Abercrombie & Fitch 2002 Annual Report Download - page 22

Abercrombie &Fitch
SHAREHOLDERS’ EQUITY At February 1, 2003 and February
2, 2002, there were 150 million shares of $.01 par value Class A
Common Stock authorized, of which 97.3 million and 98.9 mil-
lion shares were outstanding at February 1, 2003 and February
2, 2002, respectively, and 106.4 million shares of $.01 par value
Class B Common Stock authorized, none of which were out-
standing at February 1, 2003 or February 2, 2002. In addition,
15 million shares of $.01 par value Preferred Stock were autho-
rized, none of which have been issued. See Note 13 for infor-
mation about Preferred Stock Purchase Rights.
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.
REVENUE RECOGNITION The Company recognizes retail
sales at the time the customer takes possession of the mer-
chandise and purchases are paid for, primarily with either
cash or credit card. Catalogue and e-commerce sales are
recorded upon customer receipt of merchandise. Amounts
relating to shipping and handling billed to customers in a sale
transaction are classified as revenue and the related costs are
classified as cost of goods sold. Employee discounts are clas-
sified as a reduction of revenue. The Company reserves for
sales returns through estimates based on historical experience
and various other assumptions that management believes to
be reasonable.
CATALOGUE AND ADVERTISING COSTS Costs related to the
A&F Quarterly, a catalogue/magazine, primarily consist of cata-
logue 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 $33.4 million in 2002, $30.7
million in 2001 and $30.4 million in 2000.
STORE PREOPENING EXPENSES Preopening expenses relat-
ed 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 receiv-
ables, marketable securities and accounts payable, approximate
fair value due to the short maturity and because the average
interest rate approximates current market origination rates.
STOCK-BASED COMPENSATION The Company reports stock-
based compensation through the disclosure-only requirements of
SFAS No. 123, “Accounting for Stock-Based Compensation,” as
amended by SFAS No. 148, “Accounting for Stock-Based
Compensation–Transition and Disclosure–an Amendment to
FASB No. 123,” but elects to measure compensation expense
using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees.” Accordingly, no compensation expense for options
has been recognized as all options are granted at fair market value
at the grant date. The Company does recognize compensation
expense related to restricted share awards. If compensation
expense related to options had been determined based on the esti-
mated fair value of options granted in 2002, 2001 and 2000,
consistent with the methodology in SFAS No. 123, the pro forma
effect on net income and net income per basic and diluted share
would have been as follows:
(Thousands except per share amount) 2002 2001 2000
Net Income:
As reported $194,935 $168,672 $158,133
Stock-based compensation expense
included in reported net income, net of tax 1,414 2,401 2,626
Stock-based compensation expense
determined under fair value based method,
net of tax(1) (25,979) (22,453) (21,706)
Pro forma $170,370 $148,620 $139,053
Basic earnings per share:
As reported $1.99 $1.70 $1.58
Pro forma $1.74 $1.50 $1.39
Diluted earnings per share:
As reported $1.94 $1.65 $1.55
Pro forma $1.73 $1.48 $1.38
(1) Includes stock-based compensation expense related to restricted share awards actually
recognized in earnings in each period presented.
The pro forma effect on net income for 2002, 2001 and 2000
is not representative of the pro forma effect on net income in
future years because it takes into consideration pro forma com-
pensation expense related only to those grants made subsequent
to May 19, 1998.
The weighted-average fair value of all options granted during fis-
cal 2002, 2001 and 2000 was $12.07, $14.96 and $8.90, respectively.
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