Abercrombie & Fitch 2011 Annual Report Download - page 78

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ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
restricted stock units to associates of the Company and non-associate members of the A&F Board of
Directors, and the 2007 LTIP, under which A&F grants stock options, stock appreciation rights and
restricted stock units to associates of the Company. A&F also has four other share-based compensation
plans under which it granted stock options and restricted stock units to associates of the Company and
non-associate members of the A&F Board of Directors in prior years.
The 2007 LTIP, a stockholder-approved plan, permits A&F to annually grant awards covering up to
2.0 million of underlying shares of A&F’s Common Stock for each type of award, per eligible participant,
plus any unused annual limit from prior years. The 2005 LTIP, a stockholder-approved plan, permits A&F
to annually grant awards covering up to 250,000 of underlying shares of A&F’s Common Stock for each
award type to any associate of the Company (other than the CEO) who is subject to Section 16 of the
Securities Exchange Act of 1934, as amended, at the time of the grant, plus any unused annual limit from
prior years. In addition, any non-associate director of A&F is eligible to receive awards under the 2005
LTIP. Under both plans, stock options, stock appreciation rights and restricted stock units vest primarily
over four years for associates. Under the 2005 LTIP, restricted stock units typically vest after
approximately one year for non-associate directors of A&F. Awards granted to the CEO have a vesting
period defined as the shorter of four years or the period from the award date through the end of the
employment agreement. Under both plans, stock options have a ten-year term and stock appreciation rights
have up to a ten-year term, subject to forfeiture under the terms of the plans. The plans provide for
accelerated vesting if there is a change of control as defined in the plans.
Fair Value Estimates
The Company estimates the fair value of stock options and stock appreciation rights granted using the
Black-Scholes option-pricing model, which requires the Company to estimate the expected term of the
stock options and stock appreciation rights and expected future stock price volatility over the expected
term. Estimates of expected terms, which represent the expected periods of time the Company believes
stock options and stock appreciation rights will be outstanding, are based on historical experience.
Estimates of expected future stock price volatility are based on the volatility of A&F’s Common Stock
price for the most recent historical period equal to the expected term of the stock option or stock
appreciation right, as appropriate. The Company calculates the volatility as the annualized standard
deviation of the differences in the natural logarithms of the weekly stock closing price, adjusted for stock
splits and dividends.
In the case of restricted stock units, the Company calculates the fair value of the restricted stock units
granted using the market price of the underlying Common Stock on the date of grant adjusted for
anticipated dividend payments during the vesting period.
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