Banana Republic 2011 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2011 Banana Republic annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

Interest income is earned on our cash and cash equivalents and investments. The decrease in interest income for
fiscal 2011 compared with fiscal 2010 was primarily due to a lower monthly average cash and cash equivalents and
investments balance during fiscal 2011.
The decrease in interest income for fiscal 2010 compared with fiscal 2009 was primarily due to a lower monthly
average cash and cash equivalents and investments balance during fiscal 2010.
Income Taxes
($ in millions)
Fiscal Year
2011 2010 2009
Incometaxes ...................................................................... $ 536 $ 778 $ 714
Effective tax rate ................................................................... 39.2% 39.3% 39.3%
While the effective tax rate for fiscal 2011 decreased slightly compared with fiscal 2010, there were changes in
individual components of the effective tax rate. State and other income taxes decreased primarily due to changes
in state tax laws and increases in state and federal tax credits. The decreases in these components were offset by
the tax impact of foreign operations, which increased primarily due to operating losses in China and Hong Kong for
fiscal 2011 (for which no tax benefit has been provided), and their greater impact due to lower Gap Inc. pre-tax
income for fiscal 2011, as well as the unfavorable impact of a change in the mix of income between domestic and
foreign operations.
Although the effective tax rate for fiscal 2010 remained unchanged from fiscal 2009, there were changes in
individual components of the effective tax rate. The tax impact of foreign operations increased primarily due to the
recording of valuation allowances related to losses incurred by our China subsidiaries and incremental tax expense
related to the repatriation of earnings from our Canadian subsidiaries. The increase was primarily offset by the
release of unrecognized tax benefits for closed years.
We currently expect the fiscal 2012 effective tax rate to be about 39.5 percent. The actual rate will ultimately
depend on several variables, including the mix of income between domestic and international operations, the
overall level of income, the potential resolution of outstanding tax contingencies, and changes in tax laws and
rates.
Liquidity and Capital Resources
Our largest source of operating cash flows is cash collections from the sale of our merchandise. Our primary uses
of cash include merchandise inventory purchases, occupancy costs, personnel-related expenses, purchases of
property and equipment, payment of taxes, and share repurchases. In addition to share repurchases, we also
continue to return cash to our shareholders in the form of dividends.
In the first quarter of fiscal 2011, we made the strategic decision to issue debt in the aggregate amount of $1.65
billion. Given favorable market conditions and our history of generating consistent and strong operating cash flow,
we took this step to provide a more optimal capital structure. The Company has generated annual cash flow from
operations in excess of $1 billion per year for the past decade and ended fiscal 2011 with $1.9 billion of cash and cash
equivalents. We remain committed to maintaining a strong financial profile with ample liquidity.
We consider the following to be measures of our liquidity and capital resources:
($ in millions) January 28,
2012 January 29,
2011 January 30,
2010
Cashandcashequivalentsandshort-terminvestments ...................... $ 1,885 $ 1,661 $ 2,573
Debt .................................................................... $ 1,665 $ 3 $ —
Workingcapital .......................................................... $ 2,181 $ 1,831 $ 2,533
Current ratio ............................................................. 2.02:1 1.87:1 2.19:1
As of January 28, 2012, the majority of our cash and cash equivalents was held in the U.S. and is generally accessible
without any limitations.
25