Abercrombie & Fitch 2013 Annual Report Download - page 70

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The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax
expense. Interest and penalties of $4.9 million had been accrued, at the end of Fiscal 2012, compared to $6.1 million accrued at
the end of Fiscal 2011.
The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company’s U.S. federal income tax
return for Fiscal 2012 as part of the IRS’s Compliance Assurance Process program. IRS examinations for Fiscal 2011 and prior
years have been completed and settled. State and foreign returns are generally subject to examination for a period of three to
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 outcome of the examinations is not expected to have a material impact on the
Company's financial statements. The Company believes that some of these audits and negotiations will conclude within the next
12 months and that it is reasonably possible the amount of uncertain income tax positions, including interest, may decrease in
the range of $7 million to $12 million within the next 12 months due to settlement of audits and expiration of statutes of
limitations, and a range of $2.5 million to $10 million of which would reduce income tax expense.
The Company does not expect material adjustments to the total amount of uncertain tax positions within the next 12
months, but the outcome of tax matters is uncertain and unforeseen results can occur.
As of February 2, 2013, U.S. taxes have not been provided on approximately $99.6 million of unremitted earnings of
subsidiaries operating outside of the United States. 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.
16. BORROWINGS
On July 28, 2011, the Company entered into an unsecured Amended and Restated Credit Agreement, as amended by
Amendment No. 1, made as of February 24, 2012, and Amendment No. 2, made as of January 23, 2013, (the “Amended and
Restated Credit Agreement”) under which up to $350 million is available. As stated in the Amended and Restated Credit
Agreement, the primary purposes of the agreement are for trade and stand-by letters of credit in the ordinary course of business,
as well as to fund working capital, capital expenditures, acquisitions and investments, and other general corporate purposes,
including repurchases of A&F's Common Stock.
The Amended and Restated Credit Agreement has several borrowing options, including interest rates that are based on:
(i) a defined Base Rate, plus a margin based on the Leverage Ratio, payable quarterly; (ii) an Adjusted Eurodollar Rate (as
defined in the Amended and Restated Credit Agreement) plus a margin based on the Leverage Ratio, payable at the end of the
applicable interest period for the borrowing and, for interest periods in excess of three months, on the date that is three months
after the commencement of the interest period; or (iii) an Adjusted Foreign Currency Rate (as defined in the Amended and
Restated Credit Agreement) plus a margin based on the Leverage Ratio, payable at the end of the applicable interest period for
the borrowing and, for interest periods in excess of three months, on the date that is three months after the commencement of
the interest period. The Base Rate represents a rate per annum equal to the highest of (a) PNC Bank, National Association’s
then publicly announced prime rate, (b) the Federal Funds Open Rate (as defined in the Amended and Restated Credit
Agreement) as then in effect plus 1/2 of 1.0% or (c) the Daily Adjusted Eurodollar Rate (as defined in the Amended and
Restated Credit Agreement) as then in effect plus 1.0%.
The facility fees payable under the Amended and Restated Credit Agreement are based on the Company’s Leverage Ratio
(i.e., the ratio, on a consolidated basis, of (a) the sum of total debt (excluding specified permitted foreign bank guarantees and
trade letters of credit) plus 600% of forward minimum rent commitments to (b) consolidated earnings, as adjusted, before
interest, taxes, depreciation, amortization and rent (“Consolidated EBITDAR”) for the trailing four-consecutive-fiscal-quarter
periods. The facility fees accrue at a rate of 0.125% to 0.30% per annum based on the Leverage Ratio for the most recent
determination date. The Amended and Restated Credit Agreement requires that the Leverage Ratio not be greater than 3.75 to
1.00 at the end of each testing period. The Amended and Restated Credit Agreement also requires that the “Coverage Ratio” for
A&F and its subsidiaries on a consolidated basis of (i) Consolidated EBITDAR for the trailing four-consecutive-fiscal-quarter
period to (ii) the sum of, without duplication, (x) net interest expense for such period, (y) scheduled payments of long-term debt
due within twelve months of the date of determination and (z) the sum of minimum rent and contingent store rent, not be less
than 1.75 to 1.00 at the end of each testing period. The Company was in compliance with the applicable ratio requirements and
other covenants at February 2, 2013.
Table of Contents ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)