BASIS OF PRESENTATION

Nature of Business

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

Principles of Consolidation

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 has a 49% equity interest in Hollister Fashion LLC, a United Arab Emirates joint operation with Majid al Futtaim Fashion L.L.C. ("MAF") which meets the definition of a variable interest entity (“VIE”). The Company has the ability to significantly influence the business and is deemed to be the primary beneficiary of the VIE. Accordingly, the Company has consolidated the operating results, assets and liabilities of the VIE, with MAF's portion of net income presented as net income attributable to noncontrolling interest ("NCI") in the Company's Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and the equity owned by MAF presented as NCI in the Condensed Consolidated Balance Sheets. The Company began presenting income attributable to NCI in the second quarter of Fiscal 2015. Income attributable to NCI of $1.4 million for the second quarter of Fiscal 2015 includes $1.1 million related to prior periods' operating results.

Fiscal Year

The Company’s fiscal year ends on the Saturday closest to January 31. All references herein to “Fiscal 2015” and “Fiscal 2014” represent the 52-week fiscal years ending on January 30, 2016 and January 31, 2015, respectively.

Interim Financial Statements

The Condensed Consolidated Financial Statements as of August 1, 2015 and for the thirteen and twenty-six weeks ended August 1, 2015 and August 2, 2014 are unaudited and are presented pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto contained in A&F’s Annual Report on Form 10-K for Fiscal 2014 filed with the SEC on March 30, 2015. The January 31, 2015 consolidated balance sheet data were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”).

In the opinion of management, the accompanying Condensed Consolidated Financial Statements reflect all adjustments (which are of a normal recurring nature) necessary to state fairly, in all material respects, the financial position and results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for Fiscal 2015.

The thirteen and twenty-six weeks ended August 1, 2015 and August 1, 2014 include the correction of certain errors relating to prior years. The impact of amounts recorded out-of-period resulted in a decrease in income tax benefit of $1.1 million for the thirteen weeks ended August 1, 2015 and an increase in net income attributable to non-controlling interest of $1.1 million and $0.8 million for the thirteen and twenty-six weeks ended August 1, 2015, respectively. The impact of amounts recorded out-of-period resulted in a decrease in pre-tax income of $1.4 million for the thirteen weeks ended August 2, 2014, and an increase in pre-tax loss of $2.9 million for the twenty-six weeks ended August 2, 2014. The Company does not believe these corrections were material to any current or prior interim or annual periods that were affected.

The Condensed Consolidated Financial Statements as of August 1, 2015 and for the thirteen and twenty-six weeks ended August 1, 2015 and August 2, 2014 included herein have been reviewed by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and the report of such firm follows the Notes to 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.

Contingencies

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

In the second quarter of Fiscal 2015, the Company accrued approximately $15.8 million for certain proposed legal settlement charges.

Recent Accounting Pronouncements

The following table provides a brief description of recent accounting pronouncements that could affect the Company's financial statements:



Standard	Description	Date of Adoption	Effect on the Financial Statements or Other Significant Matters
Standard adopted
ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs	This standard amends ASC 835, Interest—Imputation of Interest. The amendment provides guidance on the financial statement presentation of debt issuance costs as a direct reduction of a liability when associated with a liability.	February 1, 2015	The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
Standards not yet adopted
ASU 2014-09, Revenue from Contracts with Customers	This standard supersedes the revenue recognition requirements in "Revenue Recognition (Topic 605)." The new ASC guidance requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration which the entity expects to be entitled to in exchange for those goods or services.	February 4, 2018	The Company is currently evaluating the potential impact of this standard.
ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period	This standard amends ASC 718, Compensation—Stock Compensation. The amendment provides guidance on the treatment of share-based payment awards with a specific performance target, requiring that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.	January 31, 2016	The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.
ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis	These amendments provide guidance which change the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities.	January 29, 2017	The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.
ASU 2015-11, Simplifying the Measurement of Inventory	This standard amends ASC 330, Inventory. This amendment applies to inventory measured using first-in, first-out (FIFO) or average cost. Under this amendment, inventory should be measured at the lower of cost and net realizable value, which is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.	January 29, 2017	The adoption of this amendment is not expected to have a material impact on the Company's consolidated financial statements.