The Gap 2013 Annual Report Download - page 89

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65
Of the $72 million, $109 million, and $102 million of total unrecognized tax benefits as of February 1, 2014,
February 2, 2013, and January 28, 2012, respectively, approximately $27 million, $29 million, and $25 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. The decrease in our
unrecognized tax benefits during the year was primarily attributable to the favorable resolution of foreign tax
matters.
During fiscal 2013, an interest expense reversal of $18 million was recognized in the Consolidated Statement of
Income relating to the favorable resolution of foreign tax matters. This was partially offset by an additional interest
expense of $4 million relating to tax liabilities. 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. As of
February 1, 2014 and February 2, 2013, the Company had total accrued interest related to the unrecognized tax
benefits of $17 million and $33 million, respectively. There were no accrued penalties related to the unrecognized
tax benefits as of February 1, 2014 or February 2, 2013.
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, India, and the United Kingdom. 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. As of February 1, 2014, it is reasonably possible that we will recognize a decrease in
gross unrecognized tax benefits within the next 12 month of up to $18 million, primarily due to the possible
completion of several advance pricing agreements and 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 14. 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 $37
million, $37 million, and $36 million in fiscal 2013, 2012, and 2011, respectively.
We maintain the Gap Inc. DCP, which allows eligible employees and non-employee directors to defer
compensation up to a maximum amount. Plan investments are recorded at market value and are designated for
the DCP. The fair value of the Company’s DCP assets is determined based on quoted market prices. As of
February 1, 2014 and February 2, 2013, the assets related to the DCP were $37 million and $27 million,
respectively, and were recorded in other long-term assets in the Consolidated Balance Sheets. As of February 1,
2014 and February 2, 2013, the corresponding liabilities related to the DCP were $37 million and $27 million,
respectively, and were recorded in lease incentives and other long-term liabilities in the Consolidated Balance
Sheets. We match all or a portion of employees’ contributions under a predetermined formula. Plan investments
are elected by the participants, and investment returns are not guaranteed by the Company. Our matching
contributions to the DCP in fiscal 2013, 2012, and 2011 were not material.