The Gap 2011 Annual Report Download - page 67

All of the goodwill and intangible assets have been allocated to the Direct reportable segment. During fiscal 2011,
2010, and 2009, there were no changes in the carrying amount of goodwill or the trade name. Intangible assets
subject to amortization, consisting primarily of customer relationships, are amortized over a weighted-average
amortization period of four years. Amortization expense for intangible assets subject to amortization was $2
million, $4 million, and $6 million for fiscal 2011, 2010, and 2009, respectively, and is recorded in operating expenses
in the Consolidated Statements of Income.
During the fourth quarter of fiscal 2011, we completed our annual impairment testing of goodwill and the trade
name and did not recognize any impairment charges.
Note 4. Long-Term Debt
In April 2011, we issued $1.25 billion aggregate principal amount of 5.95 percent Notes due April 2021 and received
proceeds of $1.24 billion in cash, net of underwriting and other fees of $11 million. The net proceeds were available
for general corporate purposes, including repurchases of our common stock. 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. The amount recorded in long-term debt in the Consolidated Balance Sheet for the
Notes is equal to the aggregate principal amount of the Notes, net of the unamortized discount. The estimated fair
value of the Notes was $1.19 billion as of January 28, 2012 and was based on the quoted market price of the Notes
as of the last business day of fiscal 2011.
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 LIBOR plus a margin based on our long-term senior unsecured credit ratings. The average
interest rate during fiscal 2011 was 2 percent. 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.
The estimated fair value of the term loan was $400 million as of January 28, 2012. The carrying amount of the term
loan approximates its fair value, as the interest rate varies depending on quoted market rates and our credit rating.
Long-term debt as of January 28, 2012 consists of the following:
($ in millions)
Notes ........................................................................................... $1,246
Termloan ....................................................................................... 400
Totallong-termdebt ............................................................................. 1,646
Less: Current portion ............................................................................. (40)
Total long-term debt, less current portion ........................................................... $1,606
In conjunction with our financings, we obtained new long-term senior unsecured credit ratings from Moody’s and
Fitch. Moody’s assigned a rating of Baa3, and Fitch assigned a rating of BBB-. Standard & Poor’s continued to rate
us BB+. As of January 28, 2012, there were no changes in these credit ratings. Any future reduction in the Moody’s
or Standard & Poor’s ratings would increase the interest expense related to our $400 million term loan and any
future interest expense if we were to draw on the Facility.
Note 5. 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
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