Banana Republic 2005 Annual Report Download - page 26

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G A P I N C . F I N A N C I A L S 2 0 0 5
24 gap inc. 2005 annual report
The following table sets forth our projected minimum fiscal 2006 free cash flow components to accomplish our target to generate minimum free
cash flow of at least $900 million:
In October 2004, Congress enacted, and the President signed into law, the American Jobs Creation Act of 2004. Among its numerous changes in
the tax law this Act included a tax relief provision allowing corporate taxpayers a reduced tax rate on dividends received from controlled foreign
corporations if certain conditions are satisfied. We have reviewed the provisions of the new law and have concluded that we will not benefit from
these changes. Therefore there is no effect on income tax expense (or benefit) for the period as a result of the Act’s repatriation provisions.
FINANCIAL CONDITION
Liquidity
The following sets forth certain measures of our liquidity:
Free Cash Flow
Free cash flow is a non-GAAP measure. We believe free cash flow is an important metric, as it represents a measure of how much cash a company
has available after the deduction of capital expenditures, as we require regular capital expenditures to build and maintain stores and purchase new
equipment to keep the business growing. We use this metric internally, as we believe our sustained ability to increase free cash flow is an important
driver of value creation.
The following table reconciles free cash flow, a non-GAAP financial measure, to a GAAP financial measure.
We delivered a healthy $951 million in free cash flow, which represented 85% of net earnings. Our solid earnings continue to generate strong free
cash flow. Free cash flow as a percent of net earnings was 102% and 184% for fiscal 2004 and 2003, respectively. For the year ended January 28,
2006, our free cash flow decreased $227 million compared to the prior year primarily due to higher capital expenditures, which were associated with
new store openings and store remodels as we invest in our future.
In addition, we renegotiated our letter of credit agreements, which increased our financial flexibility and decreased most of our restricted cash bal-
ance on our consolidated balance sheet. (See Note B to the Consolidated Financial Statements).
($ in millions) January 28, 2006 January 29, 2005 January 31, 2004
Working capital (a) $ 3,297 $ 4,062 $ 4,156
Current ratio (a) 2.70:1 2.81:1 2.63:1
(a) Our working capital and current ratio calculations include restricted cash.
52 Weeks Ended
($ in millions) January 28, 2006 January 29, 2005 January 31, 2004
Net cash provided by operating activities $ 1,551 $ 1,597 $ 2,160
Net cash provided by (used for) investing activities 286 183 (2,318)
Net cash used for financing activities (2,040) (1,796) (636)
Effect of exchange rate fluctuations on cash (7) - 28
Net decrease in cash and equivalents $ (210) $ (16) $ (766)
Net cash provided by operating activities $ 1,551 $ 1,597 $ 2,160
Less: Net purchases of property and equipment (600) (419) (261)
Free cash flow $ 951 $ 1,178 $ 1,899
Projected
Fifty-Three Weeks Ending
($ in millions) February 3, 2007
Projected minimum net cash provided by operating activities $ 1,575
Less: Projected net purchase of property and equipment (675)
Projected minimum fiscal 2006 free cash flow $ 900