Income Taxes

12 Months Ended

Jan. 28, 2012

Income Taxes [Abstract]

INCOME TAXES

14. INCOME TAXES

Earnings from continuing operations before taxes were comprised of (in thousands):

		2011		2010		2009
Domestic	$	148,629	$	190,570	$	119,358
Foreign		37,824		38,000		152
Total	$	186,453	$	228,570	$	119,510

Domestic income above includes intercompany charges to foreign affiliates for management fees, cost-sharing, royalties and interest. The provision for income taxes from continuing operations consisted of (in thousands):

		2011		2010		2009
Current:
Federal	$	100,495	$	94,922	$	33,212
State		11,085		16,126		4,003
Foreign		13,262		11,395		5,086
	$	124,842	$	122,443	$	42,301
Deferred:
Federal	$	(47,619)	$	(32,669)	$	10,055
State		(10,007)		(7,229)		(147)
Foreign		(7,625)		(4,258)		(11,652)
	$	(65,251)	$	(44,156)	$	(1,744)
Total provision	$	59,591	$	78,287	$	40,557

Reconciliation between the statutory federal income tax rate and the effective tax rate for continuing operations is as follows:

	2011	2010	2009
Federal income tax rate	35.0%	35.0%	35.0%
State income tax, net of federal income tax effect	4.0	2.5	2.1
Tax effect of foreign earnings	(5.5)	(2.9)	(4.4)
Other items, net	(1.5)	(0.3)	1.2
Total	32.0%	34.3%	33.9%

Amounts paid directly to taxing authorities were $118.2 million, $85.1 million, and $27.1 million in Fiscal 2011, Fiscal 2010, and Fiscal 2009, respectively.

The effect of temporary differences which give rise to deferred income tax assets (liabilities) were as follows (in thousands):

		2011		2010
Deferred tax assets:
Deferred compensation	$	69,296	$	59,027
Inventory		33,074		13,683
Accrued expenses		20,356		22,920
Rent		12,001		26,158
Foreign net operating losses (NOLs)		11,687		11,510
Reserves		7,911		8,666
Realized and unrealized investment losses		5,565		592
Other		-		2,476
Valuation allowance		(2,531)		-
Total deferred tax assets	$	157,359	$	145,032
Deferred tax liabilities:
Property and equipment		(41,076)		(94,630)
Store supplies		(10,591)		(11,911)
Other		(1,949)		-
Total deferred tax liabilities	$	(53,616)	$	(106,541)
Net deferred income tax assets	$	103,743	$	38,491

Accumulated other comprehensive income is shown net of deferred tax assets and deferred tax liabilities, resulting in a deferred taxliability of $1.6 million anda deferred tax asset of $5.2 million for Fiscal 2011 and Fiscal 2010, respectively. Accordingly, these deferred taxes are not reflected in the table above.

As of January 28, 2012 and January 29, 2011, the Company had deferred tax assets related to foreign net operating loss carryovers that could be utilized to reduce future years' tax liabilities, totaling $11.7 million and $11.5 million, respectively. A portion of these net operating loss carryovers begin expiring in the year 2016 and some have an indefinite carryforward period. Management believes it is more likely than not that these net operating loss carryovers willreduce future years' tax liabilities in certain foreign jurisdictions less the associated valuation allowance. As of January 28, 2012 and January 29, 2011, the foreign subsidiaries' net operating valuation allowances totaled $2.5 million and $0.0, respectively.

No other valuation allowances have been provided for deferred tax assets because management believes that it is more likely than not that the full amount of the net deferred tax assets will be realized in the future.

		(In thousands)
		2011		2010		2009
Unrecognized tax benefits, beginning of the year	$	14,827	$	29,437	$	43,684
Gross addition for tax positions of the current year		1,183		562		222
Gross addition for tax positions of prior years		1,602		1,734		2,167
Reductions of tax positions of prior years for:
Lapses of applicable statutes of limitations		(2,448)		(2,328)		(448)
Settlements during the period		(1,631)		(14,166)		(5,444)
Changes in judgment		(129)		(412)		(10,744)
Unrecognized tax benefits, end of year	$	13,404	$	14,827	$	29,437

The amount of the above unrecognized tax benefits at January 28, 2012, January 29, 2011 and January 30, 2010which would impact the Company's effective tax rate, if recognized, was$13.4 million, $14.8 million and $29.4 million, respectively.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Tax expense for Fiscal 2011 includes a $0.7 million increase of net accrued interest, compared to a $3.4 million reduction of net accrued interest as of the end of Fiscal 2010. Interest and penalties of $6.1 million had been accrued, at the end of Fiscal 2011, compared to $6.2 million accrued at the end of Fiscal 2010.

The Internal Revenue Service (“IRS”) is currently conducting an examination of the Company's U.S. federal income tax return for Fiscal 2011 as part of the IRS's Compliance Assurance Process program. IRS examinations for Fiscal 2010 and prior years have been completed and settled. State and foreign returns are generally subject to examination for a period of 3-5 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 Company does not expect material adjustments to the total amount of unrecognized tax benefits within the next 12 months, but the outcome of tax matters is uncertain and unforeseen results can occur.

As of January 28, 2012,U.S. taxes have not been provided on approximately $64.5 million of unremitted earnings of subsidiaries operating outside of the U.S. 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 hypotheticalcalculation.