Abercrombie & Fitch 2009 Annual Report Download - page 69

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The lowest level of significant input determines the placement of the entire fair value measurement in the
hierarchy. The three levels of the hierarchy and the distribution of the Company’s assets, measured at fair
value, within it were as follows:
Level 1 Level 2 Level 3 Total
Assets Fair Value as of January 30, 2010
(In thousands)
ASSETS:
Money market funds(1) .................. $484,933 $ — $ — $484,933
ARS — trading — student loan backed ....... — — 20,049 20,049
ARS — trading — municipal authority bonds . . — — 12,307 12,307
ARS — available-for-sale — student loan
backed ............................. — — 118,390 118,390
ARS — available-for-sale — municipal
authority bonds ...................... — — 23,404 23,404
UBS put option ........................ — — 4,640 4,640
Municipal bonds held in the Rabbi Trust ..... 18,537 — — 18,537
Derivative financial instruments ............ — 1,348 — 1,348
Total assets measured at fair value . . . ....... $503,470 $1,348 $178,790 $683,608
(1) Includes $483.6 million in money market funds included in Cash and Equivalents and $1.3 million of
money market funds held in the Rabbi Trust which are included in Other Assets on the Consolidated
Balance Sheet.
The level 2 assets consist of derivative financial instruments, primarily forward foreign exchange
contracts. The fair value of forward foreign exchange contracts is determined by using quoted market prices
of the same or similar instruments, adjusted for counterparty risk.
The level 3 assets primarily include investments in insured student loan backed ARS and insured
municipal authority bonds ARS, which include both the available-for-sale and trading ARS. Additionally,
level 3 assets include the Put Option related to the UBS Agreement.
As a result of the market failure and lack of liquidity in the current ARS market, the Company measured
the fair value of its ARS primarily using a discounted cash flow model as of January 30, 2010. Certain
significant inputs into the model are unobservable in the market including the periodic coupon rate adjusted
for the marketability discount, market required rate of return and expected term. The coupon rate is estimated
using the results of a regression analysis factoring in historical data on the par swap rate and the maximum
coupon rate paid in the event of an auction failure. In making the assumption of the market required rate of
return, the Company considered the risk-free interest rate and an appropriate credit spread, depending on the
type of security and the credit rating of the issuer. The expected term is identified as the time the Company
believes the principal will become available to the investor. The Company utilized a term of five years to value
its securities. The Company also included a marketability discount which takes into account the lack of
activity in the current ARS market.
68
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)