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 October 29, 2016
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 December 1, 2016
$.01 Par Value
 
67,674,988 Shares



Table of Contents


ABERCROMBIE & FITCH CO.
TABLE OF CONTENTS

 
 
Page No.
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.

2

Table of Contents


PART I. FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Thousands, except per share amounts)
(Unaudited)



 
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
 
October 29, 2016
 
October 31, 2015
Net sales
$
821,734

 
$
878,572

 
$
2,290,377

 
$
2,405,750

Cost of sales, exclusive of depreciation and amortization
310,995

 
318,785

 
876,810

 
924,552

Gross profit
510,739

 
559,787

 
1,413,567

 
1,481,198

Stores and distribution expense
386,609

 
392,942

 
1,138,644

 
1,173,773

Marketing, general and administrative expense
105,307

 
117,698

 
331,473

 
345,077

Restructuring benefit

 

 

 
(1,598
)
Asset impairment

 
12,076

 
6,356

 
18,209

Other operating income, net
(822
)
 
(3,919
)
 
(16,835
)
 
(7,018
)
Operating income (loss)
19,645

 
40,990

 
(46,071
)
 
(47,245
)
Interest expense, net
4,609

 
4,586

 
13,856

 
13,792

Income (loss) before taxes
15,036

 
36,404

 
(59,927
)
 
(61,037
)
Income tax expense (benefit)
6,762

 
(5,881
)
 
(17,540
)
 
(40,688
)
Net income (loss)
8,274

 
42,285

 
(42,387
)
 
(20,349
)
Less: Net income attributable to noncontrolling interests
393

 
394

 
2,448

 
1,816

Net income (loss) attributable to A&F
$
7,881

 
$
41,891

 
$
(44,835
)
 
$
(22,165
)
 
 
 
 
 
 
 
 
Net income (loss) per share attributable to A&F
 
 
 
 
 
 
 
Basic
$
0.12

 
$
0.61

 
$
(0.66
)
 
$
(0.32
)
Diluted
$
0.12

 
$
0.60

 
$
(0.66
)
 
$
(0.32
)
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
 
 
 
 
 
 
Basic
67,975

 
68,866

 
67,848

 
69,363

Diluted
68,277

 
69,265

 
67,848

 
69,363

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.20

 
$
0.20

 
$
0.60

 
$
0.60

 
 
 
 
 
 
 
 
Other comprehensive (loss) income
 
 
 
 
 
 
 
Foreign currency translation, net of tax
$
(12,194
)
 
$
(1,491
)
 
$
870

 
$
(11,362
)
Derivative financial instruments, net of tax
3,937

 
(2,952
)
 
557

 
(11,288
)
Other comprehensive (loss) income
(8,257
)
 
(4,443
)
 
1,427

 
(22,650
)
Comprehensive income (loss)
17

 
37,842

 
(40,960
)
 
(42,999
)
Less: Comprehensive income attributable to noncontrolling interests
393

 
394

 
2,448

 
1,816

Comprehensive (loss) income attributable to A&F
$
(376
)
 
$
37,448

 
$
(43,408
)
 
$
(44,815
)


The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
3

Table of Contents


ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands, except par value amounts)
(Unaudited)

 


 
October 29, 2016
 
January 30, 2016
Assets
 
 
 
Current assets:
 
 
 
Cash and equivalents
$
469,720

 
$
588,578

Receivables
71,235

 
56,868

Inventories, net
516,146

 
436,701

Other current assets
93,170

 
96,833

Total current assets
1,150,271

 
1,178,980

Property and equipment, net
827,996

 
894,178

Other assets
358,201

 
359,881

Total assets
$
2,336,468

 
$
2,433,039

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
228,880

 
$
184,175

Accrued expenses
266,761

 
321,237

Short-term portion of deferred lease credits
20,623

 
23,303

Income taxes payable
7,654

 
5,988

Short-term portion of borrowings, net
2,204

 

Total current liabilities
526,122

 
534,703

Long-term liabilities:
 
 
 
Long-term portion of deferred lease credits
77,800

 
89,256

Long-term portion of borrowings, net
285,029

 
286,235

Leasehold financing obligations
48,810

 
47,440

Other liabilities
179,085

 
179,683

Total long-term liabilities
590,724

 
602,614

Stockholders’ equity
 
 
 
Class A Common Stock - $0.01 par value: 150,000 shares authorized and 103,300 shares issued at each of October 29, 2016 and January 30, 2016
1,033

 
1,033

Paid-in capital
394,135

 
407,029

Retained earnings
2,440,069

 
2,530,196

Accumulated other comprehensive loss, net of tax
(113,192
)
 
(114,619
)
Treasury stock, at average cost: 35,617 and 35,952 shares at October 29, 2016 and January 30, 2016, respectively
(1,510,378
)
 
(1,532,576
)
Total Abercrombie & Fitch Co. stockholders’ equity
1,211,667

 
1,291,063

Noncontrolling interests
7,955

 
4,659

Total stockholders’ equity
1,219,622

 
1,295,722

Total liabilities and stockholders’ equity
$
2,336,468

 
$
2,433,039



The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4

Table of Contents


ABERCROMBIE & FITCH CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands)
(Unaudited)
 


 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
Operating activities
 
 
 
Net loss
$
(42,387
)
 
$
(20,349
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
Depreciation and amortization
146,666

 
160,364

Asset impairment
6,356

 
18,209

Loss on disposal
1,914

 
6,312

Amortization of deferred lease credits
(18,601
)
 
(21,482
)
Benefit from deferred income taxes
(26,817
)
 
(36,747
)
Share-based compensation
16,691

 
21,681

Changes in assets and liabilities
 
 
 
Inventories, net
(91,375
)
 
(141,725
)
Accounts payable and accrued expenses
9,533

 
148,832

Lessor construction allowances
4,976

 
4,743

Income taxes
(6,463
)
 
(34,249
)
Return of long-term lease deposit
22,801

 

Other assets
(3,692
)
 
(9,268
)
Other liabilities
1,776

 
(29,781
)
Net cash provided by operating activities
21,378

 
66,540

Investing activities
 
 
 
Purchases of property and equipment
(96,814
)
 
(105,216
)
Proceeds from sale of property and equipment
4,098

 
11,109

Other investing activities

 
9,544

Net cash used for investing activities
(92,716
)
 
(84,563
)
Financing activities
 
 
 
Purchase of treasury stock

 
(50,033
)
Repayments of borrowings

 
(2,250
)
Dividends paid
(40,526
)
 
(41,704
)
Other financing activities
(4,126
)
 
147

Net cash used for financing activities
(44,652
)
 
(93,840
)
Effect of exchange rates on cash
(2,868
)
 
(3,234
)
Net decrease in cash and equivalents
(118,858
)
 
(115,097
)
Cash and equivalents, beginning of period
588,578

 
520,708

Cash and equivalents, end of period
$
469,720

 
$
405,611

Significant non-cash investing activities
 
 
 
Change in accrual for construction in progress
$
(12,453
)
 
$
22,882

Supplemental information
 
 
 
Cash paid for interest
$
11,538

 
$
12,220

Cash paid for income taxes, net of refunds
$
20,516

 
$
45,100



The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
5

Table of Contents


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

1. BASIS OF PRESENTATION

Nature of Business

Abercrombie & Fitch Co. (“A&F”), through its subsidiaries (collectively, A&F and its subsidiaries are referred to as “Abercrombie & Fitch” or the “Company”), is a specialty retailer of branded apparel and accessories. The Company operates stores in North America, Europe, Asia and the Middle East and direct-to-consumer operations in North America, Europe and Asia that serve its customers throughout the world.

Principles of Consolidation

The accompanying Condensed Consolidated Financial Statements include historical financial statements of, and transactions applicable to, the Company and reflect its assets, liabilities, results of operations and cash flows.

The Company has interests in a United Arab Emirates business venture and in a Kuwait business venture with Majid al Futtaim Fashion L.L.C. (“MAF”), each of which meets the definition of a variable interest entity (“VIE”). The Company is deemed to be the primary beneficiary of these VIEs; therefore, the Company has consolidated the assets, liabilities, results of operations and cash flows of these VIEs.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to “Fiscal 2016 ” and “Fiscal 2015 ” represent the fifty-two week fiscal years ending on January 28, 2017 and ended on January 30, 2016 , respectively.

Interim Financial Statements

The Condensed Consolidated Financial Statements as of October 29, 2016 , and for the thirteen and thirty-nine week periods ended October 29, 2016 and October 31, 2015 , are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these Condensed 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 2015 filed with the SEC on March 28, 2016. The January 30, 2016 consolidated balance sheet data, included herein, 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 Condensed 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 2016 .

6



Recent Accounting Pronouncements

The following table provides a brief description of recent accounting pronouncements that could affect the Company’s financial statements:
Accounting Standards Update (ASU)
 
Description
 
Date of
Adoption
 
Effect on the Financial Statements or Other Significant Matters
Standards not yet adopted
ASU 2015-11,  Simplifying the Measurement of Inventory
 
This update amends ASC 330, Inventory . The new guidance applies to inventory measured using first-in, first-out (FIFO) or average cost. Under this amendment, inventory should be measured at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
 
January 29, 2017*
 
The adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements.
ASU 2016-09, Compensation—Stock Compensation
 
This update amends ASC 718, Compensation . Under the new guidance, tax benefits and certain tax deficiencies arising from the vesting of share-based payments will be recognized as income tax benefits or expenses in the statement of operations, whereas under the current guidance such benefits and deficiencies are recorded in additional paid-in-capital. The cash flow effects of the tax benefit will be reported in cash flows from operating activities, whereas they are currently reported in cash flows from financing activities. This guidance also allows for entities to make a policy election to estimate forfeitures or account for them when they occur.
 
January 29, 2017*
 
The Company is currently evaluating the method of adoption and the impact that this standard will have on its consolidated financial statements.
ASU 2014-09, Revenue from Contracts with Customers
 
This update supersedes the revenue recognition requirements in ASC 605, Revenue Recognition . The new guidance 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 which the entity expects to be entitled to in exchange for those goods or services.
 
February 4, 2018
 
The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
ASU 2016-02, Leases
 
This update supersedes the leasing requirements in ASC 840, Leases . The new guidance requires an entity to recognize lease assets and lease liabilities on the balance sheet and disclose key leasing information that depicts the lease rights and obligations of an entity.
 
February 3, 2019*
 
The Company is currently evaluating the impact that this standard will have on its consolidated financial statements, but expects that it will result in a significant increase in the Company’s long-term assets and long-term liabilities on the Company's consolidated balance sheets.

* Early adoption is permitted.

7



2. 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.

The following table presents weighted-average shares outstanding and anti-dilutive shares:
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
October 29, 2016
 
October 31, 2015
 
October 29, 2016
 
October 31, 2015
Shares of common stock issued
103,300

 
103,300

 
103,300

 
103,300

Weighted-average treasury shares
(35,325
)
 
(34,434
)
 
(35,452
)
 
(33,937
)
Weighted-average — basic shares
67,975

 
68,866

 
67,848

 
69,363

Dilutive effect of share-based compensation awards
302

 
399

 

 

Weighted-average — diluted shares
68,277

 
69,265

 
67,848

 
69,363

Anti-dilutive shares (1)
6,126

 
10,205

 
6,209

 
12,154


(1)  
Reflects the total number of shares related to outstanding share-based compensation awards that have been excluded from the computation of net income (loss) per diluted share because the impact would have been anti-dilutive.


3. 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 that the Company can access at the measurement date.
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 within it of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were as follows:
 
Assets and Liabilities at Fair Value as of October 29, 2016
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Trust-owned life insurance policies (at cash surrender value)
$

 
$
98,896

 
$

 
$
98,896

Money market funds
21

 

 

 
21

Derivative financial instruments

 
6,460

 

 
6,460

Total assets
$
21

 
$
105,356

 
$

 
$
105,377

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Derivative financial instruments
$

 
$
262

 
$

 
$
262

 
Assets at Fair Value as of January 30, 2016
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Money market funds
$
311,349

 
$

 
$

 
$
311,349

Derivative financial instruments

 
4,166

 

 
4,166

Total assets
$
311,349

 
$
4,166

 
$

 
$
315,515


The Level 2 assets and liabilities consist of trust-owned life insurance policies and derivative financial instruments, primarily foreign currency exchange forward contracts. The fair value of foreign currency exchange forward contracts is determined by using quoted market prices of the same or similar instruments, adjusted for counterparty risk.


8



Fair value of borrowings:

The Company’s borrowings under the Company’s credit facilities are carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. For disclosure purposes, the Company estimated the fair value of borrowings outstanding based on market rates for similar types of debt, which are considered to be Level 2 inputs.

The carrying amount and fair value of the Company’s term loan facility were as follows:
(in thousands)
October 29, 2016
 
January 30, 2016
Gross borrowings outstanding, carrying amount
$
293,250

 
$
293,250

Gross borrowings outstanding, fair value
$
293,250

 
$
284,453


No borrowings were outstanding under the Company’s senior secured revolving credit facility as of October 29, 2016 or January 30, 2016 .


4. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:
(in thousands)
October 29, 2016
 
January 30, 2016
Property and equipment, at cost
$
2,805,449

 
$
2,792,437

Less: Accumulated depreciation and amortization
(1,977,453
)
 
(1,898,259
)
Property and equipment, net
$
827,996

 
$
894,178


Long-lived assets, primarily comprised of leasehold improvements, furniture, fixtures and equipment, are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived assets might not be recoverable. These include, but are not limited to, material declines in operational performance, a history of losses, an expectation of future losses, other than temporary adverse market conditions and store closure or relocation decisions. On at least a quarterly basis, the Company reviews for indicators of impairment at the individual store level, the lowest level for which cash flows are identifiable.

Stores that display an indicator of impairment are subjected to an impairment assessment. The Company’s impairment assessment requires management to make assumptions and judgments related, but not limited, to management’s expectations for future operations and projected cash flows. The key assumptions used in the Company’s undiscounted future cash flow models include sales, gross margin and, to a lesser extent, operating expenses.

An impairment loss would be recognized when these undiscounted future cash flows are less than the carrying amount of the asset group. In the circumstance of impairment, the loss would be measured as the excess of the carrying amount of the asset group over its fair value. The key assumptions used in estimating the fair value of impaired assets may include projected cash flows and discount rate.

There were no non-cash asset impairment charges for the thirteen weeks ended October 29, 2016 . The Company incurred non-cash asset impairment charges of $6.4 million for the thirty-nine weeks ended October 29, 2016 .

The Company incurred non-cash asset impairment charges of $12.1 million for the thirteen weeks ended October 31, 2015 and $18.2 million for the thirty-nine weeks ended October 31, 2015.

The Company had $37.0 million and $37.3 million of construction project assets in property and equipment, net at October 29, 2016 and January 30, 2016 , respectively, related to the construction of buildings in certain lease arrangements where the Company is deemed to be the owner of the construction project.

9



5. INCOME TAXES

The Company’s quarterly tax provision and the estimate of the annual effective tax rate are subject to significant variation due to several factors. These include variability in the pre-tax jurisdictional mix of earnings, changes in how the Company does business including entering into new businesses or geographies, changes in foreign currency exchange rates, changes in law, regulations, and administrative practices, relative changes of expenses or losses for which tax benefits are not recognized and the impact of discrete items. The impact of these items on the effective tax rate will be greater at lower levels of pre-tax income (loss) .


6. SHARE-BASED COMPENSATION

The Company recognized share-based compensation expense of $5.7 million and $16.7 million for the thirteen and thirty-nine weeks ended October 29, 2016 , respectively, and $7.6 million and $21.7 million for the thirteen and thirty-nine weeks ended October 31, 2015 , respectively. The Company also recognized tax benefits related to share-based compensation of $2.2 million and $6.3 million for the thirteen and thirty-nine weeks ended October 29, 2016 , respectively, and $2.6 million and $7.4 million for the thirteen and thirty-nine weeks ended October 31, 2015 , respectively.

Stock Options

The following table summarizes stock option activity for the thirty-nine weeks ended October 29, 2016 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life
Outstanding at January 30, 2016
271,000

 
$
63.05

 
 
 
 
Granted

 

 
 
 
 
Exercised
(2,000
)
 
22.87

 
 
 
 
Forfeited or expired
(79,200
)
 
31.53

 
 
 
 
Outstanding at October 29, 2016
189,800

 
$
76.62

 
$

 
0.9
Stock options exercisable at October 29, 2016
189,800

 
$
76.62

 
$

 
0.9

Stock Appreciation Rights

The following table summarizes stock appreciation rights activity for the thirty-nine weeks ended October 29, 2016 :
 
Number of
Underlying
Shares
 
Weighted-Average
Exercise Price
 
Aggregate
Intrinsic Value
 
Weighted-Average
Remaining
Contractual Life
Outstanding at January 30, 2016
5,301,115

 
$
45.02

 
 
 
 
Granted

 

 
 
 
 
Exercised
(10,483
)
 
22.45

 
 
 
 
Forfeited or expired
(1,194,207
)
 
37.27

 
 
 
 
Outstanding at October 29, 2016
4,096,425

 
$
47.43

 
$

 
3.0
Stock appreciation rights exercisable at October 29, 2016
3,524,010

 
$
50.69

 
$

 
2.1
Stock appreciation rights expected to become exercisable in the future as of October 29, 2016
502,927

 
$
27.60

 
$

 
8.1

As of October 29, 2016 , there was $3.7 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 13 months .

The grant date fair value of stock appreciation rights that vested during the thirty-nine weeks ended October 29, 2016 and October 31, 2015 was $4.1 million and $4.5 million , respectively.

10



Restricted Stock Units

The following table summarizes activity for restricted stock units for the thirty-nine weeks ended October 29, 2016 :
 
Service-based Restricted
Stock Units
 
Performance-based Restricted
Stock Units
 
Market-based Restricted
Stock Units
 
Number of 
Underlying
Shares
 
Weighted-
Average Grant
Date Fair Value
 
Number of 
Underlying
Shares
 
Weighted-
Average Grant
Date Fair Value
 
Number of 
Underlying
Shares
 
Weighted-
Average Grant
Date Fair Value
Unvested at January 30, 2016
1,671,597

 
$
28.13

 
185,500

 
$
23.42

 
117,711

 
$
25.00

Granted
1,119,848

 
25.28

 
129,725

 
25.70

 
129,734

 
31.01

Adjustments for performance achievement

 

 

 

 

 

Vested
(603,789
)
 
30.37

 
(32,625
)
 
36.12

 

 

Forfeited
(236,871
)
 
26.75

 
(78,677
)
 
24.22

 
(62,553
)
 
31.91

Unvested at October 29, 2016
1,950,785

 
$
25.97

 
203,923

 
$
22.53

 
184,892

 
$
26.89


Fair value of both service-based and performance-based restricted stock units 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 fair value, the Company does not take into account performance-based vesting requirements. Performance-based vesting requirements are taken into account in determining the number of awards expected to vest. For market-based restricted stock units, fair value is calculated using a Monte Carlo simulation with the number of shares that ultimately vest dependent on the Company’s total stockholder return measured against the total stockholder return of a select group of peer companies over a three-year period. For an award with performance-based or market-based vesting requirements, the number of shares that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of performance criteria. Unvested shares related to restricted stock units with performance-based vesting conditions are reflected at 100% of their target vesting amount in the table above.

Service-based restricted stock units are expensed on a straight-line basis over the total requisite service period, net of forfeitures. Performance-based restricted stock units subject to graded vesting are expensed on an accelerated attribution basis, net of forfeitures. Market-based restricted stock units without graded vesting features are expensed on a straight-line basis over the requisite service period, net of forfeitures.

As of October 29, 2016 , there was $30.7 million , $1.3 million and $3.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to service-based, performance-based and market-based restricted stock units, respectively. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 16 months , 15 months and 14 months for service-based, performance-based and market-based restricted stock units, respectively.

Additional information pertaining to restricted stock units for the thirty-nine weeks ended October 29, 2016 and October 31, 2015 follows:
(in thousands)
October 29, 2016
 
October 31, 2015
Service-based restricted stock units:
 
 
 
Total grant date fair value of awards granted
$
28,310

 
$
21,725

Total grant date fair value of awards vested
18,337

 
17,956

 
 
 
 
Performance-based restricted stock units:
 
 
 
Total grant date fair value of awards granted
$
3,334

 
$
2,278

Total grant date fair value of awards vested
1,178

 
1,861

 
 
 
 
Market-based restricted stock units:
 
 
 
Total grant date fair value of awards granted
$
4,023

 
$
2,158

Total grant date fair value of awards vested

 


11



The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended October 29, 2016 and October 31, 2015 were as follows:
 
October 29, 2016
 
October 31, 2015
Grant date market price
$
28.06

 
$
22.46

Fair value
$
31.01

 
$
19.04

Assumptions:
 
 
 
Price volatility
45
%
 
45
%
Expected term (years)
2.7

 
2.8

Risk-free interest rate
1.0
%
 
0.9
%
Dividend yield
3.0
%
 
3.5
%
Average volatility of peer companies
34.5
%
 
34.0
%
Average correlation coefficient of peer companies
0.3415

 
0.3288



7. DERIVATIVE INSTRUMENTS

The Company is exposed to risks associated with changes in foreign currency exchange rates and uses derivative instruments, 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.

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 intercompany inventory sales to foreign subsidiaries and the related settlement of the foreign-currency-denominated intercompany receivables. Fluctuations in exchange rates will either increase or decrease the Company’s intercompany 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. These forward contracts typically have a maximum term of twelve 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 loss (“AOCL”). Substantially all of the unrealized gains or losses related to designated cash flow hedges as of October 29, 2016 will be recognized in cost of sales, exclusive of depreciation and amortization, over the next twelve months .

The Company presents its derivative assets and derivative liabilities at their gross fair values on the Condensed Consolidated Balance Sheets. However, the Company's master netting and other similar arrangements allow net settlements under certain conditions.

As of October 29, 2016 , 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 intercompany inventory sales, the resulting settlement of the foreign-currency-denominated intercompany accounts receivable, or both:
(in thousands)
Notional Amount (1)
Euro
$
82,321

British pound
$
34,335

Canadian dollar
$
16,949

Japanese yen
$
9,615


(1)  
Amounts reported are the U.S. Dollar notional amounts outstanding as of October 29, 2016 .

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 instruments and the hedged items.

12



As of October 29, 2016 , the Company had no outstanding foreign currency exchange forward contracts that were entered into to hedge foreign-currency-denominated net monetary assets/liabilities.

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of October 29, 2016 and January 30, 2016 were as follows:
(in thousands)
Location
 
October 29,
2016
 
January 30,
2016
 
Location
 
October 29,
2016
 
January 30,
2016
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
Other current assets
 
$
6,460

 
$
4,097

 
Accrued expenses
 
$
262

 
$

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
Other current assets
 
$

 
$
69

 
Accrued expenses
 
$

 
$

Total
Other current assets
 
$
6,460

 
$
4,166

 
Accrued expenses
 
$
262

 
$


Refer to Note 3, “ FAIR VALUE, ” for further discussion of the determination of the fair value of derivative instruments.

The location and amounts of derivative gains and losses for the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015 on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) were as follows:
 
 
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
 
 
 
October 29, 2016
 
October 31, 2015
 
October 29, 2016
 
October 31, 2015
(in thousands)
Location
 
Gain/(Loss)
 
Gain/(Loss)
 
Gain/(Loss)
 
Gain/(Loss)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
Other operating income, net
 
$
152

 
$
10

 
$
295

 
$
434

 
 
Effective Portion
 
Ineffective Portion and Amount Excluded from Effectiveness Testing
 
Amount of Gain (Loss) Recognized in OCI on Derivative Contracts (1)
 
Location of Gain (Loss) Reclassified from AOCL into Earnings
 
Amount of Gain (Loss) Reclassified from AOCL into Earnings (2)
 
Location of Gain Recognized in Earnings on Derivative Contracts
 
Amount of Gain  Recognized in Earnings on Derivative Contracts (3)
 
Thirteen Weeks Ended
(in thousands)
October 29,
2016
 
October 31,
2015
 
 
 
October 29,
2016
 
October 31,
2015
 
 
 
October 29,
2016
 
October 31,
2015
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
$
4,986

 
$
933

 
Cost of sales, exclusive of depreciation and amortization
 
$
450

 
$
2,886

 
Other operating income, net
 
$
695

 
$
58

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Thirty-nine Weeks Ended
(in thousands)
October 29, 2016
 
October 31, 2015
 
 
 
October 29, 2016
 
October 31, 2015
 
 
 
October 29, 2016
 
October 31, 2015
Derivatives in cash flow hedging relationships:
 
 
 
 
 
 
 
 
 
 
Foreign currency exchange forward contracts
$
3,026

 
$
3,318

 
Cost of sales, exclusive of depreciation and amortization
 
$
2,551

 
$
13,761

 
Other operating income, net
 
$
1,308

 
$
297


(1)  
The amount represents the change in fair value of derivative contracts due to changes in spot rates.
(2)  
The amount represents the reclassification from AOCL into earnings when the hedged item affects earnings, which is when merchandise is sold to the Company’s customers.
(3)  
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.
 

13



8. ACCUMULATED OTHER COMPREHENSIVE LOSS

The activity in accumulated other comprehensive loss for the thirteen and thirty-nine weeks ended October 29, 2016 was as follows:
 
Thirteen Weeks Ended October 29, 2016
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at July 30, 2016
$
(106,132
)
 
$
1,197

 
$
(104,935
)
Other comprehensive (loss) income before reclassifications
(12,194
)
 
4,986

 
(7,208
)
Reclassified from accumulated other comprehensive loss (1)

 
(450
)
 
(450
)
Tax effect

 
(599
)
 
(599
)
Other comprehensive (loss) income
(12,194
)
 
3,937

 
(8,257
)
Ending balance at October 29, 2016
$
(118,326
)
 
$
5,134

 
$
(113,192
)
 
Thirty-nine Weeks Ended October 29, 2016
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at January 30, 2016
$
(119,196
)
 
$
4,577

 
$
(114,619
)
Other comprehensive income before reclassifications
870

 
3,026

 
3,896

Reclassified from accumulated other comprehensive loss (1)

 
(2,551
)
 
(2,551
)
Tax effect

 
82

 
82

Other comprehensive income
870

 
557

 
1,427

Ending balance at October 29, 2016
$
(118,326
)
 
$
5,134

 
$
(113,192
)

(1)  
For the thirteen and thirty-nine weeks ended October 29, 2016 , a loss was reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

The activity in accumulated other comprehensive loss for the thirteen and thirty-nine weeks ended October 31, 2015 was as follows:
 
Thirteen Weeks Ended October 31, 2015
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at August 1, 2015
$
(106,551
)
 
$
4,764

 
$
(101,787
)
Other comprehensive loss before reclassifications
(1,384
)
 
(123
)
 
(1,507
)
Reclassified from accumulated other comprehensive loss (2)

 
(2,886
)
 
(2,886
)
Tax effect
(107
)
 
57

 
(50
)
Other comprehensive loss
(1,491
)
 
(2,952
)
 
(4,443
)
Ending balance at October 31, 2015
$
(108,042
)
 
$
1,812

 
$
(106,230
)

 
Thirty-nine Weeks Ended October 31, 2015
(in thousands)
Foreign Currency Translation Adjustment
 
Unrealized Gain (Loss) on Derivative Financial Instruments
 
Total
Beginning balance at January 31, 2015
$
(96,680
)
 
$
13,100

 
$
(83,580
)
Other comprehensive (loss) income before reclassifications
(11,255
)
 
2,263

 
(8,992
)
Reclassified from accumulated other comprehensive loss (2)

 
(13,761
)
 
(13,761
)
Tax effect
(107
)
 
210

 
103

Other comprehensive loss
(11,362
)
 
(11,288
)
 
(22,650
)
Ending balance at October 31, 2015
$
(108,042
)
 
$
1,812

 
$
(106,230
)

(2)  
For the thirteen and thirty-nine weeks ended October 31, 2015 , a loss was reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).


14



9. SEGMENT REPORTING

The Company has two operating segments: Abercrombie, which includes the Company’s Abercrombie & Fitch and abercrombie kids brands; and Hollister. These operating segments have similar economic characteristics, classes of consumers, products, and production and distribution methods, and have been aggregated into one reportable segment.

The following table provides the Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015 .
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
October 29, 2016
 
October 31, 2015
 
October 29, 2016
 
October 31, 2015
Abercrombie
$
358,255

 
$
411,259

 
$
1,044,667

 
$
1,131,626

Hollister
463,479

 
467,313

 
1,245,710

 
1,274,124

Total
$
821,734

 
$
878,572

 
$
2,290,377

 
$
2,405,750


The following table provides the Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended October 29, 2016 and October 31, 2015 .
 
Thirteen Weeks Ended
 
Thirty-nine Weeks Ended
(in thousands)
October 29, 2016
 
October 31, 2015
 
October 29, 2016
 
October 31, 2015
United States
$
531,449

 
$
572,736

 
$
1,435,633

 
$
1,536,151

Europe
187,184

 
206,538

 
541,711

 
572,772

Other
103,101

 
99,298

 
313,033

 
296,827

Total
$
821,734

 
$
878,572

 
$
2,290,377

 
$
2,405,750



10. CONTINGENCIES

The Company 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 losses are deemed probable and reasonably estimable. The Company’s assessment of the current exposure could change in the event of the discovery of additional facts. As of October 29, 2016, the Company had accrued charges of approximately $4 million for certain legal contingencies. In addition, there are certain claims and legal proceedings pending against the Company for which accruals have not been established. 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.


11. SUBSEQUENT EVENTS

On November 11, 2016, the Company exercised a lease kick-out option for its A&F flagship store in Hong Kong. The Company expects the closure of this store to be substantially complete by the end of the second quarter of Fiscal 2017. As a result of this decision, the Company expects to incur a lease termination charge of approximately $16 million during the fourth quarter of Fiscal 2016. In addition, the Company estimates the net cash outflow associated with this lease termination to be approximately $16 million , consisting of two payments of approximately $8 million each, with the first payment expected to be paid in the fourth quarter of Fiscal 2016 and the second payment expected to be paid in the second quarter of Fiscal 2017.

15



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


OVERVIEW

BUSINESS SUMMARY

The Company is a specialty retailer that operates stores in North America, Europe, Asia and the Middle East and direct-to-consumer operations in North America, Europe and Asia that serve its customers 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’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 2016 ” represent the fifty-two week fiscal year that will end on January 28, 2017 , and to “Fiscal 2015 ” represent the fifty-two week fiscal year that ended January 30, 2016 .

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.

SUMMARY RESULTS OF OPERATIONS
The table below summarizes the Company's results of operations and reconciles GAAP financial measures to non-GAAP financial measures for the thirteen and thirty-nine week periods ended October 29, 2016 and October 31, 2015 . Additional discussion about why the Company believes that these non-GAAP financial measures are useful to investors is provided below under “NON-GAAP FINANCIAL MEASURES.”
 
 
October 29, 2016
 
October 31, 2015
(in thousands, except change in comparable sales, gross profit rate and per share amounts)
 
GAAP
 
Excluded Items (1)
 
Non-GAAP
 
GAAP
 
Excluded Items (1)
 
Non-GAAP
Thirteen Weeks Ended
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
821,734

 
$

 
$
821,734

 
$
878,572

 
$

 
$
878,572

Change in comparable sales (2)
 
(6
)%
 
%
 
(6
)%
 
(1
)%
 
 %
 
(1
)%
Gross profit rate
 
62.2
 %
 
%
 
62.2
 %
 
63.7
 %
 
(0.3
)%
 
63.4
 %
Operating income
 
$
19,645

 
$
(6,000
)
 
$
13,645

 
$
40,990

 
$
10,086

 
$
51,076

Net income attributable to A&F
 
$
7,881

 
$
(6,479
)
 
$
1,402

 
$
41,891

 
$
(8,974
)
 
$
32,917

Net income per diluted share attributable to A&F
 
$
0.12

 
$
(0.09
)
 
$
0.02

 
$
0.60

 
$
(0.12
)
 
$
0.48

 
 
 
 
 
 
 
 
 
 
 
 
 
Thirty-nine Weeks Ended
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
2,290,377

 
$

 
$
2,290,377

 
$
2,405,750

 
$

 
$
2,405,750

Change in comparable sales (2)
 
(5
)%
 
%
 
(5
)%
 
(4
)%
 
 %
 
(4
)%
Gross profit rate
 
61.7
 %
 
%
 
61.7
 %
 
61.6
 %
 
0.9
 %
 
62.5
 %
Operating (loss) income
 
$
(46,071
)
 
$
(11,926
)
 
$
(57,997
)
 
$
(47,245
)
 
$
62,466

 
$
15,221

Net (loss) income attributable to A&F
 
$
(44,835
)
 
$
(10,158
)
 
$
(54,993
)
 
$
(22,165
)
 
$
26,505

 
$
4,340

Net (loss) income per diluted share attributable to A&F
 
$
(0.66
)
 
$
(0.15
)
 
$
(0.81
)
 
$
(0.32
)
 
$
0.38

 
$
0.06


(1)  
Refer to “RESULTS OF OPERATIONS” for details on excluded items.

(2)  
Changes in comparable sales are calculated on a constant currency basis by converting prior year store and online sales at current year exchange rates. For inclusion in this calculation, a store must have been open as the same brand at least one year and its square footage must not have been expanded or reduced by more than 20% within the past year.

As of October 29, 2016 , the Company had $469.7 million in cash and equivalents, and $293.3 million in gross borrowings outstanding under its term loan facility. Net cash provided by operating activities was $21.4 million for the thirty-nine weeks ended October 29, 2016 . The Company also used cash of $96.8 million for capital expenditures and $40.5 million to pay dividends during the thirty-nine weeks ended October 29, 2016 .

16

Table of Contents


CURRENT TRENDS AND OUTLOOK

The Company's results for the third quarter of Fiscal 2016 reflect improvement in Hollister from last quarter that was more than offset by a decline in A&F performance, as flagship and tourist locations continued to be a major headwind, particularly in international markets. In addition, gross margin was pressured, as an A&F assortment weighted toward seasonal categories underperformed, resulting in greater than expected promotional activity.

In Hollister, comparable sales improved throughout the quarter and we expect the comparable sales trend to further improve in the fourth quarter. For the A&F brand, we began to articulate a redefined identity during the quarter. While we anticipate the A&F business will remain challenging through the balance of the fiscal year, we continue to evolve the brand through significant changes in product, customer experience and marketing.

For the fourth quarter of Fiscal 2016, we expect:
Comparable sales to be challenging, but modestly improved from the third quarter .
Continued adverse impact from foreign currency on sales and operating income .
A gross margin rate down slightly to last year's adjusted non-GAAP rate of 60.7%, driven by lower average unit retail, partially offset by lower average unit cost .
Operating expense, including a lease termination charge of approximately $16 million, to be up about 1% from last year's adjusted non-GAAP operating expense of $554 million, with the lease termination charge partially offset by savings from lower sales and expense reduction efforts .
A weighted average diluted share count of approximately 68 million shares, excluding the effect of potential share buybacks .

For the full year, the Company expects the effective tax rate to remain sensitive at lower levels of pre-tax earnings.

We expect capital expenditures to be approximately $140 million for the full year.

In addition to the 13 stores opened year-to-date, including five outlet stores, we plan to open seven new stores in the fourth quarter, including five in China and two in the U.S. We also anticipate closing approximately 35 stores in the U.S. in the fourth quarter through natural lease expirations, in addition to the 15 stores closed year-to-date.

Excluded from the Company’s outlook are the effects of certain potential items, such as asset impairment charges, litigation charges and insurance recoveries.

NON-GAAP FINANCIAL MEASURES

This Quarterly Report on Form 10-Q includes discussion of certain financial measures under “RESULTS OF OPERATIONS” on both a GAAP and a non-GAAP basis. The Company believes that each of the non-GAAP financial measures presented in this “ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” are useful to investors as they provide a measure of the Company’s operating performance excluding the effect of certain items which the Company believes do not reflect its future operating outlook, and therefore supplements investors’ understanding of comparability across periods. Management used these non-GAAP financial measures during the periods presented to assess the Company’s performance and to develop expectations for future operating performance. These non-GAAP financial measures should be used supplemental to, not as an alternative to, the Company’s GAAP financial results, and may not be the same as similar measures presented by other companies.

Changes in comparable sales are calculated on a constant currency basis by converting prior year store and online sales at current year exchange rates. For the purpose of this calculation, a store must have been open as the same brand at least one year and its square footage must not have been expanded or reduced by more than 20% within the past year.

In addition, the following financial measures are disclosed on a GAAP basis and, as applicable, on a non-GAAP basis excluding items relating to asset impairment, indemnification recovery, claims settlement benefits, inventory write-down, net, legal settlement charges, store fixture disposal, profit improvement initiative, lease termination and store closure costs and restructuring benefit: cost of sales, exclusive of depreciation and amortization; gross profit; stores and distribution expense; marketing, general and administrative expense; other operating income, net; operating income (loss); income tax expense (benefit); effective tax rate; net income (loss) attributable to A&F; and net income (loss) per diluted share attributable to A&F. Certain of these GAAP and non-GAAP measures are also expressed as a percentage of net sales. The income tax effect of non-GAAP items is calculated as the difference in income tax expense (benefit) with and without the non-GAAP adjustments to income before income taxes based upon the tax laws and statutory income tax rates of the affected tax jurisdictions.

17

Table of Contents


RESULTS OF OPERATIONS

STORE ACTIVITY

Store count and gross square footage by brand for the thirteen weeks ended October 29, 2016 and October 31, 2015 , respectively, were as follows:
 
Abercrombie (1)(2)
 
Hollister (3)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
July 30, 2016
333

 
39

 
411

 
143

 
744

 
182

New
1

 
2

 
2

 
1

 
3

 
3

Closed
(1
)
 

 
(1
)
 

 
(2
)
 

October 29, 2016
333

 
41

 
412

 
144

 
745

 
185

Gross square feet (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
October 29, 2016
2,548

 
631

 
2,828

 
1,212

 
5,376

 
1,843

 
 
 
 
 
 
 
 
 
 
 
 
 
Abercrombie (1)
 
Hollister (3)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
August 1, 2015
354

 
34

 
429

 
137

 
783

 
171

New
7

 
2

 
2

 
2

 
9

 
4

Closed
(2
)
 

 

 

 
(2
)
 

October 31, 2015
359

 
36

 
431

 
139

 
790

 
175

Gross square feet (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
October 31, 2015
2,743

 
584

 
2,966

 
1,185

 
5,709

 
1,769


(1)
Includes Abercrombie & Fitch and abercrombie kids brands.

(2)
Excludes one international franchise store as of October 29, 2016 and July 30, 2016 .

(3)
Excludes three international franchise stores as of October 29, 2016 , two international franchise stores as of July 30, 2016 and October 31, 2015 and one international franchise store as of August 1, 2015.

18

Table of Contents


Store count and gross square footage by brand for the thirty-nine weeks ended October 29, 2016 and October 31, 2015 , respectively, were as follows:
 
Abercrombie (1)(2)
 
Hollister (3)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
January 30, 2016
340

 
39

 
414

 
139

 
754

 
178

New
3

 
2

 
3

 
5

 
6

 
7

Closed
(10
)
 

 
(5
)
 

 
(15
)
 

October 29, 2016
333

 
41

 
412

 
144

 
745

 
185

Gross square feet (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
October 29, 2016
2,548

 
631

 
2,828

 
1,212

 
5,376

 
1,843

 
 
 
 
 
 
 
 
 
 
 
 
 
Abercrombie (1)
 
Hollister (3)
 
Total
 
United States
 
International
 
United States
 
International
 
United States
 
International
January 31, 2015
361

 
32

 
433

 
135

 
794

 
167

New
11

 
4

 
2

 
6

 
13

 
10

Closed
(13
)
 

 
(4
)
 
(2
)
 
(17
)
 
(2
)
October 31, 2015
359

 
36

 
431

 
139

 
790

 
175

Gross square feet (in thousands) :
 
 
 
 
 
 
 
 
 
 
 
October 31, 2015
2,743

 
584

 
2,966

 
1,185

 
5,709

 
1,769


(1)
Includes Abercrombie & Fitch and abercrombie kids brands.

(2)
Excludes one international franchise store as of October 29, 2016 and January 30, 2016.

(3)
Excludes three international franchise stores as of October 29, 2016 and two international franchise stores as of January 30, 2016 and October 31, 2015.

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Table of Contents


Net Sales
 
Thirteen Weeks Ended
 
 
 
 
 
October 29, 2016
 
October 31, 2015
 
 
 
 
(in thousands)
Net Sales
 
Change in
Comparable
Sales (1)
 
Net Sales
 
Change in
Comparable
Sales (1)
 
Net Sales
$ Change
 
Net Sales
% Change
Abercrombie (2)
$
358,255

 
(14)%
 
$
411,259

 
(5)%
 
$
(53,004
)
 
(13)%
Hollister
463,479

 
—%
 
467,313

 
3%
 
(3,834
)
 
(1)%
Total net sales
$
821,734

 
(6)%
 
$
878,572

 
(1)%
 
$
(56,838
)
 
(6)%
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
531,449

 
(5)%
 
$
572,736

 
(3)%
 
$
(41,287
)
 
(7)%
International
290,285

 
(10)%
 
305,836

 
1%
 
(15,551
)
 
(5)%
Total net sales
$
821,734

 
(6)%
 
$
878,572

 
(1)%
 
$
(56,838
)
 
(6)%
 
Thirty-nine Weeks Ended
 
 
 
 
 
October 29, 2016
 
October 31, 2015
 
 
 
 
(in thousands)
Net Sales
 
Change in
Comparable
Sales (1)
 
Net Sales
 
Change in
Comparable
Sales (1)
 
Net Sales
$ Change
 
Net Sales
% Change
Abercrombie (2)
$
1,044,667

 
(10)%
 
$
1,131,626

 
(7)%
 
$
(86,959
)
 
(8)%
Hollister
1,245,710

 
(1)%
 
1,274,124

 
(2)%
 
(28,414
)
 
(2)%
Total net sales
$
2,290,377

 
(5)%
 
$
2,405,750

 
(4)%
 
$
(115,373
)
 
(5)%
 
 
 
 
 
 
 
 
 
 
 
 
U.S.
$
1,435,633

 
(4)%
 
$
1,536,151

 
(5)%
 
$
(100,518
)
 
(7)%
International
854,744

 
(7)%
 
869,599

 
(4)%
 
(14,855
)
 
(2)%
Total net sales
$
2,290,377

 
(5)%
 
$
2,405,750

 
(4)%
 
$
(115,373
)
 
(5)%

(1)  
Changes in comparable sales are calculated on a constant currency basis by converting prior year store and online sales at current year exchange rates. For inclusion in this calculation, a store must have been open as the same brand at least one year and its square footage must not have been expanded or reduced by more than 20% within the past year.

(2)  
Includes Abercrombie & Fitch and abercrombie kids brands.

For the third quarter of Fiscal 2016 , net sales decreased 6% compared to the third quarter of Fiscal 2015 , primarily attributable to a 6% decrease in comparable sales, driven by the Abercrombie brand.

For the year-to-date period of Fiscal 2016 , net sales decreased 5% compared to the year-to-date period of Fiscal 2015 , primarily attributable to a 5% decrease in comparable sales, mainly driven by the Abercrombie brand.

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Table of Contents


Cost of Sales, Exclusive of Depreciation and Amortization
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Cost of sales, exclusive of depreciation and amortization
$
310,995

 
37.8%
 
$
318,785

 
36.3%
Recovery on inventory write-down

 
—%
 
2,573

 
0.3%
Adjusted non-GAAP cost of sales, exclusive of depreciation and amortization
$
310,995

 
37.8%
 
$
321,358

 
36.6%
 
 
 
 
 
 
 
 
Gross profit
$
510,739

 
62.2%
 
$
559,787

 
63.7%
Recovery on inventory write-down

 
—%
 
(2,573
)
 
(0.3)%
Adjusted non-GAAP gross profit
$
510,739

 
62.2%
 
$
557,214

 
63.4%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Cost of sales, exclusive of depreciation and amortization
$
876,810

 
38.3%
 
$
924,552

 
38.4%
Inventory write-down, net (1)

 
—%
 
(21,667
)
 
(0.9)%
Adjusted non-GAAP cost of sales, exclusive of depreciation and amortization
$
876,810

 
38.3%
 
$
902,885

 
37.5%
 
 
 
 
 
 
 
 
Gross profit
$
1,413,567

 
61.7%
 
$
1,481,198

 
61.6%
Inventory write-down, net (1)

 
—%
 
21,667

 
0.9%
Adjusted non-GAAP gross profit
$
1,413,567

 
61.7%
 
$
1,502,865

 
62.5%

(1)
Inventory write-down charges related to a first quarter of Fiscal 2015 decision to accelerate the disposition of certain aged merchandise, net of recoveries.

For the third quarter of Fiscal 2016 , cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 160 basis points compared to the third quarter of Fiscal 2015 , primarily due to the adverse effects from changes in foreign currency exchange rates of approximately 60 basis points and the net impact of lower average unit retail partially offset by lower average unit cost.

For the year-to-date period of Fiscal 2016 , cost of sales, exclusive of depreciation and amortization, as a percentage of net sales decreased by approximately 10 basis points compared to the year-to-date period of Fiscal 2015 , which included a $21.7 million net inventory write-down. Excluding the $21.7 million net inventory write-down, year-to-date Fiscal 2016 adjusted non-GAAP cost of sales, exclusive of depreciation and amortization, as a percentage of net sales increased by approximately 80 basis points as compared to the year-to-date period of Fiscal 2015 , primarily due to the adverse effects from changes in foreign currency exchange rates of approximately 80 basis points and the net impact of higher average unit cost substantially offset by higher average unit retail.

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Table of Contents


Stores and Distribution Expense
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Stores and distribution expense
$
386,609

 
47.0%
 
$
392,942

 
44.7%
Store fixture disposal

 
—%
 
(583
)
 
(0.1)%
Adjusted non-GAAP stores and distribution expense
$
386,609

 
47.0%
 
$
392,359

 
44.7%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Stores and distribution expense
$
1,138,644

 
49.7%
 
$
1,173,773

 
48.8%
Store fixture disposal

 
—%
 
(4,200
)
 
(0.2)%
Lease termination and store closure costs

 
—%
 
(1,756
)
 
(0.1)%
Charges related to the Company’s profit improvement initiative

 
—%
 
(709
)
 
—%
Adjusted non-GAAP stores and distribution expense
$
1,138,644

 
49.7%
 
$
1,167,108

 
48.5%

For the third quarter of Fiscal 2016 , stores and distribution expense as a percentage of net sales increased by approximately 230 basis points compared to the third quarter of Fiscal 2015 , primarily due to the deleveraging effect from negative comparable sales and higher direct-to-consumer expense, partially offset by expense reduction efforts.

For the year-to-date period of Fiscal 2016 , stores and distribution expense as a percentage of net sales increased by approximately 90 basis points as compared to the year-to-date period of Fiscal 2015 , primarily due to the deleveraging effect from negative comparable sales and higher direct-to-consumer expense, partially offset by expense reduction efforts. Excluding certain items presented in the table above, year-to-date Fiscal 2016 adjusted non-GAAP stores and distribution expense as a percentage of net sales increased by approximately 120 basis points as compared to the year-to-date period of Fiscal 2015 .

For the third quarter of Fiscal 2016 , shipping and handling costs, including costs incurred to store, move and prepare product for shipment and costs incurred to physically move product to the customer, associated with direct-to-consumer operations were $27.1 million as compared to $24.9 million for the third quarter of Fiscal 2015 . For the year-to-date period of Fiscal 2016 , shipping and handling costs were $77.3 million as compared to $72.6 million for the year-to-date period of Fiscal 2015 .

For the third quarter of Fiscal 2016 , handling costs, including costs incurred to store, move and prepare product for shipment to stores, were $10.6 million as compared to $11.1 million for the third quarter of Fiscal 2015 . For the year-to-date period of Fiscal 2016 , handling costs were $31.3 million as compared to $33.0 million for the year-to-date period of Fiscal 2015 .

Shipping and handling costs are included in stores and distribution expense on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

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Table of Contents


Marketing, General and Administrative Expense
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Marketing, general and administrative expense
$
105,307

 
12.8%
 
$
117,698

 
13.4%
Indemnification recovery (1)
6,000

 
0.7%
 

 
—%
Adjusted non-GAAP marketing, general and administrative expense
$
111,307

 
13.5%
 
$
117,698

 
13.4%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Marketing, general and administrative expense
$
331,473

 
14.5%
 
$
345,077

 
14.3%
Indemnification recovery (1)
6,000

 
0.3%
 

 
—%
Legal settlement charges

 
—%
 
(15,753
)
 
(0.7)%
Profit improvement initiative

 
—%
 
(1,770
)
 
(0.1)%
Adjusted non-GAAP marketing, general and administrative expense
$
337,473

 
14.7%
 
$
327,554

 
13.6%

(1)
Includes benefits related to an indemnification recovery of certain legal settlements which were recognized in the second quarter of Fiscal 2015.

For the third quarter of Fiscal 2016 , marketing, general and administrative expense as a percentage of net sales decreased by approximately 60 basis points as compared to the third quarter of Fiscal 2015 , primarily due to expense reduction efforts and the $6.0 million indemnification recovery in the third quarter of Fiscal 2016, partially offset by the deleveraging effect from negative comparable sales and higher marketing expenses. Excluding certain items presented in the table above, third quarter Fiscal 2016 adjusted non-GAAP marketing, general and administrative expense as a percentage of net sales increased by approximately 10 basis points as compared to the third quarter of Fiscal 2015 .

For the year-to-date period of Fiscal 2016 , marketing, general and administrative expense as a percentage of net sales increased by approximately 10 basis points as compared to the year-to-date period of Fiscal 2015 , primarily due to the deleveraging effect from negative comparable sales and higher marketing expenses, partially offset by the net year-over-year impact of certain items presented in the above table and expense reduction efforts. Excluding certain items presented in the table above, year-to-date Fiscal 2016 adjusted non-GAAP marketing, general and administrative expense as a percentage of net sales increased by approximately 110 basis points as compared to the year-to-date period of Fiscal 2015 .

Restructuring Benefit

For the year-to-date period of Fiscal  2015 , benefits associated with the restructuring of the Gilly Hicks brand were  $1.6 million .

Asset Impairment

For the third quarter of Fiscal 2015 , the Company incurred non-cash asset impairment charges of $12.1 million , primarily related to the Company’s Abercrombie & Fitch flagship store in Hong Kong.

For the year-to-date period of Fiscal 2016 , the Company incurred non-cash asset impairment charges of $6.4 million related to the Company’s abercrombie kids flagship store in London, compared to $18.2 million for the year-to-date period of Fiscal 2015 , primarily related to the Company’s Abercrombie & Fitch flagship store in Hong Kong and a decision to remove certain store fixtures in connection with changes to the Abercrombie and Hollister store experiences.

23

Table of Contents


Other Operating Income, Net
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Other operating income, net
$
822

 
0.1%
 
$
3,919

 
0.4%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Other operating income, net
$
16,835

 
0.7%
 
$
7,018

 
0.3%
Claims settlement benefits  (1)
(12,282
)
 
(0.5)%
 

 
—%
Adjusted non-GAAP other operating income, net
$
4,553

 
0.2%
 
$
7,018

 
0.3%

(1)
Includes benefits related to a settlement of certain economic loss claims associated with the April 2010 Deepwater Horizon oil spill.

For the third quarter of Fiscal 2016 , other operating income, net was $0.8 million as compared to $3.9 million for the third quarter of Fiscal 2015 .

For the year-to-date period of Fiscal 2016 , other operating income, net was $16.8 million and included $12.3 million of claims settlement benefits, as compared to $7.0 million for the year-to-date period of Fiscal 2015 . Excluding the $12.3 million of claims settlement benefits, year-to-date Fiscal 2016 adjusted non-GAAP other operating income, net as a percentage of net sales decreased by approximately 10 basis points as compared to the year-to-date period of Fiscal 2015 .

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Table of Contents


Operating Income (Loss)
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Operating income
$
19,645

 
2.4%
 
$
40,990

 
4.7%
Indemnification recovery (1)
(6,000
)
 
(0.7)%
 

 
—%
Asset impairment

 
—%
 
12,076

 
1.4%
Recovery on inventory write-down

 
—%
 
(2,573
)
 
(0.3)%
Store fixture disposal

 
—%
 
583

 
0.1%
Adjusted non-GAAP operating income
$
13,645

 
1.7%
 
$
51,076

 
5.8%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Operating loss
$
(46,071
)
 
(2.0)%
 
$
(47,245
)
 
(2.0)%
Asset impairment
6,356

 
0.3%
 
18,209

 
0.8%
Indemnification recovery (1)
(6,000
)
 
(0.3)%
 

 
—%
Claims settlement benefits (2)
(12,282
)
 
(0.5)%
 

 
—%
Inventory write-down, net (3)

 
—%
 
21,667

 
0.9%
Legal settlement charges (4)

 
—%
 
15,753

 
0.7%
Store fixture disposal

 
—%
 
4,200

 
0.2%
Profit improvement initiative

 
—%
 
2,479

 
0.1%
Lease termination and store closures costs

 
—%
 
1,756

 
0.1%
Restructuring benefit

 
—%
 
(1,598
)
 
(0.1)%
Adjusted non-GAAP operating (loss) income
$
(57,997
)
 
(2.5)%
 
$
15,221

 
0.6%

(1)
Includes benefits related to an indemnification recovery of certain legal settlements which were recognized in the second quarter of Fiscal 2015.
(2)
Includes benefits related to a settlement of certain economic loss claims associated with the April 2010 Deepwater Horizon oil spill.
(3)
Includes inventory write-down charges related to a first quarter of Fiscal 2015 decision to accelerate the disposition of certain aged merchandise, net of recoveries.
(4)
Accrued expense for certain proposed legal settlements.

For the third quarter of Fiscal 2016 , operating income as a percentage of net sales decreased by approximately 230 basis points as compared to the third quarter of Fiscal 2015 , primarily driven by the deleveraging effect from negative comparable sales, a reduction in the gross profit rate, higher marketing and direct-to-consumer expenses, partially offset by the net year-over-year impact of certain items presented in the above table. Excluding certain items presented in the table above, third quarter Fiscal 2016 adjusted non-GAAP operating income as a percentage of sales decreased approximately 420 basis points as compared to the third quarter of Fiscal 2015 .

For the year-to-date period of Fiscal 2016 , operating loss as a percent of net sales was approximately flat as compared to the year-to-date period of Fiscal 2015 , as the deleveraging effect from negative comparable sales, a reduction in the gross profit rate and higher marketing and direct-to-consumer expenses was offset by the net year-over-year impact of certain items presented in the above table and expense reduction efforts. Excluding certain items presented in the table above, year-to-date Fiscal 2016 adjusted non-GAAP operating loss as a percentage of net sales was approximately 250 basis points as compared to adjusted non-GAAP operating income as a percentage of net sales of approximately 60 basis points for the year-to-date period of Fiscal 2015 .

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Table of Contents


Interest Expense, Net
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Interest expense
$
5,751

 
0.7%
 
$
5,653

 
0.6%
Interest income
(1,142
)
 
(0.1)%
 
(1,067
)
 
(0.1)%
Interest expense, net
$
4,609

 
0.6%
 
$
4,586

 
0.5%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands)
 
 
% of Net Sales
 
 
 
% of Net Sales
Interest expense
$
17,099

 
0.7%
 
$
16,976

 
0.7%
Interest income
(3,243
)
 
(0.1)%
 
(3,184
)
 
(0.1)%
Interest expense, net
$
13,856

 
0.6%
 
$
13,792

 
0.6%

Income Tax Expense (Benefit)
 
Thirteen Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands, except ratios)
 
 
Effective Tax Rate
 
 
 
Effective Tax Rate
Income tax expense (benefit)
$
6,762

 
45.0%
 
$
(5,881
)
 
(16.2)%
Tax effect of excluded items (1)
479

 


19,060

 
 
Adjusted non-GAAP income tax expense
$
7,241

 
80.1%
 
$
13,179

 
28.3%
 
Thirty-nine Weeks Ended
 
October 29, 2016
 
October 31, 2015
(in thousands, except ratios)
 
 
Effective Tax Rate
 
 
 
Effective Tax Rate
Income tax benefit
$
(17,540
)
 
29.3%
 
$
(40,688
)
 
66.7%
Tax effect of excluded items (1)
(1,768
)
 
 
 
35,961

 
 
Adjusted non-GAAP income tax benefit
$
(19,308
)
 
26.9%
 
$
(4,727
)
 
(330.8)%

(1)  
Refer to Operating Income (Loss) for details of excluded items. The Company computed the tax effect of excluded items as the difference between the effective tax rate calculated with and without the non-GAAP adjustments on income (loss) before taxes and provision for income taxes.

For the third quarter of Fiscal 2016 , the Company's income tax expense as a percentage of income before taxes, which is sensitive at lower levels of pre-tax earnings, was 45.0% as compared to the Company's income tax benefit as a percentage of loss before taxes of 16.2% for the third quarter of Fiscal 2015 . The change in tax rate was primarily driven by changes in level and mix of consolidated pre-tax income amongst operating jurisdictions as well as a release of a valuation allowance in the prior year. Excluding certain items presented above in the table under “ Operating Income (Loss) ,” the third quarter Fiscal 2016 adjusted non-GAAP effective tax rate was 80.1% as compared to 28.3% for the third quarter of Fiscal 2015 .

For the year-to-date period of Fiscal 2016 , the effective tax rate was 29.3% as compared to 66.7% for the year-to-date period of Fiscal 2015 . The change in tax rate was primarily due to changes in mix of consolidated pre-tax income amongst operating jurisdictions as well as the recognition of deferred U.S. income taxes on net income generated after October 31, 2015, as well as a release of a valuation allowance in the prior year. Excluding certain items presented above in the table under “ Operating Income (Loss) ,” year-to-date Fiscal 2016 adjusted non-GAAP income tax expense as a percentage of loss before taxes was 26.9% as compared to adjusted non-GAAP income tax benefit as a percentage of loss before taxes of 330.8% for the year-to-date period of Fiscal 2015 .

Net Income (Loss) and Net Income (Loss) per Share Attributable to A&F

For the third quarter of Fiscal 2016 , net income and net income per diluted share attributable to A&F were $7.9 million and $0.12 , respectively, as compared to net income and net income per diluted share attributable to A&F of $41.9 million and $0.60 , respectively, for the third quarter of Fiscal 2015 . Excluding certain items presented above under “ Operating Income (Loss) , ” and “ Income Tax Expense (Benefit) , third quarter Fiscal 2016 adjusted non-GAAP net income and net income per diluted share attributable to A&F

26

Table of Contents


were $1.4 million and $0.02 , respectively, as compared to adjusted non-GAAP net income and net income per diluted share attributable to A&F of $32.9 million and $0.48 , respectively, for the third quarter of Fiscal 2015 .

For the year-to-date period of Fiscal 2016 , net loss and net loss per diluted share attributable to A&F were $44.8 million and $0.66 , respectively, as compared to net loss and net loss per diluted share attributable to A&F of $22.2 million and $0.32 , respectively, for the year-to-date period of Fiscal 2015 . Excluding certain items presented above under “ Operating Income (Loss) , ” and “ Income Tax Expense (Benefit) , year-to-date Fiscal 2016 adjusted non-GAAP net loss and net loss per diluted share attributable to A&F were $55.0 million and $0.81 , respectively, as compared to adjusted non-GAAP net income and net income per diluted share attributable to A&F $4.3 million and $0.06 for the year-to-date period of Fiscal 2015 .


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. The Company relies on excess operating cash flows, which are largely generated in the Fall season, to fund operations 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.

Asset-Based Revolving Credit Facility

The Company has a senior secured revolving credit facility with availability of up to $400 million (the “ABL Facility”), subject to a borrowing base. The ABL Facility is available for working capital, capital expenditures and other general corporate purposes. The ABL Facility will mature on August 7, 2019. No borrowings were outstanding under the ABL Facility as of October 29, 2016 .

Amounts borrowed under the ABL Facility bear interest, at the Company’s option, at either an adjusted LIBOR rate plus a margin of 1.25% to 1.75% per annum, or an alternate base rate plus a margin of 0.25% to 0.75% per annum based on average historical excess availability during the preceding quarter. The Company is also required to pay a fee of 0.25% per annum on undrawn commitments under the ABL Facility. Customary agency fees and letter of credit fees are also payable in respect of the ABL Facility.

As of October 29, 2016 , the borrowing base on the ABL Facility was $360.3 million . As of December 1, 2016, the Company had not drawn on the ABL Facility, but had approximately $1.7 million in outstanding stand-by letters of credit under the ABL Facility.

Term Loan Facility

The Company is also party to a term loan agreement, which provides for a term loan facility of $300 million (the “Term Loan Facility” and, together with the ABL Facility, the “2014 Credit Facilities”). The Term Loan Facility was issued at a $3 million or 1.0% discount. In addition, the Company recorded deferred financing fees associated with the issuance of the 2014 Credit Facilities of $5.8 million in aggregate, of which $3.2 million was paid to lenders. The Company is amortizing the debt discount and deferred financing fees over the respective contractual terms of the 2014 Credit Facilities.

The Company’s Term Loan debt is presented in the Condensed Consolidated Balance Sheets, net of the unamortized discount and fees paid to lenders. Net borrowings as of October 29, 2016 were as follows:
(in thousands)
October 29, 2016
 
October 31, 2015
Borrowings, gross at carrying amount
$
293,250

 
$
297,000

Unamortized discount
(2,035
)
 
(2,464
)
Unamortized fees paid to lenders
(3,982
)
 
(4,932
)
Borrowings, net
287,233

 
289,604

Less: short-term portion of borrowings, net
(2,204
)
 
(1,513
)
Long-term portion of borrowings, net
$
285,029

 
$
288,091



27

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The Term Loan Facility will mature on August 7, 2021 and amortizes at a rate equal to 0.25% of the original principal amount per quarter, beginning with the fourth quarter of Fiscal 2014. The Term Loan Facility is subject to (a) beginning in 2016, an annual mandatory prepayment in an amount equal to 0% to 50% of the Company’s excess cash flows in the preceding fiscal year, depending on the Company’s leverage ratio and (b) certain other mandatory prepayments upon receipt by the Company of proceeds of certain debt issuances, asset sales and casualty events, subject to certain exceptions specified therein, including reinvestment rights. The Company was not required to make any mandatory prepayments under the Term Loan Facility in Fiscal 2016.

At the Company’s option, borrowings under the Term Loan Facility will bear interest at either (a) an adjusted LIBOR rate no lower than 1.00% plus a margin of 3.75% per annum or (b) an alternate base rate plus a margin of 2.75% per annum. Customary agency fees are also payable pursuant to the Term Loan Facility. The interest rate on borrowings under the Term Loan Facility was 4.75% as of October 29, 2016 .

Operating Activities

Net cash provided by operating activities was $21.4 million for the thirty-nine weeks ended October 29, 2016 compared to $66.5 million for the thirty-nine weeks ended October 31, 2015 . The year-over-year change in cash flow associated with operating activities was primarily driven by greater net loss, adjusted for non-cash items, the extension of vendor payment terms in the second quarter of Fiscal 2015 and incentive compensation payments in the first quarter of Fiscal 2016, partially offset by a $24.6 million decrease in cash paid for income taxes and the return of a $22.8 million long-term lease deposit.

Investing Activities

Cash outflows for investing activities for the thirty-nine weeks ended October 29, 2016 and October 31, 2015 were used primarily for new construction, store updates, information technology, and direct-to-consumer and omnichannel capabilities.

Financing Activities

For the thirty-nine weeks ended October 29, 2016 , cash outflows for financing activities consisted primarily of dividend payments of $40.5 million . For the thirty-nine weeks ended October 31, 2015 , cash outflows for financing activities consisted primarily of the repurchase of approximately 2.5 million shares of A&F's Common Stock in the open market at a market value of approximately $50.0 million and dividend payments of $41.7 million .

As of October 29, 2016 , A&F had approximately 6.5 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, marketing initiatives, quarterly dividends to stockholders subject to approval by A&F’s Board of Directors and debt service requirements, including required repayments, if any, based on annual excess cash flows, as defined in the term loan agreement. The Company has availability under the ABL Facility as a source of additional funding.

The Company expects total capital expenditures for Fiscal 2016 to be approximately $140 million , primarily for store remodels, new stores, direct-to-consumer and IT investments to support growth initiatives.

The Company may continue to repurchase shares of its Common Stock and would anticipate funding these cash requirements utilizing free cash flow generated from operations or proceeds from its existing credit facilities.

As of October 29, 2016 , $270.6 million of the Company’s $469.7 million of cash and equivalents was held by foreign affiliates. The Company is not dependent on dividends from its foreign affiliates to fund its U.S. operations or pay dividends to A&F’s stockholders. Unremitted earnings from foreign affiliates generally would become subject to U.S. income tax if remitted as dividends or lent to A&F or a U.S. affiliate. As of October 29, 2016 , a provision for U.S. income tax has not been recorded on $90.0 million of the cash and equivalents held by foreign affiliates which is considered indefinitely invested in foreign operations.

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OFF-BALANCE SHEET ARRANGEMENTS

The Company uses, in the ordinary course of business, stand-by letters of credit under the existing ABL Facility. The Company had $1.8 million in stand-by letters of credit outstanding as of October 29, 2016 . The Company has no other 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-term and long-term liquidity and capital resource needs. During the thirteen weeks ended October 29, 2016 , there were no material changes in the contractual obligations as of January 30, 2016 , 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).

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1, “ BASIS OF PRESENTATION--Recent Accounting Pronouncements ” of the Notes to Condensed Consolidated Financial Statements included in “ITEM 1. FINANCIAL STATEMENTS,” of this Quarterly Report on Form 10-Q for recent accounting pronouncements, including the expected dates of adoption and estimated effects on our Condensed Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We describe our significant accounting policies in Note 2, “ 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 2015. 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 2015. There have been no significant changes in our significant accounting policies or critical accounting estimates since the end of Fiscal 2015.

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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 2015 , in some cases have affected and in the future could affect the Company’s financial performance and could cause actual results for Fiscal 2016 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 global economic and financial conditions, and the resulting impact on consumer confidence and consumer spending, as well as other changes in consumer discretionary spending habits, could have a material adverse effect on our business, results of operations and liquidity;
our inability to anticipate customer demand and changing fashion trends and to manage our inventory commensurately could adversely impact our sales levels and profitability;
a significant component of our growth strategy is international expansion, which requires significant capital investment, the success of which is dependent on a number of factors that could affect the profitability of our international operations;
direct-to-consumer sales channels are a significant component of our growth strategy, and the failure to successfully develop our position in these channels could have an adverse impact on our results of operations;
our market share may be negatively impacted by increasing competition and pricing pressures from companies with brands or merchandise competitive with ours;
we have currently suspended our search for a new Chief Executive Officer and the continuance of our interim governance structure may create uncertainty;
our inability to successfully implement our strategic plans could have a negative impact on our growth and profitability;
our failure to protect our reputation could have a material adverse effect on our brands;
our business could suffer if our information technology systems are disrupted or cease to operate effectively;
we may be exposed to risks and costs associated with cyber-attacks, credit card fraud and identity theft that would cause us to incur unexpected expenses and reputation loss;
fluctuations in foreign currency exchange rates could adversely impact our financial condition and results of operations;
fluctuations in the cost, availability and quality of raw materials, labor and transportation, could cause manufacturing delays and increase our costs;
we depend upon independent third parties for the manufacture and delivery of all our merchandise, and a disruption of the manufacture or delivery of our merchandise could result in lost sales and could increase our costs;
our ability to attract customers to our stores depends, in part, on the success of the shopping malls or area attractions that our stores are located in or around;
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;
our reliance on two distribution centers domestically and third-party distribution centers internationally makes us susceptible to disruptions or adverse conditions affecting our distribution centers;
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;
fluctuations in our tax obligations and effective tax rate may result in volatility in our operating results;
extreme weather conditions and the seasonal nature of our business may cause net sales to fluctuate and negatively impact our results of operations;
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;
the impact of war or acts of terrorism could have a material adverse effect on our operating results and financial condition;
changes in the regulatory or compliance landscape could adversely affect our business and results of operations;
our Asset-Based Revolving Credit Agreement and our Term Loan Agreement include restrictive covenants that limit our flexibility in operating our business; and,
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.


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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.


ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment Securities

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 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 weeks ended October 29, 2016 and October 31, 2015 and $2.3 million and $2.4 million for the thirty-nine weeks ended October 29, 2016 and October 31, 2015 , respectively, which are recorded in interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Rabbi Trust assets are included in other assets on the Condensed Consolidated Balance Sheets as of October 29, 2016 and January 30, 2016 , and are restricted in their use as noted above.

Interest Rate Risks

The Company has approximately $293.3 million in gross borrowings outstanding under its term loan facility (the “Term Loan Facility”) and no borrowings outstanding under its senior secured revolving credit facility (the “ABL Facility” and, together with the Term Loan Facility, the “2014 Credit Facilities”). The 2014 Credit Facilities carry interest rates that are tied to LIBOR, or an alternate base rate, plus a margin. The interest rate on the Term Loan Facility has a 100 basis point LIBOR floor, and assuming no changes in the Company’s financial structure as it stands, an increase in market interest rates of 100 basis points would increase annual interest expense by approximately $1.6 million . This hypothetical analysis for the fifty-two weeks ending January 28, 2017 may differ from the actual change in interest expense due to various conditions which may result in changes in interest rates under the Company’s 2014 Credit Facilities.

Foreign Exchange Rate Risk

A&F’s international subsidiaries generally operate with functional currencies other than the U.S. Dollar. Since the Company’s Condensed Consolidated Financial Statements are presented in U.S. Dollars, 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 foreign currency exchange rates associated with foreign currency transactions and forecasted foreign currency transactions, including the sale of inventory between subsidiaries and foreign currency denominated assets and liabilities. The Company has established a program that primarily utilizes foreign currency exchange 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 exchange forward contracts are recorded at fair value at the end of each fiscal period.

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The fair value of outstanding foreign currency exchange forward contracts included in other current assets was $6.5 million and $4.2 million as of October 29, 2016 and January 30, 2016 , respectively. The fair value of outstanding foreign currency exchange forward contracts included in other liabilities was $0.3 million as of October 29, 2016 . Foreign currency exchange forward contracts are sensitive to changes in foreign currency exchange rates. The Company assessed the risk of loss in fair values from the effect of a hypothetical 10% devaluation of the U.S. Dollar against the exchange rates for foreign currencies under contract. The results would decrease derivative contract fair values by approximately $13.6 million. As the Company’s foreign currency exchange forward contracts are primarily designated as cash flow hedges of forecasted transactions, the hypothetical change in fair value would be largely offset by the net change in fair values of the underlying hedged items.


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 principal executive officer and 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 Executive Vice President and Chief Financial Officer of A&F (who serves as Interim Principal Executive Officer; Principal Financial Officer; and Principal Accounting 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 October 29, 2016 . The Executive Vice President and Chief Financial Officer of A&F (in such individual’s capacity as the Interim Principal Executive Officer and the Principal Financial Officer of A&F) concluded that A&F’s disclosure controls and procedures were effective at a reasonable level of assurance as of October 29, 2016 , 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 October 29, 2016 that materially affected, or are reasonably likely to materially affect, A&F’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS

The Company 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 losses are deemed probable and reasonably estimable. The Company’s assessment of the current exposure could change in the event of the discovery of additional facts. As of October 29, 2016, the Company had accrued charges of approximately $4 million for certain legal contingencies. In addition, there are certain claims and legal proceedings pending against the Company for which accruals have not been established. 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.


ITEM 1A.
RISK FACTORS

The Company's risk factors as of October, 2016 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 2015. Although there has been no material change in the risk factors disclosed in our Form 10-K for Fiscal 2015, certain of such risks may be heightened as a result of the June 2016 decision by the United Kingdom to leave the European Union (“Brexit”) and the results of the November 2016 U.S. elections.
Brexit has increased uncertainty in the economic and political environment in Europe and, in particular, our business and results of operations in the United Kingdom may be impacted by fluctuations in currency exchange rates, changes in trade policies, or changes in labor, immigration, tax or other laws. A&F operated 34 stores in the United Kingdom as of October 29, 2016.
The results of the November 2016 U.S. elections have introduced greater uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the U.S. and other countries. We source the majority of our merchandise from manufacturers located outside of the U.S., primarily in Asia and Central America. Major developments in tax policy or trade relations, such as the disallowance of tax deductions for imported merchandise or the imposition of unilateral tariffs on imported products, could have a material adverse effect on our business, results of operations and liquidity.



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ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities during the third quarter of Fiscal 2016 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 weeks ended October 29, 2016 :
Period (Fiscal Month)
Total Number of Shares Purchased (1)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Number of Shares that May Yet Be Purchased under the Plans or Programs (3)
July 31, 2016 through August 27, 2016
724

 
$
22.35

 

 
6,503,656

August 28, 2016 through October 1, 2016
4,373

 
$
20.79

 

 
6,503,656

October 2, 2016 through October 29, 2016
4,524

 
$
15.60

 

 
6,503,656

Total
9,621

 
$
18.47

 

 
6,503,656


(1)  
All of the 9,621 shares of A&F’s Common Stock purchased during the thirteen weeks ended October 29, 2016  represented shares which were withheld for tax payments due upon the exercise of employee stock appreciation rights and vesting of employee restricted stock units.
(2)  
No shares were repurchased during the thirteen weeks ended October 29, 2016 pursuant to A&F’s publicly announced stock repurchase authorization. On August 14, 2012, A&F’s Board of Directors authorized the repurchase of 10.0 million shares of A&F’s Common Stock, which was announced on August 15, 2012.
(3)  
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 authorization described in footnote 2 above. The shares may be purchased, from time-to-time, depending on market conditions .

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ITEM 6.     EXHIBITS
Exhibit No.
Document
10.1
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates by the Board of Directors of Abercrombie & Fitch Co. on August 31, 2016, incorporated herein by reference to Exhibit 10.5.2 to the Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended July 30, 2016 (File No. 1-12107) (the "July 30, 2016 Form 10-Q").
10.2
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan by Board of Directors of Abercrombie & Fitch Co. on August 20, 2014, incorporated herein by reference to Exhibit 10.11 to the July 30, 2016 Form 10-Q of Abercrombie & Fitch Co.
10.3
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. Amended and Restated 2007 Long-Term Incentive Plan by Board of Directors of Abercrombie & Fitch Co. on August 20, 2014, incorporated herein by reference to Exhibit 10.12 to the July 30, 2016 Form 10-Q of Abercrombie & Fitch Co.
10.4
Agreement between Diane Chang and Abercrombie & Fitch Trading Co., executed by Ms. Chang on October 25, 2016 and by Abercrombie & Fitch Trading Co. on November 3, 2016.*
31
Certifications by Executive Vice President and Chief Financial Officer (who serves as Interim Principal Executive Officer; and Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 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 Executive Vice President and Chief Financial Officer (who serves as Interim 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 October 29, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Thirteen and Thirty-nine Weeks Ended October 29, 2016 and October 31, 2015; (ii) Condensed Consolidated Balance Sheets at October 29, 2016 and January 30, 2016; (iii) Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended October 29, 2016 and October 31, 2015; and (iv) Notes to Condensed Consolidated Financial Statements*
 
*
Filed herewith.
**
Furnished herewith.

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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: December 5, 2016
By
/s/ Joanne C. Crevoiserat
 
 
Joanne C. Crevoiserat
 
 
Executive Vice President and Chief Financial Officer
(Interim Principal Executive Officer, Principal Financial Officer and Authorized Officer)


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EXHIBIT INDEX

Exhibit No.
Document
10.1
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. 2016 Long-Term Incentive Plan for Associates by the Board of Directors of Abercrombie & Fitch Co. on August 31, 2016, incorporated herein by reference to Exhibit 10.5.2 to the Quarterly Report on Form 10-Q of Abercrombie & Fitch Co. for the quarterly period ended July 30, 2016 (File No. 1-12107) (the "July 30, 2016 Form 10-Q").
10.2
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. 2005 Long-Term Incentive Plan by Board of Directors of Abercrombie & Fitch Co. on August 20, 2014, incorporated herein by reference to Exhibit 10.11 to the July 30, 2016 Form 10-Q of Abercrombie & Fitch Co.
10.3
Certificate regarding Approval of Amendment of Section 3(b) of the Abercrombie & Fitch Co. Amended and Restated 2007 Long-Term Incentive Plan by Board of Directors of Abercrombie & Fitch Co. on August 20, 2014, incorporated herein by reference to Exhibit 10.12 to the July 30, 2016 Form 10-Q of Abercrombie & Fitch Co.
10.4
Agreement between Diane Chang and Abercrombie & Fitch Trading Co., executed by Ms. Chang on October 25, 2016 and by Abercrombie & Fitch Trading Co. on November 3, 2016.*
31
Certifications by Executive Vice President and Chief Financial Officer (who serves as Interim Principal Executive Officer; and Principal Financial Officer) pursuant to Rule 13a-14(a) or Rule 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 Executive Vice President and Chief Financial Officer (who serves as Interim 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 October 29, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Thirteen and Thirty-nine Weeks Ended October 29, 2016 and October 31, 2015; (ii) Condensed Consolidated Balance Sheets at October 29, 2016 and January 30, 2016; (iii) Condensed Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended October 29, 2016 and October 31, 2015; and (iv) Notes to Condensed Consolidated Financial Statements*
 
*
Filed herewith.
**
Furnished herewith.

37

EXHIBIT 10.4

AGREEMENT

This Agreement (“Agreement”) is made by and between Diane Chang (“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 retirement 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.
Retirement Transition . Subject to Section 2 below, the Company and Employee agree that Employee shall continue to be employed in the capacity and time periods set forth below to aid in the transition of her responsibilities leading up to her retirement.

a.
Full Time Employment . Up to and including January 28, 2017, Employee shall continue to be employed on a full time basis, performing her normal and customary job responsibilities.

b.
Part Time Employment . Beginning on January 29, 2017 and ending on June 23, 2017, Employee shall be employed by Company in a part-time capacity to assist with the transition of duties related to her retirement, including, but not limited to vendor management.


2.
Retirement Date . Employee’s retirement will be effective on the earlier of: (a) June 24, 2017; or (b) the date on which Employee commences new employment; or (c) the date of Employee’s death (the “Retirement Date”). On the Retirement 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.


3.
Resignation from Board of Directors and Other Positions . As of January 28, 2017, 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 John Gabrielli, Senior Vice President of Human Resources, at 6301 Fitch Path, New Albany, Ohio 43054.


4.
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 Section below.


5.
Consideration : Subject to the further provisions of this Agreement, the Company shall have the following obligations with respect to the Employee:

a.
Full-Time Employment Period . Up to and including the earlier of (i) January 28, 2017, or (ii) the Retirement Date, Employee shall be paid her regular base salary, less applicable taxes and withholdings.

b.
Part-Time Employment Period . Unless the Retirement Date has occurred prior thereto, beginning on January 29, 2017 and up to and including the earlier of (i) June 23, 2017, or (ii) the Retirement Date, Employee shall receive a reduced bi-weekly salary of $19,134.61 per pay period, less applicable taxes and withholdings. Payment of the reduced salary shall be made in bi-weekly installments consistent with the Company’s payroll practices.

c.
Special Bonus. Provided that the Employee executes a supplemental release of claims in a form acceptable to the Company (a “ Supplemental Release ”) on or after the Retirement Date, returns such Supplemental Release to the Company by no later than the applicable deadline set forth in such Supplemental Release (the “ Supplemental Release Deadline ”) and does not revoke such Supplemental Release prior to the expiration of the applicable revocation period (the date on which such Supplemental Release becomes effective, the “ Supplemental Release Effective Date ”), then to the extent Employee remains in full compliance with the terms of this Agreement, including but not limited to the provisions of Section 7,

2



Employee will be paid a Special Bonus in the total amount of $450,000.00, less applicable taxes and withholdings. This Special Bonus will be paid in two installments upon the Company’s determination, in its sole discretion, that Employee has fully complied with her obligations under this Agreement.

i.
First Payment. Subject to the conditions set forth herein, the Company will pay Employee the amount of $225,000.00, less applicable taxes and withholdings. This payment shall be made no sooner than December 24, 2017 and no later than December 31, 2017.

ii.
Second Payment. Subject to the conditions set forth herein, the Company will pay Employee the amount of $225,000.00, less applicable taxes and withholdings. This payment shall be made during December 2018.

iii.
Forfeiture. If at any time after payment of either installment of the Special Bonus, the Company reasonably determines that Employee has violated the provisions of this Agreement, including but not limited to Section 7, Employee shall forfeit any unpaid portion of the Special Bonus and shall be obligated to repay to the Company, in cash, within five business days after demand is made therefor by the Company, the total gross amount of any portion of the Special Bonus previously paid to Employee.

d.
Medical and Dental Coverage . Until the Retirement 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 Retirement Date. Employee will be responsible for electing COBRA or other health care and/or dental care coverage after the Retirement Date.

e.
Vacation. Employee shall be required to use all of Employee’s vacation entitlement for Fiscal Year 2017 on or before June 23, 2017. Employee also acknowledges Employee will not be entitled to payment for any vacation upon Employee’s Retirement Date.

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

g.
Employment Related Expenses. Subject to the Company's Travel and Expense Policy, any unreimbursed employment related expenses incurred by Employee prior to January 28, 2017 shall be submitted by Employee for payment on or before February 24, 2017. Prior to incurring any

3



Employment Related Expenses on or after January 28, 2017, Employee must obtain the authorization of John Gabrielli, Senior Vice President, Human Resources. Employee will not be reimbursed for expenses incurred on or after January 28, 2017 that were not authorized in advance by John Gabrielli.

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 Retirement Date shall be forfeited by Employee.

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 the Retirement Date.

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 the Retirement Date. Notwithstanding the foregoing, no payment of any post 2004 contributions shall be made prior to the six month anniversary of the Retirement 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 Retirement 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 Retirement Date, and to continued coverage under any applicable directors’ and officers’ liability insurance policies through the Retirement Date and until such time as suits can no longer be brought against Employee as a matter of law.

4



m.
Reference . Employee shall direct all inquiries related to employment to John Gabrielli, Senior 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 John Gabrielli.


6.
Section 409A of the Code; Withholding .

a.
This Agreement is intended to avoid the imposition of taxes and/or penalties under Section 409A of the Code. The parties agree that this Agreement shall at all times be interpreted, construed and operated in a manner to avoid the imposition of taxes and/or penalties under with Section 409A of the Code. All references to a termination of employment and separation from service shall mean “separation from service” as defined in Section 409A of the Code, and the date of such “separation from service” shall be referred to as the “Termination Date”.

b.
All reimbursements provided under this Agreement shall comply with Section 409A of the Code and shall be subject to the following requirement: (i) the amount of expenses eligible for reimbursement, during the Employee’s taxable year may not affect the expenses eligible for reimbursement to be provided in another taxable year; and (ii) the reimbursement of an eligible expense must be made by December 31 following the taxable year in which the expense was incurred. The right to reimbursement is not subject to liquidation or exchange for another benefit.

c.
Notwithstanding anything in this Agreement to the contrary, for purposes of the period specified in this Agreement relating to the timing of the Employee’s execution of the Release as a condition of the Company’s obligation to provide any severance payments or benefits, if such period would begin in one taxable year and end in a second taxable year, any payment otherwise due to the Employee upon execution of the Release shall be made in the second taxable year and without regard to when the Release was executed or became irrevocable.

d.
If the Employee is a “specified employee” (as defined under Section 409A of the Code) on the Employee’s Termination Date, to the extent that any amount payable under this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code (and is not otherwise excepted from Section 409A of the Code coverage by virtue of being considered “separation pay” or a “short term deferral” or otherwise) and is payable to Employee based upon a separation from service, such amount

5



shall not be paid until the first day following the six (6) month anniversary of the Employee’s Termination Date.

e.
To the maximum extent permitted under Section 409A of the Code, the payments and benefits under this Agreement are intended to meet the requirements of the short-term deferral exemption under Section 409A of the Code and the “separation pay exception” under Treasury Regulation §1.409A-1(b)(9)(iii). Any right to a series of installment payments shall be treated as a right to a series of separate payments for purposes of Section 409A of the Code.

f.
All amounts due and payable under this Agreement shall be paid less all amounts required to be withheld by law, including all applicable federal, state and local withholding taxes and deductions.


7.      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 position accepted, and the date on which Employee’s employment with the new employer will commence. Notification shall be sent to John Gabrielli, Senior Vice President of Human Resources, 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, or such other executive governing body as may exist in lieu of the CEO, (hereinafter referred to as the “ Executive Approval ”), 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 Executive Approval, 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,

6



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 Section 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 Retirement 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.

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 Section, 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

7



claim in connection with enforcing or defending Employee’s rights or obligations under this Agreement.

d.
Non-Competition . During Employee’s employment with the Company through and including December 31, 2017 (the “Non-Competition Period”), Employee shall not, directly or indirectly, without Executive Approval 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 Section.

e.
Non-Solicitation . During Employee’s employment with the Company through and including December 31, 2018 (“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 Section shall supersede any previous non-solicitation agreements between the Parties.

f.
Remedies . The Employee agrees that any breach of the terms of this Section 7 would result in irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Employee therefore also 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/or threatened breach and/or continued breach by the Employee and/or any and all persons and/or entities acting for and/or with the Employee, without having to prove damages. The terms of this Section 7(f) shall not prevent the Company from pursuing any other available remedies for any breach or threatened

8



breach hereof, including but not limited to the recovery of damages from the Employee. The Employee and the Company further agree that the confidentiality provisions and the covenants not to compete and solicit contained in this Section 7 are reasonable and that the Company would not have entered into this Agreement but for the inclusion of such covenants herein. The parties agree that the prevailing party shall be entitled to all costs and expenses, including reasonable attorneys' fees and costs, in addition to any other remedies to which either may be entitled at law or in equity in connection with the enforcement of the covenants set forth in this Section 7. Should a court with jurisdiction determine, however, that all or any portion of the covenants set forth in this Section 7 is unreasonable, either in period of time, geographical area, or otherwise, the parties hereto agree that such covenants or portion thereof should be interpreted and enforced to the maximum extent that such court deems reasonable. In the event of any violation of the provisions of this Section 7, the Employee acknowledges and agrees that the post-termination restrictions contained in this Section 7 shall be extended by a period of time equal to the period of such violation, it being the intention of the parties hereto that the running of the applicable post-termination of employment restriction period shall be tolled during any period of such violation. In the event of a material violation by the Employee of this Section 7, any payments being paid to the Employee pursuant to Section 5 of this Agreement or otherwise shall immediately cease, and the aggregate gross amount of any payments previously paid to the Employee shall be immediately repaid to the Company.

g.
The provisions of this Section 7 shall survive any termination of this Agreement and any termination of the Employee’s employment, and the existence of any claim or cause of action by the 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 Section 7.


8.
Release . As of the Effective Date, 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

9



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.

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 and Reporting . Employee acknowledges and agrees that, as of the Effective Date, Employee: (a) has been properly paid for all hours worked at the Company; (b) has not suffered any on-the job injury at the Company for which Employee has not already filed a claim; (c) has not suffered any unreported workplace injury at the Company through the Termination Date or re-aggravated any job injury Employee has already reported or for which Employee has already filed a worker’s compensation claim; (d) has been properly provided any leave of absence at the Company because of Employee’s or a family member’s health condition; and, (e) has not been subjected to any improper treatment, conduct or actions by the Company due to or related to Employee’s request for, or taking of, any leave of absence because of Employee’s own or a family member’s health condition.

Cooperation . Nothing in this Release shall be construed to prohibit Employee from filing a charge with or participating in any investigation or proceeding conducted by any government agency, such as the Equal Employment

10



Opportunity Commission or National Labor Relations Board. Notwithstanding the foregoing, with the exception of any relief the law precludes Employee from waiving by agreement, Employee agrees to waive Employee’s right to recover monetary damages or other individual relief in any charge, complaint, demand, or lawsuit against the Company by Employee, anyone on behalf of Employee, any governmental agency, or any other third party.


9.
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;

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.


10.
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

11



admission or acknowledgment by either party of any liability whatsoever to the other party or any other person or entity.


11.
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.


12.
Set-Off . The Employee agrees that, to the extent permitted by applicable law, the Company may deduct from and set-off against any amounts otherwise payable to the Employee under this Agreement such amounts as may be owed by the Employee to the Company. The Employee shall remain liable for any part of the Employee’s payment obligation not satisfied through such deduction and setoff


13.
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.


14.
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.


15.
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

12



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.


16.
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.


17.
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 or Reduced Salary shall cease as of the date of Employee’s death and shall not be paid to Employee’s estate. In the event that the Employee dies and was in compliance with this Agreement, including but not limited to the provisions of Section 7, on her date of death, any unpaid Special Bonus 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.


19.
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.


20.
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.

13






[signature page follows]

14





IN WITNESS WHEREOF, the undersigned has hereto set her hand this 25 th day of October, 2016.

/s/ Diane Chang
 
 
Diane Chang
 
 



IN WITNESS WHEREOF, the undersigned has hereto set its hand this 3 rd day of November, 2016.

/s/ John Gabrielli
 
 
Abercrombie & Fitch Trading Co.
By: John Gabrielli
Senior Vice President of Human Resources
 
 

15




Appendix A

(all current and future (as described in Section 7(d) of the Agreement) subsidiaries, divisions and affiliates of the entities below)
American Eagle Outfitters, Inc.
Gap, Inc.
J. Crew Group, Inc.
Pacific Sunwear of California, Inc.
Urban Outfitters, Inc.
Aeropostale, Inc.
Polo Ralph Lauren Corporation
Jack Wills, Ltd.
SuperGroup, Plc.
Levi Strauss & Co.
L Brands (formerly known as Limited Brands, including, without limitation, Victoria’s Secret, Pink, Bath & Body Works, La Senza and Henri Bendel)
Express, Inc.

16


EXHIBIT 31
 
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 October 29, 2016 ;
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(s) 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(s) 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.
 
 
 
Date: December 5, 2016
By:
/s/ Joanne C. Crevoiserat
 
 
Joanne C. Crevoiserat
 
 
Executive Vice President and Chief Financial Officer
 
 
(Interim Principal Executive Officer; and Principal Financial Officer)





EXHIBIT 32
            

Certifications by Executive Vice President and Chief Financial Officer (who serves as Interim 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 October 29, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned Joanne C. Crevoiserat, Executive Vice President and Chief Financial Officer of the Corporation (serving as Interim Principal Executive Officer; and Principal Financial Officer), certifies, 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/ Joanne C. Crevoiserat
 
 
Joanne C. Crevoiserat
Executive Vice President and Chief Financial Officer
(Interim Principal Executive Officer; and Principal Financial Officer)
 
 
 
 
 
Date: December 5, 2016
 
 


*
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.