Abercrombie & Fitch 2008 Annual Report Download - page 66

Table of Contents
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
nongovernmental entities that are presented in conformity with GAAP in the United States of America.
SFAS No. 162 will be effective sixty days following the Securities and Exchange Commission’s approval
of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of
‘Present fairly in conformity with generally accepted accounting principles’.” The Company is currently
evaluating the potential impact, if any, of the adoption of SFAS No. 162 on its consolidated financial
statements.
4. SHARE-BASED COMPENSATION
The Company accounts for share-based compensation under the provisions of SFAS No. 123(R),
which requires share-based compensation related to stock options and stock appreciation rights to be
measured based on estimated fair values at the date of grant using an option-pricing model.
Financial Statement Impact
The following table summarizes share-based compensation expense (in thousands):
Fifty-Two Weeks Ended
January 31, February 2,
2009 2008
Stores and distribution expense $ 3,451 $ 1,628
Marketing, general and administrative expense 38,591 29,542
Operating income $ 42,042 $ 31,170
The Company also recognized $15.4 million, $11.5 million and $12.2 million in tax benefits related to
share-based compensation for the fifty-two week periods ended January 31, 2009 and February 2, 2008,
and the fifty-three week period ended February 3, 2007, respectively.
A deferred tax asset is recorded on the compensation expense required to be accrued under
SFAS No. 123(R). A current income tax deduction arises at the time the restricted stock unit vests or stock
option/stock appreciation right is exercised. In the event the current income tax deduction is greater or less
than the associated deferred tax asset, the difference is required under SFAS No. 123(R) to be charged
first to the “windfall tax benefit” account. In the event there is not a balance in the “windfall tax benefit”
account, the shortfall is charged to tax expense. The amount of the Company’s “windfall tax benefit”
account, which is recorded as a component of additional paid in capital, was approximately $91.8 million
as of January 31, 2009. Based upon outstanding awards, the “windfall tax benefit” account is sufficient to
fully absorb any shortfall which may develop.
Additionally, the Company recognized $9.9 million of non-deductible tax expense as a result of the
execution of the Chairman and Chief Executive Officer’s new employment agreement on December 19,
2008, which pursuant to Section 162(m) of the Internal Revenue Code results in the exclusion of
previously recognized tax benefits on share-based compensation.
Share-based compensation expense is recognized, net of estimated forfeitures, over the requisite
service period on a straight-line basis. The Company adjusts share-based compensation expense on a
quarterly basis for actual forfeitures and for changes to the estimate of expected award forfeitures based
on actual forfeiture
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠