American Eagle Outfitters 2011 Annual Report Download - page 66

Table of Contents
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As a result of additional tax deductions related to share-based payments, tax benefits have been recognized as contributed capital for Fiscal 2011, Fiscal
2010 and Fiscal 2009 in the amounts of $0.4 million, $15.6 million and $8.0 million, respectively.
During Fiscal 2009, the Company approved and repatriated $91.7 million from its Canadian subsidiaries. The proceeds from the repatriation were used
for general corporate purposes. The Company plans to indefinitely reinvest accumulated earnings of our Canadian subsidiaries outside of the United States to
the extent not repatriated in Fiscal 2009. Accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in
the form of dividends or otherwise, the Company would be subject to income and withholding taxes offset by foreign tax credits. As of January 28, 2012 and
January 29, 2011, the unremitted earnings of our Canadian subsidiaries were $72.0 million (USD) and $57.1 million (USD), respectively.
As of January 28, 2012, the gross amount of unrecognized tax benfits was $31.6 million, of which $22.8 million would affect the effective income tax
rate if recognized. The gross amount of unrecognized tax benefits as of January 29, 2011 was $31.1 million, of which $22.7 million would affect the effective
income tax rate if recognized.
The following table summarizes the activity related to our unrecognized tax benefits:
For the Years Ended
January 28,
2012
January 29,
2011
January 30,
2010
(In thousands)
Unrecognized tax benefits, beginning of the year balance $ 31,108 $ 31,649 $ 41,080
Increases in tax positions of prior periods 932 1,069 1,679
Decreases in tax positions of prior periods (2,106) (3,801) (13,457)
Increases in current period tax positions 2,782 2,707 14,842
Settlements (1,073) (6) (6,204)
Lapse of statute of limitations (65) (510) (6,291)
Unrecognized tax benefits, end of the year balance $ 31,578 $ 31,108 $ 31,649
Unrecognized tax benefits increased by $0.5 million during Fiscal 2011 and decreased by $0.5 million during Fiscal 2010. Over the next twelve months
the Company believes that it is reasonably possible that unrecognized tax benefits may decrease by approximately $2.9 million due to settlements, expiration
of statute of limitations or other changes in unrecognized tax benefits.
The Company records accrued interest and penalties related to unrecognized tax benefits in income tax expense. Accrued interest and penalties related
to unrecognized tax benefits included in the Consolidated Balance Sheet were $7.9 million and $7.6 million as of January 28, 2012 and January 29, 2011,
respectively. During Fiscal 2009, the Company recognized a net benefit of $3.3 million in the provision for income taxes related to the reversal of accrued
interest and penalties primarily due to federal and state income tax settlements. An immaterial amount of interest and penalties were recognized in the
provision for income taxes during Fiscal 2011 and Fiscal 2010.
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Internal
Revenue Service ("IRS") examination of the Company's U.S. federal income tax returns for the tax years ended July 2008 and January 2009 was completed in
April of 2011. Accordingly, all years prior to January 2010 are no longer subject to U.S. federal income tax examinations by tax
63