American Eagle Outfitters 2014 Annual Report Download - page 65

Table of Contents
AMERICAN EAGLE OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the activity related to our unrecognized tax benefits:
Unrecognized tax benefits decreased by $2.0 million during Fiscal 2014, decreased $2.6 million during Fiscal 2013 and decreased by
$14.3 million during Fiscal 2012. The unrecognized tax benefit changes were primarily related to federal and state income tax settlements and
other changes in income tax reserves. Over the next twelve months the Company believes it is reasonably possible the unrecognized tax
benefits could decrease by as much as $5.6 million as the result of federal and state tax settlements, statute of limitations lapses, and other
changes to the reserves.
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 $1.6 million and $1.9 million as of January 31,
2015 and February 1, 2014, respectively. During Fiscal 2012, the Company recognized a net benefit of $4.8 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 2014 and Fiscal 2013.
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 return for the tax year ended January 2012 was
completed in February 2014. Accordingly, all years prior to the tax year ended January 2013 are no longer subject to U.S. federal income tax
examinations by tax authorities. Additionally, the Company is participating in the IRS’s Compliance Assurance Process (CAP) for the years
ended February 1, 2014 and January 31, 2015. 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 2008.
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 $19.3 million and $13.4 million as of January 31, 2015 and February 1,
2014, respectively. The foreign tax credit carryovers begin to 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 that the foreign tax credits will be utilized prior
to expiration.
The Company has state income tax credit carryforwards of $11.7 million and $10.7 million as of January 31, 2015 and February 1, 2014,
respectively. These income tax credits can be utilized to offset future state income taxes and have a carryforward period of 10 to16 years. They
will begin to expire in Fiscal 2018.
65
For the Years Ended
(In thousands)
January 31,
2015
February 1,
2014
February 2,
2013
Unrecognized tax benefits, beginning of the year balance
$
14,601
$
17,250
$
31,578
Increases in current period tax positions
2,166
2,294
2,458
Increases in tax positions of prior periods
—
440
—
Settlements
(73
)
—
(
4,809
)
Lapse of statute of limitations
(471
)
(453
)
(1,592
)
Decreases in tax positions of prior periods
(3,614
)
(4,930
)
(10,385
)
Unrecognized tax benefits, end of the year balance
$
12,609
$
14,601
$
17,250