Abercrombie & Fitch 2011 Annual Report Download - page 56

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Policy Effect if Actual Results Differ from Assumptions
Auction Rate Securities (“ARS”)
As a result of the market failure and lack of liquidity
in the current ARS market, the Company measures
the fair value of its ARS primarily using a discounted
cash flow model, as well as a comparison to similar
securities in the market. 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.
While the Company changed its intent regarding
the sale of its ARS securities, the Company has
not made any material changes in the accounting
methodology used to determine the fair value of
the ARS.
The Company does not expect material changes in
the near term to the underlying assumptions used
to determine the unobservable inputs used to
calculate the fair value of the ARS as of January
28, 2012. 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.
Assuming all other assumptions disclosed in Note
7, “Fair Value,” of the Notes to Consolidated
Financial Statements included in “ITEM 8.
FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA” of this Annual
Report on Form 10-K, being equal, a 50 basis
point increase in the market required rate of return
would yield approximately a 15% increase in
impairment and a 50 basis point decrease in the
market required rate of return would yield
approximately a 15% decrease in impairment.
53