Abercrombie & Fitch 2008 Annual Report Download - page 83

Table of Contents
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under SFAS No. 133, derivative contracts must maintain a specified level of effectiveness between
the instruments and the item being hedged at the time of inception and throughout the contract.
Ineffectiveness in hedging contracts is recognized immediately in earnings and if it is determined that the
derivative contract has not been and will not be highly effective, hedge accounting is discontinued. The
Company evaluates the hedge effectiveness at least quarterly on a prospective and retrospective basis.
There were no material amounts recorded in Fiscal 2008 and Fiscal 2007 resulting from hedge
ineffectiveness.
SFAS No. 133 requires that all derivative instruments be recognized at fair value on the Consolidated
Balance Sheets. Changes in the fair value of the forward contracts are deferred in shareholders’ equity as a
component of accumulated other comprehensive income (loss). These deferred gains and losses are then
recognized in costs of good sold in the period when the hedged merchandise is sold to customers. At
January 31, 2009 and February 2, 2008, the Company had an unrealized gain of $1.3 million and an
unrealized loss of $0.2 million, respectively. Substantially all of the unrealized gain at January 31, 2009
will be recognized in cost of goods sold over the next three months at the values at the date the contract
was settled. The Company recognized a gain of $1.3 million and a loss of $0.8 million for the fifty-two
week periods ended January 31, 2009 and February 2, 2008, respectively, on the Consolidated Statements
of Net Income and Comprehensive Income related to the forward contracts used to hedge forecasted
merchandise purchases.
Periodically, the Company enters into forward foreign currency exchange contracts to obtain
economic hedges on foreign denominated assets or liabilities. However, the Company elected not to apply
hedge accounting to these contracts. Therefore, the changes in fair value of these contracts were recorded
directly to Other Income. The Company recognized a gain of $0.9 million and a loss of $0.1 million in
Fiscal 2008 and Fiscal 2007, respectively, on the Consolidated Statements of Net Income and
Comprehensive Income related to the forward contracts used to hedge foreign denominated assets.
The Company does not use forward contracts to engage in currency speculation and does not enter
into derivative financial contracts for trading purposes.
There were no outstanding forward contracts at January 31, 2009 and February 2, 2008.
15. RETIREMENT BENEFITS
The Company maintains the Abercombie & Fitch Co. Savings & Retirement Plan, a qualified plan.
All U.S. associates are eligible to participate in this plan if they are at least 21 years of age and have
completed a year of employment with 1,000 or more hours of service. In addition, the Company maintains
the Abercrombie & Fitch Nonqualified Savings and Supplemental Retirement Plan. Participation in this
plan is based on service and compensation. The Company’s contributions are based on a percentage of
associates’ eligible annual compensation. The cost of the Company’s contributions to these plans was
$24.7 million in Fiscal 2008, $21.0 million in Fiscal 2007 and $15.0 million in Fiscal 2006.
Effective February 2, 2003, the Company established a Chief Executive Officer Supplemental
Executive Retirement Plan (the “SERP”) to provide additional retirement income to its Chairman and
Chief Executive Officer (“CEO”). Subject to service requirements, the CEO will receive a monthly
benefit equal to 50% of his final average compensation (as defined in the SERP) for life. The SERP has
been actuarially valued by an independent third party and the expense associated with the SERP is being
accrued over the stated term of the
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Source: ABERCROMBIE & FITCH CO /DE/, 10-K, March 27, 2009 Powered by Morningstar® Document Research℠