American Eagle Outfitters 2011 Annual Report Download - page 67

Table of Contents
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
authorities. An IRS examination of the January 2010 federal income tax return is scheduled to be completed in Fiscal 2012. The Company does not anticipate
that any adjustments will result in a material change to its financial position, results of operations or cash flow. With respect to state and local jurisdictions
and countries outside of the United States, with limited exceptions, generally, the Company and its subsidiaries are no longer subject to income tax audits for
tax years before 2005. Although the outcome of tax audits is always uncertain, the Company believes that adequate amounts of tax, interest and penalties have
been provided for any adjustments that are expected to result from these years.
The Company has foreign tax credit carryovers in the amount of $22.3 million and $25.5 million as of January 28, 2012 and January 29, 2011,
respectively. The foreign tax credit carryovers expire in Fiscal 2019 to the extent not utilized. No valuation allowance has been recorded on the foreign tax
credit carryovers as the Company believes it is more likely than not the foreign tax credits will be utilized prior to expiration.
The Company has been certified to qualify for nonrefundable incentive tax credits in Kansas for additional expenditures related to the Ottawa, Kansas
distribution center. As a result, the Company has a deferred tax asset related to Kansas tax credit carryforwards of $6.1 million (net of federal income taxes) as
of January 28, 2012. These tax credits can be utilized to offset future Kansas income taxes and have a carryforward period of 10-16 years. They will begin to
expire in Fiscal 2018. Due to a favorable incentive agreement with the Kansas Department of Commerce in Fiscal 2010, the Company released a $5.0 million
valuation allowance that had been previously recorded related to the Company's Kansas tax credit carryforward.
During Fiscal 2010 and 2009, the Company recorded a valuation allowance against deferred tax assets arising from the disposition or other than
temporary impairment of certain investment securities. The disposition of the investment securities results in a capital loss that can only be utilized to the
extent of capital gains. These capital losses are subject to a three year carryback period and a five year carryforward period for tax purposes. The capital losses
generally will expire in Fiscal 2014 through Fiscal 2015. Due to the contingencies related to the future use of these capital losses, we believe it is more likely
than not that the full benefit of this asset will not be realized within the carryforward period. Thus, the Company has recorded a valuation allowance against
the deferred tax assets arising from the other than temporary impairment or disposition of these investment securities. The valuation allowance related to these
investment securities was $18.4 million and $20.4 million as of January 28, 2012 and January 29, 2011, respectively.
A reconciliation between the statutory federal income tax rate and the effective income tax rate from continuing operations follows:
For the Years Ended
January 28,
2012
January 29,
2011
January 30,
2010
Federal income tax rate 35% 35% 35%
State income taxes, net of federal income tax effect 3 3 3
Valuation allowance changes, net (1) 1 1
Tax settlements (1) (1) (4)
Canadian earnings repatriation — — (5)
36% 38% 30%
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