Banana Republic 2005 Annual Report Download - page 56

G A P I N C . F I N A N C I A L S 2 0 0 5
54 gap inc. 2005 annual report
investment of one of our subsidiaries. The net amount of the gain resulting from the fair value change of the hedging instrument included in accumulated
other comprehensive earnings during fiscal 2005 and fiscal 2004 was $9 million and $5 million, respectively.
In addition, we use cross-currency interest rate swaps to swap the interest and principal payable of $50 million debt securities of our Japanese subsidiary,
Gap (Japan) KK, from a fixed interest rate of 6.25 percent, payable in U.S. dollars, to 6.1 billion Japanese yen with a fixed interest rate of 2.43 percent.
At January 28, 2006 and January 29, 2005, the fair market value loss of the swaps was $2 million and $9 million, respectively, and is included in accrued
expenses and other liabilities on the Consolidated Balance Sheets. We have designated such swaps as cash flow hedges to hedge the total variability in
functional currency – cash flows of the interest and principal.
NOTE G: SHAREHOLDERS’ EQUITY AND STOCK COMPENSATION PLANS
Common and Preferred Stock
The Board of Directors is authorized to issue 60,000,000 shares of Class B common stock, which is convertible into shares of common stock on a share-
for-share basis. Transfer of the shares is restricted. In addition, the holders of the Class B common stock have six votes per share on most matters and
are entitled to a lower cash dividend. No Class B shares have been issued.
The Board of Directors is authorized to issue 30,000,000 shares of one or more series of preferred stock, par value of $0.05 per share, and to establish at the time
of issuance the issue price, dividend rate, redemption price, liquidation value, conversion features and such other terms and conditions of each series (including
voting rights) as the Board of Directors deems appropriate, without further action on the part of the shareholders. No preferred shares have been issued.
Stock Repurchase Program
During fiscal 2005, we announced share repurchase authorizations totaling $2.0 billion, which we completed by the end of the fiscal year. We repur-
chased 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. On February 23, 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.
Dividends
During fiscal 2005, we increased our annual cash dividends, which had been $0.09 per share to $0.18 per share. The increase in annual dividends re-
flects the declaration and payment schedule 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 Compensation Plans
The 1996 Stock Option and Award Plan (the “1996 Plan”) was established on March 26, 1996, and amended and restated on January 28, 2003. Subject to the
approval of shareholders on May 9, 2006, the 1996 Plan was most recently amended and restated on January 24, 2006 and renamed the 2006 Long-Term Incen-
tive Plan (the “2006 Plan”). The Board authorized 123,341,342 shares for issuance under the 1996 Plan, which includes shares available under the Management
Incentive Restricted Stock Plan and an earlier stock option plan established in 1981, both of which were superseded by the 1996 Plan. Following May 9, 2006,
the number of shares available for grant under the 2006 Plan will increase by the sum of (a) the number of shares that remain available for grant under the 2002
Plan as of January 24, 2006, the date of board approval of the 2006 Plan, and (b) any shares that otherwise would have been returned to the 2002 Plan after
January 24, 2006, on account of the expiration, cancellation, or forfeiture of awards granted thereunder. The 2006 Plan empowers the Compensation and Man-
agement Development Committee of the Board of Directors (the “Committee”) to award compensation primarily in the form of nonqualified stock options, re-
stricted stock, or performance units to key employees. The 2002 Stock Option Plan (the “2002 Plan”), formerly known as Stock Up on Success, was established
on January 1, 1999. The Board originally authorized 52,500,000 shares for issuance under the 2002 Plan, which includes shares available under an earlier stock
option plan established in 1999 that was merged with the 2002 Plan. Subject to the approval of shareholders on May 9, 2006, the 2002 Plan will be discontinued