Filed by the registrant   þ
		Filed by a party other than the registrant o
		Check the appropriate box:
		o		Preliminary proxy statement		o		Confidential, for use of the
		þ		Definitive proxy statement				Commission only (as permitted
		o		Definitive additional materials				by Rule 14a-6(e)(2))
		o		Soliciting material under Rule 14a-12

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

		Payment of filing fee (check the appropriate box):
		þ		No fee required
		o		Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11.

		o		Fee paid previously with preliminary materials.

 

Abercrombie & Fitch Co.
6301 Fitch Path
New Albany, Ohio 43054
(614) 283-6500

 

May 10, 2007

 

Dear Fellow Stockholders:

 

You are cordially invited to attend the Annual Meeting of Stockholders to be held at 10:00 a.m., local time, on Wednesday, June 13, 2007, at our executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. I hope that you will all be able to attend and participate in the Annual Meeting, at which time we will have the opportunity to review the business and operations of our Company.

 

The formal Notice of Annual Meeting of Stockholders and Proxy Statement are attached, and the matters to be acted upon by our stockholders are described in the Notice of Annual Meeting of Stockholders. Our Investor Relations telephone number is (614) 283-6500 should you require assistance in finding the location of the Annual Meeting. Directions to our executive offices may also be found on our website (www.abercrombie.com) on the “Investors” page.

 

It is important that your shares be represented and voted at the Annual Meeting. Accordingly, after reading the attached Proxy Statement, please sign, date and return the enclosed form of proxy. Alternatively, you may vote electronically through the Internet or by telephone in accordance with the instructions on your form of proxy. Your vote is important regardless of the number of shares you own.

 

Sincerely yours,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

Abercrombie & Fitch Co.

 

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On June 13, 2007

 

May 10, 2007

 

TO THE STOCKHOLDERS:

 

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Abercrombie & Fitch Co. (the “Company”) will be held at the executive offices of the Company located at 6301 Fitch Path, New Albany, Ohio 43054, on Wednesday, June 13, 2007, at 10:00 a.m., local time, for the following purposes:

 

 

Only stockholders of record, as shown by the transfer books of the Company, at the close of business on April 17, 2007, are entitled to receive notice of and to vote at the Annual Meeting.

 

By Order of the Board of Directors,

 

Michael S. Jeffries

Chairman and Chief Executive Officer

 

 

 

Abercrombie & Fitch Co.
6301 Fitch Path
New Albany, Ohio 43054
(614) 283-6500

 

PROXY STATEMENT

 

Dated May 10, 2007

 

ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On June 13, 2007

 

This Proxy Statement is being furnished to stockholders of Abercrombie & Fitch Co. (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company (the “Board”) for use at the Annual Meeting of Stockholders to be held on Wednesday, June 13, 2007 (the “Annual Meeting”), or any adjournment. The Annual Meeting will be held at 10:00 a.m., local time, at the Company’s executive offices located at 6301 Fitch Path, New Albany, Ohio 43054. This Proxy Statement and the accompanying form of proxy were first sent or given to stockholders on or about May 10, 2007.

 

A form of proxy for use at the Annual Meeting accompanies this Proxy Statement and is solicited by the Board. You may ensure your representation at the Annual Meeting by completing, signing, dating and promptly returning the enclosed form of proxy. A return envelope, which requires no postage if mailed in the United States, has been provided for your use. Alternatively, stockholders may give voting instructions electronically via the Internet or by using the toll-free telephone number stated on the form of proxy. The deadline for stockholders to transmit voting instructions electronically via the Internet or telephonically is 11:59 p.m., local time in New Albany, Ohio, on June 12, 2007. The Internet and telephone voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to give their voting instructions and to confirm that stockholders’ voting instructions have been properly recorded. Stockholders voting through the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, that will be borne by such stockholders.

 

Stockholders holding shares in “street name” with a broker/dealer, financial institution or other holder of record should review the information provided to them by the holder of record. This information will describe the procedures to be followed in instructing the holder of record how to vote the “street name” shares and how to revoke previously given instructions.

 

You may revoke your proxy at any time before it is actually voted at the Annual Meeting by giving notice of revocation to the Company in writing, by accessing the Internet site, by using the toll-free number stated on the form of proxy or, if you are a registered stockholder, by attending the Annual Meeting and giving notice of revocation in person. You may also change your vote by choosing one of the following options: executing and returning to the Company a later-dated form of proxy; submitting a later-dated vote through the Internet site or the toll-free telephone number stated on the form of proxy; or, if you are a registered stockholder, voting at the Annual Meeting. Attendance at the Annual Meeting will not, in itself, constitute revocation of your proxy.

 

The Company will bear the costs of preparing, assembling, printing and mailing this Proxy Statement, the accompanying form of proxy and any other related materials and all other costs incurred in connection

with the solicitation of proxies on behalf of the Board, other than the Internet access and telephone usage charges mentioned above. Solicitation of proxies may be made by associates of the Company via mail or by telephone, mailgram, facsimile, electronic transmission or personal contact without further compensation therefor. The Company has retained Georgeson Shareholder Communications Inc., New York, New York, to aid in the solicitation of proxies with respect to shares held by broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for a fee of approximately $7,000, plus expenses. The Company will reimburse its transfer agent, broker/dealers, financial institutions, and other custodians, fiduciaries and nominees for their reasonable costs in sending proxy materials to stockholders.

 

Our Annual Report to Stockholders for the fiscal year ended February 3, 2007 (“Fiscal 2006”) is being delivered with this Proxy Statement.

 

VOTING AT THE ANNUAL MEETING

 

The shares entitled to vote at the Annual Meeting consist of shares of the Class A Common Stock, par value $0.01 per share (the “Common Stock”), of the Company, with each share entitling the holder of record to one vote. There are no cumulative voting rights in the election of directors. At the close of business on April 17, 2007, the record date for the Annual Meeting, there were 87,762,791 shares of Common Stock outstanding. A quorum for the Annual Meeting is one-third of the outstanding shares of Common Stock.

 

The results of stockholder voting will be tabulated by the inspectors of election appointed for the Annual Meeting. Shares of Common Stock represented by properly executed proxies returned to the Company prior to the Annual Meeting or represented by properly authenticated electronic votes recorded through the Internet or by telephone will be counted toward the establishment of a quorum for the Annual Meeting.

 

Those shares of Common Stock represented by properly executed proxies, or properly authenticated votes recorded electronically through the Internet or by telephone, that are received prior to the Annual Meeting and not revoked, will be voted as directed by the stockholders. All valid proxies received prior to the Annual Meeting which do not specify how shares of Common Stock should be voted will be voted “FOR” the election of the nominees of the Board listed below under “ELECTION OF DIRECTORS”, “FOR” the approval of the Abercrombie & Fitch Co. Incentive Compensation Performance Plan, “FOR” the approval of the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan and “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of the Company.

 

Under the applicable rules of the New York Stock Exchange (“NYSE”), the election of directors and ratification of the Company’s independent registered public accounting firm are considered “routine” items upon which broker/dealers, who hold their clients’ shares of Common Stock in street name, may vote shares in their discretion on behalf of their clients if those clients have not furnished voting instructions within the required time frame before the Annual Meeting. The approval of the Abercrombie & Fitch Co. Incentive Compensation Performance Plan and the approval of the Abercrombie & Fitch Co. 2007 Long-Term Incentive Plan are not considered “routine” items, and therefore, discretionary voting by broker/dealers is not permitted with respect to those items.

 

ELECTION OF DIRECTORS

 

There are currently ten individuals serving as members of the Board — three in the class whose terms expire at the Annual Meeting, three in the class whose terms expire in 2008 and four in the class whose terms expire in 2009. However, at the Annual Meeting only two directors are being nominated for election. The Board has reduced the size of the Board from ten to nine directors. Accordingly, votes may not be cast for a greater number of nominees than the two nominees named in this proxy statement. After the Annual Meeting and the election of two members of the Board, the Board will consist of nine members — two in the class whose terms will expire in 2010, three in the class whose terms expire in 2008 and four in the class whose terms expire in 2009.

 

Nominees

 

Two members of the Board will be elected at the Annual Meeting. Directors elected at the Annual Meeting will hold office for a three-year term expiring at the Annual Meeting of Stockholders in 2010 or until their successors are elected and qualified. The nominees of the Board for election at the Annual Meeting, each of whom was approved by the Nominating and Board Governance Committee, are identified below. The individuals named as proxies in the form of proxy solicited by the Board intend to vote the shares of Common Stock represented by the proxies received under this solicitation for the Board’s nominees, unless otherwise instructed on the form of proxy. If any nominee who would otherwise receive the required number of votes becomes unable or unwilling to serve as a candidate for election as a director, the individuals designated to vote the proxies reserve full discretion to vote the shares of Common Stock represented by the proxies they hold for the election of the remaining nominee and for the election of any substitute nominee designated by the Board upon recommendation by the Nominating and Board Governance Committee. The Board has no reason to believe that any of the nominees of the Board will be unavailable or unable to serve as a director if elected.

 

The two nominees receiving the greatest number of votes will be elected as directors. Shares of Common Stock as to which the authority to vote is withheld will not be counted toward the election of directors or toward the election of the individual nominees specified on the form of proxy. Proxies may not be voted for more than two nominees.

 

The information set forth in the table below concerning the principal occupation, other affiliations and business experience of each nominee for re-election as a director, as of April 17, 2007, has been furnished to the Company by each nominee.

 

 

Both of the nominees are directors standing for re-election.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF
THE NOMINEES LISTED ABOVE.

Directors

 

The information set forth in the table below concerning the principal occupation, other affiliations and business experience of each continuing director, as of April 17, 2007, has been furnished to the Company by each director.

 

 

Certain Relationships and Related Transactions

 

The Board of Directors reviews all relationships and transactions in which the Company and its directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. The Code of Conduct adopted by the Board addresses conflicts of interest which arise when a director, officer, or associate has an interest in a transaction to which the Company is a party. If a potential conflict arises concerning a director or officer of the Company, the potential conflict is to be disclosed to the Chair of the Audit Committee of the Board for review and disposition. The Company’s legal staff is primarily responsible for the development and implementation of processes and controls to obtain information from the directors and executive officers with respect to related person transactions and for then determining, based on the facts and circumstances, whether the Company or a related person has a direct or indirect material interest in the transaction. As required under SEC rules, transactions that are determined

to be directly or indirectly material to the company or a related person are disclosed in the Company’s proxy statement.

 

Mr. Gertmenian, a director of the Company, is a partner with Vorys, Sater, Seymour and Pease LLP, and serves as Chairman of the firm’s Executive Committee and as the managing partner of the firm. Vorys, Sater, Seymour and Pease LLP rendered legal services to the Company during Fiscal 2006, for which the Company paid approximately $4.4 million in fees and approximately $1.6 million in expense reimbursements. Mr. Gertmenian is also affiliated with a charitable organization to which the Company made contributions (not in excess of $200,000) during Fiscal 2006.

 

Mr. Kessler, a director of the Company, has a son-in-law, Thomas D. Lennox, who is employed in a non-executive officer position as Vice-President, Corporate Communications and who received approximately $310,000 in compensation (including a restricted stock unit grant) and benefits in Fiscal 2006.

 

Pursuant to the indemnification provisions contained in the Company’s By-laws, the Company is paying the legal fees incurred by current and former executive officers and directors in connection with the lawsuits against the Company, the derivative lawsuits on behalf of the Company and the investigation by the Securities and Exchange Commission (the “SEC”) described in the Company’s 2006 Annual Report on Form 10-K filed on March 30, 2007. During Fiscal 2006, the Company advanced approximately $2.3 million for such fees on behalf of such current and former executive officers and directors. Each such executive officer and director has undertaken to repay to the Company any expenses advanced by the Company should it be ultimately determined that the executive officer or director was not entitled to indemnification by the Company. The Company expects to be reimbursed for most of these fees under one or more of its insurance policies.

 

Director Independence

 

The Board has reviewed, considered and discussed each director’s relationships, either directly or indirectly, with the Company and its subsidiaries in order to determine whether such director meets the independence requirements of the applicable sections of the NYSE Listed Company Manual (the “NYSE Rules”). The Board has determined that a majority of the directors qualify as independent under the NYSE Rules. Specifically, the Board has determined that each of James B. Bachmann, Daniel J. Brestle, Lauren J. Brisky, John A. Golden, Archie M. Griffin, John W. Kessler, Edward F. Limato and Allan A. Tuttle has no relationship with the Company either directly or indirectly, including, without limitation, any commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship, that would be inconsistent with a determination of independence under the NYSE Rules. The Board specifically considered a number of circumstances in the course of reaching this conclusion, including the relevant relationships described above under the caption “Certain Relationships and Related Transactions” as well as the facts that (a) Mr. Kessler’s son-in-law is on the Board of Trustees of the Children’s Hospital Foundation of the Columbus Children’s Hospital, and the Company has pledged a conditional donation of $1.0 million a year for ten years (2006-2015) to the Columbus Children’s Hospital (a wing of which will bear the name of the Company), (b) Messrs. Bachmann, Griffin and Kessler, Mr. Bachmann’s spouse, Mr. Kessler’s spouse and one of Mr. Kessler’s children are affiliated with certain charitable organizations to which the Company made contributions during Fiscal 2006 (in no case in excess of $200,000), (c) Mr. Bachmann is a former partner of Ernst & Young LLP, a firm engaged by the Company from time to time to perform non-audit services and to which the Company paid fees during Fiscal 2006 not in excess of $190,000, and (d) Mr. Golden is a former partner of Goldman Sachs, to which the Company paid fees during Fiscal 2006 not in excess of $60,000. Mr. Jeffries does not qualify as independent because he is an executive officer of the Company.

Mr. Gertmenian does not qualify as independent because he is a partner of a law firm that has performed services and will continue to perform services for the Company.

 

There are no family relationships among any of the directors and executive officers of the Company.

 

Please see the Company’s Annual Report on Form 10-K filed on March 30, 2007 for information about the Company’s executive officers.

 

Meetings of and Communications with the Board

 

The Board held nine meetings during Fiscal 2006. All of the directors attended 75% or more of the aggregate of the total number of meetings of the Board and of committees of the Board on which they served that were held during the period they served.

 

Although the Company does not have a formal policy requiring members of the Board to attend annual meetings of the stockholders, the Company encourages all incumbent directors and director nominees to attend each annual meeting of stockholders. All of the current directors attended the Company’s last annual meeting of stockholders held on June 14, 2006.

 

In accordance with the Company’s Corporate Governance Guidelines and applicable NYSE Rules, the non-management directors of the Company meet (without management present) at regularly scheduled executive sessions at least twice per year and at such other times as the directors deem necessary or appropriate. Each executive session is presided over by one of the non-management directors, as determined prior to or at the beginning of each executive session by the non-management directors. In addition, if the non-management directors include directors who are not independent, then at least once a year the independent directors of the Company will meet in executive session.

 

The Board believes it is important for stockholders and other interested parties to have a process to send communications to the Board and its individual members. Accordingly, stockholders and other interested parties who wish to communicate with the Board, the non-management directors as a group or a particular director may do so by sending a letter to such individual or individuals, in care of the Company, to the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder/Interested Party — Non-Management Director Communication,” “Stockholder/Interested Party — Board Communication” or “Stockholder/Interested Party — Director Communication,” as appropriate. All such letters must identify the author as a stockholder or other interested party and clearly state whether the intended recipients are all members of the Board or certain specified individual directors. Copies of all such letters will be circulated to the appropriate director or directors. There is no screening process in respect of communications from stockholders or other interested parties.

 

Committees of the Board

 

The Board has four standing committees — the Compensation Committee, the Executive Committee, the Audit Committee and the Nominating and Board Governance Committee. The Board also currently has one special committee — a Special Litigation Committee — and in 2006 had a Special Committee on Corporate Governance, each described below.

 

Compensation Committee

 

The Compensation Committee provides overall guidance for the Company’s executive compensation policies and approves the amounts and elements of compensation for the Company’s executive officers. The Compensation Committee is comprised of Daniel J. Brestle (Chair), Edward F. Limato and John W. Kessler. The Board has determined that each member of the Compensation Committee qualifies as an independent director under the applicable NYSE Rules. The Compensation Committee is organized and conducts its business pursuant to a written charter adopted by the Board on June 14, 2006, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Compensation Committee periodically reviews and assesses the adequacy of its charter in consultation with the Nominating and Board Governance Committee and will recommend changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Compensation Committee’s charter sets forth the duties and responsibilities of the Compensation Committee, which include: (a) reviewing and approving the general compensation policies applicable to the Chief Executive Officer and other officers of the Company identified in Rule 16a-1(f) under the Exchange Act (the “Section 16 Officers”); (b) determining the methods and criteria for review and evaluation of the performance of the Company’s Section 16 Officers, including the corporate goals and objectives relevant to their respective compensation; (c) evaluating the performance of the Company’s Section 16 Officers in light of the approved corporate goals and objectives and determining and approving the compensation of each Section 16 Officer based on such evaluation; (d) evaluating existing, and, if directed by the Board, negotiating and approving proposed, employment contracts or severance arrangements between the Company and its Section 16 Officers; (e) administering, reviewing and making recommendations to the Board regarding the Company’s incentive-compensation plans, equity-based plans and other plans in accordance with applicable laws, rules and regulations; (f) reviewing and approving the compensation for the Company’s non-associate directors; (g) reviewing and discussing with management the annual Compensation Discussion and Analysis and recommending it for inclusion in the Company’s proxy statement; and (h) preparing the Compensation Committee Report for inclusion in the Company’s proxy statement.

 

The Compensation Committee held six meetings during Fiscal 2006. The Compensation Committee’s use of compensation consultants and the role of executive officers in making recommendations relating to executive compensation are described under the caption “Compensation Discussion and Analysis” beginning on page 18.

 

Executive Committee

 

The Executive Committee is comprised of Michael S. Jeffries (Chair), Russell M. Gertmenian and John A. Golden. The Executive Committee may exercise, to the fullest extent permitted by law and not delegated to

another committee of the Board, all of the powers and authority granted to the Board. The Executive Committee held one meeting and took one action by written consent during Fiscal 2006.

 

Audit Committee

 

The Audit Committee is comprised of James B. Bachmann (Chair), Lauren J. Brisky, John A. Golden and Allan A. Tuttle. The Board has determined that each current member of the Audit Committee qualifies as an independent director under the applicable NYSE Rules and under SEC Rule 10A-3. The Board has also determined that each of the members of the audit committee is “financially literate” under the applicable NYSE Rules and that each of James B. Bachmann and Lauren J. Brisky qualifies as an “audit committee financial expert” under SEC Rules by virtue of their experience described above. The Board believes that each member of its Audit Committee is highly qualified to discharge his or her duties on behalf of the Company and its subsidiaries.

 

The Audit Committee is organized and conducts its business pursuant to a written charter adopted by the Board on April 19, 2005, a copy of which is posted on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. At least annually, the Audit Committee, in consultation with the Nominating and Board Governance Committee, reviews and reassesses the adequacy of its charter and recommends any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The Audit Committee’s duties and responsibilities are set forth in its charter. The primary functions of the Audit Committee are to assist the Board in its oversight of: (a) the integrity of the Company’s financial statements and effectiveness of the Company’s systems of internal accounting and financial controls; (b) the Company’s compliance with legal and regulatory requirements; (c) the qualifications and independence of the Company’s independent registered public accounting firm; (d) the performance of the Company’s internal auditors and independent registered public accounting firm; and (e) the evaluation of enterprise risk issues. The Audit Committee’s specific responsibilities include: (a) reviewing the Company’s financial statements and the related disclosure; (b) reviewing the Company’s accounting procedures and policies; (c) reviewing the activities of the internal auditors and the Company’s independent registered public accounting firm; (d) reviewing the independence, qualifications and performance of the Company’s independent registered public accounting firm; (e) selecting, appointing and retaining the Company’s independent registered public accounting firm for each fiscal year and determining the terms of engagement; (f) reviewing and approving in advance all audit and all permitted non-audit services; (g) setting hiring policies for associates or former associates of the independent registered public accounting firm; (h) preparing an annual report for inclusion in the Company’s proxy statement; and (i) other matters required by applicable SEC Rules and NYSE Rules.

 

The Audit Committee held fifteen meetings during Fiscal 2006. The Audit Committee’s report relating to Fiscal 2006 begins on page 53.

 

Nominating and Board Governance Committee

 

The Nominating and Board Governance Committee is comprised of John A. Golden (Chair), Archie M. Griffin and John W. Kessler. The Board has determined that each current member of the Nominating and Board Governance Committee qualifies as an independent director under the applicable NYSE Rules. The Nominating and Board Governance Committee is organized and conducts its business pursuant to a written charter adopted by the Board on June 14, 2006, a copy of which is posted on the “Corporate Governance”

page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Nominating and Board Governance Committee will periodically review and reassess the adequacy of its charter and recommend any proposed changes to the full Board as necessary to reflect changes in regulatory requirements, authoritative guidance and evolving practices.

 

The purpose of the Nominating and Board Governance Committee is to provide oversight on a broad range of issues surrounding the composition and operation of the Board. The primary responsibilities of the Nominating and Board Governance Committee include: (a) establishing and articulating the qualifications, desired background and selection criteria for members of the Board; (b) developing a policy with regard to the consideration of candidates for election or appointment to the Board recommended by stockholders of the Company and procedures to be followed by stockholders in submitting such recommendations; (c) making recommendations to the full Board concerning all nominees for Board membership, including the re-election of existing Board members and the filling of any vacancies; (d) evaluating and making recommendations to the full Board concerning the number and responsibilities of Board committees and committee assignments; (e) periodically reviewing and making recommendations to the Compensation Committee regarding director compensation and stock ownership; (f) developing, recommending, and periodically reviewing a set of written corporate governance principles applicable to the Company in accordance with the applicable NYSE Rules; and (g) overseeing the evaluation of the Board and management.

 

The Nominating and Board Governance Committee held three meetings during Fiscal 2006.

 

Special Committees

 

In accordance with the terms of the settlement of In re Abercrombie & Fitch Co. Shareholder Derivative Litigation., C.A. No. 1077, the Board formed a Special Committee on Corporate Governance (consisting of Lauren J. Brisky (Chair), James B. Bachmann and Allan A. Tuttle, each an independent director) for the purpose of conducting a full review of the Company’s corporate governance practices and procedures. The Board approved the following compensation to the members of such committee for their services in this matter: a retainer of $12,500 for the committee members and a Chair retainer of $25,000. The committee completed its work when it provided its final report on corporate governance at the Board’s June 2006 meeting and the committee was then disbanded.

 

In addition, in connection with a series of stockholder derivative actions regarding alleged breaches of fiduciary duty by present and former directors of the Company, the Board formed a Special Litigation Committee of independent directors (currently consisting of Allan A. Tuttle (Chair) and Lauren J. Brisky) to determine what action to take with respect to such litigation. The Board also approved the following compensation to the members of such committee for their services in this matter beginning October 10, 2005: a monthly retainer of $15,000 for the committee member and a monthly Chair retainer of $20,000. See Part I, Item 3. “Legal Proceedings” of the Company’s Annual Report on Form 10-K filed on March 30, 2007 for a discussion of the litigation.

 

Director Qualifications and Consideration of Director Candidates

 

As described above, the Company has a standing Nominating and Board Governance Committee that has responsibility for providing oversight on a broad range of issues surrounding the composition and operation of the Board, including identifying candidates qualified to become directors and recommending director nominees to the Board.

 

When considering candidates for the Board, the Nominating and Board Governance Committee evaluates the entirety of each candidate’s credentials and does not have specific eligibility requirements or minimum qualifications that must be met by a candidate. The Nominating and Board Governance Committee considers those factors it deems appropriate, including judgment, skill, diversity, strength of character, experience with businesses and organizations of comparable size or scope, experience as an executive of or adviser to public and private companies, experience and skill relative to other Board members, specialized knowledge or experience, and the desirability of the candidate’s membership on the Board and any committees of the Board. Depending on the current needs of the Board, the Nominating and Board Governance Committee may weigh certain factors more or less heavily. The Nominating and Board Governance Committee does, however, believe that all members of the Board should have the highest character and integrity, a reputation for working constructively with others, sufficient time to devote to Board matters and no conflict of interest that would interfere with performance as a director.

 

The Nominating and Board Governance Committee considers candidates for the Board from any reasonable source, including stockholder recommendations, and does not evaluate candidates differently based on who has made the recommendation. Pursuant to its charter, the Nominating and Board Governance Committee has the authority to retain consultants and search firms to assist in the process of identifying and evaluating candidates and to approve the fees and other retention terms for any such consultant or search firm.

 

Director Nominations

 

The Board, taking into account the recommendations of the Nominating and Board Governance Committee, selects nominees for election as directors at each annual meeting of stockholders. In addition, stockholders wishing to nominate directors for election may do so provided they comply with the nomination procedures set forth in the Company’s Amended and Restated Bylaws. Stockholders may recommend director candidates for consideration by the Nominating and Board Governance Committee by giving written notice of the recommendation to the Chair of the Nominating and Board Governance Committee, in care of the Company, to the Company’s executive offices at 6301 Fitch Path, New Albany, Ohio 43054. The recommendation should include the candidate’s name, age, business address, residence address and principal occupation. The recommendation should also describe the qualifications, attributes, skills or other qualities possessed by the recommended director candidate. A written statement from the candidate consenting to serve as a director, if elected, should accompany any such recommendation.

 

Each stockholder nomination must be delivered in person or mailed by United States certified mail to the Secretary of the Company and received not less than 120 days nor more than 150 days before the first anniversary date of the Company’s proxy statement in connection with the last annual meeting of stockholders, which, for purposes of the Company’s 2008 Annual Meeting of Stockholders, means no later than January 11, 2008 nor earlier than December 12, 2007. The Secretary of the Company will deliver any stockholder nominations received in a timely manner for review by the Nominating and Board Governance Committee. Each stockholder nomination must contain the following information: (a) the name and address of the nominating stockholder; (b) the name, age, business address and, if known, residence address of the nominee; (c) the principal occupation or employment of the nominee; (d) the class and number of shares of the Company beneficially owned by the nominating stockholder and the nominee; (e) a representation that the nominating stockholder intends to appear at the meeting in person or by proxy to submit the nomination; (f) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations under applicable SEC Rules; and (g) a description of any arrangement or understanding between the nominating stockholder and the nominee or any other person providing for the nomination. Each nomination

must be accompanied by the written consent of the proposed nominee to be named in the proxy statement and to serve if elected. No person may be elected as a director unless he or she has been nominated by a stockholder in the manner just described or by the Board or a committee of the Board.

 

Compensation of Directors

 

Associates and officers who are directors receive no additional compensation for services rendered as directors. Directors who are not associates of the Company or its subsidiaries (“non-associate directors”) receive (a) an annual retainer of $55,000 (to be paid quarterly in arrears); (b) an annual retainer for each standing committee Chair and member of $25,000 and $12,500, respectively, other than (1) the Chair and members of the Audit Committee who will each receive $40,000 and $25,000, respectively, and (2) the members of the Executive Committee who will each receive $7,500 (to be paid quarterly in arrears); and (c) an annual grant of 3,000 restricted stock units.

 

The annual restricted stock unit grant is subject to the following provisions:

 

 

Non-associate directors are also reimbursed for their expenses for attending Board and committee meetings and receive the discount on purchases of the Company’s merchandise extended to all associates.

 

The Company has maintained the Directors’ Deferred Compensation Plan since October 1, 1998. The Directors’ Deferred Compensation Plan was amended and restated May 22, 2003. Voluntary participation in the Directors’ Deferred Compensation Plan enables a non-associate director of the Company to defer all or a part of his or her retainers, meeting fees (which are no longer paid) and stock-based incentives (including options, restricted shares of Common Stock and stock units relating to shares of Common Stock), including federal income tax thereon. The deferred compensation is credited to a bookkeeping account where it is converted into a share equivalent. Stock-based incentives deferred pursuant to the Directors’ Deferred Compensation Plan are credited as shares of Common Stock. Amounts otherwise payable in cash are converted into a share equivalent based on the fair market value of the Company’s Common Stock on the date the amount is credited to a non-associate director’s bookkeeping account. Cash dividends will be credited on the shares of Common Stock credited to a non-associate director’s bookkeeping account and converted into a share equivalent. Each non-associate director’s only right with respect to his or her bookkeeping account (and the amounts allocated thereto) will be to receive distribution of the amount in the account in accordance with the terms of the Directors’ Deferred Compensation Plan. Distribution of the deferred amount is made in the form of a single lump sum transfer of the whole shares of Common Stock represented by the share equivalents in the non-associate director’s bookkeeping account (plus cash representing the value of fractional shares) or annual installments in accordance with the election made by the non-associate director. Shares of Common

Stock will be distributed under the 2005 Long Term Incentive Plan in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts on or after August 1, 2005, under the 2003 Director Stock Plan in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts between May 22, 2003 and July 31, 2005 and under the 1998 Director Stock Plan in respect of deferred compensation allocated to non-associate directors’ bookkeeping accounts prior to May 22, 2003.

 

Fiscal 2006 Director Summary Compensation Table(1)(2)

 

 

 

 

Corporate Governance Guidelines

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Corporate Governance Guidelines to promote the effective functioning of the Board and its committees and to

reflect the Company’s commitment to the highest standards of corporate governance. The Board, with the assistance of the Nominating and Board Governance Committee, periodically reviews the Corporate Governance Guidelines to ensure they are in compliance with all applicable requirements. The Corporate Governance Guidelines are available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054.

 

Code of Business Conduct and Ethics

 

In accordance with applicable NYSE Rules, the Board has adopted the Abercrombie & Fitch Co. Code of Business Conduct and Ethics which is available on the “Corporate Governance” page of the Company’s website at www.abercrombie.com, accessible through the “Investors” page, or available in print from the Company by sending a request to the Investor Relations Department, 6301 Fitch Path, New Albany, Ohio 43054. The Code of Business Conduct and Ethics, which is applicable to all associates, includes a Code of Ethics applicable to the Chief Financial Officer, Controller and other senior financial officers. The Company intends to satisfy any disclosure requirements regarding any amendment to, or waiver from, a provision of this Code of Ethics by posting such information on the Company’s website at www.abercrombie.com accessible through the “Investors” page.

 

Compensation Committee Interlocks and Insider Participation

 

John W. Kessler serves as a member of the Compensation Committee. His son-in-law is employed by the Company in a non-executive officer position and during Fiscal 2006 Mr. Kessler’s son-in-law received approximately $310,000 in compensation and benefits.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table furnishes, as of April 17, 2007, with respect to each person who is known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock of the Company (other than Mr. Jeffries, whose beneficial ownership is described in the next table), the name and address of such owner, the number of shares of Common Stock beneficially owned (as determined under Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) and the percentage such shares comprised of the outstanding shares of Common Stock of the Company. Except as indicated, each holder has sole voting and dispositive power over the listed shares.

 

 

 

 

The following table furnishes the number of shares of Common Stock of the Company beneficially owned (as determined under Rule 13d-3 under the Exchange Act) by each of the current directors and named executive officers, and by all directors and executive officers as a group, as of April 17, 2007.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

To the Company’s knowledge, based solely on a review of the forms furnished to the Company and written representations that no other forms were required, during Fiscal 2006, all directors, officers and beneficial owners of greater than 10% of the outstanding shares of Common Stock timely filed reports required by Section 16(a) of the Exchange Act except Diane Chang filed one late Form 4 (reporting one transaction), Russell M. Gertmenian filed one late Form 4 (reporting one transaction), Archie M. Griffin filed one late Form 4 (reporting one transaction), Leslee K. Herro filed one late Form 4 (reporting one transaction), John W. Kessler filed one late Form 4 (reporting one transaction), and Michael W. Kramer filed one late Form 4 (reporting one transaction).

 

COMPENSATION DISCUSSION AND ANALYSIS

 

Executive Compensation

 

COMPENSATION OBJECTIVES

 

Abercrombie & Fitch operates in the fast-paced and highly competitive arena of specialty retail. To be successful, the Company must attract and retain key creative and management talent that thrives in this environment. The Company identifies and recruits elite candidates to join the organization, it sets high goals and expects superior performance. Abercrombie & Fitch’s executive compensation structure is designed to support this culture. As such, the Company’s executive compensation and benefit programs are designed to:

 

 

The compensation programs are administered by the Compensation Committee of the Board of Directors, which is comprised solely of independent, non-associate Directors of Abercrombie (see discussion of the Compensation Committee on page 9). Working with management and outside advisors (described

below), the Compensation Committee has developed a compensation and benefits strategy that rewards the performance, behaviors and culture that the Company believes will drive long-term success.

 

 

ROLE OF THE COMPENSATION COMMITTEE

 

In making executive compensation decisions, the Compensation Committee is advised by both independent counsel, Gibson Dunn & Crutcher LLP (“Gibson Dunn”), and an independent compensation consultant, Pearl Meyer & Partners, Inc. (“PM&P”). The only services that PM&P and Gibson Dunn perform for the Company are at the direction of the Compensation Committee. The Compensation Committee has the right to terminate the services of counsel and the compensation consultant at any time. While the Compensation Committee retains Gibson Dunn and PM&P directly, in carrying out assignments, Gibson Dunn and PM&P interact with the Senior Vice-President of Human Resources, the Company’s office of General Counsel and the Chief Financial Officer and their staffs in order to obtain compensation and performance data for the executives and the Company. In addition, the Compensation Committee’s advisors may, at their discretion, seek input and feedback from management regarding their work product prior to presentation to the Compensation Committee in order to confirm information, identify data questions or other similar issues.

 

Only Compensation Committee members vote on its decisions regarding executive compensation, and these votes generally take place during the “executive session” portion of the Compensation Committee meetings, when there are no members of management present. The Compensation Committee consults with

the Chief Executive Officer (“CEO”) to discuss his own compensation package, and to obtain his recommendations for compensation of other executives, but ultimately decisions of the Compensation Committee regarding compensation for the CEO and other executive officers are made solely by the Compensation Committee, with input from its advisors. The Compensation Committee often requests certain Company executives to be present at Compensation Committee meetings where executive compensation and Company and individual performance are discussed and evaluated so they can provide input into the decision-making process. Executives may provide insight, suggestions or recommendations regarding executive compensation during periods of general discussion, but do not have a vote in any final decision-making.

 

COMPENSATION AND BENEFITS STRUCTURE

 

Pay Level — determination of the appropriate pay opportunity

 

Pay levels for all associates of the Company, including the Named Executive Officers (“NEOs”) listed in the Summary Compensation Table on page 27, are determined based on a number of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience and expertise, the pay levels for peers within the Company, pay levels in the marketplace for similar positions and performance of the individual, his/her business unit and the Company as a whole. The Compensation Committee approves the pay levels for all the executive officers. In determining the pay levels, the Compensation Committee considers all forms of compensation and benefits, using tools such as tally sheets to review the total value delivered to the executives through all elements of pay.

 

In determining the “competitive market,” the Compensation Committee uses a number of sources. The primary data source used in setting competitive market levels for the NEOs is information publicly disclosed by a peer group of 11 companies listed below, which is reviewed on an annual basis and updated accordingly. The Compensation Committee believes that most of these companies represent other “best in class” retail and apparel companies and all compete with the Company for executive talent. The public information for the peer companies is supplemented with survey data, which provides position-based compensation levels across broad industry segments. The Company aggregates survey data from multiple providers, including Mercer, Hay, ICR, Hewitt, and Watson Wyatt. For corporate staff positions, such as the Chief Financial Officer, the Compensation Committee considers survey data based on companies of similar size, without regard to industry. For industry specific positions, such as the General Manager of a division, the Compensation Committee considers retail industry survey data for companies of a similar size.

 

 

Relative to the competitive market data, the Compensation Committee intends that the overall total compensation opportunity for the executive group will be approximately 75^th percentile for the achievement of target performance. This same market positioning is used for other professionals within the Company. In view of the Company’s competitive industry, its high profile, its need for highly qualified individuals in creative areas, and its geographic location, the Compensation Committee believes that this top quartile positioning is appropriate. Furthermore, the Company has a history of setting aggressive performance targets, and the top quartile target compensation levels are consistent with this aggressive goal-setting.

 

As noted above, notwithstanding the Company’s overall pay positioning objectives, pay opportunities for specific individuals vary based on a number of factors. The Compensation Committee does not precisely benchmark each executive’s compensation to market levels on an annual basis, but does review market information and, in a given year, may engage in a more detailed review which results in significant adjustments to a given executive’s compensation. Actual total compensation in a given year will vary above or below the target compensation levels based primarily on the attainment of operating goals and the creation of stockholder value. In some instances, the amount and structure of compensation results from negotiations with executives, and reflects an increasingly competitive market for quality managerial talent.

 

 

The Company’s compensation program consists of the following elements:

 

 

Base Salaries

 

Executive base salaries reflect the Company’s operating philosophy, culture and business direction, with each salary determined by an annual assessment of a number of factors, including job responsibilities, impact on development and achievement of business strategy, labor market compensation data, individual performance relative to job requirements, the Company’s ability to attract and retain critical executives and salaries paid for comparable positions within an identified compensation peer group. The Compensation Committee intends that salary, together with other principal components of compensation at target opportunity levels, will approximate 75^th percentile levels and the Compensation Committee periodically evaluates market base salaries for comparable roles among retailers and general industry. Nevertheless, no specific weighting is applied to the factors considered in setting the level of salary, and thus the process relies on the subjective exercise of the Compensation Committee’s judgment.

 

Annual Incentive Compensation Program

 

The annual incentive compensation plan (the “Incentive Plan”), approved by stockholders at the 2002 Annual Meeting of Stockholders is designed to focus on and reward short-term operating performance. It is the broadest of the Company’s management incentive programs, covering approximately 710 participants, including the NEOs. The plan has target incentive levels, each expressed as a percentage of base salary. Consistent with the Company’s pay level strategy, these annual incentive levels are set to generate target annual compensation (i.e., the sum of base salary plus target annual incentive amount) that approximates 75^th percentile. Each participant in the Incentive Plan is assigned to an incentive level based on his/her position within the Company. For example, the CEO is in Level A, with a target of 120% of salary; the executive vice presidents are in Level B, with a target of 75% of salary, etc.

 

The Incentive Plan for Abercrombie is divided into two six-month periods that correspond to the Company’s selling seasons, February through July, (the “Spring” season) and August through January, (the “Fall” season). Historically the Company earns approximately 40% of its revenues and net income in the Spring and approximately 60% in the Fall. Accordingly, the participant’s annual opportunity is divided into two equal performance periods — the target bonus for the Spring season equals 40% of the annual target bonus and the target bonus for the Fall season equals 60% of the annual target. Actual awards under the Incentive Plan vary based upon actual performance relative to the goals set by the Compensation Committee at the beginning of each season (as discussed in “Pay-for-Performance” section, below). The maximum that can be earned under the Incentive Plan is 200% of the target award, for the achievement of “outstanding” performance. Conversely, a partial bonus less than target can be earned for performance that falls short of target, but is above “threshold” performance. There is no bonus earned if performance falls below the “threshold” level.

 

The Compensation Committee administers the plan so that payments under the plan qualify as “performance based” under Section 162(m) of the Internal Revenue Code.

 

The Company is soliciting stockholder approval of the material terms of the performance goals under this plan to preserve favorable tax treatment of certain plan payments. See page 43 for more information.

 

Long-Term Incentive Program

 

Long-term incentives are used to balance the short-term focus of the annual cash incentive compensation program by tying rewards to performance achieved over multi-year periods. Under the 2005 Long-Term Incentive Plan (the “2005 LTIP”), which was approved by stockholders at the 2005 Annual Meeting, and the 2002 Stock Plan for Associates (the “2002 Associates Stock Plan”), which did not require stockholder approval, the Compensation Committee may grant a variety of long-term incentive vehicles, including stock options, restricted stock units, and performance shares. The Company currently relies primarily on a combination of restricted stock units and stock options. The combination of the two types of awards provides a balance between retention (through restricted stock units) and long-term performance (through stock options), as described below. Furthermore, the use of stock-based compensation in the long-term incentive program balances the cash-based short-term incentive pay (i.e., base salary and annual incentives).

 

The Company is soliciting stockholder approval of the Abercrombie & Fitch Co. 2007 Long Term Incentive Plan in order to grant long term incentives to selected management associates. See page 45 for more information.

 

In general, the restricted stock unit grants vest according to the schedule below, provided that the associate continues to work for the Company through the vesting dates. The weighting of the vesting toward the later years rewards retention.

 

 

In the past, the Company has also used a different restricted stock unit grants vesting schedule for annual grants made to the Company’s leadership team. This vesting schedule was discontinued in 2005 for annual restricted stock unit grants but on certain occasions is used for inducement grants to potential senior

executives. Those restricted stock unit grants vest according to the schedule below, provided that the associate continues to work for the Company through the vesting dates.

 

 

In general, the stock option grants vest according to the schedule below, provided that the associate continues to work for the Company through the vesting dates.

 

 

While the Company believes that both retention and long-term performance are important objectives for a long-term incentive program, the Company also believes that the “at risk” component of the long-term incentive program should be higher for the more senior executives. Therefore, the ratio of restricted stock to stock options varies by level of participant, with the more senior executives receiving a relatively higher percentage (as compared to the majority of the associates) of their total long-term award value in the form of stock options. For the NEOs (other than the CEO), approximately 55% of their total long-term incentive award is in the form of restricted stock and 45% in the form of stock options. Equity awards for the CEO are determined separately. Mr. Jeffries has not received any equity awards since 2003, but such grants may be made in the future in accordance with the Company’s belief in significant “at risk” compensation for senior executives as describe above.

 

Target long-term incentive award levels are set to generally fall in a range between market median and 75^th percentile levels. The Compensation Committee also assesses aggregate share usage and dilution levels in comparison to the peer group companies and general industry norms. Within these general grant guidelines, individual awards may be adjusted up or down to reflect the performance of the executive and his or her potential to contribute to the success of the Company’s initiatives to create stockholder value and other individual considerations.

 

The Compensation Committee reviews and approves individual grants for the NEOs, as well as the total number of stock options and restricted stock unit grants made to all associates. The annual grants are reviewed and approved at the Compensation Committee’s scheduled March meeting. The grant date for these annual grants is the date of the Compensation Committee meeting at which they are approved. The grant of restricted stock units and stock option awards, other than the annual grants, are approved in advance of the grant date of such awards by the Compensation Committee.

 

Other Benefits and Perquisites

 

As associates of the Company, the NEOs are eligible to participate in all of the broad-based Company-sponsored benefits programs on the same basis as other full-time associates.

 

In addition to the qualified retirement programs, the Company has a non-qualified deferred compensation plan that allows executives to defer a portion of their compensation over-and-above the limits imposed through the Company’s 401(k) plan. The Company also makes contributions to the non-qualified deferred compensation plan on behalf of the participants. Company contributions have a five-year vesting schedule. The non-qualified plan allows participants the opportunity to save and invest their own money on the same basis (as a percentage of their pay) as other associates under the tax-qualified plan. Furthermore, non-qualified deferred compensation programs are competitive, and the Company’s contribution element provides retention value. The program is further described and Company contributions and the individual account balances for the NEOs are included on page 35 of this proxy statement.

 

The Company does not offer perquisites to its executive officers that are not widely available to all full-time associates, with the exception of the CEO, who is offered certain perquisites, including private air travel, which are more fully described in the footnotes to the Summary Compensation Table on page 27.

 

While the Company supports equity ownership by management through the granting of stock options and restricted stock units, it does not have formal stock ownership guidelines. The Company believes its management team has been sufficiently motivated to long-term equity ownership without the need to adopt such requirements.

 

Severance and Change-in-Control Benefits

 

The Compensation Committee carefully considers the use and conditions of employment contracts. The Compensation Committee recognizes that in certain circumstances formal employment contracts are necessary in order to successfully recruit senior executives. Currently, only the CEO has such an employment contract. As part of his employment contract, the CEO is entitled to severance compensation in the event of involuntary termination without cause or termination by the CEO for good reason (as such terms are defined in the employment contract). The additional compensation consists of (i) a cash payment equal to two times his base salary, (ii) continuation of welfare benefits for twenty-four months, (iii) accelerated vesting of any unvested restricted stock units or stock option grants, and (iv) accelerated vesting of any unvested retirement benefit amounts. The CEO’s contract provides for tax gross-up payments in the event that his termination is in connection with a change in control of the Company.

 

All executives, including the NEOs (other than the CEO) have agreements that provide them with certain additional benefits in the event of a change-in-control. For NEOs, other than the CEO, the additional benefit in the event of a change-in-control is limited to the accelerated vesting of outstanding restricted stock units and stock option awards as well as vesting of any unvested retirement benefit amounts.

 

Other Compensation Considerations

 

As a general matter, the Compensation Committee considers the various tax and accounting implications of compensation vehicles employed by the Company.

 

When determining amounts of long-term incentive grants to executives and associates, the Compensation Committee examines the accounting cost associated with the grants. Under Statement of Financial Accounting Standard No. 123 (Revised 2004) “Share-Based Payment”, grants of stock options, restricted stock, restricted stock units and other share-based payments result in an accounting charge for the Company. Share-based compensation expense is recognized, net of estimated forfeitures, over the requisite service period on a straight line basis. The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model, and 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 issuance adjusted for anticipated dividend payments during the vesting period.

 

Section 162(m) of the Internal Revenue Code generally prohibits any publicly held corporation from taking a federal income tax deduction for compensation paid in excess of $1 million in any taxable year to the chief executive officer and the next four highest compensated officers. Exceptions are made for qualified performance-based compensation, among other things. It is the Compensation Committee’s policy to maximize the effectiveness of the executive compensation plans in this regard. However, the Compensation Committee believes that compensation and benefits decisions should be primarily driven by the needs of the business, rather than by tax policy. Therefore, the Compensation Committee may make pay decisions (such as the determination of the CEO’s base salary) that result in compensation expense that is not fully deductible under Section 162(m).

 

Pay-for-Performance — determination of the performance measures and goals used in the pay programs

 

The Company uses several vehicles to create a strong link between pay and performance:

 

 

Performance measures for the Incentive Plan have “threshold” requirements, below which no awards are earned or paid. The maximum amount that can be earned under the plan is 200% of the target award opportunity. The Compensation Committee reviews and approves these performance levels on an annual basis. In setting the threshold, target and maximum performance levels, the Compensation Committee considers a number of factors, including the Company’s historical performance, the current budget and the long-term forecasts, peer company performance, and general economic trends and conditions. As noted earlier, the Compensation Committee intends target performance levels to represent aggressive, but achievable, performance, consistent with the 75^th percentile target pay levels. Threshold performance levels are meant to represent moderately acceptable performance. Except under extraordinary circumstances, threshold performance levels must represent an improvement over prior year actual performance. Incentive payout levels for threshold performance are designed to drive overall compensation down to below median competitive levels. Maximum performance levels are intended to represent superior performance. Likewise, the incentive payouts for the achievement of maximum performance are designed to push overall compensation up to top competitive levels within the peer group.

 

The Incentive Plan gives the Compensation Committee discretion to adjust payments downward based on their business judgment. However, the Compensation Committee may not adjust bonus payout upward under the terms of the cash incentive compensation plan. Furthermore, the cash incentive compensation plan includes a “clawback” provision, modeled after the “clawback” provisions in the 2005 LTIP and the proposed 2007 Long-Term Incentive Plan, which allows the Company to seek repayment of any incentive amounts that were erroneously paid.

 

2006 COMPENSATION ACTIONS

 

Abercrombie reviews salary levels for all associates annually. For Fiscal 2006, overall salaries increased an average of 5.35%. In establishing the salary increase budget, the Company reviewed market data on projected salary increases published by numerous sources including World at Work and Towers Perrin. Increases for the NEOs (excluding the CEO) averaged 5.65%. The CEO’s salary was increased to $1.5 million, from $1.2 million. Mr. Jeffries last salary increase prior to that was in 2002.

 

The Incentive Plan goals for both the Spring and Fall seasons represented a net income growth of at least 15% over the prior year’s Spring and Fall seasons. For the 2006 Spring season, the Company paid total cash incentive bonuses of approximately $7.5 million to a total of 609 associates under the Incentive Plan. This payout represented 140% of target, based on performance relative to the goals established at the beginning of the year. For the 2006 Fall season, the Company paid total cash incentive bonuses of approximately $10.4 million to a total of 705 associates under the Incentive Plan. This payout represented 113% of target, based on performance relative to the goals established at the beginning of the season.

 

In Fiscal 2006, the Company granted a total of 573,166 restricted stock unit awards to a total of 591 associates, including the NEOs (excluding the CEO.) In addition, the Company granted a total of 403,300 stock options to a total of 48 associates, including the NEOs (excluding the CEO). The total shares granted represents 1.1% percent of the common shares outstanding as of April 17, 2007. This level of dilution is below the 25^th percentile of peers for both one and three year averages.

 

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

 

The Compensation Committee of the Board of Directors reviewed the Compensation Discussion and Analysis and discussed it with management. Based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement.

 

Submitted by the Compensation Committee of the Company’s Board of Directors:

 

 

EXECUTIVE OFFICER COMPENSATION

 

The following table summarizes the compensation paid to, awarded to or earned by, the NEOs for the fiscal year ended February 3, 2007. Since the table includes equity-based compensation costs and changes in the pension value and non-qualified deferred compensation plan (“NQDCP”) earnings, the total compensation amount is significantly greater than the compensation that actually was paid to the NEOs during Fiscal 2006.

 

The NEOs are the Company’s Chief Executive Officer, Chief Financial Officer, three other most highly compensated executive officers ranked by their total compensation in the table below (excluding amounts disclosed in the “Change in Pension Value and Nonqualified Deferred Compensation Plan Earnings” column), as well as a former executive officer who would have been among the three most highly compensated officers at the end of Fiscal 2006 had he remained employed at the end of Fiscal 2006.

 

Fiscal 2006 Summary Compensation Table

 

 

 

 

 

EMPLOYMENT AGREEMENT

 

Jeffries Agreement.  In May 1997, the Company entered into an employment agreement with Michael S. Jeffries under which Mr. Jeffries served as Chairman and Chief Executive Officer. On January 30, 2003, the Company amended and restated Mr. Jeffries’ employment agreement, with the objective of securing the continued services and employment of Mr. Jeffries through December 31, 2008 (as so amended and restated, the “2003 Jeffries Agreement”). The 2003 Jeffries Agreement was amended on August 23, 2005, effective as of August 15, 2005 (as so amended and restated, the “Jeffries Agreement”), in fulfillment of certain terms of a settlement agreement and the final order in In re Abercrombie & Fitch Co. Shareholder Derivative Litigation, C.A. No. 1077.

 

Under the Jeffries Agreement, the Company is obligated to cause Mr. Jeffries to be nominated as a director. The Jeffries Agreement provides for a base salary of $1,000,000 per year or such larger amount as the Compensation Committee may from time to time determine (Mr. Jeffries base salary for Fiscal 2006 was $1,500,000). The Jeffries Agreement also provides for participation in the Company’s stock-based associate benefit plans in the discretion of the Compensation Committee; provided however, that Mr. Jeffries shall not receive any award of Company stock options during the 2005 and 2006 calendar years, and in subsequent years will receive stock options only in the discretion of the Compensation Committee. Mr. Jeffries did not receive any stock option awards during Fiscal 2006. The Jeffries Agreement also provides for Incentive Compensation Performance Plan participation as determined by the Compensation Committee. Mr. Jeffries’ annual target bonus opportunity is to be at least 120% of his base salary upon attainment of target, subject to a maximum bonus opportunity of 240% of base salary (his target bonus opportunity was 120% of his base salary for Fiscal 2006). The Jeffries Agreement provides for a career share award representing the right to receive 1,000,000 shares of Common Stock. The career share award vests on December 31, 2008 if Mr. Jeffries remains employed with the Company and will vest in full upon a change of control of the Company (as defined in the Jeffries Agreement). In exchange for the career share award grant, Mr. Jeffries will forego participation, in respect of fiscal years after the 2002 fiscal year, in the Company’s program under which executive officers are eligible to receive annual grants of restricted shares of Common Stock. Mr. Jeffries will hold the shares received pursuant to the career share award for a period of one year after he ceases to be an executive officer of the Company (the “Holding Period”). During the Holding Period, Mr. Jeffries will also hold one half of the profit shares (as defined below) received from the first one million (1,000,000) Company stock options exercised by Mr. Jeffries following April 8, 2005. “Profit shares” shall mean the number of shares determined by dividing (i) the excess of (a) the aggregate market value of the shares of Class A Common Stock acquired upon such exercise over (b) the aggregate purchase price of the shares of Class A Common Stock plus applicable tax withholding by (ii) the market value of one share of Class A Common Stock on the date of exercise. Mr. Jeffries currently holds 214,000 shares of Common Stock received upon exercise of stock options in full satisfaction of the Settlement Agreement. The Jeffries Agreement also provides for a “stay bonus” of $6 million provided, however, that the actual amount of the stay bonus, if any, earned by Mr. Jeffries shall be determined as follows: (i) 100% of the stay bonus if and only if the Company achieves cumulative growth in earnings per share (“EPS”) from February 1, 2005 through January 31, 2009 (the “Performance Period”) of 13.5%, which equates to $12.70 over the entire Performance Period (the “Earnings Target”); (ii) 50% of the stay bonus if and only if the Company achieves cumulative

growth in EPS during the Performance Period of at least 10.5%, which equates to $11.83 over the entire Performance Period (the “Earnings Threshold Target”); (iii) between 50% and 100% of the stay bonus if the Company achieves cumulative growth in EPS during the Performance Period between the Earnings Threshold Target and the Earnings Target, with the actual amount equal to $3,000,000 plus the product of (a) the fraction obtained in dividing (1) the excess of (x) actual cumulative growth in EPS during the Performance Period over (y) the Earnings Threshold Target by (2) the excess of (x) the Earnings Target over (y) the Earnings Threshold Target, and (b) $3,000,000; or (iv) 0% of the stay bonus (except pursuant to certain terminations) if the Company’s actual cumulative growth in EPS during the Performance Period is less than the Earnings Threshold Target. The Jeffries Agreement provides for term life insurance coverage in the amount of $10 million. Pursuant to the Jeffries Agreement, Mr. Jeffries will be entitled to the same perquisites afforded to other senior executive officers. In addition, under the Jeffries Agreement, the Company provides to Mr. Jeffries, for security purposes, the use of the Company aircraft for business and personal travel in North America and for travel outside of North America, first class air travel. In light of the Company’s expansion into international markets, on February 13, 2006, the Compensation Committee extended Mr. Jeffries’ use of corporate aircraft for business and personal travel outside of North America.

 

The terms of the Jeffries Agreement relating to the termination of Mr. Jeffries employment are discussed below under the caption “Potential Payments Upon Termination or Change in Control” on page 36.

 

Under the Jeffries Agreement, Mr. Jeffries agrees not to compete with the Company or solicit its associates, customers or suppliers during the employment term and for one year thereafter. If a court finds that Mr. Jeffries has materially breached this covenant, the career share award will be forfeited unless a change of control has occurred or Mr. Jeffries’ employment has been terminated by the Company without cause or by Mr. Jeffries with good reason. If any “parachute” excise tax is imposed on Mr. Jeffries, he will be entitled to tax reimbursement payments from the Company.

 

Under the Jeffries Agreement, Mr. Jeffries may also be entitled to supplemental retirement benefits as described on page 34.

 

The following table sets forth information regarding cash and stock based incentive awards made to the NEOs in Fiscal 2006.

 

Grants of Plan-Based Awards (Cash or Equity) for Fiscal 2006

 

 

 

 

The following table sets forth information regarding the outstanding equity awards held by the NEOs at the end of Fiscal 2006.

 

Outstanding Equity Awards Value at Fiscal 2006 Year-End

 

Outstanding Equity Awards Value at Fiscal 2006 Year-End

 

 

 

This table provides the aggregate amounts received or realized in connection with all exercises of stock options or the vesting of restricted stock units during Fiscal 2006.

 

Fiscal 2006 Option Exercises and Stock Vested

 

 

 

 

Pension Benefits

 

Other than the CEO, none of the Company’s associates participate in any defined benefit pension plan. In conjunction with Mr. Jeffries employment contract, the Company established the Abercrombie & Fitch Co. Supplemental Executive Retirement Plan as amended (the “SERP”). Subject to the conditions described in the SERP, if Mr. Jeffries retires on or after December 31, 2008, he will receive a monthly benefit for life equal to 50% of his final average compensation (base salary and cash bonus as averaged over the last 36 consecutive full months ending prior to his retirement, adjusted as described in the SERP and not including any “stay bonus” paid pursuant to the Jeffries Agreement). If Mr. Jeffries retires at or after age 62 but before December 31, 2008, he will receive the following monthly benefit for life based on his attained age at retirement: (a) if Mr. Jeffries retires at 64, he will receive 46.66% of his final average compensation; (b) if Mr. Jeffries retires at 63, he will receive 43.33% of his final average compensation; and (c) if Mr. Jeffries retires at 62, he will receive 40% of his final average compensation. Mr. Jeffries will receive no benefits under the SERP if he (i) dies while actively employed, regardless of his age; or (ii) is terminated for cause, regardless of his age. If Mr. Jeffries retires on or after December 31, 2008, the estimated annual benefit payable to him will be $1,981,400, based on his final average compensation as of February 3, 2007.

Pension Benefits at End of Fiscal 2006

 

 

 

 

Non-Qualified Deferred Compensation

 

Abercrombie & Fitch maintains a Non-Qualified Saving Plan for associates generally at management levels and above. This plan allows the participant to defer up to 75% of base salary each year and up to 100% the participant’s of the bonus. The Company will match the first 3% that the participant defers on a dollar for dollar basis, plus make an additional contribution which would have been made to the Savings and Retirement Plan (“SARP”) but for compensation limits imposed on qualified plans under Treasury Department regulations. The plan allows for a variable crediting rate. To date, however, the crediting rate has been fixed at 7.5%. Employer contributions and earnings on employer contributions vest ratably over a five year period.

 

 

In addition, Abercrombie & Fitch Co. maintains the A&F Non-Qualified Supplemental Retirement Plan for all associates whose base salary and bonus exceed the Internal Revenue Service (“IRS”) compensation limit. The Company makes a contribution equal to 8% of the associate’s annual base pay and bonus which exceeds the IRS compensation limit ($225,000 in 2007). The plan allows for a variable crediting rate. To date, however, the crediting rate has been fixed at 7.5%. The employer contributions and earnings on the employer contribution also vest ratably over a five year period. There is a one-year wait period before an employer contribution is made. The contribution is then made at the end of the second year of employment. The plans generally provide for the distribution of the vested benefits upon the termination of employment.

 

 

Mr. Mendenhall did not participate in the non-qualified deferred compensation program. His employment terminated prior to the end of his second year of employment; no contribution was made in the Non-Qualified Supplemental Retirement Plan.

 

Potential Payments upon Termination or Change in Control

 

The following tables describe the approximate payments that would be made to the NEOs pursuant to employment contracts (in the case of Mr. Jeffries) or other plans or individual award agreements in the event of the NEO’s termination of employment under the circumstances described below, assuming such termination took place on February 3, 2007, the last day of Fiscal 2006. Please see page 17 for the vested stock option holdings of the NEOs as of April 17, 2007. Mr. Jeffries’ employment contract termination provisions are described on page 40 below.

 

Michael S. Jeffries

 

 

Restrictive Covenants: Unauthorized disclosure, non-competition, non-solicitation.