What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-12-07 compared with 2020-09-08 · 309 added, 308 removed, 438 unchanged (58% of the section changed)

3 unchanged sentences

(Thousands, except per share amounts)

Thirteen Weeks Ended

Twenty-six Weeks Ended

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Thirteen Weeks Ended Thirty-nine Weeks Ended

October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Net sales $ 819,653 $ 863,472 $ 2,003,340 $ 2,438,522

Cost of sales, exclusive of depreciation and amortization 295,220 344,541 791,154 976,868

Gross profit 524,433 518,931 1,212,186 1,461,654

Stores and distribution expense 346,263 377,697 978,757 1,110,656

2 unchanged sentences

Asset impairment, exclusive of flagship store exit charges 6,329 12,610 57,340 14,987

Other operating (income) loss, net

Other operating loss (income), net 288 ( 215 ) ( 1,562 ) ( 465 )

Operating income (loss) 58,616 14,479 ( 136,368 ) ( 52,263 )

6 unchanged sentences

Net income (loss) per share attributable to A&F

Basic $ 0.68 $ 0.10 $ ( 3.14 ) $ ( 0.67 )

Diluted $ 0.66 $ 0.10 $ ( 3.14 ) $ ( 0.67 )

Weighted-average shares outstanding

Other comprehensive income (loss)

Basic 62,558 63,099 62,541 64,932

Diluted 63,877 63,911 62,541 64,932

Other comprehensive (loss) income

Foreign currency translation, net of tax $ 2,142 $ 1,355 $ 5,477 $ ( 5,219 )

Derivative financial instruments, net of tax

Other comprehensive income (loss)

( 5,234 ) ( 3,654 ) 1,224 ( 574 )

Other comprehensive (loss) income ( 3,092 ) ( 2,299 ) 6,701 ( 5,793 )

Comprehensive income (loss)

40,937 5,271 ( 187,509 ) ( 46,033 )

Comprehensive income attributable to noncontrolling interests

1,758 1,047 2,203 3,534

Comprehensive income (loss) attributable to A&F

$ 39,179 $ 4,224 $ ( 189,712 ) $ ( 49,567 )

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

2 unchanged sentences

(Thousands, except par value amounts)

August 1, 2020

February 1, 2020

October 31, 2020 February 1, 2020

Current assets:

Cash and equivalents $ 812,881 $ 671,267

Receivables 89,074 80,251

Inventories 545,548 434,326

Other current assets 73,776 78,905

2 unchanged sentences

Operating lease right-of-use assets 955,781 1,230,954

Other assets 205,970 388,672

Total assets $ 3,276,962 $ 3,549,665

Liabilities and stockholders’ equity

17 unchanged sentences

Treasury stock, at average cost:

40,935 and 40,514 shares as of August 1, 2020 and February 1, 2020, respectively

40,916 and 40,514 shares as of October 31, 2020 and February 1, 2020, respectively ( 1,513,495 ) ( 1,552,065 )

Total Abercrombie & Fitch Co.

7 unchanged sentences

(Thousands, except per share amounts)

Thirteen Weeks Ended August 1, 2020

Non-controlling interests

Treasury stock

Thirteen Weeks Ended October 31, 2020

Common Stock Paid-in

capital Non-controlling interests Retained

earnings AOCL Treasury stock Total

stockholders’

Balance, May 2, 2020

outstanding Par

value Shares At average

Balance, August 1, 2020 62,365 $ 1,033 $ 392,272 $ 7,929 $ 2,025,911 $ ( 99,093 ) 40,935 $ ( 1,514,442 ) $ 813,610

Net income — — — 1,758 42,271 — — — 44,029

Share-based compensation issuances and exercises 19 — ( 436 ) — ( 661 ) — ( 19 ) 947 ( 150 )

3 unchanged sentences

Distributions to noncontrolling interests, net — — — ( 262 ) — — — — ( 262 )

Ending balance at August 1, 2020

Thirteen Weeks Ended August 3, 2019

Non-controlling interests

Treasury stock

Ending balance at October 31, 2020 62,384 $ 1,033 $ 396,505 $ 9,425 $ 2,067,521 $ ( 102,185 ) 40,916 $ ( 1,513,495 ) $ 858,804

Thirteen Weeks Ended November 2, 2019

Common Stock Paid-in

capital Non-controlling interests Retained

earnings AOCL Treasury stock Total

stockholders’

Balance, May 4, 2019

outstanding Par

value Shares At average

Balance, August 3, 2019 63,146 $ 1,033 $ 394,694 $ 11,318 $ 2,251,032 $ ( 105,946 ) 40,154 $ ( 1,548,836 ) $ 1,003,295

Net income — — — 1,047 6,523 — — — 7,570

Purchase of Common Stock ( 412 ) — — — — — 412 ( 5,730 ) ( 5,730 )

5 unchanged sentences

Distributions to noncontrolling interests, net — — — ( 1,511 ) — — — — ( 1,511 )

Ending balance at August 3, 2019

Ending balance at November 2, 2019 62,757 $ 1,033 $ 399,981 $ 10,854 $ 2,244,150 $ ( 108,245 ) 40,543 $ ( 1,553,407 ) $ 994,366

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

2 unchanged sentences

(Thousands, except per share amounts)

Twenty-six Weeks Ended August 1, 2020

Non-controlling interests

Treasury stock

Thirty-nine Weeks Ended October 31, 2020

Common Stock Paid-in

capital Non-controlling interests Retained

earnings AOCL Treasury stock Total

stockholders’

outstanding Par

value Shares At average

Balance, February 1, 2020 62,786 $ 1,033 $ 404,983 $ 12,368 $ 2,313,745 $ ( 108,886 ) 40,514 $ ( 1,552,065 ) $ 1,071,178

Net loss — — — 2,203 ( 196,413 ) — — — ( 194,210 )

Purchase of Common Stock ( 1,397 ) — — — — — 1,397 ( 15,172 ) ( 15,172 )

5 unchanged sentences

Distributions to noncontrolling interests, net — — — ( 5,146 ) — — — — ( 5,146 )

Ending balance at August 1, 2020

Twenty-six Weeks Ended August 3, 2019

Non-controlling interests

Treasury stock

Ending balance at October 31, 2020 62,384 $ 1,033 $ 396,505 $ 9,425 $ 2,067,521 $ ( 102,185 ) 40,916 $ ( 1,513,495 ) $ 858,804

Thirty-nine Weeks Ended November 2, 2019

Common Stock Paid-in

capital Non-controlling interests Retained

earnings AOCL Treasury stock Total

stockholders’

outstanding Par

value Shares At average

Balance, February 2, 2019 66,227 $ 1,033 $ 405,379 $ 9,721 $ 2,418,544 $ ( 102,452 ) 37,073 $ ( 1,513,604 ) $ 1,218,621

Impact from adoption of the new lease accounting standard — — — — ( 75,165 ) — — — ( 75,165 )

Net loss — — — 3,534 ( 43,774 ) — — — ( 40,240 )

Purchase of Common Stock ( 3,957 ) — — — — — 3,957 ( 63,542 ) ( 63,542 )

5 unchanged sentences

Distributions to noncontrolling interests, net — — — ( 2,401 ) — — — — ( 2,401 )

Ending balance at August 3, 2019

Ending balance at November 2, 2019 62,757 $ 1,033 $ 399,981 $ 10,854 $ 2,244,150 $ ( 108,245 ) 40,543 $ ( 1,553,407 ) $ 994,366

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Twenty-six Weeks Ended

August 1, 2020

August 3, 2019

Thirty-nine Weeks Ended

October 31, 2020 November 2, 2019

Operating activities

Net loss $ ( 194,210 ) $ ( 40,240 )

Adjustments to reconcile net loss to net cash provided by (used for) operating activities:

5 unchanged sentences

Changes in assets and liabilities:

Inventories ( 109,665 ) ( 154,791 )

Accounts payable and accrued expenses 186,806 34,752

Operating lease right-of-use assets and liabilities ( 41,976 ) 42,990

Income taxes ( 7,168 ) ( 2,264 )

Other assets 30,403 ( 47,138 )

Withdrawal of funds from Rabbi Trust assets 50,000 —

20 unchanged sentences

Purchases of property and equipment not yet paid at end of period $ 26,554 $ 36,951

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

Operating lease right-of-use assets additions, net of terminations, impairments and other reductions $ ( 41,305 ) $ 293,281

Supplemental information related to cash activities

38 unchanged sentences

All references herein to the Company’s fiscal years are as follows:

Number of weeks

February 1, 2020

January 30, 2021

Fiscal year Year ended Number of weeks

Fiscal 2019 February 1, 2020 52

Fiscal 2020 January 30, 2021 52

Interim financial statements

The Condensed Consolidated Financial Statements as of August 1, 2020 , and for the thirteen and twenty-six week periods ended August 1, 2020 and August 3, 2019 , are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

The Condensed Consolidated Financial Statements as of October 31, 2020, and for the thirteen and thirty-nine week periods ended October 31, 2020 and November 2, 2019, are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Accordingly, the 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 2019 filed with the SEC on March 31, 2020.

5 unchanged sentences

The extent to which the current outbreak of coronavirus disease (“COVID-19”) impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

the magnitude and duration of the COVID-19 pandemic and its impact on the length or frequency of store closures, and the extent to which

COVID-19 will impact worldwide macroeconomic conditions including interest rates, the speed of the anticipated recovery, and governmental, business and consumer reactions to the pandemic.

the magnitude and duration of the COVID-19 pandemic and its impact on the length or frequency of store closures, and the extent to

which COVID-19 will impact worldwide macroeconomic conditions including interest rates, the speed of the economic recovery, and governmental, business and consumer reactions to the pandemic.

The Company’s assessment of these, as well as other factors, could impact management's estimates and result in material impacts to the Company’s consolidated financial statements in future reporting periods.

3 unchanged sentences

The following table provides a reconciliation of cash and equivalents and restricted cash and equivalents to the amounts shown on the Condensed Consolidated Statements of Cash Flows:

(in thousands)

August 1, 2020

February 1, 2020

August 3, 2019

February 2, 2019

Cash and equivalents

Long-term restricted cash and equivalents

Short-term restricted cash and equivalents

Other current assets

(in thousands) Location October 31, 2020 February 1, 2020 November 2, 2019 February 2, 2019

Cash and equivalents Cash and equivalents $ 812,881 $ 671,267 $ 410,775 $ 723,135

Long-term restricted cash and equivalents Other assets 14,633 18,696 18,698 22,694

Short-term restricted cash and equivalents Other current assets 4,294 2,301 2,550 —

Cash and equivalents and restricted cash and equivalents $ 831,808 $ 692,264 $ 432,023 $ 745,829

2 unchanged sentences

The Company has seen, and may continue to see, material adverse impacts as a result of COVID-19.

Current circumstances are dynamic and future impacts, including the duration and impact on overall customer demand, are uncertain.

The extent of future impacts of COVID-19 on the Company’s business, including the duration and impact on overall customer demand, are uncertain as current circumstances are dynamic and depend on future developments, including, but not limited to, the duration and spread of COVID- 19 and the availability and acceptance of an effective vaccine or medical treatments.

In January 2020, the Company began to experience business disruptions in the Asia-Pacific (“APAC”) region as a result of COVID-19.

1 unchanged sentence

In March 2020, the COVID-19 outbreak was declared to be a global pandemic by the World Health Organization.

In response to COVID-19, certain governments have imposed travel restrictions and local statutory quarantines and the Company has recommended associates who are able to perform their role remotely to do so.

The Company is reacting to COVID-19 on a daily basis, including by conforming to local government guidance and monitoring developments in government legislation or other government actions in response to the COVID-19 outbreak.

2 unchanged sentences

The majority of APAC stores were reopened during March 2020, and the Company began to reopen stores in North America and the EMEA region on a rolling basis in late April 2020.

As of August 1, 2020, approximately 90% of Company-operated stores had reopened for in-store service, although many with modified operating hours.

As of October 31, 2020, approximately 97% of Company-operated stores had reopened for in-store service, although many with modified operating hours.

The Company plans to follow the guidance of local governments to determine when it can reopen stores that have been closed due to COVID-19 and to evaluate whether further store closures will be necessary.

The Company’s digital operations across brands have continued to serve the Company’s customers during this unprecedented period of temporary store closures as the Company’s distribution centers implemented enhanced cleaning and social distancing measures in order to remain operational.

In response to elevated digital demand during this period, the Company has increased its omnichannel capabilities by continuing to offer Purchase-Online-Pickup-in-Store, including curbside pick-up at a majority of U.S.

locations, and by utilizing ship-from-store capabilities.

In addition, to prepare for the Fiscal 2020 holiday season, the Company has entered into a short-term lease for an additional distribution center and has partnered with incremental carriers.

Impact of COVID-19

The Company has seen, and may continue to see, material reductions in sales across brands and regions as a result of COVID-19.

Total net sales decreased approximately 17% and 25% for the thirteen and twenty-six weeks ended August 1, 2020 as compared to the comparable periods ended August 3, 2019, respectively.

Total net sales decreased approximately 5% and 18% for the thirteen and thirty-nine weeks ended October 31, 2020

as compared to the comparable periods ended November 2, 2019, respectively.

The year-over-year decrease in total net sales was primarily driven by temporary widespread store closures and a decline in traffic as compared to the previous year as a result of COVID-19.

The year-over-year decline in store sales was partially offset by digital sales growth of approximately 56% and 41% for the thirteen and twenty-six weeks ended August 1, 2020 as compared to the comparable periods ended August 3, 2019, respectively.

The year-over-year decline in store sales was partially offset by digital sales growth of approximately 43% and 42% for the thirteen and thirty-nine weeks ended October 31, 2020 as compared to the comparable periods ended November 2, 2019, respectively.

Primarily as a result of COVID-19 and the temporary closure of the Company’s stores, the Company recognized $ 14.8 million of charges to reduce the carrying value of inventory in cost of sales, exclusive of depreciation and amortization on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) during the thirteen weeks ended May 2, 2020.

During the thirteen and twenty-six weeks ended August 1, 2020 , reductions in revenue have not been offset by proportional decreases in expense, as the Company continued to incur store occupancy costs such as operating lease costs, net of rent abatements agreed upon during the period, depreciation expense, and certain other costs such as compensation and administrative expenses resulting in a negative effect on the relationship between the Company’s costs and revenues.

During the thirty-nine weeks ended October 31, 2020, reductions in revenue have not been offset by proportional decreases in expense, as the Company continued to incur store occupancy costs such as operating lease costs, net of rent abatements agreed upon during the period, depreciation expense, and certain other costs such as compensation, net of government payroll relief, and administrative expenses resulting in a negative effect on the relationship between the Company’s costs and revenues.

During this period, the Company suspended rent payments for a significant number of stores that were closed, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward.

To the extent that the Company is successful in negotiating further rent abatements, these benefits will be recognized as a component of variable lease cost.

The Company has elected to account for all qualifying lease concessions, those that are a direct consequence of COVID-19 and that result in revised lease consideration that is substantially the same or less than the original consideration, as if the enforceable rights and obligations associated with the concession existed in the original lease agreement.

Rent abatements associated with such concessions are recognized in variable lease cost.

Lease concessions granted as part of an agreement that substantially increases the total consideration as a result of the inclusion of additional terms, such as rent payments associated with a lease term extension, are treated as lease modifications.

For stores where the Company suspended payments, the Company reclassified related amounts from operating lease liability to accrued expenses in the period during which rent was due, while continuing to recognize operating lease cost in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss).

3 unchanged sentences

Based on the Company's evaluation of the CARES Act and legislation across regions, the Company qualifies for certain payroll tax credits, and such government subsidies have been treated as offsets to the related operating expenses when recognized.

During the thirteen and twenty-six weeks ended August 1, 2020 , the Company recognized qualified payroll tax credits reducing payroll expenses by approximately $ 3.1 million and $ 11.8 million , respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), with $ 3.6 million of expected relief classified in receivables on the Condensed Consolidated Balance Sheet as of August 1, 2020 .

The Company intends to continue to defer qualified payroll and other tax payments as permitted by the CARES Act and other regional legislation.

The Company also recognized asset impairment charges related to the Company’s right-of-use assets and property and equipment of $8.1 million and $51.0 million during the thirteen and twenty-six weeks ended August 1, 2020 , respectively, which were principally the result of the impact of COVID-19 on store cash flows.

During the thirteen and thirty-nine weeks ended October 31, 2020, the Company recognized qualified payroll tax credits reducing payroll expenses by approximately $ 2.8 million and $ 14.7 million, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), The Company intends to continue to defer qualified payroll and other tax payments as permitted by the CARES Act and other regional legislation.

The Company also recognized asset impairment charges related to the Company’s right-of-use assets and property and equipment of $6.3 million and $57.3 million during the thirteen and thirty-nine weeks ended October 31, 2020, respectively, which were principally the result of the impact of COVID-19 on store cash flows.

Refer to Note 9, “ ASSET IMPAIRMENT ,” for additional information.

In addition, the Company has also experienced other material impacts as a result of COVID-19, such as deferred tax valuation allowances and other tax charges during the twenty-six weeks ended August 1, 2020 , adversely impacting results by $84.1 million .

In addition, the Company has also experienced other material impacts as a result of COVID-19, such as deferred tax valuation allowances and other tax charges during the thirty-nine weeks ended October 31, 2020, adversely impacting results by $ 77.4 million.

Refer to Note 11, “ INCOME TAXES ,” for additional information.

Balance sheet, cash flow and liquidity

During the twenty-six weeks ended August 1, 2020, the Company has taken various actions to preserve liquidity and manage cash flows in order to best position the business for key stakeholders, including (i) partnering with merchandise and non-merchandise vendors in regards to payment terms;

(ii) reducing and recadencing inventory receipts to better align inventory with expected market demand;

During the thirty-nine weeks ended October 31, 2020, the Company has taken various actions to preserve liquidity and manage cash flows in order to best position the business for key stakeholders, including (i) partnering with merchandise and non-merchandise vendors in regards to payment terms;

(ii) tightly managing inventory receipts to align inventory with expected market demand;

(iii) significantly reducing expenses to better align operating costs with sales;

and (iv) temporarily suspending its share repurchase program in March 2020 and its dividend program in May 2020.

In addition, despite the Company’s recent history of partnering with its vendors regarding payment terms, there can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

In addition, despite the Company's recent history of partnering with its vendors regarding payment terms, certain payment term extensions were temporary and certain previously deferred payments have since been made.

There can be no assurance that the Company will be able to maintain extended payment terms or continue to defer payments, which may result in incremental operating cash outflows in future periods.

As a precautionary measure in response to COVID-19, in March 2020, the Company borrowed $ 210.0 million under its senior secured asset-based revolving credit facility (the “ABL Facility”) to improve its near-term cash position and withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $ 50.0 million of additional cash.

1 unchanged sentence

Refer to Note 12, “ BORROWINGS ,” and Note 10, “ RABBI TRUST ASSETS ,” for additional information.

As of August 1, 2020 , the Company had liquidity of $ 1.061 billion as compared to $ 913.8 million as of February 1, 2020 , comprising cash and equivalents and actual incremental borrowing available to the Company under the ABL Facility.

As of October 31, 2020, the Company had liquidity of $ 1.158 billion as compared to $ 913.8 million as of February 1, 2020, comprised of cash and equivalents and actual incremental borrowing available to the Company under the ABL Facility.

REVENUE RECOGNITION

3 unchanged sentences

Contract liabilities

The following table details certain contract liabilities representing unearned revenue as of August 1, 2020 , February 1, 2020 , August 3, 2019 and February 2, 2019:

(in thousands)

August 1, 2020

February 1, 2020

August 3, 2019

February 2, 2019

The following table details certain contract liabilities representing unearned revenue as of October 31, 2020, February 1, 2020, November 2, 2019 and February 2, 2019:

(in thousands) October 31, 2020 February 1, 2020 November 2, 2019 February 2, 2019

Gift card liability $ 22,910 $ 28,844 $ 19,855 $ 26,062

Loyalty program liability $ 19,640 $ 23,051 $ 21,396 $ 19,904

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 :

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

The following table details recognized revenue associated with the Company’s gift card program and loyalty programs for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Revenue associated with gift card redemptions and gift card breakage $ 11,717 $ 12,653 $ 32,792 $ 40,729

2 unchanged sentences

Net income (loss) per basic and diluted share attributable to A&F is computed based on the weighted-average number of outstanding shares of Class A Common Stock (“Common Stock”).

Additional information pertaining to net income (loss) per share attributable to A&F is as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Additional information pertaining to net income (loss) per share attributable to A&F follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Shares of Common Stock issued 103,300 103,300 103,300 103,300

4 unchanged sentences

Anti-dilutive shares (1)

1,828 2,912 1,988 1,572

(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.

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The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy.

The three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis, as of August 1, 2020 and February 1, 2020 were as follows:

Assets at Fair Value as of August 1, 2020

(in thousands)

The three levels of the hierarchy and the distribution of the Company’s assets and liabilities that are measured at fair value on a recurring basis, as of October 31, 2020 and February 1, 2020 were as follows:

Assets at Fair Value as of October 31, 2020

(in thousands) Level 1 Level 2 Level 3 Total

Cash equivalents (1)

$ 68,271 $ 43,596 $ — $ 111,867

Derivative instruments (2)

Rabbi Trust assets (3)

1 60,418 — 60,419

Restricted cash equivalents (4)

6,670 7,918 — 14,588

Total assets $ 74,942 $ 112,393 $ — $ 187,335

Derivative instruments (2)

$ — $ 367 $ — $ 367

Total liabilities $ — $ 367 $ — $ 367

Assets and Liabilities at Fair Value as of February 1, 2020

(in thousands)

(in thousands) Level 1 Level 2 Level 3 Total

Cash equivalents (1)

$ 225 $ 58,447 $ — $ 58,672

Derivative instruments (2)

— 1,969 — 1,969

Rabbi Trust assets (3)

1 109,048 — 109,049

Restricted cash equivalents (4)

9,765 4,601 — 14,366

Total assets $ 9,991 $ 174,065 $ — $ 184,056

Derivative instruments (2)

$ — $ 1,460 $ — $ 1,460

Total liabilities $ — $ 1,460 $ — $ 1,460

1 unchanged sentence

Level 2 assets consist of time deposits.

(2) Level 2 assets and liabilities consist primarily of foreign currency exchange forward contracts.

(3) Level 1 assets consist of investments in money market funds.

3 unchanged sentences

Level 2 assets consist of time deposits.

Level 2 assets and liabilities consist primarily of foreign currency exchange forward contracts.

The Company’s Level 2 assets and liabilities consist of:

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The carrying amount and fair value of the Company’s long-term gross borrowings were as follows:

(in thousands)

August 1, 2020

February 1, 2020

(in thousands) October 31, 2020 February 1, 2020

Gross borrowings outstanding, carrying amount $ 350,000 $ 233,250

2 unchanged sentences

Property and equipment, net consisted of:

(in thousands)

August 1, 2020

February 1, 2020

(in thousands) October 31, 2020 February 1, 2020

Property and equipment, at cost $ 2,741,167 $ 2,744,967

1 unchanged sentence

Property and equipment, net $ 593,932 $ 665,290

Refer to Note 9 , “ ASSET IMPAIRMENT ,” for details related to property and equipment impairment charges incurred during the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 .

Refer to Note 9, “ ASSET IMPAIRMENT ,” for details related to property and equipment impairment charges incurred during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019.

The Company is a party to leases related to its Company-operated retail stores as well as for certain of its distribution centers, office space, information technology and equipment.

During the thirteen and twenty-six weeks ended August 1, 2020 , the Company suspended rent payments for a significant number of stores that were closed as a result of COVID-19, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward.

To the extent that the Company is successful in negotiating further rent abatements, these benefits will be recognized as a component of variable lease cost.

During thirty-nine weeks ended October 31, 2020, the Company suspended rent payments for a significant number of stores that were closed as a result of COVID-19, and continues to engage with its landlords to find a mutually beneficial and agreeable path forward.

Rent abatements associated with such concessions are recognized in variable lease cost.

The following table provides a summary of the Company’s operating lease costs for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 :

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

In addition, during the thirteen weeks ended October 31, 2020, the Company entered into a sublease agreement with a third party for the remaining lease term of one of its European Abercrombie & Fitch flagship store locations upon its expected closure during the thirteen weeks ending January 30, 2021.

As of October 31, 2020, the Company's subleased property had a remaining lease term of 7.1 years with the sublease term from February 1, 2021 through November 30, 2027.

The sublease arrangement provides for rent and occupancy related costs such as taxes, utilities and maintenance costs.

Initial sublease terms provide for rent escalations based on the index under the lease, which were estimated upon initial measurement of the operating lease right-of-use asset and liability.

The sublease agreement does not include residual value guarantees.

Consistent with the Company's real estate leases, the sublease contains usage restrictions, but does not contain financial covenants and restrictions.

Future minimum tenant operating lease payments remaining under this sublease as of October 31, 2020 were $ 29.0 million.

The following table provides a summary of the Company’s operating lease costs for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Single lease cost (1)

$ 83,743 $ 104,726 $ 264,932 $ 318,270

Variable lease cost (2)

14,428 25,990 61,763 129,073

Operating lease right-of-use asset impairment (3)

3,979 9,047 44,397 12,636

Total operating lease cost $ 102,150 $ 139,763 $ 371,092 $ 459,979

Includes amortization and interest expense associated with operating lease right-of-use assets and liabilities.

Includes variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on performance, and payments related to taxes, insurance, and maintenance costs, as well as rent abatements agreed upon during the period.

(1) Includes amortization and interest expense associated with operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities.

(2) Includes variable payments related to both lease and nonlease components, such as contingent rent payments made by the Company based on performance, and payments related to taxes, insurance, and maintenance costs, as well as rent abatements related to the effects of the COVID-19 pandemic that resulted in the total payments required by the modified contract being substantially the same as or less than total payments required by the original contract.

(3) Refer to Note 9, “ ASSET IMPAIRMENT ,” for details related to operating lease right-of-use asset impairment charges.

During the twenty-six weeks ended August 1, 2020 and August 3, 2019 , the Company paid $122.1 million and $200.5 million , respectively, for amounts included in measurement of operating lease liabilities, net of rent abatements agreed upon during the period which are classified as a component variable lease cost as noted in the above table.

During the thirty-nine weeks ended October 31, 2020 and November 2, 2019, the Company paid $224.8 million and $311.3 million, respectively, for amounts included in the measurement of operating lease liabilities, net of rent abatements agreed upon during the period.

These payments are included within operating activities on the Condensed Consolidated Statements of Cash Flows.

During the twenty-six weeks ended August 1, 2020 and August 3, 2019 , the Company obtained operating lease right-of-use assets of $23.1 million and $204.5 million , respectively, in exchange for operating lease liabilities.

As of August 1, 2020 , the Company had minimum commitments related to additional operating lease contracts the terms of which have not yet commenced, primarily for its Company-operated retail stores, of approximately $ 2.8 million .

As of October 31, 2020, the Company had minimum commitments related to additional operating lease contracts the terms of which have not yet commenced, primarily for its Company-operated retail stores, of approximately $ 3.3 million.

ASSET IMPAIRMENT

Asset impairment charges for th e thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 were as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Asset impairment charges for th e thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Operating lease right-of-use asset impairment (1)

$ 3,979 $ 9,047 $ 44,397 $ 12,636

Property and equipment asset impairment 2,350 3,563 12,943 5,580

Total asset impairment $ 6,329 $ 12,610 $ 57,340 $ 18,216

Includes $3.2 million of operating lease right-of-use asset impairment related to flagship store exit charges for each of the thirteen and twenty-six weeks ended August 3, 2019 .

(1) Includes $3.2 million of operating lease right-of-use asset impairment related to flagship store exit charges for each of the thirteen and thirty-nine weeks ended November 2, 2019.

Refer to Note 17, “ FLAGSHIP STORE EXIT (BENEFITS) CHARGES .”

Asset impairment charges for the thirteen weeks and twenty-six weeks ended August 1, 2020 were principally the result of the impact of COVID-19 and were related to certain of the Company’s stores across brands, geographies and store formats.

The impairment charges for the twenty-six weeks ended August 1, 2020 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 135.5 million , including $ 124.6 million related to operating lease right-of-use assets.

Asset impairment charges for the thirteen weeks and twenty-six weeks ended August 3, 2019, primarily related to the Company’s SoHo, New York City Hollister flagship.

The impairment charges for the twenty-six weeks ended August 3, 2019 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 8.2 million , including $ 7.0 million related to operating lease right-of-use assets.

RABBI TRUST ASSET S

As a precautionary measure and to preserve liquidity in light of the circumstances surrounding COVID-19, during the twenty-six weeks ended August 1, 2020 , the Company withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $ 50.0 million of additional cash.

Investments of Rabbi Trust assets consisted of the following as of August 1, 2020 and February 1, 2020 :

(in thousands)

August 1, 2020

February 1, 2020

Asset impairment charges for the thirteen and thirty-nine weeks ended October 31, 2020 were principally the result of the impact of COVID-19 and were related to certain of the Company’s stores across brands, geographies and store formats.

The impairment charges for the thirty-nine weeks ended October 31, 2020 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 102.2 million, including $ 94.2 million related to operating lease right-of-use assets.

Asset impairment charges for the thirteen weeks and thirty-nine weeks ended November 2, 2019, primarily related to certain of the Company’s international flagship stores.

The impairment charges for the thirty-nine weeks ended November 2, 2019 reduced the then carrying amount of the impaired stores’ assets to their fair value of approximately $ 36.8 million, including $ 32.3 million related to operating lease right-of-use assets.

RABBI TRUST ASSETS

As a precautionary measure and to preserve liquidity in light of the circumstances surrounding COVID-19, during the thirty-nine weeks ended October 31, 2020, the Company withdrew the majority of excess funds from the overfunded Rabbi Trust assets, providing the Company with $ 50.0 million of additional cash.

Investments of Rabbi Trust assets consisted of the following as of October 31, 2020 and February 1, 2020:

(in thousands) October 31, 2020 February 1, 2020

Trust-owned life insurance policies (at cash surrender value) $ 60,418 $ 109,048

1 unchanged sentence

Rabbi Trust assets $ 60,419 $ 109,049

Realized gains resulting from the change in cash surrender value of the Rabbi Trust assets for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 were as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Realized gains resulting from the change in cash surrender value of the Rabbi Trust assets for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Realized gains related to Rabbi Trust assets $ 391 $ 805 $ 1,369 $ 2,394

5 unchanged sentences

Impact of valuation allowances and other tax charges during Fiscal 2020

The Company’s effective tax rate for the twenty-six weeks ended August 1, 2020 was impacted by $ 84.1 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax year-to-date loss.

The Company’s effective tax rate for the thirty-nine weeks ended October 31, 2020 was impacted by $ 77.4 million of adverse tax impacts, ultimately giving rise to income tax expense on a consolidated pre-tax year-to-date loss.

Further details regarding these adverse tax impacts are as follows:

• The Company anticipates pre-tax losses for the full fiscal year in certain jurisdictions, based on information currently available, primarily due to the significant adverse impacts of COVID-19.

The Company did not recognize income tax benefits on $ 204.1 million of pre-tax losses during the twenty-six weeks ended August 1, 2020 , resulting in an adverse tax impact of $ 47.6 million .

The Company recognized charges of $ 36.5 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the twenty-six weeks ended August 1, 2020 , principally as a result of the significant adverse impacts of COVID–19.

The Company did not recognize income tax benefits on $ 180.7 million of pre-tax losses during the thirty-nine weeks ended October 31, 2020, resulting in an adverse tax impact of $ 41.8 million.

• The Company recognized charges of $ 35.6 million related to the establishment of valuation allowances and other tax charges in certain jurisdictions during the thirty-nine weeks ended October 31, 2020, principally as a result of the significant adverse impacts of COVID–19.

These charges related to valuation allowances recognized by the Company of $ 10.6 million and $ 6.0 million related to the U.S.

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Share-based compensation

Refer to Note 13 , “ SHARE-BASED COMPENSATION ,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and twenty-six weeks ended August 3, 2019 .

Details on the Company’s long-term borrowings, net, as of August 1, 2020 and February 1, 2020 are as follows:

(in thousands)

August 1, 2020

February 1, 2020

Refer to Note 13, “ SHARE-BASED COMPENSATION ,” for details on income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended November 2, 2019.

Details on the Company’s long-term borrowings, net, as of October 31, 2020 and February 1, 2020 are as follows:

(in thousands) October 31, 2020 February 1, 2020

Long-term portion of borrowings, gross at carrying amount $ 350,000 $ 233,250

4 unchanged sentences

On July 2, 2020, Abercrombie & Fitch Management Co.

(“A&F Management”), a wholly-owned indirect subsidiary of the Company, completed the private offering of the Senior Secured Notes, with a $350 million aggregate principal amount due in 2025 at an offering price of 100% of the principal amount thereof.

The Senior Secured Notes were issued pursuant to an indenture, dated as of July 2, 2020, by and among A&F Management, A&F and certain of its wholly-owned subsidiaries, as guarantors, and U.S.

(“A&F Management”), a wholly-owned indirect subsidiary of A&F, completed the private offering of the Senior Secured Notes, with $350 million aggregate principal amount due in 2025 at an offering price of 100% of the principal amount thereof.

The Senior Secured Notes were issued pursuant to an indenture, dated as

of July 2, 2020, by and among A&F Management, A&F and certain of its wholly-owned subsidiaries, as guarantors, and U.S.

Bank National Association, as trustee, and as collateral agent.

1 unchanged sentence

The Company used the net proceeds from the offering of the Senior Secured Notes to repay outstanding borrowings and accrued interest of $233.6 million and $110.8 million under the Term Loan Facility and the ABL Facility, respectively, with the remaining net proceeds used towards fees and expenses in connection with such repayments and the offering of the Senior Secured Notes.

The Company recorded deferred financing fees associated with the issuance of the Senior Secured Notes, which are being amortized over the contractual term of the Senior Secured Notes.

The ABL Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors) and later amended on October 19, 2017, provides for a senior secured asset-based revolving credit facility of up to $ 400 million (the “ABL Facility”).

The Company recorded deferred financing fees associated with the issuance of the Senior Secured Notes, which are being amortized to interest expense over the contractual term of the Senior Secured Notes.

The ABL Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries of A&F as borrowers or guarantors) and later amended on October 19, 2017, provides for a senior secured asset-based revolving credit facility of up to $ 400 million (the “ABL Facility”).

The ABL Facility will mature on October 19, 2022 .

As a precautionary measure and to improve the Company’s cash position in light of the circumstances surrounding COVID-19, during the thirteen weeks ended May 2, 2020, the Company borrowed $210.0 million under the ABL Facility.

During the thirteen weeks ended August 1, 2020 , the Company used net proceeds from the offering of the Senior Secured Notes and cash on hand to repay all outstanding borrowings under the ABL Facility.

The Company did not have any borrowings outstanding under the ABL Facility as of August 1, 2020 or as of February 1, 2020 .

As of August 1, 2020 , the Company had availability under the ABL Facility of $ 327.5 million , net of $ 0.8 million in outstanding stand-by letters of credit.

As the Company must maintain excess availability equal to the greater of 10% of the loan cap or $30 million under the ABL Facility, actual incremental borrowing available to the Company under the ABL Facility was $ 294.6 million as of August 1, 2020 .

During the thirteen weeks ended August 1, 2020, the Company used a portion of the net proceeds from the offering of the Senior Secured Notes and cash on hand to repay all outstanding borrowings under the ABL Facility.

The Company did not have any borrowings outstanding under the ABL Facility as of October 31, 2020 or as of February 1, 2020.

As of October 31, 2020, the Company had availability under the ABL Facility of $ 383.7 million, net of $ 0.8 million in outstanding stand-by letters of credit.

The provisions under the credit agreement applicable to the ABL Facility have not changed from those described in Note 12, “BORROWINGS,” in the Notes to Consolidated Financial Statements contained in “ITEM 8.

1 unchanged sentence

Term Loan Facility

The Term Loan Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries as borrowers or guarantors) and later amended on June 22, 2018, provided for a term loan facility of $ 300 million .

The Term Loan Facility, which was entered into on August 7, 2014 through A&F Management as the lead borrower (with A&F and certain other subsidiaries of A&F as borrowers or guarantors) and later amended on June 22, 2018, provided for a term loan facility of $ 300 million.

The Company had gross borrowings outstanding under the Term Loan Facility of $233.3 million as of February 1, 2020.

2 unchanged sentences

Representations, warranties and covenants

The aforementioned agreements contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of the Company and its subsidiaries to:

The agreements related to the Senior Secured Notes and ABL Facility contain various representations, warranties and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of the Company and its subsidiaries to:

grant or incur liens;

6 unchanged sentences

The Senior Secured Notes are guaranteed on a senior secured basis, jointly and severally, by A&F and each of the existing and future wholly-owned domestic restricted subsidiaries of A&F that guarantee or will guarantee A&F Management’s ABL Facility or certain future capital markets indebtedness.

Certain of these agreements also contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Company was in compliance with all debt covenants under the aforementioned agreements as of August 1, 2020 .

Certain of the agreements related to the Senior Secured Notes and ABL Facility also contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.

The Company was in compliance with all debt covenants under these agreements as of October 31, 2020.

SHARE-BASED COMPENSATION

Financial statement impact

The following table details share-based compensation expense and the related income tax impacts for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 :

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

The following table details share-based compensation expense and the related income tax impacts for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Share-based compensation expense $ 4,669 $ 5,796 $ 13,575 $ 8,464

Income tax (expense) benefit associated with share-based compensation expense recognized (1)

No income tax benefit was recognized related to share-based compensation expense during the thirteen and twenty-six weeks ended August 1, 2020 due to the U.S.

Income tax benefit associated with share-based compensation expense recognized (1)

$ — $ 1,211 $ — $ 1,566

(1) No income tax benefit was recognized related to share-based compensation expense during the thirteen and thirty-nine weeks ended October 31, 2020 due to the U.S.

being a loss jurisdiction.

The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 :

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Income tax discrete (charges) benefits realized for tax deductions related to the issuance of shares (1)

The following table details discrete income tax benefits and charges related to share-based compensation awards during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Income tax discrete benefits realized for tax deductions related to the issuance of shares (1)

$ — $ 6 $ — $ 1,175

Income tax discrete charges realized upon cancellation of stock appreciation rights (1)

— ( 447 ) — ( 611 )

Total income tax discrete (charges) benefits related to share-based compensation awards $ — $ ( 441 ) $ — $ 564

No income tax benefits or charges related to these items were recognized during the thirteen and twenty-six weeks ended August 1, 2020 due to the U.S.

(1) No income tax benefits or charges related to these items were recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the U.S.

being a loss jurisdiction.

The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 :

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

The following table details the amount of employee tax withheld by the Company upon the issuance of shares associated with restricted stock units vesting and the exercise of stock appreciation rights for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Employee tax withheld upon issuance of shares (1)

$ 150 $ 181 $ 5,566 $ 6,619

(1) Classified within other financing activities on the Condensed Consolidated Statements of Cash Flows.

Restricted stock units

The following table summarizes activity for restricted stock units for the twenty-six weeks ended August 1, 2020 :

The following table summarizes activity for restricted stock units for the thirty-nine weeks ended October 31, 2020:

Service-based Restricted

Performance-based Restricted

Market-based Restricted

Stock Units Performance-based Restricted

Stock Units Market-based Restricted

Average Grant

Date Fair Value

Date Fair Value Number of

Shares Weighted-

Average Grant

Date Fair Value

Date Fair Value Number of

Shares Weighted-

Average Grant

1 unchanged sentence

Unvested at February 1, 2020 1,676,831 $ 18.68 747,056 $ 15.11 421,784 $ 23.05

Granted 2,280,194 8.57 — — 519,905 16.24

Adjustments for performance achievement

Unvested at August 1, 2020 (2)

Includes 79,028 unvested restricted stock units as of August 1, 2020 , subject to vesting requirements related to the achievement of certain performance metrics, such as operating income and net income, for the fiscal year immediately preceding the vesting date.

— — 38,381 11.37 134,122 11.79

Vested ( 790,429 ) 17.42 ( 481,304 ) 9.63 ( 350,447 ) 11.79

Forfeited ( 107,795 ) 13.83 ( 6,917 ) 22.80 ( 3,485 ) 35.61

Unvested at October 31, 2020 (2)

3,058,801 $ 11.63 297,216 $ 22.43 721,879 $ 21.46

(1) Includes 66,624 unvested restricted stock units as of October 31, 2020, subject to vesting requirements related to the achievement of certain performance metrics, such as operating income and net income, for the fiscal year immediately preceding the vesting date.

Holders of these restricted stock units have the opportunity to earn back one or more installments of the award if the cumulative performance requirements are met in a subsequent year.

1 unchanged sentence

Certain unvested shares related to restricted stock units with performance-based vesting conditions can be achieved at up to 200% of their target vesting amount.

The following table details unrecognized compensation cost and the remaining weighted-average period these costs are expected to be recognized for restricted stock units as of August 1, 2020 :

(in thousands)

Service-based Restricted

Performance-based Restricted

Market-based Restricted

The following table details unrecognized compensation cost and the remaining weighted-average period these costs are expected to be recognized for restricted stock units as of October 31, 2020:

(in thousands) Service-based Restricted

Stock Units Performance-based Restricted

Stock Units Market-based Restricted

Unrecognized compensation cost $ 27,879 $ — $ 9,939

Remaining weighted-average period cost is expected to be recognized (years) 1.3 0.0 1.1

Additional information pertaining to restricted stock units for the twenty-six weeks ended August 1, 2020 and August 3, 2019 follows:

(in thousands)

August 1, 2020

August 3, 2019

Additional information pertaining to restricted stock units for the thirty-nine weeks ended October 31, 2020 and November 2, 2019 follows:

(in thousands) October 31, 2020 November 2, 2019

Service-based restricted stock units:

7 unchanged sentences

Total grant date fair value of awards vested $ 4,132 $ 511

No market-based restricted stock units were granted during the twenty-six weeks ended August 1, 2020 .

The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the twenty-six weeks ended August 3, 2019 were as follows:

August 3, 2019

The weighted-average assumptions used for market-based restricted stock units in the Monte Carlo simulation during the thirty-nine weeks ended October 31, 2020 and November 2, 2019, respectively, were as follows:

October 31, 2020 November 2, 2019

Grant date market price $ 12.31 $ 25.34

Fair value $ 16.24 $ 36.24

Price volatility 67 % 57 %

5 unchanged sentences

Stock appreciation rights

The following table summarizes stock appreciation rights activity for the twenty-six weeks ended August 1, 2020 :

Weighted-Average

Exercise Price

Intrinsic Value

Weighted-Average

The following table summarizes stock appreciation rights activity for the thirty-nine weeks ended October 31, 2020:

Shares Weighted-Average

Exercise Price Aggregate

Intrinsic Value Weighted-Average

Contractual Life (years)

Outstanding at February 1, 2020 796,725 $ 40.06

Exercised — —

Forfeited or expired ( 382,225 ) 47.87

Outstanding at August 1, 2020 414,500 $ 32.86 $ — 3.2

Stock appreciation rights exercisable at August 1, 2020

Stock appreciation rights expected to become exercisable in the future as of August 1, 2020

No stock appreciation rights were exercised during the twenty-six weeks ended August 1, 2020 .

Additional information pertaining to stock appreciation rights for the twenty-six weeks ended August 3, 2019 follows:

(in thousands)

August 3, 2019

Stock appreciation rights exercisable at October 31, 2020 414,500 $ 32.86 $ — 3.2

Stock appreciation rights expected to become exercisable in the future as of October 31, 2020 — $ — $ — 0.0

No stock appreciation rights were exercised during the thirty-nine weeks ended October 31, 2020.

Additional information pertaining to stock appreciation rights for the thirty-nine weeks ended November 2, 2019 follows:

(in thousands) November 2, 2019

Total grant date fair value of awards exercised $ 620

8 unchanged sentences

These foreign currency exchange 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”) into earnings.

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 AOCL into earnings.

The Company also uses foreign currency exchange forward contracts to hedge certain foreign-currency-denominated net monetary assets/liabilities.

3 unchanged sentences

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.

The Company did not have any outstanding foreign currency exchange forward contracts as of August 1, 2020 , although the Company may enter into these contracts in future periods.

As of October 31, 2020, 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 $ 65,537

British pound $ 29,603

Canadian dollar $ 11,239

(1) Amount reported is the U.S.

Dollar notional amount outstanding as of October 31, 2020.

The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

The location and amounts of derivative fair values of foreign currency exchange forward contracts on the Condensed Consolidated Balance Sheet as of February 1, 2020 were as follows:

(in thousands)

February 1, 2020

(in thousands) Location October 31, 2020 February 1, 2020 Location October 31, 2020 February 1, 2020

Derivatives designated as cash flow hedging instruments

Other current assets

Accrued expenses

Other current assets $ 461 $ 1,869 Accrued expenses $ 367 $ 1,377

Derivatives not designated as hedging instruments

Other current assets

Accrued expenses

The fair value of derivative instruments is valued using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

Other current assets — 100 Accrued expenses — 83

$ 461 $ 1,969 $ 367 $ 1,460

As a result of COVID-19, there was a significant change in the expected timing of previously hedged intercompany sales transactions, resulting in a dedesignation of the related hedge instruments.

1 unchanged sentence

Due to the extenuating circumstances leading to dedesignation, gains associated with these hedges at the time of dedesignation are deferred in AOCL until being reclassified into cost of goods sold, exclusive of depreciation and amortization when the originally forecasted transactions occur and the hedged items affect earnings.

During the twenty-six weeks ended August 1, 2020 and subsequent to the dedesignation of these hedges, these hedge contracts were settled.

Information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Gain recognized in AOCL (1)

During the thirty-nine weeks ended October 31, 2020, $11.1 million had been reclassified from AOCL into earnings.

During the thirty-nine weeks ended October 31, 2020 and subsequent to the dedesignation of these hedges, these hedge contracts were settled.

Information pertaining to derivative gains or losses from foreign currency exchange forward contracts designated as cash flow hedging instruments for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Gain (loss) recognized in AOCL (1)

$ 93 $ ( 1,136 ) $ 12,328 $ 5,918

Gain reclassified from AOCL into cost of sales, exclusive of depreciation and amortization (2)

$ 5,327 $ 2,541 $ 11,104 $ 6,845

(1) A mount represents the change in fair value of derivative contracts.

1 unchanged sentence

Substantially all of the unrealized gain will be recognized in costs of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) over the next twelve months .

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Gain recognized in other operating (income) loss, net

Additional information pertaining to derivative gains or losses from foreign currency exchange forward contracts not designated as hedging instruments for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

(Loss) gain recognized in other operating (income) loss, net $ — $ ( 1,023 ) $ 742 $ 157

ACCUMULATED OTHER COMPREHENSIVE LOSS

Fo r the thirteen and twenty-six weeks ended August 1, 2020 , the activity in accumulated other comprehensive loss was as follows:

Thirteen Weeks Ended August 1, 2020

(in thousands)

Foreign Currency Translation Adjustment

Unrealized Gain (Loss) on Derivative Financial Instruments

Beginning balance at May 2, 2020

Fo r the thirteen and thirty-nine weeks ended October 31, 2020, the activity in AOCL was as follows:

Thirteen Weeks Ended October 31, 2020

(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total

Beginning balance at August 1, 2020 $ ( 106,632 ) $ 7,539 $ ( 99,093 )

Other comprehensive income before reclassifications 2,142 93 2,235

Reclassified gain from accumulated other comprehensive loss (1)

— ( 5,327 ) ( 5,327 )

Other comprehensive income (loss) after reclassifications (2)

Ending balance at August 1, 2020

Twenty-six Weeks Ended August 1, 2020

(in thousands)

Foreign Currency Translation Adjustment

Unrealized Gain (Loss) on Derivative Financial Instruments

2,142 ( 5,234 ) ( 3,092 )

Ending balance at October 31, 2020 $ ( 104,490 ) $ 2,305 $ ( 102,185 )

Thirty-nine Weeks Ended October 31, 2020

(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total

Beginning balance at February 1, 2020 $ ( 109,967 ) $ 1,081 $ ( 108,886 )

1 unchanged sentence

Reclassified gain from accumulated other comprehensive loss (1)

— ( 11,104 ) ( 11,104 )

Other comprehensive income after reclassifications (2)

Ending balance at August 1, 2020

Amount represents gain reclassified from accumulated other comprehensive loss to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

No tax effect was recognized during the thirteen and twenty-six weeks ended August 1, 2020 due to the U.S.

5,477 1,224 6,701

Ending balance at October 31, 2020 $ ( 104,490 ) $ 2,305 $ ( 102,185 )

(1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

(2) No tax effect was recognized during the thirteen and thirty-nine weeks ended October 31, 2020 due to the U.S.

being a loss jurisdiction.

For the thirteen and twenty-six weeks ended August 3, 2019 , the activity in accumulated other comprehensive loss was as follows:

Thirteen Weeks Ended August 3, 2019

(in thousands)

Foreign Currency Translation Adjustment

Unrealized Gain (Loss) on Derivative Financial Instruments

Beginning balance at May 4, 2019

For the thirteen and thirty-nine weeks ended November 2, 2019, the activity in AOCL was as follows:

Thirteen Weeks Ended November 2, 2019

(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total

Beginning balance at August 3, 2019 $ ( 111,461 ) $ 5,515 $ ( 105,946 )

Other comprehensive (loss) income before reclassifications 1,355 ( 1,136 ) 219

Reclassified gain from accumulated other comprehensive loss (1)

Other comprehensive (loss) income after reclassifications

Ending balance at August 3, 2019

Twenty-six Weeks Ended August 3, 2019

(in thousands)

Foreign Currency Translation Adjustment

Unrealized Gain (Loss) on Derivative Financial Instruments

— ( 2,541 ) ( 2,541 )

Tax effect — 23 23

Other comprehensive income (loss) after reclassifications 1,355 ( 3,654 ) ( 2,299 )

Ending balance at November 2, 2019 $ ( 110,106 ) $ 1,861 $ ( 108,245 )

Thirty-nine Weeks Ended November 2, 2019

(in thousands) Foreign Currency Translation Adjustment Unrealized Gain (Loss) on Derivative Financial Instruments Total

Beginning balance at February 2, 2019 $ ( 104,887 ) $ 2,435 $ ( 102,452 )

1 unchanged sentence

Reclassified gain from accumulated other comprehensive loss (1)

— ( 6,845 ) ( 6,845 )

Tax effect — 353 353

Other comprehensive (loss) income after reclassifications ( 5,219 ) ( 574 ) ( 5,793 )

Ending balance at August 3, 2019

Ending balance at November 2, 2019 $ ( 110,106 ) $ 1,861 $ ( 108,245 )

(1) Amount represents gain reclassified from AOCL to cost of sales, exclusive of depreciation and amortization, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

SEGMENT REPORTING

3 unchanged sentences

Amounts shown below include net sales from wholesale, franchise and licensing operations, which are not a significant component of total revenue, and are aggregated within their respective operating segment and geographic area.

The Company’s net sales by operating segment for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 were as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

The Company’s net sales by operating segment for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Hollister $ 476,665 $ 514,772 $ 1,178,925 $ 1,447,975

Abercrombie 342,988 348,700 824,415 990,547

Total $ 819,653 $ 863,472 $ 2,003,340 $ 2,438,522

Net sales by geographic area are presented by attributing revenues to an individual country on the basis of the country in which the merchandise was sold for in-store purchases and on the basis of the shipping location provided by customers for digital orders.

The Company’s net sales by geographic area for the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 were as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

The Company’s net sales by geographic area for the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 were as follows:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

$ 557,814 $ 583,593 $ 1,339,347 $ 1,596,723

EMEA 190,214 191,977 474,165 566,563

APAC 43,618 55,910 117,768 188,836

Other 28,007 31,992 72,060 86,400

International $ 261,839 $ 279,879 $ 663,993 $ 841,799

Total $ 819,653 $ 863,472 $ 2,003,340 $ 2,438,522

FLAGSHIP STORE EXIT (BENEFITS) CHARGES

1 unchanged sentence

As a result, the Company has closed certain of its flagship stores and may have additional closures as it executes against this strategy.

As part of this ongoing effort, the Company recently announced the early exit of four European Abercrombie & Fitch flagship locations.

Three of the leases will be transferred through assignment while the fourth lease will be subleased to a new tenant.

The Company no longer has lease obligations beyond Fiscal 2020 for the three transfers and is scheduled to receive payments to fully offset its lease obligations on the sublease.

Refer to Note 8, “ LEASES ,” for additional information on the sublease arrangement.

Future fixed lease payments associated with closed flagship stores are reflected within short-term and long-term operating lease liabilities on the Condensed Consolidated Balance Sheets.

Future fixed lease payments associated with flagship stores that were closed as of October 31, 2020, excluding the subleased flagship store, are scheduled to be paid through the fiscal year ending January 30, 2029 (“Fiscal 2028”) and are not expected to exceed $ 15 million in aggregate in any fiscal year.

The Company recognizes impacts related to the exit of its flagship stores in flagship store exit (benefits) charges on the Consolidated Statements of Operations and Comprehensive Income (Loss).

D etails of the (benefits) charges incurred during the thirteen and twenty-six weeks ended August 1, 2020 and August 3, 2019 related to this initiative were as follows:

Thirteen Weeks Ended

Twenty-six Weeks Ended

(in thousands)

August 1, 2020

August 3, 2019

August 1, 2020

August 3, 2019

Single lease cost (1)

Variable lease cost (2)

Operating lease right-of-use asset impairment

D etails of the (benefits) charges incurred during the thirteen and thirty-nine weeks ended October 31, 2020 and November 2, 2019 related to this initiative follow:

Thirteen Weeks Ended Thirty-nine Weeks Ended

(in thousands) October 31, 2020 November 2, 2019 October 31, 2020 November 2, 2019

Operating lease cost ( 1,729 ) — ( 6,959 ) 46,716

Gain on lease assignment ( 5,237 ) — ( 5,237 ) —

Asset disposals and other store-closure costs (1)

( 405 ) — ( 3,610 ) ( 1,687 )

Employee severance and other employee transition costs ( 692 ) 285 3,316 1,994

Total flagship store exit (benefits) charges $ ( 8,063 ) $ 285 $ ( 12,490 ) $ 47,023

Amounts represent accelerated amortization associated with the operating lease right-of-use assets and the impact from remeasurement of operating lease liabilities.

Amounts represent the remeasurement of the lease liability to reflect variable lease costs that became fixed upon decision to close flagship stores.

(1) Amounts represent costs incurred or benefits associated with returning the store to its original condition, including updated estimates to previously established accruals for asset retirement obligations and costs to remove inventory and store assets.

Future fixed lease payments associated with closed flagship stores are reflected within short-term and long-term operating lease liabilities on the Condensed Consolidated Balance Sheets.

These payments are scheduled to be paid through the fiscal year ending January 30, 2029 (“Fiscal 2028”) and are not expected to exceed $ 15 million in aggregate in any fiscal year.

As the Company continues its ‘Global Store Network Optimization’ efforts, it may incur future cash expenditures, incremental charges or realize benefits not currently contemplated due to events that may occur as a result of, or that are associated with, previously announced flagship store closures and flagship store closures that have not yet been finalized.

As the Company continues its ‘Global Store Network Optimization’ efforts, it may incur future cash expenditures or incremental charges or realize benefits not currently contemplated due to events that may occur as a result of, or that are associated with, previously announced flagship store closures and flagship store closures that have not yet been finalized.

At this time, the Company is not able to quantify the amount of future impacts, including any cash expenditures that may take place in future periods resulting from any potential flagship store closures given the unpredictable nature of lease exit negotiations and ultimate lease renewal decisions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements