Abercrombie & Fitch 1998 Annual Report Download - page 16

Abercrombie &Fitch Co.
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1. BASIS OF PRESENTATION Abercrombie & Fitch Co. (the
“Company”) was incorporated on June 26, 1996, and on July 15,
1996 acquired the stock of Abercrombie & Fitch Holdings, the
parent company of the Abercrombie & Fitch business, and A&F
Trademark, Inc., in exchange for 43 million shares of Class B
common stock issued to The Limited, Inc. (“The Limited”).
The Company is a specialty retailer of high quality, casual apparel
for men, women and kids with an active, youthful lifestyle. The
business was established in 1892 and subsequently acquired by
The Limited in 1988.
An initial public offering (the “Offering”) of 8.05 million
shares of the Company’s Class A common stock, including the
sale of 1.05 million shares pursuant to the exercise by the under-
writers of their options to purchase additional shares, was
consummated on October 1, 1996. The net proceeds received by
the Company from the Offering, approximating $118.2 million,
and cash from operations were used to repay the borrowings
under a $150 million credit agreement. As a result of the Offering,
84.2% of the outstanding common stock of the Company was
owned by The Limited, until the completion of a tax-free
exchange offer (the “Exchange Offer”) on May 19, 1998, to
establish the Company as an independent company.
In the Exchange Offer, The Limited accepted 47,075,052
shares of its common stock that were exchanged at a ratio of .86
of a share of Abercrombie & Fitch stock for each Limited share.
On June 1, 1998, The Limited effected a pro rata spin-off to its
shareholders of its remaining 3,115,455 Abercrombie & Fitch
shares. Limited shareholders of record at the close of trading on
May 29, 1998 received .013673 of a share of Abercrombie & Fitch
stock for each Limited share owned at that time.
The accompanying consolidated financial statements include
the historical financial statements of, and transactions applicable
to the Company and its subsidiaries and reflect the assets, liabil-
ities, results of operations and cash flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial
statements include the accounts of the Company and all signif-
icant subsidiaries that are more than 50% owned and controlled.
All significant intercompany balances and transactions have
been eliminated in consolidation.
FISCAL YEAR The Company’s fiscal year ends on the Saturday
closest to January 31. Fiscal years are designated in the financial
statements and notes by the calendar year in which the fiscal year
commences. The results for fiscal years 1998, 1997 and 1996
represent the fifty-two week periods ended January 30, 1999,
January 31, 1998 and February 1, 1997.
CASH AND EQUIVALENTS Cash and equivalents include
amounts on deposit with financial institutions and investments
with maturities of less than 90 days.
INVENTORIES Inventories are principally valued at the lower
of average cost or market, on a first-in first-out basis, utilizing
the retail method.
STORE SUPPLIES The initial inventory of supplies for new
stores including, but not limited to, hangers, signage, security tags
and point-of-sale supplies are capitalized at the store opening date.
Subsequent shipments are expensed except for new merchandise
presentation programs which are capitalized.
PROPERTY AND EQUIPMENT Depreciation and amortization
of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging
principally from 10-15 years for leasehold improvements and
3-10 years for other property and equipment. Beneficial leaseholds
represent the present value of the excess of fair market rent over
contractual rent of existing stores at the 1988 purchase of the
Company by The Limited and are being amortized over the
lives of the related leases. The cost of assets sold or retired and the
related accumulated depreciation or amortization are removed
from the accounts with any resulting gain or loss included in net
income. Maintenance and repairs are charged to expense as
incurred. Major renewals and betterments that extend service lives
are capitalized. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that full
recoverability is questionable. Factors used in the valuation
include, but are not limited to, management’s plans for future
operations, recent operating results and projected cash flows.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS