Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
 
FORM 10-Q  
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-12107
 
ABERCROMBIE & FITCH CO.
(Exact name of Registrant as specified in its charter)
 
Delaware
31-1469076
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
 
6301 Fitch Path, New Albany, Ohio
43054
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (614) 283-6500
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)  
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).     x   Yes     ¨   No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨   (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class A Common Stock
 
Outstanding at May 30, 2014
$.01 Par Value
 
72,779,580 Shares


Table of Contents


ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2
Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Thousands, except share and per share amounts)
(Unaudited)
 
 
Thirteen Weeks Ended
 
May 3, 2014
 
May 4, 2013
NET SALES
$
822,428

 
$
838,769

Cost of Goods Sold
310,769

 
285,603

GROSS PROFIT
511,659

 
553,166

Stores and Distribution Expense
417,571

 
449,125

Marketing, General and Administrative Expense
123,581

 
118,780

Restructuring Charges
5,633

 
—

Other Operating Income, Net
(3,620
)
 
(818
)
OPERATING INCOME (LOSS)
(31,506
)
 
(13,921
)
Interest Expense, Net
1,997

 
1,628

INCOME (LOSS) BEFORE TAXES
(33,503
)
 
(15,549
)
Tax Expense (Benefit)
(9,832
)
 
(8,346
)
NET INCOME (LOSS)
$
(23,671
)
 
$
(7,203
)
NET INCOME (LOSS) PER SHARE:
 
 
 
BASIC
$
(0.32
)
 
$
(0.09
)
DILUTED
$
(0.32
)
 
$
(0.09
)
WEIGHTED-AVERAGE SHARES OUTSTANDING:
 
 
 
BASIC
74,483

 
78,324

DILUTED
74,483

 
78,324

DIVIDENDS DECLARED PER SHARE
$
0.20

 
$
0.20

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
Foreign Currency Translation Adjustments
$
14,866

 
$
(17,260
)
Unrealized Gain (Loss) on Derivative Financial Instruments, net of taxes
(3,129
)
 
9,495

Other Comprehensive Income (Loss)
$
11,737

 
$
(7,765
)
COMPREHENSIVE INCOME (LOSS)
$
(11,934
)
 
$
(14,968
)


The accompanying Notes are an integral part of these Consolidated Financial Statements
3
Table of Contents


ABERCROMBIE & FITCH CO.
CONSOLIDATED BALANCE SHEETS
(Thousands, except par value amounts)
 
 
(unaudited)
 
 
 
May 3, 2014
 
February 1, 2014
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and Equivalents
$
357,122

 
$
600,116

Receivables
69,983

 
67,965

Inventories
486,026

 
530,192

Deferred Income Taxes
36,770

 
21,835

Other Current Assets
103,125

 
100,458

TOTAL CURRENT ASSETS
1,053,026

 
1,320,566

PROPERTY AND EQUIPMENT, NET
1,121,777

 
1,131,341

OTHER ASSETS
391,590

 
399,090

TOTAL ASSETS
$
2,566,393

 
$
2,850,997

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts Payable
$
122,075

 
$
130,715

Accrued Expenses
282,878

 
322,834

Deferred Lease Credits
32,787

 
36,165

Income Taxes Payable
17,362

 
63,508

Short-Term Portion of Borrowings
15,000

 
15,000

TOTAL CURRENT LIABILITIES
470,102

 
568,222

LONG-TERM LIABILITIES:
 
 
 
Deferred Lease Credits
137,570

 
140,799

Long-Term Portion of Borrowings
116,250

 
120,000

Leasehold Financing Obligations
61,691

 
60,726

Other Liabilities
228,180

 
231,757

TOTAL LONG-TERM LIABILITIES
543,691

 
553,282

STOCKHOLDERS’ EQUITY:
 
 
 
Class A Common Stock - $0.01 par value:
150,000 shares authorized and 103,300 shares issued at each of May 3, 2014 and February 1, 2014
1,033

 
1,033

Paid-In Capital
423,512

 
433,620

Retained Earnings
2,517,934

 
2,556,270

Accumulated Other Comprehensive Income (Loss), net of tax
(9,180
)
 
(20,917
)
Treasury Stock, at Average Cost:
30,525 and 26,898 shares at May 3, 2014 and February 1, 2014, respectively
(1,380,699
)
 
(1,240,513
)
TOTAL STOCKHOLDERS’ EQUITY
1,552,600

 
1,729,493

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,566,393

 
$
2,850,997



The accompanying Notes are an integral part of these Consolidated Financial Statements
4
Table of Contents


ABERCROMBIE & FITCH CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
 
 
Thirteen Weeks Ended
 
May 3, 2014
 
May 4, 2013
OPERATING ACTIVITIES:
 
 
 
Net Income (Loss)
$
(23,671
)
 
$
(7,203
)
Impact of Other Operating Activities on Cash Flows:
 
 
 
Depreciation and Amortization
58,897

 
59,459

Loss on Disposal / Write-off of Assets
1,360

 
1,618

Lessor Construction Allowances
588

 
5,873

Amortization of Deferred Lease Credits
(12,005
)
 
(10,491
)
Deferred Taxes
(17,189
)
 
(12,353
)
Share-Based Compensation
5,288

 
13,247

Changes in Assets and Liabilities:
 
 
 
Inventories
45,461

 
(32,584
)
Accounts Payable and Accrued Expenses
(45,834
)
 
(75,081
)
Income Taxes
(47,555
)
 
(80,690
)
Other Assets
6,870

 
(2,149
)
Other Liabilities
(12,350
)
 
(3,275
)
NET CASH USED FOR OPERATING ACTIVITIES
(40,140
)
 
(143,629
)
INVESTING ACTIVITIES:
 
 
 
Capital Expenditures
(37,829
)
 
(42,372
)
Other Investing
—

 
(2,637
)
NET CASH USED FOR INVESTING ACTIVITIES
(37,829
)
 
(45,009
)
FINANCING ACTIVITIES:
 
 
 
Excess Tax Benefit from Share-Based Compensation
61

 
1,112

Proceeds from Share-Based Compensation
52

 
98

Purchase of Treasury Stock
(150,000
)
 
(16,305
)
Repayments of Borrowings
(3,750
)
 
(3,750
)
Proceeds from Borrowings
—

 
150,000

Change in Outstanding Checks and Other
(3,386
)
 
(7,193
)
Dividends Paid
(14,665
)
 
(15,693
)
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(171,688
)
 
108,269

EFFECT OF EXCHANGE RATES ON CASH
6,663

 
(7,235
)
NET DECREASE IN CASH AND EQUIVALENTS:
(242,994
)
 
(87,604
)
Cash and Equivalents, Beginning of Period
600,116

 
643,505

CASH AND EQUIVALENTS, END OF PERIOD
$
357,122

 
$
555,901

SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
 
 
 
Change in Accrual for Construction in Progress
$
(3,789
)
 
$
(5,758
)


The accompanying Notes are an integral part of these Consolidated Financial Statements
5
Table of Contents


ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION
Abercrombie & Fitch Co. (“A&F”), through its wholly-owned subsidiaries (collectively, A&F and its wholly-owned subsidiaries are referred to as the “Company”), is a specialty retailer of high-quality, casual apparel for men, women and kids with an active, youthful lifestyle.
The accompanying Consolidated Financial Statements include the historical financial statements of, and transactions applicable to, the Company and reflect its assets, liabilities, results of operations and cash flows.
The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2014” represent the 52-week fiscal year that will end on January 31, 2015, and to “Fiscal 2013” represent the 52-week fiscal year that ended February 1, 2014.
The Consolidated Financial Statements as of May 3, 2014 and for the thirteen-week periods ended May 3, 2014 and May 4, 2013 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2013 filed with the SEC on March 31, 2014. The February 1, 2014 consolidated balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).
In the opinion of management, the accompanying Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal 2014.
The thirteen-week periods ended May 3, 2014 and May 4, 2013 include the correction of certain errors relating to prior years. The amounts recorded out-of-period include an increase in the pre-tax loss of $1.5 million for the thirteen-week period ended May 3, 2014 and a reduction of pre-tax loss of $2.5 million and an unrelated tax charge of $1.2 million for the thirteen-week period ended May 4, 2013. The Company does not believe these corrections were material to any current or prior interim or annual periods that were affected.
The Consolidated Financial Statements as of May 3, 2014 and for the thirteen-week periods ended May 3, 2014 and May 4, 2013 included herein have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report of such firm follows the Notes to Consolidated Financial Statements.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the “Act”) for their report on the consolidated financial statements because their report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.


2. SEGMENT REPORTING
The Company determines its segments on the same basis that it uses to allocate resources and assess performance. All of the Company’s segments sell a similar group of products—casual sportswear apparel, personal care products and accessories for men, women and kids and bras, underwear and sleepwear for girls. The Company has three reportable segments: U.S. Stores, International Stores, and Direct-to-Consumer. Corporate functions, interest income and expense, and other income and expense are evaluated on a consolidated basis and are not allocated to the Company’s segments, and therefore are included in Other.
The U.S. Stores reportable segment includes the results of store operations in the United States and Puerto Rico. The International Stores reportable segment includes the results of store operations in Canada, Europe, Asia and Australia. The Direct-to-Consumer reportable segment includes the results of operations directly associated with on-line operations, both U.S. and international.

6


Operating income is the primary measure of profit the Company uses to make decisions regarding the allocation of resources to its segments. For the U.S. Stores and the International Stores reportable segments, operating income is defined as aggregate income directly attributable to individual stores on a four-wall basis plus sell-off of excess merchandise to authorized third-party resellers. Four-wall operating income includes: net sales, cost of merchandise, selling payroll and related costs, rent, utilities, depreciation, repairs and maintenance, supplies and packaging and other store sales-related expenses including credit card and bank fees and indirect taxes. Operating income also reflects pre-opening charges related to stores not yet in operation. For the Direct-to-Consumer reportable segment, operating income is defined as aggregate income attributable to the direct-to-consumer business: net sales, shipping and handling revenue, call center costs, fulfillment and shipping expense, charge card fees and direct-to-consumer operations management and support expenses. The U.S. Stores, the International Stores and the Direct-to-Consumer segments exclude marketing, general and administrative expense; store management and support functions such as regional and district management and other functions not dedicated to an individual store, as well as distribution center costs. All costs excluded from the three reportable segments are included in Other.
The following table provides the Company’s segment information for the thirteen-week periods ended May 3, 2014 and May 4, 2013 .
 
 
U.S. Stores
 
International
Stores
 
Direct-to-
Consumer
Operations
 
Segment Total
 
Other (1)
 
Total
 
(in thousands):
Thirteen Weeks Ended May 3, 2014
 
 
 
 
 
 
 
 
 
 
 
Net Sales
$
399,148

 
$
252,882

 
$
170,398

 
$
822,428

 
$
—

 
$
822,428

Operating Income (Loss) (2)
31,284

 
42,723

 
56,232

 
130,239

 
(161,745
)
 
(31,506
)
Thirteen Weeks Ended May 4, 2013
 
 
 
 
 
 
 
 
 
 
 
Net Sales
$
448,616

 
$
257,434

 
$
132,719

 
$
838,769

 
$
—

 
$
838,769

Operating Income (Loss)
39,821

 
53,533

 
56,183

 
149,537

 
(163,458
)
 
(13,921
)
 
 
 
 
 
 
 
 
 
 
 
 

(1)  
Includes corporate functions not dedicated to an individual store or direct-to-consumer operations such as Design, Merchandising, Sourcing, Planning, Allocation, Store Management and Support, Marketing, Distribution Center Operations, Information Technology, Real Estate, Finance, Legal, Human Resources and other corporate overhead.
(2)  
Includes charges related to the restructuring of the Gilly Hicks brand, the Company's profit improvement initiative and legal, advisory and other charges related to certain corporate governance matters of which $6.9 million is included for International Stores, $9.2 million is included for Other and $0.5 million of income related to the true-up of Gilly Hicks estimated liabilities, net of additional charges, is included in U.S. Stores for the thirteen-week period ended May 3, 2014.
Net Sales:
Net sales includes net merchandise sales through stores and direct-to-consumer operations, including shipping and handling revenue. Direct-to-consumer net sales are reported by geographic area based on the location of the customer.
Brand Information
Net Sales by brand were as follows:
 
Thirteen Weeks Ended
(in thousands):
May 3, 2014
 
May 4, 2013
Abercrombie & Fitch
$
317,818

 
$
324,748

abercrombie
68,460

 
73,223

Hollister
421,634

 
421,233

Gilly Hicks
14,516

 
19,565

Total
$
822,428

 
$
838,769





7



Geographic Information
Net Sales by geographic area were as follows:
 
 
Thirteen Weeks Ended
(in thousands):
May 3, 2014
 
May 4, 2013
United States
$
504,396

 
$
534,897

Europe
235,614

 
236,654

Other
82,418

 
67,218

Total
$
822,428

 
$
838,769



3. SHARE-BASED COMPENSATION

The Company issues stock appreciation rights and restricted stock units, including those with service, performance and market vesting conditions. The Company recognized share-based compensation expense of $5.3 million for the thirteen-week period ended May 3, 2014 , and $13.4 million for the thirteen-week period ended May 4, 2013 . The Company also recognized $2.0 million in tax benefits related to share-based compensation expense for the thirteen-week period ended May 3, 2014 , and $5.0 million for the thirteen-week period ended May 4, 2013 .
Stock Options
The Company did not grant any stock options during the thirteen-week period ended May 3, 2014 or the thirteen-week period ended May 4, 2013 .
Below is a summary of stock option activity for the thirteen weeks ended May 3, 2014 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life
Outstanding at February 1, 2014
532,400

 
$
65.37

 
 
 
 
Granted
—

 
—

 
 
 
 
Exercised
(5,000
)
 
31.07

 
 
 
 
Forfeited or expired
(1,200
)
 
78.65

 
 
 
 
Outstanding at May 3, 2014
526,200

 
$
65.66

 
$
1,093,780

 
3.1
Stock options exercisable at May 3, 2014
526,200

 
$
65.66

 
$
1,093,780

 
3.1
The total intrinsic value of stock options which were exercised during the thirteen-week periods ended May 3, 2014 and May 4, 2013 was insignificant.
The grant date fair value of stock options which vested during the thirteen-week periods ended May 3, 2014 and May 4, 2013 was insignificant.
As of May 3, 2014 , all compensation cost related to stock options had been recognized.










8



Stock Appreciation Rights
The following table summarizes stock appreciation rights activity for the thirteen weeks ended May 3, 2014 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life
Outstanding at February 1, 2014
8,982,959

 
$
40.76

 
 
 
 
Granted
301,500

 
39.10

 
 
 
 
Exercised
(15,125
)
 
30.83

 
 
 
 
Forfeited or expired
(8,100
)
 
49.02

 
 
 
 
Outstanding at May 3, 2014
9,261,234

 
$
40.71

 
$
39,254,021

 
3.4
Stock appreciation rights exercisable at May 3, 2014
8,480,209

 
$
40.30

 
$
39,144,076

 
2.9
Stock appreciation rights expected to become exercisable in the future as of May 3, 2014
688,381

 
$
45.71

 
$
84,674

 
8.8
The Company estimates the fair value of stock appreciation rights using the Black-Scholes option-pricing model. The weighted-average assumptions used in the Black-Scholes option-pricing model for stock appreciation rights granted during the thirteen-week periods ended May 3, 2014 and May 4, 2013 , were as follows:
 
Executive Officers other than the CEO
 
All Other Associates
 
May 3, 2014
 
May 4, 2013
 
May 3, 2014
 
May 4, 2013
Grant date market price
$
38.50

 
$
45.69

 
$
38.63

 
$
45.72

Exercise price
$
39.64

 
$
45.69

 
$
38.84

 
$
45.72

Fair value
$
14.40

 
$
19.96

 
$
13.58

 
$
16.95

Assumptions:
 
Price volatility
50
%
 
61
%
 
50
%
 
54
%
Expected term (years)
4.9

 
4.7

 
4.1

 
4.1

Risk-free interest rate
1.8
%
 
0.7
%
 
1.4
%
 
0.6
%
Dividend yield
1.9
%
 
1.8
%
 
1.9
%
 
1.8
%
Compensation expense for stock appreciation rights is recognized on a straight-line basis over the awards’ requisite service period, net of forfeitures. As of May 3, 2014 , there was $11.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock appreciation rights. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 17 months .
The total intrinsic value of stock appreciation rights exercised during the thirteen-week period ended May 3, 2014 was insignificant, while the total intrinsic value of stock appreciation rights exercised during the thirteen-week period ended May 4, 2013 was $1.4 million . The grant date fair value of stock appreciation rights which vested during the thirteen-week periods ended May 3, 2014 and May 4, 2013 was $7.2 million and $19.7 million , respectively.
Restricted Stock Units
The following table summarizes activity for restricted stock units with performance and/or service vesting conditions for the thirteen weeks ended May 3, 2014 :
 
Number of Underlying
Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at February 1, 2014
1,426,579

 
$
46.00

Granted (1)
470,178

 
34.12

Vested
(305,188
)
 
48.55

Forfeited
(58,400
)
 
45.98

Unvested at May 3, 2014
1,533,169

 
$
41.21


9


(1)  
Number of shares granted includes 158,922 shares related to the grant of restricted stock units with performance vesting conditions in Fiscal 2014. This reflects the target amount granted; however, the number of awards that ultimately are earned will vary from 0% - 200% of target depending on the level of achievement of performance criteria.
The fair value of restricted stock units with performance and/or service vesting conditions is calculated using the market price of the underlying Common Stock on the date of grant reduced for anticipated dividend payments on unvested shares. In determining the fair value, the Company does not take into account any performance-based vesting requirements. The performance-based vesting requirements are taken into account in determining the number of awards expected to vest and the related expense.
Restricted stock units with only service vesting conditions and restricted stock units with fixed performance vesting thresholds without graded vesting features are expensed on a straight-line basis over the total requisite service period, net of forfeitures. Restricted stock units with annually determined vesting thresholds are expensed on a graded vesting basis, net of forfeitures. As of May 3, 2014 , there was $38.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested restricted stock units with performance and/or service conditions. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 17 months .
The total fair value of restricted stock units with service and performance vesting conditions granted during the thirteen-week periods ended May 3, 2014 and May 4, 2013 was $16.0 million and $24.3 million , respectively. The total grant date fair value of restricted stock units with service and performance vesting conditions which vested during the thirteen-week periods ended May 3, 2014 and May 4, 2013 was $14.8 million and $12.5 million , respectively.
The following table summarizes activity for restricted stock units with market vesting conditions for the thirteen weeks ended May 3, 2014 :
 
Number of Underlying
Shares
 
Weighted-Average
Grant Date
Fair Value
Unvested at February 1, 2014
—

 
$
—

Granted (1)
79,458

 
45.02

Vested
—

 
—

Forfeited
—

 
—

Unvested at May 3, 2014
79,458

 
$
45.02

(1)  
Number of shares granted reflects the target amount granted; however, the number of awards that ultimately are earned will vary from 0% - 200% of target depending on market performance.
The fair value of restricted stock units with market vesting conditions is calculated using a Monte Carlo simulation. The weighted-average assumptions used in the Monte Carlo simulation during the thirteen-week periods ended May 3, 2014 , were as follows:
 
Chief Executive Officer
Executives other than CEO
Grant date market price
$
38.50

 
$
38.50

Fair value
$
43.96

 
$
46.86

Assumptions:
 
Price volatility
50
%
 
50
%
Expected term (years)
2.8

 
2.8

Risk-free interest rate
0.8
%
 
0.8
%
Dividend yield
2.1
%
 
2.1
%
Restricted stock units with market vesting conditions without graded vesting features are expensed on a straight-line basis over the requisite service period, net of forfeitures. As of May 3, 2014 , there was $3.6 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested restricted stock units with market vesting conditions. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 14 months .
The total fair value of restricted stock units with market vesting conditions granted during the thirteen-week period ended May 3, 2014 was $3.6 million .
No restricted stock units with market vesting conditions vested during the thirteen-week period ended May 3, 2014 .





10





4. NET INCOME (LOSS) PER SHARE
Net income (loss) per basic and diluted share is computed based on the weighted-average number of outstanding shares of Common Stock.
Weighted-Average Shares Outstanding and Anti-Dilutive Shares (in thousands):
 
Thirteen Weeks Ended
 
May 3, 2014
 
May 4, 2013
Shares of Common Stock issued
103,300

 
103,300

Treasury shares
(28,817
)
 
(24,976
)
Weighted-Average—Basic Shares
74,483

 
78,324

Dilutive effect of share-based compensation awards
—

 
—

Weighted-Average—Diluted Shares
74,483

 
78,324

Anti-Dilutive Shares (1)
11,400

 
11,404

(1)  
Reflects the number of shares subject to outstanding share-based compensation awards but excluded from the computation of net (loss) income per diluted share because the impact would have been anti-dilutive.
On February 27, 2014, A&F entered into an Accelerated Share Repurchase Agreement ("ASR Agreement") with a financial institution in order to repurchase shares of A&F's Common Stock during the term of the ASR Agreement which extended through April 2014. Pursuant to the ASR Agreement, A&F paid $150 million and, in exchange, 3.1 million shares were initially delivered to the Company and accounted for as a reduction to stockholders' equity. The transaction contemplated by the ASR Agreement was completed during the quarter, at which time the Company received 0.7 million additional shares. The total number of shares delivered upon settlement of the ASR Agreement was based upon the volume weighted average price of the Company’s Common Stock over the term of the ASR Agreement, less an agreed discount.

5. CASH AND EQUIVALENTS
Cash and equivalents consisted of (in thousands):
 
 
May 3, 2014
 
February 1, 2014
Cash and equivalents:
 
 
 
Cash
$
357,122

 
$
452,116

Cash equivalents
—

 
148,000

Total cash and equivalents
$
357,122

 
$
600,116

Cash and equivalents include amounts on deposit with financial institutions, United States treasury bills, and other investments, primarily held in money market accounts, with original maturities of less than three months . Any cash that is legally restricted from use is recorded in Other Assets on the Consolidated Balance Sheets. The restricted cash balance was $17.7 million on May 3, 2014 and $26.7 million on February 1, 2014 . Restricted cash includes various cash deposits with international banks that are used as collateral for customary non-debt banking commitments and deposits into trust accounts to conform to standard insurance security requirements.


11



6. RABBI TRUST ASSETS
Investments consisted of (in thousands):
 
May 3, 2014
 
February 1, 2014
Rabbi Trust assets:
 
 
 
Money market funds
24

 
24

Trust-owned life insurance policies (at cash surrender value)
91,005

 
90,198

Total Rabbi Trust assets
91,029

 
90,222

The irrevocable rabbi trust (the “Rabbi Trust”) is intended to be used as a source of funds to match respective funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Chief Executive Officer Supplemental Executive Retirement Plan. The Rabbi Trust assets primarily consist of trust-owned life insurance policies which are recorded at cash surrender value. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in realized gains of $0.8 million for each of the thirteen-week periods ended May 3, 2014 and May 4, 2013 , recorded in Interest Expense, Net on the Consolidated Statements of Operations and Comprehensive Income (Loss).
The Rabbi Trust assets are included in Other Assets on the Consolidated Balance Sheets and are restricted to their use as noted above.


7. FAIR VALUE
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows:
•
Level 1—inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets.
•
Level 2—inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.
•
Level 3—inputs to the valuation methodology are unobservable.
The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets and liabilities, measured at fair value, within it were as follows:
 
Assets and Liabilities at Fair Value as of May 3, 2014
(in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Money market funds
$
24

 
$
—

 
$
—

 
$
24

Derivative financial instruments
—

 
339

 
—

 
339

Total assets measured at fair value
$
24

 
$
339

 
$
—

 
$
363

LIABILITIES:
 
 
 
 
 
 
 
Derivative financial instruments
—

 
5,325

 
—

 
5,325

Total liabilities measured at fair value
$
—

 
$
5,325

 
$
—

 
$
5,325

 
Assets and Liabilities at Fair Value as of February 1, 2014
(in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Money market funds (1)
$
148,024

 
$
—

 
$
—

 
$
148,024

Derivative financial instruments
—

 
969

 
—

 
969

Total assets measured at fair value
$
148,024

 
$
969

 
$
—

 
$
148,993

LIABILITIES:
 
 
 
 
 
 
 
Derivative financial instruments
—

 
2,555

 
—

 
2,555

Total liabilities measured at fair value
$
—

 
$
2,555

 
$
—

 
$
2,555

(1) Includes $148.0 million of money market funds included in Cash and Equivalents.

12


The level 2 assets and liabilities consist of derivative financial instruments, primarily forward foreign currency exchange contracts. The fair value of forward foreign currency exchange contracts is determined by using quoted market prices of the same or similar instruments, adjusted for counterparty risk.
Disclosures of Fair Value of Other Assets and Liabilities:
The Company’s borrowings under its Term Loan Agreement are carried at historical cost in the accompanying Consolidated Balance Sheets. For disclosure purposes, the Company estimates the fair value of borrowings under the Term Loan Agreement using discounted cash flow analysis based on market rates obtained from independent third parties for similar types of debt. The inputs used to value the borrowings under the Term Loan Agreement are considered to be Level 2 instruments. The carrying amount of borrowings outstanding under the Term Loan Agreement was approximately $131.3 million and $135.0 million , as of May 3, 2014 and February 1, 2014 , respectively. The fair value of borrowings outstanding under the Term Loan Agreement was approximately $131.3 million and $135.0 million , as of May 3, 2014 and February 1, 2014 , respectively. See Note 12, “ BORROWINGS, ” for further discussion on the Amended and Restated Credit Agreement and the Term Loan Agreement.


8. INVENTORIES
Inventories are principally valued at the lower of cost or market on a weighted-average cost basis. The Company writes down inventory through a lower of cost or market adjustment, the impact of which is reflected in Cost of Goods Sold on the Consolidated Statements of Operations and Comprehensive Income (Loss). This adjustment is based on management's judgment regarding future demand and market conditions and analysis of historical experience. The lower of cost or market reserve for inventory was $15.5 million and $22.1 million at May 3, 2014 and  February 1, 2014 , respectively.
Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical trends from actual physical inventories are made each period that reduce the inventory value for lost or stolen items. The Company performs physical inventories on a periodic basis and adjusts the shrink reserve accordingly. The shrink reserve was $9.3 million and $13.6 million at May 3, 2014 and February 1, 2014 , respectively.
The inventory balance, net of reserves, was $486.0 million and $530.2 million at May 3, 2014 and  February 1, 2014 , respectively. These balances included inventory in transit balances of $48.1 million and $76.4 million at May 3, 2014 and February 1, 2014 , respectively. Inventory in transit is merchandise considered to be owned by Abercrombie & Fitch that has not yet been received at an Abercrombie & Fitch distribution center.


9. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of (in thousands):
 
May 3, 2014
 
February 1, 2014
Property and equipment, at cost
$
2,888,275

 
$
2,885,712

Accumulated depreciation and amortization
(1,766,498
)
 
(1,754,371
)
Property and equipment, net
$
1,121,777

 
$
1,131,341

Long-lived assets, primarily comprised of property and equipment, are reviewed periodically for impairment or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results, and projected cash flows.
In accordance with Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures,” store-related assets are considered level 3 assets in the fair value hierarchy. Fair values are determined at the store level, primarily using a discounted cash flow model. The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales, gross margin performance and operating expenses. In instances where the discounted cash flow analysis indicates a negative value at the store level, and impairment charges are taken, the market exit price based on historical experience is used to determine the fair value by asset type. Significant unobservable inputs of store-related assets will be disclosed when required due to impairment. There were no impairments during the thirteen-week periods ended May 3, 2014 and May 4, 2013 .

13


In certain lease arrangements, the Company is involved in the construction of the building. If it is determined that the Company has substantially all of the risks of ownership during construction of the leased property and therefore is deemed to be the owner of the construction project, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the pre-existing leased building in Property and Equipment, Net and the related financing obligation in Leasehold Financing Obligations on the Consolidated Balance Sheets. Once construction is complete, if it is determined that the asset does not qualify for sale-leaseback accounting treatment, the Company continues to amortize the obligation over the lease term and depreciates the asset over its useful life. The Company had $53.0 million and $52.3 million of construction project assets in Property and Equipment, Net at May 3, 2014 and February 1, 2014 , respectively.


10. DEFERRED LEASE CREDITS
Deferred lease credits are derived from payments received from landlords to wholly or partially offset store construction costs and are classified between current and long-term liabilities. The amounts, which are amortized over the respective terms of the related leases, consisted of the following (in thousands):
 
May 3, 2014
 
February 1, 2014
Deferred lease credits
$
534,799

 
$
543,040

Amortized deferred lease credits
(364,442
)
 
(366,076
)
Total deferred lease credits, net
$
170,357

 
$
176,964



11. INCOME TAXES
The provision for income taxes is based on the current estimate of the annual effective tax rate adjusted to reflect the impact of discrete items incurred during the period. The effective tax rates for the thirteen weeks ended May 3, 2014 and May 4, 2013 were 29.3% and 53.7% , respectively. The Fiscal 2013 first quarter provision reflects a benefit resulting from the settlement of certain tax audits.
Income taxes paid directly to taxing authorities, net of refunds received, for the thirteen weeks ended May 3, 2014 and May 4, 2013 were approximately $57.1 million and $101.7 million , respectively. These amounts include payments and refunds for income and withholding taxes incurred related to the current year and prior years.


12. BORROWINGS
On July 28, 2011, the Company entered into an unsecured Amended and Restated Credit Agreement, as amended by Amendment No. 1, made as of February 24, 2012, Amendment No. 2, made as of January 23, 2013, and Amendment No. 3, made as of November 4, 2013 (the “Amended and Restated Credit Agreement”) under which up to $350 million is available. As stated in the Amended and Restated Credit Agreement, the primary purposes of the agreement are for trade and stand-by letters of credit in the ordinary course of business, as well as to fund working capital, capital expenditures, acquisitions and investments, and other general corporate purposes, including repurchases of A&F's Common Stock.
The Amended and Restated Credit Agreement has several borrowing options, including interest rates that are based on: (i) a defined Base Rate, plus a margin based on the applicable Leverage Ratio, payable quarterly; (ii) an Adjusted Eurodollar Rate (as defined in the Amended and Restated Credit Agreement) plus a margin based on the applicable Leverage Ratio, payable at the end of the applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of the interest period; or (iii) an Adjusted Foreign Currency Rate (as defined in the Amended and Restated Credit Agreement) plus a margin based on the applicable Leverage Ratio, payable at the end of the applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of the interest period. The Base Rate represents a rate per annum equal to the highest of (a) PNC Bank, National Association’s then publicly announced prime rate, (b) the Federal Funds Open Rate (as defined in the Amended and Restated Credit Agreement) as then in effect plus 1/2 of 1% or (c) the Daily Adjusted Eurodollar Rate (as defined in the Amended and Restated Credit Agreement) as then in effect plus 1% .

14


The facility fees payable under the Amended and Restated Credit Agreement are based on the Company’s Leverage Ratio (i.e., the ratio, on a consolidated basis, of (a) the sum of total debt (excluding specified permitted foreign bank guarantees and trade letters of credit) plus 600% of forward minimum rent commitments to (b) consolidated earnings, as adjusted, before interest, taxes, depreciation, amortization and rent (“Consolidated EBITDAR”) for the trailing four -consecutive-fiscal-quarter periods. The facility fees accrue at a rate of 0.125% to 0.30%  per annum based on the Leverage Ratio for the most recent determination date. The Amended and Restated Credit Agreement requires that the Leverage Ratio not be greater than 3.75 to 1.00 at the end of each testing period. Prior to Amendment No. 3, the Amended and Restated Credit Agreement also required that the “Coverage Ratio” for A&F and its subsidiaries on a consolidated basis of (i) Consolidated EBITDAR for the trailing four -consecutive-fiscal-quarter period to (ii) the sum of, without duplication, (x) net interest expense for such period, (y) scheduled payments of long-term debt due within twelve months of the date of determination and (z) the sum of minimum rent and contingent store rent, not be less than 1.75 to 1.00 . Effective November 4, 2013, the "Coverage Ratio" requirement was amended as discussed more fully below.
The Amended and Restated Credit Agreement will mature on July 27, 2016 . The Company had no trade letters of credit outstanding at May 3, 2014 and February 1, 2014 . Stand-by letters of credit outstanding under the Amended and Restated Credit Agreement were $9.5 million as of May 3, 2014 and insignificant as of February 1, 2014 .
As of May 3, 2014 and February 1, 2014 , the Company had no borrowings outstanding under the Amended and Restated Credit Agreement.
On February 24, 2012, the Company entered into a $300 million Term Loan Agreement. On January 23, 2013, the Company amended both the Term Loan Agreement (via Amendment No. 1) (the "Term Loan Agreement") and the Amended and Restated Credit Agreement (via Amendment No. 2). The required Coverage Ratio in both agreements was lowered to 1.75 to 1.00 and the availability under the Term Loan Agreement was lowered to $150 million . On February 21, 2013, the Company elected to draw down the full $150 million available under the Term Loan Agreement. Repayments of $3.75 million are due on the last day of each quarter beginning May 2013, with the final repayment of $90.0 million due upon maturity at February 23, 2017. The Term Loan Agreement provides two borrowing options: (i) a defined Base Rate, plus a margin based on the applicable Leverage Ratio, payable quarterly; and (ii) an Adjusted Eurodollar Rate (as defined in the Term Loan Agreement) plus a margin based on the applicable Leverage Ratio, payable at the end of the applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of the interest period. Interest on borrowings may be determined under several alternative methods including LIBOR plus a margin based upon the Company’s Leverage Ratio, as defined above.
On November 4, 2013, the Company entered into an Amendment No. 3 to its existing Amended and Restated Credit Agreement and an Amendment No. 2 to its existing Term Loan Agreement. The amendments allow the Company to add back to the calculation of consolidated EBITDAR, for purposes of determining the Company's "Coverage Ratio" and the Company's "Leverage Ratio", up to $60.0 million of non-recurring cash charges associated with the Gilly Hicks restructuring. In addition, the required minimum "Coverage Ratio" was reduced initially for the testing period ended February 1, 2014 and each of the testing periods during the fiscal year ending January 31, 2015, to a level of 1.60 to 1.00 , with such level gradually increasing to 1.75 to 1.00 , by the testing period ending October 31, 2015 and thereafter.
The Company was in compliance with the applicable ratio requirements and other covenants under both agreements at May 3, 2014 .
The Company had $131.3 million and $135.0 million in borrowings outstanding under the Term Loan Agreement as of May 3, 2014 and February 1, 2014 , respectively. The weighted average interest rate for the thirteen-week periods ended May 3, 2014 and May 4, 2013 was 2.07% and 1.85% , respectively.
Total interest expense and fees associated with borrowing agreements were $1.3 million and $1.0 million for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , respectively.
The terms of both the Amended and Restated Credit Agreement and the Term Loan Agreement include customary events of default such as payment defaults, cross-defaults to other material indebtedness, undischarged material judgments, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation and conduct of the business of A&F and its subsidiaries. Upon an event of default: (i) the lenders under the Amended and Restated Credit Agreement will not be obligated to make loans or other extensions of credit and may, among other things, terminate their commitments to the Company; and (ii) the lenders under the Amended and Restated Credit Agreement and the lenders under the Term Loan Agreement may declare any then outstanding loans due and payable immediately.







15


13. LEASEHOLD FINANCING OBLIGATIONS
As of May 3, 2014 and February 1, 2014 , the Company had $61.7 million and $60.7 million , respectively, of long-term liabilities related to leasehold financing obligations. In certain lease arrangements, the Company is deemed to be involved in the construction of the building. If it is determined that the Company has substantially all of the risks of ownership during construction of the leased property and therefore is deemed to be the owner of the construction project, the Company records an asset for the amount of the total project costs and an amount related to the value attributed to the pre-existing leased building in Property and Equipment, Net and the related financing obligation in Leasehold Financing Obligations on the Consolidated Balance Sheets. Once construction is complete, if it is determined that the asset does not qualify for sale-leaseback accounting treatment, the Company continues to amortize the obligation over the lease term and depreciates the asset over its useful life. The Company does not report rent expense for the portion of the rent payment determined to be related to the assets which are determined to be owned for accounting purposes. Rather, that portion of the rental payments under the lease is recognized as a reduction of the financing obligation and interest expense.
Total interest expense related to landlord financing obligations was $1.6 million and $1.7 million for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , respectively.


14. DERIVATIVES
The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivatives, primarily forward contracts, to manage the financial impacts of these exposures. The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.
In order to qualify for hedge accounting treatment, a derivative must be considered highly effective at offsetting changes in either the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument has been, and is expected to continue to be, effective at offsetting changes in fair value or cash flows is assessed and documented at least quarterly. Any hedge ineffectiveness is reported in current period earnings and hedge accounting is discontinued if it is determined that the derivative is not highly effective.
For derivatives that either do not qualify for hedge accounting or are not designated as hedges, all changes in the fair value of the derivative are recognized in earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded as a component of Other Comprehensive Income (Loss) (“OCI”) and recognized in earnings when the hedged cash flows affect earnings. The ineffective portion of the derivative gain or loss, as well as changes in the fair value of the derivative’s time value is recognized in current period earnings. The effectiveness of the hedge is assessed based on changes in the fair value attributable to changes in spot prices. The changes in the fair value of the derivative contract related to the changes in the difference between the spot price and the forward price are excluded from the assessment of hedge effectiveness and are also recognized in current period earnings. If the cash flow hedge relationship is terminated, the derivative gains or losses that are deferred in OCI will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, or a two -month period thereafter, the derivative gains or losses are immediately recognized in earnings.
The Company uses derivative instruments, primarily forward contracts designated as cash flow hedges, to hedge the foreign currency exposure associated with forecasted foreign-currency-denominated inter-company inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated inter-company receivables. Fluctuations in exchange rates will either increase or decrease the Company’s inter-company equivalent cash flows and affect the Company’s U.S. Dollar earnings. Gains or losses on the foreign currency exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign currency exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date. As of May 3, 2014 , the typical length of time over which forecasted foreign-currency-denominated inter-company inventory sales were hedged was 12 months . The sale of the inventory to the Company’s customers will result in the reclassification of related derivative gains and losses that are reported in Accumulated Other Comprehensive Income (Loss). Substantially all of the remaining unrealized gains or losses related to foreign-currency-denominated inter-company inventory sales that have occurred as of May 3, 2014 will be recognized in cost of goods sold over the following two months at the values at the date the inventory was sold to the respective subsidiary.
The Company presents its derivative assets and derivative liabilities at their gross fair values on the Consolidated Balance Sheets. However, our master netting and other similar arrangements allow net settlements under certain conditions.
As of May 3, 2014 , the Company had outstanding the following foreign currency exchange forward contracts that were entered into to hedge either a portion, or all, of forecasted foreign-currency-denominated inter-company inventory sales, the resulting settlement of the foreign-currency-denominated inter-company accounts receivable, or both:

16


 
Notional Amount (1)
Euro
$
98,884

British Pound
$
43,641

Canadian Dollar
$
14,079

(1)  
Amounts are reported in thousands and in U.S. Dollar equivalent as of May 3, 2014 .
The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities. Examples of monetary assets/liabilities include cash balances, receivables and payables. Fluctuations in exchange rates result in transaction gains/(losses) being recorded in earnings as U.S. GAAP requires that monetary assets/liabilities be remeasured at the spot exchange rate at quarter-end or upon settlement. The Company has chosen not to apply hedge accounting to these instruments because there are no differences in the timing of gain or loss recognition on the hedging instrument and the hedged item.
As of May 3, 2014 , the Company had outstanding the following foreign currency forward contracts that were entered into to hedge foreign currency denominated net monetary assets/liabilities:
 
Notional Amount (1)
Euro
$
13,794

Swiss Franc
$
3,389

(1)  
Amounts are reported in thousands and in U.S. Dollar equivalent as of May 3, 2014 .
The location and amounts of derivative fair values on the Consolidated Balance Sheets as of May 3, 2014 and February 1, 2014 were as follows:
 
 
 
Asset Derivatives
 
 
 
Liability Derivatives
(in thousands):
Balance Sheet Location
 
May 3,
2014
 
February 1,
2014
 
Balance Sheet Location
 
May 3,
2014
 
February 1,
2014
Derivatives Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
Foreign Currency Exchange Forward Contracts
Other Current Assets
 
$
310

 
$
691

 
Other Liabilities
 
$
5,246

 
$
2,503

Derivatives Not Designated as Hedging Instruments:
 
 
 
 
 
 
 
 
 
 
Foreign Currency Exchange Forward Contracts
Other Current Assets
 
$
29

 
$
278

 
Other Liabilities
 
$
79

 
$
52

Total
Other Current Assets
 
$
339

 
$
969

 
Other Liabilities
 
$
5,325

 
$
2,555

Refer to Note 7, “ FAIR VALUE, ” for further discussion of the determination of the fair value of derivatives.
The location and amounts of derivative gains and losses for the thirteen-week periods ended May 3, 2014 and May 4, 2013 on the Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:
 
 
 
Thirteen Weeks Ended
 
 
 
May 3, 2014
 
May 4, 2013
(in thousands):
Location
 
Gain/(Loss)
 
Gain/(Loss)
Derivatives not designated as Hedging Instruments:
 
 
 
 
Foreign Exchange Forward Contracts
Other Operating (Income) Expense, Net
 
$
688

 
$
1,304

 
 
Amount of Gain (Loss) Recognized in OCI on Derivative Contracts (Effective Portion) (a)
 
Location of Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion)
 
Amount of Gain (Loss) Reclassified from Accumulated OCI into Earnings (Effective Portion) (b)
 
Location of Gain (Loss) Recognized in Earnings on Derivative Contracts (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Amount of Gain  (Loss) Recognized in Earnings on Derivative Contracts (Ineffective Portion  and Amount Excluded from Effectiveness Testing) (c)
 
Thirteen Weeks Ended
(in thousands):
May 3,
2014
 
May 4,
2013
 
 
 
May 3,
2014
 
May 4,
2013
 
 
 
May 3,
2014
 
May 4,
2013
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
Foreign Currency Exchange Forward Contracts
$
(5,025
)
 
$
9,769

 
Cost of Goods Sold
 
$
(1,434
)
 
$
(729
)
 
Other Operating (Income) Expense, Net
 
$
3

 
$
97


17


(a)
The amount represents the change in fair value of derivative contracts due to changes in spot rates.
(b)
The amount represents the reclassification from OCI into earnings when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers.
(c)
The amount represents the change in fair value of derivative contracts due to changes in the difference between the spot price and forward price that is excluded from the assessment of hedge effectiveness and, therefore, recognized in earnings.


15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The activity in accumulated other comprehensive income (loss), for the thirteen weeks ended May 3, 2014 is as follows (in thousands):
 
Thirteen Weeks Ended May 3, 2014
 
Derivative Financial Instruments
 
Foreign Currency Translation
 
Total
Beginning balance at February 1, 2014
$
(2,166
)
 
$
(18,751
)
 
$
(20,917
)
     Other comprehensive income (loss) before reclassifications
(5,025
)
 
14,866

 
9,841

     Reclassified from accumulated other comprehensive income (loss) (1)
1,434

 
—

 
1,434

Tax effect on derivative financial instruments
462

 
—

 
462

Net current-period other comprehensive income (loss)
$
(3,129
)
 
$
14,866

 
$
11,737

Ending balance at May 3, 2014
$
(5,295
)
 
$
(3,885
)
 
$
(9,180
)

(1) For the thirteen weeks ended May 3, 2014 , the gain or loss was reclassified from Other Comprehensive Income (Loss) to the Cost of Goods Sold line item on the Consolidated Statement of Operations and Comprehensive Income (Loss).
The activity in accumulated other comprehensive income (loss), for the thirteen weeks ended May 4, 2013 is as follows (in thousands):
 
Thirteen Weeks Ended May 4, 2013
 
Derivative Financial Instruments
 
Foreign Currency Translation
 
Total
Beginning balance at February 2, 2013
$
(7,220
)
 
$
(6,068
)
 
$
(13,288
)
     Other comprehensive income (loss) before reclassifications
8,825

 
(17,260
)
 
(8,435
)
    Reclassified from accumulated other comprehensive income (loss), net of tax (1)
670

 
—

 
670

Net current-period other comprehensive income (loss)
$
9,495

 
$
(17,260
)
 
$
(7,765
)
Ending balance at May 4, 2013
$
2,275

 
$
(23,328
)
 
$
(21,053
)

(1) For the thirteen weeks ended May 4, 2013 , the gain or loss was reclassified from Other Comprehensive Income (Loss) to the Cost of Goods Sold line item on the Consolidated Statement of Operations and Comprehensive Income (Loss).

The tax effect on derivative financial instruments was a $0.5 million benefit and $1.0 million in expense for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , respectively, and is included in Unrealized Gain (Loss) on Derivative Financial Instruments, net of taxes in the Consolidated Statements of Comprehensive Income.

18



16. GILLY HICKS RESTRUCTURING
As previously announced, on November 1, 2013, A&F’s Board of Directors approved the closure of the Company’s 24 stand-alone Gilly Hicks stores. The Company substantially completed the store closures as planned by the end of the first quarter of Fiscal 2014. The Company continues to offer Gilly Hicks products through Hollister stores and direct-to-consumer channels.

As a result of exiting the Gilly Hicks branded stores, the Company currently estimates that it will incur aggregate pre-tax charges of approximately $89 million , of which $5.6 million of charges, primarily related to lease terminations, was recognized during the first quarter of Fiscal 2014.

Below is a summary of the aggregate pre-tax charges incurred from the announcement on November 1, 2013 through May 3, 2014 related to the closure of the Gilly Hicks branded stores (in thousands):

Lease Terminations and Store Closure Costs
$
47,895

Asset Impairment
37,940

Other
1,297

Total Charges (1)
$
87,132

(1) As of May 3, 2014, the Company incurred aggregate pre-tax charges related to restructuring plans for the Gilly Hicks brand of $49.6 million for the U.S. Stores segment and $37.5 million for the International Stores segment.


The remaining charges, primarily lease-related, including the net present value of payments related to lease terminations, potential sub-lease losses and other lease-related costs of approximately $1.9 million , are expected to be recognized over the remaining lease terms. These estimates are based on a number of significant assumptions and could change materially.

Costs associated with exit or disposal activities are recorded when the liability is incurred. Below is a roll forward of the liabilities recognized on the Consolidated Balance Sheet as of May 3, 2014, related to the closure of the Gilly Hicks stores (in thousands): 
Accrued Liability as of February 1, 2014
$
42,507

Costs Incurred, Excluding Non-Cash Charges
10,757

Cash Payments
(39,142
)
Accrued Liability as of May 3, 2014
$
14,122



17. CONTINGENCIES
A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. Legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes reserves for the outcome of litigation where it deems appropriate to do so under applicable accounting rules. The Company’s assessment of the current exposure could change in the event of the discovery of additional facts with respect to legal matters pending against the Company or determinations by judges, juries, administrative agencies or other finders of fact that are not in accordance with the Company’s evaluation of claims. Actual liabilities may exceed the amounts reserved, and there can be no assurance that final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company has established accruals for certain matters where losses are deemed probable and reasonably estimable. There are other claims and legal proceedings pending against the Company for which accruals have not been established.


18. RECENT ACCOUNTING PRONOUNCEMENTS
In July 2013, the Financial Accounting Standards Board ("FASB") issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which amends ASC 740, “Income Taxes.” The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption did not have an impact on the Company's consolidated financial statements.

19


In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the new standard.


Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Abercrombie & Fitch Co.:

We have reviewed the accompanying consolidated balance sheet of Abercrombie & Fitch Co. as of May 3, 2014, and the related consolidated statements of operations and comprehensive income (loss) for the thirteen-week periods ended May 3, 2014 and May 4, 2013 and the consolidated statements of cash flows for the thirteen week periods ended May 3, 2014 and May 4, 2013. These interim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of February 1, 2014, and the related consolidated statements of operation and comprehensive income, of stockholders’ equity, and of cash flows for the year then ended (not presented herein), and in our report dated March 31, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of February 1, 2014, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
June 9, 2014


20


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW
The Company is a specialty retailer that operates stores in North America, Europe, Asia and Australia and direct-to-consumer operations in North America and Europe that service its brands throughout the world. The Company sells casual sportswear apparel, including knit tops and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, and outerwear; personal care products; and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids and Hollister brands. The Company also sells bras, underwear, personal care products, sleepwear and at-home products for girls through direct-to-consumer operations and Hollister stores under the Gilly Hicks brand.

The modern Abercrombie & Fitch is the next generation of effortless All-American style. The essence of laidback sophistication with an element of simplicity, A&F sets the standard for great taste. From classic campus experiences to collecting moments while traveling, A&F brings stories of adventure and discovery to life. Confident and engaging, the Abercrombie & Fitch legacy is rooted in a heritage of quality craftsmanship and focused on a future of creative ambition. abercrombie kids is the next generation of All-American cool. The essence of fun and friendship, a&f kids celebrates each moment by sharing its effortless great taste with the world. From documenting school spirit days and team sports to traveling abroad and experiencing new cultures, a&f kids tells stories filled with youthful excitement and a touch of mischief. Confident and independent, abercrombie kids stands for quality, on-trend style, and creative imagination. Each day brings a new discovery, a chance for adventure, and the opportunity to make history. Hollister is the fantasy of Southern California. Inspired by beautiful beaches, open blue skies, and sunshine, Hollister lives the dream of an endless summer. Spontaneous, with a bit of edge and a sense of humor, it never takes itself too seriously. Hollister’s laidback lifestyle is naturally infused with authentic surf and skate culture, making every design effortlessly cool and totally accessible. Hollister brings Southern California to the world.
The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2014” represent the 52-week fiscal year that will end on January 31, 2015, and to “Fiscal 2013” represent the 52-week fiscal year that ended February 1, 2014.


RESULTS OF OPERATIONS
During the first quarter of Fiscal 2014, net sales decreased 2% to $822.4 million from $838.8 million for the first quarter of Fiscal 2013. The gross profit rate for the first quarter of Fiscal 2014 was 62.2% compared to 65.9% for the first quarter of Fiscal 2013. The operating loss was $31.5 million for the first quarter of Fiscal 2014 compared to an operating loss of $13.9 million for the first quarter of Fiscal 2013. The Company had a net loss of $23.7 million and net loss per basic and diluted share of $0.32 for the first quarter of Fiscal 2014 compared to a net loss of $7.2 million and net loss per basic and diluted share of $0.09 for the first quarter of Fiscal 2013.
Excluding charges related to the Gilly Hicks brand restructuring, the Company's profit improvement initiative, and legal, advisory and other charges related to certain corporate governance matters, the Company reported an adjusted non-GAAP net loss of $13.0 million and net loss per basic and diluted share of $0.17 for the quarter.

21
Table of Contents



The Company believes that the non-GAAP financial measures are useful to investors as they provide the ability to measure the Company’s operating performance and compare it against that of prior periods without reference to the impact of charges related to the Gilly Hicks brand restructuring, the Company's profit improvement initiative, and legal, advisory and other charges related to certain corporate governance matters. These non-GAAP financial measures should not be used as alternatives to net loss and net loss per basic and diluted share or as indicators of the ongoing operating performance of the Company and are also not intended to supersede or replace the Company’s GAAP financial measures. The table below reconciles the GAAP financial measures to the non-GAAP financial measures discussed above for the thirteen-week period ended May 3, 2014 .
 
 
Thirteen Weeks Ended May 3, 2014
(in thousands)
 
Operating Income (Loss)
 
Net Income (Loss)
 
Net Income (Loss) per Basic and Diluted Share
 
 
 
 
 
 
 
GAAP
 
$
(31,506
)

$
(23,671
)

$
(0.32
)
Excluded Charges  (1)
 
15,598

 
10,692


0.15

Non-GAAP

$
(15,908
)

$
(12,979
)

$
(0.17
)
 
 
 
 
 
 
 
(1) Excluded charges for the first quarter include $5.6 million in pre-tax charges related to restructuring of the Gilly Hicks brand, $3.1 million in pre-tax charges related to the Company's profit improvement initiative and $6.9 million in pre-tax charges for legal, advisory and other charges related to certain corporate governance matters.

As of May 3, 2014 , the Company had $357.1 million in cash and equivalents and $131.3 million in borrowings outstanding under the Term Loan Agreement. Net cash used for operating activities was $40.1 million for the thirteen weeks ended May 3, 2014 primarily related to inventory and income taxes. The Company also used cash of $37.8 million for capital expenditures, $150.0 million to repurchase approximately 3.8 million shares of A&F’s Common Stock and $14.7 million for dividends paid during the thirteen weeks ended May 3, 2014 .
Due to the seasonal nature of the retail apparel industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year. The seasonality of the Company’s operations may also lead to significant fluctuations in certain asset and liability accounts.
The following data represents the amounts shown in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , expressed as a percentage of net sales:
 
 
Thirteen Weeks Ended
 
May 3, 2014
 
May 4, 2013
NET SALES
100.0
 %
 
100.0
 %
Cost of Goods Sold
37.8
 %
 
34.1
 %
GROSS PROFIT
62.2
 %
 
65.9
 %
Stores and Distribution Expense
50.8
 %
 
53.5
 %
Marketing, General and Administrative Expense
15.0
 %
 
14.2
 %
Restructuring Charges
0.7
 %
 
—
 %
Other Operating Income, Net
(0.4
)%
 
(0.1
)%
OPERATING INCOME (LOSS)
(3.8
)%
 
(1.7
)%
Interest Expense, Net
0.2
 %
 
0.2
 %
INCOME (LOSS) BEFORE TAXES
(4.1
)%
 
(1.9
)%
Tax Expense (Benefit)
(1.2
)%
 
(1.0
)%
NET INCOME (LOSS)
(2.9
)%
 
(0.9
)%




22
Table of Contents


Financial Summary
The following summarized financial and statistical data compare the thirteen-week period ended May 3, 2014 to the thirteen-week period ended May 4, 2013 :
 
 
Thirteen Weeks Ended
 
May 3, 2014
 
May 4, 2013
Net sales by segment (millions)
$
822.4

 
$
838.8

U.S. Stores
$
399.1

 
$
448.6

International Stores
$
252.9

 
$
257.5

Direct-to-Consumer
$
170.4

 
$
132.7

Net sales as a % of total sales
 
 
 
U.S. Stores
48
 %
 
53
 %
International Stores
31
 %
 
31
 %
Direct-to-Consumer
21
 %
 
16
 %
Net sales by brand (millions)
$
822.4

 
$
838.8

Abercrombie & Fitch
$
317.8

 
$
325.0

abercrombie
$
68.5

 
$
73.0

Hollister
$
421.6

 
$
421.2

Gilly Hicks**
$
14.5

 
$
19.6

Increase (decrease) in comparable sales*
(4
)%
 
(15
)%
Abercrombie & Fitch
(1
)%
 
(13
)%
abercrombie
(6
)%
 
(5
)%
Hollister
(7
)%
 
(18
)%
Increase (decrease) in comparable sales by geography*
 
 
 
U.S.
(4
)%
 
(14
)%
International
(5
)%
 
(16
)%
Increase (decrease) in comparable sales by channel*
 
 
 
Total Stores
(11
)%
 
(17
)%
Direct-to-Consumer
27
 %
 
(6
)%
*
A store is included in comparable sales when it has been open as the same brand 12 months or more and its square footage has not been expanded or reduced by more than 20% within the past year. Comparable sales include comparable direct-to-consumer sales.
**
Net sales reflects the activity of stores open during the period and direct-to-consumer sales.

23
Table of Contents



CURRENT TRENDS AND OUTLOOK

In what remains a difficult teen retail environment, earnings for the quarter were in line with expectations. Overall sales for the quarter decreased 2%, which included strong growth in the direct-to-consumer business, and comparable sales continued to improve sequentially.

Our focus remains on executing the various components of our long-range plan.

First, we continue to make progress in evolving our assortment, improving our test and reaction capabilities, and increasing style differentiation, the objective of which is to improve productivity and margins by being more fashion-right.

Second, we are increasing brand engagement through enhanced marketing initiatives and campaigns. In May we opened Hollister House, a key part of our new Hollister marketing campaign. Hollister House is a beach house in Southern California that will be used to create digital marketing content including music performances, guest celebrities and stylist videos, to be shared across multiple social media platforms.

Beyond marketing campaigns, we plan to increase brand engagement through investments in our stores and in our on-line experience, which includes our now planned roll-out expansion of the new Hollister storefront to 75 to 100 stores by fiscal year-end.

Third, our profit improvement initiative remains on track to generate at least $175 million in savings and we believe the next big area of opportunity lies in lowering our merchandise average unit cost. Our average unit cost is expected to be down in the back half of the year, and we see additional opportunity as we move forward, particularly for Hollister.

Fourth, we are making good progress in ensuring we are properly organized to execute our strategic plan. We have completed the vertical organization structure by brand for most of our categories in design, merchandising and planning in anticipation of the hiring of the brand presidents. We believe these actions will support a number of key objectives including increased brand differentiation and accountability.

Finally, turning to omnichannel, we have made progress on several core initiatives, including our planned roll-out of order-in-store capabilities to all U.S. stores during the third quarter of this year. In addition, we plan to pilot ship-from-store during the third quarter, with a broader roll-out planned for approximately half of the U.S. store fleet in the fourth quarter. Beyond this, we are working to develop other omnichannel capabilities, including reserve-in-store and in-store-pickup.

We remain highly focused on returning to growth, and believe we are taking the right steps and are on course to accomplish that goal. Longer term, we are confident that the strategic choices we are making - investing in key international growth markets, investing in our international DTC business, restructuring and repositioning our U.S. store fleet, restructuring our cost base, and making key organizational changes - will position us to drive significant improvement in our results and increase shareholder value.

With regard to our earnings outlook for the rest of 2014, we are maintaining our adjusted non-GAAP guidance of full year diluted earnings per share in the range of $2.15 to $2.35. This now includes the effect of the first quarter accelerated share repurchase, which offsets the assumption of a somewhat more difficult operating environment. The guidance is based on the assumption that full year total comparable sales will be in the range of down three to four percent. The guidance also assumes a gross margin rate for the full year that is down slightly compared to Fiscal 2013.

The Company anticipates a full year tax rate of approximately 35%, and a weighted average share count of approximately 74.5 million shares. The guidance does not include the effect of variability in the tax rate and the effect of additional share repurchases.

The above guidance does not include charges related to the Gilly Hicks restructuring, the Company's profit improvement initiative, certain corporate governance matters, or other impairment and store closure charges.



24
Table of Contents



FIRST QUARTER RESULTS
Net Sales
Net sales for the first quarter of Fiscal 2014 were $822.4 million , a decrease of 2% from net sales of $838.8 million during the first quarter of Fiscal 2013 . The net sales decrease was primarily attributable to a 4% decrease in total comparable sales. Including direct-to-consumer, U.S. sales decreased 6% to $504.4 million and international sales increased 5% to $318.0 million . The impact of changes in foreign currency benefited sales by approximately $11.8 million for the thirteen weeks ended May 3, 2014 (based on converting prior year sales at current year exchange rates).
By brand, comparable sales for the first quarter of Fiscal 2014, including direct-to-consumer, were as follows: Abercrombie & Fitch decreased 1% , abercrombie kids decreased 6% and Hollister decreased 7% . Across the brands, male and female performed comparably.
Total comparable sales for the quarter, including direct-to-consumer sales, decreased 4% with comparable U.S. sales decreasing 4% and comparable international sales decreasing 5%. Comparable sales were weaker in February compared to the combined March and April period.
Direct-to-consumer sales, including shipping and handling revenue, for the first quarter of Fiscal 2014 were $170.4 million , an increase of 28% from Fiscal 2013 first quarter direct-to-consumer sales of $132.7 million . The direct-to-consumer sales increase was driven by increases in both our domestic and international businesses. The direct-to-consumer business, including shipping and handling revenue, accounted for 20.7% of total net sales in the first quarter of Fiscal 2014 compared to 15.8% in the first quarter of Fiscal 2013.
Gross Profit
Gross profit for the first quarter of Fiscal 2014 was $511.7 million compared to $553.2 million for the comparable period in Fiscal 2013. The gross profit rate (gross profit divided by net sales) for the first quarter of Fiscal 2014 was 62.2% , down 370 basis points from the first quarter of Fiscal 2013 rate of 65.9% .
The decrease in the gross profit rate for the first quarter was primarily driven by increased promotional activity, including shipping promotions in the direct-to-consumer business, and a higher sales mix of fall clearance merchandise.
Stores and Distribution Expense
Stores and distribution expense for the first quarter was $417.6 million , down from $449.1 million for the comparable period in Fiscal 2013. The stores and distribution expense rate for the quarter was 50.8% of net sales, down 280 basis points from last year, driven primarily by savings in store payroll partially offset by higher direct-to-consumer expense and $0.8 million of charges related to the profit improvement initiative.
Shipping and handling costs, including costs incurred to store, move and prepare the products for shipment and costs incurred to physically move the product to the customer, associated with direct-to-consumer operations were $21.6 million for the thirteen weeks ended May 3, 2014 compared to $14.8 million for the thirteen weeks ended May 4, 2013 . These amounts are included in Stores and Distribution Expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Handling costs, including costs incurred to store, move and prepare the products for shipment to stores, were $13.1 million for the thirteen weeks ended May 3, 2014 compared to $11.6 million for the thirteen weeks ended May 4, 2013 . These amounts are included in Stores and Distribution Expense on the Consolidated Statements of Operations and Comprehensive Income (Loss).
Marketing, General and Administrative Expense
Marketing, general and administrative expense during the first quarter of Fiscal 2014 was $123.6 million compared to $118.8 million during the same period in Fiscal 2013. Marketing, general and administrative expense for the first quarter of Fiscal 2014 included $2.3 million of charges related to the profit improvement initiative and $6.9 million of charges related to certain corporate governance matters. Excluding these charges, marketing, general and administrative expense was $114.4 million, a decrease of 4% from last year. The decrease in marketing, general and administrative expense was driven primarily by a decrease in compensation expense, partially offset by an increase in marketing expense.
Other Operating Income, Net
First quarter other operating income, net for Fiscal 2014 was $3.6 million compared to other operating income, net, of $0.8 million for the first quarter of Fiscal 2013. Other operating income, net included insurance recoveries of approximately $3.1 million in the first quarter of Fiscal 2014.

25
Table of Contents


Operating Loss
Operating loss for the first quarter of Fiscal 2014 was $31.5 million , compared to an operating loss of $13.9 million during the first quarter of Fiscal 2013. Excluding aggregate charges of $15.6 million related to restructuring of the Gilly Hicks brand, the Company's profit improvement initiative and charges related to the certain corporate governance matters, the operating loss was $15.9 million for the first quarter of Fiscal 2014.
Interest Expense, Net and Tax Expense (Benefit)
First quarter interest expense was $3.0 million in Fiscal 2014, offset by interest income of $1.0 million , compared to interest expense of $2.7 million , offset by interest income of $1.1 million in the first quarter of Fiscal 2013.
The effective tax rate for continuing operations for the thirteen weeks ended May 3, 2014 was 29.3% . Excluding the effect of charges related to restructuring plans for the Gilly Hicks brand, the Company's profit improvement initiative and certain corporate governance matters, the tax rate was 27.5% compared to 53.7% for the Fiscal 2013 comparable period.
The first quarter Fiscal 2013 effective tax rate reflects a benefit in the effective tax rate primarily as a result of favorable audit settlements recorded on a discrete basis for the thirteen weeks ended May 4, 2013 . The Company expects the full year rate to be in the mid to low 30's; with the rate remaining sensitive to the U.S./international profit mix. For the purposes of its full year earnings per share guidance, the Company has assumed a mid-30's rate.
As of May 3, 2014 , there were approximately $16.3 million of net deferred tax assets in Japan. The realization of the net deferred tax assets is dependent upon the future generation of sufficient taxable profits in Japan. While the Company believes it is more likely than not that the net deferred tax assets will be realized, it is not certain. Should circumstances change, the net deferred tax assets may become subject to a valuation allowance in the future. Additional valuation allowances would result in additional tax expense.
Net Loss and Net Loss per Share
Net loss for the first quarter of Fiscal 2014 was $23.7 million compared to net loss of $7.2 million for the first quarter of Fiscal 2013. Net loss per basic and diluted share for the first quarter of Fiscal 2014 was $0.32 compared to net loss per basic and diluted share of $0.09 for the first quarter of Fiscal 2013. Excluding charges related to the Gilly Hicks brand restructuring, the Company's profit improvement initiative, and certain corporate governance matters, the Company reported an adjusted non-GAAP net loss of $13.0 million and net loss per basic and diluted share of $0.17 for the quarter.

FINANCIAL CONDITION
Liquidity and Capital Resources
Historical Sources and Uses of Cash
Seasonality of Cash Flows
The Company’s business has two principal selling seasons: the Spring season which includes the first and second fiscal quarters (“Spring”) and the Fall season which includes the third and fourth fiscal quarters ("Fall"). As is typical in the apparel industry, the Company experiences its greatest sales activity during the Fall season due to Back-to-School and Holiday sales periods, particularly in the U.S. The Company relies on excess operating cash flows, which are largely generated in the Fall season, to fund operating expenses throughout the year and to reinvest in the business to support future growth. The Company also has a revolving credit facility available as a source of additional funding.
Credit Agreements
On July 28, 2011, the Company entered into an unsecured amended and restated credit agreement (the “Amended and Restated Credit Agreement”) under which up to $350 million is available. The Company had no borrowings outstanding under the Amended and Restated Credit Agreement on May 3, 2014 or February 1, 2014 .
On February 24, 2012, the Company entered into a $300 million Term Loan Agreement. On January 23, 2013, the Company amended both the Amended and Restated Credit Agreement and Term Loan Agreement to reduce the amount available for borrowing under the Term Loan Agreement to $150 million and lower the applicable Coverage Ratio to 1.75 to 1.00 . On February 21, 2013, the Company elected to draw down the full $150 million available under the Term Loan Agreement. Repayments of $3.75 million are due on the last day of each quarter beginning May 2013, with the final repayment of $90.0 million due upon maturity at February 23, 2017. On November 4, 2013, the Company entered into an Amendment No. 3 to its existing Amended and Restated Credit Agreement and an Amendment No. 2 to its existing Term Loan Agreement. The amendments allow the Company to add

26
Table of Contents


back to the calculation of consolidated EBITDAR, for purposes of determining the Company's "Coverage Ratio" and the Company's "Leverage Ratio", up to $60 million of non-recurring cash charges associated with the Gilly Hicks restructuring. In addition, the required minimum "Coverage Ratio" was reduced initially for the testing period ended February 1, 2014 and each of the testing periods during the fiscal year ending January 31, 2015, to a level of 1.60 to 1.00 , with such level gradually increasing to 1.75 to 1.00 , for the testing period ending October 31, 2015 and thereafter. The Company had $131.3 million in borrowings outstanding under the Term Loan Agreement on May 3, 2014 and $135.0 million borrowings outstanding under the Term Loan Agreement as of February 1, 2014 .
The Amended and Restated Credit Agreement and the Term Loan Agreement, including material covenants which apply to each, are described in Note 12, “ BORROWINGS ” of the Notes to Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS,” of this Quarterly Report on Form 10-Q.
The Amended and Restated Credit Agreement and the Term Loan Agreement have a Leverage Ratio covenant and a Coverage Ratio financial covenant. The Company was in compliance with the applicable ratio requirements and other covenants at May 3, 2014 .
Stand-by letters of credit outstanding under the Amended and Restated Credit Agreement were $9.5 million and insignificant on May 3, 2014 and February 1, 2014 , respectively.
Operating Activities
Net cash used for operating activities was $40.1 million for the thirteen weeks ended May 3, 2014 compared to net cash used for operating activities of $143.6 million for the thirteen weeks ended May 4, 2013 . The change in cash flow associated with operating activities was primarily related to inventory and income taxes. Inventory increased 6% from $458.6 million in the first quarter of Fiscal 2013 to $486.0 million at the end of the first quarter of Fiscal 2014.
Investing Activities
Cash outflows for investing activities for the thirteen-week periods ended May 3, 2014 and May 4, 2013 were used primarily for capital expenditures related to new store construction and information technology, including direct-to-consumer investments. In addition, capital expenditures for the thirteen-week periods ended May 3, 2014 included supply chain initiatives.
Financing Activities
For the thirteen-week periods ended May 3, 2014 and May 4, 2013 , cash outflows for financing activities consisted primarily of the repurchase of A&F’s Common Stock, the payment of dividends and the repayment of borrowings. For the period ended May 4, 2013 , cash inflows from financing activities consisted primarily of proceeds from borrowings.
During the thirteen weeks ended May 3, 2014 , A&F repurchased 3,825,696 shares of A&F’s Common Stock as an aggregate cost of $150.0 million through an accelerated share repurchase agreement. During the thirteen weeks ended May 4, 2013 , A&F repurchased approximately 350,000 shares of A&F’s Common Stock in the open market with a market value of approximately $16.3 million . Repurchases of A&F’s Common Stock were made pursuant to the A&F Board of Directors authorizations.
As of May 3, 2014 , A&F had approximately 12.5 million remaining shares available for repurchase as part of the A&F Board of Directors’ previously approved authorizations.
Future Cash Requirements and Sources of Cash
Over the next twelve months, the Company’s primary cash requirements will be to fund operating activities, including the acquisition of inventory, and obligations related to compensation, leases, taxes and other operating activities, as well as to fund capital expenditures and quarterly dividends to stockholders subject to approval by the Company's Board of Directors. The Company has availability under the Amended and Restated Credit Agreement as a source of additional funding.
Subject to suitable market conditions and available liquidity, A&F expects to continue to repurchase shares of its Common Stock. The Company anticipates funding these cash requirements utilizing free cash flow generated from operations and existing or additional credit facilities.
The Company is not dependent on dividends from its foreign subsidiaries to fund its U.S. operations or make distributions to A&F's stockholders. Unremitted earnings from foreign subsidiaries, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends or were lent to A&F or a U.S. affiliate. Although the Company has no intent to repatriate cash held in Europe and Asia, the Company has the ability to repatriate current Europe and Asia cash balances without the occurrence of a taxable dividend in the United States.


27
Table of Contents


Off-Balance Sheet Arrangements
As of May 3, 2014 , the Company did not have any off-balance sheet arrangements.
Contractual Obligations
The Company’s contractual obligations consist primarily of operating leases, purchase orders for merchandise inventory, unrecognized tax benefits, certain retirement obligations, lease deposits and other agreements to purchase goods and services that are legally binding and that require minimum quantities to be purchased. These contractual obligations impact the Company’s short- and long-term liquidity and capital resource needs. During the thirteen weeks ended May 3, 2014 , there were no material changes in the contractual obligations as of February 1, 2014 , with the exception of those obligations which occurred in the normal course of business (primarily changes in the Company’s merchandise inventory-related purchases and lease obligations, which fluctuate throughout the year as a result of the seasonal nature of the Company’s operations) and the repayments under the Term Loan Agreement.
Gilly Hicks Restructuring
As previously announced, on November 1, 2013, A&F’s Board of Directors approved the closure of the Company’s stand-alone Gilly Hicks stores. The Company substantially completed the store closures as planned by the end of the first quarter of Fiscal 2014. The Company continues to offer Gilly Hicks products through Hollister stores and direct-to-consumer channels.

As a result of exiting the Gilly Hicks branded stores, the Company currently estimates that it will incur aggregate pre-tax charges of approximately $ 89.0 million , of which $5.6 million, primarily related to lease terminations, was recognized during the first quarter of Fiscal 2014.

Below is a summary of the aggregate pre-tax charges incurred from the announcement on November 1, 2013 through May 3, 2014 related to the closure of the Gilly Hicks branded stores (in thousands):

Lease Terminations and Store Closure Costs
$
47,895

Asset Impairment
37,940

Other
1,297

Total Charges (1)
$
87,132

(1) As of May 3, 2014, the Company incurred aggregate pre-tax charges related to restructuring plans for the Gilly Hicks brand of $49.6 million for the U.S. Stores segment and $37.5 million for the International Stores segment.


The remaining charges, primarily lease-related, including the net present value of payments related to lease terminations, potential sub-lease losses and other lease-related costs of approximately $1.9 million , are expected to be recognized over the remaining lease terms. These estimates are based on a number of significant assumptions and could change materially.

Costs associated with exit or disposal activities are recorded when the liability is incurred. Below is a roll forward of the liabilities recognized on the Consolidated Balance Sheet as of May 3, 2014, related to the closure of the Gilly Hicks stores (in thousands): 

Accrued Liability as of February 1, 2014
$
42,507

Costs Incurred, Excluding Non-Cash Charges
10,757

Cash Payments
(39,142
)
Accrued Liability as of May 3, 2014
$
14,122



Store Activity
During the first quarter ended May 3, 2014 , the Company opened an Abercrombie & Fitch flagship store in Shanghai.
The Company anticipates opening approximately 15 full-price international stores throughout Fiscal 2014, including a small number of Abercrombie & Fitch international mall-based stores. The Company also now plans to open approximately 8 to 10

28
Table of Contents


international and U.S. outlet stores during the fiscal year. In addition, the Company continues to expect to close approximately 60 to 70 stores in the U.S. during the fiscal year through natural lease expirations.
The Company now expects total capital expenditures for Fiscal 2014 to be approximately $210 to $220 million. The increase from prior guidance includes additional capital expenditures related to an expanded roll-out of the new Hollister storefront that the Company has been testing since January of this year. The Company now anticipates that this new storefront will be rolled out in 75 to 100 stores by the end of the current fiscal year. Capital expenditures totaled $37.8 million and $42.4 million for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , respectively. Capital expenditures in Fiscal 2014 continue to be prioritized towards DTC and IT investments to support growth initiatives, and capital expenditures related to new international store openings is prioritized towards key growth markets of Japan, China and the Middle East.
During the thirteen weeks ended May 3, 2014, the Company closed 4 U.S. and 7 international Gilly Hicks stores.
First Quarter Store Count and Gross Square Feet
Store count and gross square footage by brand for the thirteen-week periods ended May 3, 2014 and May 4, 2013 , respectively, were as follows:
Store Activity
Abercrombie & Fitch
 
abercrombie
 
Hollister
 
Gilly Hicks
 
Total
U.S. Stores
 
 
 
 
 
 
 
 
 
February 1, 2014
253

 
131

 
458

 
1

 
843

New
—

 
1

 
1

 
—

 
2

Closed
—

 
(1
)
 
(3
)
 
—

 
(4
)
May 3, 2014
253

 
131

 
456

 
1

 
841

Gross Square Feet at May 3, 2014
2,256

 
635

 
3,145

 
5

 
6,041

International Stores
 
 
 
 
 
 
 
 
 
February 1, 2014
22

 
5

 
129

 
7

 
163

New
1

 
—

 
—

 
—

 
1

Closed
—

 
—

 
—

 
(7
)
 
(7
)
May 3, 2014
23

 
5

 
129

 
—

 
157

Gross Square Feet at May 3, 2014
440

 
66

 
1,134

 
—

 
1,640

Total Stores
276

 
136

 
585

 
1

 
998

Total Gross Square Feet at May 3, 2014
2,696

 
701

 
4,279

 
5

 
7,681


Store Activity
Abercrombie & Fitch
 
abercrombie
 
Hollister
 
Gilly Hicks
 
Total
U.S. Stores
 
 
 
 
 
 
 
 
 
February 2, 2013
266

 
141

 
478

 
17

 
902

New
—

 
—

 
—

 
—

 
—

Closed
(2
)
 
—

 
(1
)
 
—

 
(3
)
May 4, 2013
264

 
141

 
477

 
17

 
899

Gross Square Feet at May 4, 2013
2,356

 
677

 
3,281

 
170

 
6,484

International Stores
 
 
 
 
 
 
 
 
 
February 2, 2013
19

 
6

 
107

 
7

 
139

New (1)
—

 
—

 
5

 
—

 
5

Closed
—

 
(1
)
 
—

 
—

 
(1
)
May 4, 2013
19

 
5

 
112

 
7

 
143

Gross Square Feet at May 4, 2013
401

 
63

 
973

 
49

 
1,486

Total Stores
283

 
146

 
589

 
24

 
1,042

Total Gross Square Feet at May 4, 2013
2,757

 
740

 
4,254

 
219

 
7,970

(1) Prior period store counts have been restated to count multi-brand outlet stores as a single store. The change reduced International store openings for the thirteen weeks ended May 4, 2013 by one store for Gilly Hicks.


29
Table of Contents



Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” which amends ASC 740, “Income Taxes.” The amendments provide guidance on the financial statement presentation of an unrecognized tax benefit as either a reduction of a deferred tax asset or as a liability, when a net operating loss carryforward, similar tax loss or a tax credit carryforward exists. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption did not have an impact on the Company's consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early application not permitted. The Company is currently evaluating the new standard.

Critical Accounting Estimates
We describe our significant accounting policies in Note 3, “ SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ” of the Notes to Consolidated Financial Statements contained in “ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of A&F’s Annual Report on Form 10-K for Fiscal 2013. We discuss our critical accounting estimates in "ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", in our Annual Report on Form 10-K for Fiscal 2013. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of Fiscal 2013.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) contained in this Quarterly Report on Form 10-Q or made by the Company, its management or spokespeople involve risks and uncertainties and are subject to change based on various important factors, many of which may be beyond the Company’s control. Words such as “estimate,” “project,” “plan,” “believe,” “expect,” “anticipate,” “intend,” and similar expressions may identify forward-looking statements.
The following factors, including the disclosures under the heading “FORWARD-LOOKING STATEMENTS AND RISK FACTORS” in “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2013 filed on March 31, 2014, in some cases have affected and in the future could affect the Company’s financial performance and could cause actual results for Fiscal 2013 and beyond to differ materially from those expressed or implied in any of the forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by management:

•
changes in economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, could have a material adverse effect on our business, results of operations and liquidity;
•
changing fashion trends and consumer preferences, and the ability to manage our inventory commensurate with customer demand, could adversely impact our sales levels and profitability;
•
fluctuations in the cost, availability and quality of raw materials, labor and transportation, could cause manufacturing delays and increase our costs;
•
a significant component of our growth strategy is international expansion, which requires significant capital investment, adds complexity to our operations and may strain our resources and adversely impact current store performance;
•
our international expansion plan is dependent on a number of factors, any of which could delay or prevent successful penetration into new markets or could adversely affect the profitability of our international operations;
•
we have increased the focus of our growth strategy on direct-to-consumer sales channels, failure to successfully develop our position in these channels could have an adverse impact on our results of operations;
•
our direct-to-consumer operations are subject to numerous risks that could adversely impact sales;
•
failure to successfully implement certain growth initiatives may have a material adverse effect on our financial condition or results of operations;
•
fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations;
•
our business could suffer if our information technology systems are disrupted or cease to operate effectively;
•
comparable sales, including direct-to-consumer, may continue to fluctuate on a regular basis and impact the volatility of the price of our Common Stock;
•
extreme weather conditions may negatively impact our results of operations;

30
Table of Contents


•
our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours;
•
our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions in which most of our stores are located;
•
our net sales fluctuate on a seasonal basis, causing our results of operations to be susceptible to changes in Back-to-School and Holiday shopping patterns;
•
our failure to protect our reputation could have a material adverse effect on our brands;
•
we rely on the experience and skills of our senior executive officers, the loss of whom could have a material adverse effect on our business;
•
interruption in the flow of merchandise from our key vendors and international manufacturers could disrupt our supply chain, which could result in lost sales and increased costs;
•
in a number of our European stores, associates are represented by workers’ councils and unions, whose demands could adversely affect our profitability or operating standards for our brands;
•
we depend upon independent third parties for the manufacture and delivery of all our merchandise;
•
our reliance on two distribution centers domestically and three third-party distribution centers internationally makes us susceptible to disruptions or adverse conditions affecting our distribution centers;
•
we rely on third-party vendors as well as other third-party arrangements for many aspects of our business, failure to successfully manage these relationships could negatively impact our results of operations or expose us to liability for the actions of third-party vendors acting on our behalf;
•
we may be exposed to risks and costs associated with credit card fraud and identity theft that would cause us to incur unexpected expenses and loss of revenues;
•
our facilities, systems and stores, as well as the facilities and systems of our vendors and manufacturers, are vulnerable to natural disasters, pandemic disease and other unexpected events, any of which could result in an interruption to our business and adversely affect our operating results;
•
our litigation exposure could have a material adverse effect on our financial condition and results of operations;
•
our inability or failure to adequately protect our trademarks could have a negative impact on our brand image and limit our ability to penetrate new markets;
•
actions of activist stockholders could have a negative effect on our business;
•
fluctuations in our tax obligations and effective tax rate may result in volatility in our operating results;
•
the effects of war or acts of terrorism could have a material adverse effect on our operating results and financial condition;
•
our inability to obtain commercial insurance at acceptable prices or our failure to adequately reserve for self-insured exposures might increase our expenses and adversely impact our financial results;
•
operating results and cash flows at the store level may cause us to incur impairment charges;
•
we are subject to customs, advertising, consumer protection, privacy, zoning and occupancy and labor and employment laws that could require us to modify our current business practices, incur increased costs or harm our reputation if we do not comply;
•
changes in the regulatory or compliance landscape could adversely affect our business and results of operations;
•
our unsecured Amended and Restated Credit Agreement and our Term Loan Agreement include financial and other covenants that impose restrictions on our financial and business operations;
•
compliance with changing regulations and standards for accounting, corporate governance and public disclosure could adversely affect our business, results of operations and reported financial results;
•
our inability to successfully implement our long-range strategic plan could have a negative impact on our growth and profitability; and
•
our estimates of the expenses that we may incur in connection with the closures of the Gilly Hicks stores could prove to be inaccurate.

Future economic and industry trends that could potentially impact revenue and profitability are difficult to predict. Therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report on Form 10-Q will prove to be accurate. In light of the significant uncertainties in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company, or any other person, that the objectives of the Company will be achieved. The forward-looking statements included herein are based on information presently available to the management of the Company. Except as may be required by applicable law, the Company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.


31
Table of Contents


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment Securities
The Company maintains its cash equivalents in financial instruments, primarily money market funds and United States treasury bills, with original maturities of three months or less.
The irrevocable rabbi trust (the “Rabbi Trust”) is intended to be used as a source of funds to match respective funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Chief Executive Officer Supplemental Executive Retirement Plan. The Rabbi Trust assets are consolidated and recorded at fair value, with the exception of the trust-owned life insurance policies which are recorded at cash surrender value. The Rabbi Trust assets are included in Other Assets on the Consolidated Balance Sheets and are restricted as to their use as noted above. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in insignificant realized gains for each of the thirteen-week periods ended May 3, 2014 and May 4, 2013 .
Interest Rate Risks
As of May 3, 2014 , the Company had $131.3 million in borrowings outstanding under its Term Loan Agreement. These borrowings and any future borrowings will bear interest at negotiated rates and would be subject to interest rate risk. Interest on borrowings may be determined under several alternative methods including LIBOR plus a margin based upon the Company’s Leverage Ratio, which represents the ratio of (a) the sum of total debt (excluding specified permitted foreign bank guarantees and trade letters of credit) plus 600% of forward minimum rent commitments to (b) Consolidated EBITDAR (as defined in the Term Loan Agreement) for the trailing four-consecutive-fiscal-quarter period. Covenants are generally consistent with those in the Company’s Amended and Restated Credit Agreement. The weighted average interest rate was 2.07% for the thirteen-week period ended May 3, 2014 . Additionally, as of May 3, 2014 , the Company had $350.0 million available, less outstanding letters of credit of $9.5 million , under its Amended and Restated Credit Agreement. Assuming no changes in the Company’s financial structure as it stood at May 3, 2014 , if market interest rates average an increase of 100 basis points over the next thirteen-week period compared to the interest rates being incurred for the thirteen-week period ended May 3, 2014 , there would be an insignificant change in interest expense. This amount was determined by calculating the effect of the average hypothetical interest rate increase on the Company’s variable rate Term Loan Agreement. This hypothetical increase in interest rate for the fifty-two week period ended January 31, 2015 may be different from the actual increase in interest expense due to varying interest rate reset dates under the Company’s Term Loan Agreement.
Foreign Exchange Rate Risk
A&F’s international subsidiaries generally operate with functional currencies other than the U.S. Dollar. The Company’s Consolidated Financial Statements are presented in U.S. Dollars. Therefore, the Company must translate revenues, expenses, assets and liabilities from functional currencies into U.S. Dollars at exchange rates in effect during or at the end of the reporting period. The fluctuation in the value of the U.S. Dollar against other currencies affects the reported amounts of revenues, expenses, assets and liabilities. The potential impact of currency fluctuation increases as international expansion increases.
A&F and its subsidiaries have exposure to changes in currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the sale of inventory between subsidiaries and foreign denominated assets and liabilities. Such transactions are denominated primarily in U.S. Dollars, Australian Dollars, British Pounds, Canadian Dollars, Chinese Yuan, Danish Kroner, Euros, Hong Kong Dollars, Japanese Yen, Polish Zloty, South Korean Won, Singapore Dollars, Swedish Kroner, Swiss Francs and UAE Dirham. The Company has established a program that primarily utilizes foreign currency forward contracts to partially offset the risks associated with the effects of certain foreign currency transactions and forecasted transactions. Under this program, increases or decreases in foreign currency exposures are partially offset by gains or losses on forward contracts, to mitigate the impact of foreign currency gains or losses. The Company does not use forward contracts to engage in currency speculation. All outstanding foreign currency forward contracts are recorded at fair value at the end of each fiscal period.


32
Table of Contents



ITEM 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
A&F maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in the reports that A&F files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to A&F’s management, including the Chief Executive Officer of A&F (the principal executive officer) and the Executive Vice President-Finance and Chief Financial Officer of A&F (the principal financial officer), as appropriate to allow timely decisions regarding required disclosures. Because of inherent limitations, disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of disclosure controls and procedures are met.
A&F’s management, including the Chief Executive Officer of A&F and the Executive Vice President-Finance and Chief Financial Officer of A&F, evaluated the effectiveness of A&F’s design and operation of its disclosure controls and procedures as of the end of the fiscal quarter ended May 3, 2014 . Based upon that evaluation, the Chief Executive Officer of A&F and the Executive Vice President-Finance and Chief Financial Officer of A&F concluded that A&F’s disclosure controls and procedures were effective at a reasonable level of assurance as of May 3, 2014 , the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
There were no changes in A&F’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during A&F’s fiscal quarter ended May 3, 2014 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

33
Table of Contents


PART II. OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS
A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business. Legal costs incurred in connection with the resolution of claims and lawsuits are generally expensed as incurred, and the Company establishes reserves for the outcome of litigation where it deems appropriate to do so under applicable accounting rules. The Company’s assessment of the current exposure could change in the event of the discovery of additional facts with respect to legal matters pending against the Company or determinations by judges, juries, administrative agencies or other finders of fact that are not in accordance with the Company’s evaluation of claims. Actual liabilities may exceed the amounts reserved, and there can be no assurance that final resolution of these matters will not have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company has established accruals for certain matters where losses are deemed probable and reasonably estimable. There are other claims and legal proceedings pending against the Company for which accruals have not been established.

34
Table of Contents


ITEM 1A.
RISK FACTORS
The Company’s risk factors as of May 3, 2014 have not changed materially from those disclosed in Part I, “ITEM 1A. RISK FACTORS” of A&F’s Annual Report on Form 10-K for Fiscal 2013 filed on March 31, 2014.

35
Table of Contents


ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of equity securities during the first quarter of Fiscal 2014 that were not registered under the Securities Act of 1933.
The following table provides information regarding the purchase of shares of Common Stock of A&F made by or on behalf of A&F or any "affiliated purchaser" as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended, during each fiscal month of the thirteen-week period ended May 3, 2014 :
Period (Fiscal Month)
Total Number of Shares Purchased (1) (2)
 
Average Price Paid per Share  (3)
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (4)
 
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (5)
February 2, 2014 through March 1, 2014
5,582

 
$
34.45

 
—

 
16,288,339

March 2, 2014 through April 5, 2014
3,192,314

 
$
39.21

 
3,086,420

 
13,201,919

April 6, 2014 through May 3, 2014
739,963

 
$
39.21

 
739,276

 
12,462,643

Total
3,937,859

 
$
39.21

 
3,825,696

 
12,462,643

(1)  
112,163 of the shares of A&F’s Common Stock purchased during the thirteen-week period ended May 3, 2014 represented shares which were withheld for tax payments due upon the vesting of employee restricted stock unit and restricted share awards.
(2)  
An aggregate of 3,825,696 shares of A&F's Common Stock were purchased during the thirteen-week period ended May 3, 2014 pursuant to the accelerated share repurchase agreement which the Company entered into on February 27, 2014. The aggregate cost of these shares was $150 million and the volume weighted average price paid per share was $39.21. These shares were repurchased under A&F's publicly announced stock repurchase authorizations described in footnote 4 below.
(3)  
The average price paid per share includes broker commissions, as applicable.
(4)  
The reported shares were repurchased pursuant to A&F’s publicly announced stock repurchase authorizations. On May 15, 2012, A&F’s Board of Directors authorized the repurchase of an aggregate of 10.0 million shares of A&F’s Common Stock. On August 14, 2012, A&F's Board of Directors authorized the repurchase of an additional 10.0 million shares of A&F’s Common Stock.
(5)  
The number shown represents, as of the end of each period, the maximum number of shares of Common Stock that may yet be purchased under A&F’s publicly announced stock repurchase authorizations described in footnote 4 above. The shares may be purchased, from time-to-time, depending on market conditions .

36
Table of Contents


ITEM 6.     EXHIBITS
Exhibit No.
Document
10.1
Letter, dated April 3, 2014, from Abercrombie & Fitch to Joanne C. Crevoiserat setting forth terms of employment as Executive Vice President-Finance and Chief Financial Officer, and accepted by Joanne C. Crevoiserat on April 8, 2014, together with the related Agreement, made and entered into April 27, 2014, executed by Joanne C. Crevoiserat on April 8, 2014 and by Abercrombie & Fitch Management Co. on April 27, 2014.*
10.2
Agreement, dated May 13, 2014, between Leslee Herro and Abercrombie & Fitch Trading Co.*
10.3
Summary of Compensation Structure for Non-Associate Members of Board of Directors of Abercrombie & Fitch Co. (Effective as of February 2, 2014) (Incorporated herein by reference to Exhibit 10.26 to the Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year ended February 1, 2014 (File No. 001-12107))
15
Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Inclusion of Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP.*
31.1
Certifications by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
Certifications by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32
Certifications by Principal Executive Officer an d Principal Financial Officer  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101
The following materials from Abercrombie & Fitch Co.’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Thirteen Weeks Ended May 3, 2014 and May 4, 2013; (ii) Consolidated Balance Sheets at May 3, 2014 and February 1, 2014; (iii) Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 3, 2014 and May 4, 2013; and (iv) Notes to Consolidated Financial Statements***
 
  *
Filed herewith.
**
Furnished herewith.
***
Electronically submitted herewith


37
Table of Contents


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ABERCROMBIE & FITCH CO.
Date: June 9, 2014
By
 /s/ JOANNE C. CREVOISERAT
 
 
Joanne C. Crevoiserat
 
 
Executive Vice President-Finance and Chief Financial Officer
(Principal Financial Officer and Authorized Officer)


38
Table of Contents


EXHIBIT INDEX
 
Exhibit No.
Document
10.1
Letter, dated April 3, 2014, from Abercrombie & Fitch to Joanne C. Crevoiserat setting forth terms of employment as Executive Vice President-Finance and Chief Financial Officer, and accepted by Joanne C. Crevoiserat on April 8, 2014, together with the related Agreement, made and entered into April 27, 2014, executed by Joanne C. Crevoiserat on April 8, 2014 and by Abercrombie & Fitch Management Co. on April 27, 2014.*

10.2
Agreement, dated May 13, 2014, between Leslee Herro and Abercrombie & Fitch Trading Co.*
10.3
Summary of Compensation Structure for Non-Associate Members of Board of Directors of Abercrombie & Fitch Co. (Effective as of February 2, 2014) (Incorporated herein by reference to Exhibit 10.26 to the Annual Report on Form 10-K of Abercrombie & Fitch Co. for the fiscal year ended February 1, 2014 (File No. 001-12107))
15
Letter re: Unaudited Interim Financial Information to Securities and Exchange Commission re: Inclusion of Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP.*
31.1
Certifications by Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
Certifications by Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32
Certifications by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101
The following materials from Abercrombie & Fitch Co.’s Quarterly Report on Form 10-Q for the quarterly period ended May 3, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income (Loss) for the Thirteen Weeks Ended May 3, 2014 and May 4, 2013; (ii) Consolidated Balance Sheets at May 3, 2014 and February 1, 2014; (iii) Consolidated Statements of Cash Flows for the Thirteen Weeks Ended May 3, 2014 and May 4, 2013; and (iv) Notes to Consolidated Financial Statements***
 
*
Filed herewith.
**
Furnished herewith.
***
Electronically submitted herewith


39
April 3, 2014                                            


                    
Joanne C. Crevoiserat
14125 N. Pine Bluff Road
Mequon, WI 53097


Dear Joanne:

We are thrilled that you are considering joining Abercrombie & Fitch (A&F) and we are pleased to extend the following offer of employment:
Position
 
Executive Vice President - Finance and Chief Financial Officer
Start Date
 
May 5, 2014
Base Salary
 
$715,000 annually; paid bi-weekly
Annual salary adjustments based on:
(1)    Your performance
(2)    Economic factors (i.e. business conditions, inflation, job market, etc.)
The next salary review will be in March 2015.
Benefits
 
You will be eligible to participate in various A&F benefit programs as set forth in this letter and other relevant documents. All benefit programs are subject to change in accordance with A&F’s policies and procedures.
Sign-On Bonus
 
Upon your commencement of employment, A&F will provide you a one-time sign-on bonus of $125,000. This sign-on bonus (less applicable taxes and other withholdings) will be made along with your first regular paycheck. In order to obtain this payment, you will be required to sign an agreement to repay the sign-on bonus in full if you resign without Good Reason (as defined later) or are terminated for gross misconduct within thirty-six (36) months of your first day of employment.
Bonus Program
 
You will be eligible to participate in A&F’s Bonus Program at a target payout level of 75% of your annual base earnings and a maximum payout of 150% of your annual base earnings. At the base salary quoted in this offer, your target annual payout is $536,250, and your maximum annual payout is $1,072,500.
Ÿ Bonus payouts will be based on A&F’s financial results and can vary from 0% to 200% of target payout level.
Ÿ Your eligibility and participation level are dependent on your start date.
Ÿ Annual payouts, if any, are generally paid following the completion of the twelve-month performance period. Except as otherwise provided herein, you must be an active associate on the payment date to receive a payout.


Guaranteed Minimum Bonus Payout
 
Except as otherwise provided herein, assuming that you are an active associate on the payout date, you will be guaranteed a minimum Bonus payout of $300,000 for Fiscal Year 2014.

Ÿ If actual Bonus performance is greater than this guarantee, the actual Bonus calculation will be paid.
Ÿ If actual Bonus performance is less than this guarantee, the minimum Bonus payout will be paid.

In order to obtain this guaranteed minimum bonus payout, you will be required to sign an agreement to repay in full the difference between the actual bonus calculation and the guaranteed minimum if the actual performance is less than this guarantee and if you resign without Good Reason or are terminated for gross misconduct within twelve (12) months of the date of payout.
Change of Control
 
In the event that the Company undergoes a Change of Control within the first year of your employment and your employment is not terminated by the Company, the Company agrees that your compensation and benefits in this offer will not be decreased or diminished prior to the one-year anniversary of your employment with the Company as long as you remain actively employed by the Company, its successor or assign.
In the event that the Company undergoes a Change in Control within the first year of your employment and your employment is subsequently terminated by the Company or your duties are diminished or your compensation is reduced from what is outlined in this letter, the following will apply:
 
 
Ÿ The Company will continue your salary from your separation date through the first anniversary of your employment date. This salary shall be paid in bi-weekly installments, less applicable taxes and other withholdings, consistent with the Company’s payroll practices. In the event that the amount of salary continuation provided to you is less than six months, the Company will pay you the difference between six months of salary and the amount of salary already paid to you in one lump sum on the first anniversary of your employment date.
Ÿ During the period in which salary continuation is in effect, the Company will also provide you with medical benefits and life insurance on the same basis as applies to similarly situated active associates.
Ÿ The Company shall pay you the Guaranteed Minimum Bonus Payout for Fiscal Year 2014 set forth in this offer.
Ÿ With regard to the inducement and replacement equity grants referenced later in this letter, Management will recommend to the Compensation Committee of the Board of Directors that all such awards shall become fully vested in the event of a double-trigger Change in Control.
 
 
For the purposes of this paragraph, a Change of Control will be defined consistent with the definition set forth in the 2005 Long-Term Incentive Plan.

In the event of your termination by the Company without Cause (as defined below) or by you for "Good Reason" (as defined below) before the first anniversary date of your employment date, the following will apply:
 
 
- The Company will continue your salary from your separation date through the first anniversary of your employment date. This salary shall be paid in bi-weekly installments, less applicable taxes and other withholdings, consistent with the Company’s payroll practices. In the event that the amount of salary continuation provided to you is less than six months, the Company will pay you the difference between six months of salary and the amount of salary already paid to you in one lump sum on the first anniversary of your employment date.
- During the period in which salary continuation is in effect, the Company will also provide you with medical benefits and life insurance on the same basis as applies to similarly situated active associates.
- The Company shall pay you the Guaranteed Minimum Bonus Payout for Fiscal Year 2014 set forth in this offer.
- Subject to the execution of a release on a form satisfactory to the Company, on the first anniversary date of your employment date, the Company will provide you with a $4 million payment, less normal taxes and other withholdings, in lieu of all unvested equity awards which will be forfeited as a result of the termination of your employment.


 
 
"Cause" shall mean: (I) your conviction of, or entrance of a plea of guilty or nolo contendere to, a felony under federal or state law; or (ii) fraudulent conduct by you in connection with the business affairs of the Company; or (iii) your willful refusal to materially perform your executive duties hereunder; or (iv) your willful misconduct which has, or would have if generally known, a materially adverse effect on the business or reputation of the company; or (v) your material breach of a covenant, representation, warranty or obligation of you to the Company. As to the grounds stated in the above mentioned clauses (iii), (iv), and (v), such grounds will only constitute “Cause” once the Company has provided you written notice and you have failed to cure such issue within 30 days.
 
 
“Good Reason” shall mean, without your written consent: (i) a reduction in your base salary or target bonus as in effect from time to time; or (ii) the Company materially reduces (including as a result of any co-sharing of responsibilities arrangement) your authority, responsibilities, or duties such that you no longer have the title of, or serve or function as, the chief financial officer of the Company, or (iii) the Company requires you to be based at a location in excess of thirty miles from the location of its principal executive office as of the effective date of your employment; or (iv) the Company fails to obtain the written assumption of its obligations to you by a successor no later than the consummation of a merger, consolidation or sale of the company; or (v) a material breach by the Company of its obligations to you; which in each of the circumstances described above, is not remedied by the Company within thirty days of receipt of written notice by you to the company.

In the event of your termination by the Company without Cause (as defined above) or by you for "Good Reason" (as defined above) after the first anniversary date of your employment date, but prior to the date when the equity replacement grant and the inducement equity grant referenced later in this letter would fully vest, the following will apply subject to the execution of a release on a form satisfactory to the Company:
 
 
- The Company will continue your salary from your separation date through the six month anniversary of your separation date. This salary shall be paid in bi-weekly installments, less applicable taxes and other withholdings, consistent with the Company’s payroll practices.
- During the period in which salary continuation is in effect, the Company will also provide you with medical benefits and life insurance on the same basis as applies to similarly situated active associates.
- The Company shall pay you a pro-rated bonus that is calculated as follows: your target bonus for the fiscal year in which the termination occurs multiplied by a fraction where the numerator is the number of days in the fiscal year through the separation date and where the denominator is the total number of days in the fiscal year. This bonus will be paid on the six month anniversary of your separation date.
- An additional amount, less normal taxes and other withholdings, which would be in lieu of all unvested equity awards which will be forfeited as a result of the termination of your employment. This additional amount will vary based on your separation date. If your separation date occurs after 25% of your equity replacement grant and equity inducement grant have vested, but before 50% of such grants have vested, then the additional amount will be $3 million. If your separation date occurs after 50% of such grants have vested, but before 75% of such grants have vested, then the additional amount will be $2 million. If your separation date occurs after 75% of such grants have vested, but before 100% of such grants have vested, then the additional amount will be $1 million.
 
 
Should A&F provide Change in Control, No Cause and/or Good Reason termination benefits to the Chief Operating Officer and other Executive Vice Presidents during your first four years of employment, you would have a one-time right to waive participation in the above program and substitute the program that is made available to similarly situated associates. If you elect to remain with the above program, A&F would offer you a one-time opportunity following the completion of four years of employment to participate in a Change in Control, No Cause and/or Good Reason termination benefits program that would then be available to newly hired, but otherwise similarly situated, associates. Please note that there is no guarantee that A&F would have a Change in Control, No Cause and/or Good Reason termination benefits program in effect at the point in time when you would complete four years of employment.
Relocation
 
You will be eligible for reimbursement of relocation expenses in accordance with the terms and conditions of the A&F Relocation Policy. All relocation benefits must be used by September 1, 2016.




 
 
Ÿ A&F will provide the following relocation assistance:
Ÿ Two (2) house hunting trips for your family.
Ÿ Temporary housing for up to two (2) months.
Ÿ Movement of household goods plus one automobile.
Ÿ Reasonable and customary closing costs toward the sale of current primary residence (up to $140,000).
Ÿ Reasonable and customary closing costs toward the purchase of a new primary residence in Central Ohio (up to $30,000).
Ÿ Subject to you providing proof of the purchase price of your current residence plus any documented capital improvements, A&F will provide equity protection up to $100,000.
Ÿ In the event that you incur a documented loss on the sale of your current residence that exceeds $100,000, you may request additional equity protection assistance from A&F up to $200,000. Subject to you providing proof of loss above $100,000, A&F will provide you with additional equity protection up to the specified maximum, with such additional equity protection being subject to a separate thirty-six (36) month repayment agreement. The maximum amount of base and supplemental equity protection is $300,000.
Ÿ Relocation expenses will be “grossed up” to offset Federal and State taxes.
Ÿ If you wish to have A&F pay your relocation expenses, you must sign an agreement to repay those expenses in full if you resign without Good Reason or are terminated for gross misconduct within twenty-four (24) months of your first day of employment.
Relocation Bonus
 
A&F will provide you with a one-time bonus payment of $25,000 for miscellaneous relocation costs and to assist with periodic pre-relocation travel costs between your residence in Wisconsin and your work location in Ohio. This bonus (less applicable taxes and other withholdings) will be made along with your first regular paycheck. In order to obtain this payment, you will be required to sign an agreement to repay the relocation bonus in full if you resign without Good Reason or are terminated for gross misconduct within thirty-six (36) months of your first day of employment.
2014 Equity Grants
 
Management will recommend that the 2014 Inducement Grants and Equity Replacement Grants described later in this letter be considered by the Compensation Committee of the Board of Directors at its first regularly scheduled meeting following your date of hire. If you begin your A&F employment on May 5, 2014, the next currently scheduled regular meeting of the Compensation Committee of the Board of Directors is
May 21, 2014.
2014 Inducement Grant - Stock Appreciation Rights (SARs)
 
Subject to the approval of the Compensation Committee of the Board of Directors or its designee and subject to the terms and conditions of the grant, you will receive SARs covering 75,000 A&F shares of Class A Common stock. The grant price for the SARs will be determined according to Abercrombie & Fitch’s Equity Grant Policy. Subject to continued employment with A&F, the SARs will vest and become exercisable on each anniversary of the grant date in accordance with the following schedule:
    
Year 1
 
Year 2
 
Year 3
 
Year 4
25%
 
25%
 
25%
 
25%
2014 Inducement Grant - Restricted Stock Units (RSUs)
 
Subject to the approval of the Compensation Committee of the Board of Directors or its designee and subject to the terms and conditions of the grant, you will receive 15,000 A&F RSUs. The date of the grant will be determined according to Abercrombie & Fitch’s Equity Grant Policy. Upon vesting, one RSU converts to one share of A&F stock. Subject to continued employment with A&F, these RSUs will vest on each anniversary of the grant date in accordance with the following 4-year vesting schedule:
    
Year 1
 
Year 2
 
Year 3
 
Year 4
25%
 
25%
 
25%
 
25%
Equity Replacement Grant -Stock Appreciation Rights (SARs)
 
Subject to the approval of the Compensation Committee of the Board of Directors or its designee and subject to the terms and conditions of the grant, you will receive SARs covering 15,000 A&F shares of Class A Common stock. The grant price for the SARs will be determined according to Abercrombie & Fitch’s Equity Grant Policy. Subject to continued employment with A&F, the SARs will vest and become exercisable on each anniversary of the vest date in accordance with the following schedule:
    
Year 1
 
Year 2
 
Year 3
 
Year 4
25%
 
25%
 
25%
 
25%


Equity Replacement Grant -
Restricted Stock Units (RSUs)

 
Subject to the approval of the Compensation Committee of the Board of Directors or its designee and subject to the terms and conditions of the grant, you will receive 65,000 A&F RSUs. The date of the grant will be determined according to Abercrombie & Fitch’s Equity Grant Policy. Upon vesting, one RSU converts to one share of A&F stock. Subject to continued employment with A&F, these RSUs will vest on each anniversary of the vest from date in accordance with the following 4-year vesting schedule:

    
Year 1
 
Year 2
 
Year 3
 
Year 4
25%
 
25%
 
25%
 
25%
Annual Equity Grants (2015 and beyond)
 
In March 2015, subject to satisfactory performance and continued employment, Management will recommend to the Compensation Committee of the Board of Directors an equity grant:
Ÿ consistent with others at similar levels to the position described in this offer; and,
Ÿ based on your performance rating and the Company’s stock price.

Grants in the past have included a mixture of Restricted Stock Units, Stock Appreciation Rights and Performance Share Awards. The vesting schedules will be consistent with other grants made during the 2015 Annual Equity Grant process. Assuming that you are in good standing on the equity award date, Management will recommend an award with an accounting value of no less than $1.5 million.

After 2015, subject to satisfactory performance and continued employment, Management will recommend to the Compensation Committee of the Board of Directors, grants consistent with others at similar levels to the position described in this offer. These grants will also be based on your performance rating and the Company’s stock price. The vesting schedules will be consistent with other grants made during each Equity Grant process.
A&F Qualified Savings
 
After one year of employment, you will be eligible to participate in the Abercrombie & Fitch Co. Savings and Retirement Plan. As a participant in this plan, you will be eligible to defer up to 50% of your base salary and Bonus payouts, or up to the IRS maximum annual deferral limit ($17,500 for 2014), whichever is less. The first 3% of your base salary and Bonus payouts that you defer into this plan will be matched by A&F at 100%. The next 2% of your base salary and Bonus payouts that you defer into this plan will be matched at 50%.

The maximum level of pensionable compensation allowed by the IRS is $260,000 for 2014. At the base salary and Bonus target quoted in this offer, and assuming at least a 5% base salary and Bonus target deferral into the plan, this would result in an annual company match of $10,200. Company matching contributions and earnings are always 100% vested.
A&F Non-Qualified
Savings Plan
 
After 30 days of employment, you will be eligible to participate in the Abercrombie & Fitch Co. Non-Qualified Savings Plan. This plan will allow you to defer up to 75% of your base salary each year, and up to 75% of your Bonus payouts. The company will match the first 3% that you defer on a dollar for dollar basis. At the base salary and Bonus target quoted in this offer, this would result in a company match of $36,750 on a 3% base and Bonus target deferral. Company contributions and earnings vest 100% after 5 years of continuous service on the anniversary date of employment.
Healthcare Coverage
 
After one month of employment you will be eligible to participate in our Healthcare Benefit plans. The current associate contribution required for these benefits is as follows:
    
                      
Medical/Dental
Vision
Single Coverage
$ 31.95 bi-weekly
$ 2.20 bi-weekly
Single (+) One
$ 66.95 bi-weekly
$ 4.40 bi-weekly
Family Coverage
$ 103.95 bi-weekly
$ 6.80 bi-weekly


Life & Disability Insurance
 
After one month of employment, you will automatically be enrolled in A&F’s Life & Disability Insurance plans.
Flexible Spending Account
(FSA)
 
After one month of employment, you will be eligible to participate in A&F’s Flexible Spending Account (FSA) plan. FSAs allow you to save money by paying for certain healthcare and childcare expenses with pre-tax dollars via automatic payroll deductions.
Associate Assistance
Program (AAP)
 
After one month of employment, you will automatically be enrolled in A&F’s AAP. The AAP gives you or any covered dependents access to free, confidential psychological, financial or legal counseling through our AAP provider. Up to 8 free visits, per specific issue, are available through the AAP.
A&F Gym
 
Effective upon hire, you will be eligible to join The A&F Gym, our state of the art 8,000 square foot on-site fitness facility. The cost of membership is only $5.00 per bi-weekly pay period, which is paid via automatic payroll deduction after you enroll.
Merchandise Discount
 
You will receive a discount of 40% on qualifying purchases at all Abercrombie & Fitch, abercrombie, and Gilly Hicks stores. You will also receive a discount of 30% on qualifying purchases at all Hollister Co. stores.
Vacation/Personal Holidays
 
You will be eligible for 25 vacation days and 3 personal days per fiscal year. Vacation and personal days will be pro-rated for the first year based on your start date. The company also grants 5 sick days each year. A&F also grants 7 paid holidays to all Home Office associates annually.
Indemnification
 
A&F shall indemnify, defend, and hold you harmless to the maximum extent permitted by law and the A&F by-laws against all judgments, fines, amounts paid in settlement and all reasonable expenses, including attorneys’ fees incurred by you, in connection with the defense of or as a result of any action or proceeding (or any appeal from any action or proceeding) in which you are made or are threatened to be made a party by reason of the fact that you are or were an officer or director of A&F. Subject to the terms of the A&F D&O policies then in effect, A&F acknowledges that you will be covered and insured up to the full limits provided by all directors’ and officers’ insurance which A&F then maintains to indemnify its directors and officers.
Section 409A
 
To the extent applicable, this offer letter shall incorporate the terms and conditions required by Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”) and this offer letter is consistent with Section 409A and Department of Treasury regulations and other interpretative guidance issued hereunder, including without limitation any such regulations or other guidance that may be issued after the date of this offer letter.
Background Inquiry
 
This offer of employment is contingent on the successful completion of a background check. Please complete the enclosed Fair Credit Reporting Act Disclosure and Authorization and return it along with your signed copy of this employment offer letter.




copy of this employment offer letter.

This offer, if accepted, is for employment with the Company that is at-will, and nothing in this offer letter is to be construed as altering that at-will status or promising employment for a definite term.

Joanne, we look forward to working with you and are convinced that you will be an outstanding addition to the A&F team. To indicate your acceptance of this offer, please sign below and return this letter to Human Resources.

Sincerely,                

/s/ Michael Jeffries
 
/s/ James Bierbower
 
 
 
Michael Jeffries
Chief Executive Officer

 
James Bierbower
ExecutiveVice President
Human Resources




I represent that I am not subject to any restriction, covenant or limitation with any prior employer which could prevent me from working for Abercrombie & Fitch in the capacity described in this offer letter. I further represent that to the extent I am subject to an agreement that allows me to work for Abercrombie & Fitch, but that forbids me to solicit employees of another company or to share another company's confidential information, I agree that I will not breach any such agreement while employed by Abercrombie & Fitch. I accept Abercrombie & Fitch's offer of employment as outlined in this letter, and I am returning a signed copy to Human Resources.

/s/ Joanne C. Crevoiserat
 
 
April 8, 2014
Joanne C. Crevoiserat
 
 
Date





AGREEMENT

This Agreement is made and entered into this 27th day of April 2014, by and between Joanne C. Crevoiserat (the “Associate") and Abercrombie & Fitch Management Co., a Delaware corporation with its principal place of business in New Albany, Ohio (“A&F”) which, together with its subsidiaries and affiliates, are collectively referred to herein as the “Company.” In consideration of Associate’s employment with A&F, including the wages and other valuable benefits provided to Associate, and Associate’s access to valuable and unique information concerning the Company’s business, including confidential information and trade secrets, Associate agrees as follows:
1. Non-Competition . During the period Associate is employed by the Company and for Six (6) Months thereafter (the “Non-Competition Period”), Associate shall not, directly or indirectly, without the prior written consent of the CEO, own, manage, operate, join, control, be employed by, consult with or participate in the ownership, management, operation or control of, or be connected with (as a stockholder, partner, or otherwise), any entity listed on Appendix A attached to this Agreement, any of their subsidiaries and affiliates engaged in a business that is competitive with the Company, and any other entity that the Company determines is a competitor of the Company (“Competing Entity”). For the purposes of this Agreement, subsidiaries and affiliates includes all current and future subsidiaries and affiliates, regardless of whether the relationship or affiliation with the entity listed on Appendix A ceases during the Restricted Period.
2. Non-Solicitation . During the period Associate is employed by the Company and for Twenty-Four (24) Months thereafter (the “Non-Solicitation Period”), Associate shall not, either directly or indirectly, alone or in conjunction with another party, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company with any person who at any time was a customer or supplier of the Company or otherwise had a business relationship with the Company. During the Non-Solicitation Period, Associate shall not hire, solicit for hire, aid in the hire, or cause to be hired, either as an Associate, contractor or consultant, any person who is currently employed, or was employed at any time during the six month period prior thereto, as an Associate, contractor or consultant of the Company.
3. Non-Disparagement and Cooperation . During Associate’s employment with the Company and at all times thereafter, Associate shall not state or otherwise publish anything about the Company or its officers which would adversely affect the reputation, image or business relationships and goodwill of the Company in its market and community at large. Associate shall fully cooperate with the Company in defense of legal claims asserted against the Company and other matters requiring the testimony or input and knowledge of Associate. Associate agrees that he or she will not speak or communicate with any party or representative of any party, who is known to Associate to be either adverse to the Company in litigation or administrative proceedings or to have threatened to commence litigation or administrative proceedings against the Company, with respect to the pending or threatened legal action, unless Associate receives the written consent of the Company to do so, or is otherwise compelled by law to do so, and then only after advance notice to the Company.
4. Remedies . Associate agrees that any breach of the terms of this Agreement would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law. Associate agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and threatened breach and/or continued breach by Associate and/or any and all persons and/or entities acting for and/or with Associate, without having to prove damages, and to all costs and expenses incurred by the Company in seeking to enforce its rights under this Agreement. These remedies are in addition to any other remedies to which the Company may be entitled at law or in equity. Associate agrees that the covenants of Associate contained herein are reasonable and the Company would not have employed Associate or provided Associate access to valuable and unique information concerning the Company’s business, including confidential information and trade secrets but for the inclusion of such covenants. The existence of any claim or cause of action by Associate against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Agreement.
5. Severability . Without limiting the foregoing, the covenants contained in this Agreement shall be construed as separate covenants, covering their respective subject matters. To the extent that any covenant is adjudicated to be invalid or unenforceable with respect to time or entity, (a) such covenant shall not be affected with respect to each other covenant, and (b) such invalidity or unenforceability shall not affect any other covenant of this Agreement which can be given effect without the invalid or unenforceable covenant.




6. Governing Law and Jurisdiction . The validity, construction and interpretation of this Agreement and the rights and duties of the parties hereto shall be governed by the laws of Ohio. Any actions or proceedings instituted under this Agreement with respect to any matters arising under or related to this Agreement, shall be brought and tried only in the Court of Common Pleas, Franklin County, Ohio except that the Company, in its sole election and discretion, can bring suit in any jurisdiction in which Associate may be in violation of this Agreement. Associate consents to the jurisdiction of the Court of Common Pleas, Franklin County, Ohio or any other jurisdiction in which the Company has the right to bring suit and expressly waives his or her right to cause any such actions or proceedings to be brought or tried elsewhere.

AGREED:
 
   By:
/s/ Joanne C. Crevoiserat
 
    By:
/s/ James Bierbower
 
 
 
 
 
Abercrombie & Fitch Management Co.
 
Date:
April 8, 2014
 
 Title:
Executive Vice President
 
 
 
 
 
 
 
 
 
 
 Date:
April 27, 2014
 
 





AGREEMENT

This Agreement (“Agreement”) is made by and between Leslee Herro (“Employee”) and Abercrombie & Fitch Trading Co., a corporation with its principal place of business in New Albany, Ohio, which, together with its subsidiaries and affiliates, are collectively referred to herein as the “Company.”

WHEREAS, Employee has indicated her desire to “retire” from her position with the Company; and

WHEREAS, the parties wish to define the terms and conditions of Employee’s separation from employment with the Company;

NOW, THEREFORE, in exchange for and in consideration of the following mutual covenants and promises, the undersigned parties, intending to be legally bound, hereby agree as follows:

1.
Separation Date . The Company and Employee agree that Employee shall continue to be employed as an employee-consultant to the Company until the earlier of: (a) September 30, 2014; or (b) the date on which Employee commences new employment; or (c) the date of Employee’s death (the “Separation Date”). Until the Separation Date, Employee shall be available to respond to or assist with any issues that arise relating to the transition of Employee’s duties within the Company. On the Separation Date, Employee’s employment with the Company and all further compensation, remuneration, bonuses, and eligibility of Employee under Company benefit plans shall terminate, and Employee shall not be entitled to receive any further payments or benefits of any kind from the Company, except as otherwise provided in this Agreement or by applicable law.

The Separation Date will not be triggered by new employment if, in the Company’s complete, sole and ultimate discretion, the Company determines that the new employment is not comparable to Employee’s position with the Company.

2.
Resignation from Board of Directors and Other Positions . As of May 31, 2014, Employee hereby resigns from any position Employee may hold as a director, trustee, officer, managing member and/or member, and from any and all other positions of any kind or type whatsoever, with the Company and all of its subsidiaries and affiliates. Employee agrees to sign any and all separate letters of resignation and all other documents as requested by the Company to effectuate Employee’s resignation from all other positions Employee holds within any subsidiary or affiliate of the Company. After the signing of this Agreement, should the Company determine that any additional documents are necessary for the resignation of the Employee or to effectuate any transfer of authority, Employee agrees to execute said documents and return the original signed documents promptly to Jim Bierbower, Executive Vice President, at 6301 Fitch Path, New Albany, Ohio 43054.

3.
Effective Date : For purposes of this Agreement, the Effective Date of this Agreement shall be the eighth (8 th ) day after Employee signs this Agreement (“Effective Date”), unless Employee has revoked the Agreement prior to that time in the manner discussed in the Age Discrimination Claims and Older Worker's Benefit Protection Act Terms paragraph below .

4.
Consideration : The Company will provide to Employee the following (all hereinafter referred to collectively as the “Consideration”).

1



a.
Base Salary . During the period beginning on June 1, 2014 and through and including the earlier of (i) September 30, 2014, or (ii) the Separation Date, Employee shall receive a bi-weekly salary based on a reduced base salary of $500,000.00 annually, less applicable taxes and withholdings. For the avoidance of doubt, Employee is not entitled to $500,000.00 during the described period, but instead to the pro rata amount of the $500,000.00 base salary that would be paid out bi-weekly during said period. Payment of the base salary shall be made in bi-weekly installments consistent with the Company’s payroll practices.

b.
Severance . In the event that the Separation Date occurs prior to September 30, 2014, the Company shall pay Employee an additional amount in severance equal to the base salary described in Paragraph 4(a), less applicable taxes and withholdings, Employee would have received between the Separation date and September 30, 2014 (“Severance”). Payment of this Severance shall be made in bi-weekly installments consistent with the Company’s payroll practices. This Paragraph will not apply and Employee will not be entitled to the Severance if Employee accepts employment that violates the Non-Competition provision of this Agreement.

c.
Medical and Dental Coverage . Until the Separation Date, Employee shall continue to be eligible for Employee’s current level of benefits under the medical and dental insurance plans. Employee’s coverage under the Company medical and dental insurance plans shall terminate upon the Separation Date. Employee will be responsible for electing COBRA or other health care and/or dental care coverage after the Separation Date.

d.
Vacation . Employee shall be required to use all of Employee’s vacation entitlement during the period between June 1, 2014 and the Separation Date. Employee also acknowledges and agrees that Employee shall not accrue vacation during the period between June 1, 2014 and the Separation Date and shall not be entitled to payment for any vacation upon Employee’s Separation Date.

e.
Incentive Compensation Bonus . Employee is not entitled to payment of the Incentive Compensation Bonus for the current period or any other period.

f.
Special Bonus . Employee is eligible for a target payment of $350,000.00 based on Company performance in fiscal year 2014 and on the same basis as would apply to similarly-situated active associates in the Company’s Incentive Compensation Plan. The actual bonus paid to Employee could range from $0.00 to $700,000.00. For the avoidance of doubt, the Special Bonus is not guaranteed. The bonus, if any, will be paid in or around March 2015 after the Company’s fiscal year 2014 results are certified by the Audit Committee.

g.
Employment Related Expenses . Subject to the Company's Travel and Expense Policy, any unreimbursed employment related expenses incurred by Employee prior to June 1, 2014 shall be submitted by Employee for payment on or before July 1, 2014. Prior to incurring any Employment Related Expenses on or after June 1, 2014, Employee must obtain the authorization of Jim Bierbower, Executive Vice President, Human

2


Resources. Employee will not be reimbursed for expenses incurred on or after June 1, 2014 that were not authorized in advance by Jim Bierbower.

h.
Equity Compensation . Except as otherwise provided in the Remedies provision of this Agreement, Employee’s outstanding stock options, restricted stock units, stock-settled stock appreciation rights and performance share awards shall continue to be governed by the terms and conditions of the stock plans pursuant to which they were granted and any agreements evidencing Employee’s grants of stock option, restricted stock units and stock-settled stock appreciation rights. Any unvested stock options, restricted stock units and stock-settled stock appreciation rights that do not vest prior to the Separation Date shall be forfeited by Employee. To the extent Employee remains in full compliance with the terms of this Agreement, Employee will be eligible for a one-time grant of 10,000 restricted stock units that will vest in full on December 31, 2015.

i.
Qualified Savings and Retirement Plan . Employee shall be entitled to determine the desired treatment of the balance contained in Employee’s tax-qualified Savings and Retirement Plan (“Plan”) account according to the terms and conditions set forth in the Plan. Employee shall not contribute to the Plan for any period after May 31, 2014. Employee shall not be entitled to a matching contribution under the Plan in respect of calendar year 2014.

j.
Non-Qualified Savings Plan . Employee shall be entitled to payment of the balance in Employee’s Non-Qualified Savings Plan according to the instructions previously provided for such payment. Employee shall not contribute or receive contributions to the Non-Qualified Savings Plan for any period after May 31, 2014.

Notwithstanding the foregoing, no payment of any post 2004 contributions shall be made prior to the six month anniversary of the Separation Date.

k.
Life Insurance . Employee shall have the right to convert Employee’s existing life insurance coverage to an individual policy according to the terms set forth by the insurer. Employee shall pay the full cost of any such policy. Employee must apply for such conversion within 31 days of the Separation Date.

l.
Indemnification/D&O Insurance . If applicable, Employee shall continue to be entitled to indemnification (and advancement of expenses) as an officer of the Company through the Separation Date, and to continued coverage under any applicable directors’ and officers’ liability insurance policies through the Separation Date and until such time as suits can no longer be brought against Employee as a matter of law.

m.
Reference . Employee shall direct all inquiries related to employment to Jim Bierbower, Executive Vice President of Human Resources. The Company shall not be responsible for any violations of this provision if Employee directs employment inquiries generally to the Company or to a specific individual other than Jim Bierbower.

n.
Unemployment Benefits . The Company will not contest any claim made by Employee for unemployment compensation benefits.


3


5.
Employee Covenants

a.
Notification of Subsequent Employment . In the event Employee obtains new employment after the Effective Date of this Agreement and during the Non-Competition Period as set forth below, Employee shall notify the Company in writing within five (5) business days of acceptance of the new employment. Said notification must include the name of Employee’s new employer, the salary Employee will be paid by the new employer, including Employee’s base salary and any bonuses Employee will receive during the period between the Separation Date and September 30, 2014, and the date on which Employee’s employment with the new employer will commence. Notification shall be sent to Jim Bierbower, Executive Vice President, at 6301 Fitch Path, New Albany, Ohio 43054.

b.
Non-Disclosure and Non-Use . Employee shall not, without the written authorization of the Chief Executive Officer (“CEO”) of the Company, use (except for the benefit of the Company) any Confidential and Trade Secret Information relating to the Company. Employee shall hold in strictest confidence and shall not, without the written authorization of the CEO of the Company, disclose to anyone, other than directors, officers, employees and counsel of the Company in furtherance of the business of the Company, any Confidential and Trade Secret Information relating to the Company. For purposes of this Agreement, Confidential and Trade Secret information includes: the general or specific nature of any concept in development, the business plan or development schedule of any concept, vendor, merchant or customer lists or other processes, know-how, designs, formulas, methods, software, improvements, technology, new products, marketing and selling plans, business plans, development schedules, budgets and unpublished financial statements, licenses, prices and costs, suppliers, and information regarding the skills, compensation or duties of employees, independent contractors or consultants of the Company and any other information about the Company that is proprietary or confidential. Notwithstanding the foregoing, nothing herein shall prevent Employee from disclosing Confidential and Trade Secret Information to the extent required by law or by any court or regulatory authority having actual or apparent authority to require such disclosure or in connection with any litigation or arbitration involving this Agreement.

The restrictions set forth in this Paragraph shall not apply to information that is or becomes generally available to the public or known within the Company’s trade or industry (other than as a result of its wrongful disclosure by Employee), or information received on a non-confidential basis from sources other than the Company who are not in violation of a confidentiality agreement with the Company. This confidentiality covenant has no temporal, geographical or territorial restriction.

Employee further represents and agrees that up to and after the Separation Date Employee is obligated to comply with the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding trading shares and/or exercising options related to the Company's stock. Employee acknowledges that the Company has not provided opinions or legal advice regarding Employee’s obligations in this respect and that it is Employee's responsibility to seek independent legal advice with respect to any stock or option transaction.


4


c.
Non-Disparagement and Cooperation . Neither Employee nor any officer, director or other authorized spokesperson of the Company shall intentionally state or otherwise publish anything about the other party which would adversely affect the reputation, image or business relationships and goodwill of the other party in the market and community at large. Employee shall fully cooperate with the Company in defense of legal claims asserted against the Company and other matters requiring the testimony or input and knowledge of Employee. If at any time Employee should be required to cooperate with the Company pursuant to this Paragraph, the Company agrees to promptly reimburse Employee for reasonable costs and expenses incurred as a result thereof. Employee agrees that Employee will not speak or communicate with any party or representative of any party, who is known to Employee to be either adverse to the Company in litigation or administrative proceedings or to have threatened to commence litigation or administrative proceedings against the Company, with respect to the pending or threatened legal action, unless Employee receives the written consent of the Company to do so, or is otherwise compelled by law to do so, and then only after advance notice to the Company. Nothing herein shall prevent Employee from pursuing any claim in connection with enforcing or defending Employee’s rights or obligations under this Agreement.

d.
Non-Competition . For the period following the Effective Date and through December 31, 2015 (the “Non-Competition Period”), Employee shall not, directly or indirectly, without the prior written consent of the CEO, own, manage, operate, join, control, be employed by, consult with or participate in the ownership, management, operation or control of, or be connected with (as a stockholder, partner, or otherwise), any entity listed on Appendix A attached to this Agreement, or any of their current or future divisions, subsidiaries or affiliates (whether majority or minority owned), even if said division, subsidiary or affiliate becomes unrelated to the entity on Appendix A at some future date, or any other entity engaged in a business that is competitive with the Company (“Competing Entity”); provided, however, that the "beneficial ownership" by Employee, either individually or by a "group" in which Employee is a member (as such terms are used in Rule 13d of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of less than two percent (2%) of the voting stock of any publicly held corporation shall not be a violation of this Paragraph.

e.
Non-Solicitation . For the period following the Effective Date and through December 31, 2016 (“Non-Solicitation Period”), Employee shall not, either directly or indirectly, alone or in conjunction with another party, interfere with or harm, or attempt to interfere with or harm, the relationship of the Company with any person who at any time was a customer or supplier of the Company or otherwise had a business relationship with the Company. During the Non-Solicitation Period, Employee shall not hire, solicit for hire, aid in or facilitate the hire, or cause to be hired, either as an employee, contractor or consultant, any person who is currently employed, or was employed at any time during the six (6) month period prior thereto, as an employee, contractor or consultant of the Company. The provisions contained in this Paragraph shall supersede any previous non-solicitation agreements between the Parties.

f.
Confidentiality . Employee agrees not to at any time talk about, write about, or otherwise publicize or disclose to any third party the terms of this Agreement or any

5


fact concerning its negotiation, execution or implementation, except with (1) an attorney, accountant, or other advisor engaged by Employee; (2) the Internal Revenue Service or other governmental agency upon proper request; and (3) Employee’s immediate family, providing that all such persons agree in advance to keep said information confidential and not to disclose it to others.

g.
Remedies . Employee agrees that any breach of the terms of the Employee Covenants provision of this Agreement would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law. Employee agrees that in the event of said breach or any threat of breach, the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and threatened breach and/or continued breach by Employee and/or any and all persons and/or entities acting for and/or with Employee, and without having to prove damages and to all costs and expenses incurred by the Company in seeking to enforce its rights under this Agreement. These remedies are in addition to any other remedies to which the Company may be entitled at law or in equity. Employee agrees that the covenants of Employee contained herein are reasonable and the Company would not have entered into this Agreement but for the inclusion of such covenants. Without limitation on the foregoing, and in addition to any other remedies to which the Company may be entitled at law or in equity, in the event Employee is found to have violated the covenants set forth in this Agreement by a court of competent jurisdiction, Employee shall repay promptly the payments and consideration provided Employee in this Agreement. All unvested RSUs will be canceled and forfeited and Employee shall immediately pay to Company a cash payment equal to the fair market value of the Shares delivered to Employee upon settlement of the RSUs, based on the fair market value of a Share on the date the RSU was settled. The existence of any claim or cause of action by Employee against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements of this Agreement; provided, however that this Paragraph shall not, in and of itself, preclude Employee from defending against the enforceability of the covenants and agreements of this Agreement.

6.
Release of All Claims . Employee does hereby for Employee and for each of Employee’s past, present and future heirs, administrators, executors, representatives, agents, attorneys, assigns and all others claiming by or through Employee or them, forever release and discharge the Company, and its past, present and future shareholders, representatives, agents, servants, parents, subsidiaries, affiliates, divisions, officers, directors, employees, insurers, successors, predecessors, administrators, attorneys, assigns and all others claiming by or through them (hereinafter “the Released Parties”) from any and all charges, claims, demands, judgments, actions, causes of action, damages, debts, agreements, remedies, promises, suits, losses, obligations, expenses, costs, attorneys' fees, liabilities and claims for relief of every kind and nature that can be lawfully discharged, whether matured or unmatured, known or unknown, direct or indirect, foreseen or unforeseen, vested or contingent, in law, equity or otherwise, under any federal or state statute or common law, which Employee has ever had, now has, or may have in the future, against any of the Released Parties for or on account of any matter, cause or thing whatsoever that was or could have been asserted or that occurred prior to the date of Employee signing this Agreement.


6


This release shall include without limitation all claims arising out of or relating to Employee’s employment with the Company and/or the termination thereof; and any and all claims arising under Title VII of the Civil Rights Act of 1964, as amended by the Equal Employment Opportunity Act of 1972, the Civil Rights Act of 1991, the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act, the Employee Retirement Income Security Act, 29 U.S.C. §1001 et seq., the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, the Ohio Civil Rights Act, Ohio Revised Code Sections 4111.01, et seq., 4112.01, et seq. and 4113.01, et seq., any claim for unpaid wages, as well as and any other federal, state and local civil rights laws or laws relating to employment. This Agreement constitutes, among other things, a full and complete release of any and all claims released by either party, and it is the intention of the parties hereto that this Agreement is and shall be a complete and absolute defense to anything released hereunder. The parties expressly and knowingly waive their respective rights to assert any claims against the other which are released hereunder, and covenant not to sue the other party or Released Parties based upon any claims released hereunder. The parties further represent and warrant that no charges, claims or suits of any kind have been filed by either against the other as of the date of this Agreement.

Acknowledgment of Compensation . Employee acknowledges and agrees that, while employed by the Company: (1) Employee has properly reported all hours and time Employee has worked; (2) Employee has been paid all wages, including (if applicable) overtime pay, for all hours Employee has worked; and (3) Employee has received all benefits that Employee should have received from the Company.

Cooperation With the EEOC . Nothing in this Agreement shall interfere with Employee’s right to testify, assist, or participate in an investigation, hearing or proceeding conducted by the Equal Employment Opportunity Commission under the ADEA, Title VII, the ADA, or the EPA, or by another governmental agency enforcing discrimination laws. Similarly, nothing in this Agreement shall interfere with Employee’s right to file a charge with the Equal Employment Opportunity Commission under the ADEA, Title VII, the ADA, or the EPA, or with another governmental agency enforcing discrimination laws. Nothing in this Agreement shall prohibit Employee from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
7.
Age Discrimination Claims and Older Worker's Benefit Protection Act Terms . Employee specifically acknowledges that the release of Employee’s claims under this Agreement includes, without limitation, waiver and release of all claims against the Company and Released Parties under the federal Age Discrimination in Employment Act (“ADEA”), and Employee further acknowledges and agrees that:

a.
Employee waives all claims under the ADEA knowingly and voluntarily in exchange for the commitments made herein by the Company, and that certain of the benefits provided thereby constitute consideration of value to which the Employee would not otherwise have been entitled;

b.
Employee was and is hereby advised to consult an attorney in connection with this Agreement;


7


c.
Employee has been given a period of 21 days within which to consider the terms of this Agreement;

d.
Employee may revoke his or her signature on this Agreement for a period of 7 days following the execution of this Agreement, rendering the Agreement null and void. If Employee chooses to revoke this Agreement within the 7 day period, Employee must do so in writing to Robert Bostrom, Abercrombie & Fitch, 6301 Fitch Path, New Albany, OH 43054;
e.
this Agreement is written in plain and understandable language which Employee fully understands;

f.
this Agreement complies in all respects with Section 7(f) of ADEA and the waiver provisions of the federal Older Worker Benefit Protection Act; and

g.
Employee does not waive any rights or claims that may arise after the date the waiver is executed.

8.
Non-Admission . It is understood that this Agreement is, among other things, an accommodation of the desires of each party, and the above-mentioned payments and covenants are not, and should not be construed as an admission or acknowledgment by either party of any liability whatsoever to the other party or any other person or entity.

9.
Return of Property . Employee agrees to immediately return to the Company all Company documents and property in Employee’s possession or control including, but not limited to, Company issued computer(s) and all software, Company issued mobile phones, Company credit cards, security keys and badges, price lists, supplier and customer lists, employee lists, including compensation, salary and benefit information, files, reports, all correspondence both internal and external (memos, letters, quotes, etc.), business plans, budgets, designs, and any and all other property of the Company ; and the Company shall promptly return Employee’s personal property and files.

10.
Set-Off . As of the Effective Date, Employee agrees to discontinue use of any Company credit cards and to return to the Company such credit cards. Employee further represents that, as of the Effective Date, that either there are no outstanding balances on Employee’s Company credit cards or that Employee has taken steps to satisfy such outstanding balances. Employee agrees that, to the extent permitted by applicable law, the Company may deduct from and set-off against any amounts otherwise payable to Employee under this Agreement such amounts as may be owed by Employee to the Company, including, without limitation, any outstanding balance for personal debt on Employee’s credit cards as set forth above. Employee shall remain liable for any part of Employee’s payment obligation not satisfied through such deduction and setoff.

11.
Tax Matters . Employee agrees that Employee shall be exclusively liable for payment of any and all taxes due by Employee in connection with the payments received pursuant to this Agreement and agrees to indemnify the Company for any liability incurred because of Employee’s failure to pay such taxes, assessments, reimbursements, or penalties, which may be assessed by any taxing authority in connection with any payments made pursuant to this Agreement (provided that in no event shall this indemnification apply to the Company’s (or any affiliate’s) withholding obligations). Notwithstanding anything in this Agreement to the

8


contrary, the parties hereby agree that it is the intention that any payments or benefits provided under this Agreement shall be exempt from or comply in all respects with Section 409A of the Internal Revenue Code of 1986, as amended and any regulations or guidance issued thereunder (“Section 409A”), and this Agreement shall be interpreted accordingly. Each payment from the Effective Date to the Separation Date shall be deemed to be a separate payment for purposes of Section 409A. Any payments hereunder which qualify for the “short-term deferral” exception or any other exception, including the “separation pay exception,” under Section 409A shall be paid under the applicable exception (“409A Exceptions”). In the event that Employee is a “specified employee” of Abercrombie & Fitch Co. (as defined in Section   409A) on the Separation Date, and Employee is entitled to a payment and/or a benefit under this Agreement that is required to be delayed pursuant to Section   409A, then such payment or benefit, as applicable, shall not be paid or provided (or begin to be paid or provided) until the first day of the seventh month following the Separation Date.   The first payment that can be made to Employee following such period shall include the cumulative amount of any payments or benefits that could not be paid or provided during such period due to the application of Section 409A.   Any reimbursement or provision of an in-kind benefit subject to Section 409A shall be paid or provided in accordance with Section 409A, including the following: (i) the amount paid or reimbursed during any calendar year may not affect the expenses eligible for reimbursement in any other calendar year; (ii) payment or reimbursement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred; and (iii) the benefit may not be subject to liquidation or exchange for another benefit. Nothing in the foregoing shall be construed as prohibiting the Company from making any of the payments described in the Consideration provision of this Agreement to the extent that the aggregate amount paid during the six month period following the Separation Date does not exceed the amount described in Treasury Regulation 1.409A-1(b)(9)(iii)(A).   In addition, solely for purposes of determining the Employee’s rights to payments under this Agreement, any reference to Employee’s termination shall mean Employee’s “separation from service” from the Company within the meaning of Section 409A and Employee will be deemed to have separated from service for purposes of Section 409A on May 31, 2014. Following May 31, 2014, Employee shall not provide services for the Company at a rate in excess of 49% of the average level of bona fide services performed by Employee for the Company over the three-year period preceding the year of Employee’s termination.

12.
Knowing and Voluntary Execution . Each of the parties hereto further states and represents that he, she or it has carefully read the foregoing Agreement and knows the contents thereof, and that he, she or it has executed the same as their own free act and deed. Employee further acknowledges that Employee has been and is hereby advised to consult with an attorney concerning this Agreement and that Employee had adequate opportunity to seek the advice of legal counsel in connection with this Agreement. Employee also acknowledges that Employee has had the opportunity to ask questions about each and every provision of this Agreement and that Employee fully understands the effect of the provisions contained herein upon Employee’s legal rights.

13.
Executed Counterparts . This Agreement may be executed in one or more counterparts, and any executed copy of this Agreement shall be valid and have the same force and effect as the originally-executed Agreement.


9


14.
Governing Law . The validity, construction and interpretation of this Agreement and the rights and duties of the parties hereto shall be governed by the laws of Ohio. Any actions or proceedings instituted under this Agreement with respect to any matters arising under or related to this Agreement shall be brought and tried only in the Court of Common Pleas, Franklin County, Ohio.

15.
Modification . No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and the Company.

16.
Assignability . With the exception of the Non-Competition and Non-Solicitation provisions, Employee's obligations and agreements under this Agreement shall be binding on the Employee's heirs, executors, legal representatives and assigns and shall inure to the benefit of any successors and assigns of the Company. The Company may, at any time, assign this Agreement or any of its rights or obligations arising hereunder to any party so long as said party expressly agrees to undertake and assume the obligations of the Company under this Agreement. In the event of Employee’s death, any payments of Base Salary shall cease as of the date of Employee’s death and shall not be paid to Employee’s estate. Any payment, benefit or entitlement to Severance or Incentive Compensation Bonus that is due hereunder at the time of Employee’s death shall be paid to Employee’s estate. All other payments, benefits or entitlements shall be paid in accordance with the beneficiary elections Employee has made.

17.
Non-Waiver; Severability. The failure of any party hereto to enforce at any time any of the provisions of this Agreement shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of this Agreement or any part thereof or the right of any party thereof to enforce each and every such provision. No waiver or any breach of this Agreement shall be held to be a waiver of any other or subsequent breach. The provisions of this Agreement shall be deemed severable, and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof.

18.
Entire Agreement . This Agreement, including Appendix A, constitutes the entire agreement between the parties hereto in respect of the subject matter hereof and this Agreement supersedes all prior and contemporaneous agreements between the parties hereto in connection with the subject matter hereof.

10


IN WITNESS WHEREOF, the undersigned has hereto set her hand this 13th day of May, 2014.


WITNESSED:
 
 
 
 
 
/s/ Nancy Berg
 
/s/ Leslee Herro
 
 
Leslee Herro


IN WITNESS WHEREOF, the undersigned has hereto set her hand this 13th day of May, 2014.

WITNESSED:
 
 
 
 
 
/s/ Nancy Berg
 
/s/ James Bierbower
 
 
James Bierbower
 
 
Executive Vice President, Human Resources
 
 
Abercrombie & Fitch Trading Co.




11


EXHIBIT 15



June 9, 2014


Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549

Commissioners:

We are aware that our report dated June 9, 2014 on our review of interim financial information of Abercrombie & Fitch Co. for the thirteen-week period ended May 3, 2014 and May 4, 2013 and included in the Company's quarterly report on Form 10-Q for the quarterly period ended May 3, 2014 is incorporated by reference in its Registration Statements on Form S-8 (Registration Nos. 333-15941, 333-15945, 333-60189, 333-81373, 333-100079, 333-107646, 333-107648, 333-128000, 333-145166 and 333-176135).


Very truly yours,

/s/PricewaterhouseCoopers LLP

Columbus, Ohio






EXHIBIT 31.1

CERTIFICATIONS

I, Michael S. Jeffries, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended May 3, 2014;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;     
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):




(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
ABERCROMBIE & FITCH CO.
 
 
Dated: June 9, 2014
By:   /s/ Michael S. Jeffries   
 
      Michael S. Jeffries
 
      Chief Executive Officer
 
      (Principal Executive Officer)





EXHIBIT 31.2

CERTIFICATIONS

I, Joanne C. Crevoiserat, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended May 3, 2014;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;     
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):




(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
ABERCROMBIE & FITCH CO.
 
 
Dated: June 9, 2014
By: /s/ Joanne C. Crevoiserat          
 
      Joanne C. Crevoiserat
 
Executive Vice President-Finance and Chief Financial Officer






EXHIBIT 32
            

Certifications by Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

In connection with the Quarterly Report of Abercrombie & Fitch Co. (the “Corporation”) on Form 10-Q for the quarterly period ended May 3, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Michael S. Jeffries, Chief Executive Officer of the Corporation, and Joanne C. Crevoiserat, Executive Vice President and Chief Financial Officer of the Corporation, certify, pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Corporation and its subsidiaries.

 /s/ Michael S. Jeffries
Michael S. Jeffries
Chief Executive Officer
/s/ Joanne C. Crevoiserat
Joanne C. Crevoiserat
Executive Vice President-Finance and Chief Financial Officer
 
 
Dated: June 9, 2014
Dated: June 9, 2014


*
These certifications are being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. These certifications shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Corporation specifically incorporates these certifications by reference in such filing.