The Gap 2010 Annual Report Download - page 34

The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.
Fiscal Year
($ in millions) 2010 2009 2008
Net cash provided by operating activities .......................................... $1,744 $1,928 $1,412
Less: Purchases of property and equipment ........................................ (557) (334) (431)
Freecashflow.............................................................. $1,187 $1,594 $ 981
Credit Facilities
Trade letters of credit represent a payment undertaking guaranteed by a bank on our behalf to pay a 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. In September 2010, we amended and extended one
of our $100 million letter of credit agreements and concurrently terminated our second $100 million letter of credit
agreement. As of January 29, 2011, we had a $100 million, two-year, unsecured committed letter of credit
agreement with an expiration date of September 2012. As of January 29, 2011, we had $1 million in trade letters of
credit issued under this letter of credit agreement.
We also have a $500 million, five-year, unsecured revolving credit facility scheduled to expire in August 2012 (the
“Facility”). The Facility is available for general corporate purposes including working capital, trade letters of credit,
and standby letters of credit. The facility usage fees and fees related to the Facility fluctuate based on our long-
term senior unsecured credit ratings and our leverage ratio. If we were to draw on the Facility, interest would be a
base rate (typically the London Interbank Offered Rate) plus a margin based on our long-term senior unsecured
credit ratings and our leverage ratio on the unpaid principal amount. To maintain availability of funds under the
Facility, we pay a facility fee on the full facility amount, regardless of usage. As of January 29, 2011, there were no
borrowings under the Facility. The net availability of the Facility, reflecting $49 million of outstanding standby
letters of credit, was $451 million as of January 29, 2011.
The Facility and letter of credit agreement 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. Violation of these covenants could result in a default under the Facility and
letter of credit agreement, which would permit the participating banks to terminate our ability to access the
Facility for letters of credit and advances, terminate our ability to request letters of credit under the letter of credit
agreement, require the immediate repayment of any outstanding advances under the Facility, and require
the immediate posting of cash collateral in support of any outstanding letters of credit under the letter of
credit agreement.
In September 2010, we entered into two separate agreements to make unsecured revolving credit facilities
available for our operations in China (the “China Facilities”). The China Facilities are available for borrowings,
overdraft borrowings, and issuance of bank guarantees. The 196 million Chinese yuan (approximately $30 million
as of January 29, 2011) China Facilities are scheduled to expire in August 2011. As of January 29, 2011, there were
borrowings of $3 million (18 million Chinese yuan) at an interest rate of 5.08 percent. The net availability of the
China Facilities, reflecting these borrowings, was approximately $27 million (178 million Chinese yuan) as of
January 29, 2011. The China Facility agreements do not contain any covenants.
Dividend Policy
In determining whether and at what level to declare a dividend, we consider a number of factors including
sustainability, operating performance, liquidity, and market conditions.
We increased our annual dividend, which had been $0.34 per share for fiscal 2008 and 2009, to $0.40 per share for
fiscal 2010. We intend to increase our annual dividend to $0.45 per share for fiscal 2011.
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