Abercrombie & Fitch 2009 Annual Report Download - page 47

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On November 13, 2008, the Company entered into an agreement with UBS, relating to ARS with a par
value of $76.5 million, of which $37.1 million, at par value, are still held as of January 30, 2010. By entering
into the agreement, UBS received the right to purchase the UBS ARS at par, at any time, commencing on
November 13, 2008 and the Company received the right to sell (“Put Option”) the UBS ARS back to UBS at
par, commencing on June 30, 2010. The UBS ARS were classified as trading securities as of January 30, 2010
and any future gains and losses related to changes in fair value will be recorded in the Consolidated Statement
of Operations and Comprehensive Income in the period incurred. Furthermore, as the Company has the right
to sell the UBS ARS back to UBS on June 30, 2010, the Company classified the UBS ARS as a current asset as
of January 30, 2010. During the fifty-two weeks ended January 30, 2010, due to redemptions and changes in
estimates of fair value, the Company recognized a net reduction of the other-than-temporary impairment of
$9.2 million related to the UBS ARS which was partially offset by a corresponding realized loss of
$7.7 million related to the Put Option. The fair value of the Put Option as of January 30, 2010 was
$4.6 million and was recorded as an asset within Other Current Assets on the Consolidated Balance Sheet.
The Company is subject to counter-party risk related to the agreement with UBS.
The irrevocable rabbi trust (the “Rabbi Trust”) is intended to be used as a source of funds to match
respective funding obligations to participants in the Abercrombie & Fitch Co. Nonqualified Savings and
Supplemental Retirement Plan I, the Abercrombie & Fitch Co. Nonqualified Savings and Supplemental
Retirement Plan II and the Chief Executive Officer Supplemental Executive Retirement Plan. As of
January 30, 2010, total assets held in the Rabbi Trust were $71.2 million, which included $18.5 million
of available-for-sale municipal notes and bonds with maturities that ranged from two to four years, trust-
owned life insurance policies with a cash surrender value of $51.4 million and $1.3 million held in money
market funds. The Rabbi Trust assets are consolidated and recorded at fair value, with the exception of the
trust-owned life insurance policies which are recorded at cash surrender value in Other Assets on the
Consolidated Balance Sheet, and are restricted as to their use as noted above. Net unrealized gains or losses
related to the available-for-sale securities held in the Rabbi Trust were not material for the fifty-two week
periods ended January 30, 2010 and January 31, 2009, respectively. The change in cash surrender value of the
trust-owned life insurance policies held in the Rabbi Trust resulted in a realized gain of $5.3 million and a
realized loss of $3.6 million for the fifty-two weeks ended January 30, 2010 and January 31, 2009,
respectively.
Interest Rate Risks
As of January 30, 2010, the Company had $50.9 million in long-term debt outstanding under the
unsecured Amended Credit Agreement. This borrowing and any future borrowings will bear interest at
negotiated rates and would be subject to interest rate risk. The unsecured Amended Credit Agreement has
several borrowing options, including interest rates that are based on (i) a Base Rate, plus a margin based on a
Leverage Ratio, payable quarterly, (ii) an Adjusted Eurodollar Rate (as defined in the unsecured Amended
Credit Agreement) plus a margin based on a Leverage Ratio, payable at the end of the applicable interest
period for the borrowing, or (iii) an Adjusted Foreign Currency Rate (as defined in the Amended Credit
Agreement) plus a margin based on the Coverage Ratio, payable at the end of the applicable interest period for
the borrowing, and, for interest periods in excess of three months, on the date that is three months after the
commencement of the interest period. The Base Rate represents a rate per annum equal to the higher of
(a) PNC Bank’s then publicly announced prime rate or (b) the Federal Funds Effective Rate (as defined in the
unsecured Amended Credit Agreement) as then in effect plus 1/2 of 1.0%. The average interest rate was 2.0%
for the fifty-two week period ended January 30, 2010. Additionally, as of January 30, 2010, the Company had
$299.1 million available, less outstanding letters of credit, under its unsecured Amended Credit Agreement.
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