as of January 30, 2010. The Amended Credit
Agreement also required that the Coverage Ratio for A&F and
its subsidiaries on a consolidated basis of
(i) Consolidated EBITDAR for the trailing
four-consecutive-fiscal-quarter period to (ii) the sum of,
without duplication, (x) net interest expense for such
period, (y) scheduled payments of long-term debt due within
twelve months of the date of determination and (z) the sum
of minimum rent and contingent store rent, not be less than 1.65
to 1.00 at January 30, 2010. The minimum Coverage Ratio
varies over time based on the terms set forth in the Amended
Credit Agreement. The Amended Credit Agreement amended the
definition of Consolidated EBITDAR to add back the following
items, among others: (a) recognized losses arising from
investments in certain ARS to the extent such losses do not
exceed a defined level of impairments for those investments;
(b) non-cash charges in an amount not to exceed
$50 million related to the closure of RUEHL branded stores
and related
direct-to-consumer
operations; (c) non-recurring cash charges in an aggregate
amount not to exceed $61 million related to the closure of
RUEHL branded stores and related
direct-to-consumer
operations; (d) additional non-recurring non-cash charges
in an amount not to exceed $20 million in the aggregate
over the trailing four fiscal quarter period; and (e) other
non-recurring cash charges in an amount not to exceed
$10 million in the aggregate over the trailing four fiscal
quarter period. The Company’s Coverage Ratio was 2.10 as of
January 30, 2010. The Amended Credit Agreement also limits
the Company’s consolidated capital expenditures to
$275 million in Fiscal 2009, and to $325 million in
Fiscal 2010 plus any unused portion from Fiscal 2009. The
Company was in compliance with the applicable ratio requirements
and other covenants at January 30, 2010.
The terms of the Amended Credit Agreement include customary
events of default such as payment defaults, cross-defaults to
other material indebtedness, bankruptcy and insolvency, the
occurrence of a defined change in control, or the failure to
observe the negative covenants and other covenants related to
the
76
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
operation and conduct of the business of A&F and its
subsidiaries. Upon an event of default, the lenders will not be
obligated to make loans or other extensions of credit and may,
among other things, terminate their commitments to the Company,
and declare any then outstanding loans due and payable
immediately.
The Amended Credit Agreement will mature on April 12, 2013.
Trade letters of credit totaling approximately
$35.9 million and $21.1 million were outstanding on
January 30, 2010 and January 31, 2009, respectively.
Stand-by letters of credit totaling approximately
$14.1 million and $16.9 million were outstanding on
January 30, 2010 and January 31, 2009, respectively.
The stand-by letters of credit are set to expire primarily
during the fourth quarter of Fiscal 2010. To date, no
beneficiary has drawn upon the stand-by letters of credit.
The Company had $50.9 million and $100.0 million
outstanding under the Amended Credit Agreement as of
January 30, 2010, and January 31, 2009, respectively.
The $50.9 million outstanding under the Amended Credit
Agreement as of January 30, 2010 was denominated in
Japanese Yen. At January 30, 2010, the Company also had
$20.3 million of long-term debt related to the landlord
financing obligation for certain leases where the Company is
deemed the owner of the project for accounting purposes, as
substantially all of the risk of ownership during construction
of a leased property is held by the Company. The landlord
financing obligation is amortized over the life of the related
lease.
As of January 30, 2010, the carrying value of the
Company’s long-term debt approximated fair value. Total
interest expense was $6.6 million and $3.4 million for
Fiscal 2009 and Fiscal 2008, respectively. The average interest
rate for the long-term debt recorded under the Amended Credit
Agreement was 2.0% for the fifty-two week period ended
January 30, 2010.
On March 6, 2009, the Company entered a secured,
uncommitted demand line of credit (“UBS Credit Line”)
under which up to $26.3 million was available at
January 30, 2010. The amount available under the UBS Credit
Line is subject to adjustment from
time-to-time
based on the market value of the Company’s UBS ARS as
determined by UBS. The UBS Credit Line is to be used for general
corporate purposes. Being a demand line of credit, the UBS
Credit Line does not have a stated maturity date.
As security for the payment and performance of the
Company’s obligations under the UBS Credit Line, the UBS
Credit Line provides that the Company grants a security interest
to UBS Bank USA, as lender, in each account of the Company at
UBS Financial Services Inc. that is identified as a Collateral
Account (as defined in the UBS Credit Line), as well as any and
all money, credit balances, securities, financial assets and
other investment property and other property maintained from
time-to-time
in any Collateral Account, any
over-the-counter
options, futures, foreign exchange, swap or similar contracts
between the Company and UBS Financial Services Inc. or any of
its affiliates, any and all accounts of the Company at UBS Bank
USA or any of its affiliates, any and all supporting obligations
and other rights relating to the foregoing property, and any and
all interest, dividends, distributions and other proceeds of any
of the foregoing property, including proceeds of proceeds.
Because certain of the Collateral consists of ARS (as defined in
the UBS Credit Line), the UBS Credit Line provides further that
the interest rate payable by the Company will reflect any
changes in the composition of such ARS Collateral (as defined in
the UBS Credit Line) as may be necessary to cause
77
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the interest payable by the Company under the UBS Credit Line to
equal the interest or dividend rate payable to the Company by
the issuer of any ARS Collateral.
The terms of the UBS Credit Line include customary events of
default such as payment defaults, the failure to maintain
sufficient collateral, the failure to observe any covenant or
material representation, bankruptcy and insolvency,
cross-defaults to other indebtedness and other stated events of
default. Upon an event of default, the obligations under the UBS
Credit Line will become immediately due and payable. No
borrowings were outstanding under the UBS Credit Line as of
January 30, 2010.
| 13. | DERIVATIVES |
All derivative instruments are recorded at fair value on the
Consolidated Balance Sheets as either Other Assets or Accrued
Expenses. The accounting for changes in the fair value of a
derivative instrument depends on whether it has been designated
as a hedge and qualifies for hedge accounting treatment. Refer
to Note 5, “
Fair Value
” for further
discussion of the determination of the fair value of
derivatives. As of January 30, 2010, all outstanding
derivative instruments were designated as hedges and qualified
for hedge accounting treatment. There were no outstanding
derivative instruments as of January 31, 2009.
In order to qualify for hedge accounting, a derivative must be
considered highly effective at offsetting changes in either the
hedged item’s cash flows or fair value. Additionally, the
hedge relationship must be documented to include the risk
management objective and strategy, the hedging instrument, the
hedged item, the risk exposure, and how hedge effectiveness will
be assessed prospectively and retrospectively. The extent to
which a hedging instrument has been and is expected to continue
to be effective at achieving offsetting changes in fair value or
cash flows is assessed and documented at least quarterly. Any
hedge ineffectiveness is reported in current period earnings and
hedge accounting is discontinued if it is determined that the
derivative is not highly effective.
For derivatives that either do not qualify for hedge accounting
or are not designated as hedges, all changes in the fair value
of the derivative are recognized in earnings. For qualifying
cash flow hedges, the effective portion of the change in the
fair value of the derivative is recorded as a component of Other
Comprehensive Income (Loss) (“OCI”) and recognized in
earnings when the hedged cash flows affect earnings. The
ineffective portion of the derivative gain or loss, as well as
changes in the fair value of the derivative’s time value
are recognized in current period earnings. The effectiveness of
the hedge is assessed based on changes in fair value
attributable to changes in spot prices. The changes in the fair
value of the derivative contract related to the changes in the
difference between the spot price and the forward price are
excluded from the assessment of hedge effectiveness and are also
recognized in current period earnings. If the cash flow hedge
relationship is terminated, the derivative gains or losses that
are deferred in OCI will be recognized in earnings when the
hedged cash flows occur. However, for cash flow hedges that are
terminated because the forecasted transaction is not expected to
occur in the original specified time period, or a two-month
period thereafter, the derivative gains or losses are
immediately recognized in earnings. There were no gains or
losses reclassified into earnings as a result of the
discontinuance of cash flow hedges as of January 30, 2010.
The Company uses derivative instruments, primarily forward
contracts designated as cash flow hedges, to hedge the foreign
currency exposure associated with forecasted
foreign-currency-denominated
78
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
inter-company
inventory sales to foreign subsidiaries and the related
settlement of the
foreign-currency-denominated
inter-company
receivable. Fluctuations in exchange rates will either increase
or decrease the Company’s U.S. dollar equivalent cash
flows and affect the Company’s U.S. dollar earnings.
Gains or losses on the foreign exchange forward contracts that
are used to hedge these exposures are expected to partially
offset this variability. Foreign exchange forward contracts
represent agreements to exchange the currency of one country for
the currency of another country at an
agreed-upon
settlement date. As of January 30, 2010, the maximum length
of time over which forecasted foreign denominated inter-company
inventory sales were hedged was twelve months. The sale of the
inventory to the Company’s customers will result in the
reclassification of related derivative gains and losses that are
reported in Accumulated Other Comprehensive Loss. Substantially
all of the remaining unrealized gains or losses related to
foreign denominated inter-company inventory sales that have
occurred as of January 30, 2010 will be recognized in costs of
goods sold over the following two months at the values at the
date the inventory was sold to the respective subsidiary.
The Company nets derivative assets and liabilities on the
Consolidated Balance Sheet to the extent that master netting
arrangements meet the specific accounting requirements set forth
by U.S. generally accepted accounting principles.
As of January 30, 2010, the Company had the following
outstanding foreign exchange forward contracts that were entered
into to hedge forecasted foreign denominated inter-company
inventory sales and the resulting settlement of the foreign
denominated inter-company accounts receivable:
| Notional Amount(1) | ||||
|
Canada
|
$ | 24,641 | ||
|
Europe
|
$ | 45,703 | ||
| (1) | Amounts are reported in thousands and in U.S. Dollars. The notional amount of derivatives related to Europe are denominated primarily in Sterling Pound. |
The location and amounts of derivative fair values on the
Consolidated Balance Sheets as of January 30, 2010 and
January 31, 2009 were as follows:
| Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||
|
Balance Sheet
|
January 30,
|
January 31,
|
Balance Sheet
|
January 30,
|
January 31,
|
|||||||||||||||||||
| Location | 2010 | 2009 | Location | 2010 | 2009 | |||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
|
Derivatives Designated as Hedging Instruments:
|
||||||||||||||||||||||||
|
Foreign Exchange Forward Contracts
|
Other Current Assets | $ | 1,348 | $ | — | Accrued Expenses | $ | — | $ | — | ||||||||||||||
79
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The location and amounts of derivative gains and losses for the
fifty-two weeks ended January 30, 2010 and January 31,
2009 on the Consolidated Statements of Operations and
Comprehensive Income are as follows:
|
Location of Gain
|
||||||||||||||||||||||||||||
|
Recognized in Earnings
|
Amount of Gain Recognized
|
|||||||||||||||||||||||||||
|
Amount of (Loss) Gain
|
Location of (Gain)
|
Amount of (Gain) Loss
|
on Derivative (Ineffective
|
in Earnings on Derivative
|
||||||||||||||||||||||||
|
Recognized in OCI
|
Loss Reclassified
|
Reclassified from
|
Portion and Amount
|
(Ineffective Portion and
|
||||||||||||||||||||||||
|
on Derivative Contracts
|
from Accumulated
|
Accumulated OCI into
|
Excluded from
|
Amount Excluded from
|
||||||||||||||||||||||||
|
(Effective Portion)
|
OCI into Earnings
|
Earnings (Effective Portion)
|
Effectiveness
|
Effectiveness Testing)
|
||||||||||||||||||||||||
| (a) | (Effective Portion) | (b) | Testing) | (c) | ||||||||||||||||||||||||
| For the Fifty-Two Weeks Ended | ||||||||||||||||||||||||||||
|
January 30,
|
January 31,
|
January 30,
|
January 31,
|
January 30,
|
January 31,
|
|||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
|
Derivatives in Cash Flow Hedging Relationships
|
||||||||||||||||||||||||||||
|
Foreign Exchange Forward Contracts
|
$ | (3,790 | ) | $3,406 | Cost of Goods Sold | $ | (3,074 | ) | $ | 1,893 |
Other Operating
(Income) Loss, Net |
$ | (74 | ) | $ | (219 | ) | |||||||||||
| (a) | The amount represents the change in fair value of derivative contracts due to changes in spot rates. | |
| (b) | The amount represents reclassification from OCI to earnings that occurs when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers. | |
| (c) | The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and therefore recognized in earnings. There were no ineffective portions recorded in earnings for the fifty-two weeks ended January 30, 2010 and January 31, 2009. |
The Company does not use forward contracts to engage in currency
speculation and does not enter into derivative financial
instruments for trading purposes.
| 14. | DISCONTINUED OPERATIONS |
On June 16, 2009, A&F’s Board of Directors
approved the closure of the Company’s 29 RUEHL branded
stores and related
direct-to-consumer
operations. The determination to take this action was based on a
comprehensive review and evaluation of the performance of the
RUEHL branded stores and related
direct-to-consumer
operations, as well as the related real estate portfolio. The
Company completed the closure of the RUEHL branded stores and
related
direct-to-consumer
operations during the fourth quarter of Fiscal 2009.
Accordingly, the results of operations of RUEHL are reflected in
Net Loss from Discontinued Operations for all periods presented
on the Consolidated Statements of Operations and Comprehensive
Income.
80
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Costs associated with exit or disposal activities are recorded
when the liability is incurred. Below is a roll forward of the
liabilities recognized on the Consolidated Balance Sheet as of
January 30, 2010 related to the closure of the RUEHL
branded stores and related
direct-to-consumer
operations (in thousands):
|
Fifty-Two Weeks Ended
|
||||
| January 30, 2010 | ||||
|
Beginning Balance
|
$ | — | ||
|
Cash Charges
|
68,363 | |||
|
Interest Accretion
|
358 | |||
|
Cash Payments
|
(22,635 | ) | ||
|
Ending Balance(1)
|
$ | 46,086 | ||
| (1) | Ending balance primarily reflects the net present value of obligations due under signed lease termination agreements and obligations due under a lease, for which no agreement exists, less estimated sublease income. As of January 30, 2010, there were $29.6 million of lease termination charges and $0.1 million of severance charges recorded as a current liability in Accrued Expenses and $16.4 million of lease termination charges recorded as a long-term liability in Other Liabilities on the Consolidated Balance Sheet. |
Below is a summary of charges related to the closure of the
RUEHL branded stores and related
direct-to-consumer
operations (in thousands):
|
Fifty-Two Weeks Ended
|
||||
| January 30, 2010 | ||||
|
Asset Impairments(1)
|
$ | 51,536 | ||
|
Lease Terminations, net(2)
|
53,916 | |||
|
Severance and Other(3)
|
2,189 | |||
|
Total Charges
|
$ | 107,641 | ||
| (1) | Asset impairment charges primarily related to store furniture, fixtures and leasehold improvements. | |
| (2) | Lease terminations reflect the net present value of obligations due under signed lease termination agreements and obligations due under a lease, for which no agreement exists, less estimated sublease income. The charges are presented net of the reversal of non-cash credits. | |
| (3) | Severance and other reflects charges primarily related to severance and merchandise and store supply inventory. |
81
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The table below presents the significant components of
RUEHL’s results included in Net Loss from Discontinued
Operations on the Consolidated Statements of Operations and
Comprehensive Income for fiscal years ended January 30,
2010, January 31, 2009 and February 2, 2008.
| 2009 | 2008 | 2007 | ||||||||||
|
NET SALES
|
$ | 48,393 | $ | 56,218 | $ | 50,192 | ||||||
|
Cost of Goods Sold
|
22,037 | 25,621 | 26,990 | |||||||||
|
GROSS PROFIT
|
26,356 | 30,597 | 23,202 | |||||||||
|
Stores and Distribution Expense
|
146,826 | 75,148 | 42,668 | |||||||||
|
Marketing, General and Administrative Expense
|
8,556 | 14,411 | 18,978 | |||||||||
|
Other Operating Income, Net
|
(11 | ) | (86 | ) | (28 | ) | ||||||
|
NET LOSS BEFORE INCOME TAXES(1)
|
$ | (129,016 | ) | $ | (58,876 | ) | $ | (38,416 | ) | |||
|
Income Tax Benefit
|
(50,316 | ) | (22,962 | ) | (14,982 | ) | ||||||
|
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX
|
$ | (78,699 | ) | $ | (35,914 | ) | $ | (23,434 | ) | |||
|
NET LOSS PER SHARE FROM DISCONTINUED
|
||||||||||||
|
OPERATIONS:
|
||||||||||||
|
BASIC
|
$ | (0.90 | ) | $ | (0.41 | ) | $ | (0.27 | ) | |||
|
DILUTED
|
$ | (0.89 | ) | $ | (0.40 | ) | $ | (0.26 | ) | |||
| (1) | Includes non-cash pre-tax asset impairment charges of approximately $51.5 million and $22.3 million during the fifty-two weeks ended January 30, 2010 and January 31, 2009, respectively, and net costs associated with the closure of the RUEHL business, primarily net lease termination costs of approximately $53.9 million and severance and other charges of $2.2 million during the fifty-two weeks ended January 30, 2010. |
| 15. | RETIREMENT BENEFITS |
The Company maintains the Abercrombie & Fitch Co.
Savings & Retirement Plan, a qualified plan. All
U.S. associates are eligible to participate in this plan if
they are at least 21 years of age and have completed a year
of employment with 1,000 or more hours of service. In addition,
the Company maintains the Abercrombie & Fitch
Nonqualified Savings and Supplemental Retirement Plan.
Participation in this plan is based on service and compensation.
The Company’s contributions are based on a percentage of
associates’ eligible annual compensation. The cost of the
Company’s contributions to these plans was
$17.8 million in Fiscal 2009, $24.7 million in Fiscal
2008 and $21.0 million in Fiscal 2007.
Effective February 2, 2003, the Company established a Chief
Executive Officer Supplemental Executive Retirement Plan (the
“SERP”) to provide additional retirement income to its
Chairman and Chief Executive Officer (“CEO”). Subject
to service requirements, the CEO will receive a monthly benefit
equal to 50% of his final average compensation (as defined in
the SERP) for life. The final average compensation used for the
82
Table of Contents
ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
calculation is based on actual compensation, base salary and
cash incentive compensation for the past three fiscal years. In
Fiscal 2009 and Fiscal 2008, the Company recorded income of
$1.0 million and $2.5 million associated to the SERP,
respectively. The amounts recognized in Fiscal 2009 and Fiscal
2008 were primarily the result of a reduction in average
compensation, partially offset by a reduction in the discount
rate. The expense associated with the SERP was $1.4 million
in Fiscal 2007.
| 16. | CONTINGENCIES |
A&F is a defendant in lawsuits and other adversary
proceedings 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 kids
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 June 23, 2008, the defendants settled all
claims of Hollister and abercrombie kids store managers who
served in stores from June 23, 2002 through April 30,
2004, but continued to oppose the plaintiffs’ remaining
claims. On January 29, 2009, the Court certified a class
consisting of all store managers who served at Hollister and
abercrombie kids stores in California from May 1, 2004
through the future date upon which the action concludes. The
parties are continuing to litigate the claims of that putative
class.
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&F’s 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 related to sales of Common Stock by
certain defendants and to a decline in the price of
A&F’s Common Stock during the summer of 2005,
allegedly as a result of misstatements attributable to A&F.
Plaintiffs seek unspecified monetary damages. 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. After briefing and argument, the motion was
submitted on March 24, 2009, and granted on May 21,
2009. On June 5, 2009, defendants petitioned the Sixth
Circuit for permission to appeal the class certification order
and on August 24, 2009, the Sixth Circuit granted leave to
appeal.
83
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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&F’s present and former directors, alleging various
breaches of the directors’ fiduciary duty and seeking
equitable and monetary relief. In the following three months,
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 allegedly arising
out of the same matters alleged in the Ross case and seeking
equitable and monetary relief on behalf of A&F. In March of
2006, the federal court derivative actions were consolidated
with the Ross 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. On February 16, 2007, A&F announced that its
Board of Directors had received a report of the Special
Litigation Committee established by the Board to investigate and
act with respect to claims asserted in the derivative lawsuit,
which concluded that there was no evidence to support the
asserted claims and directed the Company to seek dismissal of
the derivative cases. On September 10, 2007, the Company
moved to dismiss the federal derivative cases on the authority
of the Special Litigation Committee report. On March 12,
2009, the Company’s motion was granted and, on
April 10, 2009, plaintiffs filed an appeal from the order
of dismissal. The state court has stayed further proceedings in
the state-court derivative action until resolution of the
consolidated federal derivative cases.
Management intends to defend the aforesaid matters vigorously,
as appropriate. Management is unable to quantify the potential
exposure of the aforesaid matters. However, management’s
assessment of the Company’s 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, administrative agencies or other finders of
fact that are not in accordance with management’s
evaluation of the claims.
| 17. | PREFERRED STOCK PURCHASE RIGHTS |
On July 16, 1998, A&F’s Board of Directors
declared a dividend of one Series A Participating
Cumulative Preferred Stock Purchase Right (the
“Rights”) for each outstanding share of Class A
Common Stock (the “Common Stock”), par value $.01 per
share, of A&F. The dividend was paid on July 28, 1998
to stockholders of record on that date. Shares of Common Stock
issued after July 28, 1998 and prior to May 25, 1999
were issued with one Right attached. A&F’s Board of
Directors declared a
two-for-one
stock split (the “Stock Split”) on the Common Stock,
payable on June 15, 1999 to the holders of record at the
close of business on May 25, 1999. In connection with the
Stock Split, the number of Rights associated with each share of
Common Stock outstanding as of the close of business on
May 25, 1999, or issued or delivered after May 25,
1999 and prior to the “Distribution Date” (as defined
below), was proportionately adjusted from one Right to 0.50
Right. Each share of Common Stock issued after May 25, 1999
and prior to the Distribution Date has been, and will be issued,
with 0.50 Right attached so that all shares of Common Stock
outstanding prior to the Distribution Date will have 0.50 Right
attached.
The Rights are initially attached to the shares of Common Stock.
The Rights will separate from the Common Stock after a
Distribution Date occurs. The “Distribution Date”
generally means the earlier of (i) the close of business on
the 10th day after the date (the “Share Acquisition
Date”) of the first public announcement that a person or
group (other than A&F or any of A&F’s
subsidiaries or any employee
84
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
benefit plan of A&F or of any of A&F’s
subsidiaries) has acquired beneficial ownership of 20% or more
of A&F’s outstanding shares of Common Stock (an
“Acquiring Person”), or (ii) the close of
business on the 10th business day (or such later date as
A&F’s Board of Directors may designate before any
person has become an Acquiring Person) after the date of the
commencement of a tender or exchange offer by any person which
would, if consummated, result in such person becoming an
Acquiring Person. The Rights are not exercisable until the
Distribution Date. After the Distribution Date, each whole Right
may be exercised to purchase, at an initial exercise price of
$250, one one-thousandth of a share of Series A
Participating Cumulative Preferred Stock.
At any time after any person becomes an Acquiring Person, but
before the occurrence of any of the events described in the
immediately following paragraph, each holder of a Right, other
than the Acquiring Person and certain affiliated persons, will
be entitled to purchase, upon exercise of the Right, shares of
Common Stock having a market value of twice the exercise price
of the Right. At any time after any person becomes an Acquiring
Person, but before any person becomes the beneficial owner of
50% or more of the outstanding shares of Common Stock or the
occurrence of any of the events described in the immediately
following paragraph, A&F’s Board of Directors may
exchange all or part of the Rights, other than Rights
beneficially owned by an Acquiring Person and certain affiliated
persons, for shares of Common Stock at an exchange ratio of one
share of Common Stock per 0.50 Right.
If, after any person has become an Acquiring Person,
(i) A&F is involved in a merger or other business
combination transaction in which A&F is not the surviving
corporation or A&F’s Common Stock is exchanged for
other securities or assets, or (ii) A&F
and/or
one
or more of A&F’s subsidiaries sell or otherwise
transfer 50% or more of the assets or earning power of A&F
and its subsidiaries, taken as a whole, each holder of a Right,
other than the Acquiring Person and certain affiliated persons,
will be entitled to buy, for the exercise price of the Rights,
the number of shares of common stock of the other party to the
business combination or sale, or in certain circumstances, an
affiliate, which at the time of such transaction will have a
market value of twice the exercise price of the Right.
The Rights will expire on July 16, 2018, unless earlier
exchanged or redeemed. A&F may redeem all of the Rights at
a price of $.01 per whole Right at any time before any person
becomes an Acquiring Person.
Rights holders have no rights as a stockholder of A&F,
including the right to vote and to receive dividends.
85
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ABERCROMBIE &
FITCH CO.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| 18. | QUARTERLY FINANCIAL DATA (UNAUDITED) |
Summarized unaudited quarterly financial results for Fiscal 2009
and Fiscal 2008 follows (thousands, except per share amounts):
|
Fiscal 2009
Quarter
(1)
|
First | Second | Third | Fourth | ||||||||||||
|
Net sales
|
$ | 601,729 | $ | 637,221 | $ | 753,684 | $ | 935,991 | ||||||||
|
Gross profit
|
$ | 381,453 | $ | 424,516 | $ | 483,087 | $ | 594,542 | ||||||||
|
Net (loss) income from continuing operations
|
$ | (23,104 | ) | $ | (8,191 | ) | $ | 49,222 | $ | 61,025 | ||||||
|
Net loss from discontinued operations, net of tax
|
$ | (36,135 | ) | $ | (18,557 | ) | $ | (10,439 | ) | $ | (13,566 | ) | ||||
|
Net (loss) income
|
$ | (59,239 | ) | $ | (26,747 | ) | $ | 38,784 | $ | 47,459 | ||||||
|
Net (loss) income per diluted share from continuing operations
|
$ | (0.26 | ) | $ | (0.09 | ) | $ | 0.55 | $ | 0.68 | ||||||
|
Net loss per diluted share from discontinued operations
|
$ | (0.41 | ) | $ | (0.21 | ) | $ | (0.12 | ) | $ | (0.15 | ) | ||||
|
Net (loss) income per diluted share
|
$ | (0.68 | ) | $ | (0.30 | ) | $ | 0.44 | $ | 0.53 | ||||||
|
Fiscal 2008
Quarter
(1)
|
First | Second | Third | Fourth | ||||||||||||
|
Net sales
|
$ | 787,139 | $ | 833,298 | $ | 882,811 | $ | 980,809 | ||||||||
|
Gross profit
|
$ | 526,734 | $ | 585,547 | $ | 584,965 | $ | 633,849 | ||||||||
|
Net income from continuing operations
|
$ | 67,167 | $ | 83,236 | $ | 69,743 | $ | 88,021 | ||||||||
|
Net loss from discontinued operations, net of tax
|
$ | (5,051 | ) | $ | (5,404 | ) | $ | (5,844 | ) | $ | (19,614 | ) | ||||
|
Net income
|
$ | 62,116 | $ | 77,832 | $ | 63,900 | $ | 68,407 | ||||||||
|
Net income per diluted share from continuing operations
|
$ | 0.75 | $ | 0.93 | $ | 0.79 | $ | 1.00 | ||||||||
|
Net loss per diluted share from discontinued operations
|
$ | (0.06 | ) | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.22 | ) | ||||
|
Net income per diluted share
|
$ | 0.69 | $ | 0.87 | $ | 0.72 | $ | 0.78 | ||||||||
| (1) | Results of operations of RUEHL are reflected as discontinued operations for all periods presented. Refer to Note 14, “ Discontinued Operations ” for further discussion. |
86
Table of Contents
Report of
Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Abercrombie & Fitch Co.:
In our opinion, the consolidated financial statements listed in
the accompanying index appearing under item 15(a)(1)
present fairly, in all material respects, the financial position
of Abercrombie & Fitch Co. and its subsidiaries at
January 30, 2010 and January 31, 2009, and the results
of their operations and their cash flows for each of the three
years in the period ended January 30, 2010 in conformity
with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained,
in all material respects, effective internal control over
financial reporting as of January 30, 2010, based on
criteria established in
Internal Control - Integrated
Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Company’s management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express opinions
on these financial statements and on the Company’s internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
87
Table of Contents
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
Columbus, Ohio
March 29, 2010
88
Table of Contents
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
| ITEM 9A. | 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 SEC’s rules and forms, and
that such information is accumulated and communicated to
A&F’s management, including the Chairman and Chief
Executive Officer of A&F and the Executive Vice President
and Chief Financial Officer of A&F, as appropriate to allow
timely decisions regarding required disclosures. Because of
inherent limitations, disclosure controls and procedures, no
matter how well designed and operated, can provide only
reasonable, and not absolute, assurance that the objectives of
disclosure controls and procedures are met.
A&F’s management, including the Chairman and Chief
Executive Officer of A&F and the Executive Vice President
and Chief Financial Officer of A&F, evaluated the
effectiveness of A&F’s design and operation of its
disclosure controls and procedures as of the end of the fiscal
year ended January 30, 2010. The Chairman and Chief
Executive Officer of A&F and the Executive Vice President
and Chief Financial Officer of A&F concluded that the
A&F’s disclosure controls and procedures were
effective at a reasonable level of assurance as of
January 30, 2010, the end of the period covered by this
Annual Report on
Form 10-K.
Management’s
Annual Report on Internal Control Over Financial
Reporting
The management of A&F is responsible for establishing and
maintaining adequate internal control over financial reporting.
A&F’s internal control over financial reporting (as
defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) is a process designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluations of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Accordingly, even an effective system of internal control over
financial reporting will provide only reasonable assurance with
respect to financial statement preparation.
With the participation of the Chairman and Chief Executive
Officer of A&F and the Executive Vice President and Chief
Financial Officer of A&F, management evaluated the
effectiveness of A&F’s internal control over financial
reporting as of January 30, 2010 using criteria established
in the Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on the assessment of A&F’s
internal control over financial reporting, under the criteria
described in the preceding sentence, management has concluded
that, as of January 30, 2010, A&F’s internal
control over financial reporting was effective.
89
Table of Contents
A&F’s independent registered public accounting firm,
PricewaterhouseCoopers LLP, has issued an audit report on the
effectiveness of A&F’s internal control over financial
reporting as of January 30, 2010 as stated in their report,
which is included in “ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA” of this Annual Report on
Form 10-K.
Changes
in Internal Control Over Financial Reporting
There were no changes in A&F’s internal control over
financial reporting during the fiscal quarter ended
January 30, 2010 that materially affected, or are
reasonably likely to materially affect, A&F’s internal
control over financial reporting.
| ITEM 9B. | OTHER INFORMATION. |
None.
PART III
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Information concerning directors, executive officers and persons
nominated or chosen to become directors or executive officers is
incorporated by reference from the text under the caption
“ELECTION OF DIRECTORS” in A&F’s definitive
Proxy Statement for the Annual Meeting of Stockholders to be
held on June 9, 2010 and from the text under the caption
“SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE
REGISTRANT” in PART I of this Annual Report on
Form 10-K.
Compliance
with Section 16(a) of the Exchange Act
Information concerning beneficial ownership reporting compliance
under Section 16(a) of the Securities Exchange Act of 1934,
as amended, is incorporated by reference from the text under the
caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT — Section 16(a) Beneficial
Ownership Reporting Compliance” in A&F’s
definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 9, 2010.
Code
of Business Conduct and Ethics
Information concerning the Abercrombie & Fitch Code of
Business Conduct and Ethics is incorporated by reference from
the text under the caption “ELECTION OF
DIRECTORS — Code of Business Conduct and Ethics”
in A&F’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on June 9, 2010.
Audit
Committee
Information concerning A&F’s Audit Committee,
including the determination that the Audit Committee has at
least one audit committee financial expert (as defined under
applicable SEC rules) serving on the Audit Committee, is
incorporated by reference from the text under the caption
“ELECTION OF DIRECTORS — Committees of the
Board — Audit Committee” in A&F’s
definitive Proxy Statement for the Annual Meeting of
Stockholders to be held on June 9, 2010.
90
Table of Contents
Procedures
by which Stockholders May Recommend Nominees to A&F’s
Board of Directors
Information concerning the procedures by which stockholders of
A&F may recommend nominees to A&F’s Board of
Directors is incorporated by reference from the text under the
captions “ELECTION OF DIRECTORS — Director
Qualifications and Consideration of Director Candidates”
and “ELECTION OF DIRECTORS — Director
Nominations” in A&F’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
June 9, 2010. These procedures have not materially changed
from those described in A&F’s definitive Proxy
Statement for the Annual Meeting of Stockholders held on
June 10, 2009.
| ITEM 11. | EXECUTIVE COMPENSATION. |
Information regarding executive compensation is incorporated by
reference from the text under the captions “ELECTION OF
DIRECTORS — Compensation of Directors”,
“ELECTION OF DIRECTORS — Compensation Committee
Interlocks and Insider Participation”, “COMPENSATION
DISCUSSION AND ANALYSIS”, “REPORT OF THE COMPENSATION
COMMITTEE ON EXECUTIVE COMPENSATION” and “EXECUTIVE
OFFICER COMPENSATION” in A&F’s definitive Proxy
Statement for the Annual Meeting of Stockholders to be held on
June 9, 2010.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Information concerning the security ownership of certain
beneficial owners and management is incorporated by reference
from the text under the caption “SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in
A&F’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on June 9, 2010.
Information regarding the number of securities to be issued and
remaining available under equity compensation plans as of
January 30, 2010 is incorporated by reference from the text
under the caption “EQUITY COMPENSATION PLANS” in
A&F’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on June 9, 2010.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Information concerning certain relationships and transactions
involving the Company and certain related persons within the
meaning of Item 404(a) of SEC
Regulation S-K
as well as information concerning A&F’s policies and
procedures for the review, approval or ratification of
transactions with related persons is incorporated by reference
from the text under the captions “ELECTION OF
DIRECTORS — Compensation of Directors” and
“ELECTION OF DIRECTORS — Certain Relationships
and Related Transactions” in A&F’s definitive
Proxy Statement for the Annual Meeting of Stockholders to be
held on June 9, 2010.
Information concerning the independence of the directors of
A&F is incorporated by reference from the text under the
caption “ELECTION OF DIRECTORS — Director
Independence” in A&F’s definitive Proxy Statement
for the Annual Meeting of Stockholders to be held on
June 9, 2010.
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
Information concerning the pre-approval policies and procedures
of A&F’s Audit Committee and fees for services
rendered by the Company’s principal independent registered
public accounting firm is
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incorporated by reference from the text under captions
“AUDIT COMMITTEE MATTERS — Pre-Approval
Policy” and “AUDIT COMMITTEE MATTERS — Fees
of Independent Registered Public Accounting Firm” in
A&F’s definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on June 9, 2010.
PART IV
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
(a) The following documents are filed as a part of this
Annual Report on
Form 10-K:
(1) Consolidated Financial Statements:
|
Consolidated Statements of Operations and Comprehensive Income
for the fiscal years ended January 31, 2010,
January 31, 2009 and February 2, 2008.
|
||
|
Consolidated Balance Sheets as of January 30, 2010 and
January 31, 2009.
|
||
|
Consolidated Statements of Shareholders’ Equity for the
fiscal years ended January 30, 2010, January 31, 2009
and February 2, 2008.
|
||
|
Consolidated Statements of Cash Flows for the fiscal years ended
January 30, 2010, January 31, 2009 and
February 2, 2008.
|
||
|
Notes to Consolidated Financial Statements.
|
||
|
Report of Independent Registered Public Accounting
Firm — PricewaterhouseCoopers LLP.
|
(2) Consolidated Financial Statement Schedules:
All financial statement schedules for which provision is made in
the applicable accounting regulations of the SEC are omitted
because the required information is either presented in the
consolidated financial statements or notes thereto, or is not
applicable, required or material.
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(3) Exhibits:
The documents listed below are filed with this Annual Report on
Form 10-K
as exhibits or incorporated into this Annual Report on
Form 10-K
by reference as noted:
| 3 | .1 | 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&F’s Quarterly Report on Form 10-Q for the quarterly period ended November 2, 1996 (File No. 001-12107). | ||
| 3 | .2 | 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&F’s Annual Report on Form 10-K for the fiscal year ended January 30, 1999 (File No. 001-12107). | ||
| 3 | .3 | 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&F’s Quarterly Report on Form 10-Q for the quarterly period ended July 31, 1999 (File No. 001-12107). | ||
| 3 | .4 | Certificate regarding Approval of Amendment to Section 2.03 of Amended and Restated Bylaws of Abercrombie & Fitch Co. by stockholders of Abercrombie & Fitch Co. at Annual Meeting of Stockholders held on June 10, 2009, incorporated herein by reference to Exhibit 3.1 to A&F’s Current Report on Form 8-K dated and filed June 16, 2009 (File No. 001-12107). | ||
| 3 | .5 | Certificate regarding Approval of Addition of New Article IX of Amended and Restated Bylaws of Abercrombie & Fitch Co. by Board of Directors of Abercrombie & Fitch Co. on June 10, 2009, incorporated herein by reference to Exhibit 3.2 to A&F’s Current Report on Form 8-K dated and filed June 16, 2009 (File No. 001-12107). | ||
| 3 | .6 | Amended and Restated Bylaws of A&F (reflecting amendments through June 10, 2009), incorporated herein by reference to Exhibit 3.6 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended August 1, 2009 (File No. 001-12107). | ||
| 4 | .1 | 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&F’s Registration Statement on Form 8-A dated and filed July 21, 1998 (File No. 001-12107). | ||
| 4 | .2 | Amendment No. 1 to Rights Agreement, dated as of April 21, 1999, between A&F and First Chicago Trust Company of New York, incorporated herein by reference to Exhibit 2 to A&F’s Form 8-A (Amendment No. 1), 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&F’s 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&F’s Quarterly Report on Form 10-Q for the quarterly period ended August 4, 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 4.01 to A&F’s Form 8-A/A (Amendment No. 2), dated and filed June 12, 2008 (File No. 001-12107). | ||
| 4 | .6 | Appointment and Acceptance of Successor Rights Agent, effective as of the opening of business on November 2, 2009, between A&F and American Stock Transfer & Trust Company, LLC (as successor to National City Bank), as Rights Agent, incorporated herein by reference to Exhibit 4.6 to A&F’s Form 8-A/A (Amendment No. 5), dated and filed November 3, 2009 (File No. 001-12107). |
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| 4 | .7 | Credit Agreement, dated as of April 15, 2008 (the “Credit Agreement”), 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&F’s Current Report on Form 8-K dated and filed April 18, 2008 (File No. 001-12107). | ||
| 4 | .8 | 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&F’s Current Report on Form 8-K dated and filed April 18, 2008 (File No. 001-12107). | ||
| 4 | .9 | 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&F’s 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 (UK) Limited, as an Additional Borrower, and National City Bank, as Global Administrative Agent, incorporated herein by reference to Exhibit 4.12 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2008 (File No. 001-12107). | ||
| 4 | .11 | 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&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2008 (File No. 001-12107). | ||
| 4 | .12 | Amendment No. 1 to Credit Agreement, made as of December 29, 2008, among Abercrombie & Fitch Management Co., the Foreign Subsidiary Borrowers (as defined in the Credit Agreement), A&F, the Lenders (as defined in the Credit Agreement) and National City Bank, as the Swing Line Lender, an LC Issuer and Global Administrative Agent, incorporated herein by reference to Exhibit 4.11 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (File No. 001-12107). | ||
| 4 | .13 | Joinder Agreement, dated as of May 22, 2009, between AFH Japan, G.K., as an Additional Borrower, and National City Bank, as Global Administrative Agent, incorporated herein by reference to Exhibit 4.12 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 2, 2009 (File No. 001-12107). | ||
| 4 | .14 | Amendment No. 2 to Credit Agreement, made as of June 16, 2009, by and among Abercrombie & Fitch Management Co., as a borrower; Abercrombie & Fitch Europe SA, Abercrombie & Fitch (UK) Limited, AFH Canada Stores Co. and AFH Japan, G.K., as foreign subsidiary borrowers; Abercrombie & Fitch Co., as a guarantor; National City Bank, as a Co-Lead Arranger, Global Agent, Swing Line Lender, an LC Issuer and a Lender; JP Morgan Chase Bank, N.A., as a Co-Lead Arranger, Syndication Agent and a Lender; The Huntington National Bank, as a Lender; National City Bank, Canada Branch, as a Canadian Lender; J.P. Morgan Chase Bank, N.A. (Canada Branch), as a Lender; J.P. Morgan Europe Limited, as a Lender; Fifth Third Bank, as a Lender; Bank of America N.A., as a Lender; Citizens Bank of Pennsylvania, as a Lender; Sumitomo Mitsui Banking Corporation, as a Lender; U.S. Bank National Association, as a Lender; and PNC Bank, National Association, as a Lender, incorporated herein by reference to Exhibit 4.1 to A&F’s Current Report on Form 8-K dated and filed June 19, 2009 (File No. 001-12107). |
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| *10 | .1 | Abercrombie & Fitch Co. Incentive Compensation Performance Plan, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed June 18, 2007 (File No. 001-12107). | ||
| *10 | .2 | 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan (reflects amendments through December 7, 1999 and the two-for-one stock split distributed June 15, 1999 to stockholders of record on May 25, 1999), incorporated herein by reference to Exhibit 10.2 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 29, 2000 (File No. 001-12107). | ||
| *10 | .3 | 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors (reflects amendments through January 30, 2003 and the two-for-one stock split distributed June 15, 1999 to stockholders of record on May 25, 1999), incorporated herein by reference to Exhibit 10.3 to A&F’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003 (File No. 001-12107). | ||
| *10 | .4 | Abercrombie & Fitch Co. 2002 Stock Plan for Associates (as amended and restated May 22, 2003), incorporated herein by reference to Exhibit 10.4 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2003 (File No. 001-12107). | ||
| *10 | .5 | Amended and Restated Employment Agreement, entered into as of August 15, 2005, by and between A&F and Michael S. Jeffries, including as Exhibit A thereto the Abercrombie & Fitch Co. Supplemental Executive Retirement Plan (Michael S. Jeffries) effective February 2, 2003, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed August 26, 2005 (File No. 001-12107). | ||
| *10 | .6 | Employment Agreement, entered into as of December 19, 2008, by and between A&F and Michael S. Jeffries, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed December 22, 2008 (File No. 001-12107). | ||
| *10 | .7 | Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (as amended and restated May 22, 2003) — as authorized by the Board of Directors of A&F on December 17, 2007, to become one of two plans following the division of said Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (as amended and restated May 22, 2003) into two separate plans effective January 1, 2005 and to be named the Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (Plan I) [terms to govern “amounts deferred” (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended) in taxable years beginning before January 1, 2005 and any earnings thereon], incorporated herein by reference to Exhibit 10.7 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2003 (File No. 001-12107). | ||
| *10 | .8 | 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&F’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003 (File No. 001-12107). | ||
| *10 | .9 | 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 10.13 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2008 (File No. 001-12107). |
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| *10 | .10 | 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 10.12 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2008 (File No. 001-12107). | ||
| *10 | .11 | Abercrombie & Fitch Co. 2003 Stock Plan for Non-Associate Directors, incorporated herein by reference to Exhibit 10.9 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2003 (File No. 001-12107). | ||
| *10 | .12 | Form of Restricted Shares Award Agreement (also called Stock Unit Agreement) used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan prior to November 28, 2004, incorporated herein by reference to Exhibit 10.11 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .13 | Form of Restricted Shares Award Agreement (No Performance-Based Goals) used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan after November 28, 2004, incorporated herein by reference to Exhibit 10.12 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .14 | Form of Restricted Shares Award Agreement (Performance-Based Goals) used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan after November 28, 2004, incorporated herein by reference to Exhibit 10.13 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .15 | Form of Stock Option Agreement (Nonstatutory Stock Options) used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan prior to November 28, 2004, incorporated herein by reference to Exhibit 10.14 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .16 | Form of Stock Option Agreement (Nonstatutory Stock Options) used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Option and Performance Incentive Plan after November 28, 2004, incorporated herein by reference to Exhibit 10.15 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .17 | Form of Stock Option Agreement used for grants under the 1998 Restatement of the Abercrombie & Fitch Co. 1996 Stock Plan for Non-Associate Directors, incorporated herein by reference to Exhibit 10.16 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .18 | Form of Restricted Shares Award Agreement (also called Stock Unit Agreement) used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates prior to November 28, 2004, incorporated herein by reference to Exhibit 10.17 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .19 | Form of Restricted Shares Award Agreement used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates after November 28, 2004 and before March 6, 2006, incorporated herein by reference to Exhibit 10.18 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). |
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| *10 | .20 | Form of Stock Option Agreement (Nonstatutory Stock Options) used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates prior to November 28, 2004, incorporated herein by reference to Exhibit 10.19 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .21 | Form of Stock Option Agreement (Nonstatutory Stock Options) used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates after November 28, 2004 and before March 6, 2006, incorporated herein by reference to Exhibit 10.20 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .22 | Form of Stock Option Agreement used for grants under the Abercrombie & Fitch Co. 2003 Stock Plan for Non-Associate Directors prior to November 28, 2004, incorporated herein by reference to Exhibit 10.21 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .23 | Form of Stock Option Agreement under the Abercrombie & Fitch Co. 2003 Stock Plan for Non-Associate Directors after November 28, 2004, incorporated herein by reference to Exhibit 10.22 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 30, 2004 (File No. 001-12107). | ||
| *10 | .24 | Form of Stock Unit Agreement under the Abercrombie & Fitch Co. 2003 Stock Plan for Non-Associate Directors entered into by A&F in order to evidence the automatic grants of stock units made on January 31, 2005 and to be entered into by A&F in respect of future automatic grants of stock units, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed February 3, 2005 (File No. 001-12107). | ||
| *10 | .25 | Form of Restricted Shares Award Agreement used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates on or after March 6, 2006, incorporated herein by reference to Exhibit 10.35 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 (File No. 001-12107). | ||
| *10 | .26 | Form of Stock Option Agreement (Nonstatutory Stock Options) used for grants under the Abercrombie & Fitch Co. 2002 Stock Plan for Associates on or after March 6, 2006, incorporated herein by reference to Exhibit 10.36 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 (File No. 001-12107). | ||
| *10 | .27 | Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed June 17, 2005 (File No. 001-12107). | ||
| *10 | .28 | Form of Stock Option Agreement (Nonstatutory Stock Option) used for grants under the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan prior to March 6, 2006, incorporated herein by reference to Exhibit 99.4 to A&F’s Current Report on Form 8-K dated and filed August 19, 2005 (File No. 001-12107). | ||
| *10 | .29 | Form of Restricted Stock Unit Award Agreement for Employees used for grants under the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan prior to March 6, 2006, incorporated herein by reference to Exhibit 99.5 to A&F’s Current Report on Form 8-K dated and filed August 19, 2005 (File No. 001-12107). | ||
| *10 | .30 | 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&F’s Quarterly Report on Form 10-Q for the quarterly period ended August 2, 2008 (File No. 001-12107). | ||
| *10 | .31 | Summary of Compensation Structure for Non-Employee Members of Board of Directors of A&F, effective August 1, 2005, incorporated herein by reference to the discussion under the caption “Non-Employee Director Compensation” in Item 1.01 — “Entry into a Material Definitive Agreement” of A&F’s Current Report on Form 8-K dated and filed August 19, 2005 (File No. 001-12107). |
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| *10 | .32 | Change in Compensation Structure for Executive Committee Members, effective August 1, 2009, incorporated herein by reference to Exhibit 10.32 to A&F’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 (File No. 001-12107). | ||
| *10 | .33 | Form of Stock Option Agreement (Nonstatutory Stock Option) for Associates used for grants under the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan on or after March 6, 2006, incorporated herein by reference to Exhibit 10.33 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 (File No. 001-12107). | ||
| *10 | .34 | Form of Restricted Stock Unit Award Agreement for Associates used for grants under the Abercrombie & Fitch Co. 2005 Stock Plan on or after March 6, 2006, incorporated herein by reference to Exhibit 10.34 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 28, 2006 (File No. 001-12107). | ||
| *10 | .35 | 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&F’s Current Report on Form 8-K dated and filed July 24, 2008 (File No. 001-12107). | ||
| *10 | .36 | Trust Agreement, made as of October 16, 2006, between A&F and Wilmington Trust Company, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed October 17, 2006 (File No. 001-12107). | ||
| *10 | .37 | Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan, incorporated herein by reference to Exhibit 10.2 to A&F’s Current Report on Form 8-K dated and filed June 18, 2007 (File No. 001-12107). | ||
| *10 | .38 | Form of Stock Option Agreement to be used to evidence the grant of non-statutory stock options to associates 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&F’s Current Report on Form 8-K dated and filed August 27, 2007 (File No. 001-12107). | ||
| *10 | .39 | Form of Restricted Stock Unit Award Agreement to be used to evidence the grant of restricted stock units to associates 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&F’s Current Report on Form 8-K dated and filed August 27, 2007 (File No. 001-12107). | ||
| *10 | .40 | Form of Restricted Stock Unit Award Agreement 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&F’s Current Report on Form 8-K dated and filed March 6, 2008 (File No. 001-12107). | ||
| *10 | .41 | Abercrombie & Fitch Co. Associate Stock Purchase Plan (Effective July 1, 1998), incorporated herein by reference to Exhibit 1 to the Schedule 13D filed by Michael S. Jeffries on May 2, 2006. | ||
| *10 | .42 | Form of Stock Appreciation Right Agreement to be used to evidence the grant of stock appreciation rights to associates (employees) of A&F and its subsidiaries under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan on and after February 12, 2009, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). | ||
| *10 | .43 | Form of Stock Appreciation Right Agreement to be used to evidence the Semi-Annual Grants of stock appreciation rights to Michael S. Jeffries under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan as contemplated by the Employment Agreement, entered into as of December 19, 2008, by and between A&F and Michael S. Jeffries, incorporated herein by reference to Exhibit 10.2 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). |
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| *10 | .44 | Stock Appreciation Right Agreement [Retention Grant Tranche 1], made to be effective as of December 19, 2008, by and between A&F and Michael S. Jeffries entered into to evidence first tranche of Retention Grant covering 1,600,000 stock appreciation rights granted under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan as contemplated by the Employment Agreement, entered into as of December 19, 2008, by and between A&F and Michael S. Jeffries, incorporated herein by reference to Exhibit 10.3 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). | ||
| *10 | .45 | Stock Appreciation Right Agreement [Retention Grant Tranche 2] by and between A&F and Michael S. Jeffries entered into effective as of March 2, 2009 to evidence second tranche of Retention Grant covering 1,200,000 stock appreciation rights granted under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan as contemplated by the Employment Agreement, entered into as of December 19, 2008, by and between A&F and Michael S. Jeffries, incorporated herein by reference to Exhibit 10.4 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). | ||
| *10 | .46 | Form of Stock Appreciation Right Agreement [Retention Grant Tranche 3] by and between A&F and Michael S. Jeffries to be entered into effective as of September 1, 2009 to evidence third tranche of Retention Grant covering 1,200,000 stock appreciation rights to be granted under the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan as contemplated by the Employment Agreement, entered into as of December 19, 2008, by and between A&F and Michael S. Jeffries, incorporated herein by reference to Exhibit 10.5 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). | ||
| *10 | .47 | Form of Stock Appreciation Right Agreement to be used to evidence the grant of stock appreciation rights to associates (employees) of Abercrombie & Fitch Co. and its subsidiaries under the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan after February 12, 2009, incorporated herein by reference to Exhibit 10.6 to A&F’s Current Report on Form 8-K dated and filed February 17, 2009 (File No. 001-12107). | ||
| 10 | .48 | Credit Line Agreement — Borrower Agreement, effective March 6, 2009, signed on behalf of Abercrombie & Fitch Management Co., incorporated herein by reference to Exhibit 10.1(a) to A&F’s Current Report on Form 8-K dated and filed March 11, 2009 (File No. 001-12107). | ||
| 10 | .49 | Credit Line Agreement — Demand Facility, effective March 6, 2009, between Abercrombie & Fitch Management Co. and UBS Bank USA, incorporated herein by reference to Exhibit 10.1(b) to A&F’s Current Report on Form 8-K dated and filed March 11, 2009 (File No. 001-12107). | ||
| 10 | .50 | Addendum to Credit Line Account Application and Agreement, effective March 6, 2009, among Abercrombie & Fitch Management Co., UBS Bank USA and UBS Financial Services Inc., incorporated herein by reference to Exhibit 10.1(c) to A&F’s Current Report on Form 8-K dated and filed March 11, 2009 (File No. 001-12107). | ||
| *10 | .51 | Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (Plan II) — as authorized by the Board of Directors of A&F on December 17, 2007, to become one of two plans following the division of the Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (as amended and restated May 22, 2003) into two separate plans effective January 1, 2005 and to be named Abercrombie & Fitch Co. Directors’ Deferred Compensation Plan (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 10.50 to A&F’s Annual Report on Form 10-K for the fiscal year ended January 31, 2009 (File No. 001-12107). |
99
Table of Contents
| *10 | .52 | Agreement between Abercrombie & Fitch Management Co. and Charles F. Kessler, executed by each on January 28, 2010, incorporated herein by reference to Exhibit 10.1 to A&F’s Current Report on Form 8-K dated and filed January 28, 2010 (File No. 001-12107). | ||
| 12 | .1 | Computation of Leverage Ratio and Coverage Ratio for the year ended January 30, 2010. | ||
| 14 | .1 | Abercrombie & Fitch Code of Business Conduct and Ethics, as amended by the Board of Directors of A&F on August 21, 2007, incorporated herein by reference to Exhibit 14 to A&F’s Current Report on Form 8-K dated and filed August 27, 2007 (File No. 001-12107). | ||
| 21 | .1 | List of Subsidiaries of the Registrant | ||
| 23 | .1 | Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP | ||
| 24 | .1 | Powers of Attorney | ||
| 31 | .1 | Certifications by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2 | Certifications by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1 | Certifications 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 |
| * | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(a)(3) of this Annual Report on Form 10-K. |
(b) The documents listed in Item 15(a)(3) are filed with
this Annual Report on
Form 10-K
as exhibits or incorporated into this Annual Report on
Form 10-K
by reference.
(c)
Financial Statement Schedules
None
100
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or l5(d) 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: March 26, 2010
|
By
/s/
JONATHAN
E.
RAMSDEN
Jonathan
E. Ramsden,Executive Vice President and Chief Financial
Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on
March 26, 2010.
|
Signature
|
Title
|
|||
|
/s/
MICHAEL
S. JEFFRIES
|
Chairman, Chief Executive Officer and Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
/s/
JONATHAN
E. RAMSDEN
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
|
**
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
|
*
|
Director | |||
| * | The undersigned, by signing his name hereto, does hereby sign this Annual Report on Form 10-K on behalf of each of the above-named directors of the registrant pursuant to powers of attorney executed by such directors, which powers of attorney are filed with this Annual Report on Form 10-K as exhibits, in the capacities as indicated and on March 26, 2010. | |
| ** | Appointed to the Board of Directors on March 25, 2010. |
| By |
/s/
JONATHAN
E. RAMSDEN
|
Jonathan E. Ramsden
Attorney-in-fact
101
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 30, 2010
ABERCROMBIE
& FITCH CO.
(Exact name of registrant as
specified in its charter)
EXHIBITS
Table of Contents
EXHIBIT INDEX
|
Exhibit
|
||||
|
No.
|
Document
|
|||
| 12 | .1 | Computation of Leverage Ratio and Coverage Ratio for the year ended January 30, 2010 | ||
| 21 | .1 | List of Subsidiaries of the Registrant | ||
| 23 | .1 | Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP | ||
| 24 | .1 | Powers of Attorney | ||
| 31 | .1 | Certifications by Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 31 | .2 | Certifications by Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
| 32 | .1 | Certifications 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 | ||
2
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. [reserved]printPart IIprintItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors, Executive Officers and Corporate GovernanceprintItem 11. Executive CompensationprintItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions, and Director IndependenceprintItem 14. Principal Accountant Fees and ServicesprintPart IVprintItem 15. Exhibits and Financial Statement Schedulesprint