Banana Republic 2010 Annual Report Download - page 31

Operating Expenses
($ in millions)
Fiscal Year
2010 2009 2008
Operating expenses ............................................................. $3,921 $3,909 $3,899
Operating expenses as a percentage of net sales ................................... 26.7% 27.5% 26.8%
Operating margin ............................................................... 13.4% 12.8% 10.7%
Operating expenses increased $12 million, but decreased 0.8 percentage points as a percentage of net sales, in
fiscal 2010 compared with fiscal 2009. The increase in operating expenses was mainly due to higher store payroll,
store benefits, and other store-related expenses and higher expenses due to our New York and San Francisco
headquarter office moves, partially offset by a decrease in bonus expense.
Operating expenses increased $10 million, or 0.7 percentage points as a percentage of net sales, in fiscal 2009
compared with fiscal 2008. The increase was mainly due to increased marketing expenses primarily for Gap and
Old Navy, offset by decreased store payroll and benefits and other store-related expenses.
Interest Expense
($ in millions)
Fiscal Year
2010 2009 2008
Interestexpense(reversal) ....................................................... $(8) $6 $1
Interest expense for fiscal 2010 includes an interest expense reversal of $15 million from the reduction of interest
expense accruals resulting primarily from the filing of a U.S. federal income tax accounting method change
application and the resolution of the IRS’s review of the Company’s federal income tax returns and refund claims
for fiscal 2001 through 2006.
Interest expense for fiscal 2008 includes an interest expense reversal of $9 million from the reduction of interest
expense accruals resulting primarily from foreign tax audit events occurring in the period.
The decrease in interest expense, net of interest expense reversal, for fiscal 2009 compared with fiscal 2008 was
primarily due to the maturities of our $138 million, 8.80 percent notes repaid in December 2008 and $50 million,
6.25 percent notes repaid in March 2009.
Interest Income
($ in millions)
Fiscal Year
2010 2009 2008
Interestincome................................................................. $(6) $(7) $(37)
Interest income is earned on our cash and cash equivalents and investments. The decrease in interest income for
fiscal 2010 compared with fiscal 2009 was primarily due to lower cash balances during fiscal 2010.
Interest income decreased for fiscal 2009 compared with fiscal 2008 primarily due to lower interest rates.
Income Taxes
($ in millions)
Fiscal Year
2010 2009 2008
Incometaxes ................................................................... $ 778 $ 714 $ 617
Effective tax rate ................................................................ 39.3% 39.3% 39.0%
Although the effective tax rate for fiscal 2010 remained unchanged from fiscal 2009, there were changes in
individual components of the effective tax rate. The tax impact of foreign operations increased primarily due to the
recording of valuation allowances related to losses incurred by our China subsidiaries and incremental tax expense
24 Gap Inc. Form 10-K