The Gap 2012 Annual Report Download - page 77

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59
Deferred tax assets (liabilities) consist of the following:
($ in millions) February 2,
2013 January 28,
2012
Deferred tax assets:
Deferred rent $ 136 $ 137
Accrued payroll and related benefits 124 66
Nondeductible accruals 79 74
Inventory capitalization and other adjustments 66 65
Depreciation — 18
State and foreign net operating losses ("NOLs") 37 36
Fair value of derivative financial instruments included in accumulated OCI — (5)
Other 100 83
Total deferred tax assets 542 474
Valuation allowance (56) (39)
Total deferred tax liabilities (59) (15)
Net deferred tax assets $ 427 $ 420
Current portion (included in other current assets) $ 220 $ 205
Non-current portion (included in other long-term assets) 207 215
Total $ 427 $ 420
As of February 2, 2013, we had approximately $50 million state and $137 million foreign NOL carryovers in multiple taxing
jurisdictions that could be utilized to reduce the tax liabilities of future years. The tax-effected NOL was approximately $3
million for state and $34 million for foreign as of February 2, 2013. We provided a valuation allowance of approximately $1
million and $33 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 $106 million of the foreign losses expire between fiscal 2013
and fiscal 2021, and $31 million of the foreign losses do not expire.
The activity related to our unrecognized tax benefits is as follows:
Fiscal Year
($ in millions) 2012 2011 2010
Balance at beginning of fiscal year $ 102 $ 67 $ 132
Increases related to current year tax positions 10 10 10
Prior year tax positions:
Increases 10 31 15
Decreases (12) (2) (74)
Cash settlements (4) (2) (4)
Expiration of statute of limitations 3 (1) (14)
Foreign currency translation — (1) 2
Balance at end of fiscal year $ 109 $ 102 $ 67
Of the $109 million, $102 million, and $67 million of total unrecognized tax benefits as of February 2, 2013, January 28,
2012, and January 29, 2011, respectively, approximately $29 million, $25 million, and $5 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 fiscal 2012 and 2011, interest expense of $5 million and $6
million, respectively, was recognized in the Consolidated Statements of Income relating to tax liabilities. During fiscal
2010, an interest expense reversal of $15 million was recognized in the Consolidated Statement of Income. As of
February 2, 2013 and January 28, 2012, the Company had total accrued interest related to the unrecognized tax benefits
of $33 million and $29 million, respectively. There were no accrued penalties related to the unrecognized tax benefits as of
February 2, 2013 or January 28, 2012.
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