UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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		(I.R.S. Employer Identification No.)
incorporation or organization)

6301 Fitch Path, New Albany, Ohio 43054

Registrant’s telephone number, including area code (614) 283-6500

Not Applicable

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. þ Yes o 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).) o Yes o 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 þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ 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 4, 2009
$.01 Par Value		87,982,548 Shares

 

 

ABERCROMBIE & FITCH CO.

TABLE OF CONTENTS

		Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Thirteen and Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008			3
Condensed Consolidated Balance Sheets October 31, 2009 and January 31, 2009			4
Condensed Consolidated Statements of Cash Flows Thirty-nine Weeks Ended October 31, 2009 and November 1, 2008			5
Notes to Condensed Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			48
Part II. Other Information
Item 1. Legal Proceedings			49
Item 1A. Risk Factors			51
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52
Item 6. Exhibits			53
Exhibit 10.32
Exhibit 15
Exhibit 31.1
Exhibit 31.2
Exhibit 32

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 31,				November 1,				October 31,				November 1,
		2009				2008				2009				2008
NET SALES		$	765,401			$	896,344			$	2,025,996			$	2,542,321
Cost of Goods Sold			278,471				304,401				720,379				823,243
GROSS PROFIT			486,930				591,943				1,305,617				1,719,078
Stores and Distribution Expense			370,064				386,545				1,126,862				1,089,052
Marketing, General and Administrative Expense			88,123				104,959				269,331				318,681
Other Operating (Income) Expense, Net			(1,609	)			299				(6,277	)			(3,396	)
OPERATING INCOME (LOSS)			30,352				100,140				(84,299	)			314,741
Interest Expense (Income), Net			461				(560	)			(2,691	)			(9,963	)
INCOME (LOSS) BEFORE TAXES			29,891				100,700				(81,608	)			324,704
Tax (Benefit) Expense			(8,892	)			36,800				(34,404	)			120,856
NET INCOME (LOSS)		$	38,783			$	63,900			$	(47,204	)		$	203,848
NET INCOME (LOSS) PER SHARE:
BASIC		$	0.44			$	0.73			$	(0.54	)		$	2.35
DILUTED		$	0.44			$	0.72			$	(0.54	)		$	2.27
WEIGHTED-AVERAGE SHARES OUTSTANDING:
BASIC			87,943				87,034				87,839				86,737
DILUTED			88,730				88,806				87,839				89,636
DIVIDENDS DECLARED PER SHARE		$	0.175			$	0.175			$	0.525			$	0.525
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign Currency Translation Adjustments		$	1,639			$	(9,499	)		$	9,640			$	(10,413	)
Unrealized gain (loss) on Marketable Securities, net of taxes of $(1,402) and $7,689 for the thirteen week periods ended October 31, 2009 and November 1, 2008, respectively, and $193 and $7,857 for the thirty-nine week periods ended October 31, 2009 and November 1, 2008, respectively.			2,387				4,845				(328	)			(13,334	)
Unrealized gain (loss) on derivative financial instruments, net of taxes of $(1,080) and $(1,152) for the thirteen week periods ended October 31, 2009 and November 1, 2008, respectively, and $1,586 and $(1,201) for the thirty-nine week periods ended October 31, 2009 and November 1, 2008, respectively.			1,840				1,802				(2,699	)			1,879
Other Comprehensive Income (Loss)		$	5,866			$	(2,852	)		$	6,613			$	(21,868	)
COMPREHENSIVE INCOME (LOSS)		$	44,649			$	61,048			$	(40,591	)		$	181,980

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

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands)

(Unaudited)

		October 31, 2009				January 31, 2009
ASSETS
CURRENT ASSETS:
Cash and Equivalents		$	466,887			$	522,122
Marketable Securities			55,985				—
Receivables			73,994				53,110
Inventories			347,180				372,422
Deferred Income Taxes			82,034				43,408
Other Current Assets			108,624				93,763
TOTAL CURRENT ASSETS			1,134,704				1,084,825
PROPERTY AND EQUIPMENT, NET			1,318,864				1,398,655
NON-CURRENT MARKETABLE SECURITIES			130,250				229,081
OTHER ASSETS			180,526				135,620
TOTAL ASSETS		$	2,764,344			$	2,848,181
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts Payable		$	150,117			$	92,814
Outstanding Checks			43,662				56,939
Accrued Expenses			224,955				241,231
Deferred Lease Credits			43,947				42,358
Income Taxes Payable			9,332				16,455
TOTAL CURRENT LIABILITIES			472,013				449,797
LONG-TERM LIABILITIES:
Deferred Income Taxes			40,495				34,085
Deferred Lease Credits			196,616				211,978
Borrowings under Credit Agreement			50,582				100,000
Other Liabilities			226,262				206,743
TOTAL LONG-TERM LIABILITIES			513,955				552,806
SHAREHOLDERS’ EQUITY:
Class A Common Stock — $0.01 par value: 150,000 shares authorized and 103,300 shares issued at each of October 31, 2009 and January 31, 2009			1,033				1,033
Paid-In Capital			330,092				328,488
Retained Earnings			2,151,626				2,244,936
Accumulated Other Comprehensive Income (Loss), net of tax			(16,068	)			(22,681	)
Treasury Stock, at Average Cost - 15,341 and 15,664 shares at October 31, 2009 and January 31, 2009, respectively			(688,307	)			(706,198	)
TOTAL SHAREHOLDERS’ EQUITY			1,778,376				1,845,578
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	2,764,344			$	2,848,181

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

ABERCROMBIE & FITCH CO.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands)

(Unaudited)

		Thirty-nine Weeks Ended
		October 31, 2009				November 1, 2008
OPERATING ACTIVITIES:
Net (Loss) Income		$	(47,204	)		$	203,848
Impact of Other Operating Activities on Cash Flows:
Depreciation and Amortization			178,693				165,592
Non-Cash Charge for Asset Impairment			51,536				—
Amortization of Deferred Lease Credits			(34,726	)			(32,284	)
Share-Based Compensation			26,615				32,606
Tax (Deficiency) Benefit from Share-Based Compensation			(6,199	)			16,946
Excess Tax Benefit from Share-Based Compensation			—				(5,970	)
Deferred Taxes			(31,722	)			15,524
Loss on Disposal / Write-off of Assets			8,818				3,495
Lessor Construction Allowances			29,205				43,831
Changes in Assets and Liabilities:
Inventories			26,919				(173,082	)
Accounts Payable and Accrued Expenses			36,942				(6,671	)
Income Taxes			(7,626	)			(81,909	)
Other Assets and Liabilities			(60,377	)			(1,503	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			170,874				180,423
INVESTING ACTIVITIES:
Capital Expenditures			(144,537	)			(298,509	)
Purchase of Trust-Owned Life Insurance Policies			(9,789	)			—
Purchases of Marketable Securities			—				(49,411	)
Proceeds from Sales of Marketable Securities			40,350				297,673
NET CASH USED FOR INVESTING ACTIVITIES			(113,976	)			(50,247	)
FINANCING ACTIVITIES:
Proceeds from Share-Based Compensation			1,687				55,194
Repayment of Borrowings under Credit Agreement			(100,000	)			—
Proceeds from Borrowings under Credit Agreement			48,056				100,000
Excess Tax Benefit from Share-Based Compensation			—				5,970
Purchase of Treasury Stock			—				(50,000	)
Change in Outstanding Checks and Other			(20,372	)			(10,648	)
Dividends Paid			(46,104	)			(45,535	)
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES			(116,733	)			54,981
EFFECT OF EXCHANGE RATES ON CASH			4,600				(5,158	)
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS:			(55,235	)			179,999
Cash and Equivalents, Beginning of Period			522,122				118,044
CASH AND EQUIVALENTS, END OF PERIOD		$	466,887			$	298,043
SIGNIFICANT NON-CASH INVESTING ACTIVITIES:
Change in Accrual for Construction in Progress		$	(7,319	)		$	(9,331	)

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

ABERCROMBIE & FITCH CO.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

BASIS OF PRESENTATION

Abercrombie & Fitch Co. (“A&F”), through its wholly-owned subsidiaries (collectively, A&F and its wholly-owned subsidiaries are referred to as the “Company”), is a specialty retailer of high-quality, casual apparel for men, women, boys and girls with an active, youthful lifestyle.

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

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the condensed consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2009” represent the 52-week fiscal year that will end on January 30, 2010, and to “Fiscal 2008” represent the 52-week fiscal year that ended January 31, 2009.

The Condensed Consolidated Financial Statements as of October 31, 2009 and for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“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 2008 filed on March 27, 2009. The year-end condensed consolidated balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.

The Financial Accounting Standards Board (“FASB”) has mandated the Accounting Standards Codification (“ASC”) as the single authoritative source for generally accepted accounting principles in the United States of America. Unless it is necessary to clarify a point to the reader, specific section references to the ASC are not used in the notes to the Condensed Consolidated Financial Statements when discussing application of accounting principles or addressing new accounting pronouncements.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to present fairly 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 2009.

The Company evaluated circumstances for potential subsequent events through December 8, 2009, the filing date of this Quarterly Report on Form 10-Q.

The Condensed Consolidated Financial Statements as of October 31, 2009 and for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008 included herein have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report of such firm follows the notes to the condensed consolidated financial statements.

PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the “Act”) for their report on the condensed consolidated financial statements because their report is not a “report” or a “part” of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

2.

SEGMENT REPORTING

The Company determines its operating segments on the same basis that it uses to evaluate performance internally. The operating segments identified by the Company are Abercrombie & Fitch, abercrombie kids, Hollister, RUEHL and Gilly Hicks. The operating segments have been aggregated and are reported as one reportable segment because they have similar economic characteristics and meet the required aggregation criteria. The Company believes its operating segments may be aggregated for financial reporting purposes because they are similar in each of the following areas: class of consumer, economic characteristics, nature of products, nature of production processes, and distribution methods.

Geographic Information

Financial information relating to the Company’s operations by geographic area is as follows:

Net Sales:

Net sales includes net merchandise sales through stores and direct-to-consumer operations, including shipping and handling revenue. Net sales are reported by geographic area based on the location of the customer.

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
(in thousands):		October 31, 2009				November 1, 2008				October 31, 2009				November 1, 2008
United States		$	677,381			$	833,958			$	1,806,354			$	2,354,840
International			88,020				62,386				219,642				187,481
Total		$	765,401			$	896,344			$	2,025,996			$	2,542,321

Long-Lived Assets:

(in thousands):		October 31, 2009				January 31, 2009
United States		$	1,238,477			$	1,371,734
International			177,837				80,341
Total		$	1,416,314			$	1,452,075

Long-lived assets included in the table above primarily include property and equipment, net, store supplies, and lease deposits.

3.

SHARE-BASED COMPENSATION

Financial Statement Impact

The Company recognized share-based compensation expense of $9.3 million and $26.6 million for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $10.7 million and $32.6 million for the thirteen and thirty-nine week periods ended November 1, 2008, respectively. The Company also recognized $3.4 million and $9.8 million in tax benefits related to share-based compensation for the thirteen and thirty-nine week periods ended October 31, 2009, respectively, and $4.1 million and $12.3 million in tax benefits related to share-based compensation for the thirteen and thirty-nine week periods ended November 1, 2008, respectively.

The Company adjusts share-based compensation expense on a quarterly basis for actual forfeitures and for changes to the estimate of expected award forfeitures based on historical forfeiture experience. The effect of adjustments for forfeitures during the thirty-nine week period ended October 31, 2009 was a benefit of $3.3 million. The effect of adjustments for forfeitures were immaterial during the thirty-nine week period ended November 1, 2008.

A&F issues shares of Class A Common Stock (“Common Stock”) for stock option and stock appreciation right exercises and restricted stock unit vestings from treasury stock. As of October 31, 2009, A&F had sufficient treasury stock available to settle stock options, stock appreciation rights and restricted stock units outstanding without having to repurchase additional shares of Common Stock. Settlement of stock awards in Common Stock also requires that the Company has sufficient shares available in shareholder approved plans at the applicable time.

Fair Value Estimates

The Company estimates the fair value of stock options and stock appreciation rights granted using the Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the stock options and stock appreciation rights and expected future stock price volatility over the expected term. Estimates of expected terms, which represent the expected periods of time the Company believes stock options and stock appreciation rights will be outstanding, are based on historical experience. Estimates of expected future stock price volatility are based on the volatility of A&F’s Common Stock price for the most recent historical period equal to the expected term of the stock option or stock appreciation right, as appropriate. The Company calculates the volatility as the annualized standard deviation of the differences in the natural logarithms of the weekly stock closing price, adjusted for stock splits and dividends.

In the case of restricted stock units, the Company calculates the fair value of the restricted stock units granted as the market price of the underlying Common Stock on the date of grant adjusted for anticipated dividend payments during the vesting period.

Stock Options

The weighted-average estimated fair value of stock options granted during the thirty-nine week periods ended October 31, 2009 and November 1, 2008, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Thirty-Nine Weeks Ended
		October 31, 2009				November 1, 2008
Grant Date Market Price		$	22.87			$	78.37
Exercise price		$	22.87			$	78.37
Fair value		$	8.26			$	19.69
Assumptions:
Price volatility			50	%			30	%
Expected term (Years)			4.1				4.0
Risk-free interest rate			1.6	%			2.5	%
Dividend yield			1.7	%			0.9	%

Below is a summary of stock option activity for the thirty-nine weeks ended October 31, 2009:

														Weighted-Average
		Number of				Weighted-Average				Aggregate				Remaining
Stock Options		Shares				Exercise Price				Intrinsic Value				Contractual Life
Outstanding at January 31, 2009			6,675,990			$	41.70
Granted			4,000				22.87
Exercised			(64,050	)			25.94
Forfeited or cancelled			(3,626,552	)			44.71
Outstanding at October 31, 2009			2,989,388			$	38.30			$	13,608,928				3.9
Options exercisable at October 31, 2009			2,520,438			$	33.45			$	12,477,928				3.1
Options expected to vest at October 31, 2009			430,975			$	64.41			$	1,016,441				8.0

The total intrinsic value of stock options exercised during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 was $0.2 million and $40.3 million, respectively.

The grant date fair value of stock options vested during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 was $5.1 million and $4.8 million, respectively.

As of October 31, 2009, there was $6.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock options. The unrecognized cost is expected to be recognized over a weighted-average period of 1.0 years.

Stock Appreciation Rights

The weighted-average estimated fair value of stock appreciation rights granted during the thirty-nine week period ended October 31, 2009, and the weighted-average assumptions used in calculating such fair value, on the date of grant, were as follows:

		Thirty-Nine Weeks Ended
		October 31, 2009
						Executive Officers
		Chairman and Chief				(excluding Chairman and
		Executive Officer				Chief Executive Officer)				All Other Associates
Grant Date Market Price		$	28.42			$	25.77			$	25.72
Exercise price		$	32.99			$	25.77			$	25.72
Fair value		$	9.67			$	10.06			$	9.84
Assumptions:
Price volatility			47	%			52	%			53	%
Expected term (Years)			5.6				4.5				4.1
Risk-free interest rate			2.5	%			1.6	%			1.6	%
Dividend yield			2.4	%			1.7	%			1.7	%

There were no stock appreciation rights granted during the thirty-nine week period ended November 1, 2008.

Below is a summary of stock appreciation rights activity for the thirty-nine weeks ended October 31, 2009:

														Weighted-Average
		Number of				Weighted-Average				Aggregate				Remaining
Stock Appreciation Rights		Shares				Exercise Price				Intrinsic Value				Contractual Life
Outstanding at January 31, 2009			1,600,000			$	28.55
Granted			4,219,867				31.66
Exercised			—				—
Forfeited or cancelled			(47,500	)			25.77
Outstanding at October 31, 2009			5,772,367			$	30.84			$	24,083,525				6.7

As of October 31, 2009, there was $48.3 million of total unrecognized compensation cost, net of estimated forfeitures, related to stock appreciation rights. The unrecognized cost is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock Units and Restricted Shares

Below is a summary of restricted stock unit and restricted share activity for the thirty-nine weeks ended October 31, 2009:

						Weighted-Average Grant
Restricted Stock Units / Restricted Shares		Number of Shares				Date Fair Value
Non-vested at January 31, 2009			1,498,355			$	64.18
Granted			460,947				23.95
Vested			(395,717	)			64.40
Forfeited			(212,098	)			56.23
Non-vested at October 31, 2009			1,351,487			$	55.64

The total fair value of restricted stock units granted during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 was $11.0 million and $50.3 million, respectively.

The total grant date fair value of restricted stock units and restricted shares vested during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 was $25.5 million and $22.1 million, respectively.

As of October 31, 2009, there was $47.9 million of total unrecognized compensation cost, net of estimated forfeitures, related to non-vested restricted stock units and restricted shares. The unrecognized cost is expected to be recognized over a weighted-average period of 1.2 years.

4.

NET INCOME (LOSS) PER SHARE

Net income (loss) per basic share is computed based on the weighted-average number of outstanding shares of Common Stock. Net income (loss) per diluted share includes the weighted-average effect of dilutive stock options, stock appreciation rights, restricted stock units and restricted shares.

Weighted-Average Shares Outstanding and Anti-dilutive Shares (in thousands):

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 31, 2009				November 1, 2008				October 31, 2009				November 1, 2008
Shares of Common Stock issued			103,300				103,300				103,300				103,300
Treasury shares			(15,357	)			(16,266	)			(15,461	)			(16,563	)
Weighted-Average — basic shares			87,943				87,034				87,839				86,737
Dilutive effect of stock options, stock appreciation rights and restricted stock units			787				1,772				—				2,899
Weighted-Average — diluted shares			88,730				88,806				87,839				89,636
Anti-dilutive shares			4,548	(1)			5,346	(1)			10,113	(2)			1,493	(1)

Cash and equivalents and investments consisted of (in thousands):

		October 31, 2009				January 31, 2009
Cash and equivalents:
Cash		$	183,361			$	137,383
Money market funds			283,526				384,739
Total cash and equivalents			466,887				522,122
Marketable securities — Current:
Trading securities:
Auction rate securities — UBS — student loan backed			44,694				—
Auction rate securities — UBS — municipal authority bonds			11,291				—
Total trading securities			55,985				—
Marketable securities — Non-Current:
Trading securities:
Auction rate securities — UBS — student loan backed			—				50,589
Auction rate securities — UBS — municipal authority bonds			—				11,959
Total trading securities			—				62,548
Available-for-sale securities:
Auction rate securities — student loan backed			110,006				139,239
Auction rate securities — municipal authority bonds			20,244				27,294
Total available-for-sale securities			130,250				166,533
Total non-current marketable securities			130,250				229,081
Rabbi Trust assets: (1)
Money market funds			1,107				473
Municipal notes and bonds			18,469				18,804
Trust-owned life insurance policies (at cash surrender value)			47,348				32,549
Total Rabbi Trust assets			66,924				51,826
Total cash and equivalents and investments		$	720,046			$	803,029

At October 31, 2009 and January 31, 2009, the Company’s marketable securities consisted of investment grade auction rate securities (“ARS”) invested in insured student loan backed securities and insured municipal authority bonds, with maturities ranging from 10 to 33 years. Each investment in student loans is insured by (1) the U.S. government under the Federal Family Education Loan Program, (2) a private insurer or (3) a combination of both. The percentage coverage of the outstanding principal and interest of the ARS varies by security.

The par and carrying values, and related cumulative impairment charges for the Company’s marketable securities as of October 31, 2009 were as follows:

						Temporary				Other-Than-Temporary-
(in thousands)		Par Value				Impairment				Impairment (“OTTI”)				Carrying Value
Trading securities:
Auction rate securities — UBS — student loan backed		$	57,250			$	—			$	(12,556	)		$	44,694
Auction rate securities — UBS — municipal authority bonds			15,000				—				(3,709	)			11,291
Total trading securities			72,250				—				(16,265	)			55,985
Available-for-sale securities:
Auction rate securities — student loan backed			130,049				(20,043	)			—				110,006
Auction rate securities — municipal authority bonds			28,575				(8,331	)			—				20,244
Total available-for-sale securities			158,624				(28,374	)			—				130,250
Total		$	230,874			$	(28,374	)		$	(16,265	)		$	186,235

The Company recorded a temporary impairment of $0.2 million for the thirty-nine weeks ended October 31, 2009, related to the available-for-sale ARS. An impairment is considered to be other-than-temporary if an entity (i) intends to sell the security, (ii) more likely than not will be required to sell the security before recovering its amortized cost basis, or (iii) does not expect to recover the security’s entire amortized cost basis, even if there is no intent to sell the security. In assessing the expectation of recovery, an assessment of the present value of cash flows expected to be collected is performed. If this assessment yields an amount less than the amortized cost basis of the security, even if the entity has no intent to sell and, it is not likely they will be required to sell the security, a credit loss is deemed to exist, which is considered an other-than-temporary impairment. As of October 31, 2009, the Company had not incurred any credit-related loss on available-for-sale ARS. Furthermore, as of October 31, 2009, the issuers continued to perform under the obligations, including making scheduled interest payments, and the Company expects that this will continue going forward.

On November 13, 2008, the Company executed an agreement (the “UBS Agreement”) with UBS AG (“UBS”), a Swiss corporation, relating to ARS (“UBS ARS”) with a par value of $76.5 million, of which $72.3 million are still held as of October 31, 2009.   By entering into the UBS Agreement, UBS received the right to purchase these UBS ARS at par, commencing on November 13, 2008 and the Company received the right to sell (“Put Option”) the UBS ARS back to UBS at par, commencing on June 30, 2010. Upon acceptance of the UBS Agreement, the Company no longer had the intent to hold the UBS ARS until maturity. Therefore, the impairment could no longer be considered temporary. As a result, as of January 31, 2009, the Company transferred the UBS ARS with a par value of $76.5 million from available-for-sale securities to trading securities and recognized an other-than-temporary impairment of $14.0 million in Other Operating (Income) Expense, Net in the fourth quarter of Fiscal 2008. In addition, as of January 31, 2009, the Company elected to apply fair value accounting for the related Put Option and simultaneously recorded an asset of $12.3 million within Other Current Assets and a gain within Other Operating (Income) Expense, Net in the fourth quarter of Fiscal 2008. For the thirteen weeks ended October 31, 2009, the Company recorded a net reduction of the other-than-temporary impairment on the UBS ARS of $0.5 million which was offset by a realized loss of $0.6 million related to the Put Option, both recorded in Other Operating (Income) Expense, Net. For the thirty-nine weeks ended October 31, 2009, the Company recorded an additional other-than-temporary impairment of $2.3 million on the UBS ARS which was offset by a realized gain of $3.4 million related to the Put Option. As the Company has the right to sell the UBS ARS back to UBS on June 30, 2010, the UBS ARS are classified as current assets as of October 31, 2009.

See Note 6, “Fair Value,” for further discussion on the valuation of the ARS and Put Option.

The irrevocable rabbi trust (the “Rabbi Trust”) is intended to be used as a source of funds to match respective funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental Retirement Plan II and the Chief Executive Officer Supplemental Executive Retirement Plan. The Rabbi Trust assets are consolidated and recorded at fair value, with the exception of the trust-owned life insurance policies which are recorded at cash surrender value. The Rabbi Trust assets are included in Other Assets on the Condensed Consolidated Balance Sheets and are restricted to their use as noted above. Net unrealized gains and losses related to the available-for-sale securities held in the Rabbi Trust were not material for the thirteen or thirty-nine week periods ended October 31, 2009 and November 1, 2008. The change in cash surrender value of the trust-owned life insurance policies held in the Rabbi Trust resulted in a realized gain of $0.7 million and a realized loss of $3.0 million for the thirteen weeks ended October 31, 2009 and November 1, 2008, respectively, and a realized gain of $5.0 million and a realized loss of $3.9 million for the thirty-nine weeks ended October 31, 2009 and November 1, 2008, respectively, recorded in Interest Expense (Income), Net on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

6.

FAIR VALUE

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The inputs used to measure fair value are prioritized based on a three-level hierarchy. The three levels of inputs to measure fair value are as follows:

	•		Level 1 — inputs are unadjusted quoted prices for identical assets or liabilities that are available in active markets.
	•		Level 2 — inputs are other than quoted market prices included within Level 1 that are observable for assets or liabilities, directly or indirectly.
	•		Level 3 — inputs to the valuation methodology are unobservable.

The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets and liabilities, measured at fair value, within it were as follows:

		Assets and Liabilities at Fair Value as of October 31, 2009
		(in thousands)
		Level 1				Level 2				Level 3				Total
ASSETS:
Money market funds (1)		$	284,633			$	—			$	—			$	284,633
Auction rate securities — Trading			—				—				55,985				55,985
Auction rate securities — Available-for-Sale			—				—				130,250				130,250
UBS Put option			—				—				15,684				15,684
Municipal bonds held in the Rabbi Trust			18,473				—				—				18,473
Total assets measured at fair value		$	303,106			$	—			$	201,919			$	505,025
LIABILITIES:
Derivative financial instruments			—				2,051				—				2,051
		$	—			$	2,051			$	—			$	2,051

The level 2 liabilities consist of derivative financial instruments, primarily forward foreign exchange contracts. The fair value of forward foreign exchange contracts is determined by using quoted market prices of the same or similar instruments, adjusted for counterparty risk.

The level 3 assets primarily include investments in insured student loan backed ARS and insured municipal authority bonds ARS, which include both the available-for-sale and trading ARS. Additionally, level 3 assets include the Put Option related to the UBS Agreement.

As a result of the market failure and lack of liquidity in the current ARS market, the Company measured the fair value of its ARS primarily using a discounted cash flow model as of October 31, 2009. Certain significant inputs into the model are unobservable in the market including the periodic coupon rate, market required rate of return and expected term. The coupon rate is estimated using the results of a regression analysis factoring in historical data on the par swap rate and the maximum coupon rate paid in the event of an auction failure. In making the assumption of the market required rate of return, the Company considered the risk-free interest rate and an appropriate credit spread, depending on the type of security and the credit rating of the issuer. The expected term is identified as the time the principal becomes available to the investor. The Company utilized a term of five years to value its securities. The Company also included a marketability discount which takes into account the lack of activity in the current ARS market.

As of October 31, 2009, approximately 61% of the Company’s ARS were “AAA” rated and approximately 26% of the Company’s ARS were “AA” or “A” rated with the remaining ARS having an “A-” or “BBB+” rating, in each case as rated by one or more of the major credit rating agencies.

In Fiscal 2008, the Company elected to apply fair value accounting for the Put Option related to the Company’s UBS ARS. The fair value of the Put Option was determined by calculating the present value of the difference between the par value and the fair value of the UBS ARS as of October 31, 2009, adjusted for counterparty risk. The present value was calculated using a discount rate that incorporates an investment grade corporate bond index rate and the credit default swap rate for UBS. The Put Option is recognized as an asset within Other Current Assets on the accompanying Condensed Consolidated Balance Sheet and the corresponding gains and losses within Other Operating (Income) Expense, Net on the accompanying Condensed Consolidated Statement of Operations and Comprehensive Income (Loss). The Company recognized a realized loss of $0.6 million on the UBS Put Option for the thirteen weeks ended October 31, 2009 and a realized gain of $3.4 million for the thirty-nine week period ended October 31, 2009.

The table below includes a roll forward of the Company’s level 3 assets and liabilities from January 31, 2009 to October 31, 2009. When a determination is made to classify an asset or liability within level 3, the determination is based upon the lack of significance of the observable parameters to the overall fair value measurement. However, the fair value determination for level 3 financial assets and liabilities may include observable components.

		Trading				Available-for-sale				Put
(in thousands)		ARS				ARS				Option				Total
Fair value, January 31, 2009		$	62,548			$	166,533			$	12,309			$	241,390
Redemptions			(4,250	)			(36,100	)			—				(40,350	)
Tranfers (out)/in			—				—				—				—
Gains and losses, net:
Reported in Net (Loss) Income			(2,313	)			—				3,375				1,062
Reported in Other Comprehensive Income (Loss)			—				(183	)			—				(183	)
Fair value, October 31, 2009		$	55,985			$	130,250			$	15,684			$	201,919

7.

INVENTORIES

Inventories are principally valued at the lower of average cost or market utilizing the retail method. The Company determines market value as the anticipated future selling price of the merchandise less a normal margin. An initial markup is applied to inventory at cost in order to establish a cost-to-retail ratio. Permanent markdowns, when taken, reduce both the retail and cost components of inventory on-hand so as to maintain the already established cost-to-retail relationship.

The fiscal year is comprised of two principal selling seasons: Spring (the first and second fiscal quarters) and Fall (the third and fourth fiscal quarters). The Company classifies its inventory into three categories: spring fashion, fall fashion and basic. At first and third fiscal quarter end, the Company reduces inventory value by recording a valuation reserve that represents the estimated future anticipated selling price decreases necessary to sell-through the current season inventory on-hand. At second and fourth fiscal quarter end, the Company reduces inventory value by recording a valuation reserve that represents the estimated cost effect of future selling price decreases necessary to sell-through any remaining carryover inventory from the season then ending. The valuation reserve was $40.6 million, $9.1 million and $42.3 million at October 31, 2009, January 31, 2009 and November 1, 2008, respectively.

Additionally, as part of inventory valuation, inventory shrinkage estimates, based on historical trends from actual physical inventories, are made that reduce the inventory value for lost or stolen items. The Company performs physical inventories on a periodic basis and adjusts the shrink reserve accordingly. The shrink reserve was $10.6 million, $10.8 million and $5.5 million at October 31, 2009, January 31, 2009 and November 1, 2008, respectively.

The inventory balance, net of the above mentioned reserves, was $347.2 million, $372.4 million and $504.9 million at October 31, 2009, January 31, 2009 and November 1, 2008, respectively.

8.

PROPERTY AND EQUIPMENT, NET

Property and equipment, net, consisted of (in thousands):

		October 31, 2009				January 31, 2009
Property and equipment, at cost		$	2,456,760			$	2,339,284
Accumulated depreciation and amortization			(1,137,896	)			(940,629	)
Property and equipment, net		$	1,318,864			$	1,398,655

Long-lived assets, primarily comprised of property and equipment, are reviewed periodically for impairment or whenever events or changes in circumstances indicate that full recoverability of net asset balances through future cash flows is in question. Factors used in the evaluation include, but are not limited to, management’s plans for future operations, recent operating results and projected cash flows. In the first quarter of Fiscal 2009, as a result of a strategic review of the RUEHL business, the Company determined that a triggering event occurred during the thirteen weeks ended May 2, 2009. As a result of that assessment, the Company incurred non-cash impairment charges of $47.7 million recorded within stores and distribution expense and non-cash impairment charges of $3.0 million recorded within marketing, general and administrative expense in the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) for the thirteen weeks ended May 2, 2009. An additional $0.8 million of impairment charges related to RUEHL were recorded within stores and distribution expense during the thirteen weeks ended August 1, 2009. The remaining fair value of the RUEHL long-lived assets was $1.4 million as of October 31, 2009. Impairment charges incurred for assets that remain in use as of October 31, 2009 are included in accumulated depreciation and amortization.

Store related assets are considered Level 3 assets in the fair value hierarchy and the fair values were determined at the store level primarily using a discounted cash flow model. The estimation of future cash flows from operating activities requires significant estimates of factors that include future sales, gross margin performance and operating expenses. In instances where the discounted cash flow analysis indicated a negative value at the store level, the market exit price based on historical experience was used to determine the fair value by asset type.

9.

DEFERRED LEASE CREDITS

Deferred lease credits are derived from payments received from landlords to partially offset store construction costs and are classified between current and long-term liabilities. The amounts, which are amortized over the life of the related leases, consisted of the following (in thousands):

		October 31, 2009				January 31, 2009
Deferred lease credits		$	534,967			$	514,041
Amortized deferred lease credits			(294,404	)			(259,705	)
Total deferred lease credits, net		$	240,563			$	254,336

10.

INCOME TAXES

The Company’s provisions for income taxes for the interim reporting periods in Fiscal 2008 along with the thirteen weeks ended May 2, 2009 and August 1, 2009 were based on estimates of the Company’s annual effective tax rate for the full fiscal year. The computation of the annual effective tax rate includes a forecast of the Company’s estimated “ordinary” income (loss), which is the Company’s annual income (loss) from operations before tax, excluding unusual or infrequently occurring (or discrete) items. Significant management judgment is required in the projection of ordinary income (loss) in order to determine the estimated annual effective tax rate. The low absolute levels of income projected for Fiscal 2009 along with the mix of income (loss) between foreign and domestic operations, cause an unusual relationship between income (loss) and income tax expense (benefit) with small changes resulting in a significant impact on the rate and unreliable estimates. As a result, the Company computed the provision for income taxes for the thirteen and thirty-nine weeks ended October 31, 2009 by applying the actual effective tax rate to the year-to-date loss, as permitted by accounting principles generally accepted in the United States of America.

The effective tax rate for the thirteen weeks ended October 31, 2009 was a benefit of 29.7% as compared to an expense of 36.5% for the Fiscal 2008 comparable period. The provision for the thirteen weeks ended October 31, 2009 includes a benefit of $2.2 million from the settlement of state tax audits along with a true up benefit of approximately $18.6 million for the difference between the year-to-date tax rate for the twenty-six weeks ended August 1, 2009 and the year-to-date tax rate for the thirty-nine weeks ended October 31, 2009.

Cash payments of income taxes made during the thirteen weeks ended October 31, 2009 and November 1, 2008 were approximately $3.2 million and $32.1 million, respectively. Cash payments of income taxes made during the thirty-nine weeks ended October 31, 2009 and November 1, 2008 were approximately $22.0 million and $170.8 million, respectively.

The Company has recorded a valuation allowance against the deferred tax assets arising from the net operating loss of certain foreign subsidiaries. A portion of these net operating loss carryovers begin expiring in the year 2013 and some have an indefinite carry forward period. As of October 31, 2009 and January 31, 2009, the valuation allowance totaled $0.4 million and $1.3 million, respectively. No other valuation allowances have been provided for deferred tax assets because management believes that it is more likely than not that the full amount of the net deferred tax assets will be realized in the future.

11.

LONG-TERM DEBT

On April 15, 2008, the Company entered into a syndicated unsecured credit agreement (as previously amended by Amendment No. 1 to Credit Agreement made as of December 29, 2008, the “Credit Agreement”) under which up to $450 million was available. On June 16, 2009, the Company amended the Credit Agreement and, as a result, revised the ratio requirements, as further discussed below, and also reduced the amount available from $450 million to $350 million (as amended, the “Amended Credit Agreement”). The primary purposes of the Amended Credit Agreement are for trade and stand-by letters of credit in the ordinary course of business, as well as to fund working capital, capital expenditures, acquisitions and investments, and other general corporate purposes.

The Amended Credit Agreement has several borrowing options, including interest rates that are based on (i) a Base Rate, plus a margin based on the Leverage Ratio, payable quarterly, or (ii) an Adjusted Eurodollar Rate (as defined in the Amended Credit Agreement) plus a margin based on the Leverage Ratio, payable at the end of the applicable interest period for the borrowing. The Base Rate represents a rate per annum equal to the higher of (a) National City Bank’s then publicly announced prime rate or (b) the Federal Funds Effective Rate (as defined in the Amended Credit Agreement) as then in effect plus 1/2 of 1.0%. The facility fees payable under the Amended Credit Agreement are based on the Company’s Leverage Ratio (i.e., the ratio, on a consolidated basis, of (a) the sum of total debt (excluding trade letters of credit) plus 600% of forward minimum rent commitments to (b) consolidated earnings before interest, taxes, depreciation, amortization and rent with the further adjustments to be discussed in the following paragraphs (“Consolidated EBITDAR”) for the trailing four-consecutive-fiscal-quarter periods. The facility fees accrue at a rate of 0.25% to 0.625% per annum based on the Leverage Ratio for the most recent determination date. The Amended Credit Agreement did not have a utilization fee as of October 31, 2009.

The Amended Credit Agreement requires that the Leverage Ratio not be greater than 3.75 to 1.00 at the end of each testing period. The Amended Credit Agreement also required that the Coverage Ratio for A&F and its subsidiaries on a consolidated basis of (i) Consolidated EBITDAR for the trailing four-consecutive-fiscal-quarter period to (ii) the sum of, without duplication, (x) net interest expense for such period, (y) scheduled payments of long-term debt due within twelve months of the date of determination and (z) the sum of minimum rent and contingent store rent, not be less than 1.75 to 1.00 at October 31, 2009. The minimum Coverage Ratio varies over time based on the terms set forth in the Amended Credit Agreement. The Amended Credit Agreement amended the definition of Consolidated EBITDAR to add back the following items, among others, (a) recognized losses arising from investments in certain ARS to the extent such losses do not exceed a defined level of impairments for those investments, (b) non-cash charges in an amount not to exceed $50 million related to the closure of RUEHL branded stores and direct-to-consumer operations, (c) non-recurring cash charges in an aggregate amount not to exceed $61 million related to the closure of RUEHL branded stores and direct-to-consumer operations, (d) additional non-recurring non-cash charges in an amount not to exceed $20 million in the aggregate over the trailing four fiscal quarter period and (e) other non-recurring cash charges in an amount not to exceed $10 million in the aggregate over the trailing four fiscal quarter period. The Amended Credit Agreement also limits the Company’s consolidated capital expenditures to $275 million in Fiscal 2009 and $325 million in Fiscal 2010 plus any unused portion from Fiscal 2009. The Company was in compliance with the applicable ratio requirements and other covenants at October 31, 2009.

The terms of the Amended Credit Agreement include customary events of default such as payment defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency, the occurrence of a defined change in control, or the failure to observe the negative covenants and other covenants related to the operation and conduct of the business of A&F and its subsidiaries. Upon an event of default, the lenders will not be obligated to make loans or other extensions of credit and may, among other things, terminate their commitments to the Company, and declare any then outstanding loans due and payable immediately.

The Amended Credit Agreement will mature on April 12, 2013. Trade letters of credit totaling approximately $27.5 million and $21.1 million were outstanding on October 31, 2009 and January 31, 2009, respectively. Stand-by letters of credit totaling approximately $17.8 million and $16.9 million were outstanding on October 31, 2009 and January 31, 2009, respectively. The stand-by letters of credit are set to expire primarily during the fourth quarter of Fiscal 2009. To date, no beneficiary has drawn upon the stand-by letters of credit.

The Company had $50.6 million and $100.0 million outstanding under the Amended Credit Agreement as of October 31, 2009 and January 31, 2009, respectively. The $50.6 million outstanding as of October 31, 2009 was denominated in Japanese Yen. As of October 31, 2009, the carrying value of the Company’s long-term debt approximated fair value. The average interest rate for the thirteen and thirty-nine week periods ended October 31, 2009 was 2.8% and 2.2%, respectively. The Company classified the debt as a long-term liability on the Company’s Condensed Consolidated Balance Sheet.

On March 6, 2009, the Company entered a secured, uncommitted demand line of credit (“UBS Credit Line”) under which up to $47.9 million was available as October 31, 2009. The amount available is subject to adjustment from time-to-time based on the market value of the Company’s UBS ARS as determined by UBS. The UBS Credit Line is to be used for general corporate purposes. Being a demand line of credit, the UBS Credit Line does not have a stated maturity date.

As security for the payment and performance of the Company’s obligations under the UBS Credit Line, the UBS Credit Line provides that the Company grants a security interest to UBS Bank USA, as lender, in each account of the Company at UBS Financial Services Inc. that is identified as a Collateral Account (as defined in the UBS Credit Line), as well as any and all money, credit balances, securities, financial assets and other investment property and other property maintained from time-to-time in any Collateral Account, any over-the-counter options, futures, foreign exchange, swap or similar contracts between the Company and UBS Financial Services Inc. or any of its affiliates, any and all accounts of the Company at UBS Bank USA or any of its affiliates, any and all supporting obligations and other rights relating to the foregoing property, and any and all interest, dividends, distributions and other proceeds of any of the foregoing property, including proceeds of proceeds.

Because certain of the Collateral consists of ARS (as defined in the UBS Credit Line), the UBS Credit Line provides further that the interest rate payable by the Company will reflect any changes in the composition of such ARS Collateral (as defined in the UBS Credit Line) as may be necessary to cause the interest payable by the Company under the UBS Credit Line to equal the interest or dividend rate payable to the Company by the issuer of any ARS Collateral.

The terms of the UBS Credit Line include customary events of default such as payment defaults, the failure to maintain sufficient collateral, the failure to observe any covenant or material representation, bankruptcy and insolvency, cross-defaults to other indebtedness and other stated events of default. Upon an event of default, the obligations under the UBS Credit Line will become immediately due and payable. No borrowings were outstanding under the UBS Credit Line as of October 31, 2009.

12.

DERIVATIVES

All derivative instruments are recorded at fair value on the Condensed Consolidated Balance Sheets as either Other Assets or Accrued Expenses. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated as a hedge and qualifies for hedge accounting treatment. As of October 31, 2009, all derivative instruments were designated as hedges and qualified for hedge accounting treatment. There were no outstanding derivative instruments as of January 31, 2009.

In order to qualify for hedge accounting, a derivative must be considered highly effective at offsetting changes in either the hedged item’s cash flows or fair value. Additionally, the hedge relationship must be documented to include the risk management objective and strategy, the hedging instrument, the hedged item, the risk exposure, and how hedge effectiveness will be assessed prospectively and retrospectively. The extent to which a hedging instrument has been and is expected to continue to be effective at achieving offsetting changes in fair value or cash flows is assessed and documented at least quarterly. Any hedge ineffectiveness is reported in current period earnings and hedge accounting is discontinued if it is determined that the derivative is not highly effective.

For derivatives that either do not qualify for hedge accounting or are not designated as hedges, all changes in the fair value of the derivative are recognized in earnings. For qualifying cash flow hedges, the effective portion of the change in the fair value of the derivative is recorded as a component of Other Comprehensive Income (Loss) (“OCI”) and recognized in earnings when the hedged cash flows affect earnings. The ineffective portion of the derivative gain or loss, as well as changes in the fair value of the derivative’s time value are recognized in current period earnings. The effectiveness of the hedge is assessed based on changes in fair value attributable to changes in spot prices. The changes in the fair value of the derivative contract related to the changes in the difference between the spot price and the forward price are excluded from the assessment of hedge effectiveness and are also recognized in current period earnings. If the cash flow hedge relationship is terminated, the derivative gains or losses that are deferred in OCI will be recognized in earnings when the hedged cash flows occur. However, for cash flow hedges that are terminated because the forecasted transaction is not expected to occur in the original specified time period, or a two-month period thereafter, the derivative gains or losses are immediately recognized in earnings. There were no gains or losses reclassified into earnings as a result of the discontinuance of cash flow hedges as of October 31, 2009.

The Company’s cash flow hedges consist of hedges of the settlement of foreign denominated receivables resulting from forecasted foreign denominated inter-company inventory sales. Fluctuations in exchange rates will either increase or decrease the Company’s U.S. dollar equivalent cash flows and affect the Company’s U.S. dollar earnings. Gains or losses on the foreign exchange forward contracts that are used to hedge these exposures are expected to partially offset this variability. Foreign exchange forward contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon settlement date. As of October 31, 2009, the maximum length of time over which forecasted foreign denominated inter-company inventory sales were hedged was 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. Substantially all of the remaining unrealized gains or losses related to foreign denominated inter-company inventory sales that have occurred as of October 31, 2009 will be recognized in costs of goods sold over the next two months at the values at the date the inventory was sold to the respective subsidiary.

The Company nets derivative assets and liabilities on the Condensed Consolidated Balance Sheet to the extent that master netting arrangements meet the specific accounting requirements set forth by U.S. generally accepted accounting principles.

As of October 31, 2009, the Company had the following outstanding foreign exchange forward contracts that were entered into to hedge forecasted foreign denominated inter-company inventory sales and the resulting settlement of the foreign denominated inter-company accounts receivable:

Currency		Notional Amount (1)
Canadian dollar (CAD)		$	8,948
British Pound (GBP)		$	32,251

The location and amounts of derivative fair values on the Condensed Consolidated Balance Sheets as of October 31, 2009 and January 31, 2009 were as follows:

Balance Sheet

Asset Derivatives

Balance Sheet

Liability Derivatives

(in thousands)

Location

October 31, 2009

January 31, 2009

Location

October 31, 2009

January 31, 2009

Derivatives Designated as Hedging Instruments:

Foreign Exchange Forward Contracts

Other Current Assets

$

—

$

—

Accrued Expenses

$

2,051

$

—

The Company did not have any derivatives that were not designated as hedging instruments outstanding as of October 31, 2009 or January 31, 2009.

The location and amounts of derivative gains and losses for the thirteen weeks ended October 31, 2009 and November 1, 2008 on the Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) are as follows:

																						Location of Gain (Loss)				Amount of Gain Recognized
		Amount of (Loss) Gain								Location of Loss												Recognized in Earnings on				in Earnings on Derivative
		Recognized in OCI on								Reclassified from				Amount of Loss Reclassified								Derivative (Ineffective				(Ineffective Portion and
		Derivative Contracts								Accumulated OCI				from Accumulated OCI into								Portion and Amount				Amount Excluded from
		(Effective Portion)								into Earnings				Earnings (Effective Portion)								Excluded from Effectiveness				Effectiveness Testing)
		(a)								(Effective Portion)				(b)								Testing)				(c)
		For the Thirteen Weeks Ended
		October 31,				November 1,								October 31,				November 1,								October 31,				November 1,
(in thousands)		2009				2008								2009				2008								2009				2008
Derivatives in Cash Flow Hedging Relationships
Foreign Exchange Forward Contracts		$	742			$	2,950			Cost of Goods Sold				$	(2,178	)		$	(4	)		Other Operating (Income) Loss, Net				$	17			$	268
		For the Thirty-Nine Weeks Ended
		October 31,				November 1,								October 31,				November 1,								October 31,				November 1,
(in thousands)		2009				2008								2009				2008								2009				2008
Derivatives in Cash Flow Hedging Relationships
Foreign Exchange Forward Contracts		$	(5,420	)		$	2,699			Cost of Goods Sold				$	(1,135	)		$	(381	)		Other Operating (Income) Loss, Net				$	19			$	55

The Company does not use forward contracts to engage in currency speculation and does not enter into derivative financial instruments for trading purposes.

13.

PENDING CLOSURE OF RUEHL BRANDED STORES AND RELATED DIRECT-TO-CONSUMER OPERATIONS

On June 16, 2009, the Company’s Board of Directors approved the closure of the Company’s 29 RUEHL branded stores and related direct-to-consumer operations. The Company anticipates the closure will be complete by the end of Fiscal 2009. The determination to take this action was based on a comprehensive review and evaluation of the performance of RUEHL branded stores and direct-to-consumer operations, as well as the related real estate portfolio.

Costs associated with exit or disposal activities are recorded when the liability is incurred. Below is a roll forward of the liabilities recognized on the Condensed Consolidated Balance Sheet as of October 31, 2009 related to the closure of RUEHL branded stores and related direct-to-consumer operations (in thousands):

		Thirty-Nine Weeks Ended
		October 31, 2009
Beginning Balance		$	—
Costs Incurred, excluding Non-Cash Charges (1)			40,408
Cash Payments			(3,998	)
Ending Balance (2)		$	36,410

Below is a summary of charges related to the closure of RUEHL branded stores and related direct-to-consumer operations (in thousands):

		Thirteen Weeks Ended				Thirty-Nine Weeks Ended
		October 31, 2009				October 31, 2009
Non-Cash Charges
Asset Impairments (1)		$	—			$	51,536
Cash Charges
Lease Terminations (2)			9,991				32,974
Severance Charges			103				747
Total Charges		$	10,094			$	85,257

14.

CONTINGENCIES

A&F is a defendant in lawsuits and other adversary proceedings arising in the ordinary course of business.

On June 23, 2006, Lisa Hashimoto, et al. v. Abercrombie & Fitch Co. and Abercrombie & Fitch Stores, Inc., was filed in the Superior Court of the State of California for the County of Los Angeles. In that action, plaintiffs alleged, on behalf of a putative class of California store managers employed in Hollister and abercrombie kids stores, that they were entitled to receive overtime pay as “non-exempt” employees under California wage and hour laws. The complaint seeks injunctive relief, equitable relief, unpaid overtime compensation, unpaid benefits, penalties, interest and attorneys’ fees and costs. The defendants answered the complaint on August 21, 2006, denying liability. On June 23, 2008, the defendants settled all claims of Hollister and abercrombie kids store managers who served in stores from June 23, 2002 through April 30, 2004, but continued to oppose the plaintiffs’ remaining claims. On January 29, 2009, the Court certified a class consisting of all store managers who served at Hollister and abercrombie kids stores in California from May 1, 2004 through the future date upon which the action concludes. The parties are continuing to litigate the claims of that putative class.

On September 2, 2005, a purported class action, styled Robert Ross v. Abercrombie & Fitch Company, et al., was filed against A&F and certain of its officers in the United States District Court for the Southern District of Ohio on behalf of a purported class of all persons who purchased or acquired shares of A&F’s Common Stock between June 2, 2005 and August 16, 2005. In September and October of 2005, five other purported class actions were subsequently filed against A&F and other defendants in the same Court. All six securities cases allege claims under the federal securities laws related to sales of Common Stock by certain defendants and to a decline in the price of A&F’s Common Stock during the summer of 2005, allegedly as a result of misstatements attributable to A&F. Plaintiffs seek unspecified monetary damages. On November 1, 2005, a motion to consolidate all of these purported class actions into the first-filed case was filed by some of the plaintiffs. A&F joined in that motion. On March 22, 2006, the motions to consolidate were granted, and these actions (together with the federal court derivative cases described in the following paragraph) were consolidated for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended securities class action complaint (the “Complaint”) was filed on August 14, 2006. On October 13, 2006, all defendants moved to dismiss that Complaint. On August 9, 2007, the Court denied the motions to dismiss. On September 14, 2007, defendants filed answers denying the material allegations of the Complaint and asserting affirmative defenses. On October 26, 2007, plaintiffs moved to certify their purported class. After briefing and argument, the motion was submitted on March 24, 2009, and granted on May 21, 2009. On June 5, 2009, defendants petitioned the Sixth Circuit for permission to appeal the class certification order and on August 24, 2009, the Sixth Circuit granted leave to appeal.

On September 16, 2005, a derivative action, styled The Booth Family Trust v. Michael S. Jeffries, et al., was filed in the United States District Court for the Southern District of Ohio, naming A&F as a nominal defendant and seeking to assert claims for unspecified damages against nine of A&F’s present and former directors, alleging various breaches of the directors’ fiduciary duty and seeking equitable and monetary relief. In the following three months, four similar derivative actions were filed (three in the United States District Court for the Southern District of Ohio and one in the Court of Common Pleas for Franklin County, Ohio) against present and former directors of A&F alleging various breaches of the directors’ fiduciary duty allegedly arising out of the same matters alleged in the Ross case and seeking equitable and monetary relief on behalf of A&F. In March of 2006, the federal court derivative actions were consolidated with the Ross actions for purposes of motion practice, discovery and pretrial proceedings. A consolidated amended derivative complaint was filed in the federal proceeding on July 10, 2006. On February 16, 2007, A&F announced that its Board of Directors had received a report of the Special Litigation Committee established by the Board to investigate and act with respect to claims asserted in the derivative lawsuit, which concluded that there was no evidence to support the asserted claims and directed the Company to seek dismissal of the derivative cases. On September 10, 2007, the Company moved to dismiss the federal derivative cases on the authority of the Special Litigation Committee report. On March 12, 2009, the Company’s motion was granted and, on April 10, 2009, plaintiffs filed an appeal from the order of dismissal. The state court has stayed further proceedings in the state-court derivative action until resolution of the consolidated federal derivative cases.

Management intends to defend the aforesaid matters vigorously, as appropriate. Management is unable to quantify the potential exposure of the aforesaid matters. However, management’s assessment of the Company’s current exposure could change in the event of the discovery of additional facts with respect to legal matters pending against the Company or determinations by judges, juries, administrative agencies or other finders of fact that are not in accordance with management’s evaluation of the claims.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Shareholders of Abercrombie & Fitch Co.:

We have reviewed the accompanying condensed consolidated balance sheet of Abercrombie & Fitch Co. and its subsidiaries as of October 31, 2009 and the related condensed consolidated statements of operations and comprehensive income (loss) for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008 and the condensed consolidated statement of cash flows for the thirty-nine week periods ended October 31, 2009 and November 1, 2008. These interim financial statements are the responsibility of the Company’s management.

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

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

We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of January 31, 2009, and the related consolidated statements of net income and comprehensive income, of shareholders’ equity and of cash flows for the year then ended (not presented herein), and in our report dated March 27, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 2009, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP
Columbus, Ohio

December 8, 2009

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

OVERVIEW

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years are designated in the condensed consolidated financial statements and notes by the calendar year in which the fiscal year commences. All references herein to “Fiscal 2009” represent the 52-week fiscal year that will end on January 30, 2010, and to “Fiscal 2008” represent the 52-week fiscal year that ended January 31, 2009.

The Company is a specialty retailer that operates stores and direct-to-consumer operations selling casual sportswear apparel, including knit and woven shirts, graphic t-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products and accessories for men, women and kids under the Abercrombie & Fitch, abercrombie kids, Hollister and RUEHL brands. In addition, the Company operates stores under the Gilly Hicks brand offering bras, underwear, personal care products, sleepwear and at-home products for women.

Abercrombie & Fitch is rooted in East Coast traditions and Ivy League heritage, the essence of privilege and casual luxury. Abercrombie & Fitch is a combination of classic and sexy creating an atmosphere that is confident and just a bit provocative. abercrombie kids directly follows in the footsteps of its older sibling, Abercrombie & Fitch. abercrombie kids has an energetic attitude and is popular, wholesome and athletic – the signature of All-American cool. Hollister is young, spirited, with a sense of humor and brings Southern California to the world. RUEHL personifies the post-grad that has arrived in Greenwich Village, New York City to live the dream. RUEHL embraces its culture and artistic nature and defines the aspirational New York City lifestyle. Gilly Hicks is the cheeky cousin of Abercrombie & Fitch, inspired by the free spirit of Sydney, Australia. Gilly Hicks is classic and vibrant, always confident and is the All-American brand with a Sydney sensibility.

RESULTS OF OPERATIONS

During the third quarter of Fiscal 2009, net sales decreased 15% to $765.4 million from $896.3 million in the third quarter of Fiscal 2008. Operating income was $30.4 million in the third quarter of Fiscal 2009, including pre-tax charges of $10.1 million associated with the closure of RUEHL branded stores and related direct-to-consumer operations, primarily due to lease termination costs, compared to operating income of $100.1 million in the third quarter of Fiscal 2008. The Company had net income of $38.8 million in the third quarter of Fiscal 2009 compared to net income of $63.9 million in the third quarter of Fiscal 2008. Net income per diluted share was $0.44 in the third quarter of Fiscal 2009 compared to net income per diluted share of $0.72 in the third quarter of Fiscal 2008. The 2009 third quarter net income and net income per basic and diluted share included approximately $6.2 million after-tax charges associated with the closure of the RUEHL business and an $18.6 million benefit associated with the true up in the year-to-date tax rate.

Net cash provided by operating activities, the Company’s primary source of liquidity, was $170.9 million for the thirty-nine weeks ended October 31, 2009. This source of cash was primarily driven by results from operations adjusted for non-cash items including depreciation and amortization and impairment charges. The Company used $144.5 million of cash for capital expenditures. During the thirty-nine weeks ended October 31, 2009, the Company repaid U.S. dollar denominated borrowings of $100.0 million under the unsecured Amended Credit Agreement and separately drew down approximately $48.0 million in borrowings demonimated in Japanese Yen, used to fund international lease and capital expenditure commitments. The Company also paid dividends totaling $46.1 million during the thirty-nine weeks ended October 31, 2009. As of October 31, 2009, the Company had $466.9 million in cash and equivalents, and outstanding debt and letters of credit of $95.9 million.

Due to seasonal variations in the retail industry, the results of operations for any current period are not necessarily indicative of the results expected for the full fiscal year or of future financial results. The seasonality of the Company’s operations may also lead to significant fluctuations in certain asset and liability accounts.

The following data represents the amounts shown in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the thirteen and thirty-nine week periods ended October 31, 2009 and November 1, 2008, expressed as a percentage of net sales:

		Thirteen Weeks Ended								Thirty-Nine Weeks Ended
		October 31, 2009				November 1, 2008				October 31, 2009				November 1, 2008
NET SALES			100.0	%			100.0	%			100.0	%			100.0	%
Cost of Goods Sold			36.4	%			34.0	%			35.6	%			32.4	%
GROSS PROFIT			63.6	%			66.0	%			64.4	%			67.6	%
Stores and Distribution Expense (1)			48.3	%			43.1	%			55.6	%			42.8	%
Marketing, General and Administrative Expense (2)			11.5	%			11.7	%			13.3	%			12.5	%
Other Operating (Income) Expense, Net			(0.2	)%			0.0	%			(0.3	)%			(0.1	)%
OPERATING INCOME (LOSS)			4.0	%			11.2	%			(4.2	)%			12.4	%
Interest Expense (Income), Net			0.1	%			(0.1	)%			(0.1	)%			(0.4	)%
INCOME (LOSS) BEFORE TAXES			3.9	%			11.2	%			(4.0	)%			12.8	%
Tax (Benefit) Expense (3)			(1.2	)%			4.1	%			(1.7	)%			4.8	%
NET INCOME (LOSS)			5.1	%			7.1	%			(2.3	)%			8.0	%