Abercrombie & Fitch 2005 Annual Report Download - page 27

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addition to those listed above, that may cause actual results to differ
materially from those contained in the forward-looking statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK The Company maintains its cash equiv-
alents in financial instruments with original maturities of 90 days or
less. The Company also holds investments in marketable securities,
which consist primarily of investment grade municipal notes and
bonds and investment grade auction rate securities, all classified as
available-for-sale and could have maturities ranging from three months
to 40 years. These securities are consistent with the investment objec-
tives contained within the investment policy established by the
Company’s Board of Directors. The basic objectives of the investment
policy are the preservation of capital, maintaining sufficient liquidity
to meet operating requirements and maximizing net after-tax yield.
Investments in municipal notes and bonds have early redemp-
tion provisions at predetermined prices. Taking these provisions into
account none of these investments extend beyond five years. The
Company believes that a significant increase in interest rates could
result in a material loss if the Company sells the investment prior to
the early redemption provision. For Fiscal 2005, there were no real-
ized gains or losses, and as of January 28, 2006, net unrealized hold-
ing losses were $718,000.
Despite the underlying long-term maturity of auction rate secu-
rities, from the investor’s perspective, such securities are priced and
subsequently traded as short-term investments because of the inter-
est rate reset feature. Interest rates are reset through an auction
process at predetermined periods ranging from one to 49 days. Failed
auctions rarely occur. As of January 28, 2006, the Company held
approximately $411.2 million in marketable securities.
The Company does not enter into financial instruments for
trading purposes.
As of January 28, 2006, the Company had no long-term debt
outstanding. Future borrowings would bear interest at negotiated
rates and would be subject to interest rate risk.
The Company’s market risk profile as of January 28, 2006 has
not significantly changed since January 29, 2005.
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Abercrombie &Fitch