The Gap 2011 Annual Report Download - page 68

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.
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, which are recorded in current maturities of debt in the
Consolidated Balance Sheet. 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 29, 2011, there were borrowings of $3 million under
the China Facilities, which are recorded in current maturities of debt in the Consolidated Balance Sheet.
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.
Vendor payables are recorded in the Consolidated Balance Sheets at the time of merchandise title transfer,
although the letters of credit are generally issued prior to this. As of January 28, 2012, we 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.
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.
Note 6. Fair Value Measurements
Effective January 30, 2011, we adopted enhanced disclosure requirements for fair value measurements. There were
no purchases, sales, issuances, or settlements related to recurring level 3 measurements during fiscal 2011. There
were no transfers into or out of level 1 and level 2 during fiscal 2011 or 2010.
54 Gap Inc. Form 10-K