Banana Republic 2015 Annual Report Download - page 73

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The activity related to our unrecognized tax benefits is as follows:
Fiscal Year
($ in millions) 2015 2014 2013
Balance at beginning of fiscal year $ 75 $ 72 $ 109
Increases related to current year tax positions 3 9 8
Prior year tax positions:
Increases 6 4 8
Decreases (34) (9) (47)
Cash settlements (3) (1) (5)
Foreign currency translation — — (1)
Balance at end of fiscal year $ 47 $ 75 $ 72
Of the $47 million, $75 million, and $72 million of total unrecognized tax benefits as of January 30, 2016,
January 31, 2015, and February 1, 2014, respectively, approximately $34 million, $31 million, and $27 million,
respectively, represents the amount of unrecognized tax benefits that, if recognized, would favorably affect the
effective income tax rate in future periods.
During fiscal 2015, 2014, and 2013, interest expense of $1 million, $2 million, and $4 million, respectively, was
recognized in the Consolidated Statements of Income relating to tax liabilities. In fiscal 2015, we also recognized
an interest expense reversal of $15 million in the Consolidated Statement of Income, primarily as a result of a
favorable foreign tax ruling and actions of foreign tax authorities related to transfer pricing matters. We reduced
our unrecognized tax benefits for these matters by $32 million, and there was no impact on the tax provision due
to the offsetting decrease for the U.S. indirect effect of these unrecognized tax benefits. In fiscal 2013, we also
recognized an interest expense reversal of $18 million in the Consolidated Statement of Income relating to the
favorable resolution of foreign tax matters. As of January 30, 2016 and January 31, 2015, the Company had total
accrued interest related to the unrecognized tax benefits of $5 million and $18 million, respectively. There were no
accrued penalties related to the unrecognized tax benefits as of January 30, 2016 or January 31, 2015.
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,
the United Kingdom, Hong Kong, Japan, China, and India. We are no longer subject to U.S. federal income tax
examinations for fiscal years before 2009, and with few exceptions, we are also no longer subject to U.S. state,
local, or non-U.S. income tax examinations for fiscal years before 2008.
The Company engages in continual discussions with taxing authorities regarding tax matters in the various U.S.
and foreign jurisdictions in the normal course of business. As of January 30, 2016, it is reasonably possible that
we will recognize a decrease in gross unrecognized tax benefits within the next 12 months of up to $3 million,
primarily due to the closing of audits. If we do recognize such a decrease, the net impact on the Consolidated
Statement of Income would not be material.
Note 13. Employee Benefit Plans
We have two qualified defined contribution retirement plans, the GapShare 401(k) Plan and the GapShare Puerto
Rico Plan (the “Plans”), which are available to employees who meet the eligibility requirements. The Plans permit
eligible employees to make contributions up to the maximum limits allowable under the applicable Internal
Revenue Codes. Under the Plans, we match, in cash, all or a portion of employees’ contributions under a
predetermined formula. Our contributions vest immediately. Our matching contributions to the Plans were $42
million, $40 million, and $37 million in fiscal 2015, 2014, and 2013, respectively.