Abercrombie & Fitch 2001 Annual Report Download - page 12

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Ab e rcrombi e &Fitch
1. BASIS OF PRESENTAT I O N 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 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,
Inc. (“The Limited”) in 1988.
A&F was established as an independent Company through an
initial public offering (the “Offering”) which was consummated
on October 1, 1996. As a result of the Offering, 84.2% of the out-
standing common stock of A&F was owned by T he Limited,
until the completion of a tax-free exchange offer (the “Exchange
Offer”) on May 19, 1998.
The accompanying consolidated financial statements include
the historical financial statements of, and transactions applicable
to, A&F and its subsidiaries and reflect the assets, liabilities,
results of operations and cash flows on a historical cost basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSO L I DAT I O N The consolidated financial
statements include the accounts of A&F and all significant sub-
sidiaries 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 2001 and 1999 rep-
resent the fifty-two week periods ended February 2, 2002 and
January 29, 2000. The results for fiscal year 2000 represent the
fifty-three week period ended February 3, 2001.
CASH AND EQUIVA L E N T S Cash and equivalents include
amounts on deposit with financial institutions and investments
with original maturities of less than 90 days.
M A R K E TABLE SECURITIES All investments with original matu-
rities of greater than 90 days are accounted for in accordance
with Statement of Financial Accounting Standards (“SFA S ” )
No. 115, “Accounting for Certain Investments in Debt and Equity
Securities.” The Company determines the appropriate classifi-
cation at the time of purchase. At Fe b ru a ry 2, 2002, the Company
held investments in marketable securities which were classified
as held to maturity based on the Company’s positive intent and
ability to hold the securities to maturity. All securities held by the
Company at Fe b ru a ry 2, 2002 were corporate debt securities
which mature within one year and are stated at amortized cost
which approximates market value.
I N V E N T O R I E S 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.
P R O P E RTY AND EQUIPMENT Depreciation and amortization
of property and equipment are computed for financial reporting
purposes on a straight-line basis, using service lives ranging prin-
cipally 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
Abercrombie & Fitch business 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 amortiza-
tion 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
s e rvice lives are capitalized. Long-lived assets are reviewed at the
store level at least annually for impairment or whenever events or
changes in circumstances indicate that full recoverability is ques-
tionable. Factors used in the evaluation include, but are not limited
to, management's plans for future operations, recent operating
results and projected cash flows.
INCOME TAX E S Income taxes are calculated in accordance
with SFAS No. 109, “Accounting for Income Taxes,” which
requires the use of the liability method. Deferred tax assets
NOT ES T O CONSO L I DATED F INANCIAL STAT E M E N T S
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Ab e rcr ombi e &Fitch
(Thousands)2001 2000 1999
Operating Activities
Net Income $168,672 $158,133 $149,604
Impact of Other Operating Activities on Cash Flows
Depreciation and Amortization 41,155 30,731 27,721
Noncash Charge for Deferred Compensation 3,936 4,340 5,212
Change in Assets and Liabilities
Inventories 12,121 (45,735) (31,270)
Accounts Payable and Accrued Expenses 5,272 21,626 4,999
Income T axes 13,787 (8,420) 9,258
Other Assets and Liabilities (11,741) (9,486) (12,773)
Net Cash Provided by Operating Activities 233,202 151,189 152,751
Investing Activities
Capital Expenditures (126,515) (153,481) (73,377)
Proceeds from Maturities of Marketable Securities –45,601 11,332
Purchase of Marketable Securities (71,220) – (56,933)
Note Receivable (454) (3,000) (1,500)
Net Cash Used for Investing Activities (198,189) (110,880) (120,478)
Financing Activities
Purchase of Treasury Stock (11,069) (43,929) (50,856)
Other Changes in Shareholders’ Equity 6,139 (6,707) 2,927
Net Cash Used for Financing Activities (4,930) (50,636) (47,929)
Net Increase/(Decrease) in Cash and Equivalents 30,083 (10,327) (15,656)
Cash and Equivalents, Beginning of Year 137,581 147,908 163,564
Cash and Equivalents, End of Year $167,664 $137,581 $147,908
Significant Noncash Investing Activities
Accrual for Construction in Progress $ 967 $ 9,531 $ 10,447
C O N SO L I D AT ED S TAT E M E N T S OF C A SH F L O W S
The accompanying Notes are an integral part of these Consolidated Financial Statements.