Banana Republic 2009 Annual Report Download - page 79

The activity related to our unrecognized tax benefits is as follows:
Fiscal Year
($ in millions) 2009 2008 2007
Balanceatbeginningoffiscalyear..................................................... $131 $123 $135
Increases related to current year tax positions .......................................... 1614
Prior year tax positions:
Increases ....................................................................... 38 69 33
Decreases ...................................................................... (17) (43) (20)
Cashsettlements .................................................................... (21) (8) (5)
Expiration of statute of limitations .................................................... (6) (11) (39)
Foreign currency translation .......................................................... 6 (5) 5
Balanceatendoffiscalyear........................................................... $132 $131 $123
Of the $132 million, $131 million, and $123 million of total unrecognized tax benefits at January 30, 2010, January 31, 2009,
and February 2, 2008, respectively, approximately $15 million, $33 million, and $51 million (net of the federal benefit on
state issues), respectively, represents the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in future periods. During each of fiscal 2009 and 2007, interest expense of $2
million was recognized in the Consolidated Statements of Income. During fiscal 2008, an interest expense reversal of
$9 million was recognized in the Consolidated Statement of Income. As of January 30, 2010 and January 31, 2009, the
Company had total accrued interest related to the unrecognized tax benefits of $20 million and $18 million,
respectively. There were no accrued penalties related to the unrecognized tax benefits as of January 30, 2010 and
January 31, 2009.
The Company conducts business globally, and as a result, files income tax returns in the U.S. federal jurisdiction
and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by
taxing authorities throughout the world, including such major jurisdictions as the United States, Canada, France,
Hong Kong, Japan, and the United Kingdom. With few exceptions, we are no longer subject to U.S. federal, state,
local, or non-U.S. income tax examinations for fiscal years before 1999.
The Company engages in continual discussions with taxing authorities regarding tax matters in the various U.S.
and foreign jurisdictions. It is reasonably possible that we will recognize a decrease in unrecognized tax benefits
within the next 12 months of up to $50 million, primarily due to the filing of a U.S. federal income tax accounting
method change application and the resolution of the Internal Revenue Service’s (“IRS”) review of the Company’s
federal income tax returns and refund claims for fiscal 2001 through 2004. In late fiscal 2008, the IRS commenced
an audit of the Company’s federal income tax returns and refund claims for fiscal 2001 through 2004. In February
2010, the Company received notification that the Congressional Joint Committee on Taxation had completed its
consideration of the IRS’ report pertaining to those income tax returns and refund requests and had taken no
exception to the conclusions reached by the IRS. In March 2010, we received refund payments, including interest,
from the IRS in the amount of approximately $71 million. We do not expect these matters to have a material
impact on the Consolidated Statements of Income.
As of January 31, 2009, the Company did not anticipate recording any significant increases or decreases in total
gross unrecognized tax benefits within the subsequent 12 months. During fiscal 2009, total gross unrecognized tax
benefits increased by $1 million.
Note 13. Employee Benefit Plans
We have a qualified defined contribution retirement plan called GapShare, which is available to employees who
meet certain age and service requirements. This plan permits employees to make contributions up to the
maximum limits allowable under the Internal Revenue Code. Under the plan, we match, in cash, all or a portion of
employees’ contributions under a predetermined formula. Our contributions vest immediately. Our contributions
to GapShare were $35 million, $34 million, and $36 million in fiscal 2009, 2008, and 2007, respectively.
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