The Gap 2013 Annual Report Download - page 50

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In April 2011, we obtained 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-. In May 2013,
Standard & Poor’s Rating Service (“Standard & Poor’s”) raised its rating of us to BBB- from BB+. As of
February 1, 2014, there were no updates in these credit ratings. Any future change in the Moody’s or Standard &
Poor’s ratings would change 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 2014, the increase in our
interest expense for fiscal 2014 would be immaterial.
We maintain two separate agreements in China (the "China Facilities") to make unsecured revolving credit
facilities available for our China operations. The 250 million Chinese yuan China Facilities ($41 million as of
February 1, 2014) are uncommitted and are available for borrowings, overdraft borrowings, and the issuance of
bank guarantees with no expiration date. As of February 1, 2014, there were no borrowings under the China
Facilities. There were 42 million Chinese yuan ($7 million as of February 1, 2014) in bank guarantees primarily
related to store leases under the China Facilities as of February 1, 2014. The China Facility agreements do not
contain any financial covenants.
We have a bilateral unsecured standby letter of credit agreement that is uncommitted and does not have an
expiration date. As of February 1, 2014, we had $50 million in standby letters of credit issued under the
agreement.
We also have a $50 million, two-year, unsecured committed letter of credit agreement with an expiration date of
September 2014. As of February 1, 2014, we had no trade letters of credit issued under this letter of credit
agreement.
The Facility and committed 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 February 1, 2014,
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 from $0.50 per share in fiscal 2012 to $0.60 per share in fiscal 2013, and paid
$0.30 per share during the first half of fiscal 2013. Beginning in the third quarter of fiscal 2013, we increased our
annual dividend from $0.60 per share to $0.80 per share, resulting in $0.70 per share for fiscal 2013. We intend to
increase our annual dividend to $0.88 per share for fiscal 2014.
Share Repurchases
In January 2013, the Board of Directors authorized $1 billion for share repurchases, which was fully utilized as of
February 1, 2014. In November 2013, we announced that the Board of Directors approved a new $1 billion share
repurchase authorization, of which $966 million was remaining as of February 1, 2014.
During fiscal 2013, we repurchased approximately 26 million shares for $1.0 billion, including commissions, at an
average price per share of $38.42.