The Gap 2012 Annual Report Download - page 66

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Note 5. Long-Term Debt
Long-term debt consists of the following:
($ in millions) February 2,
2013 January 28, 2012
Notes $ 1,246 $ 1,246
Term loan — 400
Total long-term debt 1,246 1,646
Less: Current portion — (40)
Total long-term debt, less current portion $ 1,246 $ 1,606
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 Sheets for the Notes is equal to the
aggregate principal amount of the Notes, net of the unamortized discount. As of February 2, 2013 and January 28, 2012,
the estimated fair value of the Notes was $1.41 billion and $1.19 billion, respectively, and was based on the quoted
market price of the Notes (level 1 inputs) as of the last business day of the respective fiscal year.
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 were 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 was 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 2012 and 2011 was 2 percent. In April 2012, we repaid $40 million on the term loan and in August 2012, we
repaid the remaining $360 million reducing the outstanding balance on the term loan to zero. The estimated fair value of
the term loan was $400 million as of January 28, 2012. The carrying amount of the term loan as of January 28, 2012
approximated its fair value, as the interest rate varied depending on quoted market rates (level 1 inputs) and our credit
rating.
Note 6. Credit Facilities
Our $500 million, five-year, unsecured revolving credit Facility, which is scheduled to expire in April 2016, 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 February 2, 2013, there were no borrowings under the Facility. The
net availability of the Facility, reflecting $30 million of outstanding standby letters of credit, was $470 million as of
February 2, 2013.
In conjunction with our financings in April 2011, we obtained 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 February 2, 2013, there were no changes in these credit ratings. Any future reduction in the Moody’s or
Standard & Poor’s ratings would increase any future interest expense if we were to draw on the Facility.
The China Facilities are two separate agreements to make unsecured revolving credit facilities available for our
operations in China; they are uncommitted and are available for borrowings, overdraft borrowings, and the issuance of
bank guarantees. The 196 million Chinese yuan China Facilities expired in October 2012 and they were subsequently
renewed with an increased availability of 250 million Chinese yuan ($40 million as of February 2, 2013) and no expiration
date. As of February 2, 2013, there were no borrowings under the China Facilities. There were 24 million Chinese yuan
($4 million as of February 2, 2013) in bank guarantees related to store leases under the China Facilities as of February 2,
2013. The China Facility agreements do not contain any financial covenants. As of January 28, 2012, there were
borrowings of $19 million under the China Facilities, which were recorded in current maturities of debt in the Consolidated
Balance Sheet.
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