Abercrombie & Fitch 2014 Annual Report Download - page 38

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Policy Effect if Actual Results Differ from Assumptions
Property and Equipment
Long-lived assets, primarily comprising of property and
equipment, are tested for recoverability whenever events or
changes in circumstances indicate that the carrying amount of
the long-lived asset might not be recoverable. On at least a
quarterly basis, the Company reviews for indicators of
impairment. In addition, the Company conducts an annual
impairment analysis in the fourth quarter of each year. For the
purposes of the annual review, the Company reviews long-
lived assets associated with stores that have an operating loss
in the current year or otherwise display an indicator of
impairment.
Based on the impact of current sales trends, a number of
stores were tested for impairment during the third quarter. In
addition, the Company performed the annual review during
the fourth quarter. The stores that were tested and not
impaired had a net asset group value of $3.6 million and had
undiscounted cash flows which were in the range of 100% to
150% of their respective net asset values.
The Company’s impairment assessment requires management
to make assumptions and judgments related to factors used in
the evaluation for impairment, including, but not limited to,
management's expectations for future operations and
projected cash flows. The key assumptions used in the
Company's undiscounted future cash flow model include
sales, gross margin and, to a lesser extent, operating
expenses.
A 10% decrease in the sales assumption used to project future
cash flows in the fourth quarter of Fiscal 2014 impairment
test would have increased the impairment charge by
approximately $2.0 million.
Income Taxes
The provision for income taxes is determined using the asset
and liability approach. Tax laws often require items to be
included in tax filings at different times than the items are
being reflected in the financial statements. A current liability
is recognized for the estimated taxes payable for the current
year. Deferred taxes represent the future tax consequences
expected to occur when the reported amounts of assets and
liabilities are recovered or paid. Deferred taxes are adjusted
for enacted changes in tax rates and tax laws. Valuation
allowances are recorded to reduce deferred tax assets when it
is more likely than not that a tax benefit will not be realized.
The Company does not expect material changes in the
judgments, assumptions or interpretations used to calculate
the tax provision for Fiscal 2014. However, changes in these
assumptions may occur and should those changes be
significant, they could have a material impact on the
Company’s income tax provision.
A provision for U.S. income tax has not been recorded on
undistributed profits of non-U.S. subsidiaries that the
Company has determined to be indefinitely reinvested outside
the U.S. 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.
If the Company’s intention or U.S. and/or international tax
law changes in the future, there may be a material negative
impact on the provision for income taxes to record an
incremental tax liability in the period the change occurs.
The Company recognizes accrued interest and penalties
related to uncertain tax positions as a component of tax
expense upon settlement, law changes or expiration of statute
of limitations.
Of the total uncertain tax positions, it is reasonably possible
that $1.5 million to $2.5 million could change in the next 12
months due to audit settlements, expiration of statutes of
limitations or other resolution of uncertainties. Due to the
uncertain and complex application of tax laws and/or
regulations, it is possible that the ultimate resolution of audits
may result in amounts which could be different from this
estimate. In such case, the Company will record an
adjustment in the period in which such matters are effectively
settled.