Abercrombie & Fitch 2011 Annual Report Download - page 91

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ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
not that these net operating loss carryovers will reduce future years’ tax liabilities in certain foreign
jurisdictions less the associated valuation allowance. As of January 28, 2012 and January 29, 2011, the
foreign subsidiaries’ net operating valuation allowances totaled $2.5 million and $0.0, respectively.
No other valuation allowances have been provided for deferred tax assets because management
believes that it is more likely than not that the full amount of the net deferred tax assets will be realized in
the future.
2011 2010 2009
(In thousands)
Unrecognized tax benefits, beginning of the year ......... $14,827 $ 29,437 $ 43,684
Gross addition for tax positions of the current year ........ 1,183 562 222
Gross addition for tax positions of prior years ........... 1,602 1,734 2,167
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations ............ (2,448) (2,328) (448)
Settlements during the period ...................... (1,631) (14,166) (5,444)
Changes in judgment ............................. (129) (412) (10,744)
Unrecognized tax benefits, end of year ................. $13,404 $ 14,827 $ 29,437
The amount of the above unrecognized tax benefits at January 28, 2012, January 29, 2011 and
January 30, 2010 which would impact the Company’s effective tax rate, if recognized, was $13.4 million,
$14.8 million and $29.4 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 2011 includes a $0.7 million increase of net
accrued interest, compared to a $3.4 million reduction of net accrued interest as of the end of Fiscal 2010.
Interest and penalties of $6.1 million had been accrued, at the end of Fiscal 2011, compared to $6.2 million
accrued at the end of Fiscal 2010.
The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company’s U.S.
federal income tax return for Fiscal 2011 as part of the IRS’s Compliance Assurance Process program. IRS
examinations for Fiscal 2010 and prior years have been completed and settled. State and foreign returns are
generally subject to examination for a period of three-five 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 28, 2012, U.S. taxes have not been provided on approximately $64.5 million of
unremitted earnings of subsidiaries operating outside of the U.S. These earnings, which are considered to
be invested indefinitely, would become subject to income tax if they were remitted as dividends or were
lent to Abercrombie & Fitch or a U.S. affiliate, or if Abercrombie & Fitch were to sell its stock in the
subsidiaries. Determination of the amount of unrecognized deferred U.S. income tax liability on these
unremitted earnings is not practicable because of the complexities associated with this hypothetical
calculation.
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