Abercrombie & Fitch 2011 Annual Report Download - page 62

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Foreign Exchange Rate Risk
A&F’s international subsidiaries generally operate with functional currencies other than the U.S.
dollar. The Company’s Consolidated Financial Statements are presented in U.S. dollars. Therefore, the
Company must translate revenues, expenses, assets and liabilities from functional currencies into U.S.
dollars at exchange rates in effect during, or at the end of, the reporting period. The fluctuation in the value
of the U.S. dollar against other currencies affects the reported amounts of revenues, expenses, assets and
liabilities. The potential impact of currency fluctuation increases as international expansion increases.
A&F and its subsidiaries have exposure to changes in currency exchange rates associated with foreign
currency transactions and forecasted foreign currency transactions, including the sale of inventory between
subsidiaries and foreign denominated assets and liabilities. Such transactions are denominated primarily in
U.S. dollars, British Pounds, Canadian Dollars, Chinese Yuan, Danish Kroner, Euros, Hong Kong Dollars,
Japanese Yen and Swiss Francs. The Company has established a program that primarily utilizes foreign
currency forward contracts to partially offset the risks associated with the effects of certain foreign currency
transactions and forecasted transactions. Under this program, increases or decreases in foreign currency
exposures are partially offset by gains or losses on forward contracts, to mitigate the impact of foreign
currency gains or losses. The Company does not use forward contracts to engage in currency speculation.
All outstanding foreign currency forward contracts are recorded at fair value at the end of each fiscal period.
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