Abercrombie & Fitch 2008 Annual Report Download - page 67

Table of Contents
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
experience. The effect of adjusting the forfeiture rate is recognized in the period the forfeiture estimate is
changed. The effect of adjustments for forfeitures during the thirteen and fifty-two week periods ended
January 31, 2009 and February 2, 2008 was immaterial.
A&F issues shares of Common Stock for stock option and stock appreciation right exercises and
restricted stock unit vestings from treasury stock. As of January 31, 2009, A&F had enough treasury stock
available to cover stock options, stock appreciation rights and restricted stock units outstanding without
having to repurchase additional shares.
Plans
As of January 31, 2009, A&F had two primary share-based compensation plans: the 2005 Long-Term
Incentive Plan (the “2005 LTIP”), under which A&F grants stock options, stock appreciation rights and
restricted stock units to associates of the Company and non-associate members of the A&F Board of
Directors, and the 2007 Long-Term Incentive Plan (the “2007 LTIP”), under which A&F grants stock
options, stock appreciation rights and restricted stock units to associates of the Company. A&F also has
four other share-based compensation plans under which it granted stock options and restricted stock units
to associates of the Company and non-associate members of the A&F Board of Directors in prior years.
The 2007 LTIP, a shareholder-approved plan, permits A&F to grant up to 5.0 million shares of A&F’s
Common Stock to any associate of the Company eligible to receive awards under the 2007 LTIP. The
2005 LTIP, a shareholder-approved plan, permits A&F to grant up to approximately 2.0 million shares of
A&F’s Common Stock to any associate of the Company (other than Michael S. Jeffries) who is subject to
Section 16 of the Securities Exchange Act of 1934, as amended, at the time of the grant. In addition, any
non-associate director of A&F is eligible to receive awards under the 2005 LTIP. Under both plans, stock
options, stock appreciation rights and restricted stock units vest primarily over four years for associates.
Under the 2005 LTIP, stock options, stock appreciation rights and restricted stock units vest over one year
for non-associate directors of A&F. Stock options have a ten-year term and stock appreciation rights have
a seven-year term, subject to forfeiture under the terms of the plans, and the plans provide for accelerated
vesting if there is a change of control as defined in the plans.
Fair Value Estimates
The Company estimates the fair value of stock options and stock appreciation rights granted using the
Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the
stock options and stock appreciation rights and expected future stock price volatility over the expected
term. Estimates of the expected term, which represent the expected period of time the Company believes
the stock options and stock appreciation rights will be outstanding, are based on historical experience.
Estimates of expected future stock price volatility are based on the volatility of A&F’s Common Stock
price for the most recent historical period equal to the expected term of the stock option or stock
appreciation right, as appropriate. The Company calculates the volatility as the annualized standard
deviation of the differences in the natural logarithms of the weekly stock closing price, adjusted for stock
splits and dividends.
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠