Banana Republic 2011 Annual Report Download - page 42

no changes in these credit ratings. Any future reduction in the Moody’s or Standard & Poor’s ratings would
increase our interest expense related to our $400 million term loan and any future interest expense if we were to
draw on the Facility. If a one notch reduction in our Moody’s or Standard & Poor’s ratings were to occur during
fiscal 2012, the increase in our interest expense for fiscal 2012 would be immaterial.
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 uncommitted and are available
for borrowings, overdraft borrowings, and the issuance of bank guarantees. The 196 million Chinese yuan
(approximately $31 million as of January 28, 2012) China Facilities were set to expire in August 2011 but were
renewed under substantially similar terms through September 2012. As of January 28, 2012, there were borrowings
of $19 million (118 million Chinese yuan) at an interest rate of 6.53 percent under the China Facilities. The net
availability of the China Facilities, reflecting these borrowings and $1 million in bank guarantees related to store
leases, was approximately $11 million as of January 28, 2012. The China Facility agreements do not contain any
financial covenants.
As of January 28, 2012, we also had a $100 million, two-year, unsecured committed letter of credit agreement with
an expiration date of September 2012. As of January 28, 2012, we had no trade letters of credit issued under this
letter of credit agreement. 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.
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 minimum annual
fixed charge coverage ratio of 2.00 and a maximum annual leverage ratio of 2.25. As of January 28, 2012, we were in
compliance with all such covenants. 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.
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 $0.40 per share for fiscal 2010, to $0.45 per share for fiscal 2011.
We intend to increase our annual dividend to $0.50 per share for fiscal 2012.
Share Repurchases
Between February 2010 and November 2011, we announced that the Board of Directors authorized a total of $4.25
billion for share repurchases, of which $443 million under the November 2011 authorization was remaining as of
January 28, 2012. In February 2012, we announced that the Board of Directors approved a new $1 billion share
repurchase authorization that replaced the November 2011 authorization and cancelled the $441 million remaining
under the November 2011 authorization as of February 23, 2012.
During fiscal 2011, we repurchased approximately 111 million shares for $2.1 billion, including commissions, at an
average price per share of $18.88.
28 Gap Inc. Form 10-K