Banana Republic 2012 Annual Report Download - page 60

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Credit Cards
We have credit card agreements (the “Agreements”) with third parties to provide our customers with private label credit
cards and/or co-branded credit cards (collectively, the “Credit Cards”). Each private label credit card bears the logo of
Gap, Old Navy, or Banana Republic and can be used at any of our U.S. or Canadian store locations and online. The co-
branded credit card is a VISA credit card bearing the logo of Gap, Old Navy, or Banana Republic and can be used
everywhere VISA credit cards are accepted. A third-party financing company is the sole owner of the accounts issued
under the Credit Card programs, and this third party absorbs the losses associated with non-payment by the cardholder
and a portion of any fraudulent usage of the accounts. We receive cash from the third-party financing company in
accordance with the Agreements and based on usage of the Credit Cards. We also receive payment from Visa U.S.A. Inc.
in accordance with the Agreements and based on specified transactional fees. We recognize income for such cash
receipts when the amounts are fixed or determinable and collectibility is reasonably assured, which is generally the time at
which the actual usage of the Credit Cards or specified transaction occurs. The income is recorded in other income, which
is a component of operating expenses in our Consolidated Statements of Income.
The Credit Card programs offer incentives to cardholders in the form of reward certificates upon the cumulative purchase
of an established amount. The cost associated with reward points and certificates is accrued as the rewards are earned
by the cardholder and is recorded in cost of goods sold and occupancy expenses in the Consolidated Statements of
Income. Other administrative costs related to the Credit Card programs, including payroll, marketing expenses, and other
direct costs, are recorded in operating expenses in the Consolidated Statements of Income.
Earnings per Share
Basic earnings per share is computed as net income divided by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed as net income divided by the weighted-average
number of common shares outstanding for the period including common stock equivalents. Common stock equivalents
consist of shares subject to share-based awards with exercise prices less than the average market price of our common
stock for the period, to the extent their inclusion would be dilutive. Stock options and other stock awards that contain
performance conditions are not included in the calculation of common stock equivalents until such performance conditions
have been achieved.
Foreign Currency
Our international subsidiaries primarily use local currencies as the functional currency and translate their assets and
liabilities at the current rate of exchange in effect at the balance sheet date. Revenue and expenses from their operations
are translated using the monthly average exchange rates in effect during the period in which the transactions occur. The
resulting gains and losses from translation are recorded in the Consolidated Statements of Comprehensive Income and in
accumulated OCI 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 Income. The aggregate transaction gains and losses included in the Consolidated
Statements of Income were as follows:
Fiscal Year
($ in millions) 2012 2011 2010
Foreign currency transaction losses $ (3) $ (7) $ (1)
Comprehensive Income
In the first quarter of fiscal 2012, we adopted the revised requirements issued by the Financial Accounting Standards
Board ("FASB") to present comprehensive income in a separate statement. Comprehensive income is comprised of net
income and other gains and losses affecting equity that are excluded from net income. The components of OCI consist of
foreign currency translation gains and losses, net of tax, changes in the fair value of derivative financial instruments, net of
tax, and reclassification adjustments for realized gains and losses on derivative financial instruments, net of tax.
Income Taxes
Deferred income taxes are recorded for 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.
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