Banana Republic 2010 Annual Report Download - page 71

The activity related to our unrecognized tax benefits is as follows:
Fiscal Year
($ in millions) 2010 2009 2008
Balanceatbeginningoffiscalyear..................................................... $132 $131 $123
Increases related to current year tax positions .......................................... 1016
Prior year tax positions:
Increases ....................................................................... 15 38 69
Decreases ...................................................................... (74) (17) (43)
Cashsettlements .................................................................... (4) (21) (8)
Expiration of statute of limitations .................................................... (14) (6) (11)
Foreign currency translation .......................................................... 2 6 (5)
Balanceatendoffiscalyear........................................................... $ 67 $132 $131
Of the $67 million, $132 million, and $131 million of total unrecognized tax benefits at January 29, 2011,
January 30, 2010, and January 31, 2009, respectively, approximately $5 million, $15 million, and $33 million (net of
the federal benefit on state issues), respectively, represents the amount of unrecognized tax benefits that, if
recognized, would favorably affect the effective income tax rate in future periods. During fiscal 2010, an interest
expense reversal of $15 million was recognized in the Consolidated Statements of Income. During fiscal 2009,
interest expense of $2 million was recognized in the Consolidated Statements of Income. During fiscal 2008, an
interest expense reversal of $9 million was recognized in the Consolidated Statement of Income. As of January 29,
2011 and January 30, 2010, the Company had total accrued interest related to the unrecognized tax benefits of $21
million and $20 million, respectively. There were no accrued penalties related to the unrecognized tax benefits as
of January 29, 2011 and January 30, 2010.
The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction
and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by
taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France,
Hong Kong, Japan, and the United Kingdom. We are no longer subject to U.S. federal income tax examinations for
fiscal years before 2007, and with few exceptions, we are no longer subject to U.S. state, local, or non-U.S. income
tax examinations for fiscal years before 2001.
The Company engages in continual discussions with taxing authorities regarding tax matters in the various U.S.
and foreign jurisdictions. As of January 29, 2011, the Company does not anticipate any significant changes in
unrecognized tax benefits within the subsequent 12 months.
As of January 30, 2010, the Company anticipated it was reasonably possible that we would recognize a decrease in
unrecognized tax benefits of up to $50 million within the subsequent 12 months, primarily due to the filing of a
U.S. federal income tax accounting method change application and the resolution of the Internal Revenue Service’s
(“IRS”) review of the Company’s federal income tax returns and refund claims for fiscal 2001 through 2004. During
fiscal 2010, total gross unrecognized tax benefits decreased by $65 million.
Note 11. Employee Benefit Plans
We have a qualified defined contribution retirement plan called GapShare, which is available to employees who meet
certain age and service requirements. This plan permits employees to make contributions up to the maximum
limits allowable under the Internal Revenue Code. Under the plan, we match, in cash, all or a portion of employees’
contributions under a predetermined formula. Our contributions vest immediately. Our contributions to GapShare
were $36 million, $35 million, and $34 million in fiscal 2010, 2009, and 2008, respectively.
We maintain a deferred compensation plan that allows eligible employees to defer compensation up to a maximum
amount. Plan investments are recorded at market value and are designated for the deferred compensation plan.
The fair value of the Company’s deferred compensation plan assets is determined based on quoted market prices. As
of January 29, 2011 and January 30, 2010, the assets related to the deferred compensation plan were $27 million and
$21 million, respectively, and were recorded in other long-term assets in the Consolidated
64 Gap Inc. Form 10-K