Abercrombie & Fitch 2008 Annual Report Download - page 33

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Table of Contents
Marketing, General and Administrative Expense
Marketing, general and administrative expense during the fourth quarter of Fiscal 2008 decreased
2.1% to $101.0 million compared to $103.2 million during the comparable period in Fiscal 2007. The
reduction in the marketing, general and administrative expense included savings in incentive
compensation and benefits, travel and outside services. The marketing, general and administrative expense
rate (marketing, general and administrative expense divided by net sales) was 10.1%, up 1.7 percentage
points from 8.4% in the fourth quarter of Fiscal 2007.
Other Operating Income, Net
Fourth quarter other operating income for Fiscal 2008 was $5.5 million compared to $3.0 million for
the fourth quarter of Fiscal 2007. Other operating income included gift cards for which the Company has
determined the likelihood of redemption to be remote for Fiscal 2008 and Fiscal 2007, as well as losses on
foreign currency transactions for Fiscal 2007. In Fiscal 2008, other operating income also included an
other-than-temporary loss of $14.0 million related to the Company’s trading auction rate securities, offset
by a gain on the related put option of $12.3 million.
Operating Income
Operating income for the fourth quarter of Fiscal 2008 decreased to $124.6 million from
$337.1 million in the comparable period in Fiscal 2007. The operating income rate (operating income
divided by net sales) for the fourth quarter of Fiscal 2008 was 12.5% compared to 27.4% for the fourth
quarter of Fiscal 2007.
Interest Income, Net and Income Tax Expense
Fiscal 2008 fourth quarter interest income was $2.5 million, offset by interest expense of $1.1 million
compared to interest income of $6.6 million, offset by interest expense of $0.2 million in the fourth
quarter of Fiscal 2007. The decrease in interest income was primarily due to a lower average rate of return
on investments. The increase in interest expense was due to borrowings made under the unsecured credit
agreement in Fiscal 2008.
The effective tax rate for the fourth quarter of Fiscal 2008 was 45.7% compared to 36.9% for the
Fiscal 2007 comparable period. The fourth quarter of Fiscal 2008 tax rate reflects a charge of $9.9 million
to tax expense as a result of the Chairman and Chief Executive Officer’s (“CEO”) new employment
agreement, which pursuant to section 162(m) results in the exclusion of previously recognized tax
benefits. Under the previous employment agreement, the Company recorded deferred tax assets based on
the anticipated delivery of benefits to the CEO in the calendar year following the year of his retirement.
As a result of the new employment agreement, the CEO receives the benefits during his employment;
therefore the expected tax benefits are no longer available.
Net Income and Net Income per Share
Net income for the fourth quarter of Fiscal 2008 was $68.4 million versus $216.8 million for the
fourth quarter of Fiscal 2007. Net income per diluted weighted-average share outstanding for the fourth
quarter of Fiscal 2008 was $0.78, including a non-cash, after-tax charge of $0.21 associated with the
impairment of store-related assets and a charge to tax expense of $0.11 related to the execution of the
CEO’s new employment agreement, which pursuant to Section 162(m) of the Internal Revenue Code
resulted in the
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠