The Gap 2009 Annual Report Download - page 78

The foreign component of pre-tax income before elimination of intercompany transactions in fiscal 2009, 2008, and
2007 was $305 million, $375 million, and $333 million, respectively. Except as noted above and 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
January 30, 2010 and January 31, 2009 was approximately $1.1 billion for both years. If the undistributed earnings were
repatriated, the unrecorded deferred tax liability as of January 30, 2010 and January 31, 2009 would have been
approximately $148 million and $147 million, respectively.
The difference between the effective income tax rate and the U.S. federal income tax rate is as follows:
Fiscal Year
2009 2008 2007
Federal tax rate ........................................................................ 35.0% 35.0% 35.0%
State income taxes, less federal benefit ................................................... 3.7 3.5 3.1
Taximpactofforeignoperations ........................................................ 1.4 1.7 2.3
Other ................................................................................. (0.8) (1.2) (2.1)
Effective tax rate ....................................................................... 39.3% 39.0% 38.3%
Deferred tax assets (liabilities) consist of the following:
($ in millions) January 30, 2010 January 31, 2009
Deferred tax assets:
Deferredrent ................................................................... $113 $115
Accruedpayrollandrelatedbenefits............................................... 98 82
Nondeductible accruals .......................................................... 72 68
Inventorycapitalizationandotheradjustments .................................... 64 53
Depreciation .................................................................... 74 43
State and foreign net operating losses (“NOLs”) ..................................... 32 28
Fair value of derivative financial instruments included in accumulated OCI ............ 8 (9)
Other .......................................................................... 93 99
Totaldeferredtaxassets.............................................................. 554 479
NOL valuation allowance ............................................................. (23) (17)
Total deferred tax liabilities ........................................................... (18) (23)
Netdeferredtaxassets ............................................................... $513 $439
Current portion (included in other current assets) ....................................... $193 $166
Non-current portion (included in other long-term assets) ................................ 320 273
Total ............................................................................... $513 $439
At January 30, 2010 we had approximately $65 million state and $103 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 $4 million for state and $27 million for foreign as of January 30, 2010. We
provided a valuation allowance of approximately $1 million and $22 million against the deferred tax asset related to
the state and foreign NOLs, respectively. The state losses expire between fiscal 2022 and fiscal 2023, approximately
$74 million of the foreign losses expire between fiscal 2011 and fiscal 2018, and $29 million of the foreign losses do
not expire.
62 Gap Inc. Form 10-K