Banana Republic 2005 Annual Report Download - page 19

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G A P I N C . F I N A N C I A L S 2 0 0 5
gap inc. 2005 annual report 17
Our Consolidated Balance Sheet remains strong as we ended the year with $3.0 billion in cash and short–term investments. We called our $1.4 billion
convertible notes on March 11, 2005, leaving only $513 million in debt remaining on our balance sheet as of January 28, 2006. In 2005, we regained
our Investment Grade rating from both Standard & Poor’s and Moody’s.
During 2005, we returned excess cash to shareholders by repurchasing 99 million shares for $2.0 billion and paying dividends of $0.18 per share to
our shareholders. Cash distribution to shareholders will continue to play an important role in delivering shareholder returns; however, our first prior-
ity for excess cash is investing in our business in a way that meets or exceeds our return criteria. We are committed to maintaining sufficient cash
on the balance sheet to support the needs of our business and withstand unanticipated business volatility. Therefore, we currently plan to keep about
$2 billion of cash available. Our view on the appropriate level of available cash will change over time to reflect the changing needs of our business.
We intend to continue to deliver shareholder value through our plans to increase dividends and share repurchases in fiscal 2006. In line with this goal,
we announced our plan to increase our cash dividend to $0.32 per share for fiscal 2006. Additionally, on February 23, 2006, we announced that our
board of directors has authorized an additional $500 million for our share repurchase program. Our actions reflect our confidence in our ability to
continue generating strong cash flow.
Our cash balances combined with our cash flow are sufficient to support our shareholder distributions and strategic growth initiatives. Our real estate
strategy in fiscal 2006 includes plans to open about 175 new stores, weighted more toward Old Navy. We also plan to close about 135 stores in
fiscal 2006, mainly from Gap brand in North America, as part of our strategy to optimize our real estate fleet. Most store closures will occur upon
lease expiration. Our strategic initiatives include new international franchise and distribution agreements to expand Gap and Banana Republic into
markets in which we do not operate. These growth strategies and initiatives will negatively impact operating expenses in fiscal 2006, but will position
us to take advantage of future opportunities.
We expect operating margin to be about 10.0 percent to 10.5 percent and we also expect to generate at least $900 million in free cash flow. For a
reconciliation of free cash flow, a non-GAAP measure, to a GAAP measure, see the Liquidity section in this Management’s Discussion and Analysis.
See the Forward-Looking Statements section below.
Looking forward, we remain committed to delivering shareholder value through cash distributions and operating performance. Our priorities for fiscal
2006 are clear. We are focused on developing improved product offerings supported by effective marketing and compelling store experiences. We
will continue to pursue growth strategies including real estate expansion and brand extensions, expanding our brands internationally, building our
world-class online business and creating new brands.