Banana Republic 2006 Annual Report Download - page 76

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under the guarantee. The initial recognition and measurement provisions of FIN 45 are effective for guarantees
issued or modified after December 31, 2002. As of February 3, 2007, we did not have any material guarantees
that were issued or modified subsequent to December 31, 2002.
We are a party to a variety of contractual agreements under which we may be obligated to indemnify the
other party for certain matters. These contracts primarily relate to our commercial contracts, operating leases,
trademarks, intellectual property, financial agreements and various other agreements. Under these contracts we
may provide certain routine indemnifications relating to representations and warranties (e.g., ownership of assets,
environmental or tax indemnifications) or personal injury matters. The terms of these indemnifications range in
duration and may not be explicitly defined.
Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the
overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant
payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss
would not have a material effect on our financial condition or results of operations.
As party to a reinsurance pool for workers’ compensation, general liability and automobile liability, we have
guarantees with a maximum exposure of $58 million as of February 3, 2007, of which $5 million has already
cash collateralized. We are currently in the process of winding down our participation in the reinsurance pool.
Our maximum exposure and cash collateralized balance are expected to decrease in the future as our participation
in the reinsurance pool diminishes.
As a multinational company, we are subject to various proceedings, lawsuits, disputes and claims
(“Actions”) arising in the ordinary course of our business. Many of these Actions raise complex factual and legal
issues and are subject to uncertainties. Actions filed against us include commercial, intellectual property,
customer, employment and securities related claims, including class action lawsuits in which plaintiffs allege that
we violated federal and state wage and hour and other laws. The plaintiffs in some Actions seek unspecified
damages or injunctive relief, or both. Actions are in various procedural stages, and some are covered in part by
insurance. If the outcome of an action is expected to result in a loss that is considered probable and reasonably
estimable, we will record a liability for the estimated loss.
We cannot predict with assurance the outcome of Actions brought against us. Accordingly, adverse
developments, settlements or resolutions may occur and negatively impact earnings in the quarter of such
development, settlement or resolution. However, we do not believe that the outcome of any current Action would
have a material adverse effect on our results of operations, liquidity or financial position taken as a whole.
NOTE 12. RELATED PARTY TRANSACTIONS
We generally use a competitive bidding process for construction of new stores, expansions, relocations and
major remodels (major store projects). In addition, we utilize a construction industry standard stipulated sum,
non-exclusive agreement with our general contractors. Fisher Development, Inc. (“FDI”), a company that is
wholly owned by the brother of Donald G. Fisher, Founder and Chairman Emeritus, and the brother’s immediate
family, is one of our qualified general contractors. The stipulated sum agreement sets forth the terms under which
our general contractors, including FDI, may act in connection with our construction activities. We paid to FDI
approximately $2 million, $21 million, and $8 million in fiscal 2006, 2005, and 2004, respectively. There were
no amounts due to FDI at February 3, 2007, and at January 28, 2006 the amounts due to FDI were approximately
$1 million on our Consolidated Balance Sheets. The Audit and Finance Committee of the Board reviews this
relationship periodically.
In October 2001, the Audit and Finance Committee of the Board reviewed and approved the terms of
agreements to lease to Doris F. Fisher, Director, and Donald G. Fisher a total of approximately 26,000 square feet
of space in our One Harrison and Two Folsom San Francisco headquarter locations to display portions of their
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