Abercrombie & Fitch 2010 Annual Report Download - page 56

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Table of Contents
Policy Effect if Actual Results Differ from Assumptions
Supplemental Executive Retirement Plan
Effective February 2, 2003, the Company established a Chief
Executive Officer Supplemental Executive Retirement Plan to
provide additional retirement income to its Chairman and Chief
Executive Officer. 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 final average
compensation used for the calculation is based on actual
compensation (base salary and cash incentive compensation)
averaged over the last 36 consecutive full calendar months ending
before the CEO's retirement.
The Company's accrual for the SERP requires management to
make assumptions and judgments related to the CEO's final
average compensation, life expectancy and discount rate.
The Company does not expect material changes in the near term
to the underlying assumptions used to determine the accrual for
the SERP as of January 29, 2011. However, changes in these
assumptions do occur, and, should those changes be significant,
the Company may be exposed to gains or losses that could be
material.
A 10% increase in final average compensation as of January 29,
2011 would increase the SERP accrual by approximately $1.3
million. A 50 basis point increase in the discount rate as of
January 29, 2011 would decrease the SERP accrual by an
immaterial amount.
Legal Contingencies
The Company is a defendant in lawsuits and other adversary
proceedings arising in the ordinary course of business. Legal costs
incurred in connection with the resolution of claims and lawsuits
are expensed as incurred, and the Company establishes reserves for
the outcome of litigation where it deems appropriate to do so under
applicable accounting rules.
Actual liabilities may exceed or be less than the amounts
reserved, and there can be no assurance that final resolution of
these matters will not have a material adverse effect on the
Company's financial condition, results of operations or cash
flows.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment Securities
The Company maintains its cash equivalents in financial instruments, primarily money market funds and United States treasury
bills, with original maturities of three months or less.
The Company also holds investments in investment grade auction rate securities ("ARS") that have maturities ranging from 17 to
32 years. The par and carrying values, and related cumulative temporary impairment charges for the Company's available-for-sale
marketable securities as of January 29, 2011 were as follows:
Par Temporary Carrying
Value Impairment Value
(In thousands)
Available-for-sale securities:
Auction rate securities — student loan backed $ 95,625 $ (9,893) $ 85,732
Auction rate securities — municipal authority bonds 19,975 (5,173) 14,802
Total available-for-sale securities $ 115,600 $ (15,066) $ 100,534
53