The Gap 2008 Annual Report Download - page 72

The difference between the effective income tax rate and the U.S. federal income tax rate is as follows:
Fiscal Year
2008 2007 2006
Federal tax rate ........................................................................ 35.0% 35.0% 35.0%
State income taxes, less federal benefit ................................................... 3.5 3.1 3.2
Taximpactofforeignoperations ........................................................ 1.7 2.3 2.2
Other ................................................................................. (1.2) (2.1) (1.9)
Effective tax rate ....................................................................... 39.0% 38.3% 38.5%
Deferred tax assets (liabilities) consist of the following:
($ in millions) January 31, 2009 February 2, 2008
Deferred tax assets
Deferredrent.................................................................... $115 $115
Accruedpayrollandrelatedbenefits ............................................... 82 57
Nondeductible accruals .......................................................... 68 72
Inventorycapitalizationandotheradjustments..................................... 53 64
Depreciation .................................................................... 43 88
State and foreign net operating losses (“NOLs”) ..................................... 28 27
Fair value of derivative financial instruments included in accumulated other
comprehensive earnings ....................................................... (9) 18
Other........................................................................... 99 100
Totaldeferredtaxassets .............................................................. 479 541
NOL valuation allowance ............................................................. (17) (12)
Total deferred tax liabilities ........................................................... (23) (18)
Netdeferredtaxassets ............................................................... $439 $511
Current portion (included in other current assets) ....................................... $166 $216
Non-current portion (included in other long-term assets) ................................ 273 295
Total................................................................................ $439 $511
At January 31, 2009 we had approximately $90 million state and $83 million foreign gross net operating loss
(“NOL”) carryovers in multiple taxing jurisdictions that could be utilized to reduce the tax liabilities of future years.
The tax effected NOL was approximately $6 million for state and $22 million for foreign as of January 31, 2009. We
provided a valuation allowance of approximately $2 million and $15 million against the deferred tax asset related to
the state and foreign NOLs, respectively. The state losses expire between fiscal 2009 and fiscal 2023, approximately
$57 million of the foreign losses expire by 2014, and $26 million of the foreign losses do not expire.
The activity related to our unrecognized tax benefits is as follows:
($ in millions) January 31, 2009 February 2, 2008
Balanceatbeginningoffiscalyear ..................................................... $123 $135
Increases related to current year tax positions ........................................... 614
Prior year tax positions
Increases ....................................................................... 69 33
Decreases....................................................................... (43) (20)
Cashsettlements .................................................................... (8) (5)
Expiration of statute of limitations ..................................................... (11) (39)
Foreign currency translation .......................................................... (5) 5
Balanceatendoffiscalyear ........................................................... $131 $123
60 Gap Inc. Form 10-K