The Gap 2013 Annual Report Download - page 46

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22
Operating Expenses and Operating Margin
($ in millions)
Fiscal Year
2013 2012 2011
Operating expenses $ 4,144 $ 4,229 $ 3,836
Operating expenses as a percentage of net sales 25.7% 27.0% 26.4%
Operating margin 13.3% 12.4% 9.9%
Operating expenses decreased $85 million, or 1.3 percentage points, in fiscal 2013 compared with fiscal 2012.
The decrease in operating expenses was primarily due to lower corporate overhead expenses and store payroll,
as well as a decrease in marketing expenses.
Operating expenses increased $393 million, or 0.6 percentage points, in fiscal 2012 compared with fiscal 2011.
The increase in operating expenses was primarily due to higher marketing expenses, driven largely by
investments in Gap brand marketing and customer relationship marketing, store payroll and other store-related
expenses, and higher bonus expense.
In fiscal 2014, we expect operating margin to be about 13 percent, flat to fiscal 2013.
Interest Expense
($ in millions)
Fiscal Year
2013 2012 2011
Interest expense $ 61 $ 87 $ 74
Interest expense for fiscal 2013 includes $75 million of interest on overall borrowings and obligations mainly
related to our $1.25 billion long-term debt, offset by a net reversal of $14 million of interest expense resulting from
the favorable resolution of tax matters in fiscal 2013.
Interest expense for fiscal 2012 and fiscal 2011 primarily consists of interest expense related to our $1.25 billion
long-term debt, which was issued in April 2011, and $400 million term loan, which was funded in May 2011 and
repaid in full in August 2012.
Income Taxes
($ in millions)
Fiscal Year
2013 2012 2011
Income taxes $ 813 $ 726 $ 536
Effective tax rate 38.8% 39.0% 39.2%
The decrease in the effective tax rate for fiscal 2013 compared with fiscal 2012 was primarily due to the favorable
impact of changes in the mix of pre-tax income between our domestic and international operations, partially offset
by higher federal and state tax credits recognized in fiscal 2012.
The decrease in the effective tax rate for fiscal 2012 compared with fiscal 2011 was primarily due to the higher
federal and state tax credits recognized in fiscal 2012, partially offset by an increase in our state taxes as a result
of changes in the mix of state pre-tax income in fiscal 2012.
We currently expect the fiscal 2014 effective tax rate to be about 38.5 percent. The actual rate will ultimately
depend on several variables, including the mix of income between domestic and international operations, the
overall level of income, the potential resolution of outstanding tax contingencies, and changes in tax laws and
rates.