Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 31, 2010
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from to .
Commission File Number 1-12107
ABERCROMBIE & FITCH CO.
(Exact name of Registrant as specified in its charter)
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Delaware
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31-1469076 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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6301 Fitch Path, New Albany, Ohio 43054
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (614) 283-6500
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the Registrant 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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the Registrant was required to submit and post such files).)
þ Yes o No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Class A Common Stock |
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Outstanding at September 3, 2010 |
$.01 Par Value
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88,276,729 Shares |
ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Thousands, except share and per share amounts)
(Unaudited)
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Thirteen Weeks Ended |
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Twenty-Six Weeks Ended |
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July 31, |
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August 1, |
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July 31, |
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August 1, |
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2010 |
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2009 |
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2010 |
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2009 |
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NET SALES |
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$ |
745,798 |
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$ |
637,221 |
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$ |
1,433,602 |
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$ |
1,238,951 |
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Cost of Goods Sold |
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260,450 |
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212,705 |
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516,838 |
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432,982 |
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GROSS PROFIT |
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485,348 |
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424,516 |
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916,764 |
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805,969 |
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Stores and Distribution Expense |
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364,482 |
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332,296 |
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718,892 |
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662,606 |
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Marketing, General and Administrative Expense |
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95,206 |
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86,666 |
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191,838 |
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173,011 |
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Other Operating Income, Net |
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(1,900 |
) |
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(3,333 |
) |
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(2,814 |
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(4,657 |
) |
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OPERATING INCOME (LOSS) |
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27,560 |
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8,887 |
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8,848 |
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(24,991 |
) |
Interest Expense (Income), Net |
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807 |
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(1,779 |
) |
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1,632 |
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(3,153 |
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INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES |
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26,753 |
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10,666 |
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7,216 |
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(21,838 |
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Tax Expense (Benefit) from Continuing Operations |
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7,274 |
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18,856 |
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(435 |
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9,456 |
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NET INCOME (LOSS) FROM CONTINUING OPERATIONS |
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$ |
19,479 |
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$ |
(8,190 |
) |
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$ |
7,651 |
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$ |
(31,294 |
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LOSS FROM DISCONTINUED OPERATIONS, Net of Tax |
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$ |
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$ |
(18,557 |
) |
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$ |
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$ |
(54,692 |
) |
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NET INCOME (LOSS) |
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$ |
19,479 |
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$ |
(26,747 |
) |
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$ |
7,651 |
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$ |
(85,986 |
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NET INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS: |
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BASIC |
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$ |
0.22 |
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$ |
(0.09 |
) |
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$ |
0.09 |
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$ |
(0.36 |
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DILUTED |
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$ |
0.22 |
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$ |
(0.09 |
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$ |
0.09 |
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$ |
(0.36 |
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NET LOSS PER SHARE FROM DISCONTINUED OPERATIONS: |
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BASIC |
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$ |
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$ |
(0.21 |
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$ |
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$ |
(0.62 |
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DILUTED |
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$ |
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$ |
(0.21 |
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$ |
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$ |
(0.62 |
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NET INCOME (LOSS) PER SHARE: |
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BASIC |
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$ |
0.22 |
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$ |
(0.30 |
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$ |
0.09 |
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$ |
(0.98 |
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DILUTED |
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$ |
0.22 |
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$ |
(0.30 |
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$ |
0.09 |
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$ |
(0.98 |
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WEIGHTED-AVERAGE SHARES OUTSTANDING: |
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BASIC |
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88,220 |
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87,878 |
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88,157 |
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87,788 |
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DILUTED |
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89,386 |
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87,878 |
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89,561 |
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87,788 |
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DIVIDENDS DECLARED PER SHARE |
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$ |
0.175 |
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$ |
0.175 |
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$ |
0.35 |
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$ |
0.35 |
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OTHER COMPREHENSIVE INCOME |
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Foreign Currency Translation Adjustments |
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$ |
2,448 |
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$ |
7,813 |
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$ |
(2,235 |
) |
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$ |
8,001 |
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Unrealized gain (loss) on Marketable
Securities, net of taxes of $(2,128)
and $1,118 for the thirteen week
periods ended July 31, 2010 and August
1, 2009, respectively, and $(1,965) and
$1,595 for the twenty-six week periods
ended July 31, 2010 and August 1, 2009,
respectively |
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3,624 |
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(1,905 |
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3,346 |
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(2,715 |
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Unrealized (loss) gain on derivative
financial instruments, net of taxes of
$397 and $1,908 for the thirteen week
periods ended July 31, 2010 and August
1, 2009, respectively, and $(324) and
$2,666 for the twenty-six week periods
ended July 31, 2010 and August 1, 2009,
respectively |
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(676 |
) |
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(3,249 |
) |
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553 |
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(4,539 |
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Other Comprehensive Income |
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$ |
5,396 |
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$ |
2,659 |
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$ |
1,664 |
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$ |
747 |
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COMPREHENSIVE INCOME (LOSS) |
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$ |
24,875 |
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$ |
(24,088 |
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$ |
9,315 |
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$ |
(85,239 |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3
ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
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July 31, 2010 |
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January 30, 2010 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and Equivalents |
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$ |
613,633 |
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$ |
680,113 |
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Marketable Securities |
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32,356 |
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Receivables |
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83,777 |
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90,865 |
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Inventories |
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480,128 |
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310,645 |
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Deferred Income Taxes |
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56,025 |
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44,570 |
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Other Current Assets |
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85,083 |
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77,297 |
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TOTAL CURRENT ASSETS |
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1,318,646 |
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1,235,846 |
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PROPERTY AND EQUIPMENT, NET |
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1,204,349 |
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1,244,019 |
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NON-CURRENT MARKETABLE SECURITIES |
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127,536 |
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141,794 |
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OTHER ASSETS |
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206,332 |
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200,207 |
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TOTAL ASSETS |
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$ |
2,856,863 |
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$ |
2,821,866 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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CURRENT LIABILITIES: |
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Accounts Payable |
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$ |
205,025 |
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$ |
150,134 |
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Accrued Expenses |
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238,425 |
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246,289 |
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Deferred Lease Credits |
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43,361 |
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43,597 |
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Income Taxes Payable |
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31,229 |
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9,352 |
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TOTAL CURRENT LIABILITIES |
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518,040 |
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449,372 |
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LONG-TERM LIABILITIES: |
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Deferred Income Taxes |
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47,649 |
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47,142 |
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Deferred Lease Credits |
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202,949 |
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212,052 |
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Long-Term Debt |
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75,967 |
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71,213 |
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Other Liabilities |
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192,561 |
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214,170 |
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TOTAL LONG-TERM LIABILITIES |
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519,126 |
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544,577 |
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SHAREHOLDERS EQUITY: |
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Class A Common Stock $0.01 par value: 150,000
shares authorized and 103,300 shares issued at
each of July 31, 2010 and January 30, 2010 |
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1,033 |
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|
1,033 |
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Paid-In Capital |
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340,752 |
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339,453 |
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Retained Earnings |
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2,160,506 |
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2,183,690 |
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Accumulated Other Comprehensive Loss, net of tax |
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(7,309 |
) |
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(8,973 |
) |
Treasury Stock, at Average Cost 15,054 and
15,314 shares at July 31, 2010 and January 30,
2010, respectively |
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(675,285 |
) |
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(687,286 |
) |
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TOTAL SHAREHOLDERS EQUITY |
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1,819,697 |
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1,827,917 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
2,856,863 |
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$ |
2,821,866 |
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The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4
ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
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Twenty-Six Weeks Ended |
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July 31, 2010 |
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August 1, 2009 |
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OPERATING ACTIVITIES: |
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Net Income (Loss) |
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$ |
7,651 |
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$ |
(85,986 |
) |
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Impact of Other Operating Activities on Cash Flows: |
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Depreciation and Amortization |
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112,403 |
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118,391 |
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Non-Cash Charge for Asset Impairment |
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2,247 |
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|
51,536 |
|
Amortization of Deferred Lease Credits |
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(23,173 |
) |
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(21,796 |
) |
Share-Based Compensation |
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|
19,919 |
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|
17,280 |
|
Tax Deficiency from Share-Based Compensation |
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|
(2,236 |
) |
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|
(4,937 |
) |
Deferred Taxes |
|
|
(12,784 |
) |
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|
(28,829 |
) |
Loss on Disposal / Write-off of Assets |
|
|
1,835 |
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|
6,171 |
|
Lessor Construction Allowances |
|
|
18,227 |
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|
18,763 |
|
Changes in Assets and Liabilities: |
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Inventories |
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(169,453 |
) |
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|
47,850 |
|
Accounts Payable and Accrued Expenses |
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|
33,628 |
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(370 |
) |
Income Taxes |
|
|
22,233 |
|
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|
(15,391 |
) |
Other Assets and Liabilities |
|
|
(32,219 |
) |
|
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(55,690 |
) |
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NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES |
|
|
(21,722 |
) |
|
|
46,992 |
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INVESTING ACTIVITIES: |
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Capital Expenditures |
|
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(59,754 |
) |
|
|
(106,726 |
) |
Purchase of Trust-Owned Life Insurance Policies |
|
|
(11,583 |
) |
|
|
(6,526 |
) |
Proceeds from Sales of Marketable Securities |
|
|
63,567 |
|
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|
18,201 |
|
|
|
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NET CASH USED FOR INVESTING ACTIVITIES |
|
|
(7,770 |
) |
|
|
(95,051 |
) |
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FINANCING ACTIVITIES: |
|
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|
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|
|
|
|
Proceeds from Share-Based Compensation |
|
|
494 |
|
|
|
1,508 |
|
Repayment of Borrowings under Credit Agreement |
|
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|
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(100,000 |
) |
Proceeds from Borrowings under Credit Agreement |
|
|
|
|
|
|
36,446 |
|
Change in Outstanding Checks and Other |
|
|
(6,302 |
) |
|
|
(17,238 |
) |
Dividends Paid |
|
|
(30,836 |
) |
|
|
(30,712 |
) |
|
|
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NET CASH USED FOR FINANCING ACTIVITIES |
|
|
(36,644 |
) |
|
|
(109,996 |
) |
|
|
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EFFECT OF EXCHANGE RATES ON CASH |
|
|
(344 |
) |
|
|
2,417 |
|
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NET DECREASE IN CASH AND EQUIVALENTS: |
|
|
(66,480 |
) |
|
|
(155,638 |
) |
Cash and Equivalents, Beginning of Period |
|
|
680,113 |
|
|
|
522,122 |
|
|
|
|
|
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CASH AND EQUIVALENTS, END OF PERIOD |
|
$ |
613,633 |
|
|
$ |
366,484 |
|
|
|
|
|
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|
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SIGNIFICANT NON-CASH INVESTING ACTIVITIES: |
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|
|
|
|
Change in Accrual for Construction in Progress |
|
$ |
13,512 |
|
|
$ |
(1,528 |
) |
|
|
|
|
|
|
|
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5
ABERCROMBIE & FITCH CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. (A&F), through its wholly-owned subsidiaries (collectively, A&F and its
wholly-owned subsidiaries are referred to as the Company), is a specialty retailer of
high-quality, casual apparel for men, women and kids with an active, youthful lifestyle.
The accompanying Condensed Consolidated Financial Statements include the historical financial
statements of, and transactions applicable to, the Company and reflect its assets, liabilities,
results of operations and cash flows.
The Companys fiscal year ends on the Saturday closest to January 31. Fiscal years are designated
in the condensed consolidated financial statements and notes by the calendar year in which the
fiscal year commences. All references herein to Fiscal 2010 represent the 52-week fiscal year
that will end on January 29, 2011, and to Fiscal 2009 represent the 52-week fiscal year that
ended January 30, 2010.
The Condensed Consolidated Financial Statements as of July 31, 2010 and for the thirteen and
twenty-six week periods ended July 31, 2010 and August 1, 2009 are unaudited and are presented
pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC).
Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with
the Consolidated Financial Statements and notes thereto contained in A&Fs Annual Report on Form
10-K for Fiscal 2009 filed on March 29, 2010. The January 30, 2010 condensed consolidated balance
sheet data were derived from audited consolidated financial statements, but do not include all
disclosures required by accounting principles generally accepted in the United States of America.
In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect
all adjustments (which are of a normal recurring nature) necessary to present fairly, in all
material respects, the financial position and results of operations and cash flows for the interim
periods, but are not necessarily indicative of the results of operations to be anticipated for
Fiscal 2010.
On June 16, 2009, A&Fs Board of Directors approved the closure of the Companys 29 RUEHL branded
stores and related direct-to-consumer operations. 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 Loss from Discontinued
Operations, Net of Tax on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the thirteen and twenty-six weeks ended August 1, 2009. Results from discontinued operations
were immaterial for the thirteen and twenty-six weeks ended July 31, 2010.
The Condensed Consolidated Financial Statements as of July 31, 2010 and for the thirteen and
twenty-six week periods ended July 31, 2010 and August 1, 2009 included herein have been reviewed
by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report of
such firm follows the notes to the condensed consolidated financial statements.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the
Securities Act of 1933 (the Act) for their report on the condensed consolidated financial
statements because their report is not a
report or a part of a registration statement prepared or certified by PricewaterhouseCoopers
LLP within the meaning of Sections 7 and 11 of the Act.
6
2. 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.
Geographic Information
Financial information relating to the Companys operations by geographic area 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
(in thousands): |
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
United States |
|
$ |
612,586 |
|
|
$ |
565,054 |
|
|
$ |
1,181,376 |
|
|
$ |
1,107,963 |
|
International |
|
|
133,212 |
|
|
|
72,167 |
|
|
|
252,226 |
|
|
|
130,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
745,798 |
|
|
$ |
637,221 |
|
|
$ |
1,433,602 |
|
|
$ |
1,238,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
(in thousands): |
|
July 31, 2010 |
|
|
January 30, 2010 |
|
United States |
|
$ |
1,082,033 |
|
|
$ |
1,137,844 |
|
International |
|
|
222,936 |
|
|
|
194,461 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,304,969 |
|
|
$ |
1,332,305 |
|
|
|
|
|
|
|
|
Long-lived
assets included in the table above include primarily property and equipment (net),
store supplies and lease deposits.
7
3. SHARE-BASED COMPENSATION
Financial Statement Impact
The Company recognized share-based compensation expense of $10.4 million and $19.9 million for the
thirteen and twenty-six week periods ended July 31, 2010, respectively, and $8.3 million and $17.3
million for the thirteen and twenty-six week periods ended August 1, 2009, respectively. The
Company also recognized $3.8
million and $7.1 million in tax benefits related to share-based compensation for the thirteen and
twenty-six week periods ended July 31, 2010, respectively, and $3.0 million and $6.4 million in tax
benefits related to share-based compensation for the thirteen and twenty-six week periods ended
August 1, 2009, respectively.
For share-based compensation that is expected to result in a tax deduction, a deferred tax asset is
established at the time the Company recognizes share-based compensation expense. The actual tax
deduction for share-based compensation generally occurs after an equity award vests or is exercised
and is principally measured at the equity awards intrinsic value at the time of vesting or
exercise. If the tax deduction exceeds the recorded deferred tax asset, an excess tax benefit is
recorded to a pool of windfall tax benefits account, as a component of additional paid-in
capital. If the tax deduction is less than the recorded deferred tax asset, a shortfall is
recorded against the pool of windfall tax benefits account to the extent of prior recognized
aggregate windfalls with any remaining amount charged to tax expense. As of July 31, 2010, the
pool of windfall tax benefits account had a balance of $83.7 million, which is sufficient to
fully absorb any shortfall associated with existing outstanding equity awards.
The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures
and for changes to the estimate of expected award forfeitures based on historical forfeiture
experience. The effects of adjustments for forfeitures was $3.2 million and $1.3 million during
the twenty-six week periods ended July 31, 2010 and August 1, 2009, respectively.
A&F issues shares of Class A Common Stock (Common Stock) for stock option and stock appreciation
right exercises and restricted stock unit vestings from treasury stock. As of July 31, 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 stockholder-approved plans at the applicable time.
For stock appreciation rights where the Company has the option to settle in stock or cash, the
Company uses the equity method to account for awards for which it has the intent and ability to
settle in shares of Common Stock.
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&Fs 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.
8
Stock Options
The Company did not grant any stock options during the twenty-six weeks ended July 31, 2010. The
weighted-average estimated fair value of stock options granted during the twenty-six weeks ended
August 1, 2009, and the weighted-average assumptions used in calculating such fair value, on the
date of grant, were as follows:
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
August 1, 2009 |
|
|
Grant date market price |
|
$ |
22.87 |
|
Exercise price |
|
$ |
22.87 |
|
Fair value |
|
$ |
8.26 |
|
|
|
|
|
|
Assumptions: |
|
|
|
|
Price volatility |
|
|
50 |
% |
Expected term (Years) |
|
|
4.1 |
|
Risk-free interest rate |
|
|
1.6 |
% |
Dividend yield |
|
|
1.7 |
% |
Below is a summary of stock option activity for the twenty-six weeks ended July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Aggregate Intrinsic |
|
|
Remaining |
|
Stock Options |
|
Shares |
|
|
Exercise Price |
|
|
Value |
|
|
Contractual Life |
|
Outstanding at January 30, 2010 |
|
|
2,969,861 |
|
|
$ |
38.36 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(17,556 |
) |
|
|
29.34 |
|
|
|
|
|
|
|
|
|
Forfeited or cancelled |
|
|
(23,500 |
) |
|
|
72.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2010 |
|
|
2,928,805 |
|
|
$ |
38.14 |
|
|
$ |
22,075,266 |
|
|
|
2.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options exercisable at July 31, 2010 |
|
|
2,681,017 |
|
|
$ |
35.91 |
|
|
$ |
20,967,456 |
|
|
|
2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options expected to become
exercisable at July 31, 2010 |
|
|
228,976 |
|
|
$ |
62.36 |
|
|
$ |
1,011,962 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised during the twenty-six weeks ended July
31, 2010 and August 1, 2009 was immaterial.
The grant date fair value of stock options vested during the twenty-six weeks ended July 31, 2010
and August 1, 2009 was $3.7 million and $5.0 million, respectively.
As of July 31, 2010, there was $3.2 million of total unrecognized compensation cost, net of
estimated forfeitures, related to stock options. The unrecognized compensation cost is expected to
be recognized over a weighted-average period of 0.8 years.
9
Stock Appreciation Rights
The weighted-average estimated fair value of stock appreciation rights granted during the
twenty-six weeks ended July 31, 2010 and August 1, 2009, and the weighted-average assumptions used
in calculating such fair value, on the date of grant, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
Chairman and Chief |
|
|
Executive Officers |
|
|
|
|
|
|
Executive |
|
|
(excluding Chairman and |
|
|
|
|
|
|
Officer |
|
|
Chief Executive Officer) |
|
|
All Other Associates |
|
|
|
July 31, |
|
|
August 1, |
|
|
July 31, |
|
|
August 1, |
|
|
July 31, |
|
|
August 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Grant date market price |
|
$ |
44.86 |
|
|
$ |
20.75 |
|
|
$ |
44.86 |
|
|
$ |
25.77 |
|
|
$ |
44.86 |
|
|
$ |
25.68 |
|
Exercise price |
|
$ |
44.86 |
|
|
$ |
25.94 |
|
|
$ |
44.86 |
|
|
$ |
25.77 |
|
|
$ |
44.86 |
|
|
$ |
25.68 |
|
Fair value |
|
$ |
16.96 |
|
|
$ |
7.13 |
|
|
$ |
16.99 |
|
|
$ |
10.06 |
|
|
$ |
16.68 |
|
|
$ |
9.82 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price volatility |
|
|
50 |
% |
|
|
45 |
% |
|
|
51 |
% |
|
|
52 |
% |
|
|
52 |
% |
|
|
53 |
% |
Expected term (Years) |
|
|
4.7 |
|
|
|
6.2 |
|
|
|
4.5 |
|
|
|
4.5 |
|
|
|
4.1 |
|
|
|
4.1 |
|
Risk-free interest rate |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
1.6 |
% |
|
|
2.1 |
% |
|
|
1.6 |
% |
Dividend yield |
|
|
2.1 |
% |
|
|
1.7 |
% |
|
|
2.1 |
% |
|
|
1.7 |
% |
|
|
2.1 |
% |
|
|
1.7 |
% |
Below is a summary of stock appreciation rights activity for the twenty-six weeks ended July
31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
Number of |
|
|
Weighted-Average |
|
|
Aggregate |
|
|
Remaining |
|
Stock Appreciation Rights |
|
Shares |
|
|
Exercise Price |
|
|
Intrinsic Value |
|
|
Contractual Life |
|
Outstanding at January 30, 2010 |
|
|
5,788,867 |
|
|
$ |
30.88 |
|
|
|
|
|
|
|
|
|
Granted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chairman and Chief
Executive Officer |
|
|
829,697 |
|
|
|
44.86 |
|
|
|
|
|
|
|
|
|
Other Executive Officers |
|
|
435,000 |
|
|
|
44.86 |
|
|
|
|
|
|
|
|
|
All Other Associates |
|
|
282,700 |
|
|
|
44.86 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(5,175 |
) |
|
|
25.49 |
|
|
|
|
|
|
|
|
|
Forfeited or cancelled |
|
|
(106,500 |
) |
|
|
25.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at July 31, 2010 |
|
|
7,224,589 |
|
|
$ |
33.94 |
|
|
$ |
41,180,917 |
|
|
|
6.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock appreciation rights
exercisable at July 31, 2010 |
|
|
176,450 |
|
|
$ |
25.73 |
|
|
$ |
1,977,447 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock appreciation rights
expected to become exercisable
at July 31, 2010 |
|
|
6,892,857 |
|
|
$ |
34.05 |
|
|
$ |
38,614,527 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2010, there was $62.4 million of total unrecognized compensation cost, net of
estimated forfeitures, related to stock appreciation rights. The unrecognized compensation cost is
expected to be recognized over a weighted-average period of 1.7 years.
10
Restricted Stock Units
Below is a summary of restricted stock unit activity for the twenty-six weeks ended July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
Restricted Stock Units |
|
Number of Shares |
|
|
Grant Date Fair Value |
|
Non-vested at January 30, 2010 |
|
|
1,331,048 |
|
|
$ |
55.45 |
|
Granted |
|
|
397,486 |
|
|
|
41.85 |
|
Vested |
|
|
(359,039 |
) |
|
|
58.69 |
|
Forfeited |
|
|
(129,577 |
) |
|
|
53.95 |
|
|
|
|
|
|
|
|
Non-vested at July 31, 2010 |
|
|
1,239,918 |
|
|
$ |
50.29 |
|
|
|
|
|
|
|
|
The total fair value of restricted stock units granted during the twenty-six weeks ended July
31, 2010 and August 1, 2009 was $16.6 million and $10.8 million, respectively.
The total grant date fair value of restricted stock units vested during the twenty-six weeks ended
July 31, 2010 and August 1, 2009 was $21.1 million and $21.2 million, respectively.
As of July 31, 2010, there was $41.0 million of total unrecognized compensation cost, net of
estimated forfeitures, related to non-vested restricted stock units. The unrecognized compensation
cost is expected to be recognized over a weighted-average period of 1.2 years.
4. NET INCOME (LOSS) PER SHARE
Net income (loss) per basic share is computed based on the weighted-average number of outstanding
shares of Common Stock. Net income (loss) 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, |
|
|
August 1, |
|
|
July 31, |
|
|
August 1, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Shares of Common Stock issued |
|
|
103,300 |
|
|
|
103,300 |
|
|
|
103,300 |
|
|
|
103,300 |
|
Treasury shares |
|
|
(15,080 |
) |
|
|
(15,422 |
) |
|
|
15,143 |
|
|
|
(15,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average basic shares |
|
|
88,220 |
|
|
|
87,878 |
|
|
|
88,157 |
|
|
|
87,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive effect of stock options, stock
appreciation rights and restricted
stock units |
|
|
1,166 |
|
|
|
|
|
|
|
1,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average diluted shares |
|
|
89,386 |
|
|
|
87,878 |
|
|
|
89,561 |
|
|
|
87,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares |
|
|
5,871 |
(1) |
|
|
8,131 |
(2) |
|
|
4,812 |
(1) |
|
|
8,131 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the number of stock options, stock appreciation
rights and restricted stock units outstanding, but excluded from the computation of net income per
diluted share because the impact would be anti-dilutive. |
|
(2) |
|
Reflects the number of stock options, stock appreciation
rights and restricted stock units outstanding, but excluded from the computation of net loss per
diluted share because the Company was in a net loss position and the impact would be anti-dilutive. |
11
5. CASH AND EQUIVALENTS
Cash and equivalents consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
January 30, 2010 |
|
Cash and equivalents: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
216,009 |
|
|
$ |
196,496 |
|
Money market funds |
|
|
397,624 |
|
|
|
483,617 |
|
|
|
|
|
|
|
|
Total cash and equivalents |
|
$ |
613,633 |
|
|
$ |
680,113 |
|
|
|
|
|
|
|
|
6. INVESTMENTS
Investments consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
January 30, 2010 |
|
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: |
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
Auction rate securities student loan backed |
|
|
103,300 |
|
|
|
118,390 |
|
Auction rate securities municipal authority bonds |
|
|
24,236 |
|
|
|
23,404 |
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
|
127,536 |
|
|
|
141,794 |
|
|
|
|
|
|
|
|
|
|
Rabbi Trust assets: (1) |
|
|
|
|
|
|
|
|
Money market funds |
|
|
302 |
|
|
|
1,316 |
|
Municipal notes and bonds |
|
|
12,142 |
|
|
|
18,537 |
|
Trust-owned life insurance policies (at cash
surrender value) |
|
|
64,076 |
|
|
|
51,391 |
|
|
|
|
|
|
|
|
Total Rabbi Trust assets |
|
|
76,520 |
|
|
|
71,244 |
|
|
|
|
|
|
|
|
Total investments |
|
$ |
204,056 |
|
|
$ |
245,394 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Rabbi Trust assets are included in Other Assets on the Condensed Consolidated Balance Sheets
and are restricted as to their use. |
At July 31, 2010 and January 30, 2010, the Companys marketable securities consisted of investment
grade auction rate securities (ARS) invested in insured student loan backed securities and
insured municipal authority bonds, with maturities ranging from 17 to 33 years. 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 of insurance coverage
of the outstanding principal and interest of the ARS varies by security.
12
The par and carrying values, and related cumulative impairment charges for the Companys marketable
securities as of July 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary |
|
|
Carrying |
|
(in thousands) |
|
Par Value |
|
|
Impairment |
|
|
Value |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities student loan backed |
|
$ |
107,999 |
|
|
$ |
(4,699 |
) |
|
$ |
103,300 |
|
Auction rate securities municipal authority bonds |
|
|
28,575 |
|
|
|
(4,339 |
) |
|
|
24,236 |
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
136,574 |
|
|
$ |
(9,038 |
) |
|
$ |
127,536 |
|
|
|
|
|
|
|
|
|
|
|
See Note 7, Fair Value, for further discussion on the valuation of the ARS.
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 securitys entire amortized cost
basis, even if there is no intent to sell the security. As of July 31, 2010, the Company had not
incurred any credit-related losses on available-for-sale ARS. Furthermore, as of July 31, 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 with a par value of $76.5 million. Pursuant to the
UBS Agreement, the remaining ARS covered by the agreement, $37.1 million at par, were acquired by
UBS, at par, during the thirteen weeks ended July 31, 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 Condensed Consolidated Balance Sheets and are
restricted as to their use as noted above. Net unrealized gains and losses related to the
municipal notes and bonds held in the Rabbi Trust were not material for the thirteen or twenty-six
week periods ended July 31, 2010 and August 1, 2009. The change in cash surrender value of the
trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.6
million and $3.1 million for the thirteen weeks ended July 31, 2010 and August 1, 2009,
respectively, and realized gains of $1.1 million and $4.3 million for the twenty-six weeks ended
July 31, 2010 and August 1, 2009, respectively, recorded in Interest Expense (Income), Net on the
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).
13
7. 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. |
The lowest level of significant input determines the placement of the entire fair value measurement
in the hierarchy. The three levels of the hierarchy and the distribution of the Companys assets
and liabilities, measured at fair value, within it were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of July 31, 2010 |
|
|
|
(in thousands) |
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
funds (1) |
|
$ |
397,926 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
397,926 |
|
ARS available-for-sale student loan
backed |
|
|
|
|
|
|
|
|
|
|
103,300 |
|
|
|
103,300 |
|
ARS available-for-sale municipal
authority bonds |
|
|
|
|
|
|
|
|
|
|
24,236 |
|
|
|
24,236 |
|
Municipal notes and bonds held in the Rabbi
Trust |
|
|
12,142 |
|
|
|
|
|
|
|
|
|
|
|
12,142 |
|
Derivative financial instruments |
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value |
|
$ |
410,068 |
|
|
$ |
15 |
|
|
$ |
127,536 |
|
|
$ |
537,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes $397.6 million in money market funds included in Cash and Equivalents and $0.3 million
of money market funds held in the Rabbi Trust included in Other Assets on the Condensed
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 include investments in insured student loan backed ARS and insured municipal
authority bonds ARS which are available-for-sale.
As a result of a 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 July 31, 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.
As of July 31, 2010, approximately 76% of the Companys ARS were AAA rated, approximately 11% of
the Companys ARS were AA rated, and approximately 13% were A- rated, in each case as rated by
one or more of the major credit rating agencies.
14
The table below includes a roll-forward of the Companys level 3 assets and liabilities from
January 30, 2010 to July 31, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for- |
|
|
Available-for- |
|
|
|
|
|
|
|
|
|
Trading ARS - |
|
|
Trading ARS - |
|
|
sale ARS - |
|
|
sale ARS - |
|
|
|
|
|
|
|
(in thousands) |
|
Student Loans |
|
|
Muni Bonds |
|
|
Student Loans |
|
|
Muni Bonds |
|
|
Put Option |
|
|
Total |
|
Fair value, January 30, 2010 |
|
$ |
20,049 |
|
|
$ |
12,307 |
|
|
$ |
118,390 |
|
|
$ |
23,404 |
|
|
$ |
4,640 |
|
|
$ |
178,790 |
|
Redemptions |
|
|
(22,100 |
) |
|
|
(15,000 |
) |
|
|
(20,100 |
) |
|
|
|
|
|
|
(4,640 |
) |
|
|
(61,840 |
) |
Tranfers (out)/in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains and losses, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported in Other
Comprehensive Income |
|
|
2,051 |
|
|
|
2,693 |
|
|
|
5,010 |
|
|
|
832 |
|
|
|
|
|
|
|
10,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value, July 31, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
103,300 |
|
|
$ |
24,236 |
|
|
$ |
|
|
|
$ |
127,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. INVENTORIES
Inventories are principally valued at the lower of average cost or market utilizing the retail
method. The Company determines market value as the anticipated future selling price of the
merchandise less a normal margin. 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 future permanent markdowns 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 future permanent
markdowns necessary to sell-through any remaining carryover inventory from the season then ending.
The valuation reserve was $20.6 million, $11.4 million and $7.2 million at July 31, 2010, January
30, 2010 and August 1, 2009, respectively.
Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical
trends from actual physical inventories, are made that reduce the inventory value for lost or
stolen items. The Company performs physical inventories on a periodic basis and adjusts the shrink
reserve accordingly. The shrink reserve was $7.9 million, $8.1 million and $12.4 million at July
31, 2010, January 30, 2010 and August 1, 2009, respectively.
The inventory balance, net of the above mentioned reserves, was $480.1 million, $310.6 million and
$325.6 million at July 31, 2010, January 30, 2010 and August 1, 2009, respectively.
15
9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
January 30, 2010 |
|
Property and equipment, at cost |
|
$ |
2,423,128 |
|
|
$ |
2,362,492 |
|
Accumulated depreciation and amortization |
|
|
(1,218,779 |
) |
|
|
(1,118,473 |
) |
|
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
1,204,349 |
|
|
$ |
1,244,019 |
|
|
|
|
|
|
|
|
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, managements plans for future operations, recent operating results and
projected cash flows.
In the second quarter of Fiscal 2010, as a result of a strategic review the Company conducted of
under-performing stores, the Company determined that a number of
stores are expected to be closed prior to lease expiration, which
caused a triggering event requiring the Company to evaluate the related long-lived
assets for impairment. Associated with these expected closures, the Company incurred a non-cash, pre-tax
asset impairment charge of $2.2 million, included in stores and distribution expense, for the
thirteen weeks ended July 31, 2010.
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 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 has
store related assets measured at fair value of $16.7 million and $19.3 million on the Condensed
Consolidated Balance Sheet at July 31, 2010 and January 30, 2010, respectively.
10. DEFERRED LEASE CREDITS
Deferred lease credits are derived from payments received from landlords to wholly or partially
offset store construction costs and are classified between current and long-term liabilities. The
amounts, which are amortized over the life of the related leases, consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
January 30, 2010 |
|
Deferred lease credits |
|
$ |
556,839 |
|
|
$ |
546,191 |
|
Amortized deferred lease credits |
|
|
(310,529 |
) |
|
|
(290,542 |
) |
|
|
|
|
|
|
|
Total deferred lease credits, net |
|
$ |
246,310 |
|
|
$ |
255,649 |
|
|
|
|
|
|
|
|
11. INCOME TAXES
The provision for income taxes is based on the current estimate of the annual effective tax rate
adjusted to reflect the impact of discrete items. The effective tax rate from continuing
operations for the thirteen weeks ended July 31, 2010 was 27.2% expense as compared to a 176.8%
expense for the Fiscal 2009 comparable period. The effective tax rate from continuing operations
from the twenty-six weeks ended July 31, 2010 was a 6.0% benefit compared to 43.3% expense for the
twenty-six weeks ended August 1, 2009. The second quarter Fiscal 2010 rate was favorably impacted
by provision-to-return adjustments for certain jurisdictions and the resolution of open tax
matters, including the Companys Advanced Pricing Agreement negotiation that was before the U.S.
Competent Authority. The second quarter Fiscal 2009 rate was adversely impacted by a true-up of
the estimated annual effective tax rate.
16
Cash payments of income taxes made during the thirteen weeks ended July 31, 2010 and August 1, 2009
were approximately $14.3 million and $1.0 million, respectively. Cash payments of income taxes
made during the twenty-six weeks ended July 31, 2010 and August 1, 2009 were approximately $17.9
million and $18.8 million, respectively.
The Company recorded a valuation allowance against deferred tax assets arising from net operating
losses of certain foreign subsidiaries and from realized and unrealized U.S. operations investment
losses. A portion of
net operating loss carryovers begin expiring in Fiscal 2011, some of which have an indefinite carry
forward period. As of July 31, 2010 and January 30, 2010, the valuation allowance totaled $1.1
million and $1.3 million, respectively. No other valuation allowances have been provided for
deferred tax assets because management believes that it is more likely than not that the full
amount of the net deferred tax assets will be realized in the future.
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). As stated in the Amended Credit Agreement, the primary purposes of the
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 and, for interest
periods in excess of three months, on the date that is three months after the commencement of the
interest period; or (iii) an Adjusted Foreign Currency 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 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 Banks 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 Companys Leverage
Ratio (i.e., the ratio, on a consolidated basis, of (a) the sum of total debt (excluding trade
letters of credit) plus 600% of forward minimum rent commitments to (b) consolidated earnings
before interest, taxes, depreciation, amortization and rent 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 July 31, 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 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 July 31, 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 Amended Credit
Agreement also limits the Companys consolidated
capital expenditures to $325 million in Fiscal 2010, plus $99.5 million representing the unused
portion of the allowable capital expenditures from Fiscal 2009. The Company was in compliance with
the applicable ratio requirements and other covenants at July 31, 2010.
17
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 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 $10.4 million and $35.9 million were outstanding on July 31, 2010 and January 30,
2010, respectively. Stand-by letters of credit totaling approximately $14.0 million and $14.1
million were outstanding on July 31, 2010 and January 30, 2010, respectively. The stand-by letters
of credit are set to expire primarily during the first quarter of Fiscal 2011. To date, no
beneficiary has drawn upon the stand-by letters of credit.
The Company had $53.2 million and $50.9 million outstanding under the Amended Credit Agreement as
of July 31, 2010, and January 30, 2010, respectively. The amounts outstanding under the Amended
Credit Agreement as of July 31, 2010 and January 30, 2010 were denominated in Japanese Yen. As of
July 31, 2010 and January 30, 2010, the Company also had $22.8 million and $20.3 million,
respectively, 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 July 31, 2010, the carrying value of the Companys long-term debt approximated fair value.
Total interest expense was $1.9 million and $2.0 million for the thirteen week periods ended July
31, 2010 and August 1, 2009, respectively, and $3.8 million and $2.8 million for the twenty-six
weeks ended July 31, 2010 and August 1, 2009, respectively. The average interest rate for the
long-term debt recorded under the Amended Credit Agreement was 2.7% for the thirteen and twenty-six
week periods ended July 31, 2010.
On March 6, 2009, the Company entered a secured, uncommitted demand line of credit (the UBS Credit
Line). The amount available under the UBS Credit Line was subject to adjustment from time-to-time
based on the market value of the Companys UBS ARS as determined by UBS. As a result of UBS
acquiring the remaining UBS ARS originally purchased by the Company through UBS and described
further in Note 6, Investments, the Company terminated the secured, uncommitted demand line of
credit with UBS, during the thirteen weeks ended July 31, 2010.
18
13. DERIVATIVES
The Company is exposed to risks associated with the effect of changes in foreign currency exchange
rates and uses derivatives, primarily forward contracts, to manage the financial impacts of these
exposures. As of July 31, 2010 and January 30, 2010, all outstanding derivative instruments were
designated as hedges and qualified for hedge accounting treatment. The Company does not use
forward contracts to engage in currency speculation and does not enter into derivative financial
instruments for trading purposes.
In order to qualify for hedge accounting treatment, a derivative must be considered highly
effective at offsetting changes in either the hedged items 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 (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 derivatives 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. The Company recognized a gain of $0.7 million reclassified into earnings
as a result of the de-designation cash flow hedges during the twenty-six weeks ended July 31, 2010.
There was no gain or loss reclassified into earnings during the thirteen weeks ended July 31,
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 intercompany 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 Companys U.S. dollar equivalent cash flows and affect
the Companys 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 July 31, 2010, the maximum
length of time over which forecasted foreign-currency-denominated inter-company inventory sales
were hedged was twelve months. The sale of the inventory to the Companys customers will result in
the reclassification of related derivative gains and losses that are reported in Accumulated Other
Comprehensive Income (Loss). Substantially all of the remaining unrealized gains or losses related
to foreign-currency-denominated inter-company inventory sales that have occurred as of July 31,
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 Condensed Consolidated Balance Sheet to
the extent that master netting arrangements meet the specific accounting requirements set forth by
U.S. generally accepted accounting principles.
19
As of July 31, 2010, the Company had the following outstanding foreign exchange forward contracts
that were entered into to hedge forecasted foreign-currency-denominated inter-company inventory
sales and the resulting settlement of the foreign-currency-denominated inter-company accounts
receivable:
|
|
|
|
|
|
|
Notional Amount(1) |
|
Canadian Dollar |
|
$ |
13,072 |
|
British Pound |
|
$ |
30,829 |
|
Euro |
|
$ |
11,029 |
|
Japanese Yen |
|
$ |
8,379 |
|
|
|
|
(1) |
|
Amounts are reported in thousands and in U.S. Dollars. |
The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as
of July 31, 2010 and January 30, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
|
Liability Derivatives |
|
|
|
Balance Sheet |
|
July 31, |
|
|
January 30, |
|
|
Balance Sheet |
|
July 31, |
|
|
January 30, |
|
(in thousands) |
|
Location |
|
2010 |
|
|
2010 |
|
|
Location |
|
2010 |
|
|
2010 |
|
Derivatives Designated as Hedging
Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts |
|
Other Current Assets |
|
$ |
15 |
|
|
$ |
1,348 |
|
|
Accrued Expenses |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to Note 7, Fair Value for further discussion of the determination of the fair value of
derivatives.
The location and amounts of derivative gains and losses for the thirteen weeks ended July 31, 2010
and August 1, 2009 on the Condensed Consolidated Statements of Operations and Comprehensive Income
(Loss) are as follows:
|
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|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
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|
Location of Gain |
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|
|
|
|
|
|
|
|
Location of (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) |
|
Amount of |
|
|
Gain |
|
Amount of (Loss) Gain |
|
|
|
|
|
|
|
|
|
|
|
Reclassified from |
|
Gain (Loss) |
|
|
Recognized in |
|
Recognized in Earnings on |
|
|
|
Amount of Gain (Loss) |
|
|
Accumulated |
|
Reclassified from |
|
|
Earnings |
|
Derivative (Ineffective |
|
|
|
Recognized in OCI on |
|
|
OCI into |
|
Accumulated OCI into |
|
|
on Derivative |
|
Portion and Amount |
|
|
|
Derivative Contracts |
|
|
Earnings |
|
Earnings (Effective |
|
|
(Ineffective Portion and |
|
Excluded from |
|
|
|
(Effective Portion) |
|
|
(Effective |
|
Portion) |
|
|
Amount Excluded from |
|
Effectiveness Testing) |
|
|
|
(a) |
|
|
Portion) |
|
(b) |
|
|
Effectiveness Testing) |
|
(c) |
|
|
|
Thirteen Weeks Ended |
|
(in thousands) |
|
July 31, 2010 |
|
|
August 1,
2009 |
|
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
Derivatives in Cash Flow Hedging
Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts |
|
$ |
386 |
|
|
$ |
(5,550 |
) |
|
Cost of Goods Sold |
|
$ |
1,459 |
|
|
$ |
(393 |
) |
|
Other Operating Income, Net |
|
$ |
(7 |
) |
|
$ |
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
(in thousands) |
|
July
31, 2010 |
|
|
August 1, 2009 |
|
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
Derivatives in Cash Flow Hedging
Relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Exchange Forward Contracts |
|
$ |
1,480 |
|
|
$ |
(6,162 |
) |
|
Cost of Goods Sold |
|
$ |
603 |
|
|
$ |
1,043 |
|
|
Other Operating Income, Net |
|
$ |
128 |
|
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 into earnings that occurs when the hedged item
affects earnings, which is when merchandise is sold to the Companys 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 thirteen weeks ended July 31, 2010 and August 1, 2009. |
20
14. DISCONTINUED OPERATIONS
On June 16, 2009, A&Fs Board of Directors approved the closure of the Companys 29 RUEHL branded
stores and related direct-to-consumer operations. 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 Loss from Discontinued
Operations, Net of Tax on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
for the thirteen and twenty-six weeks ended August 1, 2009. Results from discontinued operations
were immaterial for the thirteen and twenty-six weeks ended July 31, 2010.
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 Condensed Consolidated Balance Sheet
as of July 31, 2010 related
to the closure of RUEHL branded stores and related direct-to-consumer operations (in millions):
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, 2010 |
|
Beginning Balance |
|
$ |
46.1 |
|
Interest Accretion / Other, Net |
|
|
(0.3 |
) |
Cash Payments |
|
|
(20.5 |
) |
|
|
|
|
Ending Balance(1) |
|
$ |
25.3 |
|
|
|
|
|
(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 July 31, 2010, there were $19.5 million of lease termination
charges recorded as a current liability in Accrued Expenses and $5.8 million of lease termination
charges recorded as a long-term liability in Other Liabilities on the Condensed Consolidated
Balance Sheet. |
15. 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, averaged over the last 36 consecutive full calendar months ending before
the CEOs retirement. The Company recorded expense of $2.0 million and $1.9 million for the
thirteen and twenty-six weeks ended July 31, 2010, respectively, associated to the SERP. The
Company recorded expense of $0.6 million and income of $0.1 million for the thirteen and twenty-six
weeks ended August 1, 2009, respectively, associated to the SERP.
The expense for the thirteen weeks ended July 31, 2010, included an expense of $2.1 million to
correct a cumulative under accrual of the SERP relating to prior periods, primarily Fiscal 2008. The Company does not believe this correction was material to the periods affected.
21
16. CONTINGENCIES
A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of
business. Legal costs incurred in connection with the resolution of claims and lawsuits are
generally expensed as incurred, and the Company establishes reserves for the outcome of litigation
where it deems appropriate to do so under applicable accounting rules. Actual liabilities may
exceed the amounts reserved, and there can be no assurance that final resolution of these matters
will not have a material adverse effect on the Companys financial condition, results of operations
or cash flows. The Companys identified contingencies include the following matters:
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
then continued to litigate the claims of that putative class. On May 24, 2010, plaintiffs filed a
notice that they did not intend to continue to pursue their claim that members of the class did not
exercise independent managerial judgment and discretion. They also asked the Court to vacate the
August 9, 2010 trial date previously set by the Court. On July 20, 2010, the trial court vacated
the trial date and defendants then moved to decertify the 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&Fs Common Stock between June 2, 2005 and August 16, 2005. In September and
October of 2005, five other purported class actions were subsequently filed against A&F and other
defendants in the same Court. All six securities cases allege claims under the federal securities
laws related to sales of Common Stock by certain defendants and to a decline in the price of A&Fs
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 May 26, 2010, after mediation which commenced on May
17, 2010, the parties reached an agreement in principle to settle the consolidated cases as a class
action, subject to Court approval. Under the agreement in principal, the entire settlement payment
of $12 million will be paid by A&Fs insurers. A hearing will be held on September 24, 2010 to
enable the District Court to determine whether the proposed settlement is fair, reasonable and
adequate and should be approved and effected and whether the class action should therefore be
dismissed.
22
On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries,
et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F
as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&Fs
present and former directors, alleging various breaches of the directors fiduciary duty and
seeking equitable and monetary relief. In the following three months, 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 Companys motion was granted and, on April 10, 2009, plaintiffs filed an
appeal from the order of dismissal. Plaintiffs appeal has been fully briefed and argued and is
awaiting decision. The state court has stayed further proceedings in the state-court derivative
action until resolution of the consolidated federal derivative cases.
The Company intends to defend the aforesaid matters vigorously, as appropriate. The Company is
unable to quantify the potential exposure of the aforesaid matters. However, the Companys
assessment of the 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 the Companys
evaluation of the claims.
23
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:
We have reviewed the accompanying condensed consolidated balance sheet of Abercrombie & Fitch Co.
and its subsidiaries as of July 31, 2010 and the related condensed consolidated statements of
operations and comprehensive income (loss) for each of the thirteen and twenty-six week periods
ended July 31, 2010 and August 1, 2009 and the condensed consolidated statements of cash flows for
the twenty-six week periods ended July 31, 2010 and August 1, 2009. These interim financial
statements are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the objective of which
is the expression of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
accompanying condensed consolidated interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet as of January 30, 2010, and the related
consolidated statements of operations and comprehensive income, of shareholders equity and of cash
flows for the year then ended (not presented herein), and in our report dated March 29, 2010, we
expressed an unqualified opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet as of January 30,
2010, is fairly stated in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
September 8, 2010
24
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
OVERVIEW
The Companys fiscal year ends on the Saturday closest to January 31. Fiscal years are designated
in the condensed consolidated financial statements and notes by the calendar year in which the
fiscal year commences. All references herein to Fiscal 2010 represent the 52-week fiscal year
that will end on January 29, 2011, and to Fiscal 2009 represent the 52-week fiscal year that
ended January 30, 2010.
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 under the Gilly Hicks brand offering
bras, underwear, personal care products, sleepwear and at-home products for women.
Abercrombie & Fitch is rooted in East Coast traditions and Ivy League heritage, the essence of
privilege and casual luxury. Abercrombie & Fitch is a combination of classic and sexy creating an
atmosphere that is confident and just a bit provocative. abercrombie kids directly follows in the
footsteps of its older sibling, Abercrombie & Fitch. abercrombie kids has an energetic attitude
and is popular, wholesome and athletic the signature of All-American cool. Hollister is young,
spirited, with a sense of humor and brings Southern California to the world. Gilly Hicks is the
cheeky cousin of Abercrombie & Fitch, inspired by the free spirit of Sydney, Australia. Gilly
Hicks is classic and vibrant, always confident and is the All-American brand with a Sydney
sensibility.
RESULTS OF OPERATIONS
During the second quarter of Fiscal 2010, net sales increased 17% to $745.8 million from $637.2
million in the second quarter of Fiscal 2009. Operating income was $27.6 million in the second
quarter of Fiscal 2010, compared to $8.9 million in the second quarter of Fiscal 2009. The Company
had net income of $19.5 million in the second quarter of Fiscal 2010 compared to a net loss of
$26.7 million in the second quarter of Fiscal 2009. Net income per diluted share was $0.22 in the
second quarter of Fiscal 2010 compared to net loss per basic and diluted share of $0.30 in the
second quarter of Fiscal 2009. Fiscal 2010 second quarter net income per diluted share included a
non-cash asset impairment charge associated with expected store closures of $0.02 per diluted
share. Fiscal 2009 second quarter net loss per basic and diluted share included a net loss of
$0.21 per basic and diluted share from discontinued operations. Results from discontinued
operations were immaterial for the second quarter of Fiscal 2010.
25
During the Fiscal 2010 year-to-date period, net sales increased 16% to $1.434 billion from $1.239
billion in Fiscal 2009. Operating income was $8.8 million in the Fiscal 2010 year-to-date period,
compared to an operating loss of $25.0 million in Fiscal 2009. The Company had net income of $7.7
million in the Fiscal 2010 year-to-date period compared to a net loss of $86.0 million in Fiscal
2009. Net income per diluted share was $0.09 in the Fiscal 2010 year-to-date period compared to
net loss per basic and diluted share of $0.98 in Fiscal 2009. Fiscal 2010 year-to-date net income
per diluted share included a non-cash asset impairment charge associated with expected store
closures of $0.02 per diluted share. Fiscal 2009 year-to-date net loss per basic and diluted share
included a net loss of $0.62 per basic and diluted share from discontinued operations. Results
from discontinued operations were immaterial for the Fiscal 2010 year-to-date period.
Net cash used for operating activities was $21.7 million for the twenty-six weeks ended July 31,
2010. In addition, the Company used $59.8 million of cash for capital expenditures and paid
dividends totaling $30.8 million during the twenty-six weeks ended July 31, 2010. As of July 31,
2010, the Company had $613.6 million in cash and equivalents and outstanding debt and letters of
credit of $77.6 million, compared to $366.5 million in cash and equivalents and outstanding debt
and letters of credit of $79.6 million as of August 1, 2009.
Due to seasonal variations in the retail industry, the results of operations for any current period
are not necessarily indicative of the results expected for the full fiscal year. The seasonality
of the Companys operations may also lead to significant fluctuations in certain asset and
liability accounts.
26
The following data represents the amounts shown in the Companys Condensed Consolidated Statements
of Operations and Comprehensive Income (Loss) for the thirteen and twenty-six week periods ended
July 31, 2010 and August 1, 2009, expressed as a percentage of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
NET SALES |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Goods Sold |
|
|
34.9 |
% |
|
|
33.4 |
% |
|
|
36.1 |
% |
|
|
34.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
65.1 |
% |
|
|
66.6 |
% |
|
|
63.9 |
% |
|
|
65.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores and Distribution Expense |
|
|
48.9 |
% |
|
|
52.1 |
% |
|
|
50.1 |
% |
|
|
53.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing, General and Administrative
Expense |
|
|
12.8 |
% |
|
|
13.6 |
% |
|
|
13.4 |
% |
|
|
14.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating Income, Net |
|
|
(0.3 |
)% |
|
|
(0.5 |
)% |
|
|
(0.2 |
)% |
|
|
(0.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) |
|
|
3.7 |
% |
|
|
1.4 |
% |
|
|
0.6 |
% |
|
|
(2.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense (Income), Net |
|
|
0.1 |
% |
|
|
(0.3 |
)% |
|
|
0.1 |
% |
|
|
(0.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing
Operations before Taxes |
|
|
3.6 |
% |
|
|
1.7 |
% |
|
|
0.5 |
% |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Expense from Continuing Operations |
|
|
1.0 |
% |
|
|
3.0 |
% |
|
|
0.0 |
% |
|
|
0.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Continuing
Operations |
|
|
2.6 |
% |
|
|
(1.3 |
)% |
|
|
0.5 |
% |
|
|
(2.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss from Discontinued Operations
(net of taxes) |
|
|
|
|
|
|
(2.9 |
)% |
|
|
|
|
|
|
(4.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) |
|
|
2.6 |
% |
|
|
(4.2 |
)% |
|
|
0.5 |
% |
|
|
(6.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Financial Summary
The following summarized financial and statistical data compare the thirteen and twenty-six week
periods ended July 31, 2010 to the thirteen and twenty-six week periods ended August 1, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales by brand (in millions) |
|
$ |
745.8 |
|
|
$ |
637.2 |
|
|
$ |
1,433.6 |
|
|
$ |
1,239.0 |
|
Abercrombie & Fitch |
|
$ |
335.6 |
|
|
$ |
285.3 |
|
|
$ |
639.3 |
|
|
$ |
550.0 |
|
abercrombie |
|
$ |
79.1 |
|
|
$ |
71.4 |
|
|
$ |
157.8 |
|
|
$ |
140.6 |
|
Hollister |
|
$ |
322.2 |
|
|
$ |
274.3 |
|
|
$ |
620.4 |
|
|
$ |
536.7 |
|
Gilly Hicks |
|
$ |
8.9 |
|
|
$ |
6.2 |
|
|
$ |
16.1 |
|
|
$ |
11.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in net sales from prior year |
|
|
17 |
% |
|
|
(24 |
)% |
|
|
16 |
% |
|
|
(24 |
)% |
Abercrombie & Fitch |
|
|
18 |
% |
|
|
(26 |
)% |
|
|
16 |
% |
|
|
(26 |
)% |
abercrombie |
|
|
11 |
% |
|
|
(25 |
)% |
|
|
12 |
% |
|
|
(26 |
)% |
Hollister |
|
|
17 |
% |
|
|
(22 |
)% |
|
|
16 |
% |
|
|
(21 |
)% |
Gilly Hicks |
|
|
44 |
% |
|
|
48 |
% |
|
|
38 |
% |
|
|
61 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in comparable store sales* |
|
|
5 |
% |
|
|
(30 |
)% |
|
|
3 |
% |
|
|
(30 |
)% |
Abercrombie & Fitch |
|
|
8 |
% |
|
|
(27 |
)% |
|
|
6 |
% |
|
|
(26 |
)% |
abercrombie |
|
|
3 |
% |
|
|
(29 |
)% |
|
|
4 |
% |
|
|
(31 |
)% |
Hollister |
|
|
2 |
% |
|
|
(33 |
)% |
|
|
0 |
% |
|
|
(32 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net store sales per average store (in thousands) |
|
$ |
610 |
|
|
$ |
532 |
|
|
$ |
1,165 |
|
|
$ |
1,029 |
|
Abercrombie & Fitch |
|
$ |
858 |
|
|
$ |
718 |
|
|
$ |
1,621 |
|
|
$ |
1,376 |
|
abercrombie |
|
$ |
340 |
|
|
$ |
306 |
|
|
$ |
673 |
|
|
$ |
600 |
|
Hollister |
|
$ |
557 |
|
|
$ |
502 |
|
|
$ |
1,067 |
|
|
$ |
976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net store sales per average gross square foot |
|
$ |
85 |
|
|
$ |
75 |
|
|
$ |
163 |
|
|
$ |
145 |
|
Abercrombie & Fitch |
|
$ |
96 |
|
|
$ |
81 |
|
|
$ |
181 |
|
|
$ |
155 |
|
abercrombie |
|
$ |
72 |
|
|
$ |
66 |
|
|
$ |
143 |
|
|
$ |
130 |
|
Hollister |
|
$ |
81 |
|
|
$ |
74 |
|
|
$ |
156 |
|
|
$ |
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in transactions per average store |
|
|
19 |
% |
|
|
(22 |
)% |
|
|
18 |
% |
|
|
(24 |
)% |
Abercrombie & Fitch |
|
|
17 |
% |
|
|
(22 |
)% |
|
|
16 |
% |
|
|
(22 |
)% |
abercrombie |
|
|
16 |
% |
|
|
(20 |
)% |
|
|
16 |
% |
|
|
(23 |
)% |
Hollister |
|
|
20 |
% |
|
|
(23 |
)% |
|
|
18 |
% |
|
|
(26 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in average store transaction value |
|
|
(4 |
)% |
|
|
(9 |
)% |
|
|
(4 |
)% |
|
|
(6 |
)% |
Abercrombie & Fitch |
|
|
2 |
% |
|
|
(7 |
)% |
|
|
2 |
% |
|
|
(6 |
)% |
abercrombie |
|
|
(4 |
)% |
|
|
(9 |
)% |
|
|
(3 |
)% |
|
|
(8 |
)% |
Hollister |
|
|
(8 |
)% |
|
|
(7 |
)% |
|
|
(7 |
)% |
|
|
(5 |
)% |
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
July 31, 2010 |
|
|
August 1, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in average units per store transaction |
|
|
11 |
% |
|
|
(3 |
)% |
|
|
9 |
% |
|
|
(4 |
)% |
Abercrombie & Fitch |
|
|
7 |
% |
|
|
(5 |
)% |
|
|
5 |
% |
|
|
(5 |
)% |
abercrombie |
|
|
13 |
% |
|
|
(2 |
)% |
|
|
10 |
% |
|
|
(1 |
)% |
Hollister |
|
|
13 |
% |
|
|
(3 |
)% |
|
|
11 |
% |
|
|
(4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in average unit retail sold, including DTC |
|
|
(15 |
)% |
|
|
(6 |
)% |
|
|
(12 |
)% |
|
|
(3 |
)% |
Abercrombie & Fitch |
|
|
(5 |
)% |
|
|
(2 |
)% |
|
|
(3 |
)% |
|
|
(2 |
)% |
abercrombie |
|
|
(15 |
)% |
|
|
(8 |
)% |
|
|
(12 |
)% |
|
|
(7 |
)% |
Hollister |
|
|
(18 |
)% |
|
|
(4 |
)% |
|
|
(16 |
)% |
|
|
(1 |
)% |
|
|
|
* |
|
A store is included in comparable store sales when it has been open as the same brand 12 months
or more and its square footage has not been expanded or reduced by more than 20% within the past
year. |
29
CURRENT TRENDS AND OUTLOOK
In the second quarter of Fiscal 2010, the Company continued to focus on the key long-term drivers
of the business, while being pleased with the year over year progress made in improving its current
operating results. The Companys objective in Fiscal 2010 and subsequent years is to increase its
operating margin back toward historical levels, which the Company believes will require a
combination of the following factors.
First, returning gross margin toward historic levels. During the second quarter, the gross margin
rate decreased 150 basis points primarily due to the 15% decrease in average unit retail, and the
Company expects the near-term environment to remain challenging with regard to the gross margin
rate. Over time, the Company believes the conditions necessary for achieving improvements in gross
margin toward historical levels include optimizing its average unit retail, maintaining tight
control over average unit cost, and benefiting from international operations with higher gross
margins.
Second, improving average domestic store productivity levels, both through same store sales growth
and as a result of the closure of underperforming stores. The Company expects to close
approximately 60 domestic stores over the course of Fiscal 2010, predominantly at the end of the
year. The majority of the closures will be by way of natural lease expirations in the Abercrombie
& Fitch and abercrombie kids brands. The Company also currently expects approximately 50
additional store closures during Fiscal 2011, also predominantly by way of natural lease
expirations.
Third, the Company continues with its plans for international store openings in Fiscal 2010 and is
seeking to accelerate its international growth beyond that. In Fiscal 2010, the Company remains on
track to open Abercrombie & Fitch flagship stores in Fukuoka, Japan and Copenhagen, Denmark and a
Hollister Epic store on Fifth Avenue in New York. The Company currently plans to open
approximately 20 international mall-based Hollister stores in Fiscal 2010 as well as one
Abercrombie & Fitch store in Canada. In addition, the Company plans to open its first Gilly Hicks
store in the United Kingdom in the fourth quarter of Fiscal 2010. In Fiscal 2011, the Company
plans to open Abercrombie & Fitch flagship stores in Paris, France and Madrid, Spain, and continues
to work on further flagship opportunities in 2011 and beyond.
Fourth, the Company continues to focus on sustaining strong growth rates in its direct-to-consumer
business, and regards growth in this business as an important factor in achieving its long-term
goals.
Fifth, 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 regard to the balance sheet, the Company ended the second quarter with inventory at cost up 47%, as compared to last year.
The increase was due to higher on-hand Spring inventory carryover, higher on-hand Basic and Fall inventory and higher in-transit inventory. The increase in Fall and Basic inventory includes a significant
change in the timing of inventory receipts compared to last year. The Company expects inventory levels to remain significantly elevated on a year over year basis at the end of the third quarter, before moderating at the end
of Fiscal 2010.
During Fiscal 2010, based on new store opening plans and other capital expenditures, the Company now
expects total capital expenditures to be approximately $200 million, including approximately $160 million related to new stores, store refreshes and remodels, and approximately $40 million related to information technology,
distribution center and other home office projects.
In Fiscal 2010, the Company will seek to sustain improvements in its operating results while
continuing to focus on its long-term strategic objectives.
30
SECOND QUARTER AND YEAR-TO-DATE RESULTS
Net Sales
Net sales for the second quarter of Fiscal 2010 were $745.8 million, an increase of 17% from net
sales of $637.2 million during the second quarter of Fiscal 2009. The net sales increase was
attributable to a 5% increase in comparable store sales, a 47% increase in the direct-to-consumer
business, including shipping and handling revenue, and new stores, primarily international.
Year-to-date net sales in Fiscal 2010 were $1.434 billion, an increase of 16% from net sales of
$1.239 billion during the comparable period of Fiscal 2009. The net sales increase was attributable to
a 3% increase in comparable store sales, a 44% increase in the direct-to-consumer business,
including shipping and handling revenue, and new stores, primarily international.
Comparable store sales by brand for the second quarter of Fiscal 2010 were as follows: Abercrombie
& Fitch increased 8%, with womens increasing by a mid single digit and mens increasing by a low
double digit. abercrombie kids increased 3%, with girls and guys increasing by a low single digit.
Hollister increased 2%, with bettys decreasing by a low single digit and dudes increasing by a
high single digit.
Year-to-date comparable store sales by brand were as follows: Abercrombie & Fitch increased 6%;
abercrombie increased 4%; and Hollister was flat.
On a comparable store sales basis, the United Kingdom was the strongest performing region while
Canada and the Midwest U.S. regions were the weakest. Within the U.S., flagship and tourist stores
outperformed the non-tourist stores.
For the second quarter of Fiscal 2010, across all brands, the masculine categories continued to
out-pace the feminine categories. From a merchandise classification standpoint, for the male
business, woven shirts, graphics and fragrance were stronger performing categories while jeans and
knit tops were the weaker performing categories. In the female business, dresses, woven shirts and
fleece were stronger performing categories while knit tops and jeans were weaker performing
categories.
Direct-to-consumer net merchandise sales for the second quarter of Fiscal 2010 were $69.0 million,
an increase of 50% from Fiscal 2009 second quarter direct-to-consumer net merchandise sales of
$46.1 million. Shipping and handling revenue for the corresponding periods was $11.0 million in
Fiscal 2010 and $8.2 million in Fiscal 2009. The direct-to-consumer business, including shipping
and handling revenue, accounted for 10.7% of total net sales in the second quarter of Fiscal 2010
compared to 8.5% in the second quarter of Fiscal 2009.
Direct-to-consumer net merchandise sales for the Fiscal 2010 year-to-date period were $137.7
million, an increase of 46% from Fiscal 2009 year-to-date direct-to-consumer net merchandise sales
of $94.5 million. Shipping and handling revenue for the corresponding periods was $22.3 million in
Fiscal 2010 and $16.6 million in Fiscal 2009. The direct-to-consumer business, including shipping
and handling revenue, accounted for 11.2% of total net sales in the Fiscal 2010 year-to-date period
compared to 9.0% in the Fiscal 2009 year-to-date period.
Gross Profit
Gross profit for the second quarter of Fiscal 2010 was $485.3 million compared to $424.5 million
for the comparable period in Fiscal 2009. The gross profit rate (gross profit divided by net
sales) for the second quarter of Fiscal 2010 was 65.1%, down 150 basis points from the second
quarter of Fiscal 2009 rate of 66.6%.
31
The decrease in the gross profit rate for the second quarter of Fiscal 2010 was primarily driven by
a 15% decrease in average unit retail, which was partially offset by a reduction in average unit
cost.
Year-to-date gross profit for Fiscal 2010 was $916.8 million compared to $806.0 million for the
comparable period in Fiscal 2009. The gross profit rate for the year-to-date period of Fiscal 2010
was 63.9%, down 120 basis points from the year-to-date Fiscal 2009 rate of 65.1%.
The decrease in the gross profit rate for the Fiscal 2010 year-to-date period was primarily driven
by a 12% decrease in average unit retail, which was partially offset by a reduction in average unit
cost.
Stores and Distribution Expense
Stores and distribution expense for the second quarter of Fiscal 2010 was $364.5 million compared
to $332.3 million for the comparable period in Fiscal 2009. The stores and distribution expense
rate (stores and distribution expense divided by net sales) for the second quarter of Fiscal 2010
was 48.9% compared to 52.1% in the second quarter of Fiscal 2009.
Stores and distribution expense for the Fiscal 2010 year-to-date period was $718.9 million compared
to $662.6 million for the comparable period in Fiscal 2009. The stores and distribution expense
rate for the year-to-date period of Fiscal 2010 was 50.1% compared to 53.5% for the Fiscal 2009
year-to-date period.
The decrease in stores and distribution expense rate for the second quarter of Fiscal 2010 and the
Fiscal 2010 year-to-date period was primarily driven by lower store occupancy costs as a percentage
of net sales.
Total direct-to-consumer expenses included in stores and distribution expense was $12.9 million and
$25.7 million for the thirteen and twenty-six weeks ended July 31, 2010, respectively. Total
direct-to-consumer expenses included in stores and distribution expense was $9.7 million and $21.4
million for the thirteen and twenty-six weeks ended August 1, 2009, respectively.
Stores and distribution expense for the thirteen and twenty-six week periods ended July 31, 2010
included a non-cash, pre-tax asset impairment charge associated with expected store closures of
$2.2 million, or 0.3% and 0.2% of net sales, respectively.
Marketing, General and Administrative Expense
Marketing, general and administrative expense during the second quarter of Fiscal 2010 was $95.2
million compared to $86.7 million during the same period in Fiscal 2009, a 10% increase. For the
second quarter of Fiscal 2010, the marketing, general and administrative expense rate (marketing,
general and administrative expense divided by net sales) was 12.8% compared to 13.6% for the second
quarter of Fiscal 2009.
The increase in marketing, general and administrative expense for the second quarter was primarily
due to increases in compensation and benefits, including incentive and equity compensation,
partially offset by a reduction in net legal and outside services expense. Marketing, general and
administrative expense included a $3.5 million benefit related to recoveries arising from the outcome of legal proceedings and settlements, offset by expense of $2.1 million to correct an under
accrual of the supplemental retirement plan primarily related to Fiscal 2008.
32
Marketing, general and administrative expense during the Fiscal 2010 year-to-date period was $191.8
million
compared to $173.0 million during the same period in Fiscal 2009, an 11% increase. For the
year-to-date period of Fiscal 2010, the marketing, general and administrative expense rate was
13.4% compared to 14.0% for the Fiscal 2009 year-to-date period.
The increase in marketing, general and administrative expense for the Fiscal 2010 year-to-date
period was primarily due to increases in compensation and benefits, including incentive and equity
compensation, and increases in net outside service expense.
Other Operating Income, Net
Second quarter other operating income, net for Fiscal 2010 was $1.9 million compared to $3.3
million for the second quarter of Fiscal 2009.
Year-to-date other operating income, net for Fiscal 2010 was $2.8 million compared to $4.7 million
for the year-to-date period of Fiscal 2009.
The decreases for the second quarter and year-to-date period of Fiscal 2010 were driven by net losses
from foreign currency denominated transactions in the current periods compared to net gains from
foreign currency denominated transactions in the comparable prior year periods.
Interest Expense (Income), Net and Tax Expense (Benefit) from Continuing Operations
Second quarter interest expense was $1.9 million in Fiscal 2010, offset by interest income of $1.1
million, compared to interest income of $3.8 million, offset by interest expense of $2.0 million in
the second quarter of Fiscal 2009. The decrease in interest income was primarily the result of a
lower average rate of return on investments.
Year-to-date interest expense was $3.8 million in Fiscal 2010, offset by interest income of $2.2
million, compared to interest income of $6.0 million, offset by interest expense of $2.8 million in
the year-to-date period of Fiscal 2009. The decrease in interest income was primarily the result
of 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, additional
borrowings under the unsecured credit agreement and higher fees associated with the unsecured
amended credit agreement.
The effective tax rate for continuing operations for the second quarter of Fiscal 2010 was a 27.2%
expense, compared to a 176.8% expense for the second quarter of Fiscal 2009. The tax rate for the
thirteen weeks ended July 31, 2010 was favorably impacted by provision-to-return adjustments for
certain jurisdictions and the resolution of open tax matters. The tax rate for the thirteen weeks
ended August 1, 2009 was adversely impacted by a true up of the estimated annual effective tax rate
as calculated in accordance with U.S. generally accepted accounting principles.
The effective tax rate for continuing operations for the year-to-date period of Fiscal 2010 was a
6.0% benefit, compared to a 43.3% expense for the year-to-date period of Fiscal 2009.
On a full year basis, the Company expects the effective tax rate to be approximately 37%. The rate
remains sensitive to the domestic/international profit mix.
33
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 Loss
from Discontinued Operations, Net of Tax on the Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended August 1, 2009. Net loss
from discontinued operations, net of tax, was $18.6 million and $54.7 million for the thirteen and
twenty-six weeks ended August 1, 2009, respectively. Results from discontinued operations were
immaterial for the thirteen and twenty-six weeks ended July 31, 2010.
Refer to Note 14, Discontinued Operations of the Notes to Condensed Consolidated Financial
Statements for further discussion.
Net Income (Loss) and Net Income (Loss) per Share
Net income for the second quarter of Fiscal 2010 was $19.5 million compared to a net loss of $26.7
million for the second quarter of Fiscal 2009. Net income per diluted share for the second quarter
of Fiscal 2010 was $0.22 compared to net loss per basic and diluted share of $0.30 for the same
period of Fiscal 2009. Net loss per basic and diluted share for the second quarter of Fiscal 2009
included a net loss of $0.21 per basic and diluted share from discontinued operations.
Net income for the year-to-date period of Fiscal 2010 was $7.7 million compared to a net loss of
$86.0 million for the year-to-date period of Fiscal 2009. Net income per diluted share for the
year-to-date period of Fiscal 2010 was $0.09 compared to net loss per basic and diluted share of
$0.98 for the same period of Fiscal 2009. Net loss per basic and diluted share for the
year-to-date period of Fiscal 2009 included a net loss of $0.62 per basic and diluted share from
discontinued operations.
Net income for the thirteen and twenty-six week periods ended July 31, 2010 included a non-cash
asset impairment charge associated with the expected store closures of $0.02 per share.
FINANCIAL CONDITION
Liquidity and Capital Resources
The Company had $613.6 million in cash and equivalents available as of July 31, 2010, as well as an
additional $296.8 million available (less outstanding letters of credit of $24.4 million) under its
unsecured Amended Credit Agreement (as amended in June 2009), as described in Note 12, Long-Term
Debt of the Notes to Condensed 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 Companys consolidated capital expenditures
to $325 million in Fiscal 2010, plus the $99.5 million representing the unused portion of the
allowable expenditures from Fiscal 2009, all defined in the Amended Credit Agreement. The Company was
in compliance with the applicable ratio requirements and other covenants at July 31, 2010. 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.
A summary of the Companys working capital position and capitalization follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
January 30, 2010 |
|
|
Working capital |
|
$ |
800,606 |
|
|
$ |
786,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization: |
|
|
|
|
|
|
|
|
Shareholders equity |
|
$ |
1,819,697 |
|
|
$ |
1,827,917 |
|
|
|
|
|
|
|
|
34
Operating Activities
Net cash used for operating activities was $21.7 million for the twenty-six weeks ended July 31,
2010, compared to net cash provided by operating activities of $47.0 million for the twenty-six
weeks ended August 1, 2009. The net use of cash when comparing the two years was driven by
increases in inventory, partially offset by increased net
income.
Investing Activities
Cash outflows for investing activities for the twenty-six weeks ended July 31, 2010 were primarily
for capital expenditures related to new store construction and information technology investments
(see the discussion in Capital Expenditures and Lessor Construction Allowances). The decrease in
capital expenditures compared to Fiscal 2009 primarily related to the timing of new flagship and
domestic mall-based store openings. For the twenty-six week periods ended July 31, 2010 and August
1, 2009, the Company also had cash outflows for investing activities related to the purchase of
rabbi trust assets and cash inflows for investing activities related to the sale of marketable
securities.
Financing Activities
Financing activities for the twenty-six week period ended July 31, 2010 consisted of cash outflows
of $30.8 million related to the payment of the $0.175 per share quarterly dividends on March 16,
2010 and June 15, 2010.
As of July 31, 2010, approximately 11.3 million shares were available for repurchase as part of the
August 15, 2005 and November 20, 2007 A&F Board of Directors authorizations to repurchase 6.0
million shares and 10.0 million shares, respectively, of A&Fs Common Stock. A&F did not
repurchase any shares of A&Fs Common Stock during the twenty-six weeks ended July 31, 2010.
The Company had $53.2 million and $50.9 million of debt outstanding under its unsecured Amended
Credit Agreement on July 31, 2010 and January 30, 2010, respectively. The debt outstanding as of
July 31, 2010 and January 30, 2010 was denominated in Japanese Yen. The average interest rate for
the twenty-six weeks ended was 2.7%. As of July 31, 2010, the Company had an additional $296.8
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 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 July 31, 2010. The minimum Coverage Ratio varies over time based on the terms set
forth in the Amended Credit Agreement. On June 16, 2009, the definition of Consolidated EBITDAR
was amended for the purpose of the Amended Credit Agreement, 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 Amended Credit Agreement also limits the Companys consolidated capital expenditures to $325
million in Fiscal 2010, plus $99.5 million representing the unused portion of the allowable capital
expenditures from Fiscal 2009. The Company was in compliance with the applicable ratio
requirements and other covenants at July 31, 2010.
35
The unsecured Amended Credit Agreement is more fully described in Note 12, Long-Term Debt of the
Notes to Condensed Consolidated Financial Statements.
Trade letters of credit totaling approximately $10.4 million and $35.9 million were outstanding on
July 31, 2010 and January 30, 2010, respectively. Stand-by letters of credit totaling
approximately $14.0 million and $14.1 million were outstanding on July 31, 2010 and January 30,
2010, respectively. The stand-by letters of credit are set to expire primarily during the first
quarter of Fiscal 2011. To date, no beneficiary has drawn upon the stand-by letters of credit.
Off-Balance Sheet Arrangements
As of July 31, 2010, the Company did not have any off-balance sheet arrangements.
Contractual Obligations
The Companys contractual obligations consist primarily of letters of credit outstanding, operating
leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement
obligations, lease deposits and other agreements to purchase goods and services that are legally
binding and that require minimum quantities to be purchased. These contractual obligations impact
the Companys short- and long-term liquidity and capital resource needs. During the twenty-six
weeks ended July 31, 2010, changes to the contractual obligations from those as of January 30, 2010
included the payment of $20.5 million in previously accrued charges related to the closure of RUEHL
branded stores and related direct-to-consumer operations. There were no other material changes in
contractual obligations as of July 31, 2010, with the exception of those obligations which occurred
in the normal course of business (primarily changes in the Companys merchandise inventory-related
purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal
nature of the Companys operations).
36
Second Quarter Store Count and Gross Square Feet
Store count and gross square footage by brand for the thirteen weeks ended July 31, 2010 and August
1, 2009, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity |
|
Abercrombie & Fitch |
|
|
abercrombie |
|
|
Hollister |
|
|
Gilly Hicks |
|
|
Total |
|
|
May 1, 2010 |
|
|
347 |
|
|
|
209 |
|
|
|
528 |
|
|
|
16 |
|
|
|
1,100 |
|
New |
|
|
1 |
|
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
5 |
|
Remodels/Conversions (net
activity) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Closed |
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
345 |
|
|
|
206 |
|
|
|
530 |
|
|
|
17 |
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1, 2010 |
|
|
3,111 |
|
|
|
988 |
|
|
|
3,615 |
|
|
|
161 |
|
|
|
7,875 |
|
New |
|
|
12 |
|
|
|
6 |
|
|
|
14 |
|
|
|
5 |
|
|
|
37 |
|
Remodels/Conversions (net
activity) |
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Closed |
|
|
(34 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
3,097 |
|
|
|
976 |
|
|
|
3,629 |
|
|
|
166 |
|
|
|
7,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size |
|
|
8,977 |
|
|
|
4,738 |
|
|
|
6,847 |
|
|
|
9,765 |
|
|
|
7,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity |
|
Abercrombie & Fitch |
|
|
abercrombie |
|
|
Hollister |
|
|
Gilly Hicks |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2009 |
|
|
354 |
|
|
|
212 |
|
|
|
515 |
|
|
|
16 |
|
|
|
1,097 |
|
New |
|
|
|
|
|
|
1 |
|
|
|
5 |
|
|
|
|
|
|
|
6 |
|
Remodels/Conversions (net
activity) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2009 |
|
|
354 |
|
|
|
213 |
|
|
|
520 |
|
|
|
16 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet (thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2009 |
|
|
3,144 |
|
|
|
981 |
|
|
|
3,475 |
|
|
|
161 |
|
|
|
7,761 |
|
New |
|
|
|
|
|
|
5 |
|
|
|
80 |
|
|
|
|
|
|
|
85 |
|
Remodels/Conversions (net
activity) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Closed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2009 |
|
|
3,144 |
|
|
|
986 |
|
|
|
3,552 |
|
|
|
161 |
|
|
|
7,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size |
|
|
8,881 |
|
|
|
4,629 |
|
|
|
6,831 |
|
|
|
10,063 |
|
|
|
7,111 |
|
37
Year-To-Date Store Count and Gross Square Feet
Store count and gross square footage by brand for the twenty-six weeks ended July 31, 2010 and
August 1, 2009, respectively, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity |
|
Abercrombie & Fitch |
|
|
abercrombie |
|
|
Hollister |
|
|
Gilly Hicks |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010 |
|
|
346 |
|
|
|
209 |
|
|
|
525 |
|
|
|
16 |
|
|
|
1,096 |
|
New |
|
|
3 |
|
|
|
2 |
|
|
|
6 |
|
|
|
1 |
|
|
|
12 |
|
Remodels/Conversions
(net activity) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Closed |
|
|
(5 |
) |
|
|
(5 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
345 |
|
|
|
206 |
|
|
|
530 |
|
|
|
17 |
|
|
|
1,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010 |
|
|
3,110 |
|
|
|
979 |
|
|
|
3,597 |
|
|
|
161 |
|
|
|
7,847 |
|
New |
|
|
25 |
|
|
|
19 |
|
|
|
43 |
|
|
|
5 |
|
|
|
92 |
|
Remodels/Conversions
(net activity) |
|
|
4 |
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
Closed |
|
|
(42 |
) |
|
|
(22 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2010 |
|
|
3,097 |
|
|
|
976 |
|
|
|
3,629 |
|
|
|
166 |
|
|
|
7,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size |
|
|
8,977 |
|
|
|
4,738 |
|
|
|
6,847 |
|
|
|
9,765 |
|
|
|
7,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Activity |
|
Abercrombie & Fitch |
|
|
abercrombie |
|
|
Hollister |
|
|
Gilly Hicks |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
356 |
|
|
|
212 |
|
|
|
515 |
|
|
|
14 |
|
|
|
1,097 |
|
New |
|
|
|
|
|
|
3 |
|
|
|
6 |
|
|
|
2 |
|
|
|
11 |
|
Closed |
|
|
(2 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2009 |
|
|
354 |
|
|
|
213 |
|
|
|
520 |
|
|
|
16 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Square Feet
(thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2009 |
|
|
3,164 |
|
|
|
976 |
|
|
|
3,474 |
|
|
|
146 |
|
|
|
7,760 |
|
New |
|
|
|
|
|
|
19 |
|
|
|
87 |
|
|
|
15 |
|
|
|
121 |
|
Remodels/Conversions
(net activity) |
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
Closed |
|
|
(20 |
) |
|
|
(9 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1, 2009 |
|
|
3,144 |
|
|
|
986 |
|
|
|
3,552 |
|
|
|
161 |
|
|
|
7,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Store Size |
|
|
8,881 |
|
|
|
4,629 |
|
|
|
6,831 |
|
|
|
10,063 |
|
|
|
7,111 |
|
38
CAPITAL EXPENDITURES
In Fiscal 2010, the Company continues to expect to open Abercrombie & Fitch flagship stores in
Copenhagen, Denmark and Fukuoka, Japan and a Hollister Epic store on Fifth Avenue in New York. In
Fiscal 2011, the Company continues to expect to open Abercrombie & Fitch flagship stores in Paris,
France and Madrid, Spain.
The Company now expects to open approximately 20 international mall-based Hollister stores in
Fiscal 2010, a reduction from the prior estimate of approximately 25 stores. The Company has
confirmed plans to open one Abercrombie & Fitch store in Canada and its first international Gilly
Hicks store in the United Kingdom in the fourth quarter of Fiscal 2010.
Domestically, the Company expects to open three Abercrombie & Fitch stores, including its first
store in Puerto Rico, three abercrombie kids stores, three Hollister stores, two Gilly Hicks stores
and four outlet stores.
Capital expenditures totaled $59.8 million and $106.7 million for the twenty-six weeks ended July
31, 2010 and August 1, 2009, respectively. A summary of capital expenditures is as follows:
|
|
|
|
|
|
|
|
|
Capital Expenditures (in millions) |
|
July 31, 2010 |
|
|
August 1, 2009 |
|
New Store Construction, Store Refreshes and Remodels |
|
$ |
45.3 |
|
|
$ |
80.4 |
|
Home Office, Distribution Centers and Information Technology |
|
|
14.5 |
|
|
|
26.3 |
|
|
|
|
|
|
|
|
Total Capital Expenditures |
|
$ |
59.8 |
|
|
$ |
106.7 |
|
|
|
|
|
|
|
|
During Fiscal 2010, based on new store opening plans and other capital expenditures, the Company
now expects total capital expenditures to be approximately $200 million, including approximately
$160 million related to new stores, store refreshes and remodels, and approximately $40 million
related to information technology, distribution center and other home office projects.
CLOSURE OF RUEHL BRANDED STORES AND RELATED DIRECT-TO-CONSUMER OPERATIONS
On June 16, 2009, A&Fs Board of Directors approved the closure of the Companys 29 RUEHL branded
stores and related direct-to-consumer operations. 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 Loss from Discontinued
Operations, Net of Tax on the Condensed Consolidated Statements of Operations and Comprehensive
Income (Loss) for the thirteen and twenty-six weeks ended August 1, 2009. Results from
discontinued operations were immaterial for the thirteen and twenty-six weeks ended July 31, 2010.
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, of which
$20.5 million was paid during the twenty-six weeks ended July 31, 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.
39
Below is a roll forward of the present value of liabilities recognized on the Condensed
Consolidated Balance Sheet as of July 31, 2010 related to the closure of the RUEHL branded stores
and related direct-to-consumer operations (in millions):
|
|
|
|
|
|
|
Twenty-Six Weeks Ended |
|
|
|
July 31, 2010 |
|
Beginning Balance |
|
$ |
46.1 |
|
Interest Accretion / Other, Net |
|
|
(0.3 |
) |
Cash Payments |
|
|
(20.5 |
) |
|
|
|
|
Ending Balance(1) |
|
$ |
25.3 |
|
|
|
|
|
|
|
|
(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 July 31, 2010,
there were $19.5 million of lease termination
charges recorded as a current liability in
Accrued Expenses and $5.8 million of lease
termination charges recorded as a long-term
liability in Other Liabilities on the Condensed
Consolidated Balance Sheet. |
Critical Accounting Estimates
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys condensed consolidated financial statements which have been prepared in
accordance with accounting principles generally accepted in the United States of America. The
preparation of these condensed consolidated financial statements requires the Company to make
estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. Since actual results may differ from those estimates, the Company revises its estimates
and assumptions as new information becomes available.
The Companys significant accounting policies can be found in Note 2 of the Notes to Consolidated
Financial Statements contained in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA of A&Fs
Annual Report on Form 10-K for Fiscal 2009 filed on March 29, 2010. The Company believes the
following policies are the most critical to the portrayal of the Companys 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 value of point
of sale coupons that result in a
reduction of the price paid by the
customer are recorded as a reduction
of sales.
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 Companys 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 July 31, 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
July 31, 2010 would have affected pre-tax
income by approximately $0.6 million for the
thirteen and twenty-six week periods ended July
31, 2010.
A 10% change in the assumption of the
redemption pattern for gift cards as of July
31, 2010 would have been immaterial to pre-tax
income for the thirteen and twenty-six week
periods ended July 31, 2010. |
40
|
|
|
Policy |
|
Effect if Actual Results Differ from Assumptions |
|
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
July 31, 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 7, Fair Value of the Notes to Condensed
Consolidated Financial Statements, being equal,
a 50 basis point increase in the market
required rate of return will yield a 29%
increase in impairment and a 50 basis point
decrease in the market required rate of return
will yield a 30% decrease in impairment. |
|
|
|
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
permanent markdowns 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 reserve 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 reserve as of July 31, 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 margin(s).
An increase or decrease in the valuation
reserve of 10% would have affected pre-tax
income by approximately $2.1 million for the
thirteen and twenty-six week periods ended July
31, 2010.
An increase or decrease in the inventory shrink
accrual of 10% would have affected pre-tax
income by approximately $0.8 million for the
thirteen and twenty-six week periods ended July
31, 2010. |
|
|
|
41
|
|
|
Policy |
|
Effect if Actual Results Differ from Assumptions |
|
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 Companys impairment calculation
requires management to make
assumptions and judgments related to
factors used in the evaluation for
impairment, including, but not
limited to, managements 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 July 31, 2010.
However, changes in these assumptions do occur,
and, should those changes be significant, they
could have a material impact on the Companys
determination of whether or not there has been
an impairment. |
|
|
|
Income Taxes |
|
|
|
|
|
Income taxes are calculated using 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 Companys
operations.
The provision for income taxes is
based on the current estimate of the
annual effective tax rate adjusted to
reflect the tax impact of items
discrete to the quarter. The
effective tax rate is affected by
changes in law, the tax jurisdiction
of new stores, the level of earnings,
provision-to-return adjustments,
tax-exempt income, the results of tax
audits, etc.
|
|
The Company does not expect material changes in
the judgments and interpretations used to
calculate deferred tax assets and liabilities
as of July 31, 2010. However, changes may
occur and actual results could differ
materially.
The Company does not expect material changes in
the near term to underlying assumptions used to
calculate the tax provisions for the thirteen
and twenty-six week periods ended July 31,
2010. However, changes in these assumptions
may occur and should those changes be
significant, they could have a material impact
on the Companys income tax expense. |
|
|
|
Equity Compensation Expense |
|
|
|
|
|
The Companys 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 twenty-six week period ended July 31,
2010. However, changes in these assumptions do
occur, and, should those changes be
significant, they could have a material impact
on the Companys equity compensation expense.
A 10% increase in term would yield a 3%
increase in the Black-Scholes valuation for
stock appreciation rights, while a 10% increase
in volatility would yield a 9% increase in the
Black-Scholes valuation for stock appreciation
rights. |
42
|
|
|
Policy |
|
Effect if Actual Results Differ from Assumptions |
|
|
|
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) averaged over
the last 36 consecutive full calendar
months ending before the CEOs
retirement.
The Companys accrual for the SERP
requires management to make
assumptions and judgments related to
the CEOs 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 July 31, 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 July 31, 2010 would increase the SERP
accrual by approximately $1.2 million. A 50
basis point increase in the discount rate as of
July 31, 2010 would decrease the SERP accrual
by approximately $0.4 million. |
43
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made
by the Company, its management or spokespeople involve risks and uncertainties and are subject to
change based on various important factors, many of which may be beyond the Companys control.
Words such as estimate, project, plan, believe, expect, anticipate, intend, and
similar expressions may identify forward-looking statements.
The following factors, included in the disclosure under the heading FORWARD-LOOKING STATEMENTS AND
RISK FACTORS in ITEM 1A. RISK FACTORS of A&Fs Annual Report on Form 10-K for Fiscal 2009 filed
on March 29, 2010, in some cases have affected and in the future could affect the Companys
financial performance and could cause actual results for Fiscal 2010 and beyond to differ
materially from those expressed or implied in any of the forward-looking statements included in
this Quarterly Report on Form 10-Q or otherwise made by management:
|
|
|
general economic and financial conditions could have a material adverse effect on the
Companys business, results of operations and liquidity; |
|
|
|
loss of the services of skilled senior executive officers could have a material adverse
effect on the Companys business; |
|
|
|
ability to hire, train and retain qualified associates could have a material adverse
effect on the Companys business; |
|
|
|
equity-based compensation awarded under the employment agreement with the Companys
Chief Executive Officer could adversely impact the Companys cash flows, financial position
or results of operations and could have a dilutive effect on the Companys outstanding
Common Stock; |
|
|
|
failure to anticipate, identify and respond to changing consumer preferences and fashion
trends in a timely manner could cause the Companys profitability to decline; |
|
|
|
unseasonable weather conditions affecting consumer preferences could have a material
adverse effect on the Companys business; |
|
|
|
disruptive weather conditions affecting the consumers ability to shop could have a
material adverse effect on the Companys business; |
|
|
|
the Companys market share may be adversely impacted at any time by a significant number
of competitors; |
|
|
|
the Companys international expansion plan is dependent on many factors, any of which
could delay or prevent successful penetration into new markets and strain its resources; |
|
|
|
the Companys growth strategy relies on the addition of new stores, which may strain the
Companys resources and adversely impact current store performance; |
|
|
|
the Company may incur costs related to store closures; |
|
|
|
availability and market prices of key raw materials and labor costs could have a
material adverse effect on the Companys business and results of operations; |
|
|
|
the interruption of the flow of merchandise from key vendors and international
manufacturers could disrupt the Companys supply chain; |
44
|
|
|
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 Companys 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 Companys 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 Companys development of new brand concepts could have a material adverse effect on
the Companys financial condition or results of operations; |
|
|
|
fluctuations in foreign currency exchange rates could adversely impact financial
results; |
|
|
|
the Companys net sales and inventory levels fluctuate on a seasonal basis, causing its
results of operations to be particularly susceptible to changes to back-to-school and
holiday shopping patterns; |
|
|
|
the Companys ability to attract customers to its stores depends heavily on the success
of the shopping centers in which they are located; |
|
|
|
comparable store sales will continue to fluctuate on a regular basis; |
|
|
|
the Companys net sales are affected by direct-to-consumer sales; |
|
|
|
the Company may be exposed to risks and costs associated with credit card fraud and
identity theft; |
|
|
|
the Companys litigation exposure could exceed expectations, having a material adverse
effect on the Companys financial condition or results of operations; |
|
|
|
the Companys failure to adequately protect its trademarks could have a negative impact
on its brand image and limit its ability to penetrate new markets; |
|
|
|
the Companys unsecured credit agreement includes financial and other covenants that
impose restrictions on its financial and business operations; |
|
|
|
changes in taxation requirements could adversely impact financial results; |
|
|
|
the Companys inability to obtain commercial insurance at acceptable prices or failure
to adequately reserve for self-insured exposures might increase expense and adversely
impact financial results; |
|
|
|
modifications and/or upgrades to information technology systems may disrupt operations; |
|
|
|
the Company could suffer if the Companys computer systems are disrupted or cease to
operate effectively; |
45
|
|
|
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 could have a material adverse effect on the Companys business; |
|
|
|
potential disruption of the Companys business due to the occurrence of, or fear of, a
health pandemic could have a material adverse effect on the Companys business; |
|
|
|
changes in the regulatory or compliance landscape could adversely effect the Companys
business or results of operations; and |
|
|
|
|
the Companys operations may be effected by greenhouse emissions and climate change. |
Future economic and industry trends that could potentially impact revenue and profitability are
difficult to predict. Therefore, there can be no assurance that the forward-looking statements
included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the
significant uncertainties in the forward-looking statements included herein, the inclusion of such
information should not be regarded as a representation by the Company, or any other person, that
the objectives of the Company will be achieved. The forward-looking statements included herein are
based on information presently available to the management of the Company. Except as may be
required by applicable law, the Company assumes no obligation to publicly update or revise its
forward-looking statements even if experience or future changes make it clear that any projected
results expressed or implied therein will not be realized.
46
|
|
|
ITEM 3. |
|
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 three months 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 carrying values, and related cumulative impairment charges for the Companys marketable
securities as of July 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary |
|
|
Carrying |
|
(in thousands) |
|
Par Value |
|
|
Impairment |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Auction rate securities student loan backed |
|
$ |
107,999 |
|
|
$ |
(4,699 |
) |
|
$ |
103,300 |
|
Auction rate securities municipal authority bonds |
|
|
28,575 |
|
|
|
(4,339 |
) |
|
|
24,236 |
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities |
|
$ |
136,574 |
|
|
$ |
(9,038 |
) |
|
$ |
127,536 |
|
|
|
|
|
|
|
|
|
|
|
As of July 31, 2010, approximately 76% of the Companys ARS were AAA rated, approximately
11% of the Companys ARS were AA rated, and approximately 13% were A- rated, 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 July 31,
2010, the Company did not incur any credit losses on available-for-sale ARS. Furthermore, as of
July 31, 2010, the issuers continued to perform under the obligations, including making scheduled
interest payments, and the Company expects that this will continue going forward.
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 July 31, 2010, total assets held in the Rabbi Trust were $76.5 million, which included
$12.1 million of municipal notes and bonds with maturities that ranged from
three to four years, trust-owned life insurance policies with a cash surrender value of $64.1
million and $0.3 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 Condensed Consolidated Balance Sheet and
are restricted as to their use as noted above. Net unrealized gains or losses related to the
municipal notes and bonds held in the Rabbi Trust were not material for the thirteen and twenty-six
week periods ended July 31, 2010 and August 1, 2009, respectively. The change in cash surrender
value of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains
of $0.6 million and $3.1 million for the thirteen weeks ended July 31, 2010 and August 1, 2009,
respectively. The change in cash surrender value of the trust-owned life
insurance policies held in the Rabbi Trust resulted in realized gains of $1.1 million and $4.3
million for the twenty-six weeks ended July 31, 2010 and August 1, 2009, respectively.
47
Interest Rate Risks
As of July 31, 2010, the Company had $53.2 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 and, for interest periods in
excess of three months, on the date that is three months after the commencement of the interest
period; or (iii) an Adjusted Foreign Currency 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 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 Banks 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 2.7% for the thirteen and twenty-six week period ended July 31, 2010.
Additionally, as of July 31, 2010, the Company had $296.8 million available, less outstanding
letters of credit, under its unsecured Amended Credit Agreement. Assuming no changes in the
Companys financial structure as it stood at July 31, 2010, if market interest rates average an
increase of 100 basis points over the final twenty-six week period for Fiscal 2010 compared to the
interest rates incurred for the twenty-six week period ended July 31, 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 Companys 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 Companys unsecured Amended Credit Agreement.
Foreign Exchange Rate Risk
The Companys international subsidiaries generally operate with functional currencies other than
the U.S. dollar. The Companys Condensed Consolidated Financial Statements are presented in U.S.
dollars. Therefore, the 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 affects
the reported amounts of revenues, expenses, assets and liabilities.
The Company and its subsidiaries have exposure to changes in currency exchange rates associated
with foreign currency transactions and forecasted foreign currency transactions, including the sale
of inventory between subsidiaries and foreign denominated assets and liabilities. Such transactions
are denominated primarily in U.S. dollars, Euros, Canadian Dollars, Japanese Yen 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
transactions and forecasted transactions. 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.
48
|
|
|
ITEM 4. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
A&F maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to provide
reasonable assurance that information required to be disclosed in the reports that A&F files or
submits under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms, and that such information is accumulated and
communicated to A&Fs management, including the Chairman and Chief Executive Officer of A&F (the
principal executive officer) and the Executive Vice President and Chief Financial Officer of A&F
(the principal financial officer), as appropriate to allow timely decisions regarding required
disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how
well designed and operated, can provide only reasonable, and not absolute, assurance that the
objectives of disclosure controls and procedures are met.
A&Fs management, including the Chairman and Chief Executive Officer of A&F and the Executive Vice
President and Chief Financial Officer of A&F, evaluated the effectiveness of A&Fs design and
operation of its disclosure controls and procedures as of the end of the fiscal quarter ended July
31, 2010. Based upon that evaluation, the Chairman and Chief Executive Officer of A&F and the
Executive Vice President and Chief Financial Officer of A&F concluded that A&Fs disclosure
controls and procedures were effective at a reasonable level of assurance as of July 31, 2010, the
end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in A&Fs internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during A&Fs fiscal quarter ended
July 31, 2010 that materially affected, or are reasonably likely to materially affect, A&Fs
internal control over financial reporting.
49
PART II. OTHER INFORMATION
|
|
|
ITEM 1. |
|
LEGAL PROCEEDINGS |
A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of
business. Legal costs incurred in connection with the resolution of claims and lawsuits are
generally expensed as incurred, and the Company establishes reserves for the outcome of litigation
where it deems appropriate to do so under applicable accounting rules. Actual liabilities may
exceed the amounts reserved, and there can be no assurance that final resolution of these matters
will not have a material adverse effect on the Companys financial condition, results of operations
or cash flows. The Companys identified contingencies include the following matters:
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 then
continued to litigate the claims of that putative class. On May 24, 2010, plaintiffs filed a
notice that they did not intend to continue to pursue their claim that members of the class did not
exercise independent managerial judgment and discretion. They also asked the Court to vacate the
August 9, 2010 trial date previously set by the Court. On July 20, 2010, the trial court vacated
the trial date and defendants then moved to decertify the 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&Fs Common Stock between June 2, 2005 and August 16, 2005. In September and
October of 2005, five other purported class actions were subsequently filed against A&F and other
defendants in the same Court. All six securities cases allege claims under the federal securities
laws related to sales of Common Stock by certain defendants and to a decline in the price of A&Fs
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 May 26, 2010, after mediation which commenced on May
17, 2010, the parties reached an agreement in principle to settle the consolidated cases as a class
action, subject to Court approval. Under the agreement in principal, the entire settlement payment
of $12 million will be paid by A&Fs insurers. A hearing
will be held on September 24, 2010 to enable the District Court to determine whether the proposed
settlement is fair, reasonable and adequate and should be approved and effected and whether the
class action should therefore be dismissed.
50
On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries,
et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F
as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&Fs
present and former directors, alleging various breaches of the directors fiduciary duty and
seeking equitable and monetary relief. In the following three months, 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 Companys motion was granted and, on April 10, 2009, plaintiffs filed an
appeal from the order of dismissal. Plaintiffs appeal has been fully briefed and argued and is
awaiting decision. The state court has stayed further proceedings in the state-court derivative
action until resolution of the consolidated federal derivative cases.
The Company intends to defend the aforesaid matters vigorously, as appropriate. The Company is
unable to quantify the potential exposure of the aforesaid matters. However, the Companys
assessment of the 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 the Companys
evaluation of the claims.
51
The Companys risk factors as of July 31, 2010 have not changed materially from those disclosed in
Part I, ITEM 1A. RISK FACTORS of A&Fs Annual Report on Form 10-K for Fiscal 2009 filed on March
29, 2010.
52
|
|
|
ITEM 2. |
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS |
The following table provides information regarding A&Fs purchases of its Common Stock during the
thirteen-week period ended July 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased |
|
|
Maximum Number of |
|
|
|
Number of |
|
|
Average |
|
|
as Part of Publicly |
|
|
Shares that May Yet be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Purchased under the |
|
|
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
Plans or Programs |
|
Period (Fiscal Month) |
|
(1) |
|
|
(2) |
|
|
(3) |
|
|
(4) |
|
May 2, 2010 through May 29, 2010 |
|
|
6,005 |
|
|
$ |
36.33 |
|
|
|
|
|
|
|
11,346,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2010 through July 3, 2010 |
|
|
716 |
|
|
$ |
36.45 |
|
|
|
|
|
|
|
11,346,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 4, 2010 through July 31, 2010 |
|
|
511 |
|
|
$ |
35.38 |
|
|
|
|
|
|
|
11,346,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,232 |
|
|
$ |
36.28 |
|
|
|
|
|
|
|
11,346,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The shares of A&Fs Common Stock purchased during the quarterly period (thirteen-week period) ended July 31, 2010
represented an aggregate of 7,232 shares which were withheld for tax payments due upon the vesting of employee restricted stock
unit 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&Fs publicly announced stock repurchase authorizations during the quarterly
period (thirteen-week period) ended July 31, 2010. On August 16, 2005, A&F announced the August 15, 2005 authorization by A&Fs
Board of Directors to repurchase 6.0 million shares of A&Fs Common Stock. On November 21, 2007, A&F announced the November 20,
2007 authorization by A&Fs Board of Directors to repurchase 10.0 million shares of A&Fs Common Stock, in addition to the
approximately 2.0 million shares of A&Fs Common Stock which remained available under the August 2005 authorization as of
November 20, 2007. |
|
(4) |
|
The number shown represents, as of the end of each period, the maximum number of shares of Common Stock that may yet be
purchased under A&Fs publicly announced stock repurchase authorizations described in footnote 3 above. The shares may be
purchased, from time to time, depending on market conditions. |
53
|
|
|
|
|
|
4.1 |
|
|
Supplement No. 1 dated as of May 26, 2010, executed by AFH Puerto Rico LLC And PNC Bank,
National Association (as successor by merger to National City Bank), as Global Agent, to the
Guaranty of Payment (Domestic Credit Parties), dated as of April 15, 2008, among
Abercrombie & Fitch Co.; each direct and indirect Domestic Subsidiary (as defined in the
Guaranty of Payment) of Abercrombie & Fitch Co. other than Abercrombie & Fitch Management
Co.; and PNC Bank, National Association (as successor by merger to National City Bank), as
Global Agent, incorporated herein by reference to Exhibit 4.1 to Abercrombie & Fitch Co.s
Quarterly Report on Form 10-Q for the quarterly period ended May 1, 2010 (File No.
001-12107). |
|
|
|
|
|
|
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. NOTE: The number of this exhibit (4.7) reflects numbering
system used when this exhibit was identified in Item 15(a)(3) of the Annual Report on Form
10-K of Abercrombie & Fitch Co. for the fiscal year ended January 30, 2010. As filed
herewith, Exhibit 4.7 includes all schedules, attachments and exhibits to the Credit
Agreement, in their entirety.* |
|
|
|
|
|
|
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. NOTE: The number of this
exhibit (4.12) reflects numbering system used when this exhibit was identified in Item
15(a)(3) of the Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year
ended January 30, 2010. As filed herewith, Exhibit 4.12 includes all schedules, attachments
and exhibits to Amendment No. 1 to the Credit Agreement, in their entirety.* |
|
|
|
|
|
|
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. NOTE: The number of this exhibit (4.14) reflects numbering
system used when this exhibit was identified in Item 15(a)(3) of the Annual Report on Form
10-K of Abercrombie & Fitch Co. for the fiscal year ended January 30, 2010. As filed
herewith, Exhibit 4.14 includes all schedules, attachments and exhibits to Amendment No. 2 to
the Credit Agreement, in their entirety.* |
54
|
|
|
|
|
|
10.1 |
|
|
Aircraft Time Sharing Agreement, made and entered into to be effective as of June 1, 2010, by
and between Abercrombie & Fitch Management Co., as Lessor, and Michael S. Jeffries, as Lessee,
and
consented to by DFZ, LLC, as Owner, incorporated herein by reference to Exhibit 10.2 to
Abercrombie & Fitch Co.s Quarterly Report on Form 10-Q for the quarterly period ended May 1,
2010 (File No. 001-12107). |
|
|
|
|
|
|
10.48 |
|
|
Credit Line Agreement Borrower Agreement, effective March 6, 2009, signed on behalf of
Abercrombie & Fitch Management Co. NOTE: The number of this exhibit (10.48) reflects
numbering system used when this exhibit was identified in Item 15(a)(3) of the Annual Report
on Form 10-K of Abercrombie & Fitch Co. for the fiscal year ended January 30, 2010. As filed
herewith, Exhibit 10.48 includes all schedules, attachments and exhibits to the Credit Line
Borrower Agreement, in their entirety.* |
|
|
|
|
|
|
15 |
|
|
Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: |
|
|
|
|
Inclusion of Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers
LLP.* |
|
|
|
|
|
|
31.1 |
|
|
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 |
|
|
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.** |
|
|
|
|
|
|
101 |
|
|
The following materials from Abercrombie & Fitch Co.s Quarterly Report on Form 10-Q for
the quarterly period ended July 31, 2010, formatted in XBRL (eXtensible Business Reporting
Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Income
(Loss) for the thirteen and twenty-six weeks ended July 31, 2010 and August 1, 2009;
(ii) Condensed Consolidated Balance Sheets at July 31, 2010 and January 30, 2010;
(iii) Condensed Consolidated Statements of Cash Flows for the twenty-six weeks ended
July 31, 2010 and August 1, 2009; and (iv) Notes to Condensed Consolidated Financial
Statements*** |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Furnished herewith. |
|
*** |
|
Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101
hereto are deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise
are not subject to liability under these Sections. |
55
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ABERCROMBIE & FITCH CO.
|
|
Date: September 8, 2010 |
By
|
|
/s/ JONATHAN E. RAMSDEN |
|
|
|
|
Jonathan E. Ramsden |
|
|
|
|
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer and Authorized Officer) |
|
56
EXHIBIT INDEX
|
|
|
|
|
Exhibit No. |
|
Document |
|
|
|
|
|
|
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. NOTE: The number of this exhibit (4.7)
reflects numbering system used when this exhibit was identified in Item 15(a)(3) of the
Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year ended January 30,
2010. As filed herewith, Exhibit 4.7 includes all schedules, attachments and exhibits to
the Credit Agreement, in their entirety. |
|
|
|
|
|
|
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. NOTE: The
number of this exhibit (4.12) reflects numbering system used when this exhibit was
identified in Item 15(a)(3) of the Annual Report on Form 10-K of Abercrombie & Fitch Co.
for the fiscal year ended January 30, 2010. As filed herewith, Exhibit 4.12 includes all
schedules, attachments and exhibits to Amendment No. 1 to the Credit Agreement, in their
entirety. |
|
|
|
|
|
|
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. NOTE: The number of
this exhibit (4.14) reflects numbering system used when this exhibit was identified in Item
15(a)(3) of the Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year
ended January 30, 2010. As filed herewith, Exhibit 4.14 includes all schedules,
attachments and exhibits to Amendment No. 2 to the Credit Agreement, in their entirety. |
|
|
|
|
|
|
10.48 |
|
|
Credit Line Agreement Borrower Agreement, effective March 6, 2009, signed on behalf
of Abercrombie & Fitch Management Co. NOTE: The number of this exhibit (10.48)
reflects numbering system used when this exhibit was identified in Item 15(a)(3) of the
Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year ended January 30,
2010. As filed herewith, Exhibit 10.48 includes all schedules, attachments and exhibits to
the Credit Line Borrower Agreement, in their entirety. |
57
|
|
|
|
|
Exhibit No. |
|
Document |
|
|
|
|
|
|
15 |
|
|
Letter re: Unaudited Interim Financial Information to Securities and Exchange
Commission re: Inclusion of Report of Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP. |
|
|
|
|
|
|
31.1 |
|
|
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 |
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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. |
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32 |
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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. |
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101 |
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The following materials from Abercrombie & Fitch Co.s Quarterly Report on Form 10-Q
for the quarterly period ended July 31, 2010, formatted in XBRL (eXtensible Business
Reporting Language): (i) Condensed Consolidated Statements of Operations and
Comprehensive Income (Loss) for the thirteen and twenty-six weeks ended July 31, 2010 and
August 1, 2009; (ii) Condensed Consolidated Balance Sheets at July 31, 2010 and
January 30, 2010; (iii) Condensed Consolidated Statements of Cash Flows for the
twenty-six weeks ended July 31, 2010 and August 1, 2009; and (iv) Notes to Condensed
Consolidated Financial Statements.* |
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* |
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Pursuant to Rule 406T of SEC Regulation S-T, the Interactive Data Files on Exhibit 101
hereto are deemed not filed or part of a registration statement or prospectus for purposes
of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for
purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise
are not subject to liability under these Sections. |
58