Abercrombie & Fitch 2005 Annual Report Download - page 36

Abercrombie &Fitch
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stock options previously issued, but not fully vested, and an estimate
of stock options to be granted during Fiscal 2006, the Company
expects that the implementation of SFAS No. 123(R) will result in a
charge of approximately $0.10 per fully-diluted share for Fiscal 2006.
Effective January 28, 2006, the Company adopted FASB
Interpretation No. 47 (“FIN 47”), “Conditional Asset Retirement
Obligations”, which clarifies that the term “conditional asset retire-
ment obligation” as used in FASB Statement No. 143, “Accounting for
Asset Retirement Obligations,” refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settle-
ment are conditional on a future event that may or may not be within
the control of the entity. The adoption of FIN 47 did not have any
effect on the Company’s results of operations or its financial position.
4. PROPERTY AND EQUIPMENT Property and equipment, at
cost, consisted of (thousands):
2005 2004
Land $ 15,985 $ 15,985
Building 117,398 110,971
Furniture, fixtures and equipment 444,540 509,349
Leasehold improvements 625,732 402,535
Construction in progress 79,480 27,782
Other 3,248 6,790
Total $1,286,383 $1,073,412
Less: Accumulated depreciation and amortization 472,780 386,401
Property and equipment, net $ 813,603 $ 687,011
5. DEFERRED LEASE CREDITS, NET Deferred lease credits are
derived from payments received from landlords to partially offset store
construction costs and are reclassified between current and long-term
liabilities. The amounts, which are amortized over the life of the relat-
ed leases, consisted of the following (thousands):
2005 2004
Deferred lease credits $376,460 $334,175
Amortized deferred lease credits (153,508) (125,117)
Total deferred lease credits, net $222,952 $209,058
6. LEASED FACILITIES AND COMMITMENTS Annual store
rent is comprised of a fixed minimum amount, plus contingent rent
based on a percentage of sales exceeding a stipulated amount. Store
lease terms generally require additional payments covering taxes,
common area costs and certain other expenses.
A summary of rent expense follows (thousands):
2005 2004 2003
Store rent:
Fixed minimum $170,009 $141,450 $122,001
Contingent 16,178 6,932 5,194
Total store rent $186,187 $148,382 $127,195
Buildings, equipment and other 3,241 1,663 1,219
Total rent expense $189,428 $150,045 $128,414
At January 28, 2006, the Company was committed to non-cancelable
leases with remaining terms of one to 15 years. A summary of oper-
ating lease commitments under non-cancelable leases follows (thou-
sands):
2006 $187,674 2009 $169,856
2007 $187,397 2010 $155,670
2008 $178,595 Thereafter $538,635
7. ACCRUED EXPENSES Accrued expenses consisted of the follow-
ing (thousands):
2005 2004
Rent and landlord charges $ 23,847 $ 13,843
Gift card liability 53,150 41,707
Employee salaries and bonus 30,250 21,985
Accrual for construction in progress 19,510 15,756
Property, franchise and other taxes 13,600 9,228
Other 74,677 102,634
Total $215,034 $205,153
Other accrued expenses in Fiscal 2004 included $49.1 million related
to the settlement of three related class action employment discrimina-
tion lawsuits.
8. INCOME TAXES The provision for income taxes consisted of
(thousands):
2005 2004 2003
Currently payable:
Federal $184,884 $112,537 $101,692
State 32,641 19,998 18,248
$217,525 $132,535 $119,940
Deferred:
Federal $ (5,980) $ 2,684 $ 8,601
State 3,881 1,258 1,517
$ (2,099) $ 3,942)$ 10,118
Total provision $215,426 $136,477 $130,058
A reconciliation between the statuatory Federal income tax rate and
the effective income tax rate follows:
2005 2004 2003
Federal income tax rate 35.0% 35.0% 35.0%
State income tax, net of Federal
income tax effect 4.3% 3.9% 3.8%
Other items, net (0.1%) (0.2%) –
Total 39.2% 38.7% 38.8%