Banana Republic 2005 Annual Report Download - page 53

G A P I N C . F I N A N C I A L S 2 0 0 5
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The difference between the effective income tax rate and the U.S. federal income tax rate is summarized as follows:
At January 28, 2006, we had $388 million of state and foreign net operating loss carryovers that could be utilized to reduce the tax liabilities of future
years. A portion of the state and foreign net operating loss carryovers was reduced by a valuation allowance. The losses begin to expire in fiscal 2006
with some loss carryovers having indefinite carryforward periods.
NOTE D: LEASES
We lease most of our store premises and some of our headquarter facilities and distribution centers. These operating leases expire at various dates
through 2033. Most store leases are for a five year base period and include options that allow us to extend the lease term beyond the initial base period,
subject to terms agreed to at lease inception. Some leases also include early termination options, which can be exercised under specific conditions.
For leases that contain predetermined fixed escalations of the minimum rentals, we recognize the related rental expense on a straight-line basis and
record the difference between the recognized rental expense and amounts payable under the leases as deferred rent liability. Deferred rent liability
is recorded in lease incentives and other liabilities on the Consolidated Balance Sheets and was approximately $342 million at January 28, 2006 and
$361 million at January 29, 2005.
Lease payments that depend on factors that are not measurable at the inception of the lease, such as future sales volume, are contingent rentals and
are excluded from minimum lease payments and included in the determination of total rental expense when it is probable that the expense has been
incurred and the amount is reasonably estimable. Future payments for maintenance, insurance and taxes to which the Company is obligated are
excluded from minimum lease payments.
Tenant allowances received upon entering into certain store leases are recognized on a straight-line basis as a reduction to rent expense over the lease
term. At January 28, 2006 and January 29, 2005, the short-term portion of the deferred credit was approximately $70 million and $82 million, respec-
tively, and is included in accrued expenses and other current liabilities on the Consolidated Balance Sheets. At January 28, 2006 and January 29, 2005,
Deferred tax assets (liabilities) consisted of the following:
($ in millions) January 28, 2006 January 29, 2005
Compensation and benefits accruals $ 44 $ 44
Scheduled rent 117 120
Nondeductible accruals 77 120
Fair value of financial instruments included
in accumulated other comprehensive earnings 1 19
Other 62 72
State and foreign NOL 67 33
Gross deferred tax assets 368 408
NOL valuation allowance (18) (10)
Depreciation (17) (53)
Other (17) (12)
Inventory capitalization and other adjustments (3) (48)
Gross deferred tax liabilities (37) (113)
Net deferred tax assets $ 313 $ 285
Current portion (included in other current assets) $ 109 $ 149
Non-current portion (included in other assets) 204 136
Total $ 313 $ 285
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
January 28, 2006 January 29, 2005 January 31, 2004
Federal tax rate 35.0% 35.0% 35.0%
State income taxes, less federal benefit 3.5 2.7 2.1
Tax impact of foreign operations 2.3 2.0 2.2
Other (a) (2.9) (1.1) (0.5)
Effective tax rate 37.9% 38.6% 38.8%
(a) The increase from fiscal 2004 in other is primarily driven by the impact of a favorable tax settlement related to the U.S.–Japan Income Tax Treaty.