Abercrombie & Fitch 2010 Annual Report Download - page 14

Table of Contents
performance and would, if issued, have a dilutive effect with respect to our outstanding shares of Common Stock, which may
adversely affect the market price of our Common Stock.
In the event that there are not sufficient shares of Common Stock available to be issued under our 2007 Long-Term Incentive
Plan (the "2007 LTIP"), or under a successor or replacement plan at the time these equity-based awards are ultimately settled, we will
be required to settle some portion of the awards in cash, which could have an adverse impact on our cash flow from operations,
financial position or results of operations. Furthermore, the awards may not be deductible pursuant to Internal Revenue Code
Section 162(m). In addition, under applicable accounting rules, if our stock price increases to a point where, as of any measurement
date, we would be unable to settle outstanding equity-based awards in shares of Common Stock from our existing plans, we will be
required to classify and account for all or a portion of the equity-based awards as liabilities. This could further adversely impact our
results of operations.
Given the number of shares of Common Stock which could be issued under the Retention Grants and the Semi-Annual Grants,
we intend to seek stockholder approval of additional long-term incentive compensation plans in order to be able to continue to settle
the awards in Common Stock. In the event that we are unable to obtain such approval, the risk of cash settlement and/or liability
accounting would be increased.
Our Growth Strategy Relies Significantly on International Expansion, Which Adds Complexity to Our Operations and May
Strain Our Resources and Adversely Impact Current Store Performance.
Our growth strategy largely depends on the opening of new international stores. This international expansion has placed, and will
continue to place, increased demands on our operational, managerial and administrative resources at all levels of the Company. These
increased demands may cause us to operate our business less efficiently, which in turn could cause deterioration in the performance of
our existing stores or could adversely affect our inventory levels. Furthermore, our ability to conduct business in international markets
may be adversely affected by legal, regulatory, political and economic risks. Our international expansion strategy and success could
also be adversely impacted by the global economy. Failure to properly implement our growth strategy could have a material adverse
effect on our financial condition and results of operations or could otherwise adversely affect our ability to achieve our roadmap
objectives.
In addition, as we continue to expand our overseas operations, we are subject to certain U.S. laws, including the Foreign Corrupt
Practices Act, in addition to the laws of the foreign countries in which we operate. We must use all commercially reasonable efforts to
ensure our employees comply with these laws. If any of our overseas operations, or our employees or agents, violate such laws, we
could become subject to sanctions or other penalties that could negatively affect our reputation, business and operating results.
Our International Expansion Plan is Dependent on a Number of Factors, Any of Which Could Delay or Prevent Successful
Penetration into New Markets or Could Adversely Affect the Profitability of Our International Operations.
As we expand internationally, we may incur significant costs related to starting up and maintaining foreign operations. Costs
may include, but are not limited to, obtaining prime locations for stores, setting up foreign offices and distribution centers, as well as
hiring experienced management. We may be unable to open and operate new stores successfully, or we may face operational issues
that delay our intended pace of international store openings, and, in any such case, our growth may be limited, unless we can:
• identify suitable markets and sites for store locations;
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