The Gap 2008 Annual Report Download - page 38

We consider the following to be measures of our liquidity and capital resources:
($ in millions) January 31, 2009 February 2, 2008 February 3, 2007
Cash,cashequivalents,short-terminvestments,andrestrictedcash ............ $ 1,756 $ 1,939 $ 2,644
Debt ..................................................................... $ 50 $ 188 $ 513
Workingcapital(a) ........................................................ $ 1,847 $ 1,653 $ 2,757
Current ratio (a) ........................................................... 1.86:1 1.68:1 2.21:1
(a) Our working capital and current ratio calculations include restricted cash.
Our working capital and current ratio as of January 31, 2009 increased compared with February 2, 2008 primarily
due to decreases in accrued expenses and other current liabilities. See Cash Flows from Operating Activities below.
As of January 31, 2009, cash, cash equivalents, and restricted cash were $1.8 billion and long-term debt of
$50 million, classified as current, was repaid in March 2009. Our cash flow generation remains healthy and our
cash position remains strong. We believe that current cash balances and cash flows from our operations will be
adequate to support our business operations, capital expenditures, and the payment of dividends. We are also
able to supplement the near-term liquidity, if necessary, with the existing $500 million revolving credit facility.
Cash Flows from Operating Activities
In fiscal 2008, net cash provided by operating activities decreased $669 million compared with fiscal 2007
primarily due to the following:
• an increased balance in accounts payable in fiscal 2007 due to the change in vendor payment terms;
• a higher payout during the first quarter of fiscal 2008 related to the fiscal 2007 bonus compared with the prior
year comparable period;
• a decrease in the gift card, gift certificate, and voucher liability due to more redemptions than issuances in fiscal
2008, compared with more issuances than redemptions in fiscal 2007;
• decreases in accrued liabilities and other current liabilities related to information technology projects and
advertising expenses; offset by
• higher net earnings in fiscal 2008 compared with fiscal 2007.
For fiscal 2007, net cash provided by operating activities increased $831 million compared with fiscal 2006,
primarily due to the following:
• higher net earnings in fiscal 2007 compared with fiscal 2006;
• a decrease in inventory purchases as a result of our continued focus on inventory management;
• an increase in accounts payable due to a change in vendor payment terms; and
• lower income taxes paid in fiscal 2007 compared with fiscal 2006.
Inventory management remains an area of focus. We continue to execute against our strategy of managing inventory
levels in a manner that supports healthy merchandise margins. As a result, inventory per square foot at January 31, 2009
was $34.7 compared with inventory per square foot of $37.0 at February 2, 2008 and $43.7 at February 3, 2007.
We fund inventory expenditures during normal and peak periods through cash flows from operating activities and
available cash. Our business follows a seasonal pattern, with sales peaking over a total of about eight weeks during
the holiday period. During fiscal 2008, 2007, and 2006, the holiday period accounted for 21 percent, 22 percent,
and 21 percent, respectively, of our annual net sales. The seasonality of our operations may lead to significant
fluctuations in certain asset and liability accounts between fiscal year-end and subsequent interim periods.
26 Gap Inc. Form 10-K