Abercrombie & Fitch 2013 Annual Report Download - page 15

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Our business is also vulnerable to any interruption related to an outbreak of a pandemic disease in countries where we
have retail locations or source our merchandise.
Our litigation exposure could have a material adverse effect on our financial condition and results of operations.
We are involved, from time-to-time, in litigation incidental to our business, such as litigation regarding overtime
compensation and other employment or wage and hour related matters. Our current exposure could change in the event of the
discovery of damaging facts with respect to legal matters pending against us or determinations by judges, juries or other finders
of fact that are not in accordance with management’s evaluation of the claims. Should management’s evaluation prove
incorrect, our exposure could greatly exceed expectations and have a material adverse effect on our financial condition, results
of operations or cash flows.
Our inability or failure to adequately protect our trademarks could have a negative impact on our brand image and limit
our ability to penetrate new markets.
We believe our core trademarks, Abercrombie & Fitch®, abercrombie®, Hollister®, Gilly Hicks® and the “Moose” and
“Seagull” logos, are an essential element of our strategy. We have obtained or applied for federal registration of these
trademarks with the U.S. Patent and Trademark Office and the registries of countries where stores are located or likely to be
located in the future. In addition, we own registrations and have pending applications for other trademarks in the U.S. and have
applied for or obtained registrations from the registries in many foreign countries in which our stores or our manufacturers are
located. There can be no assurance that we will obtain registrations that have been applied for or that the registrations we obtain
will prevent the imitation of our products or infringement of our intellectual property rights by others. If a third party copies our
products in a manner that projects lesser quality or carries a negative connotation, our brand image could be materially
adversely affected.
Because we have not yet registered all of our trademarks in all categories, or in all foreign countries in which we source
or offer our merchandise now, or may in the future, our international expansion and our merchandising of products using these
marks could be limited. For example, we cannot ensure that others will not try to block the manufacture, export or sale of our
products as a violation of their trademarks or other proprietary rights. The pending applications for international registration of
various trademarks could be challenged or rejected in those countries because third parties of whom we are not currently aware
have already registered similar marks in those countries. Accordingly, it may be possible, in those foreign countries where the
status of various applications is pending or unclear, for a third-party owner of the national trademark registration for a similar
mark to prohibit the manufacture, sale or exportation of branded goods in or from that country. If we are unable to reach an
arrangement with any such party, our manufacturers may be unable to manufacture our products, and we may be unable to sell
certain products in those countries. Our inability to register our trademarks or purchase or license the right to use our
trademarks or logos in these jurisdictions could limit our ability to obtain supplies from, or manufacture in, less costly markets
or penetrate new markets should our business plan include selling our merchandise in those non-U.S. jurisdictions.
We have an anti-counterfeiting program, under the auspices of the Abercrombie & Fitch Brand Protection Team, whose
goal is to eliminate the supply of illegal pieces of our products. The Brand Protection Team interacts with investigators,
customs officials and law enforcement entities throughout the world to combat the illegal use of our trademarks. Although
brand security initiatives are in place, we cannot guarantee that our efforts against the counterfeiting of our brands will be
successful.
Fluctuations in our tax obligations and effective tax rate may result in volatility in our operating results.
We are subject to income taxes in many U.S. and certain foreign jurisdictions. In addition, our products are subject to
import and excise duties and/or sales, consumption or value-added taxes (or “VAT”) in many jurisdictions. We record tax
expense based on our estimates of future payments, which include reserves for estimates of probable settlements of foreign and
domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these
audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that
throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are
evaluated. In addition, our effective tax rate in any given financial statement period may be materially impacted by changes in
the mix and level of earnings or by changes to existing accounting rules or regulations. Fluctuations in duties could also have a
material impact on our financial condition, results of operations or cash flows. In some international markets, we are required
to hold and submit VAT to the appropriate local tax authorities. Failure to correctly calculate or submit the appropriate amounts
could subject us to substantial fines and penalties that could have an adverse effect on our financial condition, results of
operations or cash flows. In addition, tax legislation may be enacted in the future, domestically or abroad, that impacts our
current or future tax structure and effective tax rate.
The effects of war or acts of terrorism could have a material adverse effect on our operating results and financial
condition.
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