The Gap 2011 Annual Report Download - page 41

Net cash used for financing activities during fiscal 2010 increased $1.4 billion compared with fiscal 2009, primarily
due to the following:
• $1.4 billion more repurchases of common stock in fiscal 2010 compared with fiscal 2009.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. We believe free cash flow is an important metric because it
represents a measure of how much cash a company has available for discretionary and non-discretionary items
after the deduction of capital expenditures, as we require regular capital expenditures to build and maintain stores
and purchase new equipment to improve our business. We use this metric internally, as we believe our sustained
ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial
measure is not intended to supersede or replace our GAAP result.
The following table reconciles free cash flow, a non-GAAP financial measure, from a GAAP financial measure.
Fiscal Year
($ in millions) 2011 2010 2009
Net cash provided by operating activities .......................................... $1,363 $1,744 $1,928
Less: Purchases of property and equipment ........................................ (548) (557) (334)
Freecashflow .................................................................. $ 815 $1,187 $1,594
Long-Term Debt
In April 2011, we issued $1.25 billion aggregate principal amount of 5.95 percent notes (the “Notes”) due April 2021
and received proceeds of $1.24 billion in cash, net of underwriting and other fees. Interest is payable semi-annually
on April 12 and October 12 of each year and commenced on October 12, 2011. We have an option to call the Notes in
whole or in part at any time, subject to a make whole premium. The Notes agreement is unsecured and does not
contain any financial covenants.
In April 2011, we also entered into a $400 million, five-year, unsecured term loan due April 2016, which was funded
in May 2011. Repayments of $40 million are payable on April 7 of each year, commencing on April 7, 2012, with a
final repayment of $240 million due on April 7, 2016. In addition, interest is payable at least quarterly based on an
interest rate equal to the London Interbank Offered Rate (“LIBOR”) plus a margin based on our long-term senior
unsecured credit ratings. The term loan agreement contains 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 term
loan agreement, which would require the immediate repayment of outstanding amounts.
Credit Facilities
In April 2011, we replaced our existing $500 million, five-year, unsecured revolving credit facility, which was
scheduled to expire in August 2012, with a new $500 million, five-year, unsecured revolving credit facility (the
“Facility”), which is scheduled to expire in April 2016. The Facility is available for general corporate purposes
including working capital, trade letters of credit, and standby letters of credit. The Facility fees 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 LIBOR) 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 28, 2012, there were no borrowings under
the Facility. The net availability of the Facility, reflecting $43 million of outstanding standby letters of credit, was
$457 million as of January 28, 2012.
On April 7, 2011, we obtained new long-term senior unsecured credit ratings from Moody’s Investors Service
(“Moody’s”) and Fitch Ratings (“Fitch”). Moody’s assigned a rating of Baa3, and Fitch assigned a rating of BBB-.
Standard & Poor’s Rating Service (“Standard & Poor’s”) continues to rate us BB+. As of January 28, 2012, there were
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