Banana Republic 2007 Annual Report Download - page 32

their operations are translated using the monthly average exchange rates in effect for the period in which the
transactions occur. The resulting gains and losses from translation are classified as accumulated other
comprehensive earnings in the Consolidated Statements of Stockholders’ Equity. Transaction gains and losses
that arise from exchange rate fluctuations on transactions denominated in a currency other than the local
functional currency are included in the Consolidated Statements of Earnings and were a gain of $4 million, a loss
of $4 million, and a loss of $13 million in fiscal 2007, 2006, and 2005, respectively.
Comprehensive Earnings
Comprehensive earnings is comprised of net earnings and other gains and losses affecting equity that are
excluded from net earnings. The components of other comprehensive earnings consist of foreign currency
translation gains and losses and changes in fair market value of derivative financial instruments, net of tax.
Income Taxes
Income taxes are accounted for using the asset and liability method in accordance with SFAS 109, “Accounting
for Income Taxes.” Under this method, deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the Consolidated Financial Statements. A valuation
allowance is established against deferred tax assets when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
We record reserves for estimates of settlements of foreign and domestic tax audits. At any point in time, many tax
years are subject to or in the process of audit by various taxing authorities. To the extent that our estimates of
settlements change or the final tax outcome of these matters is different than the amounts recorded, such
differences will impact the income tax provision in the period in which such determinations are made.
On February 4, 2007, the Company adopted FIN 48, “Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold that a tax position is
required to meet before being recognized in the financial statements and provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.
The cumulative effects of applying this interpretation have been recorded as a decrease of $4 million to opening
retained earnings, an increase of $85 million to short-term and long-term income tax assets and an increase of
$89 million to short-term and long-term income tax liabilities as of February 4, 2007. At the beginning of fiscal year
2007, the Company had approximately $135 million of total gross unrecognized tax benefits. Of this total, $50
million (net of the federal benefit on state issues) represents the amount of unrecognized tax benefits that, if
recognized, would favorably affect the effective income tax rate in future periods. Also, as of the adoption date,
the Company had accrued interest expense related to the unrecognized tax benefits of $27 million. The Company
recognizes interest related to unrecognized tax benefits in interest expense.
Recent Accounting Pronouncements
In September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157
will be applied under other accounting pronouncements that require or permit fair value measurements and,
accordingly, will not require any new fair value measurements. SFAS 157 will be effective for fiscal 2008 except
for certain nonfinancial and lease-related assets and liabilities for which the effective date has been deferred by
one year in accordance with FASB Staff Position (“FSP”) No. 157-1, “Application of FASB Statement No. 157 to
FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13,” and FSP No. 157-2, “Effective Date of
FASB Measurement No. 157.” We are currently in the process of assessing the impact the adoption of SFAS 157
will have on our consolidated financial statements and related disclosures.
46฀฀฀Form฀10-K
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities—Including an amendment of FASB Statement No. 115.” SFAS No. 159 will permit entities to choose to
measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 will be
effective for fiscal 2008. We do not expect the adoption of SFAS 159 to have a material effect on our financial
position, cash flows or results of operations.
NOTE 2. ADDITIONAL FINANCIAL STATEMENT INFORMATION
Cash and Cash Equivalents and Short-Term Investments
The following table summarizes the fair value of cash, cash equivalents, and short-term investments:
($ in millions)
February 2,
2008
February 3,
2007
Cash ...................................................................... $ 923 $1,044
U.S.Treasuryandagencysecurities ............................................ 148 308
Domesticcommercialpaper ................................................... 348 528
Bank certificates of deposit and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305 150
Total cash equivalents (original maturities of 91 days or less) . . . . . . . . . . . . . . . . . . . . . . . . 801 986
Total cash and cash equivalents ................................................ $1,724 $2,030
U.S.Treasuryandagencysecurities ............................................ $ 126 $ 366
Bank certificates of deposit and time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 204
Total short-term investments (original maturities of greater than 91 days) . . . . . . . . . . . . . . $ 177 $ 570
Restricted Cash
Restricted cash of $38 million and $44 million as of February 2, 2008 and February 3, 2007, respectively,
primarily represents cash that serves as collateral for our insurance obligations and other cash that is restricted
from withdrawal for use.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and consist of the following:
($ in millions)
February 2,
2008
February 3,
2007
Leasehold improvements ..................................................... $3,077 $ 2,926
Furniture and equipment ...................................................... 2,401 2,487
Land and buildings ........................................................... 1,022 1,005
Software ................................................................... 655 594
Construction-in-progress ...................................................... 165 123
Property and equipment, gross ................................................. 7,320 7,135
Less: Accumulated depreciation ................................................ (4,053) (3,938)
Property and equipment, net of accumulated depreciation ........................... $3,267 $ 3,197
Depreciation expense for property and equipment was $625 million, $601 million, and $656 million for fiscal 2007,
2006, and 2005, respectively.
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