Abercrombie & Fitch 1997 Annual Report Download - page 16

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Abercrombie &Fitch Co.
Deferred tax assets and liabilities are measured using enacted
tax rates in effect in the years in which those temporary differ-
ences are expected to reverse. Under SFAS No. 109, the effect on
deferred taxes of a change in tax rates is recognized in income
in the period that includes the enactment date.
The Company is included in The Limited’s consolidated
federal and certain state income tax groups for income tax
reporting purposes and is responsible for its proportionate share
of income taxes calculated upon its federal taxable income at a
current estimate of the annual effective tax rate.
SHAREHOLDERS’ EQUITY At January 31, 1998, there were
150 million of $.01 par value Class A shares authorized, of
which 8.01 million and 8.05 million shares were outstanding
at January 31, 1998 and February 1, 1997 and 150 million of
$.01 par value of Class B shares authorized, of which 43 million
shares were issued and outstanding. In addition, there were
15 million of $.01 par value preferred shares authorized, none
of which have been issued.
Holders of Class A common stock generally have identical
rights to holders of Class B common stock, except that holders
of Class A common stock are entitled to one vote per share
while holders of Class B common stock are entitled to three
votes per share on all matters submitted to a vote of shareholders.
Each share of Class B common stock is convertible while
held by The Limited or any of its subsidiaries into one share of
Class A common stock (see Note 11).
REVENUE RECOGNITION Sales are recorded upon purchase
by customers.
CATALOGUE AND ADVERTISING COSTS Costs related to
the A&F Quarterly, which premiered in 1997, primarily consist of
catalogue production and mailing costs and are expensed as
incurred. Advertising costs consist of in-store photographs and
advertising in selected national publications and are expensed
when the photographs or publications first appear. Catalogue
and advertising costs amounted to $13.7 million in 1997,
$4.1 million in 1996 and $3.1 million in 1995.
STORE PREOPENING EXPENSES Preopening expenses related
to new store openings are charged to operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS The recorded
values of current assets and current liabilities, including accounts
receivable and accounts payable, approximate fair value due to the
short maturity and because the average interest rate approxi-
mates current market origination rates.
The fair value of the Company’s long-term debt is estimated
based on the quoted market prices for the same or similar issues
or on the current rates offered to the Company for debt of
the same remaining maturity. The estimated fair value of the
Company’s long-term debt was $52.2 million at January 31, 1998
and $50.6 million at February 1, 1997.
EARNINGS PER SHARE Net income per share is computed in
accordance with SFAS No. 128, “Earnings Per Share,” which the
Company adopted in the fourth quarter of 1997. Earnings per basic
share are computed based on the weighted average number of out-
standing common shares. Earnings per diluted share include the
weighted average effect of dilutive stock options and restricted
stock. The common stock issued to The Limited (43 million
Class B shares) in connection with the incorporation of the
Company is assumed to have been outstanding for all periods.
Weighted Average Common Shares Outstanding (thousands):
1997 1996 1995
Common shares issued 51,050 45,749 43,000
Treasury shares (39) – –
Basic shares 51,011 45,749 43,000
Dilutive effect of options and
restricted shares 467 11 –
Diluted shares 51,478 45,760 43,000
Options to purchase 228,000 and 240,000 shares of common stock were outstanding at
year end 1997 and 1996, but were not included in the computation of earnings per
diluted share because the options’ exercise price was greater than the average market
price of the common shares.