The Abercrombie & Fitch 10-K report contains the following footnote relating to its leasing activities. This is the only information it discloses relating to its leasing activity. At January 28, 2006, the Company was committed to non-cancelable leases with remaining terms of one to 15 years. A summary of operating lease commitments under non-cancelable leases follows (thousands):

2017 . 187,674

2018 . 187,397

2019 . 178,595

2020 169,856

2021 . 155,670

There after . 538,635

Assuming that its operating leases relate to real estate, and that A&F depreciated such assets on a straight-line basis with no salvage value and useful life of 8 years, estimate the effect on the companys 2006 income before tax of capitalizing these operating leases. Use a 7% discount rate.

a. Reduce income before taxes by $10,585,000 b. Increase income before taxes by $187,674,000 c. Reduce income before taxes by $187,674,000 d. Reduce income before taxes by $198,259,000