Banana Republic 2007 Annual Report Download - page 39

Rental expense for our operating leases was as follows:
($ in millions)
52 Weeks Ended
February 2, 2008
53 Weeks Ended
February 3, 2007
52 Weeks Ended
January 28, 2006
Minimum rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 970 $ 923 $ 869
Contingent rental expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129 127 139
Less:Subleaseincome.................................. (4) (5) (4)
Total ................................................. $1,095 $1,045 $1,004
NOTE 11. INCOME TAXES
For financial reporting purposes, earnings from continuing operations before income taxes include the following
components:
($ in millions)
52 Weeks Ended
February 2, 2008
53 Weeks Ended
February 3, 2007
52 Weeks Ended
January 28, 2006
United States .......................................... $1,073 $ 995 $1,550
Foreign............................................... 333 320 273
$1,406 $1,315 $1,823
The provision for income taxes consisted of the following:
($ in millions)
52 Weeks Ended
February 2, 2008
53 Weeks Ended
February 3, 2007
52 Weeks Ended
January 28, 2006
Current
Federal ........................................... $443 $468 $667
State ............................................. 56 67 64
Foreign ........................................... 91 50 45
Totalcurrent .......................................... 590 585 776
Deferred
Federal ........................................... (42) (77) (43)
State ............................................. (18) (9) 4
Foreign ........................................... 9 7 (45)
Totaldeferred ......................................... (51) (79) (84)
Total provision ......................................... $539 $506 $692
In April 2007, we assessed the anticipated cash needs and overall financial position of our Canadian subsidiaries.
As a result, we determined that we no longer intend to utilize approximately $92 million of the undistributed
earnings of our Canadian subsidiaries in foreign operations indefinitely and this amount was repatriated in the
third quarter of fiscal 2007. We intend to utilize the remainder of the undistributed earnings of our foreign
subsidiaries in the foreign operations for an indefinite period of time or repatriate such earnings only when
tax-effective to do so.
The foreign component of pre-tax earnings before elimination of intercompany transactions in fiscal 2007, 2006,
and 2005 was $333 million, $320 million, and $273 million, respectively. Except 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
February 2, 2008 and February 3, 2007 was approximately $867 million and $790 million, respectively. If the
undistributed earnings were repatriated, the unrecorded deferred tax liability as of February 2, 2008 and
February 3, 2007 would have been approximately $97 million and $104 million, respectively.
60฀฀฀Form฀10-K
The difference between the effective income tax rate and the U.S. federal income tax rate is summarized as
follows:
52 Weeks Ended
February 2, 2008
53 Weeks Ended
February 3, 2007
52 Weeks Ended
January 28, 2006
Federal tax rate ........................................ 35.0% 35.0% 35.0%
State income taxes, less federal benefit . . . . . . . . . . . . . . . . . . . . 3.1 3.2 3.6
Tax impact of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.2 2.3
Other ................................................ (2.1) (1.9) (2.9)
Effective tax rate ....................................... 38.3% 38.5% 38.0%
Deferred tax assets (liabilities) consisted of the following:
($ in millions)
February 2,
2008
February 3,
2007
Deferred tax assets
Accruedpayrollandrelatedbenefits......................................... $ 57 $ 48
Deferredrent............................................................ 115 116
Nondeductibleaccruals ................................................... 72 81
Fair value of financial instruments included in accumulated other comprehensive
earnings.............................................................. 18 —
Depreciation ............................................................ 88 17
Inventory capitalization and other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 26
State and foreign net operating losses (“NOL’s”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 48
Other .................................................................. 100 57
Totaldeferredtaxassets ...................................................... 541 393
NOL valuation allowance ...................................................... (12) (14)
Deferred tax liabilities
Fair value of financial instruments included in accumulated other comprehensive
earnings .............................................................. — (10)
Other .................................................................. (18) (26)
Total deferred tax liabilities ................................................ (18) (36)
Net deferred tax assets ....................................................... $511 $343
Current portion (included in other current assets) .................................. $216 $156
Non-current portion (included in other long-term assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 187
Total ...................................................................... $511 $343
As of February 2, 2008 we had approximately $109 million state and $73 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 $7 million for state and $20 million for foreign as of February 2,
2008. We provided a valuation allowance of approximately $3 million and $9 million against the deferred tax asset
related to the state and foreign NOL’s, respectively. The state losses expire between fiscal 2008 and fiscal 2023,
approximately $37 million of the foreign losses expire by 2011 and $36 million of the foreign losses do not expire.
฀฀ Form฀10-K฀฀฀61