The Gap 2008 Annual Report Download - page 71

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Note 12. Income Taxes
For financial reporting purposes, components of earnings from continuing operations before income taxes are as
follows:
Fiscal Year
($ in millions) 2008 2007 2006
United States ....................................................... $1,209 $1,073 $ 995
Foreign ............................................................ 375 333 320
$1,584 $1,406 $1,315
The provision for income taxes consists of the following:
Fiscal Year
($ in millions) 2008 2007 2006
Current
Federal ........................................................ $440 $443 $468
State .......................................................... 43 56 67
Foreign ........................................................ 124 91 50
Total current ....................................................... 607 590 585
Deferred
Federal ........................................................ 5 (42) (77)
State .......................................................... 5 (18) (9)
Foreign ........................................................ —97
Totaldeferred ...................................................... 10 (51) (79)
Totalprovision...................................................... $617 $539 $506
During fiscal 2008, we assessed the anticipated cash needs and overall financial position of our Canadian and
Japanese subsidiaries. As a result, we determined that we no longer intend to utilize $137 million and $63 million of
the undistributed earnings of our Canadian and Japanese subsidiaries, respectively, in foreign operations
indefinitely. Of these amounts, $157 million was repatriated in the second quarter of fiscal 2008. Accordingly, we
have established a deferred tax asset and liability for U.S. income taxes with respect to the repatriated earnings as
of January 31, 2009 and have recorded a related tax benefit. The amount of the tax benefit was immaterial.
The foreign component of pre-tax earnings before elimination of intercompany transactions in fiscal 2008, 2007,
and 2006 was $375 million, $333 million, and $320 million, respectively. Except as noted above and where required
by U.S. tax law, no provision was made for U.S. income taxes on the undistributed earnings of the foreign
subsidiaries as we intend to utilize those earnings in the foreign operations for an indefinite period of time or
repatriate such earnings only when tax-effective to do so. That portion of accumulated undistributed earnings of
foreign subsidiaries as of January 31, 2009 and February 2, 2008 was approximately $1.1 billion and $867 million,
respectively. If the undistributed earnings were repatriated, the unrecorded deferred tax liability as of January 31,
2009 and February 2, 2008 would have been approximately $147 million and $97 million, respectively.
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