Abercrombie & Fitch 2013 Annual Report Download - page 54

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The Company records tax expense or benefit that does not relate to ordinary income in the current fiscal year discretely in
the period in which it occurs. Examples of such types of discrete items include, but are not limited to: changes in estimates of
the outcome of tax matters related to prior years; provision-to-return adjustments; tax-exempt income; and the settlement of tax
audits.
See Note 15, “INCOME TAXES,” for a discussion regarding the Company’s policies for uncertain tax positions.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The majority of the Company’s international operations use local currencies as the functional currency. Assets and
liabilities denominated in foreign currencies are translated into U.S. Dollars (the reporting currency) at the exchange rate
prevailing at the balance sheet date. Equity accounts denominated in foreign currencies are translated into U.S. Dollars at
historical exchange rates. Revenues and expenses denominated in foreign currencies are translated into U.S. Dollars at the
monthly average exchange rate for the period. Gains and losses resulting from foreign currency transactions are included in the
results of operations; whereas, translation adjustments and inter-company loans of a long-term investment nature are reported as
an element of Other Comprehensive Income (Loss). Foreign currency transactions resulted in a gain of $3.3 million for Fiscal
2012, a gain of $1.3 million for Fiscal 2011 and an immaterial gain for Fiscal 2010.
DERIVATIVES
See Note 18, “DERIVATIVES.”
CONTINGENCIES
In the normal course of business, the Company must make estimates of potential future legal obligations and liabilities,
which requires the use of management’s judgment on the outcome of various issues. Management may also use outside legal
advice to assist in the estimating process. However, the ultimate outcome of various legal issues could be different than
management estimates, and adjustments may be required. See Note 21, “CONTINGENCIES,” for further discussion.
STOCKHOLDERS’ EQUITY
At February 2, 2013 and January 28, 2012, there were 150.0 million shares of A&F’s Class A Common Stock, $0.01 par
value, authorized, of which 78.4 million and 85.6 million shares were outstanding at February 2, 2013 and January 28, 2012,
respectively, and 106.4 million shares of Class B Common Stock, $0.01 par value, authorized, none of which were outstanding
at February 2, 2013 and January 28, 2012. In addition, 15.0 million shares of A&F’s Preferred Stock, $0.01 par value, were
authorized, none of which have been issued. See Note 23, “PREFERRED STOCK PURCHASE RIGHTS” for information about
Preferred Stock Purchase Rights.
Holders of Class A Common Stock generally have identical rights to holders of Class B Common Stock, except 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 stockholders.
REVENUE RECOGNITION
The Company recognizes store sales at the time the customer takes possession of the merchandise. Direct-to-consumer
sales are recorded based on an estimated date for customer receipt of merchandise, which is based on shipping terms and
historical delivery terms. Amounts relating to shipping and handling billed to customers in a sale transaction are classified as
revenue and the related direct shipping and handling costs are classified as Stores and Distribution Expense. Associate
discounts are classified as a reduction of net sales. The Company reserves for sales returns through estimates based on historical
experience. The sales return reserve was $9.3 million, $7.0 million and $10.3 million at February 2, 2013, January 28, 2012 and
January 29, 2011, respectively.
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. Gift cards sold to customers do not expire or lose value
over periods of inactivity. The liability remains on the Company’s books until the Company recognizes income from gift cards.
Income from gift cards is recognized at the earlier of redemption by the customer (recognized as revenue) or when the
Company determines that the likelihood of redemption is remote, referred to as “gift card breakage” (recognized as other
operating income). The Company determines the probability of the gift card being redeemed to be remote based on historical
redemption patterns. At February 2, 2013 and January 28, 2012, the gift card liabilities on the Company’s Consolidated Balance
Sheets were $47.7 million.
Table of Contents ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)