Abercrombie & Fitch 2008 Annual Report Download - page 51

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Table of Contents
Commission’s approval of Public Company Accounting Oversight Board amendments to AU Section 411,
“The Meaning of ’Present fairly in conformity with generally accepted accounting principles’.” The
Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 162 on its
consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company maintains its cash equivalents in financial instruments, primarily money market funds,
with original maturities of 90 days or less. The Company also holds investments in investment grade
auction rate securities (“ARS”) that have maturities ranging from 10 to 34 years. As of January 31, 2009,
the Company held ARS with a fair value of approximately $229.1 million, with $166.5 million classified
as available-for-sale securities and $62.5 million classified as trading securities. The Company recognized
a temporary impairment of $28.2 million on ARS classified as available-for-sale and an
other-than-temporary impairment of $14.0 million on ARS classified as trading. All ARS are classified as
non-current marketable securities as of January 31, 2009. Approximately $12.0 million of the trading
securities were invested in insured municipal authority bonds and approximately $50.6 million were
invested in insured student loan backed securities. Approximately $27.3 million of the available-for-sale
securities were invested in insured municipal authority bonds and approximately $139.2 million were
invested in insured student loan backed securities.
On November 13, 2008, the Company entered into an agreement with UBS, relating to ARS with a
par value of approximately $76.5 million as of January 31, 2009. By entering into the agreement, UBS
received the right to purchase these UBS ARS at par at anytime, commencing on November 13, 2008. The
Company received a Put Option to sell the UBS ARS back to UBS at par, at the Company’s sole
discretion, commencing on June 30, 2010. The UBS ARS were classified as trading securities as of
January 31, 2009 and any gains and losses related to changes in fair value will be recorded in the
Consolidated Statement of Net Income and Comprehensive Income in the period incurred. For the
fifty-two weeks ended January 31, 2009, the Company recognized an other-than-temporary impairment of
$14.0 million related to the UBS ARS on the Consolidated Statement of Net Income and Comprehensive
Income and recognized $12.3 million as the fair value of the Put Option as an asset within other assets on
the Consolidated Balance Sheet at January 31, 2009.
As of January 31, 2009, approximately 62% of the Company’s ARS were “AAA” rated and
approximately 37% of the Company’s ARS were “AA” or “A” rated with the remaining ARS having an
“A−” rating, in each case as rated by one or more of the major credit rating agencies. The ratings take into
account insurance policies guaranteeing both the principal and accrued interest. Each investment in
student loans is fully insured by (1) the U.S. government under the Federal Family Education Loan
Program, (2) a private insurer or (3) a combination of both. The credit ratings may change over time and
would be an indicator of the default risk associated with the ARS and could have a material effect on the
value of the ARS.
As of January 31, 2009, the Company had $100.0 million in long-term debt outstanding. This
borrowing and any future borrowings will bear interest at negotiated rates and would be subject to interest
rate risk. The unsecured credit agreement has several borrowing options, including interest rates that are
based on (i) a Base Rate, payable quarterly, or (ii) an Adjusted Eurodollar Rate (as defined in the
unsecured credit agreement) plus a margin based on a Leverage Ratio, payable at the end of the applicable
interest period for the borrowing. The Base Rate represents a rate per annum equal to the higher of
(a) National City Bank’s then publicly announced prime rate or (b) the Federal Funds Effective Rate (as
defined in the unsecured credit agreement) as then in effect plus 1/2 of 1%. The average interest rate was
3.1% for the fifty-two week period ended January 31, 2009. Additionally, as of January 31, 2009, the
Company had $350 million available, less
48
Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠