Abercrombie & Fitch 2009 Annual Report Download - page 76

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A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
2009 2008
Unrecognized tax benefits, beginning of year ..................... $43,684 $38,894
Gross addition for tax positions of the current year ................ 222 5,539
Gross addition for tax positions of prior years .................... 2,167 8,754
Reductions of tax positions of prior years for:
Changes in judgment/excess reserve .......................... (10,744) (4,206)
Settlements during the period. . ............................. (5,444) (1,608)
Lapses of applicable statutes of limitations ..................... (448) (3,689)
Unrecognized tax benefits, end of year ......................... $29,437 $43,684
The amount of the above unrecognized tax benefits at January 30, 2010 and January 31, 2009 which
would impact the Company’s effective tax rate, if recognized is $29.4 million and $33.3 million, respectively.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a
component of income tax expense. Tax expense for Fiscal 2009 includes $1.2 million of net accrued interest,
compared to $0.5 million of net accrued interest for Fiscal 2008. Interest and penalties of $9.9 million have
been accrued as of the end of Fiscal 2009, compared to $9.7 million accrued as of the end of Fiscal 2008.
The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company’s
U.S. federal income tax return for Fiscal 2009 as part of the IRS’s Compliance Assurance Process program.
IRS examinations for Fiscal 2008 and prior years have been completed and settled, except for a transfer
pricing matter that is the subject of an ongoing Advanced Pricing Agreement negotiation that is before the
U.S. Competent Authority. State and foreign returns are generally subject to examination for a period of
3-5 years after the filing of the respective return. The Company has various state income tax returns in the
process of examination or administrative appeals.
The Company does not expect material adjustments to the total amount of unrecognized tax benefits
within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.
As of January 30, 2010, the Company had undistributed earnings of approximately $18.9 million from
certain non-U.S. subsidiaries that are intended to be permanently reinvested in non-U.S. operations. Because
these earnings are considered permanently reinvested, no U.S. tax provision has been accrued related to the
repatriation of these earnings. It is not practicable to estimate the amount of U.S. tax that might be payable on
the eventual remittance of such earnings.
12. LONG-TERM DEBT
On April 15, 2008, the Company entered into a syndicated unsecured credit agreement (as previously
amended by Amendment No. 1 to Credit Agreement made as of December 29, 2008, the “Credit Agreement”)
under which up to $450 million was available. On June 16, 2009, the Company amended the Credit
Agreement and, as a result, revised the ratio requirements, as further discussed below, and also reduced the
amount available from $450 million to $350 million (as amended, the “Amended Credit Agreement”). The
75
ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)