Abercrombie & Fitch 2014 Annual Report Download - page 49

ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
49
COST OF GOODS SOLD
Cost of goods sold primarily comprises cost incurred to ready inventory for sale, including product costs, freight, and import cost,
as well as provision for reserves for shrink and lower of cost or market. Gains and losses associated with foreign currency exchange
contracts related to hedging of inventory purchases are also recognized in cost of goods sold when the inventory being hedged is
sold.
STORES AND DISTRIBUTION EXPENSE
Stores and distribution expense includes store payroll, store management, rent, utilities and other landlord expenses, depreciation
and amortization, repairs and maintenance and other store support functions, as well as Direct-to-Consumer expense and
Distribution Center (“DC”) expense.
Shipping and handling costs, including costs incurred to store, move and prepare merchandise for shipment, and costs incurred to
physically move merchandise to customers, associated with direct-to-consumer operations were $108.1 million, $93.4 million and
$78.6 million for Fiscal 2014, Fiscal 2013 and Fiscal 2012, respectively. Handling costs, including costs incurred to store, move
and prepare merchandise for shipment to stores were $52.2 million, $53.9 million and $59.4 million for Fiscal 2014, Fiscal 2013
and Fiscal 2012, respectively. These amounts are recorded in Stores and Distribution Expense in the Company's Consolidated
Statements of Operations and Comprehensive (Loss) Income. Costs incurred to physically move merchandise to stores is recorded
in Cost of Goods Sold in the Company's Consolidated Statements of Operations and Comprehensive (Loss) Income.
MARKETING, GENERAL & ADMINISTRATIVE EXPENSE
Marketing, general and administrative expense includes: photography and social media; store marketing; home office compensation,
except for those departments included in stores and distribution expense; information technology; outside services such as legal
and consulting; relocation; recruiting; samples and travel expenses.
RESTRUCTURING CHARGES
Restructuring charges consist of exit costs and other costs associated with the reorganization of the Company's operations, including
employee termination costs, lease contract termination costs, impairment of assets, and any other qualifying exit costs. Costs
associated with exit or disposal activities are recorded when the liability is incurred or when such costs are deemed probable and
estimable and represent the Company's best estimates.
OTHER OPERATING INCOME, NET
Other operating income, net included income of $10.2 million, $9.0 million and $4.8 million related to insurance recoveries for
Fiscal 2014, Fiscal 2013 and Fiscal 2012, respectively; $5.8 million, $8.8 million and $6.9 million for Fiscal 2014, Fiscal 2013
and Fiscal 2012, respectively, related to gift card balances whose likelihood of redemption has been determined remote and a loss
of $2.0 million in Fiscal 2014, and gains of $2.9 million and $3.3 million in Fiscal 2013 and Fiscal 2012, respectively, attributed
to foreign currency transactions. Other operating income, net for Fiscal 2012 also included a gain of $2.5 million related to the
net impact of changes in valuation related to other-than-temporary impairments associated with auction rate securities ("ARS").
WEBSITE AND ADVERTISING COSTS
Advertising costs are comprised of in-store photography, e-mail distribution and other digital direct advertising, and other media
advertising. Beginning in Fiscal 2014, costs associated with cross-channel brand engagement campaigns and marketing events
have been classified as advertising costs. Accordingly, the advertising expense disclosures for Fiscal 2013 and Fiscal 2012 have
been revised to reflect this change. The production of in-store photography and signage are expensed when the marketing campaign
commences as a component of Marketing, General and Administrative Expense on the Consolidated Statements of Operations
and Comprehensive (Loss) Income. Website and other advertising costs related specifically to direct-to-consumer operations are
expensed as incurred as a component of Stores and Distribution Expense on the Consolidated Statements of Operations and
Comprehensive (Loss) Income. All other advertising costs are expensed as incurred as a component of Marketing, General and
Administrative Expense on the Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company
recognized $84.6 million, $68.1 million and $59.0 million in advertising expense in Fiscal 2014, Fiscal 2013 and Fiscal 2012,
respectively.