NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
Nature of Business
Abercrombie & Fitch Co. (“A&F”), through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a specialty retailer of branded apparel and accessories. The Company operates stores in North America, Europe, Asia and the Middle East and direct-to-consumer operations in North America, Europe and Asia that serve its customers throughout the world.
Principles of Consolidation
The accompanying Condensed Consolidated Financial Statements include historical financial statements of, and transactions applicable to, the Company and reflect its assets, liabilities, results of operations and cash flows.
The Company has interests in a United Arab Emirates business venture and in a Kuwait business venture with Majid al Futtaim Fashion L.L.C. ("MAF"), each of which meets the definition of a variable interest entity (“VIE”). The Company is deemed to be the primary beneficiary of these VIEs; therefore, the Company has consolidated the operating results, assets and liabilities of these VIEs.
Fiscal Year
The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to “Fiscal
2016
” and “Fiscal
2015
” represent the fifty-two week fiscal years ending on
January 28, 2017
and
January 30, 2016
, respectively.
Interim Financial Statements
The Condensed Consolidated Financial Statements as of
April 30, 2016
, and for the
thirteen
week periods ended
April 30, 2016
and
May 2, 2015
, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal
2015
filed with the SEC on
March 28, 2016
. The
January 30, 2016
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 (“U.S. GAAP”).
In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state 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
2016
.
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements that could affect the Company's financial statements:
|
|
|
|
|
|
|
|
Accounting Standards Update (ASU)
|
|
Description
|
|
Date of
Adoption
|
|
Effect on the Financial Statements or Other Significant Matters
|
Standards not yet adopted
|
ASU 2014-09,
Revenue from Contracts with Customers
|
|
This update supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
. The new guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.
|
|
February 4, 2018
|
|
The Company is currently evaluating the method of adoption and the impact that this standard will have on its consolidated financial statements.
|
ASU 2015-11,
Simplifying the Measurement of Inventory
|
|
This update amends ASC 330,
Inventory
. The new guidance applies to inventory measured using first-in, first-out (FIFO) or average cost. Under this amendment, inventory should be measured at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
|
|
January 29, 2017*
|
|
The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.
|
ASU 2016-02,
Leases
|
|
This update supersedes the leasing requirements in ASC 840,
Leases
. The new guidance requires an entity to recognize lease assets and lease liabilities on the balance sheet and disclose key leasing information that depicts the lease rights and obligations of an entity.
|
|
Febuary 3, 2019*
|
|
The Company is currently evaluating the method of adoption and the impact that this standard will have on its consolidated financial statements.
|
ASU 2016-04,
Liabilities—Extinguishments of Liabilities
|
|
This update amends ASC 405,
Liabilities
. The new guidance allows entities to estimate a value on gift cards that are not expected to be redeemed and recognize that amount immediately in earnings.
|
|
February 4, 2018*
|
|
The Company is currently evaluating the potential impact of this standard.
|
ASU 2016-09,
Compensation—Stock Compensation
|
|
This update amends ASC 718,
Compensation
. Under the new guidance, simplified measures will be used for accounting for income taxes, identifying statutory tax withholding thresholds, and classifying tax effects and taxes paid related to stock compensation. This guidance also allows for entities to make a policy election to estimate forfeitures or account for them when they occur.
|
|
January 29, 2017*
|
|
The Company is currently evaluating the potential impact of this standard.
|
* Early adoption is permitted.
2. NET LOSS PER SHARE
Net loss per basic and diluted share is computed based on the weighted-average number of outstanding shares of common stock.
The following table presents weighted-average shares outstanding and anti-dilutive shares:
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
(in thousands)
|
April 30, 2016
|
|
May 2, 2015
|
Shares of common stock issued
|
103,300
|
|
|
103,300
|
|
Weighted-average treasury shares
|
(35,675
|
)
|
|
(33,790
|
)
|
Weighted-average — basic shares
|
67,625
|
|
|
69,510
|
|
Dilutive effect of share-based compensation awards
|
—
|
|
|
—
|
|
Weighted-average — diluted shares
|
67,625
|
|
|
69,510
|
|
Anti-dilutive shares
(1)
|
7,954
|
|
|
12,151
|
|
|
|
(1)
|
Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net loss per diluted share because the impact would have been anti-dilutive.
|
3. 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 that the Company can access at the measurement date.
|
|
|
•
|
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 within it of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets and Liabilities at Fair Value as of April 30, 2016
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
167,295
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
167,295
|
|
Derivative financial instruments
|
—
|
|
|
538
|
|
|
—
|
|
|
538
|
|
Total assets
|
$
|
167,295
|
|
|
$
|
538
|
|
|
$
|
—
|
|
|
$
|
167,833
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative financial instruments
|
$
|
—
|
|
|
$
|
7,039
|
|
|
$
|
—
|
|
|
$
|
7,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of January 30, 2016
|
(in thousands)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
311,349
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
311,349
|
|
Derivative financial instruments
|
—
|
|
|
4,166
|
|
|
—
|
|
|
4,166
|
|
Total assets
|
$
|
311,349
|
|
|
$
|
4,166
|
|
|
$
|
—
|
|
|
$
|
315,515
|
|
The level 2 assets and liabilities consist of derivative financial instruments, primarily forward foreign currency exchange contracts. The fair value of forward foreign currency exchange contracts is determined by using quoted market prices of the same or similar instruments, adjusted for counterparty risk.
Fair value of borrowings:
The Company’s borrowings under the Company's credit facilities are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. For disclosure purposes, the Company estimated the fair value of borrowings outstanding based on market rates for similar types of debt, which are considered to be Level 2 inputs.
The carrying amount and fair value of the Company's term loan facility were as follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
April 30, 2016
|
|
January 30, 2016
|
Gross borrowings outstanding, carrying amount
|
$
|
293,250
|
|
|
$
|
293,250
|
|
Gross borrowings outstanding, fair value
|
$
|
288,851
|
|
|
$
|
284,453
|
|
No borrowings were outstanding under the Company's senior secured revolving credit facility as of
April 30, 2016
or
January 30, 2016
.
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of:
|
|
|
|
|
|
|
|
|
(in thousands)
|
April 30, 2016
|
|
January 30, 2016
|
Property and equipment, at cost
|
$
|
2,831,851
|
|
|
$
|
2,792,437
|
|
Less: Accumulated depreciation and amortization
|
(1,945,505
|
)
|
|
(1,898,259
|
)
|
Property and equipment, net
|
$
|
886,346
|
|
|
$
|
894,178
|
|
Long-lived assets, primarily comprised of property and equipment, are tested for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results, and undiscounted projected cash flows.
For any of the Company's store-related assets that fail the recoverability test, fair value is determined at the individual store level, primarily using a discounted cash flow model that utilizes Level 3 inputs. 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 indicates a negative value at the store level, the market exit price based on historical experience, and other comparable market data where applicable, is used to determine the fair value by asset type.
The Company had
$39.1 million
and
$37.3 million
of construction project assets in property and equipment, net at
April 30, 2016
and
January 30, 2016
, respectively, related to the construction of buildings in certain lease arrangements where the Company is deemed to be the owner of the construction project.
5. INCOME TAXES
The Company’s quarterly tax provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in law, regulations, and administrative practices, and relative impact of non-deductible and discrete items. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax income (loss).
6. SHARE-BASED COMPENSATION
The Company recognized share-based compensation expense of
$6.6 million
for the
thirteen
weeks ended
April 30, 2016
, and
$6.9 million
for the
thirteen
weeks ended
May 2, 2015
. The Company also recognized tax benefits related to share-based compensation of
$2.5 million
for the
thirteen
weeks ended
April 30, 2016
, and
$2.3 million
for the
thirteen
weeks ended
May 2, 2015
.
Stock Options
The following table summarizes stock option activity for the
thirteen
weeks ended
April 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Underlying
Shares
|
|
Weighted-Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Weighted-Average
Remaining
Contractual Life
|
Outstanding at January 30, 2016
|
271,000
|
|
|
$
|
63.05
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(2,000
|
)
|
|
22.87
|
|
|
|
|
|
Forfeited or expired
|
(17,700
|
)
|
|
67.13
|
|
|
|
|
|
Outstanding at April 30, 2016
|
251,300
|
|
|
$
|
63.08
|
|
|
$
|
377,400
|
|
|
1.7
|
Stock options exercisable at April 30, 2016
|
251,300
|
|
|
$
|
63.08
|
|
|
$
|
377,400
|
|
|
1.7
|
Stock Appreciation Rights
The following table summarizes stock appreciation rights activity for the
thirteen
weeks ended
April 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Underlying
Shares
|
|
Weighted-Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Weighted-Average
Remaining
Contractual Life
|
Outstanding at January 30, 2016
|
5,301,115
|
|
|
$
|
45.02
|
|
|
|
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(9,533
|
)
|
|
22.46
|
|
|
|
|
|
Forfeited or expired
|
(44,121
|
)
|
|
30.08
|
|
|
|
|
|
Outstanding at April 30, 2016
|
5,247,461
|
|
|
$
|
45.23
|
|
|
$
|
2,783,085
|
|
|
3.3
|
Stock appreciation rights exercisable at April 30, 2016
|
4,522,532
|
|
|
$
|
48.05
|
|
|
$
|
536,048
|
|
|
2.5
|
Stock appreciation rights expected to become exercisable in the future as of April 30, 2016
|
636,179
|
|
|
$
|
28.00
|
|
|
$
|
1,886,958
|
|
|
8.6
|
As of
April 30, 2016
, there was
$7.8 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
15 months
.
The grant date fair value of stock appreciation rights that vested during the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
was
$3.7 million
and
$3.9 million
, respectively.
Restricted Stock Units
The following table summarizes activity for restricted stock units for the
thirteen
weeks ended
April 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service-based Restricted
Stock Units
|
|
Performance-based Restricted
Stock Units
|
|
Market-based Restricted
Stock Units
|
|
Number of
Underlying
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Number of
Underlying
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Number of
Underlying
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
Unvested at January 30, 2016
|
1,671,597
|
|
|
$
|
28.13
|
|
|
185,500
|
|
|
$
|
23.42
|
|
|
117,711
|
|
|
$
|
25.00
|
|
Granted
|
725,483
|
|
|
29.56
|
|
|
94,217
|
|
|
29.31
|
|
|
94,224
|
|
|
38.22
|
|
Adjustments for performance achievement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Vested
|
(368,345
|
)
|
|
35.00
|
|
|
(31,875
|
)
|
|
36.11
|
|
|
—
|
|
|
—
|
|
Forfeited
|
(27,434
|
)
|
|
30.60
|
|
|
(3,458
|
)
|
|
25.34
|
|
|
(2,334
|
)
|
|
19.04
|
|
Unvested at April 30, 2016
|
2,001,301
|
|
|
$
|
27.37
|
|
|
244,384
|
|
|
$
|
24.01
|
|
|
209,601
|
|
|
$
|
31.01
|
|
Fair value of both service-based and performance-based restricted stock units is calculated using the market price of the underlying common stock on the date of grant reduced for anticipated dividend payments on unvested shares. In determining fair value, the Company does not take into account performance-based vesting requirements. Performance-based vesting requirements are taken into account in determining the number of awards expected to vest. For market-based restricted stock units, fair value is calculated using a Monte Carlo simulation with the number of shares that ultimately vest dependent on the Company's total stockholder return measured against the total stockholder return of a select group of peer companies over a three-year period. For an award with performance-based or market-based vesting requirements, the number of shares that ultimately vest can vary from
0%
to
200%
of target depending on the level of achievement of performance criteria. Unvested shares related to restricted stock units with performance vesting conditions are reflected at
100%
of their target vesting amount in the table above.
Service-based restricted stock units are expensed on a straight-line basis over the total requisite service period, net of forfeitures. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis, net of forfeitures. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the requisite service period, net of forfeitures.
As of
April 30, 2016
, there was
$46.3 million
,
$3.2 million
and
$5.2 million
of total unrecognized compensation cost, net of estimated forfeitures, related to service-based, performance-based and market-based restricted stock units, respectively. The unrecognized compensation cost is expected to be recognized over a weighted-average period of
18 months
,
17 months
and
16 months
for service-based, performance-based and market-based restricted stock units, respectively.
Additional information pertaining to restricted stock units for the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
follows:
|
|
|
|
|
|
|
|
|
(in thousands)
|
April 30, 2016
|
|
May 2, 2015
|
Service-based restricted stock units:
|
|
|
|
Total grant date fair value of awards granted
|
$
|
21,445
|
|
|
$
|
13,776
|
|
Total grant date fair value of awards vested
|
12,892
|
|
|
12,993
|
|
|
|
|
|
Performance-based restricted stock units:
|
|
|
|
Total grant date fair value of awards granted
|
$
|
2,762
|
|
|
$
|
2,278
|
|
Total grant date fair value of awards vested
|
1,151
|
|
|
1,861
|
|
|
|
|
|
Market-based restricted stock units:
|
|
|
|
Total grant date fair value of awards granted
|
$
|
3,601
|
|
|
$
|
2,158
|
|
Total grant date fair value of awards vested
|
—
|
|
|
—
|
|
The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
April 30, 2016
|
|
May 2, 2015
|
Grant date market price
|
$
|
31.67
|
|
|
$
|
22.46
|
|
Fair value
|
$
|
38.22
|
|
|
$
|
19.04
|
|
Assumptions:
|
|
|
|
Price volatility
|
44
|
%
|
|
45
|
%
|
Expected term (years)
|
2.8
|
|
|
2.8
|
|
Risk-free interest rate
|
1.1
|
%
|
|
0.9
|
%
|
Dividend yield
|
2.5
|
%
|
|
3.5
|
%
|
Average volatility of peer companies
|
34.4
|
%
|
|
34.0
|
%
|
Average correlation coefficient of peer companies
|
0.3382
|
|
|
0.3288
|
|
7. DERIVATIVE INSTRUMENTS
The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.
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 intercompany receivables. Fluctuations in exchange rates will either increase or decrease the Company’s intercompany equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed upon settlement date. These forward contracts typically have a maximum term of
twelve months
. The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in accumulated other comprehensive loss ("AOCL"). Substantially all of the unrealized gains or losses related to designated cash flow hedges as of
April 30, 2016
will be recognized in cost of sales, exclusive of depreciation and amortization, over the next
twelve months
.
The Company presents its derivative assets and derivative liabilities at their gross fair values on the Condensed Consolidated Balance Sheets. However, our master netting and other similar arrangements allow net settlements under certain conditions.
As of
April 30, 2016
, the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:
|
|
|
|
|
(in thousands)
|
Notional Amount
(1)
|
Euro
|
$
|
112,748
|
|
British pound
|
$
|
20,885
|
|
Canadian dollar
|
$
|
17,848
|
|
Japanese yen
|
$
|
7,012
|
|
|
|
(1)
|
Amounts are reported in U.S. Dollars equivalent as of
April 30, 2016
.
|
The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in exchange rates result in transaction gains/(losses) being recorded in earnings as U.S. GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end or upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no differences in the timing of gain or loss recognition on the hedging instrument and the hedged item.
As of
April 30, 2016
, the Company had outstanding the following foreign currency forward contracts that were entered into to hedge foreign currency denominated net monetary assets/liabilities:
|
|
|
|
|
(in thousands)
|
Notional Amount
(1)
|
Euro
|
$
|
11,326
|
|
Swiss franc
|
$
|
4,114
|
|
|
|
(1)
|
Amounts are reported in U.S. Dollars equivalent as of
April 30, 2016
.
|
The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of
April 30, 2016
and
January 30, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
(in thousands)
|
Location
|
|
April 30,
2016
|
|
January 30,
2016
|
|
Location
|
|
April 30,
2016
|
|
January 30,
2016
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
Other current assets
|
|
$
|
538
|
|
|
$
|
4,097
|
|
|
Accrued expenses
|
|
$
|
6,845
|
|
|
$
|
—
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
Other current assets
|
|
$
|
—
|
|
|
$
|
69
|
|
|
Accrued expenses
|
|
$
|
194
|
|
|
$
|
—
|
|
Total
|
Other current assets
|
|
$
|
538
|
|
|
$
|
4,166
|
|
|
Accrued expenses
|
|
$
|
7,039
|
|
|
$
|
—
|
|
Refer to Note 3, “
FAIR VALUE,
” for further discussion of the determination of the fair value of derivative instruments.
The location and amounts of derivative gains and losses for the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
on the Condensed Consolidated Statements of Operations and Comprehensive Loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
|
|
|
April 30, 2016
|
|
May 2, 2015
|
(in thousands)
|
Location
|
|
Gain/(Loss)
|
|
Gain/(Loss)
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency exchange forward contracts
|
Other operating income, net
|
|
$
|
(1,777
|
)
|
|
$
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion
|
|
Ineffective Portion and Amount Excluded from Effectiveness Testing
|
|
Amount of Gain (Loss) Recognized in OCI on Derivative Contracts
(1)
|
|
Location of Gain (Loss) Reclassified from AOCL into Earnings
|
|
Amount of Gain (Loss) Reclassified from AOCL into Earnings
(2)
|
|
Location of Gain Recognized in Earnings on Derivative Contracts
|
|
Amount of Gain Recognized in Earnings on Derivative Contracts
(3)
|
|
Thirteen Weeks Ended
|
(in thousands)
|
April 30,
2016
|
|
May 2,
2015
|
|
|
|
April 30,
2016
|
|
May 2,
2015
|
|
|
|
April 30,
2016
|
|
May 2,
2015
|
Derivatives in cash flow hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange forward contracts
|
$
|
(9,382
|
)
|
|
$
|
219
|
|
|
Cost of sales, exclusive of depreciation and amortization
|
|
$
|
2,305
|
|
|
$
|
6,036
|
|
|
Other operating income, net
|
|
$
|
355
|
|
|
$
|
35
|
|
|
|
(1)
|
The amount represents the change in fair value of derivative contracts due to changes in spot rates.
|
|
|
(2)
|
The amount represents the reclassification from AOCL into earnings when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers.
|
|
|
(3)
|
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.
|
8. ACCUMULATED OTHER COMPREHENSIVE LOSS
The activity in accumulated other comprehensive loss for the
thirteen
weeks ended
April 30, 2016
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended April 30, 2016
|
(in thousands)
|
Unrealized Gain (Loss) on Derivative Financial Instruments
|
|
Foreign Currency Translation Adjustment
|
|
Total
|
Beginning balance at January 30, 2016
|
$
|
4,577
|
|
|
$
|
(119,196
|
)
|
|
$
|
(114,619
|
)
|
Other comprehensive (loss) income before reclassifications
|
(9,382
|
)
|
|
25,660
|
|
|
16,278
|
|
Reclassified from accumulated other comprehensive loss
(1)
|
(2,305
|
)
|
|
—
|
|
|
(2,305
|
)
|
Tax effect
|
1,732
|
|
|
(5,235
|
)
|
|
(3,503
|
)
|
Other comprehensive (loss) income
|
(9,955
|
)
|
|
20,425
|
|
|
10,470
|
|
Ending balance at April 30, 2016
|
$
|
(5,378
|
)
|
|
$
|
(98,771
|
)
|
|
$
|
(104,149
|
)
|
|
|
(1)
|
For the
thirteen
weeks ended
April 30, 2016
, a loss was reclassified from accumulated other comprehensive loss to the cost of sales, exclusive of depreciation and amortization line item on the Condensed Consolidated Statement of Operations and Comprehensive Loss.
|
The activity in accumulated other comprehensive loss for the
thirteen
weeks ended
May 2, 2015
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended May 2, 2015
|
(in thousands)
|
Unrealized Gain (Loss) on Derivative Financial Instruments
|
|
Foreign Currency Translation Adjustment
|
|
Total
|
Beginning balance at January 31, 2015
|
$
|
13,100
|
|
|
$
|
(96,680
|
)
|
|
$
|
(83,580
|
)
|
Other comprehensive income (loss) before reclassifications
|
219
|
|
|
(15
|
)
|
|
204
|
|
Reclassified from accumulated other comprehensive loss
(2)
|
(6,036
|
)
|
|
—
|
|
|
(6,036
|
)
|
Tax effect
|
397
|
|
|
—
|
|
|
397
|
|
Other comprehensive loss
|
(5,420
|
)
|
|
(15
|
)
|
|
(5,435
|
)
|
Ending balance at May 2, 2015
|
$
|
7,680
|
|
|
$
|
(96,695
|
)
|
|
$
|
(89,015
|
)
|
|
|
(2)
|
For the
thirteen
weeks ended
May 2, 2015
, a loss was reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statement of Operations and Comprehensive Loss.
|
9. SEGMENT REPORTING
The Company has
two
operating segments: Abercrombie, which includes the Company's Abercrombie & Fitch and abercrombie kids brands; and Hollister. These operating segments have similar economic characteristics, class of consumers, products, and production and distribution methods, and have been aggregated into
one
reportable segment.
The following table provides the Company's net sales by operating segment for the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
.
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
(in thousands)
|
April 30, 2016
|
|
May 2, 2015
|
Abercrombie
|
$
|
323,336
|
|
|
$
|
339,752
|
|
Hollister
|
362,147
|
|
|
369,670
|
|
Total
|
$
|
685,483
|
|
|
$
|
709,422
|
|
The following table provides the Company’s net sales by geographic area for the
thirteen
weeks ended
April 30, 2016
and
May 2, 2015
.
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended
|
(in thousands)
|
April 30, 2016
|
|
May 2, 2015
|
United States
|
$
|
425,429
|
|
|
$
|
448,889
|
|
Europe
|
161,457
|
|
|
166,084
|
|
Other
|
98,597
|
|
|
94,449
|
|
Total
|
$
|
685,483
|
|
|
$
|
709,422
|
|
10. CONTINGENCIES
The Company 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 losses are deemed probable and reasonably estimable. The Company’s 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 Company’s evaluation of claims. As of
April 30, 2016
, the Company had accrued charges of approximately
$20 million
for certain legal contingencies. In addition, there are certain claims and legal proceedings pending against the Company for which accruals have not been established. 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 Company’s financial condition, results of operations or cash flows.