Abercrombie & Fitch 2011 Annual Report Download - page 55

income or in two separate but consecutive statements. The amendment does not change the items that must
be reported in other comprehensive income or when an item of other comprehensive income must be
reclassified to net income under current GAAP. This guidance is effective for the Company’s fiscal year
and interim periods beginning January 29, 2012. The Company does not expect its adoption to have a
material effect on its consolidated financial statements.
Critical Accounting Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based
upon the Company’s consolidated financial statements which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
consolidated financial statements requires the Company to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Since actual results may differ from those
estimates, the Company revises its estimates and assumptions as new information becomes available.
The Company believes the following policies are the most critical to the portrayal of the Company’s
financial condition and results of operations.
Policy Effect if Actual Results Differ from Assumptions
Revenue Recognition
The Company recognizes retail sales at the time the
customer takes possession of the merchandise. The
Company reserves for sales returns through estimates
based on historical experience and various other
assumptions that management believes to be
reasonable. The value of point of sale coupons that
result in a reduction of the price paid by the customer
is recorded as a reduction of sales.
The Company recognized direct-to-consumer sales
based on an estimated date for customer receipt of
merchandise. The Company reserves for
direct-to-consumer sales not received by the
customer based on historical experience and various
other assumptions that management believes to be
reasonable.
The Company sells gift cards in its stores and
through direct-to-consumer operations. The
Company accounts for gift cards sold to customers by
recognizing a liability at the time of sale. The
liability remains on the Company’s books until the
earlier of redemption (recognized as revenue) or
when the Company determines the likelihood of
redemption is remote, known as breakage
(recognized as other operating income), based on
historical redemption patterns.
The Company has not made any material changes
in the accounting methodology used to determine
the sales return reserve and revenue recognition
for gift cards over the past three fiscal years.
The Company does not expect material changes in
the near term to the underlying assumptions used
to measure the sales return reserve or to measure
the timing and amount of future gift card
redemptions as of January 28, 2012. However,
changes in these assumptions do occur, and,
should those changes be significant, the Company
may be exposed to gains or losses that could be
material.
A 10% change in the sales return reserve as of
January 28, 2012 would have affected pre-tax
income by an immaterial amount for Fiscal 2011.
A 10% change in the direct-to-consumer reserve
for merchandise not received by the customer as
of January 28, 2012 would have affected pre-tax
income by an immaterial amount for Fiscal 2011.
A 10% change in the assumption of the breakage
for gift cards as of January 28, 2012 would have
affected pre-tax income by an immaterial amount
for Fiscal 2011.
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