Banana Republic 2005 Annual Report Download - page 29

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During fiscal 2005, we increased our annual dividends, which had been $0.09 per share to $0.18 per share. The increase in annual dividends reflects
the declaration and payment of our fiscal 2005 dividends at the increased $0.045 per share per quarter. This annual dividend of $0.18 per share does
not include the fourth quarter 2004 dividend of $0.0222 per share declared in the fourth quarter of fiscal 2004 but paid in the first quarter of fiscal
2005. We have revised our dividend schedule in 2005 such that all dividends are declared and paid in the same fiscal quarter.
In February 2006, we announced our intent to increase the annual dividend per share from $0.18 to $0.32 for fiscal 2006. The dividend is expected
to be paid quarterly in April, July, October and January.
Stock Repurchase Program
Since the beginning of fiscal 2004, the Company has completed $3 billion of share repurchases of about 146 million shares. During fiscal 2005, we
announced share repurchase authorizations totaling $2.0 billion, which we completed by the end of the fiscal year. We repurchased approximately
99 million shares of our common stock at a total cost of approximately $2.0 billion, at an average price per share of $20.29 including commissions.
In February 2006, we announced the authorization of a new $500 million share repurchase program. Under this program, shares may be repurchased
over 24 months.
During fiscal 2004, we repurchased approximately 48 million shares for approximately $1.0 billion, including commissions, at an average price per
share of $20.92.
Credit Facility and Debt
The following discussion should be read in conjunction with Note B to the accompanying Consolidated Financial Statements.
On May 6, 2005, we entered into four separate $125 million 3-year letter of credit agreements and four separate $100 million 364-day letter of
credit agreements for a total aggregate availability of $900 million, which collectively replaced our prior letter of credit agreements. Unlike the previ-
ous letter of credit agreements, the current letter of credit agreements are unsecured. Consequently, the $900 million of restricted cash that collat-
eralized the prior letter of credit agreements was fully released in May 2005.
On August 30, 2004, we terminated all commitments under our $750 million three-year secured revolving credit facility scheduled to expire in June
2006 (the “Old Facility”) and replaced the Old Facility with a new $750 million five-year unsecured revolving credit facility scheduled to expire in
August 2009 (the “New Facility”). The New Facility is available for general corporate purposes, including commercial paper backstop, working capital,
trade letters of credit and standby letters of credit. The facility usage fees and fees related to the New Facility fluctuate based on our long-term senior
unsecured credit ratings and our leverage ratio.
The New Facility and letter of credit agreements contain financial and other covenants, including, but not limited to, limitations on liens and subsidiary
debt as well as the maintenance of two financial ratios—a fixed charge coverage ratio and a leverage ratio. A violation of these covenants could result
in a default under the New Facility and new letter of credit agreements, which would permit the participating banks to terminate our ability to access
the New Facility for letters of credit and advances, terminate our ability to request letters of credit under the letter of credit agreements, require the
immediate repayment of any outstanding advances under the New Facility, and require the immediate posting of cash collateral in support of any
outstanding letters of credit under the letter of credit agreements. In addition, such a default could, under certain circumstance, permit the holders
of our outstanding unsecured debt to accelerate payment of such obligations.
Letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay the vendor a given amount of money upon presentation
of specific documents demonstrating that merchandise has shipped. Vendor payables are recorded in the Consolidated Balance Sheets at the time
of merchandise title transfer, although the letters of credit are generally issued prior to this. As of January 28, 2006, we had $306 million in trade
letters of credit issued under our letter of credit agreements totaling $900 million and there were no borrowings under our $750 million revolving
credit facility.
On March 11, 2005, we called for the full redemption of our outstanding $1.4 billion aggregate in principal of our 5.75 percent senior convertible notes
(the “Notes”) due March 15, 2009. The redemption was completed by March 31, 2005. Note holders had the option to receive cash at a redemption
price equal to 102.46 percent of the principal amount of the Notes, plus accrued interest excluding the redemption date, for a total of approximately
$1,027 per $1,000 principal amount of Notes. Alternatively, note holders could elect to convert their Notes into approximately 62.03 shares of Gap Inc.