The Gap 2008 Annual Report Download - page 37

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The remaining decrease is due to lower payroll and other expenses across the organization.
Interest Expense
Fiscal Year
($ in millions) 2008 2007 2006
InterestExpense ................................................................... $1 $26 $41
The decrease in interest expense for fiscal 2008 compared with fiscal 2007 was primarily due to the maturity of
our $326 million, 6.90 percent notes repaid in September 2007 and the reduction of interest accruals resulting
primarily from foreign tax audits occurring in fiscal 2008.
The decrease of $15 million in interest expense for fiscal 2007, compared with fiscal 2006, was primarily due to the
maturity of our $326 million, 6.90 percent notes repaid in September 2007 and the reduction of interest accruals
resulting from the resolutions of tax audits and outstanding tax contingencies completed in fiscal 2007.
Interest Income
Fiscal Year
($ in millions) 2008 2007 2006
InterestIncome .................................................................... $37 $117 $131
Interest income is earned on our cash, cash equivalents, and short-term investments. The decreases in interest
income for fiscal 2008 compared with fiscal 2007 and fiscal 2007 compared with fiscal 2006 were primarily due to
lower interest rates and lower average balances of cash, cash equivalents, and short-term investments.
Income Taxes
Fiscal Year
($ in millions) 2008 2007 2006
IncomeTaxes ...................................................................... $ 617 $ 539 $ 506
Effective Tax Rate .................................................................. 39.0% 38.3% 38.5%
The increase in the effective tax rate in fiscal 2008 from fiscal 2007 was primarily driven by the impact of changes
in 2007 in state tax laws and a change in the mix of earnings, with a higher relative percentage of fiscal 2008
earnings occurring in jurisdictions that impose the highest relative tax rates.
The decrease in the effective tax rate in fiscal 2007 from fiscal 2006 was primarily driven by the impact of changes
in state tax laws.
We currently expect the fiscal 2009 effective tax rate to be about 39 percent. The actual rate will ultimately
depend on several variables, including the mix of earnings between domestic and international operations, the
overall level of earnings, and the potential resolution of outstanding tax contingencies.
Loss from Discontinued Operation, Net of Income Tax Benefit
Loss from discontinued operation relates to the Forth & Towne brand, whose stores were closed by the end of
June 2007. Loss from the discontinued operation of Forth & Towne, net of income tax benefit, was $34 million
and $31 million for fiscal 2007 and fiscal 2006, respectively.
Liquidity and Capital Resources
Our largest source of cash flows is cash collections from the sale of our merchandise. Our primary uses of cash
include merchandise inventory purchases, occupancy costs, personnel related expenses, purchases of property and
equipment, and payment of taxes. In addition, we continue to return excess cash to our shareholders in the form
of dividends and share repurchases.
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